The government passed the Finance Act for FY2024-25 on Saturday after bringing some changes to the proposed finance bill in Parliament.
This bill was passed with continued provision for whitening undisclosed wealth with 15 per cent tax, and for the highest slab, keeping 25 per cent income tax for individuals instead of the proposed 30 per cent.
Besides, it excludes pension income and deposits under the Universal Pension Scheme (UPS) from taxation, and government institutions and companies from paying environmental surcharge for multiple cars.
It also brings a provision – along with individuals, companies and trusts will pay 15 per cent tax on capital gain worth more than Tk 50 lakh. In the proposed budget, the government only introduced the provision for individuals.
In the proposed budget, the government had introduced a provision - in cases of availing services in any community centre or convention hall, the customer must submit their proof of return submission.
However, the Finance Act mentions that the provision will only be applicable to customers of such services in city corporation areas.
In his concluding budget speech in Parliament, Finance Minister Abul Hassan Mahmood Ali said, “Ensuring macro-economic stability, along with inflation control, has been given the utmost priority in this year’s proposed budget.
“For this purpose, as part of a contractionary monetary policy, bank loan interest rates have been made market-based, and the policy rate has been increased.”
He added, “The crawling peg system has been introduced for USD exchange, in a bid to boost reserves by encouraging export and remittance inflow. Supportive fiscal measures have been taken to implement the contractionary monetary policy.
“For example, the budget deficit has been reduced. As a result of these initiatives, inflation will come down to 6.5 percent in the next fiscal year.”
Deductible interest: Pay it to claim it!
In a bold move, the Finance Act 2024 eliminates Section 46(7) of the Income Tax Act, 2023.
Section 46(7) had previously stipulated that if any interest or profit expense allowed on a payable basis in any income year was not paid within the successive three income years, such interest would be deemed as special business income in the fourth year.
This provision had allowed businesses to claim interest payable as business expenditure. However, with its removal, businesses will no longer benefit from this leniency.
Now, the only relevant provision remaining is Section 52(1), which mandates that only interest actually paid can be claimed as a deductible business expense.
This change means that the interest payable will no longer be recognised for deductions. Instead, businesses must pay the interest to claim it as an allowable deduction.
This amendment is expected to impact financial planning and accounting practices significantly, emphasising the importance of actual interest payments over promised or payable interest.
Opposition’s criticism
Leader of the opposition in Parliament GM Quader said, “Despite the economic headwinds, there is no direction for transition in the budget. Some problems are mentioned, but no solutions are given. In a broader sense, the budget is debt dependent.
“The loan that is being taken from the banking sector will create a big liquidity crisis. Ultimately, banks will not be able to provide loans to producers or entrepreneurs on time, thereby disrupting employment generation.”
To meet the deficit, the government has plans to borrow Tk 1,27,000 crore from foreign, and Tk 1,60,900 crore from domestic sources. Among the domestic sources, the government plans to borrow Tk 1,37,500 crore from the banking sector.
Criticizing indirect taxes, the senior parliamentarian said, “We have to reduce this pressure, because it will put stress on the poor and marginalised. The government should reduce indirect taxes, and focus on collecting direct taxes.”
Discussing undisclosed wealth, GM Quader said, “If such money is whitened, it will not bring much income. I do not know how good it is for the future to allow thieves to steal, and then legalise it.”
