Proposed amendments in income tax and probable complications

In the proposed budget for FY23, the Finance Minister AHM Mustafa Kamal has proposed submission of income tax return compulsory for getting 38 services through replacing existing section 184A of Income Tax Ordinance, 1984. In the budget speech he said that in order to increase the number of taxpayers and amount of tax, submission of proof of income tax return has been made mandatory to get some services. These proofs are to be submitted at the institution from which the service will be obtained. If any organisation does not collect these proofs then it will be liable to pay a penalty of up to Tk 10 lakh.

Head-wise discussion will be a long one but a few of those may be analysed here. As per the proposed amendment if anybody wants to purchase sanchaypatra or open postal savings account exceeding Tk. 5,00,000/- she or he will have to produce evidence of submission of income tax return to the concerned authority. Suppose a man (may or may not be a return filer) has gone to Bangladesh Bank or post office on 3rd July, 2022 to purchase sanchaypatra or to open postal savings account exceeding Tk. 5,00,000/-. naturally, he will have to produce evidence (acknowledgement receipt of return or certificate issued by DCT containing name, TIN and year) of submission of the income tax return. The complication will begin there.

As usual, the proposed amendment will become effective from 1st July, 2022. According to section 2(69) of the Income Tax Ordinance, a year means a financial year and the assessment year begins on July 1 every year. The question arises – which financial year’s evidence will be required on 3rd July, 2022? If he is a regular return filer he may have evidence of the financial year 2020-2021 (the assessment year 2021-2022). Will it be acceptable? If he is not a regular return filer then more complications are waiting for him because he will have to submit a return for the current year or earlier year(s) which is certainly time-consuming. Then he will get the proof from the income tax office. As prescribed by NBR, assessment year (not financial year) is mentioned in acknowledgement receipt of return or certificate issued by DCT. It may create confusion for service-providing authorities. 

Similar procedural and practical complexities will arise in cases of receiving a bank loan, land/flat purchase, receiving a credit card, obtaining and continuing electricity/gas connection, renewal of drug licence, membership of professional or trade body, trade licence, running brickfields, opening letter of credit, acquiring directorship of a company and all other services mentioned in proposed section 184A.  

After passing MBBS a medical student has to obtain registration from the BMDC. Normally, almost all of them have no professional or any other income but for this purpose, he/she will have to submit evidence of income tax return. It may be a matter of problem for them. 

Submission of return has been made mandatory for persons having salary Tk. 16,000/ (yearly 1,92,000/-) or more and persons having income from house or land rent. If yearly income does not exceed the exemption limit (Tk. 3,00,000/- or 3,50,000/-) then what is the benefit of submitting a return? It may increase the number of returns filed but not the amount of tax.

Interest on bank deposits is normally credited twice a year – by the end of June and December. BRAC Bank credits interest monthly. At present tax @ 10 per cent is deducted from interest if TIN certificate is produced. Otherwise, 15 per cent is deducted. As per replaced section 53F, if the account holder, other than a company, produces proof of submission of return, 10 per cent will be deducted. Otherwise, it will be 15 per cent. It is to be clarified which year’s return will be required for this purpose. 

Every year, after the passing of the budget, a circular is issued by NBR clarifying the changes brought in the income tax act for the relevant year. Probable complications will expectedly be resolved through issuing circulars for the financial year 2022-2023 but there is a procedural problem. This circular– containing around a hundred pages usually and sometimes more than 150 pages– is available on the website of NBR but everyone can’t collect it. A printed booklet of that circular becomes available after more than one month of the beginning of the financial year but the changes become effective from 1st July. 

The record shows that this circular was issued (available much later) on 18th July (2021), 31st August (2021), 18th July (2019) and 17th August (2018) but complexities may arise from the very beginning of financial year. In that case, a clarification circular for section 184A may be issued in advance. Such a circular regarding the collection of tax under section 53H/rule 17II from the sale of land was issued on 9th July, 2014. 

As an outcome of the replaced section 184A, in addition to existing return filers, a huge number of persons will have to submit returns mandatorily. Naturally, it will not be possible for them to prepare their returns by themselves. The TIN certificate is easily available from the website of NBR but for preparing a return they will have to collect the necessary papers and seek help from lawyers or others. The number of lawyers or income tax advisers will not increase overnight but people will want to get their work done as quickly as possible. They will have to spend extra money and time for this purpose. In this muddle, a group of middlemen may appear. As a part of good governance income tax department always cooperates with taxpayers but root-level offices (circles) are normally overburdened. Will it be possible for those to bear impending extra load?   

Concerned service-providing offices will verify the authenticity of the proof of submission of return in the manner as framed by NBR. This provision is certainly good but it will prolong the process of getting the desired service. By general or special order NBR may exempt any person from such compulsion but that will take time. However, NBR is aware of everything. Considering the public interest, necessary steps need to be taken to remove the complications as early as possible. 

The writer is a former Commissioner of Taxes. He can be contacted at [email protected]