Reading of the income tax bill 2023

The Income tax bill 2023 is under scrutiny of the parliament. The draft law was hoisted in the web-site and withdrawn after few days. It has been revised by NBR and kept in hiding before placing it in the parliament. Even the bill was not easily available for study. Parliament is in hurry to pass the law within one week as understood from a unconfirmed source.

The draft has some issues to be evaluated by experts. The constitution of Bangladesh has empowered parliament to impose, change or exempt tax but the draft law under Sec 76, NBR empowered to give tax exemption with SRO which is against the constitutional provision that only parliament can impose tax. This empowerment is conflicting with the constitution.

The existing Income tax ordinance 1984 allowed NBR to collect tax through advance income tax (AIT) from various transactions deducted by different government and non government authorities. The draft law widen the scope of such option in the section 83 to section 139 and listed almost all possible sectors for collection of tax a source. Moreover, section 163 convert all tax deduct at source or AIT shall be treated as minimum tax. It means there will no adjustment or refund of all taxes deducted at sources. Any such in actually an indirect tax and regressive on the part of low and fix income groups.

To collect more taxes from different business and non-business organization, the definition of company under section 2 (31) enlarged to highest level to specify who will pay tax includes: (1) Liaison office, representative offices and branch offices of overseas companies, (2) Any permanent establishment of foreign person or entity. (3) Any organization registered under the law of other countries, (4) Industrial and trading associations, foundation, society, cooperative and educational institutions, (5) Organizations registered with Micro, (6) others. Again in the section 166 (2Ka), some of the institutions such as MPO approved Bangla medium schools, public University are kept preview of educational institutions for tax purposes and bringing in English medium schools and private universities under the corporate tax purview. According to the new definition, cooperative associations, micro-credit organisations, government organisations, local authorities and autonomous organisations and above all private universities established under trust would also be considered as a company for the purpose of impose of income tax.

Once the proposed tax law is passed in Parliament, these newly defined companies, which are currently paying taxes at lower rates, will have to pay a 27.5% tax if they have income. But they must pay a 0.60% turnover tax in case of having no income. But cooperatives will be exempted from income tax if involved in agricultural production, cottage industry and marketing of agricultural products (sec 79). In addition, these organisations will have to deduct 10% tax at source, otherwise, they will be subject to a penalty of 20% source tax for violation of the law.

Under section 48, so-called “Fatka business” of assessee will be treated as separate business from other business. The law has given a definition of Fatka Bazar in section 2 (57). It appears that such “business” is not business but a criminal offence. On the other hand, this seems to be offensive toward businesspersons.

According to the new law, if a person deliberately tries to evade tax, he can be punished with imprisonment from 6 months to a maximum of 5 years or fine or both. Among other significant features, willful evasion or attempts to evade income tax in the future may subject individuals to imprisonment, ranging from a minimum of six months to a maximum of five years. The draft law proposed a very stringent clauses for evasion of tax. Under section 20, if it “appeared” to the tax official that the assesses has report less amount of trade in case of (a) import and export (2) investment and tax documents shall be punished by levying 50% of difference amount. This will empower the tax official since the word ‘appeared’ is very wide and needs some interpretation.

Under section 21, if any assets of a taxpayers are identified in other countries but not shown in the income tax return without any valid explanations and the explanations not accepted to the tax officials shall determine the price of those properties and impose same amount tax on the assessee. The law has given too much authority to exercise under this clause and also draft law is silent about any other action for criminal offences of money laundering and other offences.

The provision of whitening is again proposed to remain the law. The draft law, in the provision in first schedule to read as - a special tax chapter an assessee may get whiten the black money with buying land, plots, and flats with black money has been upheld. For this, everything can be legalized by paying taxes – fixed based on areas - in the same way as in the previous ordinance.

The law discourages ownership of multiple lands and flats and proposed 20% additional tax has to be paid. There is an opportunity to set up industries by investing black money in economic zones or hi-tech with 10% tax. Apart from economic zone, black money also can be converted into white by paying an additional 10% of the prescribed tax. This income can be used for industrialisation and its expansion, industrial modernization, renovation and expansion, buildings or apartments or buildings, shares of companies listed in the stock market, producers of goods and services.

As per section 32, income from salary includes financial benefits, facilities, compensation, bonus, overtime, stimulus money, share scheme, un-taxed arrears and benefits receivable in future. Assesses will get exemption or option of deduction from total income to calculate the taxable income only for major diseases like kidney, eye, lever, and cancer operation etc. It means the assessment of net taxable income with Income tax ordinance 1984 after deduction of may expenses such as house rent, transportation, all medical allowances and others have been changes.

The draft law has redefined the Agricultural and related income by splitting the income with 40% as business income and 60% as agricultural income for tea and rubber production and processing business. The same methods of income assessment will be applied in case others like poultry, fisheries, nursery, production of milk, agricultural seeds etc and some other agricultural activities.

There are provisions in the existing Income Tax Ordinance-1984 regarding transactions between associated entities. The draft bill overhauled the existing provision and defined associated firms in detail in order to remove ambiguity. The draft has new chapter under section 233 on transfer pricing and elaborate the related enterprise etc

The tax authority said an entity will be considered an associated enterprise if the firm enjoying the tax holiday participates in the entity’s equity capital, controls it, or takes part in its management, directly or indirectly.

If the common person or persons, couples or descendants have investments, control or presence in the management of both companies, the firms will be treated as related enterprises, according to the bill. An entity will be considered as a related firm of the tax break recipient if any of the two has more than 25 per cent of voting power in another enterprise, directly or indirectly. Similarly, if a person, couple or descendant holds more than 25 per cent stake in both companies, the firms will be treated as associated enterprises, according to the Income Tax Bill 2023. Firms will be considered as related enterprises too if they belong to the same group or group of companies. Experts fear that “ the discretionary power of an assessing officer might increase as the transaction price will have to be determined on fair value. This is because fair valuation is subjective and a complex process which requires a lot of judgement.”

The new law provides for immunity for tax officials and cannot be held responsible for collecting, withholding or paying tax deductions from the income of any person. Besides, no suit can be filed in a civil court for rejection or revision of tax assessment or against any other order of the tax officer. No criminal case or any other proceedings can be taken against any Government servant for his acts done ‘in good faith’. On the contrary, incentives have been provided for the officers and employees. The Act provides for an award for outstanding contribution in tax collection or detection of tax evasion.

Section 340 has proposed an option of stimulus package for tax officials for identifying the tax evaders, collection of certain amounts of taxes and rewarding the informers regarding tax evasion. It not unethical to pay them over and above their salary?

It contains some mathematical formulae that has been given as examples to assist the taxpayers to determine their tax. It will help the taxpayers to submit their income tax returns online. It is an appreciable method for convenience of the taxpayers.

The prose law is more transparent than previous but too much authority of tax official is not up to global standard. The draft may be reviewed by experts before passed in the parliament, otherwise it may not be acceptable to the taxpayers.

The writer is a Non-Government Adviser, Bangladesh Competition Commission. He can be contacted at [email protected]