Tk 2,000 minimum tax in conflict with constitution

The constitution of Bangladesh assures that the opportunity for all the citizens of the Republic should be equal. Since such an equal condition can't prevail automatically or it can be distorted for various reasons, the government of Bangladesh shall engage in removing such inequalities.

The imposition of direct taxes and collection, thereof, from high earners and directly or indirectly allocating them among low earners is a tool to remove social and economic inequality and ensure equitable distribution of wealth. 

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Moreover, one of the basic principles of taxation is fairness, which means that taxpayers need to know the reason of tax imposition. All civilised countries across the world follow a common rule of "PAYE" (Pay as you earn) in assessing and collecting tax.

It is surprising to see that the recently declared budget has breached the fundamental requirement of the Constitution. The minimum tax payable for each taxpayer is not ensuring equal opportunity for each citizen of the Republic. Moreover, some citizens who are not earning beyond threshold (tax-free) level will be obligated to pay minimum tax.

For example, if a registered taxpayer who obtained the Tax Identification Number (TIN) is having a taxable income of Tk 100,000 must pay a minimum tax of Tk 2,000. Another taxpayer (male) who has a taxable income of Tk 390,000 is also required to pay Tk 2,000.

Though the gap in the taxable income of these two taxpayers is Tk 290,000, they are obligated to pay the same amount of tax. Such inequality is explicitly patronised by the government and it triggers the violation of the fundamental right as stated in the Constitution. If the government does so, who is going to safeguard the spirit of the main charter of the Republic?

It is undoubted that the size of the budget has grown over the last several years. Indirect tax (VAT, import and supplementary duties etc.) being the low-hanging fruit is getting focused in generating revenue.

Such indirect taxes are not imposed directly on the taxpayers according to the income level while its ultimate incidence is shifted on the consumer. As a result, this kind of revenue collection effort of the government can't remove disparity from society. This is also reflected in the disconnection between the number of hardcore poor people living below the poverty level and per capita income (almost Tk 300,000).     

However, the government perhaps understood the importance of it and is gradually shifting its focus to direct taxes from indirect taxes though it has not been adequate yet. The contribution of direct taxes in the last two financial years was 33 per cent while this year it is planned to be more than 35 per cent. This kind of initiative deserves appreciation. 

With an objective to increase the tax-GDP ratio, mobilisation of local resources and above all, upholding the spirit of the Constitution, the government should concentrate on large taxpayers who are not presently paying a reasonable amount of taxes.

As the easiest way to collect revenue, the idea of the minimum tax on individual taxpayers will create pressure on marginal earners at a time when their purchasing power has eroded owing to higher inflation.

The author is a fellow member of the Institute of Chartered Accountants of Bangladesh and an associate member of the Institute of Chartered Accountants in England and Wales