Fresh attempt to update income tax law

The National Board of Revenue has taken a fresh bid to design an income tax law that is attuned to Bangladesh's socioeconomic reality, after it received discouraging feedback on the latest draft of the Direct Tax Code.

The move comes following consultations with stakeholders, who did not give positive feedback to the draft of the Direct Tax Code.

“It appears that the Direct Tax Code has been drafted in an idealistic approach and not from a realistic point of view,” said the NBR official seeking to remain unnamed.

It sought drastic changes in many areas, which, if incorporated in the new law, may be tough for taxpayers to comply with.

“With the income tax law, we want to follow an evolutionary approach instead of a revolutionary one so that taxpayers can understand it easily,” the official said.

The move to update the country's income tax law started as far back as 2010-11, when the direct tax law was first drafted with support from the International Finance Corporation.

Officials said the NBR posted the draft on its website for opinion from stakeholders. Since the feedback was not positive, the NBR revised the draft to 'Direct Tax Code 2013' and started internal consultations and sought expert opinions.

Even after the revision, the draft received negative feedback from many quarters including the IMF, which found that it diverges far from the international best practices.

At a consultation meeting in February this year, some businessmen and former tax officials recommended taking the local reality into consideration before passing the draft Direct Tax Code. The draft of Direct Tax Code, which comprises income tax, wealth tax and gift tax laws, seeks to keep corporate tax rates identical for all companies.

At present, the NBR maintains five rates of corporate taxes based on sectors, with cigarette makers and mobile phone operators taxed the highest of 45 percent.

It favours scrapping the provision of minimum tax for individuals, limiting withholding tax to 15 sectors, down from the existing 54, and withdrawing scope for final settlement.

Withholding tax and tax at source account for more than half of the income tax collection now, so drastic cuts in the sources or heads of such taxes may have a detrimental effect on the state coffers' receipts.

“Taxpayers have become accustomed to many provisions of the present law. So it will not be wise to bring in wholesale changes,” said the official.

The draft of Direct Tax Code is not being scrapped entirely.  “We will incorporate the good and positive things from the draft law as well as the present income tax ordinance,” he added. Insiders said the tax authority plans to engage local experts on tax law and legislative matters to prepare the revised draft of income tax law by December to introduce the new law from fiscal year 2017-18.

The NBR has formed three separate committees to quickly draft the law, monitor the progress and implement it in line with the plan.

The new income tax law will be drafted in Bangla in line with a previous directive from the High Court and will be incorporating the issues of digitisation of tax system such as e-payment and e-filing.