Allowances of government officials likely to be taxed

The National Board of Revenue (NBR) is considering to impose income tax on allowances of the government officials to make tax treatment equal with the employees of the state-owned entities and autonomous bodies, sources concerned said.

The changes might take place in the budget for fiscal year (FY) 2014-15, to be announced on June 05 next.

Currently, the government officials pay income tax on their basic salaries and enjoy exemption on other allowances. As per income tax rules, officials of the state-owned entities have to pay income tax on both heads of their incomes.

The discriminatory tax policy has created problems in the field-level tax offices as there are two contradictory rules on collection of income tax from the officials of SoEs and autonomous bodies.

Officials under the National Pay Scale (NPS) are entitled to enjoy similar kind of facilities including tax treatment.

A senior tax official said the revenue board will try to rationalise the tax by imposing it on both allowances and basic salaries of the officials of all government, SoEs and autonomous bodies.

There might not be any discriminatory rules for collection of income tax from government or private sector officials, he added.

The officials, however, expressed doubt over standing on its decision as influential quarters will be affected with the measure.

In the Income Tax Ordinance, it has been clarified that the government officials would enjoy tax exemption on income derived from allowances.

The tax official said employees of SoEs and autonomous bodies have to pay tax on their entire income like private sector service holders as they are not exempted in the income tax law.

On the other hand, an order of the ministry of finance (MoF) on National Pay Scale has made tax treatment equal for both the government and the SoE officials. It has specified that all the officials under NPS will pay tax on their basic salaries.  

Following the two different rules, field-level tax officials have faced difficulties in collecting taxes from the officials who are serving autonomous and state-owned entities.

The official said as a wing of the MoF, the NBR cannot issue order contesting the ministry's directive.

Tax officials were quite puzzled after they found some of the individual taxpayers, employed in SoEs and autonomous bodies, came with the order of the MoF.

"The issue needs to be clarified although the income tax law can supersede any of the laws of the state," the officials said.  

Earlier in May 2013, the NBR had proposed to the MoF to resolve the matter by issuing an order. But the ministry ruled out the proposal saying that it would be discriminatory for the officials.

Since 2010, officials of all the government offices are paying tax on their basic salaries. Until FY 2009-10, the public servants used to get refund of their paid tax from the government coffer. In the budget for 2009-10, the government withdrew the facility of tax refund for its officials as per Pay Commission recommendations after it hiked the salaries of government officials.

The NBR deducts the tax at source from salaries drawn by government officials.

Under the existing income tax rule, any person having annual income above Tk 2,20,000 has to pay income tax.

According to available data, the NBR receives more than 50,000 tax returns every year out of some 1.3 million government officials.

The tax official said the government would earn additional Tk 4.0 billion tax by imposing tax on allowances of the officials of the state-owned bodies.

Sources concerned said the imposition of tax on allowances might not affect the government employees as they are expected to see a hike of their NPS in the upcoming FY.