Electronic salary disbursement to employees, as mandated in the new income tax law, eats into low-paid people's paltry pay through cash-out charges, sources say and seek a relief.
The newly imposed fiscal measure on mandatory disbursement of salary, irrespective of amount, through electronic channels would further worsen low-income people's woes unless the government devises mechanism to cut down transaction charges.
Industry-insiders and tax experts say the cash-out charges should be reduced for the low-paid private sector employees.
From July 1, 2023, employers have to pay salary on electronic channels to employees, irrespective of their positions-be they peons, drivers, cleaners or others.
Earlier, there was an exemption ceiling up to Tk 20,000 for salary disbursement in cash in the tax law.
According to the new income-tax law, which came into effect from June this year, expenditure on account of salary payment of a company would be considered 'disallowable income' in case of cash payment. Tax would be imposed on the portion of expenditures paid in cash.
Transaction charge of MFS providers is 0.7 per cent for governmental social safety-net disbursement while it is 1.85 per cent in general.
Tax analysts have said MFS is a popular system on disbursement of salary for lower-tier private officials so the regulator of MFS can take initiative to bring down the cash-out charges to help expedite financial inclusion through banking system.
According to Bangladesh Bank (BB) data, salaries worth Tk 291.62 billion were disbursed through MFS in 2021 calendar year and the amount surged to Tk 346.41 billion in 2022.
The central bank earlier had issued directives for MFS providers to cap the cash-out charges for Universal Pension Scheme (UPS) to 0.7 per cent.
Such direction could also be issued to give relief to lower-tier salaried persons up to a certain ceiling, analysts argue.
Responding to a query, Md. Mezbaul Haque, Executive Director of BB, who is spokesperson for the banking-sector regulator, said the regulator would explore the possibility of setting such cap for the lower-income people.
"Currently disbursement of wages in readymade-garment sector follows this type of arrangements," he told this scribe.
Shamsuddin Haider Dalim, head of corporate communications of bKash, says RMG workers enjoy free cash-out as costs are borne by both companies and MFS.
He mentions that a digital-ecosystem has already been developed through which RMG workers can make 70 per cent of their payments directly from their bKash wallet.
"For government disbursement, the government bears 0.7 per cent of the cash-out charges while the rest major share is contributed by MFS," he says, adding that beneficiaries of social- safety-net programme are not required to pay any cash-out charge.
Tax officials say the measure has been incorporated into the new law with ceiling withdrawn to bring unbanked people onto formal economic channel.
There is a common trend of some corporate taxpayers to pay a part of salaries to their employees to help them pay less tax by evading actual wages. Such irregularities are one of the major causes of poor share of payroll tax in tax revenue, they add.
Wage and salary disbursement though MFS has been gaining momentum following pace of digital financial inclusion in the country.
Insiders in MFS fin-tech industry, however, say they have some special arrangements for apparel workers' wage disbursement which could be extended for marginal-income group of salaried people if the employers join hands with them.
Sagar Raihan, a front desk officer in a private firm in the city's Motijheel business heartland, says his real wages, received in cash from employers, already got eroded after the pandemic and following economic instability and inflationary pressure.
"It became difficult to save even Tk 500 per month. Instead, I often have to seek advances to meet family expenses due to exorbitant prices of necessaries," says Mr Raihan, the lone earner of a four-member family.
He finds it difficult to pay cash-out charges worth Tk 400 for drawing Tk 20,000 in monthly salary.
The payment major, bKash, which contributes major share of salary-disbursement channel, transacted Tk 114.68 billion of total salary transfers in 2021-and the figure climbed to Tk 131.76 billion in 2022.
Cash-out charges of bKash are Tk 18.50 followed by Nagad Tk 15 and Rocket Tk 18.50 if it is received from agents.
About 90 per cent of MFS transactions in Bangladesh take place through those three operators.
However, small businesses have vented concern over the new measure in the present economic context, fearing hike either in their cost of business operations or erosion of real wages of employees.
"Transaction on electronic channels involves some charges, deduction of tax at source and other fees that employers or employees have to bear," says Anwar-ul Alam Chowdhury Parvez, President of Bangladesh Chamber of Industries (BCI) about the quandary.
He suggests that the NBR could consider keeping a ceiling for marginal-income people for the time being as they are now crippled with high cost of living.
"Small industries pay their employees in phases for not having sufficient cash in hand," the chamber chief says.
Ali Ahmmed, Chief Commercial Officer (CCO) of bKash, said since the inception of bKash payroll solution, it had aimed to facilitate financial transaction of low-income people who predominantly were out of formal banking channel.
"Since 2015, bKash has been providing payroll solution for RMG workers, which picked up momentum during the pandemic. Currently, over a thousand RMG factories use bKash's payroll solution to disburse salaries and other allowances to around a million workers--70 per cent of them are women," he told this correspondent.
Workers can enjoy salaries through bKash where cash-out charge is subsidised by the company and bKash, he added.
"…..a large number of the RMG workers send money to their parents or relatives in villages. Due to receiving salaries on bKash account, they can now directly send the money without additional hassle and cost."
Not just the RMG industry, many other industries have also started using bKash's solution to disburse salaries of factory workers, he said.
Muhammad Zahidul Islam, Head of Public Communications at Nagad Ltd, thinks it is not possible for MFS to make separate slabs of cash-out charges owing to technical complications.
"In terms of cash-out charges, we cannot give any concessions right now."
He, however, says Nagad would welcome any proposal on disbursement of salaries of marginal-income group of employees through charge-sharing model it is using for government disbursement.
"We are now sending the allowances to beneficiaries with cash-out charges that we both bear," he adds.
Revenue officials have said they are expecting a "quantum jump in payroll tax" this year following the imposition of new fiscal measure on payment of salaries, irrespective of amount, on electronic channels.
In Bangladesh, payroll tax, or withholding tax in other words, contributes only 3.0 per cent to the total tax deducted at source, which is around 30 per cent in neighbouring countries.
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