Many private companies, banks and non-bank financial institutions began deducting higher tax from their employees' salaries in a preemptive application of a fiscal law.
Sources said the taxed service-holders resented such extra financial burden on them ahead of Eid festival as the employers started taking tax as per provision of the Finance Bill 2016 that has proposed to reduce tax-rebate facility.
The tax authority found the deduction of the tax at source from the employees' salary income 'unlawful' as the finance bill accompanying the new budget has yet to get through parliament to be a law.
In the budget for 2016-17, the government has proposed to cut down investment rebate for individual taxpayers to 20 per cent from the existing 30 per cent.
Individual taxpayers can invest up to 20 per cent of their income and get 15 per cent rebate on their payable tax for income up to Tk 1.0 million.
For annual income ranging from Tk 1.0 million to Tk 3.0 million, investment rebate has been proposed at 15 per cent for first Tk 200,000 and 12 per cent for the rest of the amount.
If total income exceeds Tk 3.0 million, investment rebate will be 15 per cent for first Tk 200,000, 12 per cent for next Tk 400,000 and 10 per cent for the rest in the deductive process.
An individual taxpayer can invest maximum Tk 15 million of his annual income for enjoying tax rebate.
Income taxpayers will have to comply with the amended income tax rules at the time of submission of tax returns in the upcoming tax year on the income of FY 2015-16.
With the proposed change in income tax provisions, tax liability of the individual taxpayers will increase substantially.
Companies deduct advance tax on quarterly basis from the salary income of the employees who draw above Tk 400,000 each annually.
Many companies found the deducted tax until May 2016 would fall short for the employees when they would submit tax returns as per proposed provision due to reduction in investment rebate, company sources said.
The companies are deducting the tax from the salary income for June to adjust the payable tax as per the amended provision in the Finance Bill 2016, they added.
Talking to the FE, former income tax member Syed Aminul Karim said companies cannot deduct income tax from salary of the employees as per proposed law as the income tax law will come into effect from the first day of the financial year, July 01.
In case of any change in the provision, the individual taxpayers will have to face complexities in getting refund of the paid tax, he pointed out.
A senior income tax official said it is an obligation for the employees to pay the excess tax, not for companies.
"Companies cannot deduct the tax as per proposed tax rules as it is yet to be enforced by the government," he added.
Employees and senior officials of some large corporate houses said a sizable amount of tax has been cut from their salary, creating undue financial pressure on them before Eid-ul-Fitr.
On proposed reduction in investment-rebate facility, research think-tank Centre for Policy Dialogue (CPD), Institute of Chartered Accountants Bangladesh (ICAB) and Transparency International Bangladesh (TIB) said the proposed budgetary measure would impose additional tax burden on the existing individual taxpayers.
Responding on the issue, the tax official said the tax measure on 15 per cent rebate on investment of 30 per cent of the total income had been introduced through the budget for fiscal year 2014-15.
Until FY 2014, rebate facility had been 10 per cent on 20 per cent investment of total income. "Individual taxpayers enjoyed the facility for only two tax years," he said.
