Draft direct tax law comes under review

Doulot Akter Mala | Published: May 19, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

An official move is underway to review the draft direct tax law following suggestions from the International Monetary Fund (IMF) that has found flaws in the law in relation to globally-followed best practices.
The Fiscal Affairs Division (FAD) of the IMF, officials said, has detected the flaws, prompting the review initiative before the law gets through.
Under the move made by the National Board of Revenue (NBR) the draft direct tax code would be upgraded through adding inputs, the sources said.
The NBR drafted the Direct Tax Act Code in 2012 with the technical and financial support of the International Finance Corporation (IFC), an arm of the World Bank (WB) group based in Washington.
Later, the draft law has been made public for discussion and exchange of opinion with the stakeholders before giving it the final shape.
The IMF attached a number of conditions, including the introduction of new direct tax law, to the release of the Extended Credit Facility (ECF). Â
In an evaluation report on the draft law, the FAD found need for improvement through an intensive review, officials said.
"The draft direct tax code is possibly an improvement with respect to the current legislation. But, it remains very far from international best practices, even among development countries," the FAD said.
"In conclusion, we believe that there is scope for further improvements in this draft code, to make it better aligned with modern, transparent and effective direct-tax legislation. These improvements should be incorporated before the draft law is submitted to the authorities for their review and comments," it noted.
The income-tax-policy wing also agrees with the FAD on need for further review of the draft law. A sub-committee is scheduled to submit its report after reviewing the law next month (June).
To review and implement the law, the tax authority has prepared a draft time-bound work plan under which the direct-tax code is scheduled to be placed before parliament by 2019.
The income-tax wing, in a recent meeting, suggested that the tax measures having important and revenue-generating rules could be incorporated into the existing income-tax law in phases.
The process could be started from the upcoming financial year 2015-16 and continued through 2016-17 and 2017-18 until FY 2018-19.
However, the tax authority has observed the existing income-tax ordinance is a 'complete' and 'effective' law, through which the revenue board has earned a significant amount of tax revenue since 1984.
"Sudden enforcement of the new income-tax law by replacing the existing one from 2019 may cause difficulty for both taxmen and taxpayers," said Dr Syed Aminul Karim, former income-tax-policy member of the NBR.
Both taxpayers and taxmen would be able to cope with the new provisions of the new direct tax law if it is enforced gradually, he said.
The existing income-tax law is known as 'the income ordinance 1984'. The government drafted the 'Direct Tax Act Code' first in 2012 to introduce a new income-tax law by replacing the existing one.
A committee was formed to develop the draft tax law with the representatives of the IFC and tax officials.
The second and amended version of the draft direct tax code has been prepared by the committee.
After evaluating the latest draft, the FAD recently made the specific comments regarding basic structure, and legal and methodical aspects, tax officials said.
As per the action plan, the draft law would be placed before the Jatiya Sangsad by June 2019 after an intensive consultation with stakeholders in both public and private sectors.
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