To provide taxpayers with a transition period for adjustment, majority of the tax-compliance provisions in the new Income Tax Act-2023 will not be enforced during this tax year, according to officials.
Effective from the current fiscal year, the new act retains several provisions from the Income Tax Ordinance-1984 unchanged, a measure intended to facilitate taxpayers, they said.
Responding to confusion and speculations by taxpayers, the National Board of Revenue (NBR) issued a comprehensive clarification on Thursday to address the matter.
The clarification, issued by NBR's Second Secretary of income tax policy wing Bapon Chandra Das, explained five key concerns pertaining to tax-computation processes, audits and other related topics.
For the current tax year, the window for individual taxpayers to submit their income-tax returns began on July 1, 2023, and is slated to conclude on November 30, 2023.
Many taxpayers, tax attorneys and income-tax practitioners (ITPs) have been struggling with the intricacies of the new act and its implications. The NBR's clarification was prompted by the challenges faced by taxpayers in preparing tax returns.
As per the clarification, the general process of tax computation for the tax year 2023-24 must align with the new act's stipulations. This includes all procedures such as the issuance of notices, scheduling of hearings and sections related to tax determination, all of which must adhere to the guidelines outlined in the new act.
However, in terms of computing taxpayers' income, the provisions that allow for the consideration of allowable expenditures to grant tax benefits to the taxpayer, under the new act, will not be applicable in the current tax year.
"The provisions of the new act pertaining to ensuring tax compliance in determining allowable expenditures, which were not present in the Income Tax Ordinance-1984, will come into effect from the tax year 2024-25," the clarification said.
For example, section 55 of the new law nullifies tax benefits in certain areas for 'income from business', designating them as disallowed expenditures. However, this was not stipulated in the previous law.
A former tax member said this new measure will not be in effect during the current tax year. Under the new act, all forms of salary disbursement, regardless of the amount, must be conducted through formal banking channels to qualify for tax benefits as a company expenditure.
However, the previous law included an exemption ceiling of up to Tk 20,000 (monthly gross salary) for such disbursements.
The tax member said the previous provisions will be upheld for this year, as numerous companies have already disbursed salaries to their employees in line with the Income Tax Ordinance-1984.
"The provisions that might affect the taxpayers for following tax compliances under previous law remained unchanged for the current tax year in the new act," he added.
The NBR's clarification also underscored that corporate taxpayers will not be permitted to offset losses from one business against profits from other businesses from this tax year.
Tax returns selected for audit prior to the implementation of the new income tax regulations on July 1, 2023, will be audited under the parameters of the previous Income Tax Ordinance.
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