7,000 wealthy people to come under 30pc tax net

Newly-proposed tax rate, 30 per cent on annual income above Tk 44,20,000, is likely to be slapped on some 7,000 wealthy taxpayers across the country, tax officials said.

Taxmen expect some Tk 3.0 billion income tax in the upcoming fiscal year with the upward revision of tax-free ceiling and slabs for individual taxpayers.

The new tax slab will ensure progressive taxation by collecting more tax from the well-off section of people, officials said.

Currently, the highest rate for individual taxpayers is 25 per cent.

Sources concerned said the rate has been proposed to be upgraded by 5.0 per cent following suggestions of experts and to encourage investment in corporate sector.

Currently, the country's corporate tax rates are ranging from 27.5 per cent to 45 per cent.

Experts have termed the gap between corporate and individual tax rates as disincentive for corporatisation.

"We have found some big investors who kept their investment in individual name to enjoy lower tax rates for individuals," said a senior tax official.

Currently, an investor can enjoy reduced tax rate compared to that of company by keeping his investment in personal name, he added.  

Gap between individual and corporate tax rates will be minimised gradually in next five years, he said.

Humayun Kabir, income tax subcommittee convener of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said effective tax rate for companies is quite high in Bangladesh that is discouraging corporatisation.

"Inequalities on accumulation of wealth and gap between individual and corporate tax would be reduced by implementing the measure," he said.

The number of people earning above Tk 44,20,000 annually might be much higher than that of taxmen's findings, he added.

Currently, individual taxpayers having annual income of Tk 2.5 million and 4.0 million are paying tax at same rates, he added.

Mr Kabir said corporatisation is needed to generate employment and economic development.

"I welcome the budget proposal. This is the first time the NBR proposed to hike the rate of individual taxpayers," he said.

Mr Kabir underscored the need for offering reward to the taxpayers for encouraging their contribution to the economy.

World Bank (WB), Bangladesh, lead economist Zahid Hussain welcomed the step but expressed doubt over its successful implementation.

"Capacity of the tax administration should be enhanced to implement the measure," he said.

People are usually encouraged to conceal actual income when the rate of tax is high, he added.

Too much progressive taxation can create incentives for people to invest more on finding ways for tax evasion, Mr Hussain said.

He suggested two ways to reduce income inequality---through expenditure policy to help poor people and enhancing capacities of the tax administration.