Confusion about some orders on income tax
Tuesday, 24 July 2007
Qazi Azad
THE directive issued by National Board of Revenue (NBR) for deduction of income tax on earning from saving certificates with effect from the first July and the provision of the Finance Ordinance 2007, which necessitated the issuance of the directive, seem to be legally flawed. Both appear to be ill conceived as well. Why?
The letter of the NBR containing the directive, which has been addressed to the director of the Directorate of National Saving-- letter No 113(1-4) dated 10.7.2007, has advised for deducting income tax at the source at the rate of 10 per cent on interest or profit equivalent to or exceeding Tk 25000, payable to a holder of saving certificates, which were purchased on or after 1.1.2004. The legal basis of the stipulated deduction has been attributed to the Finance Ordinance 2007.
The same ordinance has raised the ceiling of non-taxable income in the current fiscal from the previous ceiling of Tk 125,000 to Tk 1,50,000. If the only source of income of a person is his or her saving certificates of the said category, he or she is going to be deprived of the benefit of the current non-taxable income ceiling on paying income tax on a relatively very meagre income of Tk 25,000 from profit or interest on saving certificates, as per the stipulation of NBR's said order. This order and the provision of the Finance Ordinance that authorized the issuance of order are thus visibly discriminatory. Both fail to accord and ensure equal treatment to all citizens of this Republic.
Whereas, Articles 19 and 27 of the Constitution of this country, as enshrined in its chapters on fundamental principles of the state and on fundamental rights, unequivocally pledge equal opportunity and equal treatment in the eye of law to all its citizens. Even if it is assumed that the fundamental rights on financial matters also remain suspended under the current emergency, one cannot contest that the provision of the Constitutional Article 19 on equal opportunity and equal treatment under law to all its citizens as a state principle is still very much alive and in force.
The directive of the NBR in its last paragraph also stipulates that the provision for deduction of income tax at the rate of 5.0 per cent at source on interest of profit from saving certificates, bought by holders between 11.6.1999 and 31.12.2003, would remain in force, as before. It does not, however, indicate the minimum amount on which the tax is deductible or payable. If it has also disregarded the non-taxable income ceiling, both previously and now, the same legal question, as raised above, is applicable in this case as well.
Legal question aside, the provision for income tax deduction at source on interest or profit from saving certificates is imprudent. Why? Many holders of saving certificates may have several sources of income, which may cumulatively cross a few slabs of taxable income. They may be paying less than due on the basis of slabs if their earning from the saving certificates is taxed at a flat rate of 10 per cent at the source. On the contrary, some people who may be having annual gross earning including the income from saving certificates less than the taxable income, would be unlawfully required to pay income tax under the new provision. They will become unhappy symbols of discrimination by the state, because of circumstances as mentioned earlier.
On the other hand, a pensioner who is allowed to purchase saving certificates worth Tk 25,00,000, may annually earn at the current rate of interest or profit an amount of Tk 3,12,500 if Tk 25,00,000 is the only money, held or possessed by him or her. If he or she purchased the saving certificates on or after 1.1.2004, as per NBR's order for deducting income tax at source at the flat rate of 10 per cent, he will be paying annually a gross amount of Tk 31,250 as income tax. Whereas, on the basis of the general formula for income tax payment, he or she should pay income tax of Tk 19,375 or so, payable on Tk 1,61,500 of his or her gross annual income of Tk 3,12,500 from the saving certificates, on deduction of the optimum non-taxable income of Tk 1,50,000. Under the new rule for saving certificates, which is apparently discriminatory and opposed to the said stipulations of the Constitution, he or she would pay an excess amount of Tk 12875.
Under an order of the Internal Resources Division of the Ministry of Finance, Gazette Notification No 179 dated 13. 6. 2007, a holder of saving certificates, purchased on or after July 17, 2004, who receives the interest or profit on a quarterly basis, would now receive on expiry of the third year Tk 2,250, after deduction of income tax at the rate of 10 per cent at source for every Tk 1,00,000. Previously, he or she used to receive an amount of Tk 2875 for the same amount and was not required to pay any income tax at the source. He or she might not have a taxable annual income or might have paid income tax at the end of every fiscal year if the annual income reached the range of taxable income. The notification concerned, which has lowered the interest rate and also stipulated that it would take retrospective effect from July 17, 2004, has subjected him or her to double taxation on the same count if he or she has already filed the tax return for the last fiscal.
A clarification from the issuing authority of the order removing the confusion will alone remove the burden of his or her embarrassment. The fact that the interest or profit rate on such saving certificates has been lowered may lead to accentuated hardship of holders of such certificates if they have already retired from private service or their only source of income is the interest or profit from such saving certificates. The enforcement of the order with retrospective effect at this time has seemingly amended the Finance Acts of the fiscal years that elapsed long before the date of issuance of the order.
The government, as the first party to respect and adhere to the Constitution of the Republic, may examine whether the aforesaid contentions are realistic and in accord with the highest law of the country. If the relevant provisions of the Constitution support the views, the said order of the NBR may be revoked and the related provision of the Finance Ordinance 2007 suspended or declared inoperative. A government clarification may otherwise be issued to reassure the people, particularly the aggrieved section, that nothing unlawful will happen if income tax on earning from saving certificates is realized at source as per NBR's said order.
Similarly, the order of the Internal Resources Division contained in its said gazette notification may be examined and a clarification on it may be issued for guidance of both banks and the related saving certificate holders.
THE directive issued by National Board of Revenue (NBR) for deduction of income tax on earning from saving certificates with effect from the first July and the provision of the Finance Ordinance 2007, which necessitated the issuance of the directive, seem to be legally flawed. Both appear to be ill conceived as well. Why?
The letter of the NBR containing the directive, which has been addressed to the director of the Directorate of National Saving-- letter No 113(1-4) dated 10.7.2007, has advised for deducting income tax at the source at the rate of 10 per cent on interest or profit equivalent to or exceeding Tk 25000, payable to a holder of saving certificates, which were purchased on or after 1.1.2004. The legal basis of the stipulated deduction has been attributed to the Finance Ordinance 2007.
The same ordinance has raised the ceiling of non-taxable income in the current fiscal from the previous ceiling of Tk 125,000 to Tk 1,50,000. If the only source of income of a person is his or her saving certificates of the said category, he or she is going to be deprived of the benefit of the current non-taxable income ceiling on paying income tax on a relatively very meagre income of Tk 25,000 from profit or interest on saving certificates, as per the stipulation of NBR's said order. This order and the provision of the Finance Ordinance that authorized the issuance of order are thus visibly discriminatory. Both fail to accord and ensure equal treatment to all citizens of this Republic.
Whereas, Articles 19 and 27 of the Constitution of this country, as enshrined in its chapters on fundamental principles of the state and on fundamental rights, unequivocally pledge equal opportunity and equal treatment in the eye of law to all its citizens. Even if it is assumed that the fundamental rights on financial matters also remain suspended under the current emergency, one cannot contest that the provision of the Constitutional Article 19 on equal opportunity and equal treatment under law to all its citizens as a state principle is still very much alive and in force.
The directive of the NBR in its last paragraph also stipulates that the provision for deduction of income tax at the rate of 5.0 per cent at source on interest of profit from saving certificates, bought by holders between 11.6.1999 and 31.12.2003, would remain in force, as before. It does not, however, indicate the minimum amount on which the tax is deductible or payable. If it has also disregarded the non-taxable income ceiling, both previously and now, the same legal question, as raised above, is applicable in this case as well.
Legal question aside, the provision for income tax deduction at source on interest or profit from saving certificates is imprudent. Why? Many holders of saving certificates may have several sources of income, which may cumulatively cross a few slabs of taxable income. They may be paying less than due on the basis of slabs if their earning from the saving certificates is taxed at a flat rate of 10 per cent at the source. On the contrary, some people who may be having annual gross earning including the income from saving certificates less than the taxable income, would be unlawfully required to pay income tax under the new provision. They will become unhappy symbols of discrimination by the state, because of circumstances as mentioned earlier.
On the other hand, a pensioner who is allowed to purchase saving certificates worth Tk 25,00,000, may annually earn at the current rate of interest or profit an amount of Tk 3,12,500 if Tk 25,00,000 is the only money, held or possessed by him or her. If he or she purchased the saving certificates on or after 1.1.2004, as per NBR's order for deducting income tax at source at the flat rate of 10 per cent, he will be paying annually a gross amount of Tk 31,250 as income tax. Whereas, on the basis of the general formula for income tax payment, he or she should pay income tax of Tk 19,375 or so, payable on Tk 1,61,500 of his or her gross annual income of Tk 3,12,500 from the saving certificates, on deduction of the optimum non-taxable income of Tk 1,50,000. Under the new rule for saving certificates, which is apparently discriminatory and opposed to the said stipulations of the Constitution, he or she would pay an excess amount of Tk 12875.
Under an order of the Internal Resources Division of the Ministry of Finance, Gazette Notification No 179 dated 13. 6. 2007, a holder of saving certificates, purchased on or after July 17, 2004, who receives the interest or profit on a quarterly basis, would now receive on expiry of the third year Tk 2,250, after deduction of income tax at the rate of 10 per cent at source for every Tk 1,00,000. Previously, he or she used to receive an amount of Tk 2875 for the same amount and was not required to pay any income tax at the source. He or she might not have a taxable annual income or might have paid income tax at the end of every fiscal year if the annual income reached the range of taxable income. The notification concerned, which has lowered the interest rate and also stipulated that it would take retrospective effect from July 17, 2004, has subjected him or her to double taxation on the same count if he or she has already filed the tax return for the last fiscal.
A clarification from the issuing authority of the order removing the confusion will alone remove the burden of his or her embarrassment. The fact that the interest or profit rate on such saving certificates has been lowered may lead to accentuated hardship of holders of such certificates if they have already retired from private service or their only source of income is the interest or profit from such saving certificates. The enforcement of the order with retrospective effect at this time has seemingly amended the Finance Acts of the fiscal years that elapsed long before the date of issuance of the order.
The government, as the first party to respect and adhere to the Constitution of the Republic, may examine whether the aforesaid contentions are realistic and in accord with the highest law of the country. If the relevant provisions of the Constitution support the views, the said order of the NBR may be revoked and the related provision of the Finance Ordinance 2007 suspended or declared inoperative. A government clarification may otherwise be issued to reassure the people, particularly the aggrieved section, that nothing unlawful will happen if income tax on earning from saving certificates is realized at source as per NBR's said order.
Similarly, the order of the Internal Resources Division contained in its said gazette notification may be examined and a clarification on it may be issued for guidance of both banks and the related saving certificate holders.