Proposed national budget from tax-payers' perspectives
Tuesday, 29 June 2010
Akhter Zamil
The critics, economists and professionals have termed the proposed national budget for fiscal year (FY) 2010-11 as being highly ambitious, and voluminous in comparison to that of the past year, expressing their anxiety over its implementation. They have cast doubts about its effective materialisation under the prevailing situation obtaining in the country, particularly in the context of the on-going global economic recession. It is considered by them that it would be a great challenge for the government to achieve gross domestic product (GDP) growth rate at 6.0% in the year under consideration.
But whatever the enforceable odds to come, we have to face, as a nation, the problems conforming us with full cooperation and unity, irrespective of differences in opinion and ideology. But our attitudes, aims and objects should be nationalistic at all stages of the implementation of the budget proposals. The Finance Minister cannot avoid such responsibility and remain silent by passing it to the public enterprises.
Details of expenditures of non-development budget (Tk. 924.76 billion) and development budget (Tk. 396.94 billion) can be considered; at the very outset of this review in terms of percentage Non-development expenditure (Tk. 924.76 billion) for the forthcoming fiscal includes pay and allowances (22%), grants in aid (19.4%), interest (15.9%) miscellaneous non-development investment (11.4%), goods and services (11.3%), subsidies (8.3%), pension (4.4%), acquisition of assets and works (3.4%), others (2.3%) unexpected and other block allocation (1.6). The proposed development expenditure (Tk. 396.94 billion) includes local govt. and rural development (21.81%), energy and power (15.3%), transport and communication (14.2%), education and information technology (12.8%), agriculture (8.9%), health (8.7%), public administration (7.8%), special security and welfare (5.3%), others (5.2%).
The budget proposals in respect of direct tax for the fiscal 2010-2011 can be taken up at this stage for consideration. The proposed Finance Act (bill) contains as many as 50(18-67) clauses relating to amendments to existing section, insertion of new sections, for the purpose of income tax in Income Tax Ordinance 1984 for fiscal
2010-2011.
Proposals for amendments to Income Tax Ordinance 1984, Excise and Salt Act, Customs Act and Relevant Schedules of such Acts and provincial collection of Taxes Act were generally placed in the parliament as proposed Finance Bill in the previous years. But this year such proposals have been placed before the members of the parliament as Finance Act, instead of Finance Bill. This time we have noted the proposed Draft Finance Bills are placed by terming it as Finance Act 2010, before being passed by the house. It created confusion in the minds of the public in general about its acceptance as Finance Bill.
Now, we would like to analyse the budget proposals for the required amendments to the Income Tax Ordinance 1984, taking into consideration the recommendations that were made during pre-budget discussions by the different organisations and corporate bodies and for assessing the justification that were made in favour of such proposals.
(1) No change in the taxable limit has been proposed for the individual Partnership Firm, HUDF and AOP, Resident, Non-Resident Bangladeshis and Non-Residents. Incomes of all persons -- persons engaged in service and businesses -- have been bracketed in an equal status for the purpose of application of tax rates, without considering whether the assessees belong to low income group, middle income group and higher income group. Rates are equally applicable for all of them. This appears to be not fair from the viewpoint of natural justice. Economic price index, prevailing in the country, has not been taken into cognisance for the cause of equity, keeping in mind about the income in the hands of different individual assessees. The incomes in the hands of professional firms are also not also considered properly; efforts, labour and energies put by the professionals in due performance of their duties have not also been differentiated. Despite payment of tax by the professional firms, the individual professional partners are required to pay average rates of tax. This appears to be unjust and cause hardship to this type of assessees. They are not machine and their capacity is limited. Attention should have been given to these categories of assessees. The government may reconsider their case and free them from double taxation as were done in the past.
The tax-free income limit may also be considered in the case of following types of assessees.
If this kind of tax-exemption limit is considered, it will be helpful for the above categories of assessees to survive under the economic situation, now obtaining in the country. In this respect, the tax-free income for each category of assessees may be fixed to avail the above limit.
In our neighbouring country, the tax-free income has been considered at an amount, equivalent to Bangladesh Tk. 400,000. Tax rebate @ 10% on tax amount, showing 10% higher income for 2010-2011, should be considered as incentives for higher income groups. The existing rates for charging tax rates have been fixed for different categories of companies, banks, insurance, financial institutions and mobile phone operating companies which are fixed at the following rates:
Since the profit of the banking companies and financial institutions are increasing in volume from year to year, the rate of tax in their case may be considered at 40%, in place of 42.5%, in view of their contribution to the national exchequer in the form of direct taxes, in addition to VAT.
The clauses incorporated in Finance Act (Bill) for 2010-2011 included 50 clauses, proposing amendment to the existing sections and rules. Also insertion of new rules of the I. T. Ordinance 1984 (VAT Act 1991) may be discussed here separately. Now, we would like to put our comments on the basis of some important clauses for the interest of the assessees and also professionals, lawyers and the relevant persons.
Clause 18 and 19: The proposed budget started from clause 18 and extended itself upto to a total of 67 clauses, proposing changes/amendments, insertion "about the newly created post of "Any Additional Director General, Central Intelligence Cell".
Clause 20: A new clause is inserted under clause (e) which reads as under:
"Any Additional Director General or Joint Director General of Central Intelligence Cell to Exercise the Powers of Director General, Intelligence Cell".
Clause 21: This change was the most desirable one expected by the lawyers, professionals and other persons, engaged in the profession including others connected with the income tax. The proposed change is expressed as "he is or has been a District Judge", expecting immediate appointment as members of the Tribunal constituted under section (u/s) 11 of the I. T. Ordinance 1984.
Under clause 22, existing section 16D is deleted and new section 16E is inserted, proposing for changing of tax on the amount of premium collected in excess of the face value at a rate of 3.0% on the difference between the sales value and the face value.
This change of tax on premium is in contravention of the accounting principle, income thereof being capital receipts in the hands of the company. Such imposition of tax is arbitrary and discriminatory from the viewpoint of Company Laws and the tax law and it should be withdrawn.
Clause-23: Under the existing section 19, the sub-section 24 is newly modified/amended which is the new version of existing section 19(22). This is also capital receipts which requires to be paid by the assessees through a crossed cheque and bank transfers, failing which such receipts will be treated as revenue receipt under the head, "Income from Other Sources" for the purpose of imposing tax. The flow of investment by the assessees in private companies may be restricted.
Clauses 24, 25, 26, 19BBBB-related ones are deleted. The assessees are, thus, denied of the benefits that were earlier allowed to them to bring the black money or undisclosed income to the net of tax, although areas of investment are restricted. This deserves attention of the lawmakers.
Clauses -24, 25, 26 and 27 of the bill are deleted as expected by the elite of the society, and members of the business community and civil society.
Section 19(A) related to exception in respect of investment in new industries.
Section 19(AA) is related to special tax treatment in certain cases of investment.
Section 19(AA) related to exemption in respect of investment.
This will certainly be welcomed by the honest tax payers.
Clause -28 section 19BBBB is related to deletion of existing section and insertion of new section 19C. This new section will facilitate investors to make investment for the purchase of bond under Bangladesh Infrastructure Finance Fund and no question as to the source will be asked by the Tax Department. The time period of investment is fixed at, between 1st July 2010 and 30th June 2012 (three years), provided 10% of the sum of investment is paid as tax before filing I. T. Return for the relevant income year.
No doubt, it will encourage the assessees but it could be better if provision is made for encashing such bonds with interest after a fixed period of terms of the three-year bond.
Clause-29, 30- of finance bill has not been discussed.
Clause 31: This is the long outstanding and controversial issue for assessees like bankers, investors, tax officials and elite of the society. This clause relates to allowability of capital gains on sales of shares and securities. The words, "and stocks shares of public companies listed with a stock exchange in Bangladesh", are deleted. As a result, only government securities are to be considered u/s 32(7) as tax-free income. This amendment appears to be discriminatory for defining the word capital gain u/s 20 (f) of the I. T. Ordinance 1984, particularly in respect of government securities and shares and securities of publicly listed companies. It will discourage the small investors and will also affect the capital market.
By deletion of these words, investors like companies and individuals, doing transaction of this nature of business, are brought into tax net and are subject to tax at a rate of 37.5% or 25% respectively. Although, in the Finance Minister's budget speech, the rate of tax in the hands of a company is declared to be at 10% but nothing has been mentioned about an individual. In fact, such declaration of rate of 10% is not inserted in Finance Bill.
Akhter Zamil FCA is Senior Audit & Tax Partner, Howladar Yunus & Co. Chartered Accountants. He can be reached at:
hyc@howladaryunus.com
The critics, economists and professionals have termed the proposed national budget for fiscal year (FY) 2010-11 as being highly ambitious, and voluminous in comparison to that of the past year, expressing their anxiety over its implementation. They have cast doubts about its effective materialisation under the prevailing situation obtaining in the country, particularly in the context of the on-going global economic recession. It is considered by them that it would be a great challenge for the government to achieve gross domestic product (GDP) growth rate at 6.0% in the year under consideration.
But whatever the enforceable odds to come, we have to face, as a nation, the problems conforming us with full cooperation and unity, irrespective of differences in opinion and ideology. But our attitudes, aims and objects should be nationalistic at all stages of the implementation of the budget proposals. The Finance Minister cannot avoid such responsibility and remain silent by passing it to the public enterprises.
Details of expenditures of non-development budget (Tk. 924.76 billion) and development budget (Tk. 396.94 billion) can be considered; at the very outset of this review in terms of percentage Non-development expenditure (Tk. 924.76 billion) for the forthcoming fiscal includes pay and allowances (22%), grants in aid (19.4%), interest (15.9%) miscellaneous non-development investment (11.4%), goods and services (11.3%), subsidies (8.3%), pension (4.4%), acquisition of assets and works (3.4%), others (2.3%) unexpected and other block allocation (1.6). The proposed development expenditure (Tk. 396.94 billion) includes local govt. and rural development (21.81%), energy and power (15.3%), transport and communication (14.2%), education and information technology (12.8%), agriculture (8.9%), health (8.7%), public administration (7.8%), special security and welfare (5.3%), others (5.2%).
The budget proposals in respect of direct tax for the fiscal 2010-2011 can be taken up at this stage for consideration. The proposed Finance Act (bill) contains as many as 50(18-67) clauses relating to amendments to existing section, insertion of new sections, for the purpose of income tax in Income Tax Ordinance 1984 for fiscal
2010-2011.
Proposals for amendments to Income Tax Ordinance 1984, Excise and Salt Act, Customs Act and Relevant Schedules of such Acts and provincial collection of Taxes Act were generally placed in the parliament as proposed Finance Bill in the previous years. But this year such proposals have been placed before the members of the parliament as Finance Act, instead of Finance Bill. This time we have noted the proposed Draft Finance Bills are placed by terming it as Finance Act 2010, before being passed by the house. It created confusion in the minds of the public in general about its acceptance as Finance Bill.
Now, we would like to analyse the budget proposals for the required amendments to the Income Tax Ordinance 1984, taking into consideration the recommendations that were made during pre-budget discussions by the different organisations and corporate bodies and for assessing the justification that were made in favour of such proposals.
(1) No change in the taxable limit has been proposed for the individual Partnership Firm, HUDF and AOP, Resident, Non-Resident Bangladeshis and Non-Residents. Incomes of all persons -- persons engaged in service and businesses -- have been bracketed in an equal status for the purpose of application of tax rates, without considering whether the assessees belong to low income group, middle income group and higher income group. Rates are equally applicable for all of them. This appears to be not fair from the viewpoint of natural justice. Economic price index, prevailing in the country, has not been taken into cognisance for the cause of equity, keeping in mind about the income in the hands of different individual assessees. The incomes in the hands of professional firms are also not also considered properly; efforts, labour and energies put by the professionals in due performance of their duties have not also been differentiated. Despite payment of tax by the professional firms, the individual professional partners are required to pay average rates of tax. This appears to be unjust and cause hardship to this type of assessees. They are not machine and their capacity is limited. Attention should have been given to these categories of assessees. The government may reconsider their case and free them from double taxation as were done in the past.
The tax-free income limit may also be considered in the case of following types of assessees.
| (a) Lowly paid employees (General standard officer)(b) Highly paid employees (bankers, insurance, professionals chartered accountants, lawyers, engineers, architects etc.)(c) Lady individual assess having age in average 65 years or more(d) For disabled and handicapped assesses | Tk 250,000Tk 350,000Tk 2,00,000Tk 250,000 |
If this kind of tax-exemption limit is considered, it will be helpful for the above categories of assessees to survive under the economic situation, now obtaining in the country. In this respect, the tax-free income for each category of assessees may be fixed to avail the above limit.
In our neighbouring country, the tax-free income has been considered at an amount, equivalent to Bangladesh Tk. 400,000. Tax rebate @ 10% on tax amount, showing 10% higher income for 2010-2011, should be considered as incentives for higher income groups. The existing rates for charging tax rates have been fixed for different categories of companies, banks, insurance, financial institutions and mobile phone operating companies which are fixed at the following rates:
| (1) Publicly Traded Company – with indenture in the rates by 10% on fulfillment of certain conditions in respect of declaration dividend failing which rates of tax will apply at (2) Company which is not public traded(3) Banks, insurance, financial institutions(4) Mobile phone operator company(5) Dividend declared and paid by company local or non-resident company(6) Non-resident not being company except NRB | 27.5%37.5%37.5%42.5%45%20%25% |
Since the profit of the banking companies and financial institutions are increasing in volume from year to year, the rate of tax in their case may be considered at 40%, in place of 42.5%, in view of their contribution to the national exchequer in the form of direct taxes, in addition to VAT.
The clauses incorporated in Finance Act (Bill) for 2010-2011 included 50 clauses, proposing amendment to the existing sections and rules. Also insertion of new rules of the I. T. Ordinance 1984 (VAT Act 1991) may be discussed here separately. Now, we would like to put our comments on the basis of some important clauses for the interest of the assessees and also professionals, lawyers and the relevant persons.
Clause 18 and 19: The proposed budget started from clause 18 and extended itself upto to a total of 67 clauses, proposing changes/amendments, insertion "about the newly created post of "Any Additional Director General, Central Intelligence Cell".
Clause 20: A new clause is inserted under clause (e) which reads as under:
"Any Additional Director General or Joint Director General of Central Intelligence Cell to Exercise the Powers of Director General, Intelligence Cell".
Clause 21: This change was the most desirable one expected by the lawyers, professionals and other persons, engaged in the profession including others connected with the income tax. The proposed change is expressed as "he is or has been a District Judge", expecting immediate appointment as members of the Tribunal constituted under section (u/s) 11 of the I. T. Ordinance 1984.
Under clause 22, existing section 16D is deleted and new section 16E is inserted, proposing for changing of tax on the amount of premium collected in excess of the face value at a rate of 3.0% on the difference between the sales value and the face value.
This change of tax on premium is in contravention of the accounting principle, income thereof being capital receipts in the hands of the company. Such imposition of tax is arbitrary and discriminatory from the viewpoint of Company Laws and the tax law and it should be withdrawn.
Clause-23: Under the existing section 19, the sub-section 24 is newly modified/amended which is the new version of existing section 19(22). This is also capital receipts which requires to be paid by the assessees through a crossed cheque and bank transfers, failing which such receipts will be treated as revenue receipt under the head, "Income from Other Sources" for the purpose of imposing tax. The flow of investment by the assessees in private companies may be restricted.
Clauses 24, 25, 26, 19BBBB-related ones are deleted. The assessees are, thus, denied of the benefits that were earlier allowed to them to bring the black money or undisclosed income to the net of tax, although areas of investment are restricted. This deserves attention of the lawmakers.
Clauses -24, 25, 26 and 27 of the bill are deleted as expected by the elite of the society, and members of the business community and civil society.
Section 19(A) related to exception in respect of investment in new industries.
Section 19(AA) is related to special tax treatment in certain cases of investment.
Section 19(AA) related to exemption in respect of investment.
This will certainly be welcomed by the honest tax payers.
Clause -28 section 19BBBB is related to deletion of existing section and insertion of new section 19C. This new section will facilitate investors to make investment for the purchase of bond under Bangladesh Infrastructure Finance Fund and no question as to the source will be asked by the Tax Department. The time period of investment is fixed at, between 1st July 2010 and 30th June 2012 (three years), provided 10% of the sum of investment is paid as tax before filing I. T. Return for the relevant income year.
No doubt, it will encourage the assessees but it could be better if provision is made for encashing such bonds with interest after a fixed period of terms of the three-year bond.
Clause-29, 30- of finance bill has not been discussed.
Clause 31: This is the long outstanding and controversial issue for assessees like bankers, investors, tax officials and elite of the society. This clause relates to allowability of capital gains on sales of shares and securities. The words, "and stocks shares of public companies listed with a stock exchange in Bangladesh", are deleted. As a result, only government securities are to be considered u/s 32(7) as tax-free income. This amendment appears to be discriminatory for defining the word capital gain u/s 20 (f) of the I. T. Ordinance 1984, particularly in respect of government securities and shares and securities of publicly listed companies. It will discourage the small investors and will also affect the capital market.
By deletion of these words, investors like companies and individuals, doing transaction of this nature of business, are brought into tax net and are subject to tax at a rate of 37.5% or 25% respectively. Although, in the Finance Minister's budget speech, the rate of tax in the hands of a company is declared to be at 10% but nothing has been mentioned about an individual. In fact, such declaration of rate of 10% is not inserted in Finance Bill.
Akhter Zamil FCA is Senior Audit & Tax Partner, Howladar Yunus & Co. Chartered Accountants. He can be reached at:
hyc@howladaryunus.com