Super rich spared of new 30% income tax rate

The government has decided to reverse its plan to raise the tax rate on high-income individuals starting from the tax year 2024-25, which corresponds to income year 2023-24.

According to sources from the finance ministry, the current highest income tax slab rate of 25% will remain unchanged for the tax year 2024-25 but might be increased to 30% starting from the tax year 2025-26.

Initially proposed in the FY25 budget announced on 6 June, the finance minister had recommended increasing the rate to 30% for the tax year 2024-25.

In Bangladesh, the fiscal and income years coincide, starting on 1 July and ending on 30 June of the following calendar year. However, for tax purposes, income earned during this period is assessed in the subsequent fiscal year.

Furthermore, the National Board of Revenue (NBR) will refrain from auditing tax files if the tax return shows an income increase of up to 15% compared to the previous year.

Corporates may consequently miss out on the tax rate reduction benefit. This hinges on whether business incomes are subject to a minimum tax regime at the import or supply stages. Snehasish Barua, partner at Snehasish Mahmud & Co, a audit, tax, and consulting firm

Additionally, provisions are being introduced to the Income Tax Act to exempt pension income under the Universal Pension Scheme from taxation.

Finance ministry sources said on 25 June, NBR Chairman Abu Hena Md Rahmatul Muneem met with Prime Minister Sheikh Hasina to discuss these issues.

After this meeting, the NBR chairman held a session with officials responsible for budgetary affairs and provided essential instructions given by the prime minister. The proposed policy amendments have already been forwarded to the law ministry for legal review.

These changes are slated to be incorporated into the Finance Bill 2024, which is anticipated to receive parliamentary approval today (29 June).

After Finance Minister Abul Hassan Mahmood Ali proposed the tax rate hike for higher-income individuals, NBR officials said that this rate hike alone is expected to add an additional Tk10,000 crore to the state coffers.

They further noted that this initiative aims to mitigate income inequality, finance public services, and promote a more equitable distribution of resources.

The highest rate of individual income tax was lowered from 30% to 25% in the fiscal year 2020-21 (FY21) to give people and the economy some relief from the pandemic shocks.

If last year's Personal Income Tax (PIT) rates remain unchanged, the NBR could potentially lose projected revenue from these accounts. However, if Corporate Income Tax (CIT) rates also remain unchanged, the NBR may collect additional revenue, given the rates were previously 27.5% or 30%, compared to the proposed 25% or 27.5% in the bill. Snehasish Barua

Currently, the NBR collects individual income tax under five brackets.

Beyond the tax-free income threshold of Tk3.5 lakh, rates are structured as follows: 5% on income up to Tk4.5 lakh, 10% on income up to Tk7.5 lakh, 15% on income up to Tk11.5 lakh, 20% on income up to Tk16.5 lakh and 25% on any income exceeding Tk16.5 lakh mark.

Speaking with TBS, Snehasish Barua, a partner at Snehasish Mahmud & Co, a firm offering audit, tax, and consulting services, said, "The exact tax impact can only be determined for high-income earners falling under the new 30% tax band."

"If last year's Personal Income Tax (PIT) rates remain unchanged, the NBR could potentially lose projected revenue from these accounts. However, if Corporate Income Tax (CIT) rates also remain unchanged, the NBR may collect additional revenue, given the rates were previously 27.5% or 30%, compared to the proposed 25% or 27.5% in the bill."

"Corporates may consequently miss out on the tax rate reduction benefit. This hinges on whether business incomes are subject to a minimum tax regime at the import or supply stages. If corporate incomes are lower and fall under the minimum tax regime mentioned, neither the reduced rate will benefit the corporates nor the increased tax rate will benefit the NBR," he added.

Tax on capital gains from trust-funds

A 15% tax is imposed on the capital gains of funds and trusts, similar to companies. Capital gains up to Tk 50 lakh in the share market remain exempt from tax.

However, if capital gains exceed Tk 50 lakh, tax will be applicable. In such cases, the tax on gains will be collected from individual taxpayers in two ways.

Firstly, if an individual earns profits by selling shares within five years of purchase, they will be taxed according to their income tax slab.

For instance, if someone buys shares and sells them after six months or a year, generating a profit of Tk51 lakh, Tk50 lakh of this amount will be tax-exempt, and they will be required to pay capital gains tax on Tk1 lakh. This amount of Tk1 lakh will be added to the taxpayer's total income, and they will pay income tax based on their applicable tax slab.

Secondly, if an individual buys shares and realises the same profit after holding them for five years, the tax calculation will differ. In this scenario as well, Tk50 lakh will be exempt from tax. A 15% income tax rate will be applicable on the remaining Tk1 lakh, amounting to Tk 15,000.

Audit exemption

To ease audit requirements and minimise inconvenience, the finance minister and state minister of finance have sanctioned amendments to the Income Tax Act through the Finance Bill.

According to the revised regulations, tax audits will be waived if the tax return indicates a 15% increase in income compared to the previous year. This exemption applies specifically to revised returns and is limited to individual taxpayers.

No source tax for the Heba deed

In general, Heba is an unconditional transfer of property. In the budget proposal, Heba deeds for immovable property transactions such as land, plots, and flats were subject to source taxation. However, the government reversed this decision.

Under the previous regulations, Heba deeds for property transfers among siblings, parents and children, spouses, and between grandparents and grandchildren were exempt from source taxation.

Currently, Heba documents incur a tax amounting to Tk2,510, comprising registration fees of Tk100, stamp duty of Tk1,000, affidavit stamp of Tk300, and court fees of Tk10, among other charges.