Proposed Budget 2016-17

Income tax goes up ‘silently’

When Finance Minister AMA Muhith on Thursday talked about tax measures in his budget speech in parliament, Wasim Hussain, a software engineer and one of the 12 lakh taxpayers of the country, felt something was wrong.
Being a practitioner of computer science, Hussain is good with numbers, but he found the calculation of income tax, this time, quite vexing. “To me, the numbers didn’t add up when I heard the finance minister present his new tax proposals.”
Hussain contacted one of the accountants in his office and asked whether there would be any changes in the amount of tax he has to pay. Like most corporate houses, Hussain's office deducts his income tax from his salary and pays it on his behalf.
The reply the accountant gave, after studying his case, shocked Hussain. His income tax has just been doubled!
Hussain earns Tk. 60,000 a month, which means he earns Tk. 810,000 a year, including two festival bonuses. After deducting Tk. 200,000 which consists of house rent, medical, and other non-taxable allowances, his taxable income stands at Tk. 610,000.
Out of this Tk. 610,000, Hussain does not have to pay taxes for Tk. 250,000, as per income tax rules. For the remaining Tk. 360,000, he has to pay a 10% tax (for the next Tk 400,000 slab), which means he needs to pay Tk. 36,000, per year, as income tax, if he doesn’t invest any portion of his income on any tax-free savings instrument.
After meeting his expenses, Hussain typically invests a portion of his income in savings instruments or primary shares to save on taxes. As his income is below Tk. 1,000,000, as per existing norms, Hussain would qualify for a rebate worth 15% of his investments, had he invested 30% of his taxable income.
The government, in this budget, has proposed to reduce that scope to 20%, from 30%. There lies the tricky part.
At current level, 30% of Hussain’s taxable income stands at Tk. 183,000 (30% of Tk. 610,000). A rebate worth 15% of Tk. 183,000 means Tk. 27,450 would get deducted from Hussain’s income tax liability of Tk. 36,000. Therefore, under the current arrangement, Hussain would have to pay only Tk. 8,550 as income tax.
Now, as the government has proposed to reduce that deductible portion to 20%, it means Hussain can claim the 15% rebate on only Tk. 122,000 (20% of Tk 6,10,000), which means only Tk. 18,300 would be deducted from his income tax liability of Tk. 36,000. Therefore, Hussain would end up paying Tk. 17,770 as income tax, which is double what he had been paying so far.
The amount of tax increases with the increase in income. A person who earns Tk. 100,000, a month, now, has to pay Tk. 45,000 as tax per year, whereas, previously, he needed to pay Tk. 25,500 per year. That’s an increase of almost 75%.
Interestingly, when Parvez Iqbal, member, tax policy of National Board of Revenue (NBR), was contacted to shed light on this supposedly hidden tax burden, he accepted that income tax burden has increased and told The Independent that because of this new provision, additional tax would have to be paid.
Citing an example, he said that if someone earns Tk. 100,000, he might need to pay extra Tk. 10,000 because of this new provision. The calculation however shows that it’s not a jump of Tk. 10,000 for those earning Tk. 100,000 a month, rather it is Tk. 19,500.
Parvez Iqbal said that this new provision is included to modernise the tax measures and to increase the government income.
Commenting on the issue, a finance industry professional who prefers to remain anonymous, said that the government has not been transparent, considering the manner in which this increase has been slipped in. “There is no mention of this in the finance minister’s speech, although this is a major tax change.”
He said, assuming income levels rise at the rate of 10%, against inflation of 6% to 7%, the real income is around 3% to 4%. In this backdrop, increase in personal income tax burden at such astronomical rate is clearly unjustified and regressive.
“All tax payers, especially those with low levels of income, will be hit hard. Reduction of investment allowance will reduce levels of investment in a situation where the economy desperately needs to raise the level of investment as a percentage of GDP, to raise the level of GDP and alleviate poverty,” he added.
The NBR eyes bagging Tk 71 crore in revenue in income taxes this fiscal year.

 

 

Proposed Budget 2016-17

Income tax goes up silently

When Finance Minister AMA Muhith on Thursday talked about tax measures in his budget speech in parliament, Wasim Hussain, a software engineer and one of the 12 lakh taxpayers of the country, felt something was wrong. Being a practitioner of computer science, Hussain is good with numbers, but he found the calculation of income tax, this time, quite vexing. To me, the numbers didnt add up when I heard the finance minister present his new tax proposals. Hussain contacted one of the accountants in his office and asked whether there would be any changes in the amount of tax he has to pay. Like most corporate houses, Hussains office deducts his income tax from his salary and pays it on his behalf. The reply the accountant gave, after studying his case, shocked Hussain. His income tax has just been doubled! Hussain earns Tk. 60,000 a month, which means he earns Tk. 810,000 a year, including two festival bonuses. After deducting Tk. 200,000 which consists of house rent, medical, and other non-taxable allowances, his taxable income stands at Tk. 610,000. Out of this Tk. 610,000, Hussain does not have to pay taxes for Tk. 250,000, as per income tax rules. For the remaining Tk. 360,000, he has to pay a 10% tax (for the next Tk 400,000 slab), which means he needs to pay Tk. 36,000, per year, as income tax, if he doesnt invest any portion of his income on any tax-free savings instrument. After meeting his expenses, Hussain typically invests a portion of his income in savings instruments or primary shares to save on taxes. As his income is below Tk. 1,000,000, as per existing norms, Hussain would qualify for a rebate worth 15% of his investments, had he invested 30% of his taxable income. The government, in this budget, has proposed to reduce that scope to 20%, from 30%. There lies the tricky part. At current level, 30% of Hussains taxable income stands at Tk. 183,000 (30% of Tk. 610,000). A rebate worth 15% of Tk. 183,000 means Tk. 27,450 would get deducted from Hussains income tax liability of Tk. 36,000. Therefore, under the current arrangement, Hussain would have to pay only Tk. 8,550 as income tax. Now, as the government has proposed to reduce that deductible portion to 20%, it means Hussain can claim the 15% rebate on only Tk. 122,000 (20% of Tk 6,10,000), which means only Tk. 18,300 would be deducted from his income tax liability of Tk. 36,000. Therefore, Hussain would end up paying Tk. 17,770 as income tax, which is double what he had been paying so far. The amount of tax increases with the increase in income. A person who earns Tk. 100,000, a month, now, has to pay Tk. 45,000 as tax per year, whereas, previously, he needed to pay Tk. 25,500 per year. Thats an increase of almost 75%. Interestingly, when Parvez Iqbal, member, tax policy of National Board of Revenue (NBR), was contacted to shed light on this supposedly hidden tax burden, he accepted that income tax burden has increased and told The Independent that because of this new provision, additional tax would have to be paid. Citing an example, he said that if someone earns Tk. 100,000, he might need to pay extra Tk. 10,000 because of this new provision. The calculation however shows that its not a jump of Tk. 10,000 for those earning Tk. 100,000 a month, rather it is Tk. 19,500. Parvez Iqbal said that this new provision is included to modernise the tax measures and to increase the government income. Commenting on the issue, a finance industry professional who prefers to remain anonymous, said that the government has not been transparent, considering the manner in which this increase has been slipped in. There is no mention of this in the finance ministers speech, although this is a major tax change. He said, assuming income levels rise at the rate of 10%, against inflation of 6% to 7%, the real income is around 3% to 4%. In this backdrop, increase in personal income tax burden at such astronomical rate is clearly unjustified and regressive. All tax payers, especially those with low levels of income, will be hit hard. Reduction of investment allowance will reduce levels of investment in a situation where the economy desperately needs to raise the level of investment as a percentage of GDP, to raise the level of GDP and alleviate poverty, he added. The NBR eyes bagging Tk 71 crore in revenue in income taxes this fiscal year.