The tax-free income ceiling of Tk 2.5 lakh in Bangladesh is the lowest in South Asia. In India, the tax-free income limit is INR 2,50,000, which, at the current rate of exchange, stands at BDT 3,25,000 with a starting tax rate of 5 per cent. In Pakistan, the tax-free limit is 4,00,000 Pakistan Rupee (equivalent to BDT 3,10,000) and a starting tax rate of 2 per cent. In Thailand, the limit is 1,50,000 Thai Bhat (equivalent to BDT 3,55,000) and a starting tax rate of 5 per cent. The percentage of tax payers in Bangladesh is the second highest among South Asian nations after Sri Lanka.
In Sri Lanka, 15 per cent of people pay income tax, while 4 per cent do so in Bangladesh. In India, 3.8 per cent of people pay income tax compared to the 1 per cent in Pakistan. World Bank lead economist Dr Zahid Hussain told this correspondent that the tax-free income ceiling in Bangladesh was logical in the light of the country's per capita income.The tax-free level is calculated as twice the per capita income. With the current per capita income being USD 1602, the tax-free income level was theoretically correct, he said.
But when seen from the perspective of the country’s inflation rate, the tax-free income ceiling should be around Tk. 287,000, he added. Dr AMB Mirza Azizul Islam, former adviser to the caretaker government, said different countries had their own ways of fixing the tax-free income ceiling. The level should be increased to Tk 2.75 lakh, he added.
The tax exemption limit for general taxpayers has remained unchanged at Tk. 2.5 lakh for the last three years—the last change was made in the Finance Act, 2015.  The lowest tax bracket, too, has remained unaltered at 10 per cent.
Finance minister AMA Muhith has shown a correlation between the per capita GDP and the tax-free limit to justify keeping the ceiling unchanged. The per capita GDP is derived from the income of the entire population, including more than 91 per cent of the population that is either not required to pay income tax or evades it. The reality is that inflation has hovered within the range of 6 to 7 per cent in the past three years.
Muhith proposed to keep unchanged the tax-exempted income ceiling for individual tax payers at Tk. 2.50 lakh.
In his budget speech in Parliament, the finance minister proposed that the
tax exemption threshold would be Tk. 3 lakh for women and senior citizens above 65 years, Tk. 4 lakh for persons with disability, and Tk 4.25 lakh for war-wounded gazetted freedom fighters.
The existing tax exemption threshold is Tk. 2.50 lakh in general cases.
However, the threshold was higher for special classes of taxpayers, including female taxpayers.
Muhith mentioned that the tax exemption threshold in Bangladesh was more than 200 per cent of per capita GDP. In most developing countries, the ratio is about 100 per cent. “Our inflation rate is low at this moment. Point-to-point inflation is around 5 per cent only," he added.
However, the finance minister proposed that the tax exemption threshold be kept unchanged for the next fiscal year. However, he also proposed that the threshold would be Tk. 4 lakh in place of Tk 3.75 lakh for persons with disability.
“We had earlier fixed a respectable tax exemption threshold for gazetted war-wounded freedom fighters,” he said.
“Taxpayers with a total income exceeding the tax exemption threshold are currently paying a minimum tax of Tk. 5,000 if they are residing in any of the city corporations of Dhaka North, Dhaka South, and Chittagong, Tk 4,000 if residing in any other city corporation and Tk. 3,000 if residing in any other place. I propose that these rates be kept unchanged,” the finance minister added.