The Asian Development Bank (ADB) has expressed willingness to support the Interim Government of Bangladesh to initiate vital structural reforms in the country.

The interest came when a senior ADB delegation, led by its South Asia Director General Takeo Konishi, today called on Chief Adviser Professor Dr Muhammad Yunus at the State Guest House Jamuna here.

During the meeting, the ADB Director General said the ADB has a long history of working in Bangladesh and would be keen to support the Interim Government to initiate vital structural reforms in the country.

 Konishi said there was room for policy-based lending to Bangladesh as the Interim Government stepped up efforts to stabilise the economy.

Chief Adviser Prof Yunus said the student-led revolution had given Bangladesh a new opportunity to rebuild the institutions "piece by piece."

"We're in a ground zero situation. Everything needs to be done as quickly as possible," the Chief Adviser told the ADB delegation.

During the meeting, the government's newly launched financial sector reforms, key economic issues such as digitalisation of the tax data, data transparency, energy, private sector, and investment were discussed.

Lutfey Siddiqi, special envoy of the Chief Adviser, observed that dynamics in the foreign exchange market and its interplay with reserves and remittances are already showing signs of improvement.

"There is a noticeable uplift in confidence and credibility on that front," he said.

Lamiya Morshed, senior secretary and the head of SDG affairs; Edimon Ginting, senior adviser of ADB; Hoe Yun Jeong, ADB country director designate; and Jiangbo Ning, deputy country director; were present in the meeting.

MSH

Companies and organisations will be required to file tax returns on the income generated by employee welfare funds from the current fiscal year and pay a 27.5 percent tax on the earnings. 

The Income Tax Act 2023 incorporates the provision, lifting the tax exemption and amnesty on the compulsion to file returns for funds such as provident funds, gratuity funds and workers' profit participation funds maintained by the private sector.

The law, however, has exempted government-managed provident funds from taxation, raising questions.

TIM Nurul Kabir, executive director of the Foreign Investors' Chamber of Commerce & Industry, said there were many other avenues to collect tax.

"Employees benefit from provident funds after their retirement. So, the authority should not slap taxes on retirement benefit."

He said while levying the tax, the government has not treated provident funds of the private and public sectors equally.

"It is discriminatory," he said, adding that they would appeal to the tax authority for the withdrawal of the tax on income from provident funds.

Debabrata Roy Chowdhury, director for legal, regulatory and corporate affairs at Nestlé Bangladesh PLC, said the introduction of income tax on trust funds would lower the overall income from such schemes.

"This will have an adverse long-term impact on retired employees of private organisations."

Chowdhury urged the authority to address the issue in line with the spirit of the government's initiatives aimed at ensuring social security for private sector employees.

"The recent introduction of the universal pension scheme for private sector employees is a good example of that."

A senior official of the NBR, on condition of anonymity, said the income of government-managed provident funds was exempted in line with the Provident Fund Act 1925.

He said provident funds under the private sector had been historically exempted and there was no requirement to submit tax returns. As a result, it was unclear whether the funds were properly utilised.

"From now onwards, we will see proper disclosure."

The tax official said the contribution of payroll tax is about 3 percent of the total income tax although it should increase as the economy is growing.

Md Shahadat Hossain, a former president of the Institute of Chartered Accountants of Bangladesh, said income from investment in savings certificates, where people invest as a source of future earnings, is already taxed.

"From that perspective, the imposition of tax on provident and other employee welfare funds seems okay."

However, Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue, said social protection for private sector employees was low.

"Provident and other workers' welfare-related funds provide little social protection. The imposition of tax will increase inequality. But there can't be any discrimination in taxation between private and government provident funds."

Khan, citing the latest income tax law that replaced the Income Tax Ordinance 1984, said the NBR tried to find new avenues to increase tax collection and improve the nation's revenue-gross domestic product ratio, which is one of the lowest in the world.

"We can see the desperation of the tax authority to boost collection. This ultimately reveals the inability of the NBR to catch the tax evaders and illicit money makers."