World Bank Vice President Martin Raiser today reiterated the global lender's pledge to support the reform agendas of Bangladesh's Interim Government.

Raiser came up with pledge when he called on Bangladesh Chief Adviser Professor Muhammad Yunus at the State Guest House Jamuna here.

During the meeting, they discussed issues of mutual interest, including the World Bank's financing of the country's major transparency, governance and digitalisation reforms, including tax administration.

"The World Bank is supporting Bangladesh with a range of urgent reforms to improve transparency and governance, including in tax policy and administration, public procurement, and statistics," the World Bank Vice President said.

Raiser said reforms are very important for Bangladesh's democratic transition and its future governments and inclusive growth.

"These reforms will help lay the foundation for future inclusive growth by strengthening people's and businesses confidence in the integrity of Bangladesh's institutions," he said.

The World Bank Vice President called for separation of tax administration and tax policy to improve transparency and governance in the revenue system. 

He said parliament should be the sole authority to decide on tax exemptions.
Chief Adviser Prof Yunus explained his recent creation of a consensus commission to facilitate dialogue with the political parties over the reforms recommended by six major commissions.

"Once the political parties have reached consensus over the reforms, they will sign a July Charter, which will be implemented by the Interim Government and later by the political government," he said.

Raiser also stressed the improvement of public procurement and the importance of the independence of the Bangladesh Bureau of Statistics (BBS) to improve the quality of data, which is essential for sound policymaking.

The meeting also discussed the importance of a strong digitisation agenda, including details of the National Identification (NID), with Raiser saying the World Bank can help Dhaka connect with countries that have robust digital identification infrastructure.

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."