Chairman of the National Board of Revenue (NBR) Md Abdur Rahman Khan on Monday requested the Finance Adviser to reduce the budget size and give some relaxation to the mass people.

“I have requested (Finance Adviser), sir please cut short the budget size and give some relief to people,” he said while speaking at the pre-budget meeting with Economic Reports’ Forum (ERF) held at Revenue Building, reported UNB.

He also said Bangladesh’s next budget would be a business-friendly beautiful one. “We might lose some revenue due to this.”

But, the NBR chairman said that taxpayers who were previously paying a reduced rate would have to pay the regular rate, more or less, from the next fiscal year. “We will propose it to the policymakers, it would bring good for everyone,” he added.

Abdur Rahman Khan said that the number of quality taxpayers is very negligible in the country. “We had taken aggressive policy to increase the tax collection,” he said.

He said that work on increasing the operational efficiency has been taken to catch the tax evaders through improving professional excellence, and put emphasis on containing tax evasion in the country that has become a normal phenomenon.

Talking about the Value Added Tax (VAT), Abdur Rahman Khan said that it is now in a total indiscipline situation.

He said that if input VAT credit and standard VAT rate can be imposed properly, then for many business entities the rate would be less than one percent.

The NBR chief said the VAT Law, introduced in 2012, was significantly distorted over time and later amended in 2019 to address these distortions.

“The power of VAT was accounting based and invoice based one, we have destroyed that, as a result it is not growing right now, we have uprooted the main strength of VAT, we want to return the discipline of VAT,” he said.

When the issue of wealth tax was placed, the NBR chairman said that it was in the country in 1963, later it was scrapped in 1999.

“If we can digitise the total system, bring the valuation of assets under a model, then it will definitely reduce the discrimination of wealth in the country, it will also be an extra source of revenue,” he said.

He also hinted that slowly the government would go for wealth tax getting out from the surcharge on wealth if the valuation of land and building can be established on a non-debated platform.

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."