The government has proposed changes to the tax allowances available to individual taxpayers on their investments in five sectors and to social spending in 17 predefined sectors.
Taxpayers with up to Tk 15 lakh of annual taxable income enjoy a 15% rebate on their investments up to 25% of their annual taxable income, while the rebate is 10% for taxpayers with taxable income is more than Tk 15 lakh in a year.
The Minister of Finance has proposed increasing the rebate to 15% for everyone and reducing the authorized limit from 25% to 20%.
The ceiling of the investment considered for reimbursement is unchanged at Tk1 crore.
The proposed change will reduce the refund for small taxpayers while large taxpayers will benefit from more tax refund on less investment.
For example, a person with an annual taxable income of Tk 15 lakh received a rebate of up to Tk 56,250 per annum on his investments of up to Tk 3.75 lakh in listed certificates, mutual funds variable capital, national savings certificates, premium life insurance, treasury bills or in depository pension schemes by a bank or non-banking financial institution with an annual cap of Tk 60,000.
If the finance bill is finally approved in parliament, the National Revenue Board (NBR) would consider investments of up to Tk 3 lakh in the selected sectors for a 15% tax refund and the same taxpayer would benefit from a tax refund of up to Tk 45,000.
The tax burden for small taxpayers is expected to increase by Tk 11,250, while inflation makes life more difficult for them and the government has left the ceiling on annual non-taxable income unchanged.
Wealthy taxpayers, on the other hand, would be entitled to more tax refunds on even smaller investments.
Investments for tax refunds will decline for small taxpayers, while it is also likely to decline for wealthy taxpayers unless a large number of them opt for the increased refund.
In order not to increase the tax burden of middle-class taxpayers and to encourage large taxpayers to invest more, I would ask the government to maintain the 25% limit of authorized investments for the tax reduction unchanged.
Md Abdul Kader Nabil is a Senior Director at LankaBangla Securities and a member of Dhaka Taxes Bar Association