Govt backtracks on Tk2,000 minimum tax

The government has decided to backtrack on its budgetary proposal to impose a minimum tax of Tk2,000 on individuals who have no taxable income but need to submit tax returns, finance ministry officials familiar with the matter told The Business Standard.

"The latest decision has been made following the prime minister's directives to keep breathing space for Taxpayers Identification Number [TIN] holders," said an official who wished to remain unnamed.

Prime Minister Sheikh Hasina asked the finance ministry officials to scrap the proposal of realising the minimum tax, considering the ongoing inflationary pressure on lower-income people, ministry sources said.

They hinted that the decision of withdrawing the proposed minimum tax will be reflected in the finance bill soon.

Finance Minister AHM Mustafa Kamal, in his budget speech for FY24, said, "I propose imposing a minimum tax of Tk2,000 for competent people whose earnings are below taxable income but have an obligation to submit income tax returns to take services from the government with a view to circulating this participation into government welfare work."

"One of the responsibilities of a citizen is to ensure his participation in the government's welfare work by paying the minimum tax," he added.

Economists and business leaders criticised the move, saying it would be irrational for now. "The idea of the minimum tax is inconsistent with taxation principles," the apex trade body FBCCI wrote to the National Board of Revenue. It demanded the withdrawal of the minimum tax.

In the proposed budget, the tax-free threshold has been increased to Tk3.5 lakh for individuals. A 5% tax will be applicable for the next Tk1 lakh, 10% for the next TK3 lakh, 15% for the next Tk4 lakh, 20% for the next TK5 lakh and 25% for the rest of the amount.

The minimum amount of income tax on individuals in specific areas will be unchanged – Tk5,000 in Dhaka and Chattogram cities, Tk4,000 in other cities and Tk3,000 in municipality areas, as per budget documents.

According to the National Board of Revenue, the country now has 88 lakh TIN holders, and some 32 lakh of them submit tax returns.

Among individuals who submit tax returns, some eight lakh do not have taxable income on average. If these eight lakh individuals pay the proposed minimum tax of Tk2,000, the government will get an additional revenue of Tk160 crore, the NBR has estimated.

Applying the minimum tax to all TIN holders, except those who have already been paying taxes, will generate around Tk1,280 crore in additional revenue, it added.

According to the proposed budget, a total of 44 services require proof of tax return submission, such as taking a loan of above Tk5 lakh from banks or financial institutions, being a company director or shareholder, obtaining an import-export registration certificate, obtaining a trade licence from a city corporation or municipality, deeding land or flat worth more than Tk10 lakh, applying for credit cards, becoming a member of professional bodies, applying for gas-electricity connection, and enrolling children in English medium schools, etc.