New income tax rule to hit the middle earners hard
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New income tax rule to hit the middle earners hard

Budget

Abbas Uddin Noyon
16 June, 2020, 10:55 am
Last modified: 16 June, 2020, 01:17 pm

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New income tax rule to hit the middle earners hard

The change in tax measures is beneficial for those individuals whose gross salary is between Tk37,000 and Tk57,000 per month as they will continue to pay the same amount of tax

Abbas Uddin Noyon
16 June, 2020, 10:55 am
Last modified: 16 June, 2020, 01:17 pm
Representational image. Picture: Collected
Representational image. Picture: Collected

Tax measures in the proposed budget appear to benefit the lowest and the highest segments of income earners, leaving out middle-income group people.

The government has increased the tax-free income threshold for individual taxpayers in the fiscal year 2020-21 after five years in a bid to give some relief to lower-income group people.

The minimum tax rate for individuals has also been reduced from 10 percent to 5 percent, and the maximum tax rate from 30 percent to 25 percent.

Analysing tax measures, the Institute of Chartered Accountants of Bangladesh (ICAB) said individuals with a monthly gross salary between Tk60,000 to Tk1 lakh would gain the most – a maximum of 62 percent in tax exemption – through this proposed amendment.

The tax benefit will also increase for income earners of Tk4 lakh per month.

But the amount of tax reduction applicable for individuals earning between Tk1.5 lakh to Tk2 lakh per month will decline.

Under the new law, individuals with Tk4 crore income per month will get up to 17 percent or Tk2.38 crore in exemption from 30 percent they paid in the previous fiscal year.

Snehasish Barua, ICAB member and partner of chartered accounting firm Snehasish Mahmud & Co, said it is quite visible from the above analysis that the benefit will not apply equally for all taxpayer groups, as some will be more benefited than others.

"From a revenue perspective, we need to review which of these taxpayer groups will contribute to higher amounts of revenue. If it is the people whose salary is between Tk60,000 and Tk100,000, tax revenue might be adversely affected in the wake of a fall in revenue collection due to an increase in the tax-free income threshold and a decrease in the highest rate of tax. Hence, this impact needs to be reviewed carefully," he added.

The ICAB analysis considered the exemptions available for house rent allowance, medical allowance and conveyance allowance

The ICAB also assumed that individual taxpayers get two basics in festival bonus. Additionally, they have been deemed to be males who invest in eligible securities to receive an available investment tax credit.

An individual with a gross salary of Tk31,000 per month was below the threshold for the financial year 2018-19 and will remain below the threshold for the fiscal year 2019-20.

However, as per the proposed amendment, an individual with a gross salary of Tk36,500 will not come under the purview of tax, although such individual's income was taxable in the earlier year and was required to pay Tk5,000.

This is really a good relief for such type of income earners.

On the other hand, the change in tax measures is beneficial for those individuals whose gross salary is between Tk37,000 and Tk57,000 per month as they will continue to pay the same amount of tax.

Economy / Top News

Income Tax / Budget 2020-21 / Budget 2020-21 FY / Budget Bangladesh

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