Tax rebate on investment: Added burden for small taxpayers

The proposed changes in tax rebate on investments through share market, savings certificates and other instruments are going to reduce rebates for small taxpayers while large taxpayers will enjoy more tax benefits.

In other words, small taxpayers will have to pay more taxes on the reduced investment limit. Besides, failure to file the tax return within the deadline will slash the rebate to half.   

Currently, taxpayers with an annual earning of Tk15 lakh, the minimum taxable income, are enjoying 15% rebate on their allowable investment limit, which is 25% of their annual taxable income, while the rebate for taxable income above Tk15 lakh is 10%.

In the finance bill, the finance minister has proposed making the rebate 15% for all and reducing the allowable investment limit from 25% to 20%.

Say a taxpayer has an annual taxable income of Tk6 lakh. Under the current provisions, they are allowed to invest 25% or Tk1,50,000 on which they will get a rebate of 15%. As such, the amount of their rebate or tax credit will be Tk22,500. On the other hand, the amount of gross tax on their taxable income will be Tk25,000. Excluding the tax credit, their payable tax would be Tk2,500.

But now, under the proposed changes, a taxpayer with the same annual income will be allowed to invest 20% or Tk1,20,000, on which the tax credit is Tk18,000 with the same gross tax liability of Tk25,000. Excluding the tax rebate of Tk18,000, the taxpayer's payable tax amount will be Tk7,000.

Failure to file the return in time will reduce the rebate to half, meaning the payable tax will increase further.

On the other hand, a taxpayer with an annual income of Tk20 lakh pays a tax of Tk2,45,000 on the allowable investment amount while under proposed changes the tax will decrease to Tk2,35,000.

Taxpayers and economists say, in the current situation, when inflation is already pushing people to the edge, the tax burden on low-income taxpayers is being increased instead of reducing it. At the same time, the investment rebate for the rich taxpayers has been increased.

Kamrul Islam, a small taxpayer, told The Business Standard that it would be difficult to take on the new tax burden.

Towfiqul Islam Khan, a senior research fellow at the Centre for Policy Dialogue (CPD), said the proposal is not acceptable.

"This would benefit the wealthy taxpayers and burden the marginal ones. In the current inflationary situation, it was necessary to try to provide the marginal taxpayers with relief by increasing the tax-free income limit. The finance bill proposed no such relief for small taxpayers, rather increased tax burden on them," he said.

Currently, the country has over 75 lakh people who have a Taxpayer Identification Number (e-TIN), out of which about 25 lakh TIN-holders have filed tax returns in the last one year.

The number of total marginal taxpayers and the number of taxpayers, who avail the tax rebate on investment is not available at the National Board of Revenue (NBR). A source at the NBR, however, told The Business Standard that almost all salaried individuals are enjoying tax rebate through investment.