Tax-free income threshold may increase

The upcoming national budget may raise the tax-free income threshold for individual taxpayers. The threshold could increase to Tk 375,000, up from the current limit of Tk 350,000, according to sources at the National Board of Revenue (NBR).

Finance Minister Amir Khasru Mahmud Chowdhury will announce the budget in Parliament on 11 June.

This will be the first budget of the ruling Bangladesh Nationalist Party (BNP) during its current term in office.

Responsible sources at the NBR said the government is considering increasing the tax-free income threshold to provide relief to low-income taxpayers, as persistently high inflation has reduced people’s purchasing power.

During the announcement of the current fiscal year’s budget, outgoing interim government finance adviser Salehuddin Ahmed had already indicated that the government would increase the tax-free income threshold in the next fiscal year.

After assuming office, the new government has planned to implement the interim administration’s proposal in order to ease pressure on lower-income and middle-class families.

Relevant sources said the revised tax-free income threshold would apply not only to general taxpayers but also to women taxpayers, taxpayers aged over 65, third-gender taxpayers, taxpayers with disabilities, gazetted freedom fighters, and gazetted injured July Warriors associated with the July Mass Uprising of 2024.

The government may also increase the tax-free income limit for each child or dependent of parents or legal guardians of persons with disabilities.

At present, 12.8 million (1.28 lakh) people in the country hold Taxpayer Identification Numbers (TINs). Of them, between 4 million (40 lakh) and 4.2 million (42 lakh) taxpayers submit tax returns annually.

These taxpayers calculate their tax liabilities on the basis of the prevailing tax-free income threshold when filing their returns.

Regarding the proposed increase, M Masrur Reaz, chairman of Policy Exchange Bangladesh (PEB), told Prothom Alo, “The country has experienced high inflation for more than four years. Ordinary people are under the greatest pressure from rising prices. Under these circumstances, if the tax-free income threshold increases slightly, both small and large taxpayers would benefit. I was surprised that the government did not raise it last time. Rather than placing a greater tax burden on small taxpayers, the government should collect more tax from those with higher incomes.”

Although the government may increase the annual tax-free income threshold in the next fiscal year, taxpayers whose incomes exceed the threshold slightly may not receive any relief.

Instead, their tax burden could increase somewhat. This is because the government may abolish the existing 5 per cent tax slab in the upcoming fiscal year.

Under the proposed structure, taxpayers earning more than Tk 375,000 annually may pay 10 per cent tax on the first Tk 300,000 above the tax-free threshold; 15 per cent on the next Tk 400,000; 20 per cent on the following Tk 500,000; 25 per cent on the next Tk 2 million; and 30 per cent on the remaining income.

If the government implements this proposal, taxpayers whose earnings remain only slightly above the tax-free threshold would face higher tax liabilities.

Under the current system, taxpayers pay 5 per cent tax on the first Tk 100,000 above the existing tax-free threshold of Tk 350,000. For example, a taxpayer with an annual income of Tk 450,000 currently pays Tk 5,000 in tax.

However, if the government removes the minimum 5 per cent tax slab in the next budget and a taxpayer earns Tk 450,000 annually, tax would apply to Tk 75,000 of income.

If the government imposes tax at 10 per cent on that amount, the taxpayer would have to pay Tk 7,500 in tax.

As a result, the individual’s tax liability could increase by Tk 2,500 compared with the current system.

Former Chairman of the National Board of Revenue, Mohammad Abdul Majid, told Prothom Alo, “Considering ordinary taxpayers during this period of high inflation, increasing the tax-free income threshold is justified. Some taxpayers may move outside the tax net as a result, but those who remain within it will have to cope with inflationary pressure on the one hand and rising tax expenses on the other. If the government increases income tax rates, the tax burden will rise further. Therefore, the government should reduce inflation in order to provide relief to ordinary people and taxpayers.”

The government last increased the tax-free income threshold in the 2023 budget, raising it from Tk 300,000 to Tk 350,000.

Since then, the threshold has remained unchanged, although inflationary pressure has intensified over the past three years. Inflation has averaged around 10 per cent annually during this period.

As a result, taxpayers whose incomes were only slightly above the tax-free threshold have had to pay tax, while at the same time facing rising living costs because of persistent inflation.

According to data from the Bangladesh Bureau of Statistics (BBS), inflation stood at 9.04 per cent in April.

During five of the past six months, inflation exceeded 9 per cent. By contrast, the national average wage growth rate in April was 8.16 per cent. In other words, wages increased at a slower rate than inflation.

Economists say that when wages or incomes rise more slowly than inflation, ordinary people face greater hardship because their real incomes decline.

A senior official from the income tax division of the NBR, speaking to Prothom Alo on condition of anonymity said, “The proposal to increase the tax-free income threshold is under active consideration in the budget. The new government may raise the threshold after considering the difficulties faced by small taxpayers.”

The government may announce in the upcoming budget that taxpayers will be able to submit tax returns throughout the year from the next fiscal year onwards.

At present, the annual deadline for filing returns is 30 November, although the authorities extend the deadline several times each year.

For this reason, the NBR plans to introduce a year-round return submission system instead of maintaining a fixed filing deadline.

According to the income tax division’s proposal, taxpayers who submit returns earlier would receive tax rebates, while those who file later would incur additional costs.

Under the proposal, taxpayers who submit returns during the first quarter of the fiscal year (July–September) could receive a rebate of up to 5 per cent on the payable tax.

Those who submit returns during the second quarter (October–December) would pay the standard amount of tax without any rebate or penalty.

Taxpayers filing returns during the third quarter (January–March) might have to pay an additional 2–5 per cent of the tax amount as a penalty alongside their regular tax liability.

Those submitting returns during the fourth quarter (April–June) could face additional charges amounting to 5–10 per cent of the payable tax.

The authorities may also impose penalties on individuals who submit returns despite having no taxable income.

As all taxpayers now submit returns online, the system would automatically calculate taxes, rebates, and any additional charges.

The authorities may also introduce a system preventing taxpayers from submitting online returns unless they pay the additional tax amount in full.