FY24 budget: Smaller tax exemptions, higher revenue target

The National Board of Revenue (NBR) is now in a desperate attempt to enhance tax collection in order to meet the government's escalating expenses and comply with the conditions set by the International Monetary Fund (IMF).

Hence, the forthcoming budget for the fiscal year 2023-24 will have a focus on initiatives aimed at tax collection rather than tax exemptions.

The revenue board is going to have a target for collecting Tk 4,300 billion in duty and taxes in the next fiscal. Additionally, it must collect Tk 480 billion extra in the fiscal to fulfill the IMF conditions.

To achieve the targets, the revenue board is planning to scale up existing duties and taxes in various sectors. It is even going to impose fresh taxes in some cases, which may eventually mount the prevailing pressure on the public.

The individuals filing income tax returns might be required to pay a minimum tax of Tk 2,000 from the next fiscal. The authorities will make it mandatory to present the tax return receipt to avail 44 types of services, including purchasing savings certificates, obtaining credit cards, offering cars for ride-sharing, and acquiring gas and electricity connections.

In an attempt to mitigate the inflationary pressure, there may be an announcement to raise the annual tax-free income threshold from Tk 300,000 to Tk 350,000, providing some relief to individual taxpayers.

The revenue board has emphasised levying tax at source in various sectors. The budget may propose the elimination of money whitening through land and flat purchases and instead suggest an increase in registration fees. Additionally, the prevailing travel taxes may rise, resulting in extra costs for outbound travelers.

The finance minister may propose imposing additional duties on mobile phones, high-end cars, cigarettes, pens, plastic tableware, kitchenware, tissues, and napkins, which may eventually lead to increased prices for these items.

On the flip side, prices of locally developed software, fridges, bicycles, and some other commodities may decrease after the budget.

The much-discussed scope of bringing laundered money back will not be extended in the budget as no one availed of the opportunity in the previous ten months.

There is a provision in the new income tax law to regularise unreported money through land and flat purchases. The law will be presented to the parliament as a bill in the ongoing session.

There is no good news for businesses and their corporate tax rates will not be reduced this time.

Planning minister MA Mannan said due to persistent inflationary pressure, the government aims to provide relief to the public by raising the tax-free income ceiling to some extent. The development projects should not be discontinued and they require money. Therefore, the tax net will be widened, instead of placing additional tax burdens on the people.

"If the tax net is appropriately expanded, the revenue collection target can be achieved. We need additional revenue now," he told Prothom Alo.

In cases of flat and plot registration, the budget may propose to hike different taxes, such as gain tax, stamp duty, and registration duty. The current tax rates, ranging from 10 to 12 per cent, may be increased to 15 per cent in the budget.

As a result, individuals purchasing a Tk 10 million flat will face additional costs ranging from Tk 250,000 to 500,000.

There might be bad news for car owners, particularly for those buying a second car. Additional taxes, like carbon tax, may be imposed on the purchase of a second car based on the engine capacity, ranging from Tk 20,000 to Tk 300,000. These taxes will need to be paid when collecting fitness certificates.

Also, the supplementary duty on vehicles with an engine capacity of 2001 to 3000 CC may be increased from 200 per cent to 250 per cent in the next budget. Similarly, vehicles with an engine capacity of 3001 to 4000 cc may see an increase from 350 per cent to 500 per cent.

The wealthy people may receive some concessions on the surcharge. Currently, a surcharge is imposed on taxpayers with assets exceeding Tk 30 million, but this ceiling may rise to Tk 40 million.

Air, land, and sea travel taxes are also set to go up by 25 to 75 per cent. The travel tax for SAARC countries may rise to Tk 2,000 from Tk 1,200, and for Middle Eastern countries to Tk 4,000 from the current tax of Tk 3,000, according to NBR sources.

The Tax Identification Number (TIN) system may undergo changes. Taxpayers who have submitted zero returns for the previous three years can apply for the suspension or cancellation of their TIN with appropriate proof.

Additionally, aged TIN holders and owners of non-operational companies may enjoy this facility. In the case of a taxpayer's death, the TIN can be canceled.

The budget may propose the scope to hire private agents to assist in the preparation and submission of tax files. There might also be a proposal for zero taxation on deposit pension schemes (DPS) worth Tk 10,000 per month or Tk 120,000 per year. The current ceiling stands at Tk 60,000.

The budget may lead to price fluctuations for some commodities. There might be a proposal to impose value-added tax (VAT) on local handset manufacturers at the manufacturing level.

Those who produce their own raw materials and manufacture handsets will face a 3 per cent VAT. There is a 3 per cent VAT on companies that produce at least two raw materials by themselves and manufacture handsets locally. It may rise to 5 per cent in the new budget, leading to a hike in smartphone prices in the local market  

Furthermore, some certain commodities may be subjected to new VAT or increased VAT at the manufacturing stage. For instance, a 5 per cent VAT may be imposed on pens, while the current 5 per cent VAT on tissue, napkin, plastic tableware, and kitchenware may rise to 7 per cent. The supplementary duty on imported fans may also see a rise.

Additionally, the budget may propose increasing the price and duty of all types of cigarettes. Cigarette companies paying turnover tax may experience a tax rate increase to 3 per cent.

In an effort to protect local industries, a 15 per cent tax may be levied on imports of bicycle parts. The duty on imported software may increase from 5 per cent to 25 per cent. However, tax exemptions for local fridge manufacturers will remain unchanged.

The government may impose a 1 per cent import duty on capital machinery for economic zones, making business operations more challenging in these specialised areas.

One of the conditions set by the International Monetary Fund (IMF) for the USD 4.7 billion loan is that the revenue board must collect 5.5 per cent of the gross domestic product (GDP) in the next financial year, in addition to the usual trend.

The NBR has calculated this figure to be Tk 480 billion. Additionally, there is a requirement to reduce tax exemptions.

To fulfill the IMF conditions, efforts will be made to generate additional revenue by implementing taxes on various sectors in the upcoming budget. Also, there are initiatives for administrative reforms.

The budget may include an announcement to establish a special digital direct tax unit to enhance tax collection from the digital economy. Furthermore, plans are in place to form an international tax unit and a separate unit for transfer pricing.

The NBR believes that these income tax reforms may double the income tax collection in the next three years.

The global lender has urged the authorities to take initiatives to reduce tax exemptions. However, according to NBR sources, there will not be significant initiatives to reduce tax exemptions in the upcoming budget as most tax exemption privileges are set to expire by 2025-26.

The NBR does not intend to extend the duration of any tax exemptions except for reasonable causes.

During the first 10 months of the current fiscal year, there has been a deficit of Tk 340 billion, with a growth rate of only 8.8 per cent. The target for tax collection in the current fiscal year is Tk 3700 billion with a growth rate of 24 per cent.

A total of Tk 2502 billion has been collected from July to April, against the target of Tk 2840 billion.

The authorities have taken measures to control the import of luxury goods due to the dollar crisis. As a result, the import of capital machinery and intermediate goods has decreased by 56 per cent and 31 per cent respectively during the July-April period, compared to the previous year. The reduced tax collection at the import level has had an impact on local businesses.

Selim Raihan, the executive director of the South Asian Network on Economic Modeling (SANEM), said if there is a target for additional tax collection, the NBR officials often choose the easier route of imposing an additional tax burden on regular taxpayers and levy tax at source.

There have been no significant structural reforms in the revenue sector over the past decade and the tax coverage has not expanded remarkably. Also, there is no strict initiative to catch the tax evaders, he went on saying.

He further said the additional pressure of tax collection increases the harassment of taxpayers. The burden of indirect taxes is imposed on all, regardless of their wealth or income level.

According to the economist, it is unlikely to achieve such a big revenue collection target with the existing revenue administration.