Finance minister AMA Muhith yesterday hinted that attention would be given to payroll income tax reform in the face of dismal revenue earnings from the area.
“The idea of payroll tax issue is very impressive. I must honestly admit that this is an area that I did not realise before. It is totally neglected,” he said.
Muhith said the Bangladesh payroll tax scenario against other countries is very poor. “It needs to be looked at.”
The payroll tax issue, which caught the finance minister’s attention, was raised by a keynote paper on Public Resource Mobilisation Strategy.
Policy Research Institute executive director Ahsan H Mansur presented the paper at a seminar on “Fiscal Policy for 2015-16 Budget in the Context of the Seventh Plan.”
PRI organised the event at its office.
Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff.
Payroll taxes generally fall into two categories: Deductions from an employee’s wages, and taxes paid by the employer based on the employee’s wages.
Mansur’s keynote paper compared the payroll tax scenario of Bangladesh with two countries – United Kingdom and Australia.
In the fiscal year 2012, income from payroll tax of Bangladesh was only 2%, but in the UK and Australia it was 87.6% and 62.7% respectively during the period.
The finance minister also hinted that income tax rate on the RMG and knit exporters would be higher in the next fiscal year. “I wanted it to go up to 1% and accordingly it has edged up to 0.8%.”
“It reduced to 0.3% due to the political turmoil in FY2014. But this time I want it to go back,” finance minister said.
PRI suggested this rate on the export proceeds should be at least the original level of 0.8%.
Out of 160m people of the country, only 1.1m pay income tax. “This is unbelievable! it’s a damn shame. There should be a minimum tax for everybody,” he said.
About tobacco tax, the keynote paper said the market share of the low segment cheap cigarettes has increased to 63% in last six years from 36% in FY2008, leading to a huge loss of revenue, and the volume of such segment cigarettes expanded at more than 26% a year at the expense of the medium segment.
Muhith said, “I have already given it to the NBR. In fact, tobacco has been identified as a special issue to look at.”
However, he said despite rigorous anti-tobacco campaigns worldwide, use of tobacco has not been diminished.
About mobile taxation, he said the existing mobile taxation policy is not very good.
On loss-making state-owned enterprises, finance minister said it is politically difficult to get rid of them.
“There might be a policy guideline about the use of land under the SoEs. The Privatisation Commission carried out a survey on the unused land of SoEs, which is good work at the end of its demise.”
Strongly criticising closing down the country’s first and the largest 52-year-old state-owned Adamjee Jute Mills to cut the staggering losses through golden handshake in 2002 by the then BNP-led government, Muhith said that was not a good solution. Many golden handshake people were back at the same institution after the change of the government, he said.
On the merger and acquisition issue, he said no firms get bankruptcy in Bangladesh, so there was no use of making rules on this. “But there should be a liquidation process guideline.”
A galaxy of experts and analysts also attended the seminar.
They thought up various suggestions for the government on different issues, including making diversification of export policy, fixing different VAT slabs for different sectors, controlling the use of hazardous chemicals, the government expenditure, priority-wise infrastructural development and human resource development.