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Tax threshold, corporate tax remain unchanged

  • Published at 10:19 pm June 13th, 2019
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Representational photo Bigstock

  • Property tax to be introduced
  • Exemption will continue for RMG and Apparel sector
  • Tax holiday period increases for 5 years
  • Money whitening facilities by paying 10% tax
  • 15% tax on stock cash dividend  

The tax-free income limit for individual taxpayers and the corporate tax rate will remain unchanged in upcoming fiscal year 2019-20, proposed Finance Minister AHM Mustafa Kamal while placing budget in parliament on Thursday.

Currently, people having less than Tk2,50,000 year earning need not to pay tax and the threshold is going to continue for the fifth year in a row.

Besides, banks, financial institutions and different companies will pay 25% to 35% of their annual profit as corporate tax like previous fiscal. 

Finance Minister AHM Mustafa Kamal, on Thursday said the tax exemption threshold was almost 1.5 times above Bangladesh’s per capita income. 

“If there is any increase in the tax exemption threshold, it will push a significant number of taxpayers out of the tax net, which will eventually erode the tax base,” he said.

On corporate tax, Kamal said that the tax rate for banks and financial institutions was reduced by 2.5 percent from last year (FY2018-19), which resulted in significant reduction of tax collection from this sector.

“Considering the facts, I propose to continue with the existing corporate tax rate structure for the next year (FY2019-20)," he added.

Apart from general threshold Tk2,50,000, the tax-free ceiling will be Tk3,00,000  for women and the elderly person aged over 65 years, Tk4,00,000 for disabled people, and Tk4,25,000 for wounded freedom fighters.

The income tax slabs for the upcoming fiscal year will also remain unchanged at 10% for income above Tk4,00,000, 15% for the next Tk5,00,000, 20% for the next Tk6,00,000, 25% for the next Tk30,00,000, and 30% for anything above Tk47,50,000.

Economists had expected the tax-free ceiling would go up so that low-earning group would get relief from tax-pressure.

If average inflation of last couple of years is considered, Tk2,50,000 of four years ago is equivalent to more than Tk3 lakh now, they say, adding that it will create more pressure on marginal taxpayers.

The government has also kept the amount of the minimum payable tax rate unchanged for the upcoming FY2019-20.

The proposed budget said Tk5,000 would remain the minimum income tax for those living in Dhaka and Chittagong City Corporation.

Taxpayers from other city corporation areas are to pay a minimum Tk4,000 while the rate is Tk3,000 for those residing outside the areas.

On the other hand, publicly traded companies will pay a 25% corporate rate, banks, insurance, and financial institutions 37.5%, while it will be 35% for non-publicly traded companies, 40% for bank, insurance, and financial institutions like previous year, said the proposed budget. 

Besides, there will be a uniform duty of 45% on both publicly traded and non-publicly traded for cigarette manufacturers and a 20% tax on dividend income of companies, 10-12% for RMG sectors.

Wealth tax for the first time

The finance minister has proposed wealth tax for the first time ever in his first budget placing. 

“I am proposing that an individual taxpayer having a net wealth of Tk50 crore or above will pay higher of 0.1% of net wealth or 30% of his income tax payable as surcharge.

"Currently, individual taxpayers having a property above Tk2.25 crore need to pay a surcharge at certain rates based on their income tax but there is no system of paying tax for keeping wealth including land or others properties," the minister said in the budget speech. 

The minister also proposed to raise the limit of surcharge to Tk3 crore.

“We have observed that a large number of wealthy people show little income in their tax returns despite they possess huge amount of wealth,” said the minister, adding that, these taxpayer, in contrast, pay an insignificant amount of surcharge because their revealed little income.

This is the provision (wealth tax) for bringing the equality, said budget proposal.

Exemption for RMG and apparel sector to continue

Exemption facility of corporate tax for the readymade garments and apparel sector is supposed to end by June 2019 but the government is going to reconsider it for one year more.

The tax will remain unchanged in FY2019-20 and it will be 10%, 12%, and 15% for RMG having green building certificate, RMG without the certificate and Textile businesses.

Tax holiday period increases for 5 years

The tax holiday, which 21 industrial sectors and 19 physical infrastructure development sectors are enjoying, is supposed to expire by June 2019.

But the finance minister proposed extension of the facility for five years more to promote investment and manufacturing.

The sectors are enjoying the tax holidays on the basis of geographical locations at different rates for different periods of time. 

Some potential manufacturing sectors such as agricultural machinery, furniture, home appliance including rice cooker, blender, washing machine etc, mobile handset, toys, leather and leather-goods, LED television, plastic recycling has been added with the previously listed sector.

Money whitening facility

The finance minister has proposed a provision that will allow investors to whiten black money through investment in economic zones (EZs) and high-tech parks, with no question on the sources of the funds considering the investors pay a 10% tax on the invested amount.

Currently, the Income Tax Department does not raise any question about the sources of funds for purchase or construction of apartments or buildings, if the purchaser pays a 10% tax on the amount.

15% tax on stock dividend

In order to encourage the distribution of cash dividend, Mustafa Kamal proposed imposition of 15 percent tax on stock dividend distributed to the shareholders by any listed company.

“We observed that the companies are generally distributing stock dividends instead of cash dividends. As a result, investors are deprived of their well-deserved return,” the finance minister said.

He said investors expect cash dividends from their investment in the shares of a company. From that point of view cash dividend play an important role in increasing the value of the share and also strengthening the share market, he added.