Income tax changes for personal and corporate taxpayers in FY2024-25
While the cost of living is high, with an inflation rate over 9 percent throughout the year, then no light of hope comes for the common people in the budget declared today. This is upsetting for the lower- and middle-income earner by ignoring the high living expenses.
The personal taxpayers expect that their tax burden will be reduced in the budget but the minimum tax-free limit remains the same as last year. However, slab-wise tax rates have widened, increased by Tk 100,000 at 10 and 15 percent tax slab. Who has taxable income upto Tk 450,000 will not avail this tax relaxation benefit.
Taxable income is calculated by deducting the allowance per tax law. Suppose, a private service holder receives a total salary including all facilities is Tk 675,000 annually. One-third of this total salaried income will be deducted which is Tk 225,000 and after that, the taxable income will be Tk 450,000. So, the salaried taxpayers who have a total yearly income of Tk 675,000 will not get this benefit. Moreover, he has to pay minimum tax Tk 5,000 though he is eligible to claim the tax rebate.
If any employee wants to enjoy the full tax rebate benefit and adjust the minimum tax Tk 5,000 then he has to earn Tk 965,000 from his employer. Generally, an individual taxpayer can claim 3 percent tax credit on his taxable income. As the minimum tax amount in Dhaka and Chattagram City Corporation is Tk 5,000, so if any taxpayer’s net tax after claiming the tax rebate is less than minimum tax ceiling or even negative tax, then he must pay Tk, 5,000.
So, the slab-wise tax rate changes will not give any comfort to the lower- and middle-income people. What can the government do to ease the high inflation pressure?
Last month on 14th May, Treasurer Jim Chalmers in Australia also presented the budget for the fiscal year 2024-25. The cost of living is also high there and due to that the first priority in the budget was to ease living expenses. In every interview with printing and electronic media, Jim repeatedly said only one word – “responsible”. He said that it is the responsibility of his government to ease the cost of living. Australia reduced tax rates, provided subsidies for utility bills to every Australian household, reduced education loans interest etc. But what are the steps in our budget to give comfort to our people? However, the corporate tax rate has been reduced by 2.5 percent.
Corporate tax rate reduction – is it beneficial?
Publicly traded companies and non-publicly traded companies will pay tax at 22.5 and 27.5 percent respectively, reducing 2.5 percent for both types of companies. But actually, is there any ultimate benefit that will be enjoyed by the corporate taxpayers?
The Income Tax Act has the law to pay minimum tax irrespective of the profit or loss in the income year. Even, if a company incurred loss, then the company shall pay minimum tax on his gross receipts or cash revenue. At the time of receiving the money for selling of goods or services, the responsible person making the payment shall deduct tax at source which is under minimum tax. For the service sector, the withholding tax rate is 10 percent while for the goods selling company pays tax at 7% exceeding the turnover Tk 20 million.
Suppose, if a service providing company renders services for Tk 100,000 to a customer then at the time of payment the customer will deduct Tk 10,000 from the above payment. As per proposed tax rate, the company will pay corporate tax at 27.5 percent. To adjust this minimum tax the company shall make a profit of Tk 36,364. Because of this amount, if you apply a corporate tax rate of 27.5 percent then the corporate tax will be equivalent to Tk 10,000. The percentage of net profit shall be more than 36 percent! Now you imagine how difficult it is to make such a profit.
Every year, there is a demand to reduce the corporate tax rate compared to other countries in the world. But they are not focusing on the real point. The ultimate focus shall be to give on the withholding tax rates that are considerable with the reality.
However, this year the tax-free facility was going to be ended for IT businesses, but the time has been extended for another three years inserting a condition that not a single amount shall be transacted in cash.
Is it possible?
Majority of the transactions are possible to operate through electronic systems. But is it possible to maintain a hundred percent cashless?
Office maintenance, conveyance, day to day expenses which we called petty cash are not possible to maintain without using cash. So, it shall be reconsidered before enacting the Finance Act.
And the last point is that, all of the taxpayers individually as well as corporate taxpayers shall submit tax returns under Universal-self Assessment method. Individual taxpayers are ok to follow the Universal-self Assessment method but for the organisation it is not suitable at this moment till our tax administration system is fairer. Due to this proposed change, the cost of the tax filing of the company will be increased. First, the company will file a tax return under Universal-self Assessment method and then will obtain the tax clearance certificate from the Deputy Commissioner of Taxes (DCT) and for this service, the company will pay tax consultant fees once. And again, when the taxmen will issue notice to assess the tax then again, the company shall appoint a tax consultant to complete the tax assessment. This will cost both time and money