Days of evading taxes by hiding income are numbered

The government is going to plug the loophole in the tax law that allows individuals to get away with tax evasion on any income if it remains undeclared and secret for at least six years.

According to the new income tax law, if the authorities detect any undeclared income – no matter how long it was hidden – tax will be levied on it.

This provision has been proposed in the new Income Tax Act, which is likely to be tabled in parliament today for approval, according to tax authority sources.

If passed by parliament, the new act will replace the Income Tax Ordinance, which has been in place since 1984, and will come into force in July.

Experts believe the new law will greatly reduce the opportunity to keep secret wealth and avoid tax.

"This will also create an opportunity to ensure tax compliance among taxpayers," Snehasish Barua, a tax expert and partner at Snehasish Mahmud & Co, told The Business Standard.

Other provisions in new tax law

Any firm, association or fund whose annual turnover is more than Tk2 crore must submit its audited financial statement to the tax authority under the new law.  

A senior official of the National Revenue Board's Income Tax Wing told TBS on condition of anonymity, "The new Income Tax Act has been formulated in a simple manner. It will be business and investment friendly as well as taxpayer friendly."

He said the authority of taxmen has been greatly reduced and the legal provisions have been made more specific in the new law. 

"Instead of the Income Tax Ordinance 1984 formulated in the English language, the Income-tax Act, 2023 has been prepared in the Bengali language by making it more contemporary and modern," said Finance Minister AHM Mustafa Kamal in his budget speech on 1 June.

The contents of the provisions have been converted into simple Bengali, the minister added. 

FBCCI recommendations ignored 

The country's apex trade body, Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), had recommended a number of corrections, most of which have not been addressed so far, sources at the FBCCI told TBS.

In its proposal, the FBCCI had recommended the withdrawal of the minimum tax, source tax and other major issues, especially "no income no tax" measures.

However, the new income tax act did not address these fundamental issues, as source tax is a major income source of the total tax earnings.

Manzur Ahmed, a tax law expert and advisor of the FBCCI, told TBS that the country's tax law is the main barrier to local and foreign investments. 

"If there is no income, why do you have to charge minimum tax or source tax? It is contradictory with income tax philosophy," he added.

"After the law is introduced in Parliament, we will present our observations to the Parliamentary Committee and the Prime Minister," Manzur Ahmed said.

For the last five years, there has been much discussion about formulating a new law, but it has not happened. The FBCCI objected to several aspects of the draft after the NBR prepared it.

However, after approving a loan of $4.7 billion for the country last February, the International Monetary Fund gave several conditions to Bangladesh, one of which related to the adoption of a new income tax law.