Proposed Income Tax Act should be a strategic device to accelerate economy

At present, the country's direct tax, or income tax, is governed by the Income Tax Ordinance,  1984. Income tax, value-added tax, custom, and supplementary duty are the main revenue sources for the government. 

Every fiscal year, the government submits a budget to the parliament. The government also enacts a Finance Act in every fiscal year. 

It formulates short-term economic plans and decisions using the Finance Act. Accordingly, amendments to the income tax legislation, the VAT Act, and the custom and supplementary duty are made every year. 

The overall expenditure for the current fiscal year has been set at Tk6,03,681 crore ($71 billion), which is more than the previous fiscal year. 

This fund is being used for operational expenses, annual development programs, education, health, and defense, among other things. The total revenue collection, on the other hand, has been set at Tk3,92,490 crore ($46 billion), with the National Board of Revenue raising the majority of this. 

Each segment of expenditure allocation and income collection has seen an increase. 

Bangladesh has been able to maintain the continuity and stability of economic growth for more than a decade. It is now one of the fastest-growing economies of the world, pledging to become an upper-middle-income country by 2031 and a developed nation by 2041. 

To achieve the goals and to maintain the trajectory of development, the existing tax GDP ratio (according to Statista, in 2020, the revenue was 9.4% of the nation's GDP)  could be required to be enhanced to ensure sustainability. In this perspective, the role of a smart income tax law is a crucial strategic tool. 

However, the existing income tax law is relatively ancient, enacted 36 years ago. 

Over the years, due to huge changes in almost every year, it has now become a crude and complex regulation. 

The proportion of direct taxes and the tax GDP ratio in our country is smaller than indirect taxes. In today's world, having a simple and business-friendly legal structure is critical. 

At the same time, every government requires a prudent taxation strategy to ensure continued development and promote an equity-based society. 

In light of these circumstances, policymakers have drafted the Income Tax Act of 2022 to replace the Income Tax Ordinance 1984. 

Without a doubt, the demand for this initiative is probably inevitable and time-worthy. 

When adopting the act, some factors must be examined, such as business friendliness, the ability to reduce citizens' tax burdens, comprehension and execution, and ensuring a wider tax net; discretionary authority of the officials should be at the bottom level. 

There should be a safeguard and balance for the taxpayers so that, in no way there be ambiguity and harassment to the citizens. 

In the case of corporate taxation, different strategies and rates may be suggested for different major sectors. Rather than applying a common rate for all industrial sectors. A culture of corporate taxation, various approaches, and speeds may be recommended. 

A culture of tax payment may be encouraged from all levels of citizens. The young generation and students may be included through proper education and training to develop a tax payment habit. 

It should be framed in such a way that it can visualise a stable policy direction to the local and foreign investors in the mid and long term. 

Unstable fiscal policy is considered as one of the impediments to local and foreign investment growth. Another strategic perception may be the revenue and tax structure of peer countries who are the competitors in the international market as well as in foreign direct investment (FDI) recipients. 

It is also encouraging that the proposed law will be in the mother language Bengali. However, it would not be appropriate if it is simply a translation of existing law with rearrangement of chapters. 

Different stakeholders of the economy may be involved in the process. Rather than following the inputs from administration and bureaucrats. 

We as a nation expect a suitable income tax law, which could be compatible to the need of the economic structure of the country.

Sajeed Sahdeen Mazumder is a student of Accounting and Finance at North South University