Stringent measures coming to make all TIN holders file returns

The government is going to increase the tax burden on businesses that do not file tax returns despite having tax identification numbers (TINs) in a bid to bring accountability among taxpayers and thus boost revenue collection.

Currently, contractors and suppliers are required to pay 50% additional tax at source in the purchases and sales of goods and services if they do not have a TIN. From next year, they will have to submit tax returns against such purchases and sales, otherwise, they will have to pay 50% additional money on their total source tax, said Finance Ministry sources involved in preparing the budget.

Businesses that were so far required to show TINs will have to show proof of return submissions from next year, or else, they will have to pay a fine ranging from Tk5,000 to Tk20,000.

In addition, if any service provider or contractor fails to prove its return submission, it will have to pay a fine of up to Tk10 lakh. On the other hand, the buyer of the services or goods will pay a fine of up to Tk50 lakh if they do not cooperate with the deputy commissioner of taxes by providing all required documents and giving them access to their servers to verify the deduction of source tax.

The move comes against the backdrop that even though the government has provided tax identification numbers (TINs) to a large number of people over the last few years to expand the tax net, two-thirds of the TIN holders are refraining from filing tax returns.

Anwar-ul-Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries (BCI), however, thinks people do not feel encouraged to file tax returns as various tax rules are not taxpayer-friendly. 

TIN holders would be encouraged to file tax returns only if a conducive atmosphere is created, he told The Business Standard, adding that causing fear will not help to serve the purpose.

As per the Income Tax Ordinance 1984, the submission of income tax returns is mandatory for all TIN holders.
The new budget is going to make a provision for exempting all MPO-listed schools except those running English version curriculum, public universities, recognised provident funds, pension funds, approved gratuity funds, approved superannuation funds, work profit participant funds, and taxpayers without any fixed income from the obligation of income tax return submission.

Scope to widen for small taxpayers, narrow for biggies    

If a person earns less than Tk15 lakh and invests 25% of it, they currently enjoy a 15% tax waiver on the investment. If the income is more than Tk15 lakh, the 25% investment qualifies for a 10% waiver.       

The proposed budget lowers the investment threshold to 20% and unifies the special treatment to 15%. This means small taxpayers will get more investment benefits, while it will be paltry for the biggies.   

Currently the special treatments – tax waiver or tax discount – are only applicable for timely return submissions. In the next budget, the discount is slashed to 7.5% for taxpayers who would miss the submission deadline.          

The proposed budget also cancels tax waiver or discounts if the income of the taxpayer with above Tk1 crore annual turnover is not transferred through banking channels. Agriculture and farming are proposed to remain out of this purview.         

Finance ministry officials said the proposed measures would help make returns easier, and the taxpayers will be benefited ultimately.    

Service providers sans return submissions to face fine  

Contractors and suppliers now pay 2%-12% source taxes on their purchases and sales. In the next budget, the range has been proposed at 0.65%-12%.

Currently, contractors and suppliers are required to pay 50% additional tax at source in the purchases and sales of goods and services if they do not have a TIN. From next year, they will have to submit tax returns against such purchases and sales, otherwise, they will have to pay 50% additional money on their total source tax.

A Deputy Commissioner of Taxes of a tax zone in Dhaka told The Business Standard that suppliers to big businesses usually pay the source taxes. But both the sourcing company and supplier tend to evade tax in case of small-scale supplies.

"If the return submissions are mandated for the service providers, such sourcing and transactions will be more transparent," he added.    

Four sectors to come under tax deduction at sources    

New four sectors – hotel, resort, community center and transport agency whose annual turnover is more than Tk1 crore – have been proposed for source tax deduction. Currently, source taxes are deducted in 16 sectors.

Service providers with annual business less than Tk25 lakh pay 10% source tax, while the rate is 12% if business is more than Tk25 lakh. Such ventures are levied with 50% more source tax if they do not have a TIN.     

In the next budget, return submission documents will replace the TIN, while the default will meet with 50% source tax. Besides, if the bills are not collected through the banking channels, there will be provision for 50% more source tax.