Tax net expanding to grab marginal people

If you are a small businessman in a village and rent a shop or a motorcycle, you will have to have an Electronic Tax Identification Number (e-TIN) from the next financial year.

The selling and buying of a piece of land will also require this special number from the national revenue authority.

The list does not end here. If any daily commodity – paddy, rice, wheat or others – produced by rural farmers is traded on a contract basis, the payment of advance tax is also mandatory. Although it will mainly be imposed on the agreement while purchasing from farmers by corporate firms and wholesalers, it will ultimately impact the product price.

The government is going to make the filing of income tax returns mandatory for all Taxpayer's Identification Number (TIN) holders, with some exceptions, from the next fiscal year 2020-2021.

On account of it, low-income people from the rural areas are going to suffer. The National Board of Revenue (NBR) has taken this initiative to bring marginal people under the tax net to increase revenue amid the coronavirus crisis.

These announcements will be incorporated in the budget of the upcoming fiscal year.

Individual taxpayers have been given some leeway by increasing the tax-free income slab and reducing the tax rate during the economic downturn caused by the Covid-19 crisis, say NBR officials.

Besides, this initiative has been taken to increase the tax net without putting much pressure on the existing taxpayers, they also say.

An official of the Income Tax Department of the NBR told The Business Standard that making e-TIN mandatory for individuals does not mean that they must pay taxes. If their income is more than the tax-free limit, they will have to submit returns.

Imposing advanced tax on local letters of credit (LCs) for daily necessities will not put pressure on farmers, he said, adding that middlemen will have to pay the tax if the purchase is based on a corporate agreement.

In order to increase the tax coverage, the finance act will be amended to make it compulsory to buy and sell lands, rent commercial spaces or a motorbike, take a credit card and participate in any local elections.

According to NBR sources, e-TIN is compulsory at present in 32 types of works, including opening a new company, an LC or trade licence, purchasing a car, taking bank loans of more than Tk5 lakh, becoming a firm's director, working at a company's executive level, having a salary of over Tk16,000 in government jobs, and taking membership of an established organisation or professionals.

5 lakhs more people to come under tax net

By adding the newly proposed sectors, at least 5 lakh people can be brought under the tax net in a year.

At the end of the first half of the 2019-20 fiscal year, the total number of e-TIN holders in the NBR stood at 46 lakh.

In addition, the government is going to make the income tax return submission mandatory for all TIN holders to expand the tax net and encourage taxpayers to submit their returns regularly.

Many TIN holders have avoided submitting tax returns – taking advantage of general "ifs and buts" of rules related to the submission of tax returns.

The new provision is hoped to significantly increase the number of tax returns in the country.

People should obtain a TIN when selling land and getting credit cards, but those who do not have taxable income may only get a waiver from the submission of income tax returns.

To encourage existing taxpayers to file returns, the budget is also going to announce a discount of Tk2,000 for submitting it online.

NBR officials said the new initiative has been taken as only 22 lakh out of 44 lakh e-TIN holders filed returns in the 2018-19 financial year.

Besides, even if a person is involved in a transaction of Tk3 crore a year, a minimum tax will apply to him/her, meaning that if the annual turnover of a business registered in a person's name exceeds Tk3 crore, it will have to pay the tax.

Meanwhile, two percent tax will be imposed on any financial deals or local LCs on rice, wheat, potato, onion, garlic, peas, chickpeas, lentils, ginger, turmeric, dried chillies, pulses, maize, coarse flour, flour, salt, edible oil, sugar, black pepper, cinnamon, cardamom, clove, date, cassia leaf, computer or computer accessories, jute, cotton, yarn and all kinds of fruits.

Besides, the tax net is expanding at the corporate level too by levying advanced tax at the rate of 10 percent on any online advertisement.

The NBR's initiative to increase taxes is justified although it will put some pressure on marginal people, reckons Mosharraf Hossain Bhuiyan, a former chairman of the NBR.

He told The Business Standard: "It is a good idea to expand the tax net without putting pressure on the same taxpayers. There are many people in villages who are eligible for tax but are not paying it.

"They have to be brought into the net. But, we also need to make sure that they are not harassed," he added.