New income tax law to be hard on evaders, simplifies rules for businesses

The draft Income Tax Law 2023 appears to be stricter in certain aspects, while it has taken steps to amend archaic tax laws, making them more user-friendly for individuals and businesses alike.

Interestingly, the draft has incorporated the whitening of undisclosed money, popularly known as black money, thereby disregarding the demands of honest taxpayers.

Among other significant features, willful evasion or attempts to evade income tax in the future may subject individuals to imprisonment, ranging from a minimum of six months to a maximum of five years.

If an individual's annual income exceeds TK 5 lakh, the submission of a statement of lifestyle expenses is likely to become mandatory in the income tax return.

Also, in cases where the annual income surpasses TK 40 lakh or if the taxpayer travels abroad, the submission of an asset statement becomes obligatory.

These provisions are outlined in the draft Income Tax Law 2023, which is expected to be presented in parliament today as a bill.

Provision for whitening black money

In the draft law, the provision of buying land, plots, and flats with black money has been upheld. For this, everything can be legalised by paying taxes – fixed based on areas - in the same way as the previous time.

However, for multiple land-flats, 20% additional tax has to be paid. There is an opportunity to set up industries by investing black money in economic zones or hi-tech with 10% tax. 

Also, black money can be converted into white by paying an additional 10% of the prescribed tax. This income can be used for industrialisation and its expansion, industrial modernization, renovation and expansion, buildings or apartments or buildings, shares of companies listed in the stock market, producers of goods and services.

Punishment for tax evasion, concealment, late submission

According to the new law, if a person deliberately tries to evade tax, he can be punished with imprisonment from 6 months to a maximum of 5 years or fine or both. 

Conceals information about income, intentionally provides false information about assets, liabilities and expenses to reduce taxes, provides or compels to provide false information in accounts or other statements, intentionally omits or falsifies tax file information or statements, and takes any other initiative to avoid paying income tax, will be punishable.

A penalty of 4% of the tax payable will be levied on late filing of income tax returns from 2%.

Besides, for failure to file returns, a fine of 10% of the last tax payable or a minimum of TK 1,000 will be imposed, which is higher.

If the delay continues, the Deputy Tax Commissioner may impose an additional penalty of Tk50 for each day. However, in case of new taxpayers, the penalty will not exceed TK5,000.

Penalty for finding wealth abroad

If a person is found to have assets held abroad that are not disclosed in his return, he will have to pay a hefty penalty. 
In this case, there is a provision of fine equal to the fair market value of the property abroad. Also, the Deputy Commissioner of Taxes can investigate the property abroad if he wants.

Asset statement mandatory for foreign travel

The proposed law tightens return filing. If a person earns more than TK40 lakh per annum or owns a private car or invests in house property or apartment in a city corporation area or buys assets abroad or travels abroad (other than for medical, religious purposes) or is a shareholder director of a company should submit their statement of assets.

However, government officials must submit asset statements. On the other hand, those who have an annual income of more than Tk 5 lakh or have a personal car or earn from business or invest in house property or apartment in the City Corporation area or are shareholders and directors of a company must submit a statement of lifestyle expenses.

Lower investment limit for tax rebate

The upper ceiling of investment for tax rebates has been reduced in the new law. The method of calculation of rebates has also been changed. 

A taxpayer will be entitled to get a tax rebate of 3% of the total income or 15% of the investment or Tk10 lakh, while currently this investment limit is Tk 15 lakh, whichever is less, will be considered as tax deductible. 

To get this facility, the income tax return must be submitted by Tax Day (November 30). 
Investments in the sectors will remain the same to get rebates in the future.

Income tax payable even after death

If a person dies then his legal representative (sons and daughters) have to pay income tax. The same rules as those which applied during the lifetime of the deceased will apply to the inheritance. However, in case of death, disability, bankruptcy, retirement or any other reason, the tax refund can be claimed or received by the heirs of the person.

Tax officials can break the door during drive

According to the new law, tax officials can enter any building, place, ship, vehicle, aircraft and search income records, money, precious metals, jewellery or other valuable articles or things. Can break doors, boxes, lockers, safes, cupboards or any other receptacle if it is locked. Income records, money, precious metal jewellery or other valuables can be seized if found.

Indemnity to tax officers

The new law provides for immunity. Tax officials cannot be held responsible for collecting, withholding or paying tax deductions from the income of any person. Besides, no suit can be filed in a civil court for rejection or revision of tax assessment or against any other order of the tax officer. No criminal case or any other proceedings can be taken against any Government servant for his acts done 'in good faith'. On the contrary, incentives have been provided for the officers and employees. The Act provides for an award for outstanding contribution in tax collection or detection of tax evasion.

Expanding scope of penalties

The scope of penalties is greatly increased in the draft law. It is mandatory to show proof of return submission at the business centre, if you fail to show the proof, the deputy tax commissioner can impose a fine of Tk5,000 to 20,000. 

A penalty of Tk 20,000 is being provided for using fake TIN. If any chartered accountants firms submit fake audit reports, they will be fined from a minimum of Tk 50,000 to a maximum of Tk 2 lakh. If an organisation submits a fake audit report, it will be fined Tk one lakh. 

If the tax is arrears or in default, the Deputy Commissioner of Taxes can impose a penalty equal to the amount of tax due. Obstructing the income tax authorities shall be punishable with imprisonment for a term which may extend to one year or with fine or with both.

TIN can be cancelled

Taxpayers have the option to cancel their TIN if desired. This can be done if they are not obligated to file returns, have had no taxable income for three consecutive years, or anticipate zero taxable income in the future due to physical disability. Additionally, TIN cancellation is applicable in cases of death, permanent departure from Bangladesh, accidental multiple TIN registrations, legal status changes, or other valid legal reasons. The NBR will cancel the TIN if there are no outstanding taxes or income tax disputes associated with the taxpayer's application.

User-friendly for individuals and businesses

The new law will remove a lot of complexities, according to Snehasish Barua, a tax consultant and a member of the income tax review committee formed by the NBR.

Firstly, the law has been drafted in Bangla, the native language, to enhance its accessibility and comprehensibility for all. Secondly, new sections have been introduced, replacing complicated interdependencies and eliminating unnecessary complexities. These changes are intended to facilitate better understanding and compliance with the tax laws in Bangladesh, said Snehasish.

For example, he said in the present Income Tax Ordinance 1984, a person has to travel many areas to assess his/her income from business or profession. In the new law, all sources of income have been brought under a section, he said.

Filing of return files by a company has brought down to 12 from at least 28 in the existing law, he said. Also, getting refund has been made easy, which is a long-time demand of the taxpayers.

The process of tax files which are selected for audit has been made clear and time-bound and taxpayers have also been allowed to defend themselves.

Shah Md Abdul Khalque, senior additional secretary of the FBCCI and a member of the tax review committee, said the draft income tax law has been formulated in a way that will increase direct tax and reduce indirect tax.

But he said NBR has to increase its capacity and go for automation if it wants to reap the benefits of the draft income tax law.