Common people to face further pressure

The crisis of living standards, the revival of the economy, and foreign exchange reserves has set the stage for the upcoming budget activities for the fiscal year 2024-25. Ordinary people in the country, already burdened by rising prices, are expecting further distress. Despite considering increasing tax collection, the National Board of Revenue (NBR) is not contemplating raising the tax-free income threshold in the high inflation market. As disposable income of the general populace shrinks, they will be further squeezed by inflationary pressures.

According to experts and stakeholders, high inflation primarily stems from international market influences, limiting the government's ability to mitigate it significantly. However, the government possesses economic and fiscal tools to attempt safeguarding the people from the impact of inflation.

Economists and tax authorities have differing views on whether to raise the tax-free income threshold. Dr. Ahsan H. Mansur, executive director of the Policy Research Institute (PRI), advocates maintaining the current tax-free income threshold, citing stability in the country's primary income earners. On the contrary, Dr. M. Aynul Islam, general secretary of Bangladesh Economic Review, and Dr. Sayed Aminul Karim, a former member of NBR's tax policy, believe that considering the inflationary situation, it is necessary to increase the tax-free income threshold.

NBR officials argue against raising the tax-free income threshold, highlighting that various initiatives of NBR have expanded the taxpayer base but also increased the number of tax-exempt entities. Though inflation has risen, people's incomes have also increased. Therefore, there is limited scope for considering an increase in the tax-free income threshold.

Currently, the tax-free income threshold in the country is 350,000 Taka. For women, individuals aged 65 or above, disabled individuals, freedom fighters, and third gender individuals, the tax-free income thresholds are 400,000, 475,000, 500,000, and 475,000 Taka, respectively. According to tax laws, no tax is levied on the first 350,000 Taka of income. Subsequently, 5% is levied on the next 100,000 Taka, 10% on the next 300,000 Taka, 15% on the next 400,000 Taka, 20% on the next 500,000 Taka, and 25% on the remaining income.

According to the Income Tax Law, if the tax-free income threshold is exceeded, minimum tax must be paid. In such cases, taxpayers in Dhaka, Uttara, and South City Corporation areas must pay a minimum of 5,000 Taka, while taxpayers in other city corporations must pay 4,000 Taka, and taxpayers in other areas must pay a minimum of 3,000 Taka.

According to NBR sources, there are more than one crore taxpayers (TIN holders) in the country. Among them, 40 lakh TIN holders have submitted income tax returns, although it is mandatory for all TIN holders to do so.

Due to gradual inflation, citizens' purchasing power has decreased. Therefore, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the top business organization in the country, has proposed increasing the tax-free income threshold to 450,000 Taka. The organization argues that this could provide some relief to people with low incomes amid the prevailing inflationary conditions. Apart from FBCCI, various business and professional organizations have also spoken about increasing the tax-free income threshold.

During previous budget discussions, it was stated by various organizations that the purchasing power of ordinary people has decreased, especially due to the price increase of essential commodities, particularly food items. Therefore, in the upcoming budget, it is appropriate to increase the tax-free income threshold to alleviate the pressure of inflation.

However, NBR officials have stated that although there is consideration for increasing the tax-free income threshold, raising it would result in a significant number of taxpayers escaping from the tax net. Furthermore, those who remain within the tax net would have reduced tax liabilities. Therefore, tax officials are also considering maintaining the current tax-free income threshold to keep taxpayers within the tax net.

Dr. Sayed Aminul Karim, a former member of NBR's tax policy and a previous member of the Taxation Policy Institute, expressed that due to the inflation rate exceeding 10% over the past year to two years, the tax-free income threshold should be at least 450,000 Taka. He argued that this amount would be a reasonable threshold, as not setting it would put further pressure on low-income individuals. Increasing the threshold would also encourage future tax compliance.

This economist further stated that if the tax-free income threshold is not increased, income disparity between the rich and the poor in society will widen. Middle and lower-middle-income groups will experience a reduction in their purchasing power.

However, offering a different perspective, Dr. Ahsan H. Mansur, executive director of the Policy Research Institute (PRI), said that considering revenue increase, raising the tax-free income threshold would be detrimental. If the tax-free income threshold is increased while the average income rises, more people will fall below the tax threshold. Therefore, he opined that not raising it would be beneficial.

It is noteworthy that in the latest budget of the fiscal year 2023-24, the tax-free income threshold was increased from 300,000 to 350,000 Taka. Before that, in the budget of the fiscal year 2020-21, the tax-free income threshold was raised from 200,000 to 300,000 Taka. In the fiscal year 2015-16, the annual tax-free income threshold was increased from 220,000 to 500,000 Taka.