Tax on provident fund likely to reduce to 15pc

The government has decided to decrease the tax rate on private sector provident fund (PF), Gratuity Fund, Superannuation Fund and Pension Fund to 15 per cent from existing 27.5 per cent.

This decision of lowering the tax rate has been taken in face of wide-spread demands and recommendations from a cross-section of people.

On June 23, 2023, the authorities have formulated the new income tax law in which the tax on PF, GF and other funds have been raised from 10 per cent to 27.5 per cent like corporate tax rates with a provision of tax return submission by the funds.

However, the government employees have remained exempted from payment of taxes from their profits on PF and other funds.

This announcement raised a widespread criticism among the common people as private job holders do not have the pension facilities like the government service holders.

Private job holders keep a small amount from salary in provident fund every month during working life. The employer pays the same amount. The money deposited by both the worker and the employer is invested in a profitable sector. In this way the income of the fund also increases, and thus the social security of private employees is created.

So, the common people of the country demanded that this provision of slapping tax on provident fund should immediately be repealed.

However, the National Board of Revenue (NBR) has sent a summary to Finance Minister AHM Mustafa Kamal to issue a Statutory Regulatory Order (SRO) reducing the tax rate to 15 percent from 27.5 percent.

In the summary, NBR Chairman Abu Hena Md Rahmatul Muneem wrote the Finance Minister that approval is required to bring changes considering after-retirement benefits of private sector employees.

When asked about this, a senior officer of NBR told Views Bangladesh on condition of anonymity that various steps have to be taken to increase tax collection. "We are in trouble of taking action as first we make laws, now amend laws."

When asked why there are separate rules for private employees and government employees, he said that the government as an employer does not give any money to the provident fund of government employees.

"The employer also contributes an equivalent amount to the private employees' provident fund. There is no question about the transparency of government employees' accounts. But there is no transparency in terms of money for private sector employees. This law was originally made to bring transparency."

Syed Aminul Karim, a former member of NBR (Income Tax Policy) said that 27.5 percent tax on the investment of provident fund is not acceptable .

He told Views Bangladesh that two separate rules cannot be practiced in one country. "There is no tax in the public sector, but you will slap tax in the private sector - this discrimination should not happen. If it has to be done then both of them have to face it. This decision is against fundamental rights."

He also thinks that it is unreasonable to reduce the tax rate to 15 percent.

He said that the new Income Tax Act has brought many changes. "I don't think any impact analysis was done while framing this law. Many other things have to be rectified, including savings deeds, land. It doesn't seem like any analysis was done. They are bringing amendments one by one."

According to Section 102 of the Income Tax Act 2023, there is a provision for deduction of tax at source at the rate of 5 percent on interest/profits on investment in the savings deposit sector of recognized provident funds, approved provident funds, approved old age funds and pension funds.

Besides, according to Section 105 of the Income Tax Act 2023, tax at the rate of 10 percent must be deducted while paying the profit received on the savings certificate purchased with the money of the approved old age fund or pension fund or gratuity fund or recognized provident fund or labor interest participation fund.

Until then, provident funds and gratuity funds of both the public and private sectors did not have to pay any income tax directly. However, from 2016, 5 to 10 percent tax had to be paid as tax at source on the profits, depending on the sector, in case of investment in savings bonds or FDRs of these funds.

Statistics show that most of NBR's total tax collection comes from indirect taxes. That is, from the common people's pockets (duty and VAT). A total of 65 to 67 percent of tax revenue comes from indirect taxes like duties and VAT, which are collected from people at all levels when they buy goods and services. The rest comes from direct or income tax. Whereas in developed countries 70 to 80 percent of total revenue is collected from direct taxes which is more than 50 percent in neighbouring India .

However, one of the main conditions of International Monetary Fund (IMF) lending was to gradually reduce indirect taxes and increase direct tax collection. Such a promise has also been made by the government. But while collecting direct taxes, the private sector employees whose job security and financial security after the job is very limited are suffering.
The NBR has variously discouraged taxpayers from increasing tax collection in the current fiscal year budget and the new Income Tax Act.