The case for simplifying income tax law

Bangladesh’s Income Tax Act, 2023 marked an important legislative milestone. It replaced the decades-old 1984 ordinance and reorganised the framework of income taxation. Yet for many taxpayers, individuals and businesses alike, the system still feels complex, compliance-heavy and uncertain.

The complexity did not emerge overnight. It developed gradually through successive amendments aimed at addressing revenue leakage and combating evasion. Each new anti-avoidance provision, withholding requirement, exemption or special rate may have been justified at the time. However, over decades, these incremental additions have produced a system layered with special cases, cross-references and administrative discretion.

While the 2023 act reorganised the structure, much of this accumulated complexity remains embedded within it. If Bangladesh seeks to improve voluntary compliance and sustainably raise its tax-to-GDP ratio, simplification must now move beyond structural reorganisation to substantive refinement.

One major source of complexity lies in the proliferation of exemptions and sector-specific incentives. Over time, reduced rates and special treatments have been introduced to stimulate investment and promote priority industries.

While incentives can serve legitimate policy goals, their accumulation fragments the tax base and increases interpretational disputes. Different sectors receive different treatments, sunset dates are often unclear, and the overall revenue cost is rarely transparent.

A more disciplined approach would involve consolidating exemptions into a coherent schedule, publishing an annual tax expenditure statement estimating the fiscal cost of each incentive, and introducing automatic expiry unless explicitly renewed. Simplification does not require eliminating incentives; it requires structuring them transparently and preventing indefinite expansion.

Another area requiring reconsideration is the breadth of withholding tax. Bangladesh relies heavily on withholding at source across a wide range of transactions, and in practice it often operates as a quasi-final tax or minimum tax.

While withholding is an effective enforcement tool, international practice shows a more focused approach. In most OECD countries, withholding is primarily confined to wages, dividends and interest, not imposed across dozens of transaction types.

When withholding extends too broadly, it increases compliance burdens, creates cash-flow distortions, and effectively transforms intermediaries into tax administrators. Rationalising withholding categories and clarifying which deductions are adjustable versus final would reduce friction without undermining revenue objectives.

Complexity is shaped not only by statutory length but also by how predictably the law is applied. Where tax authorities possess broad discretion in rejecting accounts, estimating income or invoking anti-avoidance provisions, uncertainty increases. Even well-drafted provisions can feel opaque if outcomes depend heavily on administrative interpretation.

Countries with stronger reputations for tax certainty – the United Kingdom, Australia and Singapore – place significant emphasis on clear, published guidance and advance rulings. Tax authorities issue detailed practice notes explaining how specific provisions will be interpreted, thereby reducing ambiguity and disputes.

A meaningful step toward simplification in Bangladesh would be publication of an official, consolidated, annotated version of the Income Tax Act in both Bangla and an authoritative English translation. This version should integrate the Act, relevant rules, schedules, circulars and amendments into a single updated text, accompanied by practical illustrations and structured FAQs aligned directly with statutory provisions. Such clarity reduces interpretational conflicts and promotes voluntary compliance.

Finally, limiting arbitrary discretion in assessments is essential. Clear statutory thresholds for audits, defined criteria for rejecting accounts and transparent procedural safeguards reduce unpredictability. When taxpayers perceive that outcomes depend less on individual interpretation and more on consistent application of published standards, compliance improves naturally.

Simplification is about designing a system that ordinary taxpayers can understand, comply with confidently and perceive as fair. The 2023 act has provided a structural reset. The next phase should focus on transparency, restraint, certainty and coherence.

The writer is the chairman of Unilever Consumer Care Ltd