How will the new Income Tax Law 2022 impact the taxpayers?

There are no major changes in the draft Income Tax Law 2022. Rather the act has been categorised which was previously scattered. The compilation of the same items in one chapter will help the taxpayers, taxmen, tax professionals and students to find the related issues by spending less time than before.

Another good point is that the draft act emphasises rules, which will also help the taxpayers to understand complex and technical issues easily like implication of average tax during calculation of partnership profit with total income, total rental value of house property, tax rebate for individual taxpayers etc.

Taxpayers' main concern is how the changes of tax law will impact their tax burden, which is applicable for both individual taxpayers as well as corporate taxpayers and also how easily the taxpayers will be able to calculate their taxable income and tax liability.

Due to complex and technical reasons, taxpayers fear filing their tax returns.

Salaried person is the majority of the taxpayers compared to other income earners. It is easy to identify the taxable salaried person because the salary payment shall be made through a banking channel exceeding a certain limit.

But, the taxable income calculation from salary income considering the eligible exemptions against house rent, conveyance, medical allowance etc and then calculation of tax rebate on investment allowance shall require following a few steps, which makes the whole process complex for salaried person.

The above calculations are more direct and specific in draft act than existing law, which will give more comfort to the salaried person. As per draft act, first he shall calculate the total salary income and then deduct the lower amount of two-third of basic salary or Tk 450,000. That's all!

But a certain level of employee will have the chance to increase or decrease the amount of basic salary to reduce the taxable income to pay less tax to avail the full exemption benefit.

On the other hand, the highly paid employee will not get the chance due to the maximum ceiling of Tk 450,000. So, the high-salaried employees will suffer in the new act.

Where the tax benefits for the highly paid employees are shrinking, the company is getting the benefits.

If the payment of benefits to the employee exceeds a certain limit known as perquisite, then the company shall be required to pay tax at regular rate i.e. 30 per cent on such exceeded amount.

Now raising the existing limit from Tk 5.5 lakh to Tk 10 lakh will reduce the tax amount significantly, which will make the businessmen happy.

New items inclusion in the draft act will also help the corporate sectors, which were not included in the existing ordinance.

Due to the absence of these items in the existing ordinance, companies suffer in few cases, which results in tax burden as well as creates tax disputes between tax authority and taxpayers.

Amortisation of preliminary expenses and intangible assets and exclusion of advertisement from promotional expenses will give relief to the corporate taxpayers and will reduce tax disputes as well.

However, few new rules will bind the private sectors to follow more strictly especially in case of cash payment.

Like house rental payment, no cash payment shall be allowed to the employee as salary, which is Tk 20,000, as per existing law. In all other cases, no payment shall be made through cash exceeding Tk 50,000. Otherwise, full amount shall be disallowed means tax at 30 per cent.

Each month two monthly statements on tax deducted or collected at source, half-yearly withholding tax return, yearly statements related with tax payments shall be submitted to the tax circle by the corporate sector including tax challan.

But, during annual corporate tax assessment, tax challans are required to submit again to the same tax office. The submission of the same documents requires a huge volume of photocopies.

Recently, the tax authority has introduced an e-payment system of tax and the tax authority may integrate the system to check whether the tax has been deposited against the amount shown in the financial statements audited by the chartered accountancy firms.

And this digitalisation will reduce the hassle of the taxpayers as well as save the environment by skipping the photocopy of the same documents again and again.

Due to technological advancement and cross-border transactions through online platforms, there is a new hope for revenue collection for the government.

During lockdown due to Covid-19, the cross-border transactions increased and several developed countries have already implemented digital services tax on the revenue of the tech companies operating globally.

So, the tax authority may think about the new sector to impose tax on their local revenue in Bangladesh through their agent.

However, the draft is open for the comment from the stakeholders and yet the rules to publish through statutory regulatory orders. So, we have to wait till then to understand how the new Income Tax Law 2022 will impact the taxpayers.

The writer is a fellow chartered accountant and a tax consultant.