27.5 percent tax on private provident funds

27.5 percent tax on private provident funds My News Bangladesh

From the current financial year on, private companies and institutions will have to file tax returns on the income earned from employee provident funds. Not only that, but this income has to be taxed at a rate of 27.5 percent.

The 2023 Act included this provision for the taxation of provident funds. Also, filing of returns in private sector provident funds, gratuity funds, and workers’ dividend funds has been made mandatory, and tax exemption has been withdrawn. However, the Income Tax Act exempts government provident funds from tax. Many have questioned and criticized the provision.

TIM Nurul Kabir, executive director of the Foreign Investors Chamber of Commerce and Industry, said, ‘There are many other ways of tax collection. Generally, employees benefit from provident funds after retirement. So the government should not tax retirement benefits.’He further said, ‘Again, the provision of taxation has not treated private and public sector provident funds equally, which is discriminatory.’

TIM Nurul Kabir said that they will apply to the tax authorities for the withdrawal of tax on the provident fund. Provident funds and gratuities are retirement benefits for private sector workers, an analyst said. Private sector workers say that since these funds provide a form of social security, any tax on them would reduce retirement benefits.

Debbrat Roy Chowdhury, director of corporate affairs at Nestlé Bangladesh, said that if income tax is introduced on trust funds, the overall income from such schemes will decrease. This will adversely affect retired employees in the private sector in the long run.

He requested that the authorities resolve the issue in line with the government’s initiative to ensure social security for private sector employees. He said, ‘Recently launched a universal pension scheme for private sector employees is a good example.’

A senior officer of NBR, who did not want to be named, said, ‘According to the Provident Fund Act of 1925, the income of the provident fund run by the government is exempt from tax.’

He also said that earlier, private-sector provident funds were exempt and were not required to submit tax returns. As a result, it is not clear whether they are used properly.” From now on we will know the correct information,” he said.

This tax official said that the contribution of payroll tax to the total income tax is about 3 percent. It should increase with the growth of the economy. Shahadat Hossain, former president of the Institute of Chartered Accountants of Bangladesh, said that a tax has already been imposed on investment in savings bonds.

“Taking tax on provident and other employee welfare funds seems right from that point of view,” he said. But Taufiqul Islam Khan, a senior research fellow at the Center for Policy Dialogue, said, ‘Social security for private sector workers is low. Because social security is rarely available from funds, including provident funds. So taxation will increase inequality.’

He commented that there should be no discrimination in taxation between private and public provident funds. Citing the latest Income Tax Act replacing the Income Tax Ordinance of 1984, he said the NBR has tried to find new ways to increase tax collection and increase the revenue-to-GDP ratio, which is rare in the world.

He commented, ‘We can see that the tax authorities are desperate to increase tax collection, which is basically a manifestation of the NBR’s inability to catch tax evaders and money launderers.’

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