The budget proposal to keep the tax-free limit for individual taxpayers unchanged has evoked mixed reactions among business people and economists.
Businesses wanted the ceiling to be adjusted with inflation to keep low-income people from paying taxes, but economists favoured continuation of the existing tax-free limit for another four to five years.
The current tax-free threshold of Tk 250,000 for individual taxpayers is almost double the per capita income of US$ 1,909 (Tk 160,000), according to economists.
The National Board of Revenue (NBR) increased the tax-free threshold for individual taxpayers to Tk 250,000 in the fiscal year (FY) 2015-16. Earlier it was Tk 220,000.
The tax-free threshold is around 30 per cent to 120 per cent of the per capita income in different countries around the world.
Economists said a significant part of taxpayers will be kept out of the existing tax net if the government raises the ceiling.
Currently, direct tax-GDP ratio is a paltry 3.5 per cent.
Dr Ahsan H Mansur, executive director of the think-tank Policy Research Institute of Bangladesh (PRI), said the existing tax-free limit for individual taxpayers is justified in the context of income per person.
"The existing ceiling should be continued for another four to five years," he added.
He supported the budget proposal sticking to the existing tax-free limit for FY 2019-2020.
But former president of the Dhaka Chamber of Commerce and Industry (DCCI) Abul Kasem Khan called for the upward adjustment of the tax-free ceiling considering the rising cost of living and inflation.
The value for money has decreased since 2015 with the rate of inflation averaging 5.0 per cent to 6.0 per cent, he said.
This warrants relief for the marginal income group, he added.
Instead, he argued, the government should expand the tax net and cut the existing tax rates for individual taxpayers to encourage people to pay taxes.
Currently, tax rates for individual taxpayers vary from 10 per cent to 30 per cent on the basis of annual income.
Mr Khan suggested bringing down the rates between 5.0 per cent and 25 per cent for individual taxpayers.
Towfiqul Islam Khan, senior research fellow of the Center for Policy Dialogue (CPD) echoed, saying the tax rates for individual taxpayers should be slashed rather than going for upward adjustment of the tax-free ceiling.
"We favour the rationale, given the number of taxpayers and revenue collection being poor," he added.
Instead of bringing any changes in the tax rates, the government has proposed increasing the surcharge-free ceiling for the wealthy people, which "surprised us", he added.
Currently, tax rate for individual taxpayers having an annual income of Tk 250,001 to Tk 650,000 is 10 per cent while it is 15 per cent for people with Tk 650,001 to Tk 1.1 million annual income.
Tax rates are 20 per cent, 25 per cent and 30 per cent for the people with annual incomes of over Tk 1.1 million to Tk 1.7 million, over Tk 1.7 million to Tk 4.7 million and over Tk 4,750,000 respectively.
A1.0 per cent cut in the tax rates in each of the range is estimated to cost the public exchequer Tk 30 billion in lost revenue.
In an internal analysis, taxmen have found the effective tax rates range from 2.40 per cent to 21.66 per cent due to tax rebate system on investment by individuals.
For example, the effective tax rate for people having Tk 650,000 annual income reached 2.40 per cent after rebate.
Tax officials estimated the receipt of Tk 400 billion income taxes from individual taxpayers, which is 40 per cent of the combined income tax collection target for FY 2018-19.