Introduction:
Taxation is an integral part of any country’s economic system, and it plays a vital role in generating revenue for the government to finance public services, infrastructure development, and other essential expenditures. In Bangladesh, the Income Tax Act 2023 is a significant piece of legislation that governs the taxation of income earned by individuals, businesses, and other entities. The Act underwent revisions to align with the changing economic landscape and address the challenges faced by the nation. This article aims to provide a comprehensive guide to the Income Tax Act 2023 in Bangladesh, shedding light on its key provisions and implications for taxpayers.
I. Background and Purpose:
The Income Tax Act 2023 the Act is to be referred as Income Tax Act 2023 (ITA 2023) replaced the previous Income Tax Ordinance 1984, reflecting the government’s commitment to modernize the taxation system and enhance tax compliance in order to bring foreign direct investment to Bangladesh, the tax net has been expanded to include possibilities for taxpayers, such as tax holidays for recently set up industries and infrastructural improvements. The Act introduces changes to simplify tax procedures, widen the tax net, promote investment, and strengthen revenue collection. The new law contains new provisions related to Taxpayer’s Identification Numbers (TIN), refund of overpaid tax, and deregistration of Withholder Identification Numbers (WIN).
The primary purpose of the Income Tax Act 2023 is to:
- Ensure equitable distribution of the tax burden among different income groups.
- Encourage voluntary tax compliance and discourage tax evasion.
- Facilitate economic growth and investment by providing incentives and benefits.
- Enhance transparency and reduce complexities in tax laws.
II. Taxation of Individuals:
Under the Income Tax Act 2023, individuals are classified into different tax brackets based on their income levels. The tax rates are progressive, meaning higher-income individuals are subject to higher tax rates. The Act also allows for various deductions, exemptions, and tax credits, which help reduce the overall tax liability for individuals.
Tax rates
| Total Income | Rate |
| On first TK 350,000 | Nil |
| On next Tk. 1,00,000 | 5% |
| On next Tk. 3,00,000 | 10% |
| On next Tk. 4,00,000 | 15% |
| On next Tk. 5,00,000 | 20% |
| On balance | 25% |
Individual taxpayer – Tax-free income threshold
- An increase in the tax-free income threshold for taxpayers who are female and over 65 from BDT 350,000 to BDT 400,000; •
- An increase in the tax-free income threshold for taxpayers who are physically challenged and taxpayers of third gender from Tk 4.5 lakh to Tk 3.5 lakh to Tk 4.75 lakh.
- From 4.75 lakh to 5 lakh, the tax-free income threshold for war-wounded Gazette Freedom Fighters.
For parents or other legal guardians of physically challenged children or dependents, the income tax exemption threshold will increase by Tk. 50,000 for each dependent or child.
Minimum Tax
A resident of Dhaka North City Corporation, Dhaka South City Corporation, or Chittagong City Corporation is now subject to a minimum tax of Tk 5,000 for residents of other city corporations, Tk 4,000, and Tk 3,000 for residents of other areas.
Prior to this fiscal year (2020–21), the government increased the amount of income exempt from taxes to Taka 3 lakh.
III. Taxation of Businesses:
The Act covers various aspects related to the taxation of businesses, including corporations, partnerships, and sole proprietorships. Companies are subject to corporate income tax based on their profits, and the rates may differ for domestic and foreign companies. Additionally, the Act may offer incentives for specific industries or investments in certain regions.
Tax Rate for the Companies
- A publicly traded company that transfers more than 10% of its paid-up capital through an Initial Public Offering (IPO) is 20%. In the case that the specified condition fails to be fulfilled, 22.5%
- A publicly traded company that transfers ten percent or less than ten percent of its paid-up capital through IPO is 22.5%. In the case that the specified condition fails to be fulfilled, 25%
- The tax rate of One Person Company (OPC) is 22.5%. In the case that the specified condition fails to be fulfilled, 25%
- The tax rate on non-publicly traded companies is 27.5%. In the case that the specified condition fails to be fulfilled, 30%
IV. Withholding Tax:
The Income Tax Act 2023 incorporates provisions for withholding tax, wherein the person making payments to a taxpayer must deduct a certain percentage of the payment and remit it to the government as advance income tax. Withholding tax is applicable to various types of income, such as salaries, interest, dividends, royalties, and contractor payments.
V. Tax Avoidance and Evasion:
To curb tax avoidance and evasion, the Act includes anti-avoidance provisions that empower tax authorities to investigate transactions and arrangements aimed at evading taxes. It also imposes penalties and fines for non-compliance with tax laws.
VI. Tax Appeals and Disputes:
The Income Tax Act 2023 establishes an appellate process to address taxpayer grievances and disputes. Taxpayers have the right to appeal against tax assessments or decisions to the appropriate appellate authority.
VII. Special Provisions:
The Act may contain special provisions for specific industries, economic zones, and investment projects to promote economic growth and attract foreign direct investment.
VIII. Compliance and Enforcement:
The Act emphasizes tax compliance and imposes penalties for non-compliance. It also outlines the powers and responsibilities of tax authorities in enforcing tax laws and conducting audits.
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Conclusion:
The Income Tax Act 2023 is a crucial piece of legislation that governs income taxation in Bangladesh. With its progressive tax rates, incentives for investments, and provisions for tax compliance, the Act aims to foster economic growth, equitable distribution of the tax burden, and efficient revenue collection. Taxpayers should familiarize themselves with the Act’s provisions to ensure proper compliance and avoid potential penalties or disputes with tax authorities. As the economic landscape evolves, the government may continue to review and amend the Act to address emerging challenges and create a conducive environment for sustainable development.
