Rationalising income tax

87.5 per cent. Even before 1985 the highest rate of income tax was 60 per cent in our country. But after that the highest rate was gradually reduced but the government did not assign any reason for such action and it remained a mystery. Finally the honourable Finance Minister M Saifur Rahman reduced the highest rate of income tax to 25 per cent in the Finance Budget of 1993-94 and since then no attempt has been made to increase the same.

Not only that, the Finance Minister continued the policy of whitening the black money in the Finance Budget of 2005-06 although before the announcement of the said budget he unequivocally stated that he would not do so. But afterwards, he not only allowed the whitening of black money but kept the rate of income tax on black money at 7½% only. It is very ridiculous, whereas a person honestly declaring his income has to pay income tax at the highest rate of 25% while a person dishonestly earning income and not declaring the same pays income tax at 7½%! It therefore appears clear that our Finance Minister had simply succumbed to the undue pressure of the burgeoning neo-capitalists and is rather unhelpful to the lower middle class people of the country!

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In the face of increasingly soaring prices of essential consumer goods in the country and subsequent increase in the cost of living of the general public, SAMS Kibria, the then Finance Minister under the government of Sheikh Hasina increased the limit of minimum income liable to income tax from Tk 75,000 to Tk 1,00,000 in the Finance Budget of 2000-01 and maintained the same limit in the Finance Budget of 2001-02. Then BNP came to power. In the meanwhile the cost of living of the general public had increased considerably. For example the Consumer Price Index for middle income government employee, Dhaka (Base, 1969-70) increased from 2470 in 2000-01 to 2577 in 2002-03 i.e. by 4.33% (Source: Monthly Statistical Bulletin). Therefore minimum limit of income liable to income tax should have been raised from Tk 1,00,000 to Tk 1,05,000. But the Finance Minister M Saifur Rahman rather unkindly lowered the minimum limit of income liable to income tax from Tk 1,00,000 to Tk 75,000 in the Finance Budget of 2002-03, thereby increased the tax burden of the poor, middle class people to the tune of Tk 3,000 {10% on (Tk 1,05,000.00, Tk 75,000)}.

Another outrageous act is the imposition of minimum tax which is also borne by the poor middle class people. Under the system (which does not obtain even in India and Pakistan, and probably not any where else in the world), if the income of a person exceeds minimum income liable to income tax even by Tk one, he is to pay at present Tk 1500 as minimum income tax. This has the same effect of pushing back the minimum taxable limit of income from Tk 1,10,000.00 to Tk 85,000,00! It is very intriguing to note that the Finance Minister apparently takes fancy in raising the minimum payable tax from time to time. He has already vowed to raise the same from Tk 1500 to Tk 1800 in the ensuing budget of 2006-07 although keeping the highest rate of income tax untouched at 25% since 1993.

To worsen the situation, the honourable finance minister has drastically reduced the interest rates on all government saving certificates, severely whacking the fixed income group, specially the pensioners. Thus the highest rate of interest on 5-year savings certificate was reduced from 18% to 13% with effect from 1-2-96 and finally to 12% at present. Again, the highest rate of interest on defence saving certificate was reduced from 21% to 16% with effect from 1-2-96 and then to 15.75% with effect from 30-10-01 and has disbanded the defence saving certificate altogether.

After liberation in December 1971, a great change in the distribution of economic wealth has taken place. Immediately after assuming power, the government whittled down the highest salary of the government servants from Tk 3000 to Tk 500 only. On the other hand, undue and uneconomic benefits like permits to the workers of the political party, priority in the allotment of govt. plot to political leaders and workers etc. were extended. This, coupled with corruption, favoritism and nepotism caused a great shift in the economic wealth of the country from the educated, honest and patriotic people to the selfish and opportunist political leaders, workers and the relatives. But unfortunately, the process which evolved during Sheikh Mujib's time was not reversed but traversed freely into the realms of HM Ershad, Sheikh Hasina and Begum Khaleda Zia.

Most of the new born capitalists treat their employees like serfs, sacking them any time without giving any opportunity to explain their position or even assigning any reason. Such rich people of our country build posh houses, lead a luxurious life, in the name of business, avail frequent foreign trips, and many of them purchase house in foreign countries and even keep large amount of money in foreign banks. Finally, some of them become MPs by spending huge amount of money in the parliament election and sway the policies of the government as is exemplified assuming them prevailing upon the Finance Minister not to discontinue the whitening of black money in the last finance budget of 2005-06 as already stated above. So we should have title sympathy for them, and a people's government is supposed to fully endorse such suggestions as to increase the maximum rate of income tax to 70% on income above Tk 40,00,000 and also increase the minimum income liable to income tax to Tk 1,50,000 as indicated below:

Income tax on income up to Tk 1,50,000.00 nil; income tax on income from Tk 1,50,001.00 to Tk 4,50,000.00 at 10%; on income from Tk 4,50,001.00 to Tk 7,50,000.00 at 15%; on income from 7.50,001.00 to Tk 10,50,000 at 20%; on income from Tk 10,50,001.00 to 13,50,000.00 at 25%; on income from Tk 13,50,001.00 to Tk 16,50,000 at 30%; on income from 16,50,001.00 to Tk 19,50,000.00 at 35%; on income from 19,50,001 to Tk 22,50,001.00 at 40%; on income from 22,50,001.00 to Tk 25,30,000.00 at 45%; on income from Tk 25,30,001.00 to Tk 28,50,000 at 50%; on income from 28,50,001 to 32,50,000 at 55%; on income from Tk 32,50,001.00 to Tk 36,00,000.00 at 60%; on income from Tk 36,00,001.00 to Tk 40,00,000.00 at 65%; on income above 40,00,000.00 at 70%.

It is specifically stated here that there should be no provision for minimum tax to be paid by tax-payers.

The author is a retired Collector of Customs.