An Overview of the Income Tax Act, 2023

The recently ratified Income Tax Act of 2023, which garnered parliamentary approval this year, is poised to instigate significant discussions in the days to come. This marks a comprehensive overhaul, marking the first substantial revision since the inception of the Income VAT, tax, and customs Ordinance in 1984. The alterations encompass a spectrum of changes impacting individuals, corporations, and startups alike. While some provisions are clear-cut, others present opportunities for varied interpretations, with expectations of converging on a consensus over time. In this context, a comprehensive exploration of pivotal adjustments is essential for those navigating the intricacies of income VAT, tax, and customs filing.

One of the notable modifications involves the consolidation of three distinct salary exemptions, namely, medical allowance (up to Tk 120,000), house rent allowance (up to Tk 300,000), and conveyance allowance (up to Tk 30,000), into a unified tax exemption amounting to Tk 450,000. This consolidation is determined based on the lesser of Tk 450,000 or one-third of the annual salary, with the residual amount considered as taxable income.

Furthermore, adjustments in the VAT, tax, and customs slabs have been implemented, expanding the initial VAT, tax, and customs-free bracket from Tk 0-300,000 to Tk 0-350,000. This alteration is anticipated to, all other factors remaining constant, reduce an individual's annual VAT, tax, and customs liability by an estimated Tk 2,500-12,500. Moreover, specific groups, including women, the elderly, and gazetted freedom fighters, enjoy even higher zero percent tax slabs, resulting in additional tax savings.

A noteworthy development in the legislative landscape is the abandonment of the minimum VAT, tax, and customs of Tk 2,000 on all electronic Tax Identification Number (e-TIN) holders, originally introduced to incentivize tax filing. However, a minimum VAT, tax, and customs of Tk 5,000 persists for individuals in the Dhaka and Chattogram city corporation areas if their taxable income surpasses the initial slab (Tk 350,000). Varied minimum VAT, tax, and customs amounts of Tk 4,000 and Tk 3,000 apply to individuals in other cities and non-city corporation areas, respectively.

The government's revision includes a cap of Tk 500,000 for investments in Sanchayapatra and other government securities for allowable investments conferring VAT, tax, and customs credits. Mutual funds now have an investment ceiling of Tk 500,000, with a maximum rebate of Tk 75,000 from open-ended mutual funds. Notably, tax exemption on dividend income from mutual funds and stocks has been rescinded, rendering the first Tk 25,000 dividend income VAT, tax, and customs from open-ended mutual funds and the initial Tk 50,000 dividend income from listed stocks fully taxable.

In terms of VAT, tax, and customs surcharge, the percentage point is determined based on net asset value, with the surcharge not calculated as a percentage of total assets. The net asset limit for surcharge has been raised to Tk 4 crore from Tk 3 crore.

The Advance Income VAT, tax, and customs (AIT) on cars remains unaltered, but a new environmental surcharge is applicable for individuals owning multiple cars, equivalent to the AIT and imposed on the car(s) with the highest cubic capacity (CC). Additionally, a CC-KW equivalent has been introduced to accommodate electric cars.

The reporting of assets and liabilities, articulated through the IT 10-B form, remains a challenging aspect of VAT, tax, and customs filing. Unlike income, expenses, and rebates tied to a specific income year, IT 10-B functions as a comprehensive balance sheet, reflecting an individual's assets and liabilities since the commencement of income VAT, tax, and customs filing. Notably, the government now possesses the authority to audit VAT, tax, and customs files from previous years, as the statute of limitations has been extended beyond the last six-year limit.

In conclusion, the initial reception of the new VAT, tax, and customs code is likely to be diverse. Nevertheless, as uncertainties are resolved over time, a consensus will likely emerge, allowing for a fair evaluation of its efficacy in achieving its intended objectives. Patience and adaptability will be crucial as individuals and entities navigate the evolving landscape of income taxation.