The National Board of Revenue is likely to propose reduction in tax rebate against investments and donations by individual taxpayers, insiders said.
The proposal may be included in the upcoming budget amid reports from NBR's field offices that increased tax rebate, now 15 percent on investments and donations in certain areas, has affected revenue collection.
The government at the beginning of the current fiscal year raised the tax rebate to 15 percent, from 10 percent in the previous year. The investment ceiling was also increased to 30 percent of an individual's total income, from 20 percent before. "The privilege has affected tax flow. In many cases, taxpayers do not need to pay tax at all, due to the rebate," said a deputy commissioner of tax at the NBR, asking not to be named.
"We have already informed the government of the fall in revenue collection from salaried persons and suggested cuts in the tax rebate and investment ceiling for the next fiscal year," he added.
The official gave an example how the higher tax rebate takes a toll on revenue collection.
If a salaried person's income is Tk 300,000 a year, his income tax stands at Tk 8,000.
As per the current rule, the person enjoys tax rebate of 15 percent for making an investment of Tk 90,000, which is 30 percent of his income. But his tax rebate -- Tk 13,500 -- will be higher than his total payable income tax at Tk 8,000, meaning the person does not need to pay any tax.
But had the tax rebate and investment ceiling been 10 percent and 20 percent respectively as before, the person would have paid Tk 2,000 in tax.
Investments in savings instruments, shares of listed companies, mutual funds or debentures, government bonds along with premium of life insurance, fees to government's provident fund, welfare fund and group insurance are eligible for tax rebate.
The privilege is also applicable to donations to zakat funds, charitable hospitals approved by the NBR, and institutions set up for the welfare of the differently abled.
"One of the main reasons behind the slow growth in tax collection is the increased tax rebate and the hike in the investment ceiling," another NBR official said.
Income tax receipts rose 11.55 percent year-on-year to Tk 25,051 crore in July-March of the current fiscal year, according to the NBR.