Government slashes tax on private sector provident funds

The government has approved a significant tax rate reduction for private-sector provident funds, gratuity funds, superannuation funds, and pension funds.

The tax rate is set to drop from the current 27.5% to 15%.

This decision follows widespread demands and recommendations from various stakeholders, according to officials.

The new income tax law, which came into effect on June 23, 2023, had initially raised the tax on these funds from 10% to 27.5%, aligning it with corporate tax rates. 

This change also required the funds to submit tax returns.

However, it’s important to note that government employees remained exempt from paying taxes on their profits from these funds.

The National Board of Revenue (NBR) recently sent a summary to Finance Minister AHM Mustafa Kamal, urging the issuance of a Statutory Regulatory Order (SRO) to implement this tax rate reduction.

On October 3, 2023, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and, on October 10, 2023, the Federation of Bangladesh Human Resource Organization (FBHRO) requested the NBR to reconsider the taxes on these funds.

They expressed concerns that the previous tax rates might discourage savings and the formation of such funds in private-sector employers due to their high tax burdens.

The tax on provident funds is levied on the interest earned from deposits in banks or other government securities. Until June 30, these funds were exempt from submitting tax returns.

Industry insiders have pointed out that the provision could increase the maintenance costs of provident funds, as it now requires audited financial statements from chartered accountants.

The deadline for tax return submission for provident funds is November 30, 2023, which aligns with the rules for individual taxpayers, while other regulations, including tax rates, now mirror those for corporate taxpayers.

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