Thursday | 16 January 2025 | Reg No- 06
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Thursday | 16 January 2025 | Epaper

Why only private sector employees will bear the burden of taxes

Published : Sunday, 8 October, 2023 at 12:00 AM  Count : 1272
M A Masum
A provident fund is an investment fund that is voluntarily established by Employer and employees to serve as long term savings to support an employee's retirement. It is a contributory or participatory financial facility. Both employer and employee have an equal contribution towards the employee provident fund. Government employees are more familiar with Provident Fund. It is a long term savings scheme. Usually an employee deposits a portion of monthly salary in this savings scheme while working.  Gratuity is a discretionary monetary benefit scheme offered by an employer upon completion of service of an employee. An employee will be entitled to gratuity only when he has been in uninterrupted service for particular duration with the organization. Currently, only some structured private companies in Bangladesh give provident fund and gratuity, but no pension facilities.  

The company invests provident fund amount in various types of profitable sectors including purchase of savings bonds. This profit is then distributed among the employees. As government employees have job security, they are also fully assured of retirement provident, gratuity and pension. But most of the private sector employees of the country do not have the benefit of the provident fund, and even if such a benefit is available, it is very uncertain. Because the authorities of private organizations can fire their employees at any time.

Provident fund in our private sector is voluntary by our labor law. This benefit is almost nonexistent except in some established and large organizations in the formal sector. There are many precedents of depriving employees of the private sector of their due provident funds on the pretext of indiscipline, even though the money is deducted from their monthly salary. Moreover, when there is an economic downturn in the business, the eployees are laid off and it also gives uncertainty about the availability of the provident fund. Thousands of private workers have lost their jobs in the country due to corona virus pandemic. Even the employees of many large organizations including banks, insurance, financial institutions, NGOs have been retrenched and there are allegations of not paying their dues properly. Because provident fund and gratuity have no control under employee. It is under the control of the concerned organization. Basically, Provident Funds of private employees are not risk free. It has been said that if the private sector gratuity fund is not registered, the tax money will be deducted from the employees. But the National Board of Revenue has not forced the private companies to register the fund. Instead of doing that, the whole thing is imposed on the workers.

Despite living in three different parts of the country, the three fixed-income people are fighting a common enemy: runaway inflation amid no adjustments in salaries. Inflation in Bangladesh has nearly doubled

Without debating actual rate of inflation, actually price of essential commodities has nearly doubled over past one year. Common people are struggling to meet their household expenses due to high inflation. Many meet their needs by taking loans against provident funds. Basically high inflation is eating away people's income and savings. Just at that time, another bad news came that 27 and a half percent income tax was imposed on the provident fund of private institutions! The new Income Tax Act has levied this corporate tax on both provident funds and gratuity funds of private sector employees. Private sector employees will be directly affected by corporate tax on provident fund income and indirectly by corporate tax on gratuity funds.

Until 2016, provident funds and gratuity funds of any public or private sector did not have to pay income tax. But Income Tax Act 2023 incorporates the provision, lifting the tax exemption and amnesty on the compulsion to file returns for funds such as provident funds, gratuity funds and workers' profit participation funds maintained by the private sector. Perhaps in a desperate bid to boost tax collection, the government has imposed a 27.5 percent corporate tax on income from private provident funds - a critical social security vehicle for private sector employees - from this fiscal year. To note, provident funds of government employees have been exempted from this tax. Meat, vegetables - all have to be bought at the same price. In that case, if you compare (the new law) with government employees, it will seem that there are two laws in one country. The question is, how can there be dual laws for citizens of the same country? Such laws are not only discriminatory but also grossly unjust.  

If money is deposited in the bank, tax is deducted at the rate of 10 percent on the interest on the deposit. Again, if you buy savings bonds, you have to pay 10 percent tax against the profit. On the other hand, if the concerned institution invests provident fund and gratuity amount in banks or financial institutions, tax is deducted once on its total profit. Again, after calculating the profit of an employee's provident fund and gratuity, again 27 percent tax on the said profit is incomprehensible. This decision of NBR is discouraging private sector employees from saving provident funds! Apparently there is no one to look after the private workers.

Prime Minister Sheikh Hasina has won wide praise from the country and abroad by launching the 'Universal Pension Scheme' for the people of various professions including the private sector employees of the country. It is considered as a timely step towards social protection and inclusive socio-economic change. The current government is trying to widen the scope of social security programs. However, such a hotchpotch decision of NBR is completely opposite to the government's efforts.

Even though constitution says that all citizens have equal rights, in this case, the provident fund of the government employees has been exempted from tax and additional benefits have been provided. Government employees are already ahead of private sector employees in terms of social security due to pension benefits. Even newly introduced public pension fund is not an alternative to the pension of government employees due to non-compulsory participation of employers. Again, Provident Fund money cannot be withdrawn at will. Generally, the money is given at the retirement age at the end of the service period. As there is no government policy on provident saving and profit giving, the institutions operate as they see fit. Some institutions are known to give profits like bank savings accounts. Gratuity, on the other hand, is more complex, over which the employee has no control. There is provision for gratuity only on completion of a specified period of employment. The purpose of providing provident fund in a country like ours is to keep people going when they are not old enough to earn. But if that main objective is thwarted, then doubts arise about the rationale of continuing the system of creating provident funds. The current government is committed to social security for the elderly. In such a situation, imposing high tax on provident fund and gratuity income of private sector employees is inconsistent with social security and even violates human rights.

In FY 2011 to 2022, the growth in tax-revenue collection by the National Board of Revenue (NBR) was on average 12 per cent which should be at least 15 percent. All neighboring countries have higher tax to DGP ratio than Bangladesh, only war-torn Afghanistan ranks below Bangladesh. Economists say that it did not happen because of the reluctance and evasion mentality of businessmen to pay taxes, inefficiency and corruption of NBR officials. Many say the tax authorities are desperate to increase tax collection, which is largely a manifestation of the NBR's inability to catch tax evaders and money launderers. NBR or state collects taxes for the welfare of the people; But now tax is being levied from public welfare fund which is grossly discriminatory and anti-people move. At present, the tax burden imposed on private sector employees is not acceptable at all. Government employee will be free and private employee will bear the tax burden, gradually that burden is getting bigger! We hope Hon'ble Prime Minister and Finance Minister will stand by the unfortunate private sector employees and provide full tax exemption on provident fund and gratuity to private sector like government employees.

The writer is columnist and economic analyst



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