New tax structure
The DS in its June 12, 2004 issue published a news item under the caption "Income tax riddle". It draws a conclusion, "The new income tax structure proposed in the budget for FY 2004-2005 has come as a blow to lower income groups but as a boon for higher income groups" but the basic analysis in the background of this concluding remark is not clear. Under the proposed tax rate, a person with an income of Tk. 100,001 will pay only 1.5% percent of his income as tax, as against 1.2% in the last year whereas a person with an income of Tk. 550,000 will pay 10% of his income as tax. A person with an income of Tk. 1000,000 will pay 15% of his income as tax. It means a person whose income is only one lakh taka will pay 1,500 taka as tax. A person whose income is Tk. 550,000 will pay Tk.10,000 on his every lakh income and a person with an income of Tk. 10 lakh will pay Tk. 15,000 on every lakh. Is it a blow to lower income group or rationalisation of the tax rate as the finance minister in his speech has mentioned ? Probably in the analysis the difference between a "marginal tax rate" and an "effective tax rate" has been ignored.
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