AGRICULTURE has played a vital role in Bangladesh鈥檚 gross domestic product since independence in 1971. Through the years, the economy of Bangladesh grew, and the income of the country surged from different other sectors, such as the service sector and manufacturing sector. To date, agriculture has been one of the most generous contributors to Bangladesh鈥檚 economy. The sector enjoys some special facilities too, such as special provisions and exemptions for income from agriculture under the Income Tax Act 2023.
According to the Income Tax Act 2023, income from agriculture is the third head among the seven heads of income. Compared to the agriculture industry and the income it generates, the tax received from agricultural income is insignificant. According to Section 40(3) of the Income Tax Act 2023, 鈥榓griculture鈥� can be defined as nursery, reptile farming, animal husbandry, production of timber, or any kind of fruit or cultivation on land and water. Agricultural income may arise from cattle rearing, land given as a lease for agricultural purposes, the sale of herbal or medicinal plants, the sale of different juices, such as date juice, if they are grown by human effort, etc. However, according to the Income Tax Act 2023, agricultural income may also arise from the sale of an asset exclusively used for agricultural purposes, an insurance claim, or compensation money received against a demolished asset exclusively used for agricultural purposes. A unique case is the sale of tea and rubber grown on lands used for agriculture. As per Section 40(2) of the Income Tax Act 2023, the income from the sale of tea and rubber will be apportioned 鈥� 40 per cent of the income will be for the business, and 60 per cent will be allocated to income from agriculture.
For the calculation of tax, as per Section 42 of the Income Tax Act 2023, some expenses are allowed to be subtracted from the revenue generated by agricultural activities. Such expenses are called admissible expenses. The allowable deductions that can be made are as follows: (1)a ny land development tax or rate paid in respect of the land used for agricultural activities; (2) any rent or maintenance paid for the land used for agricultural purposes or the cost of cultivation incurred; (3) interest or profit payable on a loan taken for agricultural use; (4) any amount paid for maintenance of the machinery or repairs and transportation with respect to any agricultural activities; (5) any amount paid as a preventive measure against natural calamities; (6) insurance paid on any land crops can be raised on or cattle to be reared on; (7) depreciation and amortisation on any tangible or intangible asset from which there may be agricultural income; (8) in case of death or disability of cattle, the loss amount of the sale of meat of the cattle or the original cost of the cattle; (9) any foreign travel expense incurred as a member of any government-sponsored agriculture related delegation team; (10) training expenses incurred for training the citizens of the country; and (11) any agriculture-related research and development expenditure.
When calculating income from agriculture and taxing income from agriculture, it is essential to understand the concept of non-assessable income and exemptions. Non-assessable income will not be considered income when calculating the tax on an individual. According to the Income Tax Act 2023, in the 6th Schedule, Part 1, Tk 200,000 of agricultural income will be non-assessable if the assessee is a farmer in profession and has no other income source other than the agricultural income from cultivation and interest or profit not exceeding Tk 20,000. It is also stated that any income of an indigenous hill man of Rangamati, Bandarban and Khagrachari will be in-assessable. The Income Tax Act 2023 also has a provision for full tax exemption for certain agro-based industries. Companies with a minimum Tk 1 crore in investment that is registered under the Companies Act 1994 and BIDA established between July 1, 2021, and June 30, 2030, will get full exemption from tax. If the company engages in fruit processing, vegetable processing, production of milk and dairy products, baby food production, and agricultural machinery production, the aforementioned provision can be exercised to full effect.
For certain agricultural businesses, the tax rate differs from the standard rate (tax on income). Any income that arises from poultry feed, pelleted feed for fish, shrimp, and cattle, the production of seeds, the marketing of locally produced seeds, cattle farming, dairy farming, frog farming, horticulture, silk tree plantations, beekeeping, silkworm farming, mushroom farming, or floriculture is taxable at a reduced tax rate. The tax rate in these cases is 3 per cent on the first million of income, 10 per cent on the next two million and 15 per cent on the rest of the amount.
For poultry farms, poultry and fish hatcheries, and fisheries, the tax rate on income is nil on one million of income,听5 per cent on the next million, 10 per cent on the next million and 15 million on the rest of the amount.
In simpler terms, the tax computed on agricultural income follows the following steps: (1) income from sources is the profit the assessee would make; (2) admissible expenses would then be subtracted; (3) gross profit would be acquired once admissible expenses are deducted; (4) exemptions mentioned earlier would then be applied if the assessee qualifies under the stated criteria, exemptions would then be subtracted; (5) subtraction of exemptions would then give the taxable income; and (6) once the taxable income is found, the aforementioned rates will be applied to calculate the tax.
The taxation of agricultural revenue takes on greater significance as Bangladesh progresses towards agricultural modernization and sustainable development. With its rules and exemptions, the Income Tax Act 2023 aims to achieve a balance between promoting agricultural expansion and guaranteeing financial responsibility. Farmers and other stakeholders can confidently navigate the taxation landscape and promote resilience and success in Bangladesh鈥檚 agrarian sector by understanding and abiding by these policies. Educating the public about the provisions of the act would overall help businesses calculate their taxes correctly and also encourage more people to get into the agriculture industry of the country.
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Ahbab Zaiad studies accounting and information systems at the Bangladesh University of Professionals.
