Bangladeshi culture values giving gifts as a private and personal affair, often extending beyond monetary value. However, it can become legally complex when irregularities arise.  Several law enforcement agencies and the Anti-Corruption Commission (ACC) have previously flagged irregularities involving illegally accumulated assets being disguised as gifts to evade taxes. Large gifts may conceal illicit wealth, questioning the effectiveness and openness of existing gift tax laws in Bangladesh.

Under section 2(f) of The Gift Tax Act of 1990, the term “gift” has been defined as the voluntary transfer of any movable or immovable property without considering any money or gain of monetary value from one person to another. Moreover, Hindu law defines a gift as the creation of another person’s proprietary right after the extinction of one’s proprietary right into the subject matter of the gift.

The Gift Tax Act of 1990 was the very first Bangladeshi statute explicitly outlining that taxable gifts are subject to tax rates specified in its schedule (Act No. 44 of 1990) and adopted with modifications from Pakistan’s Gift Tax Act,1963, which Bangladesh incorporated within its corpus juris upon gaining independence in 1971. Except for the period when the act was repealed (1985-1990), gift taxes have technically been collectible by income tax authorities since the country’s independence. Although there have always been legal provisions, they have not been largely enforced in Bangladesh, with the de-facto absence of gift tax collections and almost nil receipts. The lack of initiatives to address the general ambiguity regarding gift tax also makes the situation worse. Even the situation could have changed with necessary steps taken by the respective authorities within the existing framework. As of today, the website of the National Board of Revenue (NBR), Bangladesh’s tax collection authority, lacks sufficient information on gift tax.

However the legal landscape recently altered through The Finance Act 2024 has brought significant changes. Following this Act, from now on, gifts are classified as income from other sources, except for gifts exchanged between spouses, parents, and children. Hence, It increases the scope for income from other sources with more clarity on the taxability and classification of income from other sources  particularly—donations, grants, or gifts, called by whatever name, comes under it explicitly.

The Finance Act 2024 slightly modified exemptions from the Gift Tax Act under Section 4(1), including gifts to local authorities, spouses, parents, children, and siblings, and properties outside Bangladesh. However, tax experts have raised concerns about potential contradictions between the new provision and the ‘Gift Tax Act 1990‘. For example, The Gift Tax Act, 1990, exempts gift tax between siblings, while the Finance Act 2024 does not. Moreover, the Finance Act 2024 will be considered superior due to its recentness and will generally take precedence in cases of contradiction. Courts usually interpret the Finance Act 2024’s provisions unless the older law explicitly overrides them. If the Finance Act 2024 does not expressly state its intent to override the Gift Tax Act, it may still be applied. Therefore, no statute replaces the other yet, despite minor discrepancies between the two.

Additionally, The Finance Act 2024 introduces changes to income from other sources, particularly trusts, with a  0.6% . While a 15% capital gains Tax will be applicable for Funds and Trust under 7th Schedule, previously tax was applicable based on regular rate. These taxes are not directly associated with gift tax but have indirect implications, such as a potential link to gift tax if trusts have a direct intersection through gift or donation.

Under The Finance Act 2024 Both the donee and recipients can have tax liabilities.  So, from now individuals must disclose gifts they receive on their income tax return at the end of the year, and to claim tax exemption for a gifted asset, donors also declare it in their tax returns under Section 4(2) of the Gift Tax Act 1990. The tax exemption is limited to gifts up to BDT 20,000 in a fiscal year. In “Dr. Muhammad Yunus vs. Commissioner of Taxes, Dhaka”, the court upheld the Taxes Appellate Tribunal’s decision denying tax exemption for Dr. Yunus’s gift of BDT 7.5 crore to the Muhammad Yunus Trust, as it exceeded the fiscal year’s tax-exempt limit of BDT 20,000.

The donor must bear the associated tax burden even after the gift have given. The Finance Act-2024 imposes a tax on donors for the difference between the fair value of assets gifted and their acquisition value. For example, if someone gifted a piece of land (whose acquisition price was BDT 8 million) with a fair value of BDT 10 million to someone, they would now face a taxable burden of BDT 2 million.

The fixed 20,000 BDT exemption threshold set in 1990 was appropriate at that time, but due to inflation and economic growth, it now holds less value, resulting in more ordinary gifts being under taxable ceilings. In India, the gift tax exemption threshold is 50,000 INR, but tax is imposed only on the donee, unlike in our law. This results in more ordinary gifts being under taxable ceilings, creating unnecessary burdens on taxpayers with increasing the likelihood of seeking to avoid such aggressive taxation policies.

Gifts exceeding Tk 500,000 not made via crossed cheques or bank transfers are taxable for recipients, even among siblings, in-laws and relatives. Similarly, Finance Act 2024 is likely to bring transparency of transactions through policies such as gifts remitted from abroad through banking channels are exempt from disclosure in the donor’s return.

The gift tax rate in Bangladesh is digressive with four tiers, based on the Schedule of Gift Tax Act 1990. The first Tk. 500,000 is taxed at 5%, followed by 10% on the next Tk. 1,000,000, 15% on the next Tk. 2,000,000, and 20% on any amount beyond that. For instance, gifts typically given at weddings, birthdays, or other significant life events—the bequests at the time of death, inter-vivo gifts (given during life), or such as large sums of money, real estate, or valuable assets can, however, surpass this cap and be subject to gift tax.

Section 5 of the Gift Tax Act requires market value on the transfer date when assessing gift property other than cash If market value cannot be determined, rules assign a valuation technique. Gifts like cash, stocks, bonds, mutual funds, houses, and cars can be easily valued, while ownership interests, investments, and artwork are harder to value. Moreover, the Gift Tax Act needs comprehensive amendments to address modern gifting methods, such as virtual assets, electronic transfers, etc. For instance, the Act is outdated and fails to address issues related to virtual assets  such as Cryptocurrency and Ethereum ownership.

Despite being enacted over two decades ago, gift tax eventually surged with the recent Finance Act, and the government took a timely multifaceted strategy by encoded certain technical provisions to combat tax evasion and ensure transparency. However, shortcomings like handling digital currencies, donor exemption threshold and initial tax burdens need to be addressed to prevent tax evasion, reduce the formalization of illicit money, and clarify the initial tax burden on either the donor or donee, etc.  It is therefore imperative to look at implementation strategies that can stop tax evasion in Bangladesh and lessen the formalization of illicit money.