A Comparative Review of

Fiscal and Tariff Regimes in SAFA Countries

CONTENTS

No Subject Page

1 Types of Taxable Income 1

2 Types of Taxes 1

3 Types of Taxation Procedures 2

4 Mode of Payment of Tax 2

5 Filing of Income Tax Return/ Statement 3

6 Types & Timing of Tax Year 3

7 Tax Rates for Companies 4

8 Resident and Non Resident Company 4

9 Tax Rates on Non-Residents 4

10 Withholding Tax 5

11 Sales Tax / VAT / GST 5

12 Federal Excise Duty 6

13 Custom Duty 7

14 Social Security Taxes 7

15 Capital Value Tax (CVT) 8

16 Professional Tax 8

17 Property Tax 9

18 Stamp Duty 9

19 Other Taxes 10

20 Double Taxation Agreements / International Tax Treaties 10

21 Foreign Ownership / Setting Up Business by a Foreign Company

11

Comparative Review of Fiscal and Tariff Regimes in SAFA Countries – A Consolidated Format

S.N. Subject Pakistan India Bangladesh Nepal Sri Lanka

1.

Types of Taxable Income

Depending on residential status of a person following types of income are aggregated to determine total taxable income for a tax year:

Salary

Income from business

Capital gains

Income from property

Income from other sources

Income Tax is charged under the following heads of income:

Salary

Income from house property

Profit and gains of business or profession

Capital gains

Depending on residential status of a person the following types of income are aggregated to determine total taxable income for a tax year:

Salaries

Interest on securities

Income from house property

Agricultural income

Income from business or profession

Capital gains

Income from other sources

Income Tax is charged on the following income heads:

Business

Employment

Investment

Windfall gain

(Source: Inland Revenue Department (IRD) at website: www.ird.gov.np)

Income Tax is charged on the following heads of income:

Profit from any trade, business, profession or vocation

Profit from any employment

Net annual value of land and improvements thereon

Dividends, interest/discount

Charges or annuities

Rents, royalties/ premiums

Winnings from a lottery, betting or gambling

In the case of a non governmental organization, any sum received by such organization by way of grant, donation or contribution or any other manner

Income from any other source (other than casual and non-recurring nature income)

2.

Types of Taxes

Direct Taxes (a) Income Tax

Indirect Taxes (a) Sales tax (b) Federal Excise Duty (c) Custom Duty

Other Taxes (a) Capital Value Tax (b) Stamp Duty (c) Property Tax (d) Professional Tax

Direct Taxes (a) Income Tax (b) Wealth Tax

Indirect Taxes (a) Service Duty (b) Excise Duty (c) Custom Duty (d) Central Sales Tax & value

added taxVAT) (e) Professional Tax (f) Entertainment Tax (g) Octori / Entry Tax

Direct Tax (a) Income Tax

Indirect and Other Taxes (a) Value Added Tax (VAT) (b) Custom duty (c) Excise duty (d) Gift tax (e) Stamp duty (f) Professional tax

Direct Tax (a) Income Tax

Indirect and Other Taxes (a) Value Added Tax (VAT) (b) Custom duty (c) Excise duty (d) Vehicle tax (e) Property Tax (f) Capital gain Tax (g) Stamp duty (h) Professional tax

(Source: Page on “Paying Taxes in Nepal” World Bank Group www.doingbusiness.org/data/ exploreeconomies/nepal/paying-taxes/)

Direct Tax (a) Income Tax

Indirect and Other Taxes (a) Value Added

Taxes(VAT) (b) Import and export

duty

(c) Stamp Duty (d) Withholding Tax (e) Nation Building Tax

.

No. Subject Pakistan India Bangladesh Nepal Sri Lanka

3.

Types of Taxation Procedures

Pakistan tax laws contain two taxation procedures, i.e. Normal Tax Regime (NTR) & Final Tax Regime (FTR).

Normal Tax Regime

Under the NTR, the net income is determined after allowing admissible expenses / deductions against the gross receipts from a source of income. Tax is charged on net income at applicable rates. Final Tax Regime

Under the FTR, tax deducted at source from the gross amount of the specified sources of income is deemed to be the final discharge of tax liability

As per the Income-tax Act, 1961, the taxability depends on the residential status of the tax payer: i) Residents are taxed on worldwide income; ii) non-residents are taxed only on income which is received or deemed to be received in India or which accrues or arise or deemed to accrue or arise in India.

Bangladesh tax laws contain two types of taxation procedures for all types of taxpayers; The taxability of an individual or a company depends upon its residential status. Normal Tax Regime The net income is determined after allowing admissible expenses / deductions against gross receipts from source of income. Tax is then charged on net income at the applicable rates. Final Tax Regime Tax is deducted at source from gross amount of the specified sources of income and is deemed to be final discharge of tax liability. Any remaining tax liability can be discharged on final settlement.

Taxes are imposed at two levels in Nepal. The Government of Nepal levies direct and indirect taxes nationwide whereas the local authorities levy locally in different forms. Tax rates are fixed by the Finance Bill. The Finance Bill is published in the Gazette of Nepal. (Source: Inland Revenue Department (IRD) at website: www.ird.gov.np)

Imposition of Income Tax: Residents:- on worldwide income Non-Residents:- on the income arising in or derived from Sri Lanka

4.

Mode of Payment of Tax

The Income Tax Ordinance 2001 defines the following modes of payment of Tax: 1. Deduction at Source

(Salary, dividends, profit on debt, payments to non- residents, payments for goods, services & contracts, exports, property income etc)

2. Advance Tax 3. Tax paid with the Return

The Income-tax Act 1961 provides for the following modes of payment and recovery of Tax: 1. Tax Deducted at Source (TDS)

(Salary, Interest, Commission, Contract fees, Rent, Professional fees etc).

2. Tax Collected at Source (TCS) 3. Advance Tax

4. Self Assessment tax

The Income Tax Act 1984 defines the following modes of payment of tax: 1. Deduction at source 2. Advance Tax paid by Taxpayer 3. Advance Tax paid to Collection

Agent 4. Tax paid on final settlement.

The Income -tax Act 2002 defines the following modes of payment of tax: 1. Deduction at source

2. Installment Tax paid by

the Taxpayer.

3. Differential tax deposited

By the Taxpayer.

(Source: Inland Revenue Department (IRD) at website: www.ird.gov.np)

The Inland Revenue Act no.10 of 2006 provides for following modes of payment of Tax:

1. Self - Assessment system

2. Deduction at Source

(on Salary, dividends, Interests, other withholding taxes etc.)

No. Subject Pakistan India Bangladesh Nepal Sri Lanka

5.

Filing of Income Tax Return/ Statement

1. A company with a tax year

ending between January 1 and June 30 is required to file its income tax return on or before December 31 of the following the end of the tax year. In other cases on or before September 30 next following the end of the tax year.

Return of income relating to a financial year (previous year) is furnished in the immediately succeeding financial year (“assessment” year).

1. Companies are required to submit their income tax return by 30

th September of the

Assessment year (30th

November for companies who are required to submit a report pertaining to international transactions)

2. Returns for non-corporate tax payers that are required by law to have their accounts audited also are due on 30

th

September. 3. All other taxpayers are

required to submit their return of income by 31

st July of the

assessment year.

Taxpayers claiming tax holidays or carrying forward tax losses must file their returns on or before due date.

1. In the case of a company, by the 15

th July next following the

income year or, where the 15th

day of July falls before the expiry of six months from the end of the income year, before the expiry of such six months 2. In all other cases, by 30 day of September next, following the income year.

Annual tax return is generally filed in Nepal within 3 months from the end of an income year. i.e. (Mid October). However, a taxpayer may have this due date extended for a maximum period of 3 months i.e. up to (mid January) in case he files an application in the IRD with bonafide reasons for such extension. (Source: Nepal Tax Facts 2010/11, www.jpia.files.wordpress.com/2011/11/baker-tilly-nepal-taxation.pdf)

Every person chargeable with income tax for any year of assessment is required to furnish a return of income on or before 30

th

November following the end of that year of assessment. The return should be in the prescribed form and should contain the particulars specified by the Commissioner Gen. of Inland Revenue.

6.

Types &

Timing of

Tax Year

Normal Tax Year A tax year is a period of 12 months ending on June 30

Special Tax Year In special cases, the FBR / Commissioner may specify/allow the period of 12 months other than the normal tax year.

Transitional Tax Year Where the tax year changed as a result of Special Tax Year, the period between the end of the last tax year prior to change and the date on which the changed tax year commences

The income earned during the

previous year is taxed in the

assessment year.

Assessment year “Assessment year" means the period of twelve months commencing on the 1st day of April every year Previous year “Previous Year” means the financial year immediately preceding the Assessment Year. In the following cases, income of the previous year is assessed in the same previous year:

Assessment Year: Assessment year means the period of 12 months commencing on the first day of July every year, and includes any such period which is deemed, under the provisions of this Ordinance, to be assessment year in respect of any income for any period; Normal Tax Year A tax year is a period of 12 months ending on June 30 (referred to as a normal tax year) and is denoted by calendar year in which closing date falls. Special Tax Year In special cases, the NBR/ Commissioner may specify the period of 12 months other than the Financial year and is referred to

Normal Tax Year A tax year is a period of 12 months ending on July 16 (referred to as Income Year) and denoted by the calendar year in which the closing date falls.

Year of assessment is : The period of 12 months commencing from 1

st April

of an year to 31st March of

following year

a) Person(s) having shipping business b) Person(s) leaving India with no intention of returning c) AOP/BOI/Artificial juridical person formed for a particular event or purpose and likely to be dissolved in the same year or next year. d) Person(s) likely to transfer property to avoid tax

as a special tax year. In such case, the tax year is denoted by the same calendar year as the normal tax year in which closing date of the special tax year falls.

No. Subject Pakistan India Bangladesh Nepal Sri Lanka

7.

Tax Rates for Companies

(a) The rate of tax imposed on

taxable income of company is 35%

(b) Where the tax payer is a

“small company” the tax rate is 25%

Normal rate of tax (a) For Indian companies income

is taxed at a flat rate of 30% (b) Foreign companies pay 40%

tax. Surcharge a) Indian companies to pay 5% surcharge applied on the tax paid by companies with net income over one crore but up to 10 crores. If the net income exceeds Rs. 10 crores the rate of surcharge becomes 10%. b) Foreign companies to pay 2% surcharge applied on the tax paid by companies with net income over one crore but up to 10 crores. If the net income exceeds Rs. 10 crores the rate of surcharge becomes 5%. Education cess An education cess of 3% (on both tax and surcharge) is payable

(a) Publicly Traded Company

27.5% (b) Non-publicly Traded Company

37.5% (c) Bank, Insurance 42.50% (d) Financial Institutions 42.50% (e) Merchant Bank 37.5% (f) Cigarette Manufacturing

Company 45% (g) Mobile phone operator 45%

Taxable income of entities is normally taxed at rate of 25%

Entities engaged in business of cigarette, bidi, cigar, beer, tobacco, alcohol, bank, financial institutions, insurance and petroleum products are levied tax at 30% of their taxable income.

Following businesses with income having source from Nepal is levied tax at 20% of taxable income:

Special Industries

Construction & operation of road, bridges, tunnel, ropeway or sky bridges.

Income from exports

Building of public infrastructure, own, operate and transfer it to Government

Power generation, transmission/ distribution

Additional concession is available for certain cooperatives, industries promoting more employment, industries operating in rural/special areas, petroleum industries, IT industries, power generating companies and export earnings.

Companies, including banks, are subject to a flat rate of tax. Unit trusts, Mutual funds and Corporations are taxed on same basis as companies.

Concessionary Income Tax rates of 10%,12% and 16% are applicable on profits & income of companies engaged in agriculture, exports, and other sectors identified as necessary for economic progress of the country. Liquor and tobacco sector companies are taxed at 40%. All other companies are taxable at the rate of 28%.

8.

Resident and Non Resident Company

Resident Company A company is a resident in Pakistan for a tax year if (1) It is incorporated or formed under any Pakistani law, (2) the control and management of the affairs of the company is situated wholly in Pakistan at any time in the year; or (3) It is a Provincial Government or local Government in Pakistan. A company not meeting any of these conditions is considered to be a Non-Resident. Non-Resident Company A Company not falling under the definition of „Resident Company‟ are considered to be a Non-Resident Company‟

A company is said to be resident in India in any previous year if a) it is an Indian Company or b) its control and management of its affairs is situated wholly in India during the previous year. A company which is not a resident company is a non-resident /foreign Company.

To be resident, a company is required to be incorporated in Bangladesh. A company is a resident in Bangladesh for a tax year if the control and management of whose affairs is situated wholly in Bangladesh at any time in that year

A company, is resident in Nepal for the income year if: (A) It is incorporated or formed under the laws of Nepal; or (B) It has its effective management in Nepal during an income year.

Further, there is no concept of dual resident status

A company is deemed to be a resident company in Sri Lanka, (1) if its registered or

principal office is in Sri Lanka; or

(2) the control and management of its business is exercised in Sri Lanka

9.

Tax Rates on Non-Residents

A non-resident person is only liable to tax to the extent of his Pakistan-sourced income. The source of income is determined in accordance with rules provided in the Ordinance. The rate of tax imposed on payments to non-residents is 15% of the gross amount of the royalty or fee for technical services. In case of non-resident carrying on the business of operating ships or aircraft as the owner or charterer tax rate are 8% and 3% respectively of the gross amount.

Non-residents are taxed only on income which is received or deemed to be received in India or which accrues or arise or deemed to accrue or arise in India. There are special rates of taxes for non-residents in respect of certain income eg. royalty and fees for technical services received from an Indian concern is chargeable to tax @25%

A non-resident person is only liable to tax to extent of his Bangladesh-sourced income. The source of income is determined in accordance with rules provided in Ordinance. The tax rate on Non-resident individual other than Non-resident Bangladeshi is 25% .

A non-resident tax payer (Individual or entity) is taxed only on his income earned in Nepal. The Tax rate on income from employment of non-resident individual is 25 percent (Source: Trade, Industry and Tax Policy Highlights by Federation of Nepalese Chamber of Commerce at www.fncci.org/text/trade_industry_tax.pdf)

A non-resident person is liable to tax to the extent of his Sri Lanka-sourced income. The source of income is determined in accordance with rules provided in the Act. 28% tax rate generally applicable to resident companies is applicable to non-resident companies (subject to the application of non-discrimination clause of DTAA)

No. Subject Pakistan India Bangladesh Nepal Sri Lanka 10.

Withholding Tax

Withholding is an act of deduction or collection at source, which is an advance tax payment. Important withholding provisions relate to: (1) Salary (2) Imports (3) Exports (4) Dividends (5) Commission and brokerage (6) Goods, Services and Contracts (7) Profit on debt (8) Utilities (9) Vehicle tax (10) Stock Exchange transactions (11) Non-residents (12) Income from property

Withholding tax is applicable in India in the following forms: a) Tax deducted at source The provisions of tax deduction at source are applicable in respect of variety of payments including:

Salary

Interest

Dividends

Winning from lottery

Commission

Payments to contractors

Rent

Fees for professional and technical services etc

b) Tax Collection at source The provisions of tax collection at source are applicable in respect of profit and gains from the business of trading in alcoholic liquor, forest produce, scrap etc.

The withholding tax regime covers almost all types of payments made to both resident & non-residents from which tax is required to be withheld at source. Some significant payments subject to withholding tax include: (1) Salary (2) Discount of the real value of

Bangladesh Bank Bills (3) Remuneration to Member of

Parliament (4) Interest on securities (5) Payment to contractors (6) Professional or Technical

Services (7) Payment of certain services (8) Clearing & forwarding agents (9) Cigarette manufactures (10) Acquisition of Property (11) Interest on Savings Instruments (12) Brick manufacturers (13) Commission of Letter of Credit (14) Renewal of trade license (15) Fright forward agency

commission (16) Rental power (17) Indenting Commission (18) Income from House Property (19) Export of Manpower (20) Insurance Commission (21) Capital gains (22) Business of Real Estate and

Land Developer

Dividend distributed by company to its shareholders is taxed as final withholding tax at a rate of 5%. The remuneration received by foreign investor in the form of interest, rent, royalty, and commission because of transfer of technology to Nepalese industry is subject to withholding tax at 15% of total payment. Where recipient holds the status of non-resident, such withholding tax will be treated as final withholding tax.

If interest is paid by financial & banking organizations: withholding tax applicable (a) to any company is 10%. (b) to a partnership or a charitable institution is 8%. ( c) to an individual –varies from 0% to 8%. Withholding tax deductible from interest, rent, ground rent, royalty, annuity paid to any non-resident person will be 20% or any other rate that will be determined by the Commissioner General of Inland revenue.

11.

Sales Tax/

VAT / GST

Sales Tax Exemption Sales tax is not applicable on supply of goods by the cottage industry and retailers if annual turnover is less than Rs. 5 million. Sales tax on services Rendering or provision of the following services is chargeable to sales tax at 16 percent under the Provincial legislations:

Telecommunication services

Services provided by banking companies, insurance companies, cooperative financing societies, modarabas, musharikas, leasing companies, foreign exchange dealers, non-banking financial institutions

Advertisements

Franchise services

Construction services

Services provided by professionals and consultants

Courier services

Services rendered/provided by hotels, clubs and caterers

Value Added Tax (VAT) All Indian states impose a “consumption type destination-based VAT”, driven by the invoice tax credit method on sale of all movable and specified intangible goods (barring a few exempt goods) the list of which varies from state to state. The standard VAT rate is 12.5% with lower rates of 5 % & 1%, except in some states where certain higher rates have been prescribed. Central Sales Tax Central Sales Tax is levied on sales/purchases taking place in course of interstate trade and commerce. The Rate of Central Sales Tax is as follows: a. State VAT Rate if sales are made to an unregistered dealer b. lower of 2% or State VAT rate in case of sale to a registered dealer (against form C) c. maximum 5% in case of Declared Goods.Central Sales Tax Central Sales Tax is levied on sales/purchases taking place in course of interstate trade and commerce. The Rate of Central Sales Tax is as follows: a. State VAT Rate if sales are made to an unregistered dealer b. lower of 2% or State VAT rate in case of sale to a registered dealer (against form C) c. maximum 5% in case of Declared Goods.

Sales Tax Exemption Sales tax is covered by Value Added Tax. Value added tax (VAT) VAT is presently levied in Bangladesh on the following sectors: (1) Manufacturing (2) Services (3) Imports

Sales Tax Exemption Sales Tax is replaced by Value Added Tax Value Added Tax (VAT) VAT is levied in Nepal on the following transactions: (a) Goods and services supplied (b) Goods and services imported (c) Goods and services exported VAT is levied on the taxable value of every transactions at the rate of 13 %. Threshold limit of VAT is NRs. 1.0 Million for service providers and NRs. 2 million for others entities.

Value Added Tax Exemption VAT is not charged on certain imports and on retail and wholesale supply of goods where the total supply for a quarter is less than Rs.250 million. Value Added Tax (VAT) Value Added Tax (VAT) is levied in Sri Lanka on following transactions: (a) The goods imported into

Sri Lanka (b) Goods and services

supplied in Sri Lanka.

Service Tax: Service Tax is tax levied at the rate of 12.36% on value of all services other than the services specified in the Negative List & services exempted under “Mega Exemption List” vide notification no. 25/2012 dated 20.06.2012, provided or agreed to be provided in the taxable territory by one person to another

No. Subject Pakistan India Bangladesh Nepal Sri Lanka 12.

Federal Excise Duty

The Federal Excise Duty is levied and collected on goods produced or manufactured and imported in Pakistan. Services provided in Pakistan including the services originated outside but rendered in Pakistan are also subject to FED. Charging of Federal Excise Duty

FED is charged on the value or retail price basis @ 15% but on some items it is charged on basis of weight or quantity at varying rates.

Zero percent FED rate is applicable for exported goods or specified goods.

Products/Services on which FED is charged (a) Excisable Goods

Varied rates of excise duty is levied on goods such as edible oils, aerated waters and concentrates, tobacco & cigarettes, cement, lubricants and fuel oils, liquefied gases, perfumes and toiletries, greases, viscose staple fiber, transportation vehicles

(b) Excisable Services

Varied rates of excise duty is levied on services such as advertisements, air travel, air cargo, telecommunication, shipping agents, insurance, stock brokers, franchise services etc.

A duty of excise is leviable on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); The General rate of Excise duty on the commodities is 12%.

Excise duty is payable on one of the following basis:

Specific duty based on some measure – under Section 3(1). No valuation required. Example, length (cigarette), weight (sugar),

Duty as percentage of tariff value - fixed under Section 3(2).Example, Gold / Silver

Duty based on MRP under Section 4A of the Central Excise Act, 1944

Duty based on annual production capacity under Section 3A of the Central Excise Act, 1944

Compounded levy scheme Duty as % of assessable value determined under Section 4 of the Central Excise Act, 1944

Exemptions to small scale industries are given vide Notification No. 8/2003 – CE dated 1.03.2003 upto a turnover of Rs.150 Lacs subject to certain conditions mentioned in the notification, such as, unit turnover in previous year must be less than Rs.4 Crore and no CENVAT credit is allowed on Input etc.0

At present, excise duty in Bangladesh is applied on only two items. (a) Bank deposit (b) Domestic air tickets (TK 250

per journey) (Source: National Board od Revenue (NBR) Bangladesh at www.nbr-bd.org)

Excise Duty is levied on specified goods imported or manufactured, and specified services rendered in Nepal at varied rates as prescribed in the Finance Bill. Generally, excise duty is charged on the value, weight/ quantity and price percentage basis. The goods which are subject to levy of excise include beer, alcohol, fruit juices, tobacco and cigarettes, cement, paints, television, vehicles The Act is yet to define the services liable to levy excise duty. The rates are expressed in terms of percentage as well as monetary value. The act has also allowed waiver of excise duty in the case of exports and sales through duty free shops.

Excise Duty : is levied on certain articles produced or manufactured in Sri Lanka or imported to the country, at the rates specified by the Minister by order published in the Gazette. Excise Duty is mainly on liquor products.

No. Subject Pakistan India Bangladesh Nepal Sri Lanka 13

Customs Duty

(a) Imported goods are

liable to custom duty at prescribed rates

(b) Zero-rating and

concessionary rates of customs duty are generally applicable for industrial raw materials, semi-finished goods and capital goods, particularly if not being manufactured in Pakistan.

(c) Custom duty is based

on cascading principle whereby customs duty is applicable at higher rate on luxury items /finished goods & at lower rate on industrial raw material/semi-finished/ essential goods.

No export duty is levied on the goods exported from Pakistan

(a) The Custom duties are

levied on goods at the rate specified in the schedules to the Custom Tariff Act, 1975 on import into or export from India.

(b) Import duty consists of following type of duties: Basic custom duty (BCD), Additional custom duty, special CVD, NCCD, Anti dumping duty/ Safeguard duty etc.

(c) The rates of basic custom duties vary from 0% to 30%.

(d) Low rate Import duties vary from 0-3% is levied under Export Promotion Capital Goods (EPCG) Scheme on fulfilling certain condition mentioned under the Foreign Trade Policy.

(e) Export made from India may avail concessions in form of duty drawback, duty entitlement pass book scheme and advance license etc.

(f) Several industries such as 100% EOU and units in free trade zone (FTZ) are eligible to procure raw material at concessional rate / zero rate of duties.

(a) Imported goods are

liable to custom duty at prescribed rates

(b) Zero-rating and

concessionary rates of customs duty are generally applicable for industrial raw materials, semi-finished goods and capital goods, particularly if not being manufactured in Bangladesh.

(c) Custom duty is based

on cascading principle whereby customs duty is applicable at higher rate on luxury items /finished goods & at lower rate on industrial raw material/semi finished/ essential goods

(a) Goods imported into and exported from Nepal are

liable to custom duties at prescribed rates. However, zero %, 1%, 5% and concessionary rates of customs duty are generally applicable for importing plant, machinery and equipment required for direct production process.

(b) Custom duty is based on cascading principle

whereby customs duty is applicable at higher rate on luxury items /finished goods & at lower rate on industrial raw material/ semi finished/ essential goods

B Ports and Airport Development Levy : is charged on CIF value of liable articles imported. General rate at present is 5%. Special Commodity Levy also is charged on certain commodities instead of imposition of multiple taxes and levies. Rates of such levy are varied in accordance with the specifications made in time to time.

14.

Social Security Taxes

Social Security Contribution and Employee‟s Old Age Contribution are payable by the employers against the salary income of insurable employees. Such taxes are computed in accordance with provisions of relevant statute.

The employer generally contributes 12% of eligible wages per month to provident Fund. From the employer‟s contribution, 8.33% of the wages (up to INR 6500) are applied to the pension fund, with balance paid to the Provident Fund. The employer also must pay a gratuity to workers who have rendered continuous services for at least 5 years at the time of retirement, resignation, superannuation, etc., at the rate of 15 days wages for every completed year of services (up to a maximum of INR 1 million)

Generally Provident Fund, Gratuity and Pension Fund are available in Bangladesh. In case of Provident Fund, both Employer and Employee contributed equally in every month. In case of Gratuity and Pension Fund, only Employers contribute to these funds.

The government of Nepal has imposed a 1% for social security for both government and private sector employees on the first slab of income (i.e., NRs. 160,000 for individual and NRs. 200,000 for couples). Those having proprietary firm, however, have to pay this tax if their annual income is more than NRs.160,000 or NRs. 200,000 as the case may be.. (Source: Nepal Stock Exchange Guide,

www.nepseguide.com/2009/08/31/social-secuity-tax-law.html.)

In Sri Lanka, from year 2009, in view of re-building the communities and infrastructure facilities affected by war, Nation Building Tax is imposed on the turnover of liable goods and services. General threshold is Rs. 500,000/ per quarter Normal rate is 2%. (Threshold and rate differs for several sectors)

7

No. Subject Pakistan India Bangladesh Nepal Sri Lanka 15.

Capital Value Tax (CVT)

CVT is a tax on the capital value of the specified assets and is payable on the acquisition of an asset by every individual, association of persons, firm or company. Capital Value Tax (CVT) is charged on the following transactions: (a) Purchase of shares of listed companies and Modaraba certificate or any instrument of redeemable capital is subject to CVT @ 0.01% and 0.02 % respectively.

b) Residential immoveable property measuring five hundred square yards or more, commercial property and residential flats of any size at the rate of 2 % of the recorded value.

c) Motor vehicles imported and local manufactured ,not plying for hire

Capital Value Tax not applicable in India. Real estate transactions attracts stamp duties that are levied under Indian Stamp Act and rates varies from one state to another

Capital Gain tax imposed in Gains on Sales of property, shares, fixed asset, etc. Capital gains in respect of any profit & gains arising from the transfer of a capital asset & such profits & gains shall be deemed to be the income of the income year in which the transfer took place

Capital gains under Income Tax Act is taxed as per below: 1. In the case of non

business chargeable assets; securities or an interest in an entity, land and buildings except with some savings. The gains are taxed on basis of net incomings (difference between disposal value and cost). Such gain is treated as investment income in the case of natural person. 2. In the case of depreciable assets:

The gains are taxed on the surplus upon disposal of the entire pool of the depreciable assets. Treated as business income. 3. In the case of business assets:

The gains are taxed on basis of net incomings from the disposal. Treated as business income

Capital Gains Tax was repealed in Sri Lanka in 1980ies. Real estate transactions attracts stamp duty that is levied under the Provincial Stamp Duty Acts at rates equally applicable to each Province of the country.

16.

Professional Tax

This is a provincial levy on Trade, professions, Callings and Employment generally payable on the basis of paid up capital. The rates differ from one province to another. In the province of Sindh, on companies the rates range from PKR 10,000 to PKR 100,000 depending on the slab applicable in relation to the paid up capital. In case of establishments other than limited companies, there are different rates ranging from Rs.500 to Rs.100000 based on their turnover.

Professional Tax in India is a state-level duty an imposed on business owners, working individuals, merchants and people of various occupations. This tax is levied by municipal corporations and maximum amount payable per year is INR 2,400 which is subtracted by the employer every month from employee‟s salaries and sent to the municipal corporation. It is compulsory as income tax and income tax is allowed for this payment.

Tax is imposed on professionals for the services rendered by them and such tax is deducted at source by the service receiver: a) 10% of such fees where the

person receiving such fees

furnishes his TIN

b) 15% of such fees where the

person receiving such fees fails

to furnishes his TIN

Municipalities are empowered to levy a professional tax on specified industry, trade, profession or occupation. Minimum and maximum rates for each category of profession are fixed and the municipalities can fix rates according to their local conditions with in these limits. (Source: Ministry of Local Development, Nepal, www.lgcdp.gov.np)

In Sri Lanka no such tax other than the Income Tax on professionals.

No. Subject Pakistan India Bangladesh Nepal Sri Lanka 17.

Property Tax

This is a provincial tax levied on the value of property. The rates of property tax vary from one province of Pakistan to another. It is generally charged, levied and collected on the basis of annual rental value of land and building.

The property tax in India is levied by the local municipal authority on the following real states such as office building, factories, godowns, shops, flats and residential houses (self occupied or let out). It is calculated on the basis of annual value of the property.

Tax is imposed on any sale of land, registration of property, etc.,

Municipalities levy house and land tax on each house and land with in their jurisdiction on the basis of the size, type, design, construction and structure of the house and area covered by the house, as approved by the Municipal Council. (Source: Ministry of Local Development, Nepal, www.lgcdp.gov.np)

Municipality councils and Town Councils levy a house and land levy on an annual basis, on each house and land within their jurisdiction on the basis of the size, and location as approved by the respective Council

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18.

Stamp Duty

The Stamp Duty Act, 1899, provides for imposition of stamp duty on instruments and documents and for matters connected and incidental thereto. Stamp duty is provincial levy, which inter-alia is payable on the following: (a) Every instrument executed, drawn or presented in Pakistan (b) Every document presented or filed in the various courts (c. Cheque or promissory note drawn outside Pakistan but negotiated in Pakistan in any manner whatsoever (d) Every instrument executed outside Pakistan and received in Pakistan that relates to property situated or any matter done or to be done in Pakistan.

Financial instruments, real property and other specified transactions in India attract stamp duties that are levied under the Indian stamp Act and the stamp acts of the various states (with rates varying significantly by state)

Stamp Duty is applicable based on the value of Deeds /legal documents

Nepal does not have a specific law governing stamp duty. However, the stamp tickets are used in various transactions such as:

In property deals;

In insurance contracts;

In customs and excise transactions;

In various applications to Government; etc.

The stamp is issued by Government Post Office under Postal Act 1963.

Registration of land, building, mortgage, deeds, etc. is also subject to registration duties, as per the rates prescribed in Finance Act.

Stamp duty is charged at specified rates at the time of execution of the specified instruments namely,

Affidavit

Notary license

Lease / hire of any property

Issue/transfer of company shares

On credit card claim

Policy of Insurance

Trade license

Bonds/ mortgages

Promissory notes

Receipt over Rs.25,000/

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No. Subject Pakistan India Bangladesh Nepal Sri Lanka 19.

Other Taxes

Payroll tax Not applicable. Other than income tax payable by the employees and social security taxes payable by the employer there are no other payroll related taxes Inheritance tax There is no inheritance tax in Pakistan. Gift tax There is no gift tax in Pakistan.

Payroll tax Payroll tax is not applicable in India. Inheritance tax India does not include inheritance tax with in its taxation system. Gift tax The levy of gift tax was done away in 1998 but in 2004 the Gift Tax Act 1958 was revived partially by inserting certain provisions in section 56 of the Income tax Act, 1961 wherein the sum of money or property received with inadequate consideration or without consideration is brought under the tax net.. Service Tax Service Tax was introduced for the first time in the year 1994 on 3 Services. Ever since, different Finance Ministers have added new services under its ambit. Another major shift has happened in the year 2012-13, wherein, all services have been brought into the service tax net, barring a few that have been specifically mentioned in the negative list/ exempted list of services. Service Tax is levied at the rate of 12%. Wealth Tax Wealth tax is charged for every assessment year in respect of net wealth as on the corresponding valuation date of every individual, HUF and company at the rate of 1% on the amount by which the net wealth exceeds Rs. 30,00,000

Payroll tax Not applicable other than income tax payable by the employees Inheritance tax There is no inheritance tax in Bangladesh Gift tax Gift tax is levied on gifts made in any financial year on and from the 1

st day

of July, 1990 at the rates prescribed in the range of 5% to 20% based on the value of all taxable gifts. No gift tax shall be applicable under this Act for any gift made by any person in a tax year not exceeding the value of taka 50,000

Payroll tax Not applicable. Other than income tax payable by the employees and social security taxes payable by the employer there are no other payroll related taxes, which is computed annually withheld by the employer on monthly basis

Inheritance tax There is no inheritance tax in Nepal Gift tax There is no gift tax in Nepal. However, windfall gain is taxed under Income-tax Act applying at the rate of 25%

Payroll tax No payroll tax exists in Sri Lanka. (However, Income Tax in the mode of Pay As You Earn –PAYE exists in Sri Lanka). Inheritance tax No inheritance tax exists in Sri Lanka. Gift tax No Gift tax exists in Sri Lanka.

20.

Double Taxation Agreements/ International Tax Treaties

Pakistan has Double Taxation Agreements (DTAs) with more than 50 countries, including those where conventions are restricted to taxation of income from international air / shipping traffic. These DTAs have an overriding effect over provisions of Ordinance

India has entered into DTAs with almost 100 countries including U.S.A., U.K., Japan, France, Germany, etc. These agreements provides for relief from the double taxation in respect of incomes by providing exemption and also by providing credits for taxes paid in one of the countries.

Bangladesh has entered into Double Taxation Agreements (DTAs) with 29 countries, including those where conventions are restricted to taxation of income from international air/ shipping traffic. These DTAs have an overriding effect over the provisions of Ordinance in respect of taxability

Nepal has Tax Treaties with 10 countries. The purpose of the treaty is to relieve double taxation and to prevent fiscal evasion and to ensure reciprocal administrative assistance in the enforcement of tax liabilities.

Sri Lanka has entered into 39 tax treaties, whereas 4 treaties are waiting for entry in to force and 3 other are under discussion. . Most tax treaties are bilateral and based on either OECD

in respect of taxability of income, relief and allowances, and provide for special treatment of income from different sources. Most of DTAs are on OECD model and provide for exemption of business profits where same are not attributable to a PE in Pakistan. Exemptions / reduced tax rates are also available under some treaties for capital gains, dividend, interest, royalty and fee for technical services. The Ordinance contains the rules for computation of tax relief by way of credit in respect of foreign taxes paid. Any excess tax credit may be carried forward or refunded. However, in practice it is usually carried forward and adjusted against a Future tax liability.

These treaties are based on the general principles laid down in the model draft of the OECD with suitable modifications as agreed to by the other contracting countries. In case of countries with which India has double taxation avoidance agreements, the tax rates are determined by such agreements.

of income, relief and allowances, and provide for special treatment of income from different sources. Most of the DTAs are on OECD model and provide for exemption of business profits where the same are not attributable to a PE in Bangladesh. Bangladesh generally follows UN model of avoidance of double taxation agreement. Exemptions / reduced tax rates are also available under some treaties for capital gains, dividend, interest, royalty and fee for technical services. The Ordinance contains the rules for computation of tax relief by way of credit in respect of foreign taxes paid. Any excess tax credit may be carried forward or refunded. However, in practice it is usually carried forward and adjusted against a future tax liability.

In case, existing income tax law contradicts the treaty, the provisions of the treaty prevail. (Source: Inland Revenue Department (IRD) at website: www.ird.gov.np)

model or UN model. There is one multilateral tax treaty with SAARC.

21.

Foreign Ownership/ Setting Up Business by a Foreign Company

(a) With the exception of certain

specified industries, 100 percent foreign ownership is permitted in the manufacturing sector without requiring any permission from the Government.

(b) Specified industries include

arms and ammunitions, high explosives, radioactive substances, security printing, currency, mint

(c) New units for the manufacture

of alcohol are not allowed except for industrial alcohol.

(d) For non-manufacturing sector

(comprising of three sub-sectors namely Agriculture, Infrastructure and Social, and Services including IT and telecom services) 100 percent foreign ownership is allowed without Government‟s permission except for obtaining specified licenses from concerned agencies.

Foreign investors can enter into the business in India in following ways: (a) As a foreign company in the

form of liaison or representative office, a project office and a branch office by registering themselves with Registrar of Companies (ROC), New Delhi within 30 days of setting up a place of business in India

(b) As an Indian company in the

form of a Joint Venture and wholly owned subsidiary. For opening of the foreign company specific approval of Reserve Bank of India is also required.

(c) For starting a new project, a

number of approvals/clearances are required from different authorities such as Pollution Control Board, Chief Inspector of Factories, Electricity Board, Municipal Corporations, etc.

(d) Foreign ownership is allowed in

almost all sectors except proposals that require an industrial license and cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries, or where the foreign collaborator has a previous venture/tie-up in India.

(e) Foreign ownership is also not

allowed on proposals relating to acquisition of shares in an existing Indian company in favor of a Foreign/Non-Resident Indian (NRI)/Overseas

Foreign investors can start business in Bangladesh in following ways: (a) Setting up a 100% foreign-

owned company in Bangladesh (b) Setting up a Joint Venture with

Bangladeshi company / investor (c) Establishing the Company‟s

Place of Business in Bangladesh (d) Setting up a Branch or a

Subsidiary of a foreign company (e) Setting up a Bangladeshi

Company or join a Bangladeshi Company already formed.

Foreign investors are free to make investments in Bangladesh in the industrial enterprises except for a few reserved sectors. An industrial venture may be set up in collaboration with local investors or may even be wholly owned by the foreign investors. For foreign direct investment, there is no limitation pertaining to foreign equity participation, i.e. 100 percent foreign equity is allowed. Non-resident institutional or individual investors can make portfolio investments in stock exchanges in Bangladesh. Foreign investors or companies may obtain full working loans from local banks. The terms of

The Nepalese government allows 100% ownership to foreign investors in the following types of industries: (a) Small-scale industry

with a fixed asset up to NRs. 30 million.

(b) Medium-scale industry with fixed asset between NRs. 30 million and NRs. 100 million.

(c) Large-scale industry with fixed assets of more than NRs.100 million.

Foreign Investors requires approval from Department of Industry for Industry; from Nepal Rastra Bank for Banking Company and Insurance Board for Insurance Company. Foreign investors are not allowed to invest in several industries, which are included in the Negative List. Some of these industries are: 1. Cottage Industries 2. Personal Service Business 3. Arms and Ammunition 4. Explosives, Gunpowder 5. Radio-Active Materials 6. Real Estate 7. Motion Pictures Business 8. Security Printing 9. Currencies and Coinage 10 Retail Business 11 Travel Agency 12 Pony Trekking 13 Tobacco and Alcohol 14 Internal Courier Service 15 Atomic Energy 16 Tourist Lodging

Foreign investors can start business in following ways: (a) Setting up a Branch Office by registering with the Registrar of companies. (b) Setting up a Liaison Office or Representative Office. (Trading and investment are not allowed). (c‟) Setting up a Local Subsidiary company that has to comply with all statutory requirements imposed on domestic companies. (d) Setting up a joint Venture with a Sri Lankan company to be carried as a partnership business. Under the investment policy of BOI of Sri Lanka, 100% foreign ownership allowed; no restrictions on repatriation of earnings: strong Intellectual Protection Laws in line with WIPO regulations.

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Corporate Body (OCB) investor.

such loans will be determined on the basis of bank-client relationship.

17 Poultry Farming 18 Fisheries 19 Bee-Keeping 20 Consultancy Services

(such as Management, Accounting, Engineering and Legal Services).

Remarks: a) Review status updated by Nepal on August 2013 (i.e. FY 2013-o14) on the above comparative study

b) Review status updated by Pakistan & India on February 2014 on the above comparative study.

c) Review status updated by Sri Lanka’s on January 2014 on the above comparative study.

d) Review status updated by Bangladesh as on March 2014 (i.e. FY2013-FY2014) on the above comparative study