Taxation-1Institute of Chartered Accountants

Bangladesh

Md. Shakhawat Hossain

Articled Student

Howladar Yunus & Co.

Introduction to Bangladesh income tax

Bangladesh Tax Structure Sources of tax law and practice Scope of Bangladesh Income Tax Structure of IT Ordinance, 1984 Objectives and Importance of Income Tax Role of Income Tax in Economic Development of Bangladesh Some Definitions The Concept of Income Capital or Revenue Tax and Income Tax Different Rates of Tax Liability to tax Some significant issues of income tax

Bangladesh Tax Structure

Direct Tax: (income tax, gift tax, land development tax, non-judicial stamp, registration, immovable property tax, etc)

Indirect Tax: (customs duty, excise duty, motor vehicle tax, narcotics and liquor duty, VAT, SD, foreign travel tax, IT, electricity duty, advertisement tax, etc) taxes.

Sources of tax law and practice

Income Tax Ordinance, 1984 The Income Tax Rules, 1984. The Value Added Tax Act, 1991. Finance Act Case law NBR Publication (NBR makes available some forms,

notifications, brochures, and guidelines of income tax, VAT and customs through its websites and other forms of communication for public at large.

There are many SROs and circulars on income tax and VAT published by NBR providing guideline for tax purpose.

Scope of Bangladesh Income Tax

The Income Tax Ordinance, 1984 Income Tax Rules, 1984 Finance Act SRO (Statutory Regulatory Orders): Income Tax Case Law

Structure of IT Ordinance, 1984

Chapter Title Sections

I Preliminary Administration 1-2

II Administration 3-10

III Taxes Appellate Tribunal 11-15

IV Charge of Income Tax 16-19E

V Computation of Income 20-43

VI Exemption and Allowances 44-47

VII Payment of Tax before assessment

48-74

VIII Return & Statement 75-80

Structure of IT Ordinance, 1984

Chapter Title Section

IX Assessment 81-94A

X Liability in Special Cases 95-103A

XI Special Provisions relating to avoidance of tax

104-107

XIA Transfer Pricing 107A-107J

XII Requirement of furnishing certain information

108-110

XIII Registration of firms 111

XIV Powers of Income Tax Authorities 112-122

XV Imposition of Penalty 123-133

XVI Recovery of Tax 134-143

Structure of IT Ordinance, 1984

Chapter Title Section

XVII Double Taxation Relief 144-145

XVIII Refunds 146-152

XVIIIA Settlement of Cases 152A-152E

XVIIIB Alternate Dispute Resolution 152F-152S

XIX Appeal and Reference 153-162

XX Protection of Information 163

XXI Offences and Prosecution 164-171

XXII Miscellaneous 172-184F

XXIII Rules and Repeal 185-187

Structure of IT Ordinance, 1984

The First Schedule– Part A: Approved Superannuation Fund– Part B: Recognised Provident Funds– Part C: Approved Gratuity Fund

The Second Schedule– Rate of Income Tax in Certain Cases

Non Resident (maximum rate) Capital Gain Winnings

Structure of IT Ordinance, 1984

The Third Schedule– Computation of depreciation allowance

The fourth Schedule– Computation of The profits and gains of Insurance Business

The Fifth Schedule– Part A

Computation of the profit or gains from the Exploration and production of petroleum and the determination of the Tax thereon

– Part B Computation of Profits and gains from the exploration and extraction of

Mineral deposits (other than oil and oil gas) in Bangladesh

Structure of IT Ordinance, 1984

The Sixth Schedule– Part A

Exclusions from Total Income

– Part B Exemptions and Allowances for Assesses Being

Resident and Non-Resident Bangladesh

The Seventh Schedule– Computation of Relief from Income Tax by way of

credit in respect of foreign tax

Objectives and Importance of Income Tax

Revenue collection Re-distribution of income Increase in savings Increase in capital investment Economic development

Role of Income Tax in Economic Development of Bangladesh

Tax Holiday Scheme Investment allowance Accelerated Depreciation Allowance Tax incentives for Small & Cottage Industries Tax incentives for encouraging savings Tax exemptions in certain expenditures Tax incentives for foreign investors Allowance for scientific research Tax incentives for remittance to Bangladesh

Some Definitions

Agricultural income [U/S 2(1)] Annual Value [U/S 2(3)]: Appellate Joint Commissioner [U/S 2(4)]: Assessee [U/S 2(7)]: Assessment [U/S 2(8)]: Assessment Year [U/S 2(9)]: Business [U/S 2(14)]: Capital asset [U/S 2(15)]: Charitable Purpose [U/S 2(16)]: Child [U/S 2(18)]: Company [U/S 2(20)]:

Some Definitions

Deputy Commissioner of Taxes [U/S 2(23)]: Dividend [U/S 2(26)]: Employer [U/S 2(27)]: Employee [U/S 2(28)]: Fair Market Value [U/S 2(30)]: Fees for Technical Services [U/S 2(31)]: Income [U/S 2(34)]: Income Year [U/S 2(35)]: Interest [U/S 2(38)]: Market Value [U/S 2(40)]:

Some Definitions

Non-resident [U/S 2(42)]: Perquisite [U/S 2(45)]: Person [U/S 2(46)]: Profits in lieu of salary [U/S 2(50)]: Recognized Provident Fund [U/S 2(52)]: Resident [U/S 2(55)]: Royalty [U/S 2(56)]: Tax [U/S 2(62)]: Total income [U/S 2(65)]: Transfer [U/S 2(66)]: Year [U/S 2(69)]:

The Concept of Income

– Income should be received in the form of money or money’s worth.

– Income should be in the form of revenue nature.– It should arise from some definite source or a

source with some sort of regularity. – It should be derived from a person other than the

recipient. – Income tainted with illegality is also classified as

taxable income under tax law.

Capital or Revenue

Income tax is levied on income and not on capital receipts.

While ascertaining the profits of a business or profession, the revenue expenditure and not the capital expenditure is deductible from the trading receipts.

Whether a particular expenditure is incurred solely to earn profit or whether it is a capital expenditure depends in each case on the nature of business, commercial practice, the nature of the expenditure and other relative circumstances. No rigid rules can be laid down in this connection.

Tax and Income Tax

Income tax is a tax on income tax" means the income tax payable under the

Ordinance and includes any additional tax, excess profit tax, penalty, interest, fee or other charges leviable or payable under the Ordinance." Therefore, income tax is any tax, additional tax, excess profit tax, penalty, interest, fee or other charges leviable or payable on any income or deemed income under the Ordinance.

Different Rates of Tax

Tax Rates for Individual, Firms, Association of Persons (AOP), Hindu Undivided Family (HUF) and Artificial Juridical Person:

Small and cottage industries Tax Rates for Companies

– Publicly Traded Company:– Non-Publicly Traded Companies – Bank, Insurance and Financial Institutions – Cigarette manufacturing companies – Mobile Phone Operator Company

Different Rates of Tax

Inter-Corporate Tax Rate (Tax Rate on Dividend) Tax Rate for Non-Resident Capital Gain Tax Rate (Paragraph 2 of the Second

Schedule) Tax Rate on Winning Lesser Tax Rate for special industry

Liability to tax

Individuals– income from salary– income from interest on securities– income from house property– agricultural income– income from business or profession which he operates as a

sole trader or as a member of a partnership firm– capital gains and – income from other sources – Value added tax (VAT) as the supplier of goods and

services (if a sole trader) or as the final consumer of goods or services

Liability to tax

Partnerships– Each partner is liable to tax on his share of income of the

partnership in an income year, but not for tax on the shares of income of the other partners.

– Tax Deducted at source– Value added tax (VAT) as the supplier of goods and

services or as the final consumer of goods or services Companies

– Corporation tax (CT) on its income – Tax Deducted at source– Value added tax (VAT) as the supplier of goods and

services or as the final consumer of goods or services

Some significant issues of income tax

Income Year & Assessment Year

Accounting year ends on Income year Assessment year

30.06.2007 2006- 2007 2007-2008

30.09.2007 2007-2008 2008-2009

31.12.2007 2007-2008 2008-2009

31.03.2008 2007-2008 2008-2009

31.07.2008 2008-2009 2009-2010

Some significant issues of income tax

Exceptions to the rule of Assessment Year – Income of discontinued business – Persons leaving Bangladesh – Income of non-resident shipping companies

Some significant issues of income tax

Residential status of an assessee

An individual stays in Bangladesh for -

182 days or more of an income year?

Resident

Yes

90 days or more of an income year?

No Yes365 days or more during 4

immediate preceding years?

Yes

No No

Non-resident

Is the assessee is Bangladeshi citizen?

Non resident Bangladeshi (NRB)

Non resident Foreigner (NRF)

Yes No

Some significant issues of income tax

Taxation implication of resident or non-resident– To determine the amount of total income– To determine minimum limit of taxable income– Tax rate– Income tax rebate– Tax liability

Thanks

Md. Shakhawat Hossain

Articled Student

Howladar Yunus & Co.Taxation & Legal Compliance Department