EAST DELTA UNIVERSITY

MBA PROGRAM
ACT 631: CORPORATE TAX MANAGEMENT
OVERVIEW
The course is intended to give an idea on Corporate Tax Management and Tax Planning. The
course includes various aspects of corporate income tax. Tax planning holds an important role
for all types of assessees in respect of their income. The course is designed in such a way that
after successful completion of the course the students would be able to work in corporate sector
relating to procedure and management of corporate sector in the field of taxation. Various
process and methods of tax planning as per Income Tax Ordinance 1984 will be discussed in the
said course.
SYLLABUS
CHAPTER-ONE: INTRODUCTION
Introduction, what is tax? Classification of tax, Bangladesh tax structure, sources of tax law and
practice, scope of Bangladesh income tax, structure of income tax ordinance, 1984, company,
types of company, what is tax planning? How tax planning works, what is tax evasion? Tax
avoidance 

CHAPTER-TWO: TAXATION OF COMPANIES-SOME CONCEPTS (RESIDENTIAL

STATUS, TAX LIABILITY)
Company, public vs. Private companies, residential status, implication of residential status,
residential status of company, income year, assessment year, tax rate, minimum tax for
companies, inter-corporate tax rate (tax rate on dividend) for assessment years 2019-20, reduced
rates of corporate tax for special cases, liability to tax, time for filing tax return, tax deducted at
source/ withholding tax/ collections of tax at source, the time limit for payment of tax deducted
at source (rule 13), submission of withholding tax return (75 a), consequences of non-submission
of return and return of withholding tax, advance payment of tax
CHAPTER-THREE: ASSESSMENT OF COMPANIES
Introduction, types of companies under ito-1984, residential status of companies, submission of
return, set off and carry forward of losses, income year and assessment year, some important
aspect of assessment of company, tax rebate, corporate social responsibility, areas of csr,
procedure of assessment, scope of income, general format of assessment, inadmissible expenses,
admissible expenses, other tax exemptions, problems and solutions.
CHAPTER-FOUR: EXEMPTION AND ALLOWANCES (TAX HOLIDAY /
EXEMPTION)

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Background, tax holiday scheme for newly established industrial undertakings, tourist industry
and infrastructure facility: sec 46a, conditions for tax holiday, industrial undertaking eligible for
tax-holiday : (section 46b), physical infrastructure eligible for tax holiday: (section 46c),
computation of tax holiday income, withdrawal and cancellation of tax holiday, tax holiday not
eligible in certain cases, procedures of tax holiday, tax holiday for hospital: S.R.O. no. 204-ain/it
-2005 dated 6 July 2005, concession to industries set up in any export processing zone, special
tax exemptions / concessions in respect of certain business.
CHAPTER-FIVE: ADVANCE PAYMENT OF TAX

Section overview, requirement to pay advance payment of tax: sec 64, computation of advance
tax: sec 65, installments of advance tax: sec 66, estimate of advance tax: sec 67, advance
payment of tax by new assessees: sec 68, failure to pay installments of advance tax: sec 69, levy
of interest for failure to pay advance tax: sec 70, credit of advance tax: sec 71, interest payable
by government on excess payment of advance tax: sec 72, interest payable by the assessee on
deficiency in payment of advance tax: sec 73, payment of tax on the basis of return [see 74].
CHAPTER-SIX: SET OFF AND CARRY FORWARD OF LOSSES

Section overview, introduction to set off and carry forward of losses, set off of losses: sec 37,
carry forward of unabsorbed depreciation: sec. 44(6), carry forward of loss.
CHAPTER-SEVEN: TAX EVASION AND TAX AVOIDANCE

Introduction, tax evasion and tax avoidance, definition of tax evasion, definition of tax
avoidance, tax avoidance versus tax evasion, socio-economic effects of tax evasion and tax
avoidance, reasons for tax evasion and tax avoidance, common methods of tax avoidance,
common methods of tax evasions, preventive measures adopted in Bangladesh.

CHAPTER-EIGHT: TAX PLANNING

Prelude, meaning of tax planning, principles of tax planning, benefits of tax planning, limitations
of tax planning, general strategies and policies of tax planning, techniques/methods of tax
planning, tax planning techniques may be used by company.

CHAPTER-NINE: DOUBLE TAXATION RELIEF INCLUDING TAX

TREATIES AND TRANSFER PRICING

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Section overview, what is double taxation?, how does double taxation arise?, what are the broad
objectives of Bangladesh DTA?, what impact double taxation in general, would have on global
economic activities?, what are the effects of double tax avoidance agreements (DTAA) in
Bangladesh?, agreement to avoid double taxation: sec 144, relief in respect of income arising
outside Bangladesh: sec 145, methods of avoiding double taxation?, transfer pricing, objectives
of transfer pricing, provision in income tax act, important concepts relevant to transfer pricing,
determination of income from international transactions.

Text:
(1) CA Manual Taxation II
(2) Taxation in Bangladesh: Theory and Practice by Dr. Monjur Morshed Mahmud and
Others.
(3) Bangladesh Income Tax- Theory and Practice by Nikhil Chandra Shil, Mohammad
Zakaria Masud and Mohammad Faridul Alam

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 COURSE MATERIALS
CHAPTER-ONE: INTRODUCTION
INTRODUCTION
Every person in Bangladesh is affected by our tax system in some ways, often on a daily basis
and without even realizing it. We pay tax on the money we earn and on the things we buy and
this tax is of course used by the government to pay for our development purpose such as schools,
hospitals, roads and so on.
As government and business practices change, the tax system changes. In Bangladesh we have
an annual budget cycle which begins with the Pre Budget Report in late May/early June and ends
with the enactment of a Finance Act in June. This is supplemented by a huge body of case law
and practical interpretation. Unfortunately, the new law is usually just added to the existing law
and so the overall legislative burden increases over time.
The Income Tax Ordinance 1984, The Value Added Act 1991 are the main sources of tax law.
The National Board of Revenue (NBR), a statutory body is the highest authority for the purpose
of these Ordinance and Acts.
Income of different types is taxed at different rates. Before calculating income tax liability one
should have the concept of income, tax, income tax and income tax rate and other relevant
issues. Residential status has significance for determining tax liability. One way of helping
people to deal with complexity in the tax system is to use technology. Presently people can use
computerized system to calculate tax on his/her taxable income. Even NBR website gives the
opportunity to compute tax by using income tax calculator.
Taxes are one of the many factors influencing decision- -making in companies, especially with
regard to investment and funding policies. Shareholders are interested to reduce the burden of
taxes in order to increase company value.
Tax management, tax administration, tax planning, and tax avoidance are defined as a legal way
of reducing expenses on taxes, when taxpayers identify opportunities in the laws to decrease
companies’ tax burden. Therefore, tax management seeks, through legal ways and among the
opportunities observed in tax legislation, to reduce the current value of companies’ taxes in order

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to increase their performance and, as a consequence, their market value. Tax management is a
legal transfer of State resources to companies with a view to increase their performance, by
reducing expenses on taxes. As a result, many researchers have shown that tax mana gement is a
valuable activity for shareholders.
The conceptual structure of tax planning revolves around three central themes (known as all parties, all
taxes, and all costs):
a) An effective tax planning requires the planner to take into account the tax implications of a transaction
proposed for all parties involved in the transaction (all parties).
b) An effective tax planning requires the planner, when making investments and financial decisions, to
take into account not only explicit taxes, value paid directly to the authorities, but also implicit taxes,
value paid indirectly in the form of lower return rates before taxes on encouraged investments (all taxes).
c) An effective tax planning requires the planner to recognize that taxes represent only one among many
business costs, and all of them must be considered in the planning process; to be implemented, some
proposals require costly restructuring procedures (all costs).
Therefore an effective tax management must take into account (i) tax implications for all parties involved
in the transaction, (ii) all taxes, either explicit or implicit, and (iii) all costs involved in the issue.
WHAT IS TAX?
The term taxation comes from Latin word ‘taxo” or “Taxatio”. It means the rate so as to
determine the payable quantum on estimate. Taxing authority determines tax to be payable
by the assesse. So tax is the revenue collected by the government from persons and
organizations under different taxing acts. In other words, it is liability imposed upon the
assesse who may be individuals, groups of individuals and other legal entities.
Dictionary meaning of Tax: tax means charge, duty, levy, tariff, impost, toll and the like.
Legal Context: tax means compulsory payments imposed by government on persons,
products/services and the like under respective acts payable by the assesses as per provisions
of concerned acts.
Constitutional premise of definition of tax: tax in any country is to be imposed by parliament
under the provisions of constitutions.
Definition given by different authorities:
(a) Justice Holmes: the price paid to the government for living in a civilized society is
the tax.

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 (b) Taylor: taxes are the compulsory payments to government without expectation of
direct benefit to the tax payer.
(c) Dalton: a tax is a compulsory contribution imposed by a public authority irrespective
of the exact amount of services rendered to the tax payer in return and not imposed as
penalty for any legal offence.
CLASSIFICATION OF TAX
(A) on the basis of incidence
On the basis of incidence tax can be classified into Direct and Indirect Taxes:
The distinction between direct and indirect taxes is based on whether or not the burden of a tax
can be shifted wholly or partly to others. If a tax is such that its burden cannot be shifted to
others and the person who pays it to the Government has also to bear it, it is called a direct tax.
Income tax, annual wealth tax, capital gains tax are examples of direct taxes. In case of a direct
tax there is a direct contact between the tax payer and tax levying public authority.
On the other hand, indirect taxes are those whose burden can be shifted to others so that those
who pay these taxes to the Government do not bear the whole burden but pass it on wholly or
partly to others. For instance, excise duty on the production of sugar is an indirect tax because
the manufactures of sugar include the excise duty in the price and pass it on to buyers.
Ultimately, it is the consumers on whom the incidence of excise duty on sugar falls as they will
pay higher price for sugar than before the imposition of the tax.
(B) On the basis of progression
Tax can also be classified on the basis of degree of progression as Progressive, Proportional and
Regressive Taxes:
In case of proportional tax, the same rate of the tax is charged, whatever be the magnitude of the
base on which it is levied. For instance, if rate of income tax is 25 per cent whatever the size of
income of a person, it will then be a proportional income tax. Likewise, if rate of wealth tax is 5
per cent, it will be proportional wealth tax.
Thus, in case of proportional tax it is the rate which is fixed and not the absolute amount of the
tax. Thus with the rate of 25 per cent proportional income tax, a person with income of taka
25,000 will pay taka 6,250 as the tax, and a person with income of 50,000 will pay taka 12,500
as the tax. Thus, even under proportional income tax, a richer person has to pay greater amount
of tax though rate of the tax is the same.

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On the other hand, in case of a progressive tax, rate of the tax increases as the amount of the tax
base (income, wealth or any other object) increases. The principle underlying a progressive tax is
that greater the tax base, the higher the tax rate. In Bangladesh income tax, an important direct
tax levied by the Central Government, is progressive.
Its rate at present varies from 10 per cent in the slab of taka 4,00,000 to 5,00,000 to 30 per cent
in the slab of income above taka 30,00,000. Under progressive income tax, the richer person
pays not only absolutely more tax but also a higher rate of the tax. Thus, the burden of
progressive tax falls more heavily on the richer persons as compared to proportional income tax.
A regressive tax is the opposite of a progressive tax. In case of a regressive income tax, the rate
is lowered as the income rises. Thus, under regressive tax system, the burden of the tax is
relatively more on the poor than on the rich. A regressive tax is therefore inequitable and no
civilised Government in the world today will levy such a tax.
(C) On the basis of Base
Tax can be classified into two on the basis of base as Single tax and multiple tax. One simple
form of a single tax is the poll tax, or the head tax which is imposed on a person irrespective of
his income, or wealth or profession, etc. The other examples can be a single tax on income, or
a tax on land rent. A multiple tax refers to the tax system in which taxes are levied on various
items or bases.

BANGLADESH TAX STRUCTURE

The tax structure of Bangladesh consists of both direct (income tax, gift tax, land development
tax, non-judicial stamp, registration, immovable property tax, etc.) and indirect (customs duty,
excise duty, motor vehicle tax, narcotics and liquor duty, VAT, Supplementary Duty, foreign
travel tax, IT, electricity duty, advertisement tax, etc.) taxes. Analysis of revenue collection
activities in Bangladesh reveals that tax revenue accounts for 80 percent of government revenue
and direct taxes represent only about 19% of total taxes.
The significant features of Bangladesh tax system are as follows:
A) Multiple tax system: The tax system of Bangladesh consists of various types of taxes which
are as follows:
I. Taxes on Income and Profit
(i) Income tax – Company (ii) Income tax – Persons other than Company

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II. Taxes on Property & Capital Transfer
(i) Estate Duty, (ii) Gift Tax, (iii) Narcotics Duty, (iv) Land Revenue (v) Stamp Duty - non
judicial (vi) Registration
III. Taxes on Goods and Services
(i) Customs Duties, (ii) Excise Duties, (iii) Value Added Tax (VAT), (iv) Supplementary Duty
(on luxury items and in addition to VAT), (v) Taxes on Vehicles, (vi) Electricity Duty (vii) Other
Taxes and Duties (travel tax, turn over tax, etc.)
B) Inadequate and stagnant revenue yield relative to GDP:
The ratio of tax revenue to GDP is very low comparing to other developing countries. We can
see the status of the ratio of tax revenue to GDP of Bangladesh in the following table for the last
six years:

Table-Revenue Receipt

Table-Item wise revenue collection

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C) Tax administration in Bangladesh:
National Board of Revenue (NBR) is the central authority for tax administration in Bangladesh
and collects almost 80 percent of total revenue for the country. Various reform measures have
been taken and still in consideration to make the tax system of the country more effective and
efficient.
D) Tax avoidance behavior of the Taxpayers:
The heavy reliance on indirect taxation has been treated as one of the main obstacles in attaining
economic progress in Bangladesh since only a few tax payers share the burden of taxes. Despite
NBR's untiring effort, the progress is not still satisfactory. People and corporate firms use
various measures to evade tax using loopholes of the current tax system.

E) Narrow Tax base:

Our tax base is too narrow and the tax law is full of exemptions and allowances. Agricultural
sector provides employment for around 60 percent of the population contributes only 25 percent
of GDP and virtually pays little in the form of income tax.
From the above discussion, it is clear that attaining an optimal tax structure is one of the most
important issues for the government of Bangladesh to increase the revenue generation from taxes
for accelerating growth and to improve the quality of life of the citizens. A long-term sustainable

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solution to enhance transparency, promote growth, improve tax compliance and thus to increase
tax to GDP ratio is a much desirable issue in the context of Bangladesh.

SOURCES OF TAX LAW AND PRACTICE

A. Legislation
The basic rules of Bangladesh taxation system are based on the Income Tax Ordinance 1984 and
the Income Tax Rules 1984. The Value Added Tax Act 1991 is the main source of VAT laws.
The
tax legislation is amended each year by the Finance Act. This is based on proposals in the
Budget each year. The Finance Act generally relates to the income year and assessment year
starting on July of that year. Therefore, the Finance Act 2020 relates mainly to the assessment
year 2020-2021.
B. Case law
Over the years, many hundreds of tax cases have been brought before the courts where the
interpretation of statute law is unclear. Decisions made by judges to resolve these cases form
case law. Many judgments are precedent for future cases which means that they must be
followed unless superseded by legislation or the decision of a higher court.
C. NBR Publication
The National Board of Revenue (NBR) is a statutory body having the highest executive authority
and empowered to make necessary rules concerning income tax matters and is authorized to give
any interpretation of any provision in any section of the Ordinance. 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 Statutory
Regulatory Orders (SROs) and circulars on income tax and VAT published by NBR providing
guideline for tax purpose.

SCOPE OF BANGLADESH INCOME TAX

Some provisions, rules and regulations have to be kept in mind in order to determine income tax
on the income of an assessee in Bangladesh. They are as follows:
(i) The Income Tax Ordinance, 1984: The Income Tax Ordinance, 1984 came into force
on 1st July, 1984 as Income Tax Manual I. It has 23 Chapters, 187 sections, numerous

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 subsections and seven schedules containing provisions regarding assessment, penalty,
appeal etc.
(ii) Income Tax Rules, 1984: Income Tax Rules, 1984 has framed various rules for the
administration of the Income Tax Ordinance, 1984 as provided therein.
(iii) Finance Act: To give effect to the various proposals in the annual budget covering the
areas of direct and indirect taxes, Finance Act is issued. It contains various applicable
tax rates and other amendments of the Income Tax Ordinance and Rules, 1984.
(iv) SRO (Statutory Regulatory Orders): According to the Section 185 of the Income Tax
Ordinance, 1984, NBR can issue certain circulars as and when necessary. The
provisions of these SROs are also to be considered at the time of computing income
tax like the provisions of Income Tax Ordinance and Rules.
(v) Income Tax Case Law: In the course of assessment proceedings, there may
sometimes arise a dispute between the NBR and the assessee over the interpretation
of some of the provisions of the act and rules. The assessee can go the court objecting
the NBR's interpretation, and the judgments given by the courts act as guidance to the
assessing officers and the assesse in similar circumstances in the future.

STRUCTURE OF INCOME TAX ORDINANCE, 1984

The Income Tax Ordinance, 1984 came into force on 1st July, 1984 as Income Tax Manual 1. It
has 23 Chapters, 187 sections, numerous sub-sections and seven schedules containing provisions
regarding assessment, penalty, appeal etc. A brief description regarding these enumerated below:
Manual I: The Income Tax Ordinance, 1984 - Chapters and Sections
Chapter 1 Preliminary (Sections 1-2)
Chapter 2 Administration (Sections 3-10)
Chapter 3 Taxes Appellate Tribunal (Sections 11-15)
Chapter 4 Charge of Income Tax (Sections 16-19)
Chapter 5 Computation of Income (Sections 20-43)
Chapter 6 Exemption and Allowances (Sections 44-47)
Chapter 7 Payment of Tax before Assessment (Sections 48-74)
Chapter 8 Return and Statement (Sections 75-80)
Chapter 9 Assessment (Sections 81-94)

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Chapter 10 Liability in Special Cases (Sections 95-103)
Chapter 11 Special Provisions relating to avoidance of tax (Sections 104-107)
Chapter 12 Requirement of furnishing certain information (Sections 108-110)
Chapter 13 Registration of firms (Sections 111) (omitted)
Chapter 14 Powers of Income Tax Authorities (Sections 112-122)
Chapter 15 Imposition of Penalty (Sections 123-133)
Chapter 16 Recovery of Tax (Sections 134-143)
Chapter 17 Double Taxation Relief (Sections 144-145)
Chapter 18 Refunds (Sections 146-152)
Chapter 18A Settlement of Cases (Sections 152A-152E) (omitted)
Chapter 18B Alternate Dispute Resolution (Sections 152F-152S)
Chapter 19 Appeal and Reference (Sections 153-162)
Chapter 20 Protection and Information (Sections 163)
Chapter 21 Offences and Prosecution (Sections 164-171)
Chapter 22 Miscellaneous (Sections 172-184)
Chapter 23 Rules and Repeal (Sections 185-187)
Manual II: The Income Tax Ordinance, 1984-Schedules
First Schedule:
Part-A Approved Superannuation Fund or Pension Fund
Part – B Recognized Provident Fund
Part – C Approved Gratuity Fund
Second Schedule: Rates of income tax in certain special cases
Third Schedule: Computation of Depreciation Allowance
Fourth Schedule: Computation of the Profits and Gains of Insurance Business
Fifth Schedule:
Part-A Computation of Profits and Gains from Exploration and production of petroleum
and the determination of tax thereon.
Part- B Computation of Profits and Gains from Exploration and Extraction of Mineral
deposits in Bangladesh (except oil and gas).
Sixth Schedule:
Part-A Exclusions from total Income

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 Part - B Exemptions and allowances for assessees being resident and nonresident
Bangladeshi
Seventh Schedule Computation of relief from income tax by way of credit in respect of foreign
tax
III. The Income Tax Rules, 1984
The IT Rules, 1984, comprises sixty nine rules to supplement various sections and provisions of
the IT Ordinance, 1984. National Board of Revenue (NBR) enjoys flexibility to amend or change
any rules through the notification in the official gazette.

COMPANY
Company [U/S 2(20)]: "Company" means a company as defined in [the Companies Act, 1913
(VII of 1913) or the Companies Act, 1994 (VIII of 1994)] and includes-
(a) a body corporate established or constituted by or under any law for the time being in force;
(b) any nationalized banking or other financial institution, insurance body and industrial or
business enterprise;
(bb) an association or combination of persons, called by whatever name, if any of such persons is
a company as defined in [the Companies Act, 1913 (VII of 1913) or the Companies Act, 1994
(VIII of 1994);
(bbb) any association or body incorporated by or under the laws of a country outside
Bangladesh; and;]
(c) any foreign association or body, [not incorporated by or under any law], which the Board
may, by general or special order, declare to be a company for the purposes of this Ordinance;
TYPES OF COMPANY
There are two types of companies:
(1) Domestic Company: it means a Bangladeshi company or any other company which, in
respect of its income liable to income tax, has made the prescribed arrangements for the
declaration and payment of dividends (including dividends on preference shares) within
Bangladesh, payable out of such income.
(2) Foreign Company: Foreign company means a company which is not a domestic company.

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WHAT IS TAX PLANNING?
Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose
of tax planning is to ensure tax efficiency. Through tax planning, all elements of the financial
plan work together in the most tax-efficient manner possible. Tax planning is an essential part of
an individual investor's financial plan. Reduction of tax liability and maximizing the ability to
contribute to retirement plans are crucial for success.
HOW TAX PLANNING WORKS
Tax planning covers several considerations. Considerations include timing of income, size, and
timing of purchases, and planning for other expenditures. Also, the selection of investments and
types of retirement plans must complement the tax filing status and deductions to create the best
possible outcome.
WHAT IS TAX EVASION?
Tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax
liability. Those caught evading taxes are generally subject to criminal charges and substantial
penalties. To willfully fail to pay taxes is state offense under the NBR tax code. Tax evasion
applies to both the illegal nonpayment as well as the illegal underpayment of taxes. Generally,
a person is not considered to be guilty of tax evasion unless the failure to pay is deemed
intentional.
TAX AVOIDANCE 
Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to
reduce the amount of tax that is payable by means that are within the law. Tax sheltering is very
similar, although unlike tax avoidance tax sheltering is not necessarily legal. Tax havens are
jurisdictions which facilitate reduced taxes.
While forms of tax avoidance which use tax laws in ways not intended by governments may be
considered legal, it is almost never considered moral in the court of public opinion and rarely
in journalism. Conversely, benefiting from tax laws in ways which were intended by
governments is sometimes referred to as "tax planning".

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 CHAPTER-2: TAXATION OF COMPANIES-SOME CONCEPTS (RESIDENTIAL
STATUS, TAX LIABILITY)
COMPANAY
A company is a legal entity formed by a group of individuals to engage in and operate a business
—commercial or industrial—enterprise. A company may be organized in various ways for tax
and financial liability purposes depending on the corporate law of its jurisdiction.
PUBLIC VS. PRIVATE COMPANIES
A public or publicly-traded company allows shareholders to be equity owners when they
purchase shares through a stock exchange. Someone who owns a large number of shares has a
larger stake in the company compared to someone who has a small number of shares. Shares are
first issued through an initial public offering (IPO) before trading begins on a secondary
exchange. Apple, Walmart, Coca-Cola, and Netflix are all examples of public companies.
Public companies are held to strict reporting and regulatory requirements by the BSEC. Under
these guidelines, companies must file financial statements and reports annually outlining the
financial health of the company. This prevents fraudulent reports and activities.

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Private companies, on the other hand, are held under private ownership. Although they may issue
stock and have shareholders, equity in private companies is not traded on an exchange. They
vary in shape and size and are not always bound by the strict regulations and reporting
requirements to which public companies must adhere.
These companies do not have to disclose financial information or outlook to the public, giving
them more opportunity to focus on long-term growth rather than quarterly earnings.
RESIDENTIAL STATUS
Residential status means the standing of the location of the company’s management and control
during relevant income year. In Bangladesh, income tax is levied on the basis of residential
status of a tax payer. In other words, the tax liability of an assesse depends upon its residential
status.
In Bangladesh the income tax ordinance, 1984 provides that an assesse may be resident or a non-
resident. Such residential status is determined by the specific provisions of this ordinance.
IMPLICATION OF RESIDENTIAL STATUS
The system of determination of total tax liability of resident and non-resident is different. In case
of resident, income received or deemed to be received in Bangladesh; income accrued or arose or
deemed to accrue or arose outside Bangladesh will be included in total income. On the other
hand, only the income within Bangladesh will be included in the total income of the non-
resident.
Transactions may arise between a resident assesse and a non-resident. Some assesse try to avoid
and evade tax by manipulation. So it is necessary to determine who is a resident and who is non-
resident.
Some privileges in different sectors and areas may be given to resident which may not be easily
available to a non-resident.
Nature of income Residential status
Resident Non-resident
Income received or deemed Taxable Taxable
to be received in Bangladesh
Income accrued or deemed to Taxable Taxable
be accrued or arise in
Bangladesh
Income accrued or arose Taxable Non-Taxable
outside Bangladesh

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RESIDENTIAL STATUS OF COMPANY
To be resident, a company should fulfill one of the following conditions:

(a) It should be a company registered in Bangladesh under Companies Act 1913 or 1994 or a
body corporate established or constituted by or under any law for the time being in force
in Bangladesh having in either case its registered office in Bangladesh. So a Bangladeshi
company will always be treated as resident.
(b) According to Section 2(55)(c) of the ITO 1984, in case of other companies, they will be
treated as residents if the control and management of their affairs are situated wholly in
Bangladesh in the income year. Here control means defacto control and not dejure control
and the place of control lies there where the directing powers situate (i.e. where the
meetings of the directors are held usually).

INCOME YEAR

The Financial Year immediately preceding the assessment year or any other accounting period
(not exceed 12 months) as adopted by the assessee and ending withing the said financial year is
the income year. Thus, if the assessment year is 2020-2021, Financial Year 2019-2020 is the
income year.

ASSESSMENT YEAR

Assessment Year is the year in which one file income tax returns of the year prior to it (i.e.
Financial Year). It is the year in which the income that one has earned in the financial year that
is just ended is evaluated. E.g. For Financial Year 2019-2020 the Assessment Year will be
2020-2021.

TAX RATE

Applicable tax rates for companies for the Assessment year 2019-2020 are as follows:

Publicly Traded Company: the tax rate is 25% (However, Non listed company is eligible to
claim 10% rebate on such payable of tax if they list at least 20% of their paid up capital through
IPO).

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Non-Publicly Traded Companies: the tax rate is 35% (Non listed company will receive rebate
of 10% in the year of listing if they list at least 20% of their paid up capital through initial public
offering)

Bank, Insurance and Financial Institutions: the tax rate is 40% (Other than Merchant Bank
and publicly traded or approved by the government in the year 2013)

Not publicly traded Bank, Insurance and Financial Institutions: the tax rate is 42.5% (Other
than Merchant Bank)

Merchant Banking: the tax rate is 37.5%

Cigarette manufacturing companies: the tax rate is 45%

Manufacturer of cigarette, bidi, chewing tobacco, smokeless tobacco or any other tobacco
products: the tax rate is 45%

Mobile Phone Operator Company: the tax rate is 45%

Publicly traded Mobile Phone Operator Company: the tax rate is 40% (Provided that if the
mobile phone operator company turned into a publicly traded company by offering at least 10%
(it must not include Pre Initial Public Offering Placement at a rate higher than 5%) of its paid up
capital through stock exchanges, it would get 10% rebate on total tax in the year of transfer.)

Tax on Dividend/Remittance of Profit of Companies:

(a) A company paying dividend shall withhold tax at the rate of 20% on dividend payable to
a company
(b) A branch company shall withhold tax at the rate of 20% while remitting profit to Head
Office.

Tax on capital gain:

(a) Capital gain on Capital assets other than Shares referred to in clause (b) below: the rate is 15%
(b) Capital gain on Sale of Shares:
(i) Shares of Public Listed Companies: No capital gain tax (Ref. section 32(7))
(ii) Shares of Private Limited Companies: @ 10%.

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 (iii) Gain received by Non-resident on Sale of Shares of Public Companies if the assesse is entitled to
similar exemption in the country in which he is a resident.
Co-operative Society registered under Cooperative Act: the tax rate is 15%

Non-resident non-Bangladeshi: the tax rate is 30%

MINIMUM TAX FOR COMPANIES

Classes Minimum tax on
gross receipts
Manufacturer of cigarette, bidi, chewing tobacco, smokeless tobacco or 1%
any other tobacco products
Mobile Phone Operator 0.75%
Any other type of company 0.60%

INTER-CORPORATE TAX RATE (TAX RATE ON DIVIDEND) FOR ASSESSMENT

YEARS 2019-20:

(i) If dividend declared by a company registered under Company Act 1994 or any profit remitted
outside Bangladesh by a company not incorporated in Bangladesh under Company Act 1994, the
rate on such dividend or profit is20%.

(ii) 10% to 15% in relation to a non-resident company resident of a country with whom there is
Double Taxation Agreement with Bangladesh.

REDUCED RATES OF CORPORATE TAX FOR SPECIAL CASES:

Particulars Rates
Textile industries (time extended up to 30 June 2019) 15%
Jute industries(time extended up to 30 June 2020) 10%
Research Institutes recognized under the Trust Act, 1882 & 15%
Societies registration Act,1860
Knit wear & Woven Garments 20%
Private Universities, Private medical college, Private dental 15%
college, Private engineering college or Private college engaged
in imparting education on information technology
Fisheries, poultry, plated poultry feed, seed production, For 1st 10 Lac =Rate
marketing of locally produced seeds, cattle farming, dairy 3%
farming, horticulture, frog farming, sericulture, mushroom For next 20 Lac =Rate
farming, floriculture. 10%

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 For rest of = Rate
15%

LIABILITY TO TAX

A company is a legal person which is legally separate from its owners (shareholders) and its
managers (directors). For the purpose of income tax the meaning of company is defined under
section 2(20) of Income Tax Ordinance 1984 (hereinafter referred to as the Ordinance).
A company is liable to the following taxes:
 Corporation tax (CT) on its income
 Income tax of employees deducted at the time of payment of salaries and
remuneration
 Value added tax (VAT) as the supplier of goods and services or as the final consumer
of goods or services
Note: A company is liable to corporation tax, the rate being determined with reference to the
Finance Act enacted in every financial year.

TIME FOR FILING TAX RETURN

A company is to submit the return within 15 th day of 7th month next following the income year or
before expiry of seventh months from the end of the income year which is later. It is to be
mentioned here that in the Finance Act 2001, submission of return for the company is made
compulsory whether its income is taxable or not.

(i) The companies are required to submit audited accounts along with the tax return.
(ii) For a company, the return is to be verified and signed by the principal officer.
(iii) In the case of a company, an audited statement of accounts where the profit or loss of
a business is different from profit or loss disclosed in the return of income in
accordance with the provision of this ordinance, a computation sheet showing how
the income shown in the return is arrived at on the basis of profit and loss account.
(iv) If there is difference in profit figure as shown in income statement and tax return,
explanation shall have to be given for such difference along with reconciliation
computation statement.

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As to tax day for companies, Finance Act 2019 has made some changes. It provides that tax day
for relevant income year will not be before 15 th September that is if the 15th day of 7th month
come before 15th September tax day will not before 15th September for instance:

Ending of income year Assessment year Tax day

th th
30 Nov. 2018 2019-2020 15 September, 2019
31st Dec. 2018 2019-2020 15th September, 2019
31st March, 2019 2019-2020 15th October, 2019
30th June, 2019 2019-2020 15th January, 2020

TAX DEDUCTED AT SOURCE/ WITHHOLDING TAX/ COLLECTIONS OF TAX AT

SOURCE

ITO 1984 from section 50 to 56 provides the heads of tax on which tax will be deducted at
source, the concerned withholding authority and tax rate thereof.

Seria Heads Reference Particulars & Rates

l
01 Salary Sec-50 Average rate
02 Discount on the real value of Sec-50A Maximum rate
Bangladesh Bank Bills
03 Interest on Securities Sec-51 5% Upfront on interest but for
Islamic Principles, 5% on profit
or discount at the time of
payment or credit
04 Deduction from payment of Sec- 52A Up to taka 25 lakh= 10%
royalties, franchise fee etc. More than taka 25 lakh= 12%
05 C&F Agency Commission [Sec- 10%
52AAA]
06 Interest on Saving Instruments Sec-52D 5%
07 Commission of letter of credit Sec-52I 5%

THE TIME LIMIT FOR PAYMENT OF TAX DEDUCTED AT SOURCE (RULE 13):

All sums of withholding tax shall be paid to the credit of the government in the following
manner.

(a) in any month from July to May of a year Within two weeks from the end of the month
in which the deduction or collection was
made
(b) in any day from the first to the twentieth Within seven days from the date in which the
day of June of a year deduction or collection was made

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 (c) in any other dates of the month of June of The next following day in which the
a year deduction or collection was made:
(d) in the last two working days of the month on the same day on which the deduction or
of June of a year, collection was made.

SUBMISSION OF WITHHOLDING TAX RETURN (75 A)

Person who makes any TDS (Tax Deducted at Source) on payment, must file a separate return of
withholding tax.

Sl. No. Period of Deduction of Tax TDS-Return Due date

1 1st July to 31st December 1st Return 31st January of this income year
2 1st January to 30th June 2nd Return 31st July of the next income year
Following document should be annexed with return:

-Statement of TDS
-Copy of Treasury Challans/Pay-Orders

CONSEQUENCES OF NON-SUBMISSION OF RETURN AND RETURN OF

WITHHOLDING TAX:

 Imposition of penalty amounting to 10% of tax on last assessed income subject to a

minimum of Tk. 1,000/

 In case of a continuing default a further penalty of Tk.50/- for everyday of delay.

ADVANCE PAYMENT OF TAX:

Every taxpayer is required to pay advance tax in four equal installments falling on 15th
September; 15th December; 15th March and 15th June of each year if the latest assessed income
exceeds Taka four lakh. Penalty is imposed for default in payment of any installment of advance
tax.

CHAPTER-THREE: ASSESSMENT OF COMPANIES

INTRODUCTION

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Company has it’s own separate entity from it’s shareholders. This entity is recognized by the
law. It is recognized by the Income Tax Act also. Company by its own name pays tax. So it has a
separate taxable entity. ITO 1984 defines company in a more extensive way than what is
generally understood in Companies Act, 1994.

Section 2(20) of ITO 1984 defines the company as follows:

(1) A company within the meaning of the Companies Act, 1994: any company established or
constituted and registered by or under section 2(d) of Companies Act 1994.

The registered companies are divided into two groups, viz., public ltd. Company and private ltd.
Company.

According to this Act, private limited company means the company which will:

(a) Restrict on the transfer of rights of share

(b) Limit the number of members openly excluding those employed in the company
(c) Restrict the selling of shares and debentures to the public.

A public limited company is a company of which shares can be transferred easily and there will
be no restriction of selling shares and debentures in the market and there will be no limitation of
maximum shareholders.

(2) Other organizations deemed to be company:

In addition to the above stated companies, the following organizations are also considered as
companies as per section 2(20) of ITO, 1984:

(a) A body corporate established or constituted by or under any law for the time being in
force;
(b) Any nationalized banking or other financial institution, insurance body and industrial or
business enterprise;
(c) An association or combination of persons, called by whatever name, if any of such
persons is a company as defined in the Companies Act, 1913 (VII of 1913) or Companies
Act, 1994;
(d) Any association or body incorporated by or under the laws of a country outside
Bangladesh; and

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 (e) any foreign association or body, not incorporated by or under any law, which the Board
may, by general or special order, declare to be a company for the purposes of this
Ordinance [U/s – 2(20)].

TYPES OF COMPANIES UNDER ITO-1984

(1) Bangladeshi Company

According to section 2(11) of ITO, 1984, Bangladeshi company means a company within the
meaning of the then Companies Act 1913 and the current Companies Act, 1994. A body
corporate established or constituted by or under any law for the time being in force is also to be
included in the meaning of Bangladeshi Company. Under both the cases the registered office of
the companies should be situated in Bangladesh.

(2) Banking Company

According to section 2(12) of ITO, 1984, banking company means a company within the
meaning of the then Banking Companies Act 1962 and the present Banking Companies Act,
1991. Any corporate body established or constituted by or under any law for the time being in
force and engaged in the banking business is also to be considered as banking company.

(3) Publicly Traded Company

Publicly traded company will mean a company registered under companies act, 1913 or
companies act 1994 and that in the income year its shares have been registered in the stock
exchange operating in Bangladesh.

(4) Industrial Company

The definition of industrial company given as per schedule-4 of Finance Act 1998 is still inforce
in the country. According to the definition, industrial company means a company which is
engaged in:

i) production or processing of goods,

ii) production of plants, machineries and all types of parts and equipment,
iii) construction of ship or motor vehicles,

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 iv) investigation and collection/procurement of gas, oil or any other mineral resources.

(5) Local Authorities and Other Organizations

Under income tax, local authorities and any other organization under sec 2(10) can be declared
as companies: these types of companies will be taxed as per set rules.

RESIDENTIAL STATUS OF COMPANIES

Residential status of companies is different than individuals and IT Ordinance prescribes

different rules for that. On the basis of residential status applicable for companies, there may be
Bangladeshi or foreign companies. The prescriptions for deciding the residential status of
companies are given below:
"Resident", in respect of any income year, means a Bangladeshi company or any other company
the control and management of whose affairs is situated wholly in Bangladesh in that year [U/s –
2(55)(c)]. And, "non-resident" means a person who is not a resident [U/s – 2(42)]. Thus, to be
resident;
(i) The company should be a Bangladeshi company, i.e., formed and registered under the
Companies Act, 1913 (VII of 1913) or Companies Act, 1994 and includes a body
corporate established or constituted by or under any law for the time being in force in
Bangladesh having in either case its registered office in Bangladesh; or
(ii) Any other company the control and management of whose affairs is situated wholly
in Bangladesh in that year.
If any of the two conditions have not been fulfilled, the status of such a company will be non-
resident.

SUBMISSION OF RETURN
A company assessee shall have to furnish a return setting forth therein its total income by the
15th day of July each year or within 6 months from the end of the income year whichever is
later. However, on application from the company, the DCT may extend the return filing period
up to three months from the date so specified and he may further extend the date up to three
months with the approval of Inspecting Joint Commissioner. The return should be signed by the
principal officer as defined in section 2(48) of IT Ordinance [U/s – 75(2)(b)(iii)]. And the return
of income for companies should be submitted in prescribed form (Form: IT 11-GHA).

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SET OFF AND CARRY FORWARD OF LOSSES
Where loss is assessed in any head of income, the company is entitled to set off the loss against
its income assessed in other heads of that year. However, loss on speculation business and loss
on capital gain cannot be set off against income from any other head. If there is no income from
other speculative business or capital gain from sale of other assets in the same year; such loss can
be set off only against the income of respective speculative business or capital gains in the
coming years, if any. When loss cannot be wholly set off, then the unabsorbed loss shall be
carried forward but for not more than six successive assessment years. Unabsorbed depreciation
loss can be carried forward for unlimited period. Loss so carried forward is to be set off against
income of the respective head only. It is to be noted that loss from the source of exempted
income cannot be set off against any source of taxable income.

INCOME YEAR AND ASSESSMENT YEAR

Income year of a company will be 1 year generally and end on 30 th June and assessment year
then will be next to financial year, i.e. income year. It will pay tax in assessment year starting
from 15th July and within 15th day of 7th months from 1st July. But for banks, insurance and other
financial institutions, income year must be from 1st January to December and so also for its
subsidiaries.

SOME IMPORTANT ASPECT OF ASSESSMENT OF COMPANY

(1) Minimum taxable income and minimum tax

There is no minimum taxable income limit for the company, i.e. they are to pay tax on their total
income whatever may be the amount. But minimum tax to be paid is as follows:

Classes Minimum tax on

gross receipts
Manufacturer of cigarette, bidi, chewing tobacco, smokeless tobacco or 1%
any other tobacco products
Mobile Phone Operator 0.75%
Any other type of company 0.60%

EXAMPLE

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Zerox Machine Ltd. is a Private Limited Co. registered in Bangladesh. Following information is
related to the income year 2019-2020:
Net operating income Tk. 12,50,000
Interest income Tk. 2,50,000
Total assessed income Tk. 15,00,000
Sales revenue / turnover for the year is reported as Tk. 2,00,00,000. Applicable income tax rate is
37.5%. Calculate income tax liability of X Ltd. for the year.
Income tax @ regular rate i.e. 37.5% is Tk. 562,500 (15,00,000 X 37.5%).
Gross receipts of the company: (Tk. 2,00,00,000 + Tk. 250,000) = Tk. 2,02,50,000
Minimum tax amount = (Tk. 2,02,50,000 X 0.50%) = Tk. 101,250.
Since, the regular tax is greater than the minimum tax amount; the tax liability of Zerox Machine
Ltd. will be Tk. 562,500.

(2) Rate of tax differs according to company status

Different tax rate is applicable on total income of the company according to status and nature.
Such different tax rate is 25% to 45% applicable on the basis of nature of the company.

i) 25% tax rate for publicly traded company,

ii) 35% tax rate for not publicly traded company and merchant bank,
iii) 37.5% on merchant bank, 37.5% on public limited banking company, 40% for non-
publicly limited banking and financing companies, local authority and other such
companies.
iv) 45% tax rate for mobile operator company and cigarette, bidi and jorda
manufacturing company.

(3) Tax rate on Capital gain and dividend income

The tax rate on the capital gain of the company is 15% and that of dividend received by the
company is 20%.

(4) Non-taxable income

There is no directly deductible non-taxable income from the total income of the company.

(5) CSR expense rebate

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Company will get rebate @ 10% on its allowable CSR expenditure.

(6) Company pay tax at its own behalf

It is stated earlier that the company pay tax individually from their own behalf and not on behalf
of the shareholders, so dividend received by the shareholders would be added with their own
total income on which they are to pay tax.

(7) Dividend from tax holiday/reduced tax rate company

According to sections 45 and 46 of ITO 1984, dividend from the company under tax holiday
scheme is exempted in full.

(8) Submission of audited accounts

The accounts audited by the Chartered Accountants are to be submitted with the income tax
return of the company assessee. This audit report must state that it has been prepared following
Bangladesh Accounting Standards, Bangladesh Financial Reporting Standards and Bangladesh
Standards on Audit.

(9) Charge of additional tax (U/s – 16B)

If a public limited company, not being a banking or insurance company, listed with any stock
exchange in Bangladesh does not issue, declare or distribute dividend or bonus share equivalent
to at least fifteen percent of its paid up capital to its share holders within a period of six months
immediately following any income year, the company shall be charged additional tax at the rate
of five per cent on the undistributed profit in addition to tax payable under this Ordinance. Here,
"undistributed profit" means total income with accumulated profit including free reserve.
(10) Advanced Payment of Tax

Every company assessee shall pay advance tax in four equal installments falling on 15 th Sept.;
15th Dec.; 15th March and 15th June of each financial year if the latest assessed income exceeds
Tk. four lakhs. On failure of payment of any installment, the company will be deemed to be an
assessee in default. Penalty may be imposed for such default. If a company estimates that its
income during any financial year will be less than the last assessed income, it may submit an
estimate of income and pay the advance tax accordingly. If the amount of advance tax together
with the tax deducted at source, if any, is less than 75% of the tax payable on the basis of regular
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assessment, interest @10% is leviable on the amount by which the tax so paid and deducted falls
short of 75% of the assessed tax. On the other hand, the company is entitled to receive interest
@10% on the amount by which the aggregate sum of advance tax paid during a financial year
exceeds the amount of the tax payable on the basis of regular assessment.

(11) Charge of tax u/s 19(24)

Where an assessee, being a private limited company or public limited company not listed in
stock exchange, increases its paid up capital by issuing share, the amount received as increased
paid up capital, being not received by crossed cheque or bank transfer, shall be deemed to be
income of such assessee for that income year and be classified it under “income from other
sources”.

TAX REBATE

Tax rebate can be availed under different circumstances such as production increase, export
income, corporate social responsibility performance etc.

(1) Rebate on dividends declared

If any publicly traded company other than bank, insurance, financial institutions declare
dividends at the rate of more than 20%, it will enjoy 10% of tax rebate on applicable tax.
(2) Rebate on production increase

Rebate to small and cottage industry working in least developing areas and a company
incorporated under the companies act 1994 (the then 1913) if engaged in the production of goods
shall be allowed at the following rates:
Particulars Rate of Rebate
If production in volume exceeds 15% but does not exceed 25% as 2.5% of tax on such
compared with preceding year. income
If production in volume exceeds 25% as compared with 5% of tax on such
preceding year. income
If total income includes income received from life assurance 12.5% on such income
business.
On the amount of dividend received from a company registered in 15% on such dividend
Bangladesh under the companies act in force of a body corporate income
formed in pursuance of an act of parliament.
On the amount spent to perform specified CSR activities 10% of such expenditure

(3) Tax rebate in case of export income

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Where the total income of an assessee other than a company not registered in Bangladesh,
includes any profits and gains derived from the export of goods out of Bangladesh, income tax
payable in respect of such profits and gains shall be reduced by 50% on the condition that: sale
of locally manufactured machinery, equipment and other finished products within the country to
any agency against its procurement programme in foreign exchange quality for this rebate.

The above exemption, however, will not apply in respect of the following goods or classes of
goods, namely:

(a) Tea
(b) Raw Jute
(c) Jute manufacturers
(d) Raw skins
(e) Other goods declared by the NBR through Gazette notification.

CORPORATE SOCIAL RESPONSIBILITY

Allowable limit: Maximum limit of allowable expenditure under the head Corporate Social
Responsibility (CSR) is actual amount, 20% of total income or Tk. 12,00,00,000; whichever is
lower. If actual expenditure exceeds this limit, such amount exceeding the limit cannot be used
to compute tax rebate.
Tax Rebate: Tax rebate will be computed @ 10% on such expenditure for CSR within the
maximum limit.
Conditions: To claim tax rebate against CSR, the corporate must fulfill the following conditions:
(a) Must pay salaries and allowances to its worker regularly and must have waste treatment
plant if it involves with the production of industrial goods;
(b) Must pay income tax, VAT and duty timely and must repay institutional loans;
(c) Can only donate money to the institutions recognized by the government for the purpose
of CSR;
(d) Must fulfill all rules as per Bangladesh Labor Act, 2006.
(e) Amount spent for CSR will not be considered as business expenditures
(f) Documents in support of actual expenditure of CSR to be submitted to the concerned
DCT

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However, no company can charge such expenditure expensed as a result of CSR in
manufacturing or profit and loss account. Such company shall also submit sufficient documents
with DCT to prove whether the expenditure claimed as CSR is really spent.

AREAS OF CSR
Finance Act 2019 gives the following areas expenditure in which the companies can claim 10%
rebate due to its CSR activities provided that it does not exceed the maximum limit. These areas
are:
(a) Donation through any government bodies to reduce the misery of people of areas affected
by natural calamities like Cyclone, Earthquake, Hurricane, Flood etc.;
(b) Donation to the institutions engaged in the establishment of old home and its
management;
(c) Donation to any social organization engaged in the Welfare of mentally or physically
disable people;
(d) Donation to the educational institutions engaged in educating street / homeless children;
(e) Donation to such institutions engaged in housing projects for people living in slums;
(f) Donation to social organizations involved in building public awareness on women-right
and against dowry system;
(g) Donation to organizations involved in feeding and rehabilitating orphan / homeless
children;
(h) Donation to organizations involved in research on liberation war, campaign to uphold the
spirit of liberation war and welfare of freedom fighters;
(i) Donation to organizations engaged in maintaining healthy sewerage systems in
Chittagong hill tract, alluvial land, river breakage areas;
(j) Donation to organizations engaged in the treatment of hare-lipped, cataract; cancer,
leprosy;
(k) Donation to individuals and organizations engaged in providing Medicare services to the
Acid Victims
(l) Donation to specialized hospital providing free medical services to poor patients and
work for improving the quality of treatment e. g., hospitals for Cancer, Lever, Kidney,
Thalasemia, Eye and Cardio.
(m) Donation to public universities;

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 (n) Donation to any government recognized educational institution established for providing
educational scholarship and financial assistance to poor freedom fighters’ children along
with promoting technical and vocational education to the poor meritorious students;
(o) Donation to government or MPO included private educational institution engaged in
establishing lab for training computer or IT or implementing English education programs;
(p) Donation to organizations engaged in providing technical and vocational training to
unskilled or semi-skilled workers for exporting manpower;
(q) Donation to organizations engaged in the development of infrastructure and training for
sports at national level;
(r) Donation to national level museum established or to be established for preserving the
memory of education war;
(s) Donation to national level institutions engaged in protecting the memory of the father of
the nation; and
(t) Donation to the Prime Minister’s Higher Education Fund.

PROCEDURE OF ASSESSMENT

Generally the following steps are followed in case of assessment of the company:

Step-1: computation of business income

Step-2: computation of total income

Step-3: determination of total tax liability

Step-4: determining rebate of tax if it is applicable

Step-5: determination of net tax liability

Step-6: payment of net tax payable

Step-1: according to the sections 28, 29, and 30 of ITO 1984 income from business is to be
calculated after considering admissible and inadmissible expenses to this end.

Step-2: total income of the company is to be calculated by adding other income with income
from business.

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Step-3: total tax liability is to be determined by applying prescribed tax rate, with reference to
business income, dividend, and capital gain.

Step-4: determining tax rebate: tax rebate can be available to some items or operations like:

(a) 10% tax rebate on foreign income

(b) Tax rebate on increased production in case of industrial company, if applicable
(c) Tax rebate on export income (at rate applicable)
(d) Tax rebate on CSR
(e) Tax rebate at average rate on tax-free income, etc. such items and rebate available be
determined.

Step-5: determining net tax liability: from gross tax calculated as per step-3, rebate be deducted
to arrive at net tax payable.

Step-6: payment of tax: after arriving at net tax payable, advanced tax paid, if any be deducted.
Then remaining net tax be paid as per payment procedure.

SCOPE OF INCOME
Corporate income should be computed with reference to the following sections:
Section 28: Income from business or profession
Section 29: Deductions from income from business or profession
Section 30: Deduction not admissible in certain circumstances
However, in terms of tax rate, income is classified as –
a) Capital gain
b) Dividend income
c) Other income

GENERAL FORMAT OF ASSESSMENT

Name of the Company
Address:……………..
Residential Status:………………………...
Income Year:…………………………………
Assessment Year:……………………………..
Determination of Total Income and Tax Liability

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Particulars Taka Taka
1. Determination of Business Income:
Net profit as per profit and loss account…………………………… *****
Add: Inadmissible expenses:
a) Bad debt………………………………………………… ****
b) Income tax and super tax………………………………. ****
c) Depreciation shown in the accounts……………………. ****
d) Other inadmissible expenses……………………………. **** *****
Less: Admissible expenses not shown in the accounts:
a) Depreciation as per income tax rules ****
b) Any other items **** *****
Less: Non-business income
a) Dividend ****
b) Interest etc. **** *****
2. Business income *****
Add: Non-business income
(a) Dividend *****
(b) Interest etc. ***** ****
3. Total income
3. Determination of tax liability:
a) On total income excluding dividend and capital gain ****
b) On dividend income ****
c) On capital gains **** *****
Less: Tax rebate *****
4. Net tax liability *****

INADMISSIBLE EXPENSES
a) Payment of salary, if tax thereon has not been deducted at source u/s 50
b) Any payment wherefrom tax is deductible but not deducted at source
c) Payment of brokerage or commission to a non-resident without deduction of tax at source
violating section 56
d) Payment to employees’ provident fund or other funds unless effective arrangement has
been made for deduction of tax at source while making the payments from the fund
which are taxable under the head salaries
e) Payment of perquisites/other benefits to an employee in excess of taka 4,75,000
f) Expenditure on foreign travels of employees and their dependents, spouse and minor
children for holidays and recreation exceeding 3 months basic salary or3/4th of actual
expenditure whichever is less and such foreign travels shall not be oftener than once in
every 2 years

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 g) Distribution of free samples exceeding the following limit
Turnover % of turnover
Pharmaceutical Food, cosmetics Other industry
industry and toiletries
industry
Up to taka 5 crore 2% 1% 0.50%
Exceeding taka 5 1% 0.50% 0.25%
crore but up to taka
10 crore
Exceeding taka 10 0.5% 0.25% 0.10%
crore

h) Entertainment expenditure exceeding the following limits

Income Limit
st
On 1 taka 10 lac 4%
On the balance 2%

i) Head office expenditure exceeding 10% of the disclosed net profit applicable for foreign
company
j) Royalty and technical know-how fee exceeding 8% of the disclosed net profit
k) Salary or remuneration paid by the employer otherwise than by crossed cheque or bank
transfer having gross monthly salary of taka 16,000 or more
l) Incentive bonus exceeding 10% of disclosed net profit
m) Overseas traveling exceeding 1.25% of disclosed turnover
n) Any commission or discount paid by any company to its shareholder director
o) Any cash payment above taka 50,000 other than cheque or bank transfer except the
following: payment for purchase of raw materials, salary of employees where monthly
salary payment was otherwise restricted, any payment for government obligation
p) Any payment by way of any rent of any property whether used for residential or
commercial purpose, otherwise than by crossed cheque or bank transfer
ADMISSIBLE EXPENSES
a) Rent
b) Interest payable on borrowed capital
c) Tax depreciation
d) Any expenditure incurred wholly and exclusively for the purpose of business.

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OTHER TAX EXEMPTIONS

(a) Industries set up in EPZ will enjoy exemption from the month of commercial production.
(b) Income from computer software business run by Bangladeshi resident is exempted from
tax up to 30.06.2024
(c) Income of the private power generation company up to 15 years from its commercial
production
(d) Any income from the export of handicrafts for the period from 1st day of July , 2008 to
the 30th June 2019.
(e) Initial Depreciation
In the case of machinery or plant, set up in Bangladesh after 30.6.2002 and not
having been previously, initial depreciation subject to some conditions will be
allowed as follows:
In case of building- 10 of actual cost
In case of plant, equipment, machinery- 25% of actual cost
(f) Accelerated depreciation
In the case of machinery or plant, set up in Bangladesh between 1.7.2014 and
30.6.2019 and not having been previously used in Bangladesh, accelerated
depreciation subject to some conditions will be allowed as follows:
First year- 50% of actual cost
Second year- 30% of actual cost
Third year- 20% of actual cost

PROBLEMS AND SOLUTION

EXAMPLE-1

From the following particulars find out tax to be paid by X and Co. for the assessment year
2019-2020 assuming that company is not registered in stock-exchange:

i) Profit from business= taka 12,50,000

ii) Interest on bank deposit= taka 2,50,000 (Gross amount)
iii) Estimated total taxable income income= taka 15,00,0000

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 iv) Total receipts from sales of goods = taka 2,00,00,000

Calculate tax payable.

SOLUTION:

Tax payable as per rate applicable (assuming not publicly traded company)= 15,00,000 x 35%=
taka 5,25,000

Gross receipt= taka 2,00,00,000+ taka 2,50,000= taka 2,02,50,000

Minimum tax= 2,02,50,000 x 0.60%= taka 1,21,500

As tax payable based on tax rate is higher than the minimum tax payable, so gross tax payable
for the company is taka 5,25,000.

Tax paid on bank interest = taka 2,50,000 x 10%= taka 25,000

So, net tax payable= taka 5,25,000- taka 25,000= taka 5,00,000

EXAMPLE-2

From the following particulars compute tax to be paid by Y and Co. limited for the year 2018-
2019:

i) Loss from business taka 4,50,000

ii) Interest on bank deposits =taka 2,50,000
iii) Estimated loss as per income tax provision= taka 2,00,000
iv) Total receipts from sale of goods= taka 2,00,00,000

SOLUTION:

Tax as per rate = 0 (No tax for business loss)

Gross interest on bank deposit= 2,50,000x 100/90= 2,77,778

Total receipt= taka 2,00,00,000+ taka 2,77,778= taka 2,02,77,778

Minimum tax as per total receipt= 2,02,77,778 x 0.60%= taka 1,21,500

In such a case company is to pay tax at the minimum which is taka 1,21,500 though it shows
loss.
Page 37 of 100
However it can deduct tax paid on bank interest at source taka (2,77,778-2,50,00)= taka 27,778

Tax payable= taka 1,21,500-taka 27,778= taka 93,722

EXAMPLE-3

From the following particulars of Z & Co. limited show net tax to be paid by the company for the
assessment year 2018-2019:

i) Total profit as per audited statement taka 10,00,00,000

ii) CSR expenses= taka 1,00,00,000

SOLUTION:

Taxable profit:

As per income statement = taka 10,00,00,000

Add: CSR expense = taka 1,00,00,000

Total taxable income = taka 11,00,00,000

Gross tax= taka 11,00,00,000 x 35%= 3,85,00,000

Tax rebate on CSR @ 10%

Tax rebate on lower on:

(i) Actual CSR= 1,00,00,000

(ii) Maximum =20% of total income= 11,00,00,000 x 20%= taka 2,20,00,000
(iii) Taka 12,00,00,000

Lower on is taka 1,00,00,000

Tax rebate= 1,00,00,000 x 10%= 10,00,000

So net tax payable= Gross tax- Tax rebate= taka 3,85,00,000 – taka 10,00,000= taka
3,75,00,000

EXAMPLE-4

Page 38 of 100
YOU ARE GIVEN THE FOLLOWING PROFIT AND LOSS ACCOUNT OF Natun Kuri
Company for the year ended 31st March 2019;

Natun Kuri Company

Profit and Loss Account
For the year ended 31st March, 2019
Dr Cr
Particulars Taka Particulars Taka
Cost of goods sold 35,00,000 Sales 53,01,000
Salaries and allowance 2,50,000 Dividend 20,000
Rent and electricity 1,90,000 Interest on bank deposit 12,000
Telephone and postage 70,000 Profit on sale of machineries 30,000
Interest on loan 35,000 Interest on tax-free government 32,000
securities
Conveyance allowance 85,000 Sundry income 5,000
Legal expenses 35,000 Refund of income taxes 30,000
Advertisement 81,000 Interest received from investment 20,000
outside Bangladesh
License fee (2 years) 20,000
Charity 30,000
Audit fees 65,000
Income tax paid in advance 2,00,000
Fines paid to the custom 20,000
authority
Contribution to provident fund 80,000
Sundry expenses 34,000
Depreciation 1,80,000
Net profit 5,73,000
Investigation disclosed the following information:

i) Depreciation allowed by income tax authority is taka 1,15,000.

ii) Salaries and expenses include taka 50,000 from which taxes are not deducted at
source.
iii) Excess perquisites over allowable income tax rate paid taka 20,000 instead of salary
of taka 1,72,000.
iv) Legal expenses include taka 25,000 paid for income tax appeal.
v) Conveyance allowance includes taka 60,000 paid to the general manager for overseas
travelling as the representative of the Chamber of Commerce.
vi) The sold machine was purchased six years ago and it’s book value as per income tax
rule was zero. The cost price of the machine was taka 60,000.

Page 39 of 100
Determine the tax liability of the company assuming it to be a publicly traded limited company.

SOLUTION:

Assesse: Natun Kuri Company

Status: Resident (Assumed)
Income Year: 2018-2019
Assessment Year: 2019-2020
Determination of total income and tax liability

Particulars Taka Taka

1. Business Income:
Net profit as per profit and loss account 5,73,000
Add: Inadmissible expenses:
(a) Salaries and allowances for which taxes are not deducted
at source 50,000
(b) Perquisites paid in excess of income tax rule 20,000
(c) Overseas travelling expenses of general manager 60,000
(d) Legal expenses paid for income tax appeal 25,000
(e) License fee (half) 10,000
(f) Income tax paid in advance 2,00,000
(g) Fines paid to the custom authority 20,000
(h) Depreciation (as per accounts) 1,80,000
(i) Charity 30,000 5,95,000
11,68,000
Less: Non Business Income
(a) Dividend 20,000
(b) Interest on bank deposit 12,000
(c) Profit on sales of machineries 30,000
(d) Interest on tax free government securities 32,000
(e) Income tax refund 30,000
(f) Interest on foreign investment 20,000 1,44,000
10,24,000
Less: Admissible expenses
(a) Depreciation as per income tax rule 1,15,000
9,09,000
Add: Revenue profit on sale of machineries (Note-9) 60,000
9,69,000
2. Non-business Income
(a) Dividend (Grossed= 20,000 x100/90) 22,222
(b) Interest on bank deposit (Assuming grossed amount) 12,000
(c) Capital gain on sales of machineries 10,000
(d) Interest on tax free government securities (Tax free) -
(e) Income tax refund (Not an income) -
(f) Interest on foreign investment 20,000 64,222
Page 40 of 100
 Total income 10,33,222

Determination of tax liability

On total income excluding capital gain and dividend income 2,50,250
= (10,33,222-22,222-10,000) x 25%
On capital gain (taka 10,000 x 15%) 1,500
On dividend income (taka 22,222 x 20%) 4,444
Total tax 2,56,194
Tax Rebate:
On foreign income (20,000 x 10%)= taka 2,000
Calculation of Net tax liability
Total tax 2,56,194
Less: tax rebate 2,000
Less: tax on bank deposit (12,000 x10%) 1,200
Less: tax deducted at source on dividend income (22,222-20,000) 2,222
Less: advance tax payment 2,00,000
Net tax payable 50,772

Notes:
1) Salaries and allowances are inadmissible if taxes are not deducted at source.
2) Admissible perquisites in excess of limit would be treated as inadmissible expenses
3) Overseas travelling expenses would be admissible only in case of government organized
team or delegation member.
4) Sundry expense and sundry income have been assumed as business expense and income.
5) License fee is allowable expense but for one year, so remaining one year is inadmissible.
6) If advance payment of tax along with tax deducted at source is found less than 75% of
due tax, that interest @ 10% will be charged on deficient amount. Here shortage does not
account for 25% and thus no interest will become due and company will pay tax taka
51,972.
7) Interest on tax free government securities is exempted from tax.
8) Charity is inadmissible since 1992.
9) Capital gain on sale of machine
Sale value = taka 70,000
Original cost =taka 60,000
Capital gain = taka 10,000

Page 41 of 100
 Revenue Gain:
Sales value = taka 70,000
Less: Book value = taka nil
Total gain =70,000
Less: Capital gain =10,000
Revenue gain =60,000
10) Dividend income taka 25,000 non-assessable for individual but not for company. Tax
deducted at source on dividend is 10%. So dividend received be grossed up and tax
deducted at source be deducted from gross tax to come to net tax payable. Tax rate for
publicly traded limited company is 25% as per Finance Act 2019.

EXAMPLE-5
Following is the income statement of Star Bank Limited for the year ended on 31.12.2017
Particulars Taka Taka
Income:
Interest less bad debts reserve and bad debt 10,00,00,00
Commission 0
Discount & brokerage 2,00,000
Dividend (gross) 1,00,000
Non-banking income 15,00,000
Total income 80,000 10,18,80,000
Less: Expenditures
Interest & discount 3,50,00,000
Salary & allowances 4,00,00,000
Rent of premises 80,00,000
Transfer to special reserve fund 61,12,800
Embezzlement by cashier 1,50,000
Loss on security 10,00,000
Foreign travel expense of managing director 15,00,000
Contribution to recognized provident fund 25,00,000
Contribution to employees welfare fund 3,00,000
Gift to employees on Bengali new year day 1,00,000
Legal expenses 1,50,000
Subscription to bankers association & chamber 1,00,000
General expense & entertainment 2,00,000
Fines for violation of custom rules 1,00,000
Miscellaneous expenses 50,000
Total expenses 9,52,62,800
Net Income 66,17,200

Page 42 of 100
Investigation disclosed the following:

1) Reserve for bad & doubtful debt and bad debt amount to taka 28,50,000 of which taka
10,00,000 is doubtful, taka 7,50,000 is bad relevant to normal commercial bank loan.
Rest taka 11,00,000 represents bad debt provision for agricultural loan which was taka
2,00,00,000.
2) Legal expense include taka 50,000 for tax appeal, taka 60,000 for audit fees.
3) Interest received and receivable include taka 1,50,000 as interest on overdue loan.

Compute tax to be paid by the company assuming it as non-publicly limited company.

SOLUTION:
Assesse: Star Bank Limited
Status: Resident (Assumed)
Income Year: 2018-2019
Assessment Year: 2019-2020
Determination of total income and tax liability
Particulars Taka Taka
1. Total Banking Income:
Net income as per income statement 66,17,200
Add: Inadmissible expenses:
(a) Transfer to special reserve fund (excess of 5% of total
income 61,12,800- (50,94,000=10,18,80,000 x5%) 10,18,800
(b) Loss on security 10,00,000
(c) Gift to employees on new year’s day 1,00,000
(d) Legal expenses: expenses for tax appeal 50,000
(e) Fines for violation of custom rules 1,00,000
(f) Reserve for bad & doubtful debt 10,00,000
(g) Excess of 5% of rural loan: 11,00,000-(10,00,000= 1,00,000
2,00,00,000 x5%)
Total expenses 33,68,800
99,86,000
Less: Non-Banking Income
(a) Non-banking income 80,000
Banking income 99,06,000
Add: Non-banking income 80,000
Total taxable income 99,86,000
Computation of Gross Tax and net tax liability
On business income except dividend @ 40%= (99,86,000-15,00,000) x40% = 33,94,400
Tax on dividend income= 15,00,000 x 20% =3,00,000

Page 43 of 100
Gross tax = 36,94,400
Less: Tax deducted at source on dividend income @ 10% = 1,50,000
Net tax payable = 35,44,400
Notes:

1) Interest receivable on overdue loan can be taken as income unless it is declared bad as per
rules of banking company act.
2) Transfer to special reserve fund is allowable @ 5% on total income at the maximum.
3) Bad debt on agricultural and rural loan given by financial institutions is allowable up to
5% of that loan.
4) Loss on security is not allowable.
5) Embezzlement at office time by employee is allowable expenditure.
6) Gift to employers on the occasion of New Year day is not allowable.
7) Legal expense for tax or any expense relevant to tax is not allowable.
8) Reserve for doubtful debt is not allowed.
9) Foreign travel of executives is now allowable in full if it is concerned with business.
10) Miscellaneous expenses considered relevant to business and so also entertainment
expenses.
11) Dividend income is subject to tax at source @ 10%. This tax is deductible from gross tax.
12) Assumed that it is not publicly limited company bank. So tax @ 40% has been charged.
For publicly limited bank tax rate is 37.5%.
13) Finance Act 2015 provides that for bank assessment income year will be from 1st January
to 31st December. So for banks income year cannot end in any other months for tax
purpose.

EXAMPLE-6
The income statement of Tripti Super Company for the year ended 30.6.2019 was as follows:
Particulars Taka Taka
Gross margin 20,80,000
Less: Operating expenses:
Salaries and bonus 4,20,000
Rent and rates 1,55,000
Fire insurance premium 40,000
Stationary 72,000

Page 44 of 100
 General expenses 2,20,000
Depreciation provision 82,000
Income tax 1,25,000
Income tax provision 1,45,000 12,59,000
8,21,000
Add: Non-operating income
Profit on sale of share (captain gain) 12,500
Interest on tax free government securities 30,000
Dividend (Net) 40,000 82,500
Net margin 9,03,500
Determine the total income and tax liability of the company after considering the following
items:

1) General expenses included : advertisement taka 80,000, charity taka 40,000, payment to
the motor company for exchanging an old car with a new one taka 50,000.
2) Depreciation as per income tax rules taka 80,000.
3) The company purchased the shares in 2017 and it was not the original business of the
company.
4) The company donated taka 4,00,000 for victims of flood and taka 3,00,000 to research
fund of public university as a part of CSR activities and claims rebate on it.
5) The company is a public limited company. It declared dividend for the year @ 8%.

SOLUTION:
Assesse: Tripti Super Company
Status: Resident (Assumed)
Income Year: 2018-2019
Assessment Year: 2019-2020
Determination of total income and tax liability
Particulars Taka Taka
1. Business Income:
Net profit as per profit and loss account 9,03,500
Add: Inadmissible expenses:
i) Charity 40,000
ii) Payment to motor company 50,000
iii) Depreciation provision 82,000
iv) Income tax 1,25,000
v) Income tax provision 1,45,000
Total inadmissible expenses 4,42,000
13,45,500
Less: Non-Business Income
i) Profit on sale of shares 12,500

Page 45 of 100
 ii) Interest on tax free government securities 30,000
iii) Dividend income 40,000 82,500
12,63,000
Less: Admissible depreciation 80,000
Business income 11,83,000
2. Non-Business Income:
i) Profit on sale of shares (capital gain) 12,500
ii) Interest on tax free government securities (tax free) -
iii) Dividend income (grossed = 40,000 x 100/90) 44,444 56,944
Total taxable income 12,39,944
Tax liability (to be paid)
Tax on business income except capital gain (12,39,944-12,500) x 35% = 4,14,050
Tax on capital gain (12,500 x 15%) = 1,875
Tax on dividend income (44,444 x 20%) = 8,889
Gross tax = 4,24,814
Calculation of Tax Rebate
Rebate on CSR @ 10% on lower of
a) Actual CSR= taka 7,00,000
b) 20% of total income = 12,39,944 x 20%= 2,47,988
c) Maximum taka 12,00,00,000
Lower one is taka 2,47,988 @ 10% = taka 24,799
Calculation of net tax payable
Gross tax = 4,24,814
Less: Tax rebate = 24,799
Less: Tax deducted at source on dividend @ 10% on 44,444 = 4,444
Net tax payable = 3,95,571
EXAMPLE-7:
The revenue account of North-South Company for the year ended 30th June, 2019 was as follows:
North-South Company
Trading, Profit and Loss Account and Profit and Loss appropriation account
Dr Cr
Particulars Taka Particulars Taka
Opening stock 3,00,000 Sales 16,00,000
Less: provision for sales commission 1,50,000
Purchases 8,00,000 14,50,000

Page 46 of 100
 Wages 1,50,000 Closing stock 8,00,000
Gross profit c/d 10,00,000
22,50,000 22,50,000
Salaries and wages 1,50,000 Gross profit b/d 10,00,000
Establishment charges 70,000 Share premium 60,000
Advertisement for 5 years 50,000 Bad debt recovered (previously 42,000
written off)
Interest on debenture 50,000 Refund on income tax 17,000
Legal expenses 40,000 Dividend income (gross) 40,000
Audit fees 50,000 Interest on taxable government 41,000
securities
Income tax 80,000
Tax deducted at source on dividend 4,000
Bad debt provision 48,000
Excise duty 20,000
Charity 30,000
Loss on sale of investment 20,000
Loss on stock destroyed by fire 50,000
Loss on revaluation (machinery) 25,000
Depreciation 75,000
Fines as per Custom Act 35,000
Net profit c/d 4,03,000
12,00,000 12,00,000
Commission: managing agency 85,000 Net profit b/d 4,03,000
Bonus to staff: festival and incentive 55,000
Provision for taxation 40,000
Balance c/d 2,23,000
4,03,000 4,03,000
Additional information:
1) Actual sales commission during the year was taka 50,000.
2) Establishment charges included taka 25,000 subscription paid to the association for
avoiding competition.
3) Advertisement expenses were paid for 5 years ending 30th June 5, 2020.
4) The company purchase it’s own 6% debenture worth (original cost) taka 6,00,000 on
which interest was not credited to profit and loss account.
5) Legal charges for keeping patent rights intact have been shown as legal expenses.
6) Charity included taka 15,000 donated to the Orphan School.
7) Allowable depreciation was taka 40,000.
8) Actual bad debt written off during the year was taka 35,000
9) The company is a manufacturing public limited and it is enlisted in the stock exchange.
REQUIRED:
Determine the tax liability of the company. It declared dividend at the rate of 22% for the year.

Page 47 of 100
 CHAPTER-4: EXEMPTION AND ALLOWANCES (TAX HOLIDAY / EXEMPTION)

BACKGROUND
Tax holiday i.e. fully exemption from paying tax, either for some periods or paying tax at
reduced rate for some period is allowed for newly set up enterprises to accelerate industrial
development. From time to time provisions and exemption period found to have changed over
the period. However, till 2019, an industrial enterprise setup within 30-6-2019 fulfilling some
conditions for the prescribed area were exempted from tax for period i.e., 4 to 12 years as
specified by law. For the purpose of tax exemption the country was been into few areas based on
which tax holiday period will be different.
Classified area Tax holiday period
Special economic zone prescribed by NBR 12 years
Under developed area prescribed by NBR 9 years
Areas in Rajshahi, Khulna, Sylhet, Barisal, Rangamati, Khagrachari 5 years
and Bandarban
Dhaka and Chittagong (excluding Chittagong Hill Tracks) 4 years

However, through Finance Act 2019, the provisions of tax holiday have been changed
significantly from flat exemption to differential rate of exemption for the tax holiday period. The
country has been divided into two area & rate of exemption pattern has been changed for
exemption period regressively as under and it is now called Reduced Tax System Holiday.

TAX HOLIDAY SCHEME FOR NEWLY ESTABLISHED INDUSTRIAL

UNDERTAKINGS, TOURIST INDUSTRY AND INFRASTRUCTURE FACILITY: SEC
46A
Profits and gains of an industrial undertaking, tourist industry or physical infrastructure facility
(hereinafter referred to as the said undertaking) set-up in Bangladesh between 1 July 2011 and 30

Page 48 of 100
June 2019 (both days inclusive) shall be exempt from the tax payable under section 46A (1) of
the
Ordinance for the period specified below-
(a) if the said undertaking is set-up in, Dhaka, Mymenshing and Chittagong divisions
excluding Dhaka, Mymenshing, Chittagong, Narayangonj, Gazipur districts and the hill
districts of Rangamati, Bandarban and Khagrachari, for a period of 5 years beginning
with the month of commencement of commercial production or operation of the said
undertaking as per following rates;
Period of exemption Rate of exemption
For 1st two year 100% of income
For 3rd year 60% of income
For 4th years 40% of income
For 5th years 20% of income

(b) if the said undertaking is set-up in Rajshahi, Khulna, Sylhet and Barisal divisions and the
hill districts of Rangamati, Bandarban and Khagrachari, for a period of 7 years beginning
with the month of commencement of commercial production or operation of the said
undertaking.
Period of exemption Rate of exemption
st
For 1 two years 100% of income
For 3rd year 70% of income
th
For 4 years 55% of income
For 5th years 40% of income
th
For 6 years 25% of income
For 7th years 10% of income
Provided that industries engaged in infrastructural facilities will get exemption all over the
country for 10 years as per prescribed rate.
To encourage tourism tax holiday alike new industrial enterprises is allowed varying from 4-12
years fulfilling certain conditions.
Industrial undertaking, tourist industry, or physical infrastructure facility does not include
expansion of an existing undertaking for the purpose of this section -
(i) "industrial undertaking" means an industry engaged in the production of textile, textile
machinery, high value garments, pharmaceuticals, melamine, plastic products, ceramics, sanitary
ware, steel from iron ore, fertilizer, insecticide & pesticide, computer hardware, petro-chemicals,
basic raw materials of drugs, chemicals, pharmaceuticals, agricultural machine, ship building,

Page 49 of 100
boilers, compressors and any other category of industrial undertaking as the Government may by
notification in the official Gazette specify.
Explanation: 'high value garments' mean overcoats, jackets and suits.
(ii) "physical infrastructure facility" means sea or river port, container terminals, internal
container depot, container freight station, LNG terminal and transmission line, CNG terminal
and transmission line, gas pipe line, flyover, large water treatment plant & supply through pipe
line, waste treatment plant, solar energy plant, export processing zone and any other category of
physical infrastructure facility as the Government may by notification in the official Gazette
specify;
(iii) "tourist industry" means residential hotel having facility of three star or more and any other
category of tourist industry facility as the Government may by notification in the official Gazette
specify.
CONDITIONS FOR TAX HOLIDAY
The exemption under section 46A(1) shall apply to the said undertaking if it fulfills the following
conditions under section 46A(2), namely:-
(a) That the said undertaking is owned and managed by-
(i) a body corporate established by or under an Act of Parliament with its head office in
Bangladesh; or
(ii) a company as defined in the Companies Act, 1913/1994 with its registered office in
Bangladesh and having a subscribed and paid up capital of not less than Tk 1,00,000 on
the date of commencement of commercial production or operation:
(b) That thirty per cent of the income exempted under sub-section (1) is invested in the said
undertaking or in any new industrial undertakings during the period of exemption or within one
year from the end of the period to which the exemption under that sub-section relates and in
addition to that another ten percent of the income exempted under sub-section (1) is invested in
each year before the expiry of three months from the end of the income year in the purchase of
shares of a company listed with any stock exchange, failing which the income so exempted shall,
notwithstanding the provisions of the Ordinance, be subject to tax in the assessment year for
which the exemption was allowed.
Provided that the quantum of investment referred to in this clause shall be reduced by the amount
of dividend, if any, declared by the company enjoying tax exemption under this section;

Page 50 of 100
Provided further that, the provision for purchase of shares of a company listed with any stock
exchange referred to in this clause shall not be applicable in case of readymade garments
industry, if it invests forty per cent of the income exempted under sub-section (1) in the said
undertaking or in any new industrial undertaking during the period of exemption or within one
year from the end of the period to which the exemption under that subsection relates.

It is to be noted that income to be invested mentioned as above means total income for tax
purpose and not net profit as per profit and loss account.
Illustration
Total income as per Computation of Income for tax purpose Tk. 1,000,000
Less: dividend declared 100,000
Balance 900,000
(i) to be invested in the said undertaking or in any new industrial undertaking @ 30%, i.e.,
Tk. 270,000
(ii) to be invested in the purchase of stock listed shares @ 10%, i.e., Tk. 90,000

(c) that the said undertaking is not formed by splitting up or by reconstruction or reconstitution
of business already in existence or by transfer to a new business of any machinery or plant used
in business which was being carried on in Bangladesh at any time before the commencement of
the new business;
(d) that the said undertaking is approved, and during the relevant income year, stands approved
by the Board for the purposes of section 46A; and
(e) that the application in the prescribed form for approval for the purposes of section 46A, as
verified in the prescribed manner, is made to the Board within 6 months from the end of the
month of commencement or commercial production or operation.
(I) INDUSTRIAL UNDERTAKING ELIGIBLE FOR TAX-HOLIDAY : (SECTION 46B)

(a) active pharmaceuticals ingredient industry and radio pharmaceuticals industry;

(aa) automobile manufacturing industry;

(b) barrier contraceptive and rubber latex;

(c) basic chemicals or dyes and chemicals;

Page 51 of 100
(d) basic ingredients of electronic industry (e.g resistance, capacitor, transistor, integrator
circuit);

(dd) bi-cycle manufacturing industry;

(e) bio-fertilizer; (will get tax holiday even it is set up in distict of Dhaka, Narayanganj, Gazipur,
Chittagong, introduced in FA 2012)

(f) biotechnology;

(g) boilers;

(gg) brick made of automatic hybrid Hoffmann kiln or Tunnel Kiln technology;

(h) compressors;

(i) computer hardware;

(j) energy efficient appliances;

(k) insecticide or pesticide;

(l) petro-chemicals;

(m) pharmaceuticals;

(n) processing of locally produced fruits and vegetables;

(o) radio-active (diffusion) application industry (e.g. developing quality or decaying polymer or
preservation of food or disinfecting medicinal equipment);

(p) textile machinery;

(q) tissue grafting;

(qq) tyre manufacturing industry; or

(r) any other category of industrial undertaking as the Government may, by notification in the
official Gazette, specify

(II) PHYSICAL INFRASTRUCTURE ELIGIBLE FOR TAX HOLIDAY: (SECTION

46C)

Page 52 of 100
(a) deep sea port;

(b) elevated expressway;

(c) export processing zone;

(d) flyover;

(e) gas pipe line,

(f) Hi-tech park;

(g) Information and Communication Technology (ICT) village or software technology zone;

(h) Information Technology (IT) park;

(i) large water treatment plant and supply through pipe line;

(j) Liquefied Natural Gas (LNG) terminal and transmission line;

(k) mono-rail;

(l) rapid transit;

(m) renewable energy (e.g energy saving bulb, solar energy plant, windmill);

(n) sea or river port;

(o) toll road or bridge;

(p) underground rail;

(q) waste treatment plant; or

(r) any other category of physical infrastructure facility as the Government may, by notification
in the official Gazette, specify

COMPUTATION OF TAX HOLIDAY INCOME

(1) The profits and gains of the undertaking to which section 46A applies shall be computed
in the same manner as is applicable to income chargeable under the head ‘Income from
business or profession [Section 46A(5)]. However, in respect of depreciation, only the

Page 53 of 100
 allowances for normal depreciation specified in paragraph 3 of the Third Schedule shall
be allowed.
(2) The profits and gains of the said undertaking shall be computed separately from other
income, profits and gains of the assessee, if any, and where the assessee sustains a loss
from such undertaking, it shall be carried forward and set off against the profits and gains
of the said undertaking for the following year and where it cannot be wholly set off, the
amount of the loss not so set off, shall be carried forward for the next year and so on, but
no loss shall be carried forward beyond the period specified by the Board in the order
issued under section 46A(3) or (4) [Section 46A(6)].
(3) Unless otherwise specified by the Government, nothing contained in section 46A shall be
so construed as to exempt the following from tax chargeable under section 46A–
(a) any dividend paid, credited or distributed or deemed to have been paid, credited or
distributed by a company to its share-holders out of the profits gains; and
(b) any income of the said undertaking classifiable as ‘Capital gains’ chargeable under
the provisions of section 31;
(c) any income of the said undertaking resulting from disallowance made under section
30.
NOTE
A tax holiday company is liable to pay tax resulting from disallowance made u/s 30 in respect of
the following.
(a) Any payment of salaries chargeable to income tax, if tax at source has not been deducted
and paid to the Government Treasury.
(b) Any payment paid by an assessee to any person if deductible tax at source has not been
made and paid to the Government Treasury under Chapter VII (Section 49).
(c) Any excess perquisites u/s 30(e) has been paid to the employees.
WORKED EXAMPLE
A tax holiday company’s Income was determined at Tk. 1,000,000 without considering
disallowances u/s 30 [under (a), (b) & (c) above] of Tk. 400,000.
Solution
The tax holiday company is liable to pay tax on Tk. 400,000.

WITHDRAWAL AND CANCELLATION OF TAX HOLIDAY

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(1) Where any exemption is allowed under section 46A and in the course of making assessment,
the Deputy Commissioner of Taxes is satisfied that any one or more of the conditions specified
in section 46A are not fulfilled, the exemption will stand withdrawn for the relevant assessment
year and the Deputy Commissioner of Taxes shall determine the tax payable for such year.
[Section 46A(8)].
(2) Notwithstanding anything contained in this section-
(a) where the said undertaking enjoying exemption of tax under section 46A is engaged
in any commercial transaction with another undertaking or company having one or more
common sponsor directors, and
(b) during the course of making an assessment of the said undertaking if the Deputy
Commissioner of Taxes is satisfied that the said undertaking has purchased or sold goods
at higher or lower price in comparison to the market price with intent to reduce the
income of another undertaking or company.
The exemption of tax of that said undertaking shall be deemed to have been withdrawn
for that assessment year in which such transaction is made. [Section 46A(2A)].
(3) Any such undertaking approved under section 46A may, not later than one year from the date
of approval, apply in writing to the Board for the cancellation of such approval, and the Board
may pass such orders thereon as it may deem fit.[Section 46A(9)].
(4) Notwithstanding anything contained in section 46A, the Board may, in the public interest,
cancel or suspend fully or partially any exemption allowed under section 46A.[Section 46A(10)].
TAX HOLIDAY NOT ELIGIBLE IN CERTAIN CASES
A new industry, wherein investment of any sum by any person during the period between the
first day of January, 1997 and the thirty first day of December, 1999 is exempt from tax without
any question as to the source of the invested sum under section 19A shall not be eligible for tax -
holiday.
Such industry may however be considered for tax holiday if the assessee pays tax at the rate of
seven and a half per cent on the invested amount before the filing of return for the relevant
income year (Sec 19A).
PROCEDURES OF TAX HOLIDAY
An application under section 46A(2)(f) of the Ordinance for approval for the purposes of that
section in respect of an industrial undertaking, tourist industry or physical infrastructure facility

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shall be made in the prescribed form (Rule 59A (I), in duplicate, duly signed and verified by the
Managing Director or Director of the company.

TAX HOLIDAY FOR HOSPITAL: S.R.O. NO. 204-AIN/IT -2005 DATED 6 JULY 2005

A newly established private hospital will be eligible for exemption from income tax for five
years subject to the following conditions:
(1) The hospital is owned by a company registered under the Companies Act, 1913/1994.
(2) The hospital is established between the period from 1 July 2005 to 30 June 2008.
(3) The hospital is housed in a building constructed on the company’s own land.
(4) The hospital has number of beds as mentioned below:
(a) 200 beds in the case of general hospital.
(b) 50 beds in the case of specialized hospital for heart, kidney and cancer patients.
(5) 10% of the beds must be kept reserved for treatment of poor patients free of charge.
The owner of the hospital enjoying exemption from tax shall file return of income to the
concerned Deputy Commissioner of Taxes along with statement of accounts and relevant
documents & evidences in respect of the concerned year of exemption and the Deputy
Commissioner of Taxes will determine the income under sections 28 and 29 along with the
owner’s income from other sources, if any, and make the income tax assessment accordingly.
CONCESSION TO INDUSTRIES SET UP IN ANY EXPORT PROCESSING ZONE
Based on compliance of some conditions, the concessions have been granted to the industries set
up in any Export Processing Zone, as follows:-
(1) Exemption of pioneering industries: S.R.O. No.266-L/86 dated 1 July 1986:
(2) Exemption of 50% of tax on export sales of industries: S.R.O. No. 267-L/86 dated 1 July
1986
(3) Dividend income of non-resident shareholders of companies having industries set up in any
Export Processing Zone: S.R.O. No. 268-L/86 dated 1 July 1986:
(4) Accelerated depreciation up to 100% for plant or machinery used in specified hitch electronic
industry: S.R.O. No. 269-L/86 dated 1 July 1986:
(5) Exemption of income of any industry set up in any Export Processing Zone [SRO No
289/Law/89 dated 17 August 1989]:.

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SPECIAL TAX EXEMPTIONS / CONCESSIONS IN RESPECT OF CERTAIN
BUSINESS
(a) As per SRO No. 36 / Law/97 dated 3rd February 1997 provides for 15 years tax exemption
from commencement of commercial production in case of income of a Private Power Generation
Company.
(b) As per SRO No. 214/I.T/2003 dated 19th July, 2003 provisions have been made for
exemption of any person’s income from agro-processing industry from 1st July, 2002 to 30 th
June, 2006.
c) As per SRO no. 216/AIN/IT/2005 dated 16th July, 2005, provision has been made for
exemption of Bangladeshi resident’s income attributable to software business up to 30th June,
2008. The person enjoying the exemption will have to furnish income tax return for every year of
the exemption period.
(d) As per SRO No. 177/I.T/2002 dated 3rd July, 2002 provision has been made for taxing the
income of new industrial undertaking established during the period from 1st July, 2002 to 30 th
June, 2005 at the rate 20% on fulfillment of some conditions.
(e) SRO no. 216-AIN/IT/2004 dated 13th July, 2004: By this notification the Government has
exempted from income tax any income accrued outside Bangladesh to any person irrespective of
his status as resident or non-resident if such income is brought into Bangladesh under existing
laws.
(f) SRO no. 217-AIN/IT/2004 dated 13th July, 2004: By this notification the Government has
exempted from income tax any income accrued outside Bangladesh to any person who is resident
in Bangladesh, but not a Bangladeshi citizen if such income is brought into Bangladesh under
existing laws.
(g) SRO no. 200/-AIN/IT/2005 dated 06.07.2005 – Any person having not previously declared
any income can declare the same undisclosed income from other sources during the period from
01.07.2005 to 30.06.2006 on payment of 7.5% tax thereon and no question as to the source of
money shall be raised. The declared income shall not be added with any income from other
sources previously shown in the return and tax thereon have been paid at normal rates in
determination of total income declaring under the Ordinance and the opportunity under this
notification shall not constitute immunity from action if any taken previously under section 93 of
the I.T. Ordinance. The declaration has to be made in prescribed form.

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h) Exemption on Income from Fish Farming, Poultry Farming, Duckery, Cattle Farming, Dairy
Farming, Frog Farming, Horticulture, Cultivation of Mulberry, Cocoon, Mushroom and from
Floriculture: S.R.O. 309-/91 Dated 9 October 1991; S.R.O. No. 207-l/93 Dated 18 October 1993;
S.R.O. 127-l/2000 Dated 11 May 2000; and S.R.O. 215/IT/2003 Dated 20 July 2003, SRO
206/Ain/It Dated 6th July 2005

CHAPTER-5: ADVANCE PAYMENT OF TAX

SECTION OVERVIEW
 An assessee, both old and new, may require paying advance tax.
 Advance taxes are paid on income excluding income from agriculture and capital gain.
 The assessee shall get the credit for advance tax.
 If the amount of advance tax paid along with TDS is less than 75% of due tax, assessee is
required to pay simple interest @10% on such deficit.
 Government will also pay simple interest @10% if advance tax for any reason exceeds due
tax.
 If the assessee fails to pay advance tax, he will be the assessee in default.

REQUIREMENT TO PAY ADVANCE PAYMENT OF TAX: SEC 64

(1) Except as provided in section 64(2), tax shall be payable by an assessee during each
financial year by way of advance payment of tax, hereinafter referred to as ‘advance tax’,
in accordance with the provisions hereafter made in this Chapter, if the total income of
the assessee for the latest income year in respect of which he has been assessed by way of
regular assessment, or has been provisionally assessed under the Ordinance, or the
Income tax Act 1922 exceeds Tk 4,00,000.

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 (2) Nothing in section 64(1) shall apply to any income classifiable under the heads
‘Agricultural income’ and ‘Capital gains’.

COMPUTATION OF ADVANCE TAX: SEC 65

(1) The amount of advance tax payable by an assessee in a financial year shall be the amount
equal to the tax payable on his total income of the latest income year as assessed on
regular basis or provisionally, as the case may be, as reduced by the amount of tax
required to be deducted or collected at source in accordance with the preceding
provisions of this Chapter.
(2) The tax payable under section 65(1) shall be calculated at the rates in force in respect of
the financial year referred therein.

INSTALLMENTS OF ADVANCE TAX: SEC 66

Advance tax shall be payable in four equal installments on the fifteenth day of September,
December, March and June of the financial year for which the tax is payable. However, if before
the fifteenth day of May of the year, an assessment of the assessee is completed in respect of an
income year, later than that on the basis of which the tax was computed under section 65, the
assessee shall pay in one installment on the specified date or in equal installments on the
specified dates, if more than one falling after the date of the said assessment, the tax computed
on the revised basis as reduced by the amount, if any, paid in accordance with the original
computation.

ESTIMATE OF ADVANCE TAX: SEC 67

Where, an assessee who is required to pay advance tax under section 64 estimates, at any time
before the last installment is due, that the tax payable by him for the relevant assessment year is
likely to be less than the amount of tax as computed under section 65, he may, after giving to the
Deputy Commissioner of Taxes an estimate of the tax payable by him, pay such estimated
amount of advance tax, as reduced by the amount, if any, already paid, in equal installments on
the due dates of payment under section 66.

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The assessee may furnish a revised estimate of such amount at any time before any time before
any of such installments become payable and may thereby adjust any excess or deficiency, by
reference to the amount already paid by him under this section, in any subsequent installment or
installments payable in such financial year.

ADVANCE PAYMENT OF TAX BY NEW ASSESSEES: SEC 68

Any person who has not previously been assessed by way of regular assessment under the
Ordinance or the Income Tax Act, 1922, shall before the fifteenth day of June in each financial
year, if his total income, subject to section 64 (2), of the period which would be the income year
for the immediately following assessment year is likely to exceed Tk. 4,00,000, send to the
Deputy Commissioner of Taxes an estimate of his total income and advance tax payable by him
calculated in the manner laid down in section 65 and shall pay such amount on such dates
specified in section 66 as have not expired by installments which may be revised according to
section 67(2).

FAILURE TO PAY INSTALLMENTS OF ADVANCE TAX: SEC 69

Where, an assessee who is required to pay advance tax fails to pay any installment of such tax, as
originally computed or, as the case may be, estimated, on the due date, he shall be deemed to be
an assessee in default in respect of such installment.

LEVY OF INTEREST FOR FAILURE TO PAY ADVANCE TAX: SEC 70

Where, in respect of an assessee who is required to pay advance tax, it is found in the course of
regular assessment that advance tax has not been paid in accordance with the provisions of this
Chapter, there shall be added, without prejudice to the consequences of the assessee being in
default under section 69, to the tax as determined on the basis of such assessment, simple interest
thereon calculated at the rate and for the period specified in section 73.

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CREDIT OF ADVANCE TAX: SEC 71
Any sum, other than a penalty or interest, paid by or recovered from an assessee as advance tax,
shall be treated as a payment of tax in respect of the income of the period which would be the
income year for an assessment for the year next following the year in which it was payable and
shall be given credit for in the assessment of tax payable by the assessee.

INTEREST PAYABLE BY GOVERNMENT ON EXCESS PAYMENT OF ADVANCE

TAX: SEC 72
The Government shall pay simple interest at 10% per annum on the amount by which the
aggregate sum of advance tax paid during a financial year exceeds the amount of tax payable by
him as determined on regular assessment.
The period for which interest under section 72(1) shall be first day of July of the year of
assessment to the date of regular assessment in respect of the income of that year or a period of
two years from the said first day of July, whichever is shorter.
Illustration:
Mr. Robi calculated advance tax for the income year 2010-11 as per the latest assessed income of
taka 1,000,000. Regular assessment for the assessment year 2011-12 was completed on June 30,
2012 and profit assessed amounts to taka 800,000. Applicable tax rate is 40%. Calculate interest
payable by the government on excess amount.
Calculation of excess advance tax paid:
Amount of advance tax paid on the basis of latest assessed income Tk. 400,000
(40% of taka 1,000,000)
Advance tax as per regular assessment (40% of taka 800,000) Tk. 320,000
Excess of advance tax paid Tk. 80,000
Interest payable by the government: (10% on taka 80,000) Tk. 8,000
Note: Interest will be paid for a period from 1st July 2011 (first day of assessment year) to June
30 2012 (day of regular assessment) or for a maximum of 2 years, whichever is shorter.

INTEREST PAYABLE BY THE ASSESSEE ON DEFICIENCY IN PAYMENT OF

ADVANCE TAX: SEC 73

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 (1) Where, in any financial year, an assessee has paid advance tax on the basic of his own
estimate and the advance tax so paid together with the tax deducted at source, if any ,
under this Chapter is less than seventy-five per cent, of the amount of tax payable by him
as determined on regular assessment, the assessee shall pay, in addition to the balance of
tax payable by him, simple interest at 10% per amount on the amount by which the tax so
paid and deduction falls short of 75% of the assessed tax.
(2) The period for which interest under section 73(1) shall be payable shall be the period
from the first day of July of the year in which the advance tax was paid to the date of
regular assessment in respect of the income of that year or a period of two years from the
said first day of July whichever is shorter.
(3) Notwithstanding anything contained in sections 73(1) and (2) -
i. where tax is paid under section 74, or
ii. provisional assessment has been made under section 81 but regular assessment has not
been made, the simple interest shall be calculated in accordance with the following
provisions-
1. up to the date on which tax under-section 74 or provisionally assessed, was
paid;
2. thereafter, such simple interest shall be calculated on the amount by which the
tax so paid falls short of the said assessed tax.
(4) Where, as a result of appeal, revision or reference, the amount on which interest was
payable under section 73(1) has been reduced, the amount of interest payable shall be
reduced accordingly and the excess interest paid, if any, shall be refunded together with
the amount of tax that is refundable.

ILLUSTRATION
For the assessment year 2019-20, a certain assessee has latest assessed income of taka 1,000,000.
But, he wants to pay advance tax for the year on the basis of his own estimates that amounts to
taka 800,000. Regular tax rate is 40%. During the year, tax deducted at source was taka 50,000.
Regular assessment for the assessment year 2011-12 was completed on February 28, 2012
resulting taka 1,200,000 profit including profit of taka 80,000 from capital gain and taka 220,000

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from agricultural income. Calculate the amount of excess or shortfall and explain the
consequences for the same.

Income eligible to apply advance tax as per regular assessment is taka 900,000 (taka 1,200,000 –
taka 80,000 – taka 220,000), excluding capital gain and agricultural income.

Tax liability as per regular assessment (40% of taka 900,000) Tk. 360,000
Tax paid in the form of Tax deducted at sources Tk. 50,000
Advance tax (40% of taka 800,000 – taka 50,000) Tk. 270,000 Tk. 320,000
Shortfall/Deficit Tk. 40,000

75% test: The deficit or shortfall is required to be tested for charging interest.
75% of tax liability as per regular assessment (75% of taka 360,000) Tk. 270,000
Tax paid actually Tk. 320,000

Shortfall/Deficit nil

Consequence: In this case, the assessee is required to pay the shortfall of taka 40,000.
There is no question of interest resulting from 75% test.

PAYMENT OF TAX ON THE BASIS OF RETURN [SEE 74]

Every person who is required to file a return u/s 75, 77, 78, 89(2), 91(3), or 93(1) shall pay the
amount of tax payable on the basis of such return as reduced by the amount of any tax deducted
from his income u/s 48 and 64 on or before the return filed.

A person who without reasonable cause fails to pay tax as required under this section, shall be
deemed to be an assessee in default.

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Worked Example 1
Mr. Alim Seikh has the following records of assessment for various years:

Mr. Seikh, due to the changes of nature of income, wants to pay advance tax on the basis of his
own estimate in lieu of latest assessed income. According to his own estimate, total taxable
income amounts to taka 1,200,000 including taka 100,000 from capital gain and taka 200,000
from agricultural income.
Assessment for the income year 2010-11 has been completed on 28th February 2012 and his
actual

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income amounts to taka 1,800,000 excluding capital gain and agricultural income. For the
income year 2010-11, his tax deducted at source was taka 100,000 and he has paid further tax of
taka 150,000 on 31st December 2011 U/s – 74. Applicable tax rate for Mr. Seikh is 40%. Explain
tax implications.
Solution 1:
Latest assessed income in this case would be taka 1,500,000 (IY 2007-08) if advance tax was
based on that. But, Mr. Seikh paid advance tax on the basis of his own estimate. So, let us first
compute the amount of advance tax paid.
Estimated income of Mr. Seikh excluding capital gain and agricultural income Tk. 900,000
Amount of advance tax payable (40% of taka 900,000) Tk. 360,000
Advance Income Tax to be paid per installment (taka 360,000/4) Tk. 90,000
Advance tax paid by Mr. Seikh on the date of assessment Tk. 180,000
(Because only two installments are made on 15th September and 15th December respectively)
Let us calculate the amount of shortfall/deficit:
Tax liability as per regular assessment (40% of taka 1,800,000) Tk. 720,000
Tax paid in the form of
Tax deducted at sources Tk. 100,000
Advance tax paid (as calculated above) Tk. 180,000 Tk. 280,000

Shortfall/Deficit Tk. 440,000

Less: tax paid U/s – 74 Tk. 150,000
Remaining Liability Tk. 290,000

So, Mr. Seikh would be required to pay taka 290,000 as additional tax. Now let us use 75% test
to decide whether he would be charged interest on the shortfall or not.
75% of tax liability as per regular assessment (75% of taka 720,000) Tk. 540,000
Tax paid actually Tk. 280,000
Revised Shortfall/Deficit Tk. 260,000
Less: tax paid U/s – 74 Tk. 150,000
Remaining liability Tk. 110,000

So, Mr. Seikh would be charged interest as per the 75% test for the following time period:

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On taka 110,000; interest will be charged @ 10% for a period from 1st January 2012 to 28th
February 2012 whereas on taka 150,000; interest will be charged at the same rate but for a period
from 1st April 2011 to 31st December 2011. So, total interest payable by Mr. Seikh would be
taka 13,083.33 [(110000×10%×2/12) + (150000×10%×9/12)]. Thus, total amount due by Mr.
Seikh to the government amounts to taka 3,03,083.33 (290,000 +13,083.33).

CHAPTER-6: SET OFF AND CARRY FORWARD OF LOSSES

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SECTION OVERVIEW
Loss arising in one head of income in any year can be set off against profit arising under any
other head except capital loss or loss on speculative transaction or property income in the same
year.
(1) Balance of loss, if remains, can be carried forward to be set off against profit under same
head for six years.
(2) Capital loss of Tk. 5,000 in a year cannot be carried forward nor can it be set off against
profit under any other head.
(3) Unabsorbed depreciation brought forward together with current year's depreciation
allowance forms total depreciation charge for the year.
(4) Unabsorbed depreciation can be carried forward indefinitely i.e. without time limit of six
years.
(5) For carry forward and set off right the assessee and the broad character of business must
remain same.
INTRODUCTION TO SET OFF AND CARRY FORWARD OF LOSSES
Tax is imposed on income and thus, if loss is generated from any heads; government offers
sufficient options to make the assessee well off enough so that tax may be collected. Two such
options are:
a) Set off
b) Carry forward and set off
Logically, set off considers only one year whereas carry forward includes subsequent years. As
assessee have multiple sources of income, it is very common that loss will not generate from
each heads. Thus losses from one head may be adjusted with income from other heads so that net
figure results income and tax can be imposed on that. However, if the total income from all
heads results losses, set off cannot be done practically. In such a situation, loss of one year can
be carried forward to subsequent years for set off.

SET OFF OF LOSSES: SEC 37

If a company has more than one business, loss of one business can be set off against the income
of other business. But the condition is that the company must be a Bangladeshi company. It is to

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be noted that if Bangladeshi company has overseas branch or business, loss or gain of them can
be set off against one another.

CARRY FORWARD OF UNABSORBED DEPRECIATION: SEC. 44(6)

If the depreciation allowance of an assessment year cannot be absorbed for shortage of revenue
such unadjusted allowance can be carried forward for set off in subsequent year(s) without any
time limit.

CARRY FORWARD OF LOSS

If there is a loss in business of a company in an accounting year it can be carried forward up to
six years for setting off against income of the succeeding years. It is to be noted that if the
company has more than one business, it is not necessary that these businesses be under same tax
area or same ICT. But it must be a Bangladeshi company.

It may be mentioned here that unabsorbed depreciation of tax-holiday period of an industrial

undertaking can also be carried for setting off beyond tax holiday period. Priority is given
regarding set off of losses of business and speculation business over depreciation. Because the
later category of expenses can be carried forward for unlimited period.

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 CHAPTER-7: TAX EVASION AND TAX AVOIDANCE

INTRODUCTION

Black money threatens economic order and thus time and again concerns are expressed about it.
Black money is defined as the money on which tax has not been paid i.e. tax has been paid
evaded. This black money can be of two types:

i) Legally earned money on which tax has not been paid that is tax evaded.
ii) Unlawfully earned money on which tax has not been paid i.e. tax evaded.

In the context of black money all argue that every effort need to be made to bring black money in
economy so that economic order can be well established and planned economic program is
facilitated. Some people suggest that money whitening provision in Income Tax can be an
efficient way to induce such person to declare their black money. Others argue that such money
whitening provision would not bring desired success as these people would respond very little.
Further, this would be unjust to honest tax payers.

TAX EVASION AND TAX AVOIDANCE

Tax evasion and tax avoidance sometimes used to be referred as to mean same thing not paying
tax. But they are different. Tax evasion and tax avoidance terminologies are used in taxation to
identify sources and preventing measures that can be taken.

It is natural that the government will desire more tax from the tax payers and the tax payers have
the tendency to pay as minimum as possible. The tax payers can reduce their tax liability either
by following tax planning within the tax rules or by concealment or under statement of income.
The former practice is legal and the latter is illegal.

DEFINITION OF TAX EVASION

Tax evasion is the fraudulent practice of evading due tax, payable to tax authorities. It may be
relevant either to the concealment of taxable income or understatement of taxable amount or
failure to pay tax in due time & in the proper way by an assessee or his agent. It is fully illegal &
punishable offence.

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DEFINITION OF TAX AVOIDANCE

It is the practice of avoiding the payment of tax through adopting various techniques & modes.
In fact, tax avoidance is the minimization of tax liability by the tax-payer or his agent by efficient
tax planning. It is possible even by fully complying with the tax laws and meeting tax liabilities
but through smart practice. Thus tax avoidance takes the advantages of the loopholes in the
existing fiscal laws or cunning practice. It may sometimes be relevant to immoral practice.

TAX AVOIDANCE VERSUS TAX EVASION

In case of tax evasion, tax liability is reduced or tax is not paid at all. It is illegal. But in case of
tax avoidance, tax liability is minimized by taking the advantage of existing loopholes in tax
rules. Although, it is not illegal, but it is undesirable.

SOCIO-ECONOMIC EFFECTS OF TAX EVASION AND TAX AVOIDANCE

Tax avoidance and evasion have some adverse impacts on the economy and society. These are:

(1) Loss of government revenue: the ultimate result of tax evasion and tax avoidance is the
tax loss or revenue reduction. This necessitates a higher tax burden on the assessee or in
other areas. Further, if the tax authority thus government fails to collect required tax
revenue, its level of development expenses also fails. If affects the distribution function
of wealth of the government and adversely affects socio-economic development of a
country.
(2) Vicious Cycle of tax evasion is developed: if tax rules are not sufficient to check the tax
evasion and avoidance, it may lead to the development of a culture of evasion. So a
vicious cycle of tax evasion may take place.
(3) Unwarranted use of tax-evaded income: tax-evaded incomes are used for conspicuous
consumption in the form of buying luxurious goods, as the demand for such goods
increases with the resultant increase in price, the honest tax payers gradually find
themselves priced out of the market. This may create frustration and encourage people to
avoid tax. So the stability of the society will be endangered. Such illegal money is also
transferred abroad weakening the economy of the country.

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REASONS FOR TAX EVASION AND TAX AVOIDANCE

The followings can be identified as the main causes of tax evasion and avoidance by the tax
payers:

(a) Ambiguity in tax rules: there are some tax rules in our tax ordinance. Alike some other
countries, which are ambiguous. A tax payer can take advantage of these rues to his own
benefits.
(b) High tax rate: if the tax rate is high, the tax payers feel discouraged to pay tax. So they
adopt different means to reduce or minimize tax liability either through tax evasion or
through tax avoidance.
(c) Inadequacy of preventive measures: the existing measures to prevent tax evasion or
avoidance are considered inadequate to solve the problem. Moreover, a section of corrupt
people relating to tax administration also helps the tax payers to evade and avoid tax in
exchange of speed money.
(d) General tendency: it is said to be human tendency of the assessee to avoid tax. So, they
try to find out loopholes in tax rules to avoid tax payments.

COMMON METHODS OF TAX AVOIDANCE

Tax avoidance is possible by adopting any of the following means:

(a) Transfer of property with bad motive: transfer of property in the name of wife or
minor child is one of the ways of tax avoidance. By making such transfer, the assessee
can reduce his level of income and tax liability.
(b) Transfer of property to trust: transfer of property to trust is another way of tax
avoidance. Through such transfer of property to a Charitable Trust created by his and the
income of which is indirectly controlled and enjoyed by the assessee himself. The tax can
be avoided.
(c) Setting up private limited company for tax avoidance: creation of private limited
company, by the members of the family and relatives is also a clever practice for tax
avoidance. By creating such companies, the management shows expenses and allowances
in such a way that helps to reduce tax liability.

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 (d) Window dressing transactions: a company can also avoid tax by transferring a portion
of profit prior to the declaration of dividend to capital reserve or converting it to capital.

However, it is not always possible to avoid tax adopting above techniques. Because some
preventive provisions were found to have been inserted in income tax laws of different countries.
In Bangladesh, some rules are also framed to prevent tax avoidance. For example, income from
properties transferred to the names of minor child or spouse is taken as the income of the
assessee. But it is not always possible to prevent tax avoidance.

COMMON METHODS OF TAX EVASIONS

Tax evasion is made through adopting illegal means. Generally, an assessee adopts the following
means to evade tax:

(a) Cash sales: to conceal actual sales and income, some organizations only make cash sales.
In such a case, proper record of sales is not maintained and from investigation also
neither actual position nor adequate idea can be formed as to sales volume, profit and tax
liability.
(b) Showing false expenses: to reduce profit volume and tax liability, false items of
expenses or excess amount for an item of expense can be shown in the income statement.
These help reduction of profit with resultant reduction of tax liability.
(c) Concealment of additional sources: sometimes, the assessee does not disclose the
additional sources of income. Similarly, a business may conceal income by not
incorporating the branch income properly.
(d) Forgery documents: by forging documents like vouchers and imports and exports
documents, sometimes assessees try to evade tax liability.
(e) Maintenance of duplicate records: some assessees maintain duplicate records of their
business and economic activities. They maintain one set of accounts for tax purpose and
another set for internal use.
(f) Manipulation in transfer pricing: transfer price is the price that is charged by one
segment of an enterprise for a product: partly finished or finished or a service which is
supplied to another segment of same organization. In charging or showing price
manipulation is reportedly done, especially in MNC, so as to minimize tax. This is done

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 through manipulation in the system of determining price. Sometimes this manipulation is
aided by some tax personnel who are responsible to examine the price.

PREVENTIVE MEASURES ADOPTED IN BANGLADESH

In the income tax ordinance of Bangladesh, some provisions have been included to prevent the
tax avoidance and tax evasion. These provisions are described below:

(a) Controlling avoidance of tax through transactions with non-resident (Sec. 104):
where any business is carried out between a resident and a non-resident and it appears to
the Deputy Commissioner of Taxes that, owing to the close connection between them, the
course of business has been so arranged that either no profits or profits less than the
normal expected profit from the business will be shown. In such a situation, the DCT
shall determine the amount of income which may reasonably be considered to have
accrued to the resident from such business and included such amount in the total income
of the resident.
(b) Controlling avoidance of tax through transfer of assets to non-resident (Sec. 105): if
any asset is transferred to the non-resident for payment of loan and it appears to the tax
authority that the transferor will enjoy the benefit from such transferred assets, the tax
authority will then take necessary action for such fake transfer. However, no action can
be taken under this section if the transfer is honest and genuine.
(c) Controlling avoidance of tax by transactions in securities (Sec. 106): where the owner
of any securities sells the securities to other with an arrangement of buying them back to
avoid tax on those transferred securities, the interest payable on these securities at the
time of their transfer is considered as the income of the transferor.
(d) Requiring tax clearance certificate for persons leaving Bangladesh (Sec. 107): any
person domiciled or not domiciled in Bangladesh leaving Bangladesh needs to procure a
tax clearance certificate, if in the opinion of tax authority, he is not likely to return to
Bangladesh. However, if the DCT is satisfied that the assessee has the intention of
returning to Bangladesh, an exemption certificate will serve the purpose. In this
connection, it may be mentioned that if any shipping or Aircraft Company makes

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 arrangement for travel of any people outside Bangladesh without tax clearance certificate,
these companies are to bear the unsettled tax liability of such person or persons.
(e) Collection of information by tax authority (Sec. 108-110): any organization paying
salary to its employees should submit full particulars of income of those employees
whose total income exceeds minimum taxable limit within 1st September each year.
Similarly, any organization selling securities of company paying interest and dividend
should submit the list of recipient of such interest and dividend to tax authority within 1 st
September each year.
(f) Restriction on transfer of assets [Sec. 116(A)]: if evidence of escaped income,
investment or assets is revealed to tax authority, than director general or commissioner of
taxes can order the person/persons with whom these are lying not to transfer such assets
for 2 years. If on order of court injunction is imposed on such order. Such injunction
period will be deducted from restriction so given.
(g) Identification of Assessee on National Basis [Sec. 184(B)]: now assessee are identified
on national basis through tax identification number (TIN). This system will effectively
help to identify the income of the assessee from different sources and places to prevent
tax avoidance.
(h) Temporary TIN for person who has not applied for TIN: temporary TIN may be
given to a person who seems to have taxable income but has not applied for TIN. This is
intended to bring defaulter under tax orbit.
(i) Reward for providing information [Sec. 184(D)]: any person providing information
about the concealed income of any person, will be rewarded by the government.
(j) Assistance to income tax authorities (Sec. 184E): all officers and staff of government
and semi-government organizations, law enforcement agencies, autonomous bodies,
statutory bodies, financial institutions, educational institutions, private organizations,
local government and non-government organizations shall assist the income tax
authorities in the discharge of their functions under income tax ordinance.
(k) Report from C.A.: tax may be evaded by manipulating transfer pricing. Thus Finance
Act 2015 provides for submitting report from certified accountant as to transfer price as
accurate.

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 (l) Setting u tax information unit: to prevent tax evasion & find out new assessee F.A.
2016 provides for set up a tax information unit which on the basic of information
technology will try to prevent tax evasion & and to find out new assessee who tries to
remain outside tax net., evade or avoid tax including manipulation through transfer price.

CHAPTER-8: TAX PLANNING

PRELUDE

Tax is a compulsory payment to the government by the persons who come under the orbit of
taxing law. Assessees in general don’t like to pay tax on taxable income or property which they
earn with hard work, sacrifice of leisure and incurring physical or mental effort. This sometimes
give rise to tax evasion and tax avoidance.

Tax evasion is an offense, illegal activity and unwarranted. It means illegal hiding or
concealment of income or their sources & manipulating accounts thereof. On the other hand tax
avoidance is an attempt by legal means taking tax loopholes or ambiguity into consideration, to
avoid or reduce tax liability. It is the art of dodging taxes without breaking tax law provisions.

Tax planning is the art and techniques to reduce tax liability by adopting certain strategies, taking
full advantages of exclusion and deductions and arranging transactions in a way that result in
lesser tax liability. In this context, from a narrow sense, tax planning and tax avoidance are
sometimes used interchangeably. But in real sense, there are some differences. In case of tax
avoidance tax loopholes, ambiguity and complexity are exploited to reduce tax burden. Thus if it
is not a legal offence, it can be said to be moral offence. On the other hand, tax planning is taking
advantage of maximum deductions, exemptions, rebate, relief and arranging activities,
investment and transaction so as to reduce tax burden. It is legally permitted & morally
permissible. Effective tax planning is thus aimed at by prudent assessee to maximize enjoyment
of income, savings & return on assets. It is a means to achieve some future goal for the
betterment of living, enrichment of wellbeing & enhancement of wealth for self and family.

MEANING OF TAX PLANNING

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Planning is deciding in advance, a process of determining in advance about the activities to be
performed: ensuring essential requirements and facilities, arrangement and mobilization process
etc. to achieve an objective or goal. In such a context, tax planning can be said to be a decision
taken in advance to arrange activities, transaction, investment in such a way so that future tax
liability can be minimized and return on physical, mentaly and resource utilization can be
maximized. In such a backdrop, according to Westin & Neff, tax planning is the protection of
future income for taxation to achieve a greater tax savings than for merely searching for
deductions. This definition emphasizes more on the planning of the activities that attract less tax.

Lakhotia & Lakkotia identify tax planning as to take maximum advantages of exemptions,
deductions, rebates, relief and other concession leading to reduction of tax liability. It
emphasizes mainly on tax reliefs related actions. However, tax planning, in practical perspective
takes into consideration both as to planning activities so as to attract less tax liability and taking
advantages of tax relief provisions to the maximum. A prudent person and business having bright
vision endeavor for tax planning not for better future but also for survival in severe competitive
future arena.

PRINCIPLES OF TAX PLANNING

Some basic principles underlie tax planning which need to be kept in mind. These are:

(1) Advanced planning: take into consideration existing provisions of tax laws, investment
and economic environment and plan the activities so as to achieve long term benefits.
Sometimes short term benefit, income and facilities may be better to sacrifice for long
term benefit and future protection of income, wealth and benefit.
(2) Keep in legal: it is not desirable to take undue future risk and unpleasant encounters
from tax authorities. What is required is to plan activities in an environment that is treated
as legal. Honesty does pay and not the dishonesty. In legal environment better options
can be taken, what is required is the strategic choice.
(3) Disciplined action and weighing alternatives: make plan consciously, after considering
and weighing alternatives. Plan activities and take advantages of existing facilities for
well-being and stick to it. Analyze the situation, decide proper actions and work in a
disciplined way. Zig-zag and fluctuation time and again may be detrimental in the way to
achieve desired goal.

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 (4) Careful thinking: take time to think and to come to a decision. Hurried decision cannot
be fruitful in future. Think ahead, take into consideration the past trend and future
probable situation. Tax laws change every year significantly specially as to rate and
deduction. Careful thinking and fact based decision is warranted.
(5) Money value consideration: money value changes. Weight your benefit in terms of
future money value and in terms of real benefit in future compared to current value and
benefit. Short term sacrifice and losses may be significantly enhanced in future giving
rise to future comfort, safety and well being.

BENEFITS OF TAX PALNNING

Benefits of tax planning goes to assessees mainly. But tax authorities and exchequer can also be
benefited in the sense that adoption of tax planning may induce assessee to avoid tax evasion
activities which is detrimental to tax revenue. It can also save an assessee from taking unlawful
and dishonest activities. The benefits to an assessee, in short, can be pointed out as follows:

(a) Lessening tax burden: it helps lessening tax burden. So helps better living condition
through greater savings.
(b) Enhancing savings: it helps an assessee to enhance saving which can lead to investment
and betterment of economic life of the assessee and greater investment in the country.
(c) Better environment: it helps creation of better relation between tax payer and tax
officials, as in the pretex of tax evasion and avoidance, harassment of tax payer by tax
officials can be reduced to minimum.
(d) Lessening anxiety for future: assessee feels comfort as to his earning, tax payment and
satisfaction as to pay tax payment. Anxiety is reduced as to earning, tax payment and
investment etc.
(e) Creation of conducive tax environment: conducive tax environment in the country
prevails. Estimation of tax revenue becomes stable and more or less better predictable.

LIMITATIONS OF TAX PLANNING

Tax laws are significantly complex. Tax laws change every year at times of presenting budget.
So it is difficult to go for better tax planning and maintain stability of the plan. In such a context
following limitations can be listed.

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 (a) Problems of frequent changes in tax provisions: tax provisions specially tax rate,
relief, deductions, exemptions etc. changes time and again. So it is very difficult to plan
activities that will attract less tax liability in future.
(b) SROs issued time to time affecting changes in laws and planning: during a year some
SROs are issued which changes tax concessions, exemptions etc. So plan can be defeated
by such changes.
(c) Uncertainty in economy: future is uncertain as to economic condition, saving and
investment environment. Certain unwarranted situation in the life and activities of the
assessee also may occur which can adversely affect tax planning.
(d) Changing money value: money value changes. Inflation is almost an order of the day.
So estimate of future benefit becomes difficult and inexact. Thus planning future
activities for tax protection may become defective.
(e) Adaptation difficulty: plan need to be adjusted based a circumstances and changes. But
in case of tax planning such adjustments may be difficult and may not be fruitful.

GENERAL STRATEGIES AND POLICIES OF TAX PLANNING

Several strategies are seen to have been applied in the context of tax planning. Following are
some of them:

(a) Balancing fluctuation of tax rate

(b) Deferring tax liability
(c) Investing in tax free income
(d) Leveraging investments
(e) Shifting deductions from low bracket tax payer to high bracket tax payer
(f) Shifting income from high bracket tax payer to low bracket tax payer
(g) Optimizing tax credit

The basic assumptions underlying these strategies can be identified as follows:

i) Tax decreases in future compared to changes in money value in inflationary situation

if rates remain almost stable in real term.
ii) Tax decreases if income earned by entity is subject to low rate.
iii) Tax decreases if payment can be deferred to latter period.

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 iv) Tax decreases if income is earned by low rate justification
v) Tax decreases if income is earned by low rate jurisdiction

In the above context a brief discussion of the strategies and policies are now in order:

(a) Balancing tax rate: income tax rates are progressive or under slab system. Here the
more the income, the more the tax. In such a situation if one expects, specially self
employed persons or businessmen, that his/her/their incomes are likely to fluctuate year
to year than this strategy may be useful. If one expects substantial change of income in
the next year, he can try to arrange timing of receipt in favorable way, try to receive at
earlier time or at latter period. The question of deductions may also be considered. Time
of deduction allowable can also be adjusted.
(b) Deferring tax liability: tax deferring may be considered from two angles: deferring
income, accelerating deductions and exemptions. It can also be considered combined.
Tax liability can be reduced by delay income in receiving, adjusting payment until it is
more advantageous (in the concerned items, where it is possible). Pension plan,
benevolent fund etc. are considered as examples of deferring tax liability. Because, the
portion of your income you place in these plans are not taxed until you receive it in latter
period and that under certain condition it may not be taxable receipt.
(c) Investing in tax-free income: tax free income is of two types-one is tax exempted
income; income on which tax is not chargeable. Another is imputed income- income and
enjoyment received by a person which is non assessable. For example, govt. or tax
authority may declare that one of the items, say tax free govt. security is tax exempt.
Income of this investment will thus no to be taxed. As to imputed income it can be said
that employer provides a house to employee- its notional value or estimated value up to
certain extent will not be taxable.
(d) Leveraging investment: leveraging is debt-equity arrangement. Debt capital may lead to
the borrowing of money to increase total capital or property one holds in a business.
Interest on borrowed capital is allowed as allowable deduction which can minimize
taxable income. But caution should be taken as to whether excess borrowing becomes
unfavorable, increase risk and control in the business.

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(e) Shifting deductions from low bracket to high bracket tax payers: a tax unit may have
different sources of income i.e. income from securities, income from house property,
income from business etc. some exemptions are allowed under each. There may be some
allowable deductions which one can shift from one head to another through proper
planning and reduce tax burden by taking full advantage. Further, deductions can also be
shifted among family member. Some family members may have less amount of income
and subject to low tax rate, other may have high income which is subject to higher tax
rate. Thus some deductions can be shifted to high bracket tax payer to reduce tax. This
will ultimately produces favorable tax liability.
(f) Optimizing tax-credit: tax credit income or investment allowance has some limit.
Within the limit one can invest and through this he can contribute savings and potentials
of future benefit. Further deductions allowable under different heads and on aggregate
income can also be fully utilized so as to minimize taxable income and tax liabilities. It is
advisable to utilize these advantages in full which will amount to protection of wealth and
better future in the context of socio economic welfare.

TECHNIQUES/METHODS OF TAX PLANNING

Techniques of tax planning are set based on strategies and policies. These are practical
implementation measures which results in reduced tax liability. Following is an attempt to
discuss important techniques and methods of tax planning and some of these will have
special reference to the prevailing conditions in Bangladesh. For easy understanding, the
techniques will be pointed out under two heads, viz., for an individual and for business
house. It should be noted that there are some techniques which both an individual or a
business house can adopt and some are specific to each category.

TAX PLANNING TECHNIQUES MAY BE USED BY COMPANY

a) Forms of business: there are different types of business, of which, three are main: sole
tradership, partnership and company. Sole-tradership in the context of income tax is pass
through entity as it is not taxed separately rather income goes to owners and he pays tax
on it by aggregating income from different other sources. Partnership and company falls
in the category of Non-pass through as these are taxed as a separate entity from owners.
Partnership firm pays tax and share of income is added with partners’ income. However,

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 he gets rebate on partnership income. Similarly company also pay tax as a separate entity
and shareholders also pay tax on dividend. In such a context an evaluation based on
quantum of investible fund, tax rates applicable, benefit or disadvantages of double tax
especially in case of company should be made as to which type will provide tax
advantage. In fact it is very complex and complicated decision. But the effect of types of
business cannot be ignored.
b) Payments of fringe benefit to the maximum: a business should enjoy maximum tax
deduction facilities through proper planning. Here attention need to be given to fringe
benefits payable to employees. There is, however, maximum limit that can be allowed.
Taking it into consideration, business houses can provide maximum possible benefits so
that employee morale in one hand increase and tax liability on the other hand decreases.
Here maximum house allowance benefit, conveyance facilities, food and tiffin subsidy at
work place, contribution to employees’ welfare fund, running school or hospitals for
employees’ children can be cited as avenues in this regard.
c) Setting up recognized provident fund: provident fund for recognition by income tax
authority need to fulfill certain conditions. Business should try for such recognition, as
contribution of employer to recognized provident fund is an allowable expenses.
Moreover, this type of provident fund is advantages to employees too. Similarly, workers
welfare fund, benevolent fund and like others need to be established in a business house
both for tax advantages and help to employees.
d) Deferring income and expenditure: tax advantages may be availed by deferring income
and payment. The situation of current income level, tax rate, future expected income
flow, quantum of present deductions relevant to quantum income etc. need to be
evaluated. Income and expenditure, receipt and payment may be adjusted for time. For
example, to defer income flow statement sales program can be introduced which will
contribute towards deferred revenue earning. Payment for certain items may be delayed
by 2/3 months etc. say payment of electric bill of December may be delayed to January
and this can make a significant difference in a tax liability. Repairs can be deferred,
premium payment can be deferred or these can be paid early too. Which one is
advantageous need to be examined and decisions to be taken thereof.

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e) Maximize capital gain: capital gains are taxed at lower rate than ordinary and regular
profit in the context of mid and high bracket tax payer. So this can be emphasized
through selection of transactions, sale of fixed assets after some year at a comfortable
margin. This requires proper maintenance of assets, foresight and adjustability with
changing situation. Investment in real estate, blue chip securities can be examples along
with modern machineries etc., in this regard.

f) Availing tax favored program:

1) Accelerated depreciation allowance: accelerated depreciation is an alternative to
tax-holiday. Here within two years one can write off value of assets with two
advantages. First, big depreciation expenses may lead to huge total allowable
deductions leading to loss which can be carried forward for next some years. Thus tax
need not be paid for some years. On the other hand life of machineries will extend
much more beyond its depreciated value time period which will contribute towards
income without relevant depreciation cost. This is also beneficial.
2) Investment in industries having tax-holiday or reduced tax facilities: tax holiday
for certain industries now called reduced tax facilities are given to accelerate
industrial development. Tax need not be paid for certain period, or paid at low rate for
some years, which period vary for different regions depending on development status.
One can evaluate such facility and enjoy it to avoid payment of tax for certain period.
Here, benefits from accelerated depreciation and tax holiday can be evaluated and
compared; so also cost benefit of different tax holiday period in different areas also
need evaluation in terms of cost and tax benefits.
g) Financial leverage: loan interest is deductible. So in capital structure planning one
should evaluate debt-equity ratio to take maximum advantages. However, if there is set
norm as to debt-equity it is to be taken into consideration along with excessive debt
taking risk.
h) Investment of available funds to tax favored avenues: a business may have some
excess fund, reserved for short or medium term. A wise decision is warrant for best use
specially taking tax factor into consideration. Such as, investment in tax free securities,
concession on interest bearing securities etc.

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i) Available maximum deductions allowed and putting emphasis on the expenditure
for research and development: expenditures allowable as deductions for tax, including
full use of depreciation allowance, naturally deserve consideration. But some expenses
like research, market survey, foreign tour to explore new business areas etc. can be taken
into consideration. In Bangladesh, research is neglected. Expenses for research is
allowable in taxing law. On the other hand expenses on research and development can
lead to better product, design, innovation and other advantageous facilities. Businessmen
are expected to consider this in tax planning and future development of business.
j) Miscellaneous matters: besides the above, there are many other avenues which can be
considered for tax planning. Such as, investment in export activities which will provide
tax rebate on earning, performing social responsibilities which will provide tax
concessions and enhance prestige of business, choosing method of accounting keeping
the existing compliance provision into consideration, adopting tax favored transactions
and activities, etc.

In the context of tax planning both as an individual and business the underlying importance
may go to three main factors:

i) Take action early thinking thoroughly and not giving only importance to tax
deduction facilities rather to other tax favored activities.
ii) Take economic state into consideration. Excessive attention to present savings may
not be worthwhile without consideration of long term saving and solvency.
iii) Disciplined action is warranted. Planning need to be used on sound footing
considering benefits of alternatives and that once decision is taken, strict discipline
and stick to decision may be rewarding.

In fact tax planning is complex but rewarding. Proper evaluation, knowledge of tax
environment and socio-political and economic environment is necessary for success in the
program.

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 CHAPTER-9: DOUBLE TAXATION RELIEF INCLUDING TAX
TREATIES AND TRANSFER PRICING

SECTION OVERVIEW
 For the avoidance of double taxation Bangladesh enters into agreement with many countries.
 Double taxation agreement also prevents the fiscal evasion with respect to income taxes.
 Under double taxation relief system, the payable tax will be the sum equal to the tax calculated on
such doubly taxed income at the average rate of tax of Bangladesh or the average rate of tax of the
agreed country, whichever is the lower.
WHAT IS DOUBLE TAXATION?
Double taxation means taxing the same income twice, once in the home country and again in the
host country. For example, a Bangladeshi citizen may have income arose in India which is once
taxed in India and again in Bangladesh.
HOW DOES DOUBLE TAXATION ARISE?
Double taxation may arise in the following two ways:
(i) The jurisdictional connections used by different countries may overlap with each other. For
example, Mr. Rolex, a resident under the Bangladesh Income Tax Ordinance 1984 has to pay tax
on his total world income in USA also as citizen of USA (Residential jurisdiction).
(ii) The taxpayer or his income may have connections with more than one country. For example,
Mr. Rahamat, a Bangladeshi citizen, has income from Romania on investments and dividend
income from France in addition to income from Bangladesh. He has to pay tax on his total world
income in Bangladesh and also on income earned in Romania and France (Source jurisdiction).
WHAT ARE THE BROAD OBJECTIVES OF BANGLADESH DTA?
The major objectives of Bangladesh DTA are as follows:

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 (1) To obtain a more effective relief from double taxation compared to relief allowed under
unilateral measures.
(2) To create a favorable climate for the inflow of FDI in Bangladesh.
(3) To make special tax incentives provided by Bangladesh fully effective for the taxpayers
of the capital exporting countries.
(4) To prevent evasion and avoidance of tax.
(5) To foster long term, mutually beneficial economic relationship with others specially the
developed countries.

WHAT IMPACT DOUBLE TAXATION IN GENERAL, WOULD HAVE ON GLOBAL

ECONOMIC ACTIVITIES?
(1) It hampers free flow of capital and technology across borders and
(2) It becomes a prohibitive burden on concerned taxpayers leading to decline in foreign
investments.
WHAT ARE THE EFFECTS OF DOUBLE TAX AVOIDANCE AGREEMENTS (DTAA)
IN BANGLADESH?
The effects of an agreement entered into by virtue of section 144 of Income Tax ordinance 1984
would be:
(I) if no tax liability is imposed under the Ordinance, the question of resorting to DTAA
would not arise. No provision of DTAA can possibly fasten a tax liability which is
not imposed by the Ordinance. The treaties with all intent and purpose, can lessen the
vigor of double taxation cannot however, enhance it.
(II) In case of a difference in the provisions of the Ordinance and those of the DTAA, to
the extent they are more beneficial to the provisions of the Ordinance, will override
the ordinance which is the fundamental concept in treaty override.

AGREEMENT TO AVOID DOUBLE TAXATION: SEC 144

This section confers the right to GOB to enter into an agreement with the government of any
other country for the avoidance of double taxation and the prevention of fiscal evasion with
respect to income tax and may, by Gazette Notification, make such provisions as may be
necessary to implement the agreement.

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Income tax policy section of NBR is entrusted to negotiating the Double Taxation Agreement
(DTA) with foreign countries to promote foreign direct investment in Bangladesh. DTA is an
agreement between two countries seeking to avoid double taxation by defining the taxing rights
of each country with regard to cross border flows of income, providing for tax credits or
exemptions to eliminate double taxation.
At present, Government of Bangladesh has entered into Double Taxation Avoidance Agreement
(DTAA) with 32 countries as stated below:

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RELIEF IN RESPECT OF INCOME ARISING OUTSIDE BANGLADESH: SEC 145
This section empowers DCT to allow relief to an assessee in respect of any income accrued or
arisen in any other country with which Bangladesh does not have DTA. The assessee must prove
that he has suffered tax on that income by way of deduction or otherwise, then the DCT may
deduct from the tax payable by the assessee a sum equal to tax calculated on such doubly taxed
income at the average rate of tax of Bangladesh or the average rate of tax at the said country,
whichever is lower. Average rate of tax means the rate arrived at by dividing the amount of tax
calculated on the total income by such income.
METHODS OF AVOIDING DOUBLE TAXATION?

There are four methods of avoiding double taxation. They are -

(a) Unilateral relief
(b) Bilateral relief

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 (c) Multilateral relief
(d) Non-tax treaties
(a) Unilateral relief
Under this system whether the income is subject to tax abroad or not is immaterial, relief is given
by way of tax credit for the tax paid abroad. Under Section 145 of the Income Tax Ordinance
1984, tax credit method is followed. A resident in Bangladesh who has paid income tax in any
country with which Bangladesh does not have a treaty for the relief or avoidance of double
taxation is allowed credit against his Bangladesh income tax for an amount equal to Bangladesh
coverage rate i.e. average rate or the foreign rate whichever is lower, applied to the doubly taxed
income. This is done as follows:
(a) Where the foreign tax is equal to Bangladesh tax, full amount of foreign tax will be given
credit.
(b) Where the foreign tax exceeds the Bangladesh tax, the liability to Bangladesh tax is nil.
However, no refund in respect of the excess amount is allowed.
(c) Where foreign tax is less than Bangladesh tax, the difference would be payable by the
taxpayer.
The basic principle to remember is that credit/relief will never exceed the Bangladesh income tax
on the concerned income calculated at average rate.
(b) Bilateral relief
It may take one of the following two forms:
Firstly, the treaty may apply exempting method, the country in question refraining from
exercising jurisdiction to tax a particular income. For instance, the country of source where PE is
located is assigned an exclusive jurisdiction to tax the profits of the establishment. In turn it may
agree to refrain from exercising its jurisdiction to tax the owner of these profits.
Alternatively, the treaty may provide relief from double taxation by redacting the tax ordinarily
due in one or both of the contracting states on that income which is subject to double taxation.
For instance, the country, which is the source of a dividend, often agrees to reduce the
withholding rate normally applicable to dividends paid to non-resident and the country of
residence agrees to give tax credit or similar relief for the tax paid in the source country. In such
a case, both the countries exercise the rights to jurisdiction, while mutually agreeing for
adjustments, many DTAAs combine both the methods of relief.

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(c) Multilateral treaties
These are similar to bilateral treaties achieved through agreement between many countries i.e.
EEC.
(d) Non-tax treaties
These are not direct treaties of tax but are of friendship, co-operation cultural exchange, political
and diplomatic relations, but which consequently may reflect upon tax matters.
TRANSFER PRICING

Transfer price is the price charged by one segment of an enterprise for a product; partly or fully
finished or services which is supplied to another segment of the same organization. In case of
inter country manufacturing viz, MNC, product or services of one country when transferred to
another branch of another country, this system of charging transfer price also applied.

OBJECTIVES OF TRANSFER PRICING

The objectives of transfer pricing are: (i) measuring divisional performance (ii) controlling rate
of return & (iii) minimizing taxes.

PROVISION IN INCOME TAX ACT

There are scope for manipulation in transfer pricing especially when internationally such price is
charged between two branches of same organization working in two countries through MNC or
TNC. In this cases mainly product costs are shown high to reduce tax amount by minimizing
profit. As such income tax of various countries incorporate provision in tax act to minimize such
unholy act. In Bangladesh a separate chapter viz., Chapter XIA has been incorporated in 2012.

IMPORTANT CONCEPTS RELEVANT TO TRASNFER PRICING

I) Arm’s length price: it means the price in transaction, the condition (e.g. price or
profit split) which do not differ from the conditions that would have prevailed in
comparable uncontrolled conditions/transactions between independent entities carried
out in uncontrollable circumstances (free market price).
II) Independent enterprises: enterprises not an associated enterprise.

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 III) Associated enterprises: enterprises, which in income year, is related with another in
the form of : management, control, capital, at least 25% voting power, borrowing,
guarantee in favor of another, more than 50% of directors are engaged in both the
enterprises or two enterprises are bound by agreement for mutual interest.
IV) International transaction: means transactions between associated enterprises, either
or both of whom are non-resident; in the nature of purchase, sale, lease of assets,
provision of service, lending and transaction which have bearing on profit, income or
loss.

DETERMINATION OF INCOME FROM INTERNATIONAL TRANSACTIONS

Under section 107B of income tax ordinance 1984, the amount of any income or expenditure,
arising from international transactions, shall be determined taking arm’s length price into
consideration.

Computation of Arm’s Length Price:

Arm length price means- a price in transaction regarding international trade; where in the
condition as to price, margin (profit) split do not differ from the condition that would have
prevailed in a uncontrolled transaction situation. In fact there are different methods used in
pricing international transactions, such as:

(a) Comparable uncontrolled pricing method

(b) Cost plus method
(c) Resale price method
(d) Profit split method
(e) Transactional net margin method and
(f) Any other suitable practical method.

It is required to appraise the methods and that selection will be based on nature of transaction
and availability of formation. A look into the methods is given below:

(a) Comparable uncontrolled pricing method: under this method price of product/services
is identified viz-a-viz comparable product/service price. If difference is observed, the
differential is adjusted to arrive at arm’s length price.

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(b) Cost plus method: under this method direct and indirect cost along with profit markup is
determined. Then appropriate adjustment is made to comparable profit mark up of
international transaction. The adjustment with cost plus method as to markup is made
thereof.
(c) Resale price method: under this method price at which the transferred product/service
can be resold independently is identified and difference between transacted price &
resalable price is adjusted.
(d) Profit split method: under this method the combined profit arising from international
transactions are identified and then divided among associated enterprises based on
objective circumstances.
(e) Transactional net margin method: under this method the net margin of associated
enterprises in international transactions is determined. Then net profit earned by
independent enterprise having regard to same base and material differences is considered
& adjusted objectively.

The tax authority will evaluate the system and select appropriate one based on acceptability,
reliability, realistic etc. with reference to nature of transaction, information & functionality.

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 TAXATION CHALLENGES FOR BANGLADESH

Being a developing country Bangladesh tax administration faces formidable challenges in

mobilizing internal resources in terms of tax revenue. Mahmood (2019) states, ‘The mobilization
of domestic resources still remains a key challenge for Bangladesh to achieve its economic and
social objectives.’ The challenges and problems of mobilizing internal resources are multiple.
The revenue collection is still dominated by indirect taxes while direct tax plays the vital role in
developed countries. Be that as it may, the current revenue challenges for Bangladesh are briefly
discussed below:

1. Narrow Tax Base: It is observed earlier that tax to GDP ratio in developing countries is much
lower than in developed countries. The Ramphal Institute notes, ‘In many developing nations,
both within and outside the Commonwealth, a small and under-developed tax base represents a
major obstacle to the progression of both access to and quality of services for citizens. The
wealthiest members of national populations, who make up a small proportion of the total
population, often avoid paying what can be seen as their fair share of tax, denying governments
much needed revenue. Conversely a much larger proportion of the population work in the

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informal economy, outside the remit of regulatory structures, they receive no formal protection
and are not taxed for their work.’ Bangladesh has a very narrow tax base. The tax to GDP ratio
was 11.17 per cent in 2016-17 and that remains one of the lowest in the world. The tax
administration in Bangladesh is characterised by the dominance of large informal sector that
contributes to the poor tax base of the country.The rate of informal economy in Bangladesh stood
at 27.60% in 2015 (Medina and Schneider, 2018). Agriculture sector virtually remains outside
the tax net. Tackling informal economy is very difficult on the part of the tax administrations of
developing countries. Very often tax administrations of developing countries are considered poor
and inefficient for numerous reasons. Alm et al (1991) state, ‘It is widely believed that the tax
base in most developing countries has been severely eroded by legal tax avoidance and illegal
tax evasion, brought about largely by poor tax administration.’ Although the tax administrations
of the developing countries are branded as inefficient, of late Bangladesh tax administration has
made remarkable progress in terms of collecting the revenue against the revenue collection target
as set by the government. Reform programs are ongoing with a number of projects on direct and
indirect taxes. It is expected that Bangladesh tax administration can build up its capacity to deal,
inter alia, with the challenge of informal economy by enlarging the tax base. It is suggested that
it is possible to expand the tax base by encouraging the formal sector.Auriol and Warlters (2004)
suggest, ‘[B]y creating a special status for small entrepreneurs (e.g., without limited liability)
associated with discounted entry fees and some benefits (for example, easier access to
microcredit or to electricity connection) governments of poor countries may increase their
taxation bases.’ Bangladesh can think of such measures that would help expanding the tax base.

2. Taxing Digital Economy The world economy is experiencing fast track digitalization.
Developing countries like Bangladesh is not an exception. Like many other developing countries
Bangladesh is putting emphasis on the digital economy. Gradually Bangladesh is becoming a
global market for digital outsourcing (Zaman, 2019). According to OECD (2015), ‘The digital
economy if the result of a transformative process brought by information and communication
technology (ICT), which has made technology cheaper, more powerful and widely standardised,
improving business processes and bolstering innovation across all sectors of the economy. ‘The
digital economy poses a broader challenge for the policy makers in that it relates to nexus, data
and characterisation for direct tax purposes. It poses another major challenge of implementing
Value Added Tax (VAT) covering the transactions where goods, services and intangibles are

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acquired by private consumers from offshore suppliers (OECD, 2015).According to BEPS action
1 the digital economy involves the issue of unparalleled reliance on intangibles, the massive use
of data, the use of multi-sided business models acquiring values from externalities created by
free products and difficulty to identify jurisdictions where the income is sourced. These issues
poses a formidable challenge for the tax administrations of Bangladesh. It is to be mentioned
here that recently Bangladesh enacted legal provisions to tax digital economy. For example Ride-
sharing services such as Uber, Pathao, Sohoz are operating in the major cities of Bangladesh,
particularly Dhaka and Chittagong. The US-based Uber Technologies Inc. launched their ride
sharing service in Dhaka in 2016. Number of users of Uber increased to 200,000 in Dhaka in
November 2017, within one year of its launch (Dhaka Tribune, June 7, 2018). Like other
countries, the tax authority of Bangladesh also has started to consider the tax potential of the
online sectors. In June 2018, the National Board of Revenue (NBR) has introduced a 5 percent
value added tax (VAT) on ride-sharing service providers. Finance Act 2018 introduced the
provision for tax to be deducted at source under Section 52AA of the Income Tax Ordinance,
1984, on apps-based ride sharing services at the rate of 3%-4% based on the base amount, by the
ride sharing service provider. Although Bangladesh is making gradual progress in terms of its
capacity building, but to tackle the serious issue like taxation of digital economy will take time.
It is expected that with international cooperation Bangladesh will be able to build requisite
capacity to tackle the problems arising from digital economy taxation.

3. MNCs Tax Avoidance and International Tax Rules Another big challenge for Bangladesh
tax administration is to combat the problem of tax avoidance and evasion by the Multinational
Corporations (MNCs) operating in Bangladesh. The problem of tax avoidance by MNCs is a
problem sans frontier. The MNCs exploit the loopholes of the international taxation rules and
avoid huge amount of tax revenue to the detriment of the capacity of the states to provide for
public goods. For example, in 2009-2013, Amazon, Google and Starbucks paid a combined total
of only £57.7 million despite revenues of nearly £32 billion over the same period. Only 0.18% of
revenues were paid in corporation tax (Connell, 2014). It is estimated that global revenue losses
due to tax avoidance by corporations could be up to $600 billion each year with approximately
$400 billion in developed countries (Sikka, 2018). One of the means of tax avoidance by the
MNCs is the transfer pricing. Transfer pricing refers to non-arm’s length international
transactions between associated enterprises. This has the effect of negatively impacting the

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revenue base. This affects much the developing countries. For example, approximately $100
billion of tax revenue lost by developing countries annually because of transfer pricing activities
from 2002 to 2006(Hollingshead, 2010). Report on transfer pricing by the MNCs reveal that
during 2008 to 2012 income tax year the Indian income tax authority made transfer pricing
adjustment to the tune of $15.42bn. Glaxo Smyth Kline paid $3.4 billion to the IRS due to
transfer pricing adjustment since 1989 (Hilzenrath, 2006). In 2012 the Hungarian tax department
unearthed 160 million Euros from transfer pricing adjustments. In2013Vietnamese tax
administration made a transfer pricing adjustment at an amount of $110m. In 2011-2012 the
Colombian tax administration collected 9.13 million US dollar as a result of transfer pricing
adjustment (Loeprick, 2015). So it is quite understandable to what extent revenue is avoided by
the MNCs due to transfer pricing activities. Though no data is available, it can be anticipated that
Bangladesh is also losing huge amount of revenue due to transfer pricing by the two hindered
MNCs operating in Bangladesh. Keeping in mind the gravity of the problem, Bangladesh
enacted transfer pricing law in 2012 with effect from tax year 2014. The TP rules in Bangladesh
have been framed like the OECD and the UN TP guidelines. The transfer pricing law in
Bangladesh, inter alia, made rules to conduct transfer pricing audit after the MNCs submit
statement if international transactions. But the fact remains that Bangladesh has not yet been able
to go for audit due to lack of capacity and logistics. In the meantime the OECD is imparting
training to the officers of the tax department to build the capacity. The National Board of
Revenue (NBR) set up a separate transfer pricing cell to deal with the transfer pricing cases. The
Finance ACT 2019 made the provision of a new return for the companies that contains separate
column requiring to furnish statement of international transactions along with the return. It is
hope d that the new provision will help auditing the transfer pricing cases in a more effective
way.

4. Poor Third Party Tax Information Reporting System Third party information reporting
(TPIR) is a tax enforcement tool that is widely used by the tax administrations around the world.
OECD (2009) states, ‘Information reporting obligations ‘refer to a legislated requirement on the
payers of income to report periodically to the revenue body relevant information (e.g. name and
identification number of payee and amount and date of payment), either as an integral
component of a withholding regime or as a separate standalone requirement in relation to a
prescribed category of payments. Such reports, where they are systematically matched with tax

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records, enable the revenue body to verify the amount of income reported by taxpayers in their
returns, to identify potential discrepancies, and to identify non-filers.’ According to Brooks
(2001) TPIR is the most effective way to ensure tax compliance. Under this system third party
payers are required to send the information of the payments to the tax authority. The tax
authority then matches the data with that of submitted by the taxpayers. This system makes the
income visible and discourages non-compliance. Alm et al (2004) finds that taxpayers who earn
relatively more nonmatched income are less compliant compared to individuals who earn
relatively less non-matched income. Tax information reporting provides valuable information
about the taxpayers’ income that is being used by the tax authorities to ensure voluntary
compliance. It is observed that in the IRS taxpayers with income subject to information reporting
are more compliant than the income not subject to reporting system. For example income subject
to 100 % reporting system shows 99% compliance rate while income that is not subject to
reporting system shows 37% compliance rate (Lederman and Dugan, 2019). Currently
Bangladesh income tax law contains legal provision regarding information reporting. Section
75B of the Income Tax Ordinance 1984 states, ‘Government may, by notification in the official
gazette, require any person or group of persons responsible for registering or maintaining books
of account or other documents containing a record of any specified financial transaction, under
any law for the time being in force, to furnish an Annual Information Return, in respect of such
specified financial transaction. The Annual Information Return referred to in sub-section (1)
shall be furnished to the Board or any other income tax authority or agency, in such form,
manner and within such time as may be prescribed.’ The present information regime is narrow in
scope and the NBR retains the discretion to decide whether return should be sent to it or not. The
tax administration should craft a comprehensive tax information regime so that voluntary
compliance can be ensured by encouraging formal economy in the country. This remains a
challenge for Bangladesh.

5. Poor Tax Culture To ensure sustainable development of a country tax culture is vital (UNDP,
2008). Tax culture reflects the taxpaying mentality or compliance mentality of taxpayers of a
country. Tax culture is country specific and it is developed over the years in a gives society and
becomes blended with the customs and habits of the people of the society. It is a phenomena.
Nerre (2001) defines tax culture as follows: A country-specific tax culture is the entirety of all
relevant formal and informal institutions connected with the national tax system and its practical

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execution, which are historically embedded within the country’s culture, including the
dependencies and ties caused by their ongoing interaction. Poor tax compliance reflects a poor
tax culture. It is observed that developing countries like Bangladesh face a formidable challenge
to improve revenue collection in an efficient, fair and consensual way. One of the factors of such
challenge is poor tax culture (IMF et al 2011). Poor tax compliance indicates poor tax culture. In
Bangladesh tax culture is considered as the regular payment of tax. This becomes evident when
the Prime Minister of Bangladesh Sheikh Hasina, on the eve of the national tax day in 2010,
called the people of Bangladesh to develop a tax culture by paying taxes regularly, which is a
precondition for economic and social development (The Daily Star, 2010).Bangladesh’s poor
income tax compliance indicates the country’s insufficient tax culture. The picture becomes clear
when one looks into the statistics of return and tax payments. At present, 3.1 million people hold
Taxpayer’s Identification Numbers (TIN) and of them, 1.61.7 million submit tax returns. It is
estimated that there are at least, eight million taxable people in the country (Dhaka Tribune
2017). Neighboring country India has 95 million taxpayers (Mishra & Prasad 2018). Tax ratio to
Gross Domestic Product (GDP) in Bangladesh is 11.17% which is one of the lowest in the
region. So lack of tax culture poses a formidable challenge for the tax administration of
Bangladesh. Under the circumstances it is imperative that Bangladesh takes initiative to improve
tax culture by inciting patriotism among the citizens, by removing knowledge gap, removing tax
law complexities, removing corruption, encouraging formal economy and by strengthening the
enforcement measures of the tax laws.

Part-IV: Recent Initiatives of Bangladesh Tax Administration Recently Bangladesh has

graduated to the rank of middle income earner country club. Under the circumstances foreign
aids are no more available for Bangladesh. Bangladesh is now on its own. There is no other
alternative for Bangladesh than to strengthen the process of mobilizing internal resources.
Bangladesh has to go a long way in terms of revenue collection to achieve the sustainable
development goals (SDGs). Though tax administration in Bangladesh has not been able to
expand the tax base to a remarkable extent, it has not stopped in its endeavour. Bangladesh took
some important initiatives to augment the revenue collection and increase the tax to GDP ratio to
the expected level.

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Following is a brief account of some of the initiatives taken by the NBR to reform the taxation
system:

1. Introduction of New VAT Law Introduced in France for the first time, Value Added Tax
(VAT) was introduced in Bangladesh in place of Sales Tax in 1991. The purposes of the
introduction of the new VAT were to replace the old age sales tax, mobilize more internal
revenue, to introduce a single flat rate covering a wide range of goods and services production,
and ensure equity by bringing transparency and accountability in the taxation system of
Bangladesh (Lalarukh and Chowdhury, 2013). However, because of some inherent defects it its
application, the old VAT Act has been replaced by the VAT Act of 2012 which came into effect
from 1 July 2019. It is expected that the new VAT Act would be able to collect more VAT than
its predecessor did.

2. The New Direct Code The NBR has taken an initiative to modernize the direct tax laws by
adopting the new direct tax code. Income tax was imposed under the Income Tax Act 1922 and
the Act continued up to 1984. The 1922 Act was very complicated. So to simplify the income tax
law Government of Bangladesh set up a commission to prepare a report on income tax law. At
the suggestions of the inquiry commission the Income Tax Ordinance 1984 was enacted. The
Act is still in operation. On the other hand Gift Tax Act 1990 is in operation to impose gift tax on
the property gifted. Travel tax is also collected from the passengers who travel abroad. The
Income Tax Ordinance 1984 is also considered complicated. So to remove the complicacies and
make the income tax law at per with the international best practice, the NBR is currently working
on the introduction of a new income tax law. At the same time to make user friendly the gift tax
act and the travel tax act all will be included within the new income tax law known as the Direct
Tax Code. It is expected that the new Code will be implemented soon.

3. Expansion of Income Tax Department In 1992 the income tax department saw the first
expansion. Some new taxes zones were created and post of the required officers and human
resources were created. The first ever expansion of the income tax department was a success in
terms of mobilizing direct taxes in the country. After that in 2003 Large Taxpayers Unit (LTU)
was set up to provide services to the large taxpayers who pay most of the income tax in a year.
The government has designated the Large Taxpayers Unit as the pilot zone for the
implementation of the reform in direct tax. The establishment of the LTU is considered as a

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success in ensuring taxpayer friendly environment, facilitate smooth one stop taxpayer service,
reducing compliance cost and building a relationship of trust and confidence between the
taxpayer and the department among others. Besides the LTU Income Tax, VAT LTU has been
in operation in Bangladesh that collects VAT from big 170 business organizations. However, in
2012 there was an expansion programme of the income tax department in which some new taxes
zones were created, new posts of officers and other human resources were created. The
expansion has been a success. The purpose of the expansion was achieved evidenced by the
contribution of the income tax to the exchequer. A new expansion programmes is underway. To
keep pace with the growing economy and to expand the tax base at the base level of the
geographical locations of Bangladesh the government of Bangladesh has decided to go for
another expansion of the income tax department. At the same time the same expansion
programme is underway in the indirect tax administrations of the NBR.

4. Alternative Dispute Resolution System The Finance Act, 2011 has incorporated ADR
provisions for dispute resolution in income tax, VAT and customs. By ADR mechanism, the
NBR and taxpayers can settle their differences with the help and guidance of an umpire called
facilitator. In the field of income tax the Finance Act 2011 inserted a new chapter XVIIIB
alternative dispute resolution. Section 152A to 152S deal with the detailed provisions of
alternative dispute resolution between the taxpayer and the department. The ADR system is
successfully running in the direct tax administrations.

5. BITAX Project The BITEX project is an ongoing project in the field of direct taxes set up to
facilitate on line return submission by the taxpayers. Provision is also there to make offline
entries of the returns submitted manually.

6. Reforms in the Customs Administration To collect customs duty, the Customs Act 1969 is
now in operation in Bangladesh. In order to accommodate the trade facilitation provisions of the
WCO Revised KYOTO Convention and the WTO Trade Facilitation Agreement, the NBR has
undertaken a task to amend its existing Customs Act. Accordingly, a new Customs Act in
Bangladesh will be enacted soon. The new Customs Act will be a major reform in the field of
customs administration. The new act will improve the customs regime through automation. The
new law would facilitate the traders for submission of electronic declarations for exports and
imports, electronic submission of advance cargo declarations for imports and introduce green

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channel for honest traders. Besides currently customs departments are running some customs
modernization projects with the help of the World Bank group.

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