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Income Taxation

in Bangladesh

Income Tax is the tax collected on various types of income under the provisions of the Income Tax Ordinance 1984.

Basic Principles of Charging/Imposing Income Tax: Sec. 16

General Principles u/s 16(1):

Income taxpayer:

Income tax is payable by ‘every person’ [section 16(1)].2.

Income tax rate:

Income tax rate is provided by an ‘Act of Parliament’, which is called theFinance Act [section 16(1)].3.

Income tax base:

Income tax base is the “total income” of the taxpayer during the incomeyear [section 16(1)].4.

Timing of income tax base:

Income tax base, i.e., total income is to be computed for the“income year” [section 16(1)].5.

Timing of income tax payment:

Income tax is to be paid in the “assessment year” [section16(1)].

Exceptions to General Principles:

Income tax payment otherwise:

Tax deducted at sources or advanced payment of incometax where applicable [section 16(2)].2.

Special income tax rate:

For “capital gain”, “accidental income” or “non-corporate non-resident’s income” tax rates are special and given in the Second Schedule [section 16(3)].3.

Imposition of surcharge:

There may be surcharge to be imposed as a percentage of normalincome tax (section 16A).4.

Imposition of additional tax:

By inserting section 16B by the FA 2002, a provision has been made to impose additional tax on undistributed profit @ 5% (in addition to normaltax) if a listed public limited company (not being a banking or insurance company) has notissued, declared or distributed dividend or bonus share equivalent to at least 15% of paidup capital within 6 months after the end of the income year. For AYs 2002-03 and 2003-04, “undistributed profit” means total income with accumulated profit including freereserve as reduced by the aggregate of dividend or bonus share issued, declared or distributed for that year, the tax which is payable under section 74 and the paid-up capital.From AY 2004-05, “undistributed profit” means accumulated profit including free reserve(changed by FA 2004).5.

Imposition of excess profit tax:

Under section 16C (inserted by the FA 2002), a bank company operating under the Bank Companies Act 1991, if shows, in the return, profitexceeding 50% of the aggregate sum of capital and reserve, shall pay tax @ 15% of suchexcess profit as excess profit tax in addition to normal tax.6.

Imposition of minimum tax:

Under section 16CC (inserted by the FA 2006), a companyshall pay a

minimum income tax of Tk. 5,000 or 0.50% of turnover whichever is higher,irrespective of profit or loss.

General Principles: Sec. 16(1)

Income tax shall be imposed ontotal incomeof theincome year of every personand payable in theassessment year at thetax ratedetermined by the Finance Act.Taxpayer: Assessee – every personTax-base: Total incomeTax Period: Period for tax-base – income year Period for tax-rate and tax-payment – assessment year Tax rate:Prescribed by an Act of the Parliament (the Finance Act)

Exceptions to Basic Principles:

1.TDS (tax deducted at source)/AIT (advance income tax)2.Special tax rates for selective income in Second Schedule

Provision of surcharge and special taxes

Scope of Income Tax Laws in Bangladesh:

1.Income Tax Manual, Part I: Income Tax Ordinance 19842.Income Tax Manual, Part II: Income Tax Rules 19843.Annual Finance Act to amend the Income Tax Ordinance 19844.Statutory Rule and Order (S.R.O.) to make amendments to IncomeTax Rules 1984 and to issue various statutory general or special ordersmade by the Direct Tax Wing of the NBR (National Board of Revenue), the apex tax authority5.Other general or special orders and circulars made or explanationsgiven by the Direct Tax Wing of the NBR 6.Verdicts of court cases on income tax issues.

Formula to Calculate Income Tax Liability:

Aggregate Income –Exclusions=Gross Income –Allowable Deductions=Taxable Income

[Total Income

as defined under ITO

]

×Tax Rate=Gross Tax

–Tax Credit on investment allowance=Net Tax –Tax Rebate & Tax Relief =Tax Payable –

Tax deducted at sources (TDS) & Advance income tax (AIT)

=Tax Payable at the time of submitting returnTaxpayers/Assessee [section 2(7)]

Taxpayers under the Income Tax Ordinance is referred to as “assessee”which is defined u/s 2(7) as follows:“Assessee

”

means a

person

by whom tax or any sum is payable under the Income Tax Ordinance 1984 and includes:(a)every person in respect of whom any proceedings has been takenfor (i) assessment of his income, or (ii) for assessment of other person’s income for which he is assessable, or (iii) refund due tohim or such other person;(b)every person who is required to file a return

•

u/s 75 (regular return),

•

u/s 89 (return to be submitted for a discontinued business alongwith a notice of discontinuance within 15 days thereof), or

•

u/s 91 (return to be submitted by a person leaving Bangladeshwith no intention of returning)(c)every person desiring to be assessed and submits his return; and(d)every person deemed to be an assessee, or an assessee in default.