What is Tax?

Basically tax is imposing a financial charge on an individual or legal entity by the government.
Income tax is a major source of income by which the Government runs development works of
the country. Tax collection is performed by a government agency, for Bangladesh it is collected
by the National Board of Revenue (NBR). Two types of tax is available in terms of entity, these
are individual tax and corporate tax.

Corporate tax:
Corporate tax is for the companies. Basically corporate tax is implemented on the company’s
profit. . The more a legal company earns the more it have to pay- this is the basic principle of
charging income tax. The corporate tax rate varies country to country.

Corporate tax code in Bangladesh:

Mobile Phone Operator Company 45%

Bank, Insurance and Financial Company 42.5%

Non Publicly Traded Company 37.5%

Publicly Traded Mobile Phone Operator Company 35%

Publicly Traded Company 27.5%

Textile Industries 15%

Jute Industries 15%

It is compulsory for the companies to collect a TIN and register with the VAT authorities to
receive distinctive numbers. Companies have to file their returns within six months from the
end of the accounting period / year or following July 15, whichever is later.
Analysis:
Private mobile phone operators are charged with the highest tax rate of 45% in Bangladesh. If a
mobile phone operator company offers minimum 10% of its ownership into the share market
for the general people, the company will be counted as a Publicly Traded Mobile Phone
Operator. On the similar page a Publicly Traded Mobile Phone Operator Company has to give
tax at the rate of 35%. This high variation of rates between public and privately traded mobile
operators surely encourages private mobile operators to go for public. Recently Grameen
Phone offers 10% of their shares to the general retail and institutional investors. So now GP
gives 35% income tax where other mobile operators give at 45%.

The tax rate for the Bank, Insurance and Financial Institutions was 45% in the years 2007-2008.
Now it has been reduced by 2.5%. Expertise like former Bangladesh Bank deputy governor
“Khondkar Ibrahim Khaled” think cut in corporate tax on financial institutions was not a crying
need for banks. Half-yearly data available from the banking sector suggested that out of 29
local private commercial banks, at least 15 including Islami, Jamuna, AB, Dhaka, Mutual Trust
and Brac banks posted higher operating profit compared with their year-ago figures.  So this
2.5% tax cut would be an added advantage for commercial banks and institutions because now
they can have increased net profit at the end of the year. So it is clear that this reduced tax rate
for the financial institutions is an encouragement to invest more and it’s helpful for the growth
of the corporations.

The rate for the Non Publicly Traded Companies in Bangladesh is 37.5%. Previously the rate was
40%. The reduced income tax rate is an advantage for this sector. It is clear that government
wants Publicly Traded Companies to grow but comparing to other countries the rate is still too
high.

In Bangladesh, for all the Publicly Traded Companies (except Bank, insurance and financial
Company) the tax rate is 27.5%. The rate was 30% previously during 2007-2008 fiscal years. The
rate has decrease by 2.5 % which is helpful for the companies. This new rate will encourage the
corporations to grow and expand their businesses. No tax is imposed on the interest expense in
Bangladesh for any companies. This helps the companies to borrow more and expand more. If a
publicly Traded Company declares 20% dividend, they receive 10% rebate on their total tax
allowed. On the other hand if such company declares less than 10% dividends or fails to declare
dividend within the given time by Securities and Exchange Commissions, the company has to
pay 40% of its profit as tax. The government should consider this condition in order to
encourage investment.
Conclusion:
In order to support investment China has reduced corporate income tax rate at 25%-20% for
smaller companies and 15% for high tech companies. India also did the same, proposing 25%
tax rate on corporate income. Many countries are using income tax as an incentive to allure
investment; both by reducing tax rate and simplifying the taxation laws.

In Bangladesh, tax rates on companies start from 45% to 27.5%. So it is obviously very high tax
rate when we compare it other country’s tax rate. So the corporate tax rate should be reduced
for all the companies to make sure the growth of the corporations.

Again Bangladesh company income is taxed twice, once tax is paid by the company on its profit,
and then again on the shareholders who receive dividends out of such profits at rates
applicable on them. It is very disappointing for the shareholder. It actually forbids shareholders
to invest more.
 Assignment 01
On
Corporate Tax code of Bangladesh

Prepared by: Prepared for:

Zubayer Hassan Siddiqui Mirza M Ferdous

ID: 092 0169 030 Lecturer, School of Business

Fin 254 Section 07 North South University

Date: 2oth October, 2010