Taxation is the paramount source of internal resources of an economy to meet a country's revenue and development expenditures. Taxes are levied to attain certain economic and social objectives, such as redistribution of income, elimination of economic discrimination, price stabilization, preventing public profligacy and bringing about social cohesion. Over the years, fiscal policy has been used to distribute tax burden among individuals or entities involved in taxable activities, encourage private savings, reduce disparities of income and wealth and promote investment in specific priority areas and sectors. Etymologically, the term 'tax' derives from the French word taxe or the Latin word taxare which means 'to charge'. It is a non-penal but compulsory and unrequited transfer of resources from private to public sector, levied on the basis of predetermined criteria. Economists unanimously maintain the view that tax is a mandatory contribution made by the taxpayers to the government without any expectation of some specified return.
For a healthy and rational taxation system, it is essential to determine some core issues, such as, the distribution of tax burden—who will pay taxes and how much they will pay—and how the collected taxes will be spent. While taxes are presumably collected for the sake of the welfare of taxpayers as a whole, the liability of the individual taxpayer is independent of any benefit received.
Tax Management
To understand taxation in Bangladesh, it is necessary to delineate the revenue structure of Bangladesh. The National Board of Revenue (hereinafter, NBR) is the apex authority for tax administration in Bangladesh functioning under overall supervision of the Internal Resources Division (IRD) of the Ministry of Finance (MoF). The Secretary, IRD is the ex-officio Chairman of the NBR. It is responsible for formulation and continuous appraisal of tax-policies and tax-laws, negotiating tax treaties with foreign governments and participating in inter-ministerial deliberations involving fiscal issues. It is divided into three wings: a) Customs & Excise, b) Value Added Tax, and c) Income Tax. The main responsibility of the NBR is to collect revenue for the government. It collects around 95% of total taxes or 82% of total public revenue. Other responsibilities are concerned with administration of all matters related to taxes, duties and other tax producing fees. The NBR portion of taxes include, inter alia, customs duty, value added tax (VAT), income tax, supplementary duty (SD) and excise duty. Whereas non-NBR portion of taxes come from narcotics duty, land revenue, non-judicial stamp, registration fee and motor vehicle tax.
The tax structures in Bangladesh like most of the taxation systems in the world are classified into two broad categories, viz., direct & indirect taxes. Direct taxes consist of taxes on income (income tax, corporation tax) and taxes on property (wealth tax, gift tax, estate duty etc.). Almost 98% of the direct taxes come from income tax and the rests are drawn from non-judicial stamp, land revenue, registration and other minor taxes. The tax-structure preponderantly depends on indirect taxes (representing about 70% of total taxes), which are still the most important source of internal resources in Bangladesh. Indirect taxes consist of customs duty, excise duty, value added tax, supplementary duty and so on. These are mainly import-dependent and are usually regressive in character.
Income Tax
Income tax is levied on the taxable income of a person or entity as per the provisions of law. It is calculated and computed with reference to the total income of an assessee for a particular period (normally on an annual basis). Income taxation in Bangladesh is regulated by the following laws and regulations: a) Article 83 of the Constitution of Bangladesh, b) The Income Tax Act 2023 c) Statutory Rules And Orders (SRO), d) Finance Act passed by the Parliament in every year, e) Rules, explanations made by the NBR and g) Income tax case law.
The main legal source of taxation in Bangladesh is Article 83 of the Constitution which requires an enabling Act of the Parliament (known as the ‘Finance Act’) to impose taxes on the taxpayers. Income Tax officer imposes tax on the assessee according to the Tax Act 2023. The Deputy Commissioner of Taxes and any higher tax officer can allow tax exemption
An assessee can invest his/her income and get tax rebate due to those investments. For example, investment in insurance, deposit pension scheme, relief fund of the Prime Minister etc.
Taxpayers under the Income Tax Act are classified as individuals, partnership firms, Hindu undivided families (HUF), associations of persons (AOP), companies (publicly traded and private), local authorities, and other artificial juridical persons. Tax rates and scope of taxable income differ on the basis of residential status of an assessee (resident or non-resident).
Taxpayers can submit tax return under 'self-assessment' or 'normal' scheme. In the classified income tax return, an assessee has to show his/her total taxable income under 7 heads of domestic income and 1 head of foreign income. Individuals having income from salary, wages and/or self-employment can use a eight-page tax return to be submitted only under 'self-assessment' scheme, where only 3 heads of income are to be shown -2 heads for domestic 'salary' income (gross and taxable) and other head for all other domestic/foreign incomes.
Tax-base for income taxation is 'annual total income'. The Government is empowered to supplement the statutory laws by circulating Statutory Rules and Orders (S.R.O.). The National Board of Revenue has overall jurisdiction to interpret the provisions of the Laws and Regulations for clarification in imposing taxes. Besides, there is an option for universal self assessment. According to this, the tax officer will accept the return of the asseessee without any question if submitted under universal self-assessment system.
Calculation of taxable income may be determined under accounting principles used in the jurisdiction, which may be modified or replaced by the relevant principles of tax laws. The incidence of taxation varies by system, and some systems may be viewed as progressive or regressive. Rates of tax may vary or be constant (flat) by income level. Many systems allow individuals certain personal allowances and other non-business discounts to taxable income. Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid.
Individual Income Tax
As per the recent changes in Tax Act 2023, the tax-free income thresholds for all categories of individual taxpayers are presented in the following table:
Tax-free Income Threshold
|
Tax exempted income |
FY 2023-2024 |
|
Male tax payer |
Tk. 350,000 |
|
Women and Senior citizen above 65 years age |
Tk. 400,000 |
|
Physically Challenged persons |
Tk. 475,000 |
|
War-wounded gazette freedom fighter |
Tk. 500,000 |
|
Third gender tax payers |
Tk. 475,000 |
The income tax-free threshold would be increased for parents or legal guardians of physically challenged child or dependent by Tk. 50 thousand for each child/ dependent.
Tax rates
|
FY 2023-24 |
Tax rate |
|
On tax-free income threshold |
Nil |
|
On next Tk. 1,00,000 |
5% |
|
On next Tk. 3,00,000 |
10% |
|
On next Tk. 4,00,000 |
15% |
|
On next Tk. 5,00,000 |
20% |
|
On balance |
25% |
Minimum Tax
Existing minimum tax for an individual taxpayer residing in Dhaka North City Corporation, Dhaka South City Corporation and Chittagong City Corporation is Tk. 5,000, any other city corporation is Tk. 4,000 and other area is Tk. 3,000.
Surcharge
A surcharge applies to 10 percent, where net wealth of an individual exceeds Tk. 4 crore and 35 percent surcharge for individuals who have net wealth exceeding Tk.100 crore. The surcharge value is payable on the payable tax not on total asset.
Rebate
During filing for tax returns, you can avail various exemptions and deductions on your total taxable income to reduce your tax burden. The government has declared some investment areas where a Taxpayer can enjoy tax rebate if the Taxpayers make investment. That means a Tax payer can claim discount on the amount of payable tax during tax filing if he/she makes investment on government declared areas.
Types of investment qualified for the tax rebate are:-
∙ Life insurance premium up to 10% of the face value.
∙ Contribution to Provident Fund to which Provident Fund Act, 1925 applies.
∙ Self contribution and employer's contribution to Recognized Provident Fund.
∙ Contribution to Superannuation Fund.
∙ Contribution up to TK 60,000 to deposit pension scheme sponsored by any scheduled bank or a financial institution.
∙ Investment in approved debenture or debenture stock, Stocks or Shares.
∙ Contribution to Benevolent Fund and Group Insurance premium.
∙ Contribution to Zakat Fund ; Etc.
At present, tax payers are allowed to invest up to 20 per cent of their taxable income or Tk 10 million, whichever is lower, to enjoy tax rebates as much as 15 per cent of the investment in listed securities/sectors. However, multiple rebate sources can be combined until reaching the overall ceiling of Tk 10 lakh.
Corporate Tax
The standard corporate tax rate is 27.5% for private companies, including branch and liaison offices, unlisted companies, association of persons, and artificial juridical persons but can resort back to 30% if the following conditions are not met:
a. All receipts and income are received through banking channels; and
b. Expenses and investments exceeding BDT 500,000 individually, or BDT 3.6 million in aggregate annually, are made through banking channels.
However, corporate taxation applies to various rates depending upon business sector-
|
Listed companies with more than 10% paid-up capital raised through initial public offers |
20% .The rate is increased to 22.5% if the conditions mentioned above are not met. |
|
Listed companies with 10% or less paid-up capital raised through initial public offers |
22.5%. The rate is increased to 25% if the conditions mentioned above are not met. |
|
One person companies |
22.5% (reduced from 25% effective 1 July 2022). The rate is increased to 25% if the conditions mentioned above are not met. |
|
Listed banks, insurance, and other financial institutions, including mobile financial services providers |
37.50% |
|
Unlisted banks, insurance, and other financial institutions, including mobile financial service providers |
40% |
|
Merchant banks |
37.5% |
|
Tobacco manufacturers |
45% (plus 2.5% surcharge) |
|
Listed mobile phone operators |
40% |
|
Unlisted mobile phone operators |
45% |
|
Ready-made garment manufacturers and exporters |
12%; 10% with green building certification. |
|
Export-oriented companies |
12%; 10% with green building certification |
|
Textile industries |
15% until 30 June 2025. |
|
Jute goods exporters |
10% until 30 June 2023. |
|
Private universities, private medical, dental, and engineering colleges, and private colleges solely dedicated to imparting education on information and communication technology |
15% |
Tax Holiday
Tax holiday is allowed to industries subject to the relevant rules and procedures set by the National Board of Revenue (NBR). Presently, it is allowed for 5, 7, 9 and 12 years for industries set up in the developed, less developed, least developed and special economic zones respectively. The period of such tax holiday is calculated from the month of commencement of commercial production. The eligibility of tax holiday is to be determined by the NBR and the commencement of production is certified by the respective sponsoring agencies.
Applicable Tax Holiday Sector in Nutshell
· Citizen Charter Commercial (Bangla)
· Active pharmaceuticals ingredient and radio pharmaceuticals
· Agriculture machineries
· Aircraft heavy maintenance services including parts manufacturing
· Artificial fiber/manmade fiber manufacturing
· Automatic bricks
· Automobile
· Automobile parts & components manufacturing
· Automation and robotic design manufacturing including parts & components thereof
· Barrier contraceptive and rubber latex
· Basic components of electronics (e.g. resistor, capacitor, transistor, integrated circuit, multilayer PCB etc.)
· Bi-cycle including parts thereof
· Bio-fertilizer
· Biotechnology based agro products
· Boiler including parts and equipment thereof
· Compressor including parts thereof
· Computer hardware
· Electrical Transformer
· Furniture
· Home appliances (blender, rice cooker, microwave oven, electric oven, washing machine, etc.)
· Insecticides or pesticides
· Leather and leather goods
· LED TV
· Locally produced fruits and vegetables processing;
· Mobile phone
· Nanotechnology based product manufacturing
· Petro-chemicals
· Pharmaceuticals
· Plastic recycling
· Textile machinery
· Tissue grafting
· Toy manufacturing
· Tyre manufacturing
Location Benefit
The business belonging to the above sectors can enjoy tax exemption on a varied rate and reduced tax for various periods depending on the location of the operation.
Five-year tax exemption is offered to businesses located in Dhaka Division and Chattogram Division, but excluding the districts of Dhaka, Narayanganj, Gazipur, Chattogram, Rangamati, Bandarban and Khagrachari districts, the period of tax exemption is for five years, which will begin in the month of commencement of commercial production at the following rate.
|
Period of Exemption |
Rate of Exemption |
|
For the first year |
90% of income |
|
For the second year |
80% of income |
|
For the third year |
60% of income |
|
For the fourth year |
40% of income |
|
For the fifth year |
20% of income |
Ten-year tax exemption is offered to businesses located in Rajshahi Division, Khulna Division, Sylhet Division and Barisal Division, but excluding areas under the city corporations. Businesses that set up in the districts of Rangamati, Bandarban and Khagracchari also enjoy this tax holiday period.
|
Period of Exemption |
Rate of Exemption |
|
For the first and second year |
90% of income |
|
For the third year |
80% of income |
|
For the fourth year |
70% of income |
|
For the fifth year |
60% of income |
|
For the six year |
50% of income |
|
For the seventh year |
40% of income |
|
For the eighth year |
30% of income |
|
For the ninth year |
20% of income |
|
For the tenth year |
10% of income |
Conditions: To enjoy tax exemption or benefits, i) register investments with BIDA, ii) apply to National Board of Revenue (NBR), and iii) receive a certificate from NBR within 45 days of the application.
Import duty exemption
· Capital machineries are subject to reduced rate from customs duties.
· Raw materials to be used for producing export goods are exempt from import duties.
Incentives and facilities for export-oriented industries
Export-oriented industries (exporting more than 80% of their goods and services) regardless of their locations (i.e., within or outside EZ/ EZ) can benefit from the following privileges and facilities:
· Eligible to be exempted from income tax for 50% earnings from export
· No duty on export except for tobacco products
· Bonded warehousing facilities
· Duty drawback facilities
· Exporters of certain sectors enjoy additional benefits in the form of a subsidy or cash incentive based on some conditions
Public-Private Partnership (PPP) Projects
The following incentives and facilities are provided for certain Public Private Partnership (PPP) projects.
Timeline for Tax Return
November 30 is the last date for submission of the income tax return for individual assessees. The filing date may be extended up to two months and further extension up to another two months by the tax authorities upon application. For companies income tax return is filed annually usually on 15th January of next year following financial closing, usually (July-June).
*** This Article has been drafted based on information found in various sources and hence no copyright is claimed.
