Income Tax

Among direct taxes, income tax is one of the main sources of revenue. It is a progressive tax system. Income tax is imposed on the basis of ability to pay. The more he earns the more he pays as income tax. It ensures the equity and social judgment.

Income Tax Authorities:

The person who is responsible for collecting income tax are called income authorities, they are as follows :

• Directors-General of Inspection (Tax),
• Commissioner of Taxes (Appeals),
• Commissioner of Taxes (LTU),
• Director General (Training),
• Commissioner of Taxes,
• Additional Commissioner of Taxes (Appeal/Inspecting),
• Joint Commissioner of Taxes (Appeal/Inspecting),
• Deputy Commissioner of Taxes,
• Assistant Commissioner of Taxes,
• Extra Assistant Commissioner of Taxes and
• Inspectors of Taxes.

Definition of Income:

There is no Conclusive definition of income. However, under Bangladesh Income Tax Law the following is considerers as income for the purpose of assessing income tax.

• Any income, profit or gains, from whatever source derived.
• Any income deemed to accrue or arise.
• Any unexplained investment or expenditure.

Sources of Income:

For the purpose charging tax and computation of total income, sources of income can be classified in 8 categories, they are:

• Salaries
• Interest from securities
• Income from house property
• Income from agriculture
• Income from business or profession
• Capital gains
• Income from other sources.

Current Tax Rate :

For Individuals and Other than Company

First 1,20,000 Nil

Next 2,50,000 10%

Next 3,00,000 15%

Next 3,50,000 20%

Rest Amount 25%

For Companies

Publicly traded company 30%

Non- Publicly traded & private company 40%

Bank, Insurance & Financial Company 45%

Non-Resident 25%

(other than Bangladeshi)

• If any publicly traded company declares more than 20% dividend

10% rebate on total tax is allowed.

• Rebate also is allowed for the small and cottage industry in least

developed areas.

• Rebate up to 50% allowed on income from exports

• Minimum Tax Tk 1,800.

Who is to submit Income Tax Return:

• If his total income during the income year is Tk 1,20,000 or more.
• If he was assessed for tax during any of the 3 years immediately preceding the income year.
• A person who lives in city corporation/paurashava/divisional HQ/district HQ and owns a building of more than 1 story and plinth area exceeds 1,600 sqr feet/motor car/membership of a club registered under VAT Law or
• subscribe a telephone.
• Runs a business or profession having trade license .
• Any professional registered as doctor, lawyer, Income tax practitioner, Chartered Accountant, Cost & Management Accountant, Engineer, Architect, Surveyor etc.
• Member of a Chamber of Commerce and Industries or a trade Association.
• Participates in a tender
• Has a tax payers Identification number

Time to Submit Income Tax Return:

For Company

By fifteenth of July or thirty first December but not later than said months after the annul closing of accounts of the company.

Other Cases

By the Thirtieth day of September next following the income year.

Consequences of Non-Submission of Return

• Penalty - 10% of tax imposed on last assessed income subject to a minimum of Tk. 2,500/-
• In case of continuing default a further penalty of Tk. 250/- for every day of delay.

Assessment Procedures :

• Self Assessment : for individuals and private Ltd. companies- when income is not less then last year.
• For foreign and public Ltd. companies - assessment on the basis of auditor's certificate.
• Assessment after hearing.
• All returns are however, subject to audit at the discretion of the tax office.

Appeal against the order of DCT :

Being aggrieved at the total income assessed or on any law point, the assessee may file an appeal against the assessment order of the tax officer.

a) to the Commissioner (Appeals),

b) revision petition to the Commissioner of Tax

c) to the Taxes Appellate Tribunal

Major areas for final settlement of tax liability :

Tax deduction at source for the following cases is treated as final discharge of tax liabilities and no additional tax or refund is charged or allowed.

• Supply or contract work
• Bandrols of hand made cigarettes
• Import of goods
• Transfer of properties
• Export of manpower
• Real Estate Business
• Export value of garments
• Local shipping business
• Royalty, technical know-how fee

Tax Recovery System:

For non-payment of income tax demand the following measure can be taken against the assessee for realization of tax.

• By attachment of bank accounts, Goods, salary or any other payment attachment,
• As public demand by Magistrate.

Tax withholding functions :

In Bangladesh withholding taxes are usually termed as Tax deduction and collection at source. This system is considered as an important mechanism of tax collection. Under this system both private and public limited companies are legally authorized and bound to withhold taxes at some point of making payment and deposit the same to the Government Exchequer. The taxpayer receives a certificate from the withholding agent and gets credits of tax against assessed tax demand on production of the certificate.

Income Subject to deduction at source :

• Salary,
• Interest on Securities,
• Supply of goods and execution of contract,
• Indenting commission,
• Lottery or crossword puzzles,
• House rent,
• Export of Manpower,
• Acting in films,
• Travel agency,
• Shipping agency commission,
• Interest on saving deposits,
• Insurance commission,
• Capital gains,
• Compensation against acquisition of property,
• Brick field,
• Services rendered by the doctors,
• Real estate business,
• Commission letter of credit,
• Survey,
• Commission, remuneration or charges paid to foreign buyer and
• Income from dividends.

Advance Payment of Tax :

Every assessee is required to pay advance tax in four equal installments falling on 15^th of September; December; March and June of each year if the latest assessed income exceeds Taka two lakh. For failure to pay any advance installment, penalty may be imposed for such default.

Fiscal incentives :

Following fiscal incentives are available for the assessee

a) Tax holiday till 30^th June 2008 in fulfillment of certain conditions for newly established industrial undertaking, tourist industry, and physical infrastructure facility such as-

Industrial Undertaking :

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, boilers, compressors;

Physical Infrastructure:

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, export processing zone.

Tourist Industries :

residential hotel having facility of three star or more.

b) 100% Accelerated depreciation on cost of machinery is admissible for new industrial undertaking in the first year of commercial production.

c) Initial depreciation allowance for first year on machinery @25% of cost and in respect of factory building @ 10% of cost if the said factory or machinery is constructed or installed in Bangladesh after 30^th June, 2002.

d) Industry set up in EPZ is exempt from tax for a period of 10 years from the date of commencement of commercial production.

Income from fishery, poultry, cattle breeding, dairy farming, horticulture, floriculture, mushroom cultivation and sericulture are exempt from tax up to 30^th June, 2008, subject to investing at least 10% of the exempt income that exceed one lakh Taka.

e) Income derived from export of handicrafts.

f) An amount equal to 50% of the income derived from export business is exempt from tax.

g) Listed companies are entitled to 10% tax rebate if they declare dividend of 20% or more.

h) Income from computer software business up to 30^th June, 2008 .