Chapter i- i2

Corporate iTax iPlanning

Corporate iTax iPlanning i- iCorporate itax iplanning iencompasses ithe istrategic istructuring iof
ibusiness ioperations i in iorder ito iminimize itax i liabilities iand ito iensure icompliance iwith iLaws i &

iRegulations. iCorporate itax iplanning iactivities igenerally iseek ito iavoid i legally itriggering itax

icosts irather ithan i illegally ievading ian iexisting iobligation ito ipay itaxes. iTax iplanning irepresents ia

iforward-looking iactivity, ias iopposed ito itax icompliance ior ireporting, iwhich ireflects iback ion ievents

ithat ihave ialready itaken iplace.

i

Reason ifor iTax iPlanning i- i

Corporate iTax iPlanning iplays ian iessential irole iin isupporting ia icompany’s ivalue-adding iactivities
iand istrategic idecisions. iIt ihelps i businesses ito iease itax iburden iand ioperate imore ismoothly iand

iefficiently. iThe i basic iobjective iof icorporate itax iplanning i involves ithe ireduction iof ia icompany’s

iEffective iTax iRate ito iachieve itax iefficiency iand iremain icompetitive i in i its i industry. iIn icomparison

ito ipaying ia itremendous iamount iof icorporate itax iannually, ieffective icorporate itax iplanning i is ia

ibetter ialternative i for icompanies. iTax iplanning i is irequired ito iachieve i below ireason, i in iaddition ito

ithe iabove ipoints:

1. Compliance iwith iLaws iand iRegulations: iThe iprimary ireason ifor iconducting icorporate
itax iplanning i is ito icomply iwith irelated i laws iand iregulation ias isuch inon-compliance i may

icost ifine, ipenalty iand i imprisonment.

2. Engraved iTax iBenefits: iTax iplanning ienforce icorporates ito ihave isufficient iknowledge
irelating ito itax i laws iand iregulation iand iany iupdate irelating ito itax i laws, iwhich ienable ithe

icorporates ito iachieve ioptimal itax ibenefits.

3. Avoid iFine i& iPenalty: iEffective icorporate itax iplanning isupport ito iavoid inon-compliance
iwith itax i laws, iwhich i may icause i fine, ipenalty iand i imprisonment.

4. Maximize iProfit: iTax iplanning ireduces itax iexpenses, ifine, ipenalty iand isometimes icontrol
isome iparticular iexpenses iwhich isupport ito imaximize icorporate iprofit .

5. Cope iwith ichanges: iTax iplanning iallows ienterprises ito icope iwith iany ichanges iin ithe
iexternal ienvironment, iand i lead ito imore isystematic i business ioperations.

6. Reduce iCorporate iTax iLiabilities: iEffective icorporate itax iplanning ifacilitates ibusinesses
ito ireduce itax icosts, iand itherefore icompanies ican ienjoy i higher iearnings i for ishareholders ior

ican igain i money i for ireinvestment. iHigher ishareholder iearnings iand ireinvestment icapital iare

isigns iof i flourishing i business ioperations iand ican iattract imore ipotential i investors iwhich iwill

ifurther i improve ithe icompany’s i financial iposition.

7. Healthy iFinancial iPosition: iTax iactivities iwill ibe ireflected ion ithe icompany’s ifinancial
istatements, iand iwell-planned icorporate itax icontributes ito imore ihealthy-looking i financial

istatements. iAs itax iand i finance iare iclosely iconnected, icompanies i must iconduct ieffective

itax iplanning iprior ito ifinancial iplanning, i in iorder ito iexecute ifuture ifinancial iactivities ias

iplanned.

Types iof iTax iPlanning i- iVarious imethods iof iTax iPlanning imay ibe iclassified ias ifollows:

1. Short iTerm iTax iPlanning

 It imeans ithe iplanning ithought iof iand iexecuted iat ithe iend iof ithe iincome iyear ito ireduce
itaxable i income i in ia i legal iway.

2. Long iTerm iTax iPlanning

It imeans ia iplan ichalked iout iat ithe ibeginning ior ithe iincome iyear ito ibe ifollowed iaround ithe
i year. iThis itype iof iplanning idoes inot ihelp i immediately ias i in ithe icase iof ishort-range

iplanning i but iis i likely ito ihelp i in ithe i long irun.

3. Permissive iTax iPlanning

It imeans imaking iplans iwhich iare ipermissible iunder idifferent iprovisions iof ithe ilaw, isuch ias
iplanning iof iearning i income icovered iby ithe iprovision iof itax i laws), iPlanning iof itaking

iadvantage iof idifferent i incentives iand ideductions, iplanning i for iavailing idifferent itax

iconcessions ietc.

4. Purposive iTax iPlanning

It imeans imaking iplans iwith ispecific ipurpose ito iensure ithe iavailability iof imaximum
ibenefits ito ithe iassessee ithrough icorrect iselection iof i investment, imaking isuitable iprogram

ifor ireplacement iof iassets, ivarying ithe iresidential i status iand idiversifying ibusiness iactivities

iand i income ietc. i

5. Principles iof iTax iPlanning i– iGeneral iprinciples iof itax iplanning iare:
1. Maximize inon-taxable ireceipts;
2. Minimize inon-deductible iexpenses;
3. Apply icapital ireceipts iin ithe iacquisition iof iqualifying icapital iexpenditure; i
4. Avoid ioutright idefault iof itax iprovisions ito ieliminate ipayment iof iinterest iand ipenalties;
iand

5. Reduce iCompliance iCost

Tax iPlanning iTechnique iin iGeneral iand iin iBangladesh iperspective i– i

1. Recordkeeping
Recordkeeping isaves itime iduring itax ipreparation iand iensures ithe iavailability iof ideduction
isupport iinformation i for i filing ireturns. iThe iauthorities i has i become i more istringent iabout iits

irequirements iso irecords ishould i be icarefully i maintained iand ikept iup-to-date ito iminimize

iconflict. iRequirements i include iannual itax ireturns, iwithholding itax ireturn, icost iinformation iof

i investments iand isupporting iof i income iand iexpenses.

2. Tax iPlanning iPaths

Postponing itaxes iis istill ian iimportant itax-saving itechnique iof iTax iPlanning. iReasons iinclude

 chances iof ilower itax ibrackets iin ithe ifuture

 can’t ipay ientire itax iburden
 increase iof iincome ithrough iinvest ireturns
 payment iof itaxes iwith icheaper ifuture imoney
 avoid ipaying itax
 Proper itiming iof ithe ireceipt iof iincome iand ithe ipayment iof iexpenses ican isave itaxes,
iespecially i if i your i income i is ion ithe iborder iof itwo itax i brackets.

3. Tax iCompliance iAudits

Compliance iaudit ihelps ito iimprove icompliance iwith itax ilaws, iwhich iwill icreate ia istrong
iposition i for ithe icorporates iat ithe itime iof itax iaudit i set iby iauthorities.

Restriction ion iTaxpayers iBehavior i– i

Government iuse itaxation isystem ito irestrict itaxpayer ibehaviors ithorough iimposing ihigh itaxes ior
ireducing itax irates. iTaxation i may irestrict itaxpayer’s ibehavior i in i following iways:

1. Restriction iin iconsumption iof iluxury ior isocially iundesirable igoods iand iservices i–
iGovernment i may i imposes i high iconsumption itax isuch ias iVAT, iSupplementary iDuties ietc.

ior imay iset i limit i for ideductible i level iof iamount ifor iundesirable igoods ior iservices.

2. Restriction iin ispending isome ispecific iexpenses iand iinvestment: iAuthorities isets ihigh
isales itax irate ior ilimit ideductible i level iof iexpenses ior iinvestment ito idemotivate isuch

iexpenses ior i investment.

3. Restriction iin iimport ior iexport i– iGovernment imay iimposes ihigh icustom iduty, iregulatory
iduty iand iother irelated itaxed ito idiscourage i import ior iexport iof icertain igoods ior iservices.

4. Enforce ito imaintain isome irecords i– iAuthority ienforce ito imaintain icertain ibooks iok
iaccount iand iother irecord ito isupport itax irelated i information.

Factors iAffecting iTax iPlanning iin igeneral iand iin iBangladesh iperspective i- i

1. Country iLaws
2. Legal iPosition iand istatus
3. Political iand ieconomic ifactor
4. Business iNature
5. Business iPlan
6. Industry ipractices

Tax iEvasion i- iTax ievasion iis ian iillegal iactivity iin iwhich ia iperson ior ientity ideliberately iavoids
ipaying ia itrue itax i liability. iThose icaught ievading itaxes iare igenerally i subject ito icriminal i charges

iand isubstantial ipenalties. iTo iwillfully i fail ito ipay itaxes i is ian ioffense iunder ithe i laws iand iregulation

irelating ito itaxation i in i Bangladesh.

Tax iAvoidance i- iTax iavoidance iis ithe iuse iof ilegal imethods ito imodify ifinancial isituation ito ilower
ithe iamount iof i income itax iowed. iThis i is igenerally iaccomplished i by i claiming ithe ipermissible
ideductions iand icredits. iThis ipractice idiffers ifrom itax ievasion iwhich iuses iillegal imethods, isuch ias
iunderreporting i income, ito iavoid ipaying itaxes.

Transfer iPricing i- iTransfer ipricing irefers ito ithe irules iand imethods ifor ipricing itransactions iwithin
iand ibetween ienterprises iunder icommon iownership ior icontrol. iBecause iof ithe ipotential i for icross-

border icontrolled itransactions ito idistort itaxable iincome, itax iauthorities iin imany icountries ican
iadjust i intragroup itransfer iprices ithat idiffer i from iwhat iwould ihave ibeen icharged iby iunrelated

ienterprises idealing iat iarm’s i length iprice.

Window iDressing i- iWindow idressing iis ia itechnique iused iby icompanies iand ifinancial imanagers ito
i manipulate i financial istatements iand ireports ito ishow i more i favorable iresults i for ia iperiod. iAlthough

iwindow idressing i is i illegal ior ifraudulent, iit i is ito imislead i stakeholders.

Creative iAccounting i- iCreative iaccounting iis ia ieuphemism ireferring ito iaccounting ipractices ithat
i may i follow ithe i letter iof ithe irules iof istandard iaccounting ipractices, ibut ideviate ifrom ithe ispirit iof

ithose irules iwith iquestionable i Accounting iethics i - ispecifically idistorting iresults i in i favor iof ithe

i"preparers", ior ithe ifirm ithat ihired ithe iaccountant.