Corporate Taxation in Bangladesh

Tax implications in each country are an important consideration for an investor. Corporate tax or company tax refers to a tax imposed on entities that are taxed at the entity level in a particular jurisdiction. Such taxes may include income or other taxes. The tax systems of most countries impose an income tax at the entity level on certain type(s) of entities (company or corporation). Many systems additionally tax owners or members of those entities on dividends or other distributions by the entity to the members. The tax generally is imposed on net taxable income. Net taxable income for corporate tax is generally financial statement income with modifications, and may be defined in great detail within the system. The rate of tax varies by jurisdiction. The tax may have an alternative base, such as assets, payroll, or income computed in an alternative manner. Corporations may be taxed on their incomes, property, or existence by various jurisdictions. Many jurisdictions impose a tax based on the existence or equity structure of the corporation. For example, Maryland imposes a tax on corporations organized in that state based on the number of shares of capital stock issued and outstanding. Many jurisdictions instead impose a tax based on stated or computed capital, often including retained profits. Most income tax systems provide that certain types of corporate events are not taxable transactions. These generally include events related to formation or reorganization of the corporation. In addition, most systems provide specific rules for taxation of the entity and/or its members upon winding up or dissolution of the entity.

Bangladesh Corporate Tax Rates

The standard rate of corporate tax in Bangladesh is 27.5% in 2010 - 2011 tax year. This is the standard corporate tax rate applicable to publicly traded companies in Bangladesh, a list including tax rates for other corporations are as follows:

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Tax Rate for Corporate Taxpayers:

Publicly Traded Company Non-publicly Traded Company Bank, Insurance & Financial Company Mobile Phone Operator Company Publicly Traded Mobile Operator Company 27.5% 37.5% 42.5% 45% 35%

For all companies. The minimum tax amount is Tk. 5000.

*

Under section (u/s) 16C (inserted by the FA 2002), a bank company, if shows, in the return, profit exceeding 50% of the aggregate sum of capital and reserve, shall pay tax @ 15% of such excess profit as additional tax.

**

Under section 16B (inserted by the FA 2002), a listed company other than a banking or insurance company, if has not issued, declared or distributed dividend or bonus share equivalent to at least 15% of paid-up capital within six months immediately following any income year, shall pay tax @ 5% of undistributed profit (accumulated profit including free reserve) as additional tax.

***

If a publicly traded company (other than a banking or insurance company or mobile phone operator company) pays dividend at more than 20%, it will obtain income tax rebate at 10% on applicable income tax (GOB, 2009a, 2010a).

Under section 16E, where a company raises its share capital through book building or public

offering or rights offering or private placement or preference share or in any other way, at a value in excess of face value (FV), the company shall be charged, in addition to tax payable under this Ordinance, premium tax at the rate of 3% on the difference between the value at which the share is sold and its FV. Under section 53L, this premium tax shall be collected at source by the Securities & Exchange Commission (SEC) and this is a settled tax u/s 82C [vide sec. 49(1)(zu), 82C(2)(bb) and 82C(4)] (GOB, 2010a).

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If any publicly traded company (excluding Mobile Operator Company) declares more than 20% dividend, 10% rebate on total tax allowed. Income tax is levied on all companies and individuals for the previous year and payable for the year of assessment of fiscal year (July to June). If a company adopts an accounting period different from the fiscal year, the business period is a 12 month accounting period preceding the year of assessment. Taxable income is calculated after adjusting for incurred expenses in the production of income.

Tax Rebate for investment

Rate of Tax Rebate:
Amount of allowable investment is either actual investment in a year or up to 25% of total income or Tk. 10,00,000/- whichever is less. Tax rebate amounts to 10% of allowable investment. Types of investment qualified for the tax rebate are: - Life insurance premium, - Contribution to deferred annuity, - Contribution to Provident Fund to which Provident Fund Act, 1925 applies , - Self contribution and employer's contribution to Recognized Provident Fund , - Contribution to Super Annuation Fund, - Investment in approved debenture or debenture stock, Stocks or Shares , - Contribution to deposit pension scheme approved by the government, - Contribution to Benevolent Fund and Group Insurance premium, - Contribution to Zakat Fund,

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- Donation to charitable hospital approved by National Board of Revenue, - Donation to philanthropic or educational institution approved by the Government, - Donation to socio-economic or cultural development institution established in Bangladesh by Aga Khan Development Network, - Donation to ICDDR, B, Dhaka Community Hospital, - Donation to philanthropic institution- CRP, Savar, Dhaka, - Donation upto five lac to (1) Shishu Swasthya Foundation Hospital Mirpur, Shishu Hospital, Jessore and Hospital for Sick Children, Satkhira run by Shishu Swasthya Foundation, Dhaka, (2) Diganta Memorial Cancer Hospital, Dhaka, (3) The ENT and Head-Neck Cancer Foundation of Bangladesh, Dhaka; and (4) Jatiya Protibandhi Unnayan Foundation, Mirpur, Dhaka; - Asiatic Society of Bangladesh; - Muktijudha Jadughar;

Special Reduced Corporate Tax Rates:

Following new industries (established between 01.07.2009 to 30.06.2012) have been prescribed for special reduced tax rates of 5 or 10 percent over first 5 to 6 years: Agro processing industry (fruits processing, baby corn packeting, fruit juice producing and rubber industry), textiles, spinning, textile machinery, garments and forward and backward linkages thereof, leather goods, toys, furniture, information technology, pharmaceuticals, light engineering, ceramic or ceramic goods, melamine, plastic products, sanitary ware, steel, MS rod and CI sheet from iron ore, fertilizer, insecticide, pesticide, computer hardware, petro chemicals, agricultural machinery, boilers, drugs, chemicals, basic raw materials of drugs, compressors, ship building, diamond cutting industry, shrimp processing
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industry, milk processing industry, accumulator and battery industry, tour operators, energy saving bulb producing industry, industry producing goods from wastage, jute goods producing industry,

recycling industry, herbal medicine, basic chemicals and dyes, cosmetics and toiletries, tourism industry, foot wear, MS billet and any other category of industry as the government may by notification in the official gazette specify (SRO No. 172-Ain/Aykar/2009, dated 01.07.2009). The tax rates are applicable as follows:

Dhaka and Chittagong Year Divisions (except for Rangamati, Bandarban and
nd

Rajshahi, Khulna, Sylhet, Barisal Divisions and Rangamati, Bandarban and Khagrachari hill districts of Chittagong Divisions 5% 5% 10% 10% 10%

1 and 2 3rd 4th 5th 6th

st

Khagrachari hill districts) 5% 10% 10% 15% Ordinary rate

Tax holiday is allowed to industries subject to the relevant rules and procedures set by the National Board of Revenue (NBR) for the following period according to the location of the establishment.

Investment requirement by companies enjoying tax holiday:

Companies enjoying tax holidays are required to invest only 25% to 30% of their income in other activities as per rule of N.B.R. In Dhaka and Chittagong Divisions (excluding 3 hill districts): 5 years. In other divisions (including 3 hill districts of Chittagong Division): 7 years. The period of such tax holiday will be calculated from the month of commencement of commercial production. The eligibility of tax holiday to be determined by the NBR and the time of the commencement of commercial
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production is certified by the respective sponsoring agencies. The industrial establishment should be registered under the companies Act. 1994.

Accepted of returns of public limited companies:

Returns filed by the public limited companies shall be accepted as correct if it is accompanied by audited accounts and certified by a chartered accountant as to the correctness of the total income of the assessee

Tax Withholding Functions

Corporations, like other entities, may be subject to withholding tax obligations upon making certain varieties of payments to others. These obligations are generally not the tax of the corporation, but the system may impose penalties on the corporation or its officers or employees for failing to withhold and pay over such taxes. In Bangladesh withholding taxes are usually termed as Tax deduction and collected at source. Under this system both private and public limited companies or any other organization specified by law 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 authority and gets credits of tax against assessed tax on the basis of such certificate.

Residential Status
Residential status may be resident [defined u/s 2(55), ITO] or non-resident [defined u/s 2(42), ITO]. Under section 17, resident assessee (taxpayer) has to pay income tax on total global income including foreign income, but non-resident taxpayer has to pay income tax only on his total

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domestic (Bangladeshi) income as determined u/s 18 (income deemed to accrue or arise in Bangladesh). Under section 2(55), an individual is to be a resident if his period of stay in Bangladesh is at least 182 days in the concerned income year, or at least 90 days in the concerned income year, and at least 365 days in the preceding 4 income years. A partnership firm is considered as resident, if the control and management of its affairs situated wholly or partly in Bangladesh in the concerned income year. A company will be a resident, if control and management of its affairs situated wholly in Bangladesh in the concerned income year. Otherwise, a taxpayer will be treated as nonresident [u/s 2(42)].2

Effect of corporate Taxation

Although the tax accounts for a small share of federal revenues, changes in the corporate income tax and its associated revenues have often been a significant part of revenue legislation. Moreover, because its incidence is often perceived to fall on the affluent, assignment of the corporate tax burden can have a significant impact on the assessed progressivity of the tax system as a whole. Corporate Income Tax may simply result to lower corporate profits and dividends. It may reduce their income of all owners of property and businesses. The company may move toward raising the prices of their products.

Highest marginal tax rate; corporate rate (%) in Bangladesh

This page includes a chart with historical data for Highest marginal tax rate; corporate rate (%) in Bangladesh. The Highest marginal tax rate; corporate rate (%) in Bangladesh was reported at 30.00 in 2008, according to the World Bank. In 2009, the Bangladesh Highest marginal tax rate; corporate rate (%) was 27.50. Highest marginal tax rate (corporate rate) is the highest rate shown on the schedule of tax rates applied to the taxable income of corporations. Bangladesh is considered as a developing economy which has recorded GDP growth above 5% during the last few years. Microcredit has been a major driver of economic development in Bangladesh and although three fifths of Bangladeshis are employed in the agriculture sector, three quarters of exports revenues come from garment industry. The biggest obstacles to sustainable development in
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Bangladesh are overpopulation, poor infrastructure, corruption, political instability and a slow implementation of economic reforms.

Conclusion

References
http://www.reportbd.com/articles/35/1/Taxation-in-Bangladesh/Page1.html http://www.taxrates.cc/html/bangladesh-tax-rates.html http://www.asiatradehub.com/bangladesh/tax.asp http://www.taxrates.cc/html/bangladesh-tax-rates.html http://www.taxrates.cc/html/bangladesh-tax-rates.html http://www.reportbd.com/articles/35/1/Taxation-in-Bangladesh

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