Tax Comparitive Guides | Legal500 | 2024

1. How often is tax law amended and what is the process

The Income Tax Act 2023 ("the Act") governs the income-tax regime in Bangladesh. It came into force on 22nd June 2023 through a gazette notification replacing the previous Income Tax Ordinance 1984. The Act will undergo annual amendment or addition to the law through the Finance Act promulgated every year.

2. What are the principal administrative obligations of a taxpayer, i.e. regarding the filing of tax returns and the maintenance of records?

Every person who earns taxable income must register himself as a taxpayer and the National Board of Revenue shall issue a Taxpayer's Identification Number (TIN) to such registered taxpayer.¹ An annual return of income must be submitted by a person to the Deputy Commissioner of Taxes ("DCT") for every income year if, among others:²

1. The person's total income during the income year exceeds the maximum amount that is not chargeable to tax, or
2. The person was assessed to tax for any one of the three years immediately preceding that income year, or
3. The person is a company, a shareholder director or a shareholder employee of a company, a firm, partner of a firm, a private association etc.

In this regard, "income year" is the financial year immediately preceding the tax year and generally means the period from 01 July to 30 June of the relevant year.³ Companies which are subsidiaries, holding companies, branch or liaison offices of a parent company incorporated outside Bangladesh, may follow a different financial year for consolidation of accounts.⁴ However, this must be approved by the DCT.

The annual returns are submitted in prescribed forms and must be accompanied with prescribed documents,⁵ such as:

1. in case of individuals, statements of assets and liabilities if such individual, among others:⁶
   1. owns property of more that BDT 40 lac as on the last date of the income year, or
   2. owns a motor vehicle at any time during the income year, or
   3. invests in house property or apartment within a city corporation area in the relevant income year, or
   4. owns any asset abroad at any time during the income year, or
   5. is a shareholder director of a company, and
2. in case of companies, an audited statement of accounts, evidence of compliance with criteria prescribed from time to time by the National Board of Revenue for verification, and a computation sheet explaining the difference between the profit or loss shown in the statement of accounts and the income shown in the return.⁷

3. Who are the key tax authorities? How do they engage with taxpayers and how are tax issues resolved?

The key regulatory authority is the National Board of Revenue. It engages with taxpayers by exercising its power to call for information,⁸ power to inspect business records,⁹ power of survey¹⁰ etc. Tax issues are resolved through the appellate procedure stipulated in the Act.¹¹

4. Are tax disputes heard by a court, tribunal or body independent of the tax authority? How long do such proceedings generally take?

A person aggrieved by an order of an income tax authority may appeal in the following order:

1. Appeal to the Commissioner of Taxes (Appeals) or the Additional Commissioner of Taxes (Appeals).¹² The appeal is required to be resolved within 150 days calculated from the end of month on which the appeal is filed.¹³
2. Appeal to Appellate Tribunal.¹⁴ The appeal is required to be resolved within 180 days calculated from the end of month on which the appeal is filed.¹⁵
3. Reference to the High Court Division of the Supreme Court of Bangladesh.¹⁶ Resolution of tax issues before the High Court Division is a time consuming process and hence, it is difficult to predict any specified period.
4. Appeal to the Appellate Division of the Supreme Court of Bangladesh.¹⁷ Resolution of tax issues before the Appellate Division is a time consuming process and hence, it is difficult to predict any specified period.

5. What are the typical deadlines for the payment of taxes? Do special rules apply to disputed amounts of tax?

Every person who is required to file an annual return must pay the relevant amount of tax either on or before the day on which he files the return.¹⁸ In this regard, the return must be filed on or before the "Tax Day"¹⁹ which means:²⁰

1. in case of an assessee other than a company, 30th November following end of the income year,
2. in the case of a company, 15th September or 15th day of the seventh month following end of the income year, whichever is later.

For instance, if a company ends its income year on June 30, 2021, then the Tax Day will be the 15th day of the 7th month following end of the income year – which is January 15, 2022. On the other hand, if a company ends its income year on December 31, 2021, then the Tax Day will be July 15, 2022. However, as July 15 is before September 15, thus, the Tax Day will be September 15, 2022 for that company.

3. in the case of an assessee, who is an individual and has not submitted return before, 30th June following the end of the income year.
4. In case of an assessee who is an individual and resides abroad, the 90th (ninety) day from the date of his return to Bangladesh, if such individual resides outside Bangladesh:
   1. on leave for higher education or on deputation or lien for employment,
   2. on a valid visa and permit for the purpose of earning money.

When a person files a "self-assessment return" in a tax year, he shall be deemed to have automatically completed the assessment of his income, tax and other liability under the Act.²¹ An assessee is allowed to submit an amended return within 180 days from the date of filing of the original return if the tax payable has been incorrectly calculated or an incorrect amount has been paid.²² The assessee must submit a written statement stating the reasons for the amendment. In such case, the assessee must pay the tax and other sums which were under calculated or under paid before the filing of such amended return in addition to simple interest at the rate of 5% per month on such amount.²³ The DCT will then process the return and if such process results in a different amount of income, tax or other material figures than the amount mentioned in the return, then the DCT may issue a notice upon the assessee and give him an opportunity to explain his position.²⁴ The assessee may file an amended return or a revised return and pay the tax or any amount that is payable as per the DCT's process.

After hearing the assessee and considering all documents, the DCT shall pass a tax assessment order in writing or in a specified electronic method.²⁵ If the assessee is aggrieved with the order, then he may appeal against it.

6. Are tax authorities subject to a duty of confidentiality in respect of taxpayer data?

All particulars or information contained in the following documents are treated as confidential and cannot be disclosed:²⁶

1. any statement made, return furnished or accounts or documents produced under the provisions of the Act, and
2. any evidence given, or affidavit or deposition made, in the course of any proceedings under the Act, except proceedings relating to offences under the Act, and
3. any record of any assessment proceedings or any proceeding relating to the recovery of demand under the Act.

Accordingly, no Court or other authority is competent to require any public servant to produce before it or give evidence regarding any return, accounts or documents which relates to any proceeding under the Act.²⁷ However, the prohibition on disclosure does not extend to certain documents including the following:²⁸

1. any particulars in respect of any statement, return, accounts, documents, evidence, affidavit or deposition required for the purposes of investigating an offence under the Penal Code 1860, or the Anti-Corruption Commission Act 2004,²⁹
2. any particulars in respect of any statement, return, accounts, documents, evidence, affidavit or deposition required for the purposes of prosecution of any offence under this Act,³⁰
3. any particulars to a Civil Court in any suit which relates to any matter arising out of any proceeding under the Act and to which the Government of Bangladesh is a party,³¹
4. any particulars relevant to any inquiry into a charge of misconduct in connection with income tax proceedings against a tax lawyer disclosed to any authority empowered to take disciplinary action against such lawyer.³²

7. Is this jurisdiction a signatory (or does it propose to become a signatory) to the Common Reporting Standard? Does it maintain (or intend to maintain) a public register of beneficial ownership?

Bangladesh is not a signatory to the Common Reporting Standard³³ and there have been no public news about its proposal to become a signatory. There is no Register of Beneficial Ownership in Bangladesh. The only register for companies, partnerships etc. is the Register of Joint Stock Companies and Firms ("RJSC"). Although RJSC has an online database, it is not accessible by the general public.

8. What are the tests for determining residence of business entities (including transparent entities)?

The residential status of a company is determined with reference to two factors:³⁴

1. whether it is a Bangladeshi company (as defined in section 2(61) of the Act) or any other company (as defined in section 2(31) of the Act), and
2. whether the control and management of its affairs are wholly situated in Bangladesh in a year.

Other transparent entities, such as partnerships, firms or other association of persons will be treated as resident if the control and management of their affairs is situated wholly in Bangladesh in that year.³⁵ The term "year" means the financial year from June to July.³⁶

9. Do tax authorities in this jurisdiction target cross border transactions within an international group? If so, how?

There are no specific data on the policing of cross-border transaction by the tax authority. Generally, cross-border transactions are regulated as "international transactions" under Chapter II, Part 15 of the Act titled "Transfer Pricing". This chapter governs transactions between "associated enterprises", either or both of whom are non-residents.³⁷ The amount of any income or expenditure arising from an "international transaction" is determined having regard to the "arm's length price",³⁸, which means the price in a transaction, the conditions (e.g. price, margin or profit split) of which do not differ from the conditions that would have prevailed in a comparable uncontrolled transaction between independent entities carried out under comparable circumstances.³⁹

10. Is there a controlled foreign corporation (CFC) regime or equivalent?

There is no controlled foreign corporation (CFC) regime in Bangladesh.

11. Is there a transfer pricing regime? Is there a "thin capitalization" regime? Is there a "safe harbour" or is it possible to obtain an advance pricing agreement?

The transfer pricing regime appears under Chapter II, Part 15 of the Act, as discussed above. However, there is no avenue of executing an advance pricing agreement with the National Board of Revenue. There are different methods whereby the "arm's length price" of an "international transaction" is determined by applying the most appropriate method(s).⁴⁰ They are as follows:

1. comparable uncontrolled price method;
2. resale price method;
3. cost plus method;
4. profit split method;
5. transactional net margin method;
6. any other method where it can be demonstrated that-
   • none of the methods mentioned in clause (a) to (e) can be reasonably applied to determine the arm's length price for the international transaction, and
   • such other method yields a result consistent with the arm's length price.

12. Is there a general anti-avoidance rule (GAAR) and, if so, how is it enforced by tax authorities (e.g. in negotiations, litigation)?

A new provision regarding avoidance of income tax and tax liability has been introduced in the Act.⁴¹

If it appears to the DCT during the course of any proceedings that an assessee has taken tax benefits through abuse of tax arrangement in any income year, then the DCT shall take action and make necessary adjustments against the tax benefits received through such abuse⁴² through, among others, the following methods:⁴³

1. enhancement of income,
2. amendment of tax liability,
3. adjustment of tax returns,
4. revision of allowances, concessions etc.,
5. any other order withdrawing the tax benefits.

In this regard, the DCT will issue a notice to the assessee specifying his reasons to believe that the assessee has obtained tax benefits through abuse of tax arrangement and seeking submission of relevant statements, documents and information.⁴⁴ The assessee shall also be given an opportunity to represent himself in a hearing before the DCT.⁴⁵ Upon consideration of the information submitted by the assessee, the DCT shall issue an adjustment order with prior approval of the Commissioner of Taxes.⁴⁶

13. Is there a digital services tax? If so, is there an intention to withdraw or amend it once a multilateral solution is in place?

There is no separate rate of tax for digital service under the Act. However, income arising directly or indirectly through the sale of any goods or services by any electronic means to purchasers in Bangladesh is deemed to accrue or arise in Bangladesh, and thus, chargeable to tax in Bangladesh.⁴⁷

14. Have any of the OECD BEPS recommendations, including the OECD's recent two-pillar solution to address the tax challenges arising from digitalisation of the economy, been implemented or are any planned to be implemented?

By incorporating section 18(2)(d) in the now repealed Income-tax Ordinance 1984 through the Finance Act 2018, Bangladesh tax regime introduced tools to tax e-commerce activities which were posing challenges to cross-border and international taxation methods. In this regard, the OECD BEPS Project noted that the "spread of the digital economy" posed "challenges for international taxation". It appears that section 18(2)(d) of the now repealed Income-tax Ordinance 1984 had captured the concept of "significant economic presence" for the digital economy as encapsulated in the 2015 Final Report on Action 1 of the OECD BEPS Project.⁴⁸ The same provision now appears in Section 27(b)(iv) of the Act.

15. How has the OECD BEPS program impacted tax policies?

Please see our answer to question number 14.

16. Does the tax system broadly follow the OECD Model i.e. does it have taxation of: a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties? If so, what are the current rates and how are they applied?

The Income Tax Act 2023 has recently replaced the Income Tax Ordinance 1984, which was the progeny of the Income Tax Act 1922 that existed during the period before the independence of Bangladesh and sometime thereafter.

Tax regime and rate of taxation

1. Business profits: The Act prescribes different heads of income for the purpose of charge of income-tax and computation of total income.⁴⁹ One of the heads of income is "income from business" which is taxable under section 45 of the Act.

The rate of income-tax of different businesses is amended every financial year through promulgation of a Finance Act. The Finance Act 2023 prescribes the following, among others, rates of tax on all types of income of companies (except income from dividend):⁵⁰

2. Employment income and pensions: Salaries is a head of income that is taxable under the Act⁵¹ and it includes pension.⁵² It is subject to deduction at source, which means the person responsible for paying salaries must, at the time of payment, deduct tax at a rate representing the average of the rates applicable to the estimated total income of the payee under that head.⁵³

The rate of tax on salaries will depend on which of the following income brackets an individual falls on:⁵⁴

The sum of exempted income for women, and persons who are 65 years old or above is BDT 4,00,000 and the sum of exempted income for persons of the third gender is BDT 4,75,000.⁵⁵

3. VAT (or other indirect tax): The Value Added Tax and Supplementary Duty Act 2012 ("VAT Act 2012") governs the imposition of VAT and supplementary duty on taxable imports and supplies. The general rate of VAT is 15% unless a reduced rate is provided under the Third Schedule of the VAT Act 2012.⁵⁶ On the other hand, supplementary duty is chargeable at the rate prescribed in the Second Schedule of the VAT Act 2012.⁵⁷
4. Savings income and royalties: Royalty falls under the head of income titled "income from other sources".⁵⁸ There is no specific rate of tax payable in respect of royalty. Any sum earned as royalty will be added to a person's total income and taxable as per the rate provided in the Finance Act 2023. However, when making payment of royalty to a non-resident person which constitutes their income, tax must be deducted at the rate not exceeding 30%.⁵⁹

With regard to savings, any person responsible for making any interest payment on any savings instruments shall, at the time of such payment, deduct income tax at the rate of 10% on such interest.⁶⁰ However, this rate may vary depending on the payee of the interest and/or the type of saving deposits.⁶¹

5. Income from land: One of the heads of taxable income is "income from rent".⁶² In this regard, when a specified person rents a house property, hotel or guest house, vacant premises etc., he must deduct tax from the rent at the rate of 5% at the time of payment of such rent.⁶³ Furthermore, when any person engaged in real estate or land development business pays any sum to the land owner on account of signing money, subsistence money, house rent or any other form for the purpose of development of the land of such owner in accordance with any power of attorney or any agreement or any written contract, such person shall deduct tax at the rate of 15% on the sum so paid to the owner at the time of such payment.⁶⁴
6. Capital gain: Capital gain is also one of the heads of taxable income in the Act.⁶⁵ It is payable in respect of any profits and gains arising from the transfer of a capital asset.⁶⁶ Capital gain is computed as per the method prescribed in section 58 of the Act and the rate of capital gains tax is prescribed under the Seventh Schedule of the Act.⁶⁷
7. Stamp and/or capital duties: Stamp duty is payable on such instruments and at such rates as prescribed in Schedule I of the Stamp Act 1899.

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Footnotes

1. Section 261(1) and 261(2) read with Section 2(22) of the Income Tax Act 2023

2. Section 166(1) of the Income Tax Act 2023

3. Section 2(15) of the Income Tax Act 2023

4. Proviso to Section 2(15) of the Income Tax Act 2023

5. Section 169(1) of the Income Tax Act 2023

6. Section 167(1) of the Income Tax Act 2023

7. Section 169(2) of the Income Tax Act 2023

8. Section 200 of the Income Tax Act 2023

9. Section 202 of the Income Tax Act 2023

10. Section 205 of the Income Tax Act 2023

11. Section 285 to Section 295 of the Income Tax Act 2023

12. Section 286 of the Income Tax Act 2023

13. Section 289(7) of the Income Tax Act 2023

14. Section 291 of the Income Tax Act 2023

15. Section 292(6) of the Income Tax Act 2023

16. Section 293 of the Income Tax Act 2023

17. Section 295 of the Income Tax Act 2023

18. Section 173(1) of the Income Tax Act 2023

19. Section 171 of the Income Tax Act 2023

20. Section 2(23) of the Income Tax Act 2023

21. Section 180(1) of the Income Tax Act 2023

22. Section 180(2) and (3) of the Income Tax Act 2023

23. Proviso to Section 180(2) of the Income Tax Act 2023

24. Section 181(2) and (3) of the Income Tax Act 2023

25. Section 183(7) of the Income Tax Act 2023

26. Section 309(1) of the Income Tax Act 2023

27. Section 309(2) of the Income Tax Act 2023

28. Section 309(3) of the Income Tax Act 2023

29. Section 309(3)(a) of the Income Tax Act 2023

30. Section 309(3)(b) of the Income Tax Act 2023

31. Section 309(3)(f) of the Income Tax Act 2023

32. Section 309(3)(j) of the Income Tax Act 2023

33. https://www.oecd.org/tax/exchange-of-tax-information/ crs-mcaa-signatories.pdf

34. Section 2(45)(c) of the Income Tax Act 2023

35. Section 2(45)(d) of the Income Tax Act 2023

36. Section 2(59) of the Income Tax Act 2023

37. Section 233 of the Income Tax Act 2023

38. Section 234 of the Income Tax Act 2023

39. Section 233(1) of the Income Tax Act 2023

40. Section 235(1) of the Income Tax Act 2023

41. Section 231 of the Income Tax Act 2023

42. Section 231(1) of the Income Tax Act 2023

43. Section 231(2) of the Income Tax Act 2023

44. Section 232(1) of the Income Tax Act 2023

45. Section 232(2) of the Income Tax Act 2023

46. Section 232(3) of the Income Tax Act 2023

47. Section 27(b)(iv) read with section 26 of the Income Tax Act 2023

48. See Junayed A. Chowdhury, Corporate Tax Law & Practice, University Press Limited, 2nd ed, 2021, p. 67

49. Section 30 of the Income Tax Act 2023

50. Schedule 2, First Part, Section-Kha, Para 1, Finance Act

51. Section 30(a) of the Income Tax Act 2023

52. Section 32, Explanation (a) of the Income Tax Act 2023

53. Section 86(1) of the Income Tax Act 2023

54. Schedule 2, First Part, Section-Ka, Finance Act 2023

55. Ibid

56. Section 15(3) of the Value Added Tax and Supplementary Duty Act 2012

57. Section 55(4) of the Value Added Tax and Supplementary Duty Act 2012

58. Section 66(a) of the Income Tax Act 2023

59. Section 119(1) of the Income Tax Act 2023

60. Section 105(1) of the Income Tax Act 2023

61. Section 102 of the Income Tax Act 2023

62. Section 30(b) of the Income Tax Act 2023

63. Section 109(1) of the Income Tax Act 2023

64. Section 115 of the Income Tax Act 2023

65. Section 30(e) of the Income Tax Act 2023

66. Section 57 of the Income Tax Act 2023

67. Section 18(5) of the Income Tax Act 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.