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Fiscal Incentives for Stock Market

Development in Bangladesh
Guideline:
SEC is the regulator: No tax
DSE and CSE are the trading place: No tax
They are no longer physical trading place as it goes to online and brokerage houses are
allowed to do substandard for Stock Market Development in Bangladesh, it is necessary to
increase the number of company. For bank, there is no difference in listing, but Mobile Phone
Company has 45% to 35%. For others 27.5% to 37.5%, but condition is 30 days, when
commerce will be there, then dividend will be paid instantly.

Publicly Traded Company


Dividend declared by less than 10% or failure to pay declared dividend 27.5% within
SEC stipulated time (30 days from 9.2.10)
0 Other situation 37.5%
Other company 37.5%
Minimum Tax irrespective of profit or loss: Taka 5,000
If dividend paid at more than 20%, 10% rebate on applicable tax.

Income from Mutual fund is totally tax exempted. Part A 6th Schedule. 208. Because they
have obligation to pay all the income (95%) directly except management expenses (5%).
They can’t retain the income and reinvest it because their prime purpose is not to do business.
There is exemption in head

Exemption of Dividend from Mutual Fund or Unit Fund:


Any income from dividend of a mutual fund or a Unit fund where such dividend does not
exceed taka 25000. So if the income from dividend of a mutual fund is less than 25000 then
there is no tax on that but if it exceeds 25000tk then the total income is taxable.
Mobile phone operator companies

Types of Income Tax Rate

1. Capital gain from:

0 Transfer of stocks & shares of non-listed private limited company 10%


1 Transfer of other capital assets 15%
2. Dividend income 20%

Resident/non-resident Bangladeshi Company @ 20%


Income from Dividend U/S 54 Resident/non-resident Bangladeshi Person other than
Company @ 10%
For example: In EPZ there is Korean company. If Korean company gives dividend, that
dividend is not taxable is Bangladesh, it is taxable in Korea.

Also he is given stock dividend. According to the definition of income, it is said that stock
dividend is not an income.

Other Industrial Companies:

Types of Income Tax


Rate
Capital gain from:
0 Transfer of stocks & shares of non-listed private limited company 10%
1 Transfer of other capital assets 15%
Dividend income 20%
Other income
Publicly traded company
Dividend declared by less than 10% or failure to pay declared dividend within SEC
stipulated time (30 days from 9.2.10)
Other situation

3. Other income

Company being converted into a publicly traded through transfer of at least 10% shares
through stock exchanges, of which maximum 5% may be through-
Pre-IPO Placement Tax rate is 35%
Other company Tax rate is 45%
Minimum Tax irrespective of profit or loss: Taka 5,000

Non-Corporate Taxpayers:

Resident individual assesse, non-resident Bangladeshi, association of persons, firm and other
artificial juridical persons

5% tax on Capital gain on transfer of shares of:


a sponsor shareholder or director of a listed company [source tax u/s 53M and settled tax u/s
82C]
a sponsor shareholder or director of bank, financial institution, merchant bank, insurance
company, leasing company, portfolio management company and stock dealer company
[proposed]
other shareholder or director of a listed company having more than 10% of share capital of a
company at any time in income year [proposed]
Placement Shareholder: (106: Transfer of Government)
Types of Income Tax Rate

Capital gain from transfer of shares of listed company [proposed] 10%

If a company raises its share capital through book building 3%


Or, public offering or rights offering or private placement or
preferential share or in any other way, at a value in excess of face value [sec. 16E]
(Source tax u/s 53L and settled tax u/s 82C)

When the company will submit its’ return?

It is mandatory for the company whether it incurs loss or gain. For others the date is 13 th
September. For company, the date is by 15th July or within 6 months whichever is earlier.
(Sec. 75)

According to 19 (11G), rule 24 company’s return form is different.

Assessment: Two types of assessments. One is universal self-assessment and other is normal
assessment. In universal self-assessment, there is less hassle in general.

When the tax will be given?

For company, they have obligation advance quarterly tax payment. If they have total income
of 400000 tk., then they have to pay advance tax, (Sec 68). And the regular payment is before
filing the return. Its’ obligation is 15th July or within 6 months before the income year ends
whichever is earlier. But maximum companies follow the financial year, because in 15 th July
the account has not closed yet. For this, there is opportunity to take time. It has rule like at
first you need to apply for 3 months and after that you can apply for another 3 months. In
total, you will get 6 months for return submission. If the assessment is not completed, you
cannot submit the revised return.

Tax holiday: tax rate is zero on business income, but if he has other income, tax will be
imposed on that. He has to submit the return.

Advance payment of tax: two types of rules. First one is on his assessed income of previous
year. Suppose assessed income is 1 crore tk. If he pays (1/4) of 1 crore quarterly, then there
will be no problem. If he says that in this year, income will go down to 80 lacks, he has to
pay tax on that quarterly. But here is a problem. Like if his estimated income fluctuates
widely with the actual, suppose his income becomes 1.5 crore, he has to pay tax on 1.5 crore
with interest payment calculated from the very beginning (1st April). In this case, if he has
already given tax on 1 crore taka earlier, then no question will be asked. The rule of advance
tax is at least 75% of tax should be given.

Tax recovery: When the person does not pay tax, then the question of recovery comes. In
this regard, at first tax authority will do the assessment. If difference is there, they will issue
notice of demand of how to recover tax. {Rule 58 (192 to 246)}
Corporate Taxation in
Bangladesh
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.

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.

In systems where financing costs are allowed as reductions of the tax base (tax deductions),
rules may apply that differentiate between classes of member-provided financing. In such
systems, items characterized as interest may be deductible, subject to interest limitations,
while items characterized as dividends are not. Some systems limit deductions based on
simple formulas, such as a debt-to-equity ratio, while other systems have more complex rules.

Some systems provide a mechanism whereby groups of related corporations may obtain
benefit from losses, credits, or other items of all members within the group. Mechanisms
include combined or consolidated returns as well as group relief (direct benefit from items of
another member).

Most systems also tax company shareholders on distribution of earnings as dividends. A few
systems provide for partial integration of entity and member taxation. This is often
accomplished by "imputation systems" or franking credits. In the past, mechanisms have
existed for advance payment of member tax by corporations, with such payment offsetting
entity level tax.

Many systems (particularly sub-country level systems) impose a tax on particular corporate
attributes. Such non-income taxes may be based on capital stock issued or authorized (either
by number of shares or value), total equity, net capital, or other measures unique to
corporations.

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.1
Taxation of Corporations:
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.

In Bangladesh, the principal direct taxes are personal income taxes and corporate income
taxes, and a value-added tax (VAT) of 15% levied on all important consumer goods. The top
income tax rate for individuals is 25%. For the 2004/05 tax year (July 1 2004–June 30 2005)
the top corporate rate was 45%. However, publicly traded companies registered in
Bangladesh are charged a lower rate of 30%. Banks, financial institutions and insurance
companies are charged the 45% rate. All other companies are taxed at the 37.5% rate.
Effective 1 July 2002, the VAT rate on computer hardware and software was reduced to
7.5%, and certain agricultural equipment and electricity supplied to the agricultural sector
was exempted from VAT altogether. VAT on the transfer of land is also to be abolished.
Essential agricultural implements and irrigation pumps had previously been excluded from
certain taxes.

Any income collected or gained by a company doing business in Bangladesh, whether


resident or not is taxable. Corporate tax rates for industrial companies whose shares are
publicly traded are 35% and the rate of those whose shares are not publicly traded is 40%.

A tax rate on income of all other companies including banks, financial institutions, insurance
companies and local authorities is 45%. Companies enjoying tax holiday are required to
invest only 25% to 30% of their income in other activities as per rules of the National board
of Revenue (NBR).
Statutory Definition of Company:
Under Section 2(20), Company means a company as defined in the companies Act, 1913 (vii
of 1913) or company act 1994 and includes –
a) A body corporate established or constituted by or under any law for the time being in
force;
b) Any nationalized banking or other financial institution, insurance body and industrial or
business enterprise;
bb) an association or combination of persons, called by whatever name, if any of such
persons is a company as defined in the companies act, 1913 (vii of 1913) or company act,
1994.
c) Any foreign association or body not incorporated by or under any, which the board may,
by general or special order, declare to be a company for the purposes of this ordinance.
1
From Wikipedia, the free encyclopedia
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 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 non-resident [u/s 2(42)].2

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Tax Rate for Corporate Taxpayers:
Tax Rates for
Types of AY
Type of Income
Company 2006- 2007-
07 08
(1) Capital - Transfer of stocks & shares of private
gain limited company [S.R.O. No. 220- 10% 10%
Bank*, insurance, arising Ain/Aykar/2004 dated 13.07.2004]
financial out of - Transfer of other capital assets 15% 15%
institutions (2) Dividend income 15% 15%
(3) Other - Both for publicly traded and not publicly
45% 45%
income traded company
(1) Capital - Transfer of stocks & shares of private
gain limited company [S.R.O. No. 220- 10% 10%
arising Ain/Aykar/2004 dated 13.07.2004]
out of - Transfer of other capital assets 15% 15%
(2) Dividend income 15% 15%
Other company** - For publicly traded company
* Dividend declared by less than 10% or
40% 40%
(3) Other failure to pay declared dividend
30% 30%
income within SEC stipulated time
* Other situation
- For other company 40% 40%
*
Under section 16C, 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, 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.

Submission of Return:

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Tax Planning in Business: Bangladesh Perspective by Swapan Kumar Bala, FCMA
3
Tax Planning in Business: Bangladesh Perspective by Swapan Kumar Bala, FCMA
The return under sub-section 2[(1), (1A) and (1B)] shall be furnished in the prescribed form
setting forth therein such particulars and information as may be required thereby including
the total income of the assessee.

Signed and Verified-

(i) in the case of an individual, by the individual himself ; where the individual is absent
from Bangladesh, by the individual concerned or by some person duly authorised by
him in this behalf; and when the individual is mentally incapacitated from attending to
his affairs, by his guardian or by any other person competent to act on his behalf ;

(ii) in the case of Hindu undivided family, by the Karta, and, where the Karta is absent from
Bangladesh or is mentally incapacitated from attending to his affairs, by any other adult
member of such family ;

(iii) in the case of a company or local authority, by the principal officer thereof ;

(iv) in the case of a firm, by any partner thereof, not being a minor;

(v) in the case of any other association, by any member of the association or the principal
officer thereof ; and

(vi) in the case of any other person, by that person or by some person competent to act on
his behalf.
Assessment:
Provisional Assessment-
(1) The Deputy Commissioner of Taxes may, at any time after the first day of July of the
year for which the assessment is to be made, proceed to make, in a summary manner, a
provisional assessment of the tax payable by the assessee on the basis of the return and
the accounts and documents, if any, accompanying it and where no return has been
filed, on the basis of the last assessment including an assessment under this section.

(2) In making a provisional assessment under this section, the Deputy Commissioner of
Taxes shall--
(a) rectify any arithmetical errors in the return, accounts and documents;
(b) allow, on the basis of the information available from the return, accounts and
documents, such allowances as are admissible under the Third Schedule and any
loss carried forward under section 38 or 39 or 41.
(3) For the purposes of payment and recovery, the tax as determined to be payable upon
provisional assessment shall have effect as if it were determined upon regular
assessment.
(4) The tax paid or deemed to have been paid under Chapter VII, in respect of any income
provisionally assessed under sub-section (1), shall be deemed to have been paid towards
the provisional assessment.

(5) Any amount paid or deemed to have been paid towards provisional assessment under
this section shall be deemed to have been paid towards regular assessment; and the
amount paid or deemed to have been paid towards provisional assessment in excess of
the amount found payable after regular assessment shall be refunded to the assessee.

(6) Nothing done or suffered by reason or in consequence of any provisional assessment


made under this section shall prejudice the determination on merit of any issue which
may arise in the course of regular assessment.

(7) There shall be no right of appeal against a provisional assessment under this section.

Universal Self-Assessment: (Sec. 82BB)


Two new sub-sections 4 and 5 have been added to this section.

Sub-sec 4, no question as to the source of investment by a new assessee deriving income


from business or profession shall be made when he shows a minimum income of 25% of
invested capital and pays tax before filing of return.

Sub-sec. 5, initial capital investment shall not be transferred or let out within five years from
the end of the assessment year in respect of which return of income has been filed under this
section.
Tax Payment:
Deduction at Source and Advance Payment of Tax-
(1) Notwithstanding that regular assessment in respect of any income is to be made later in any
assessment year, and without prejudice to the charge and recovery of tax under this Ordinance
after such assessment, the tax on income shall be payable by deduction or collection at source,
or by way of advance payment.

(2) any sum deducted or collected, or paid by way of advance payment shall, for the purpose of
computing the income of an assessee, be deemed to be the income received, and be treated as
payment of tax in due time, by the assessee.

Payment of Tax On The Basis Of Return-


1) Every person who is required to file a return under section 75 shall, on or before
the date on which he files the return, pay the amount of the tax payable by him on the
basis of such return as reduced by the amount of any tax deducted from his income or
paid by him.

2) Any amount paid under sub-section (1) shall be deemed to have been paid towards
the sum as may be determined to be payable by him after regular assessment.
3) A person who, without reasonable cause, fails to pay the tax as required by sub-
section (1) shall be deemed to be an assessee in default.