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Income Taxation in Bangladesh

Income Tax is the tax collected on various types of income under the
provisions of the Income Tax Ordinance 1984.
Basic Principles of Charging/Imposing Income Tax: Sec. 16
General Principles u/s 16(1):
1. Income taxpayer: Income tax is payable by ‘every person’ [section 16(1)].
2. Income tax rate: Income tax rate is provided by an ‘Act of Parliament’, which is called the
Finance Act [section 16(1)].
3. Income tax base: Income tax base is the “total income” of the taxpayer during the income
year [section 16(1)].
4. Timing of income tax base: Income tax base, i.e., total income is to be computed for the
“income year” [section 16(1)].
5. Timing of income tax payment: Income tax is to be paid in the “assessment year” [section
16(1)].
Exceptions to General Principles:
1. Income tax payment otherwise: Tax deducted at sources or advanced payment of income
tax where applicable [section 16(2)].
2. Special income tax rate: For “capital gain”, “accidental income” or “non-corporate non-
resident’s income” tax rates are special and given in the Second Schedule [section 16(3)].
3. Imposition of surcharge: There may be surcharge to be imposed as a percentage of normal
income tax (section 16A).
4. Imposition of additional tax: By inserting section 16B by the FA 2002, a provision has
been made to impose additional tax on undistributed profit @ 5% (in addition to normal
tax) if a listed public limited company (not being a banking or insurance company) has not
issued, declared or distributed dividend or bonus share equivalent to at least 15% of paid
up capital within 6 months after the end of the income year. For AYs 2002-03 and 2003-
04, “undistributed profit” means total income with accumulated profit including free
reserve as reduced by the aggregate of dividend or bonus share issued, declared or
distributed for that year, the tax which is payable under section 74 and the paid-up capital.
From AY 2004-05, “undistributed profit” means accumulated profit including free reserve
(changed by FA 2004).
5. Imposition of excess profit tax: Under section 16C (inserted by the FA 2002), a bank
company operating under the Bank Companies Act 1991, 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 excess profit tax in addition to normal tax.
6. Imposition of minimum tax: Under section 16CC (inserted by the FA 2006), a company
shall pay a minimum income tax of Tk. 5,000 or 0.50% of turnover whichever is higher,
irrespective of profit or loss.
General Principles: Sec. 16(1)
Income tax shall be imposed on total income of the income year of every
person and payable in the assessment year at the tax rate determined by the
Finance Act.

Taxpayer: Assessee – every person


Tax-base: Total income
Tax Period: Period for tax-base – income year
Period for tax-rate and tax-payment – assessment year
Tax rate: Prescribed by an Act of the Parliament (the Finance Act)
Exceptions to Basic Principles:
1. TDS (tax deducted at source)/AIT (advance income tax)
2. Special tax rates for selective income in Second Schedule
3. Provision of surcharge and special taxes

Scope of Income Tax Laws in Bangladesh:


1. Income Tax Manual, Part I: Income Tax Ordinance 1984
2. Income Tax Manual, Part II: Income Tax Rules 1984
3. Annual Finance Act to amend the Income Tax Ordinance 1984
4. Statutory Rule and Order (S.R.O.) to make amendments to Income
Tax Rules 1984 and to issue various statutory general or special orders
made by the Direct Tax Wing of the NBR (National Board of
Revenue), the apex tax authority
5. Other general or special orders and circulars made or explanations
given by the Direct Tax Wing of the NBR
6. Verdicts of court cases on income tax issues.

Formula to Calculate Income Tax Liability:


Aggregate Income
– Exclusions
= Gross Income
– Allowable Deductions
= Taxable Income [Total Income as defined under ITO]
× Tax Rate
= Gross Tax
– Tax Credit on investment allowance
= Net Tax
– Tax Rebate & Tax Relief
= Tax Payable
– Tax deducted at sources (TDS) & Advance income tax (AIT)
= Tax Payable at the time of submitting return
Taxpayers/Assessee [section 2(7)]
Taxpayers under the Income Tax Ordinance is referred to as “assessee”
which is defined u/s 2(7) as follows:
“Assessee” means a person by whom tax or any sum is payable under
the Income Tax Ordinance 1984 and includes:
(a) every person in respect of whom any proceedings has been taken
for (i) assessment of his income, or (ii) for assessment of other
person’s income for which he is assessable, or (iii) refund due to
him or such other person;
(b) every person who is required to file a return
• u/s 75 (regular return),
• u/s 89 (return to be submitted for a discontinued business along
with a notice of discontinuance within 15 days thereof), or
• u/s 91 (return to be submitted by a person leaving Bangladesh
with no intention of returning)
(c) every person desiring to be assessed and submits his return; and
(d) every person deemed to be an assessee, or an assessee in default.
Person [section 2(46)]
“Person” includes:
• Individual
• Firm (partnership firm)
• Association of persons (AOP)
• Hindu undivided family (HUF)
• Local authority
• Company
• Every other artificial juridical person.

Tax-base
Tax-base of income tax is the total income (taxable total
income) as defined in section 2(65) of the Income Tax
Ordinance 1984.
Total income: section 2(65)
“Total income” means –
• Total amount of income
 referred to in section 17 [i.e., scope of total income of an
assessee, where both domestic and foreign income shall be
included in total income of a resident assessee, but only
domestic income shall be included in total income of a non-
resident assessee],
 computed in the manner laid down in the Income Tax
Ordinance [section 43 deals with the provisions of
“computation of total income” and covers provisions
regarding: (i) allocation of partnership firm’s income among
the partners, and (ii) extent of income of the spouse or minor
child of an assessee or other prescribed related persons that is
to be included in the total income of the assessee.
and includes –
• any income which, under any provision of the ITO, is to be
included in the total income of the assessee.
Tax period

Income Year [section 2(35)]


Income year is the year used to determine the tax-base of
income tax (for separate source of income). Following are
the provisions:
• Normally this is the financial year (1 July of one year
to 30 June of next year).
• Income year may be any year (not exceeding 12
months) as opted by the assessee.
• For a newly set up business, this may less than 12
months for the first year of business.
• Income year may be prescribed for any person or a
class of persons.
• For “share of income from a partnership firm”, firm’s
income year is applicable.

Assessment Year [section 2(9)]

This is the financial year succeeding the income year.

Income Year ended Financial Year in Assessment Year


on which last date of
Income Year Falls
30-06-2004 2003-2004 2004-2005
31-12-2004 2004-2005 2005-2006
13-04-2004 2003-2004 2004-2005
31-11-2004 2004-2005 2005-2006
26-04-2002 2001-2002 2002-2003
31-10-2005 2005-2006 2006-2007
30-06-2005 2005-2006 2006-2007

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