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Income Tax

Legal Solution BD > Income Tax

Taxation (Income Tax) in Bangladesh

Among direct taxes, income tax is the main source of revenue. It is a progressive tax system. Income tax is imposed on the basis of ability to pay. “The more a taxpayer earns the more he should pay”- is the basic principle of charging income tax. It aims at ensuring equity and social justice. In Bangladesh, income tax is being administered under the tax legislation named as “THE INCOME TAX ORDINANCE, 1984 (XXXVI OF 1984) and INCOME TAX RULES, 1984

Personal-IncomeTax
Step-1: Tax Identification Number (TIN/eTIN)

Tax Identification Number (TIN) is issued by the National Board of Revenue (NBR) which is a unique 12 digit identification number. It’s determined that the tax office and its subdivision where Private Limited Company/ Public limited Company/ Joint Venture has to report.

For Collection Tax Identification Number (TIN) for a company, the following copies of documents are required;

  • Trade License
  • Incorporation Certificate
  • Memorandum of Associations
  • Articles of Associations
Step-2: Daily compliance activities
  • Reviewing all invoices to be received from the suppliers, vendors and service providers and calculating the applicable amount of withholding tax.
  • Depositing withholding tax to the relevant government authorities along with the relevant challans within the specific time period.
  • Collecting receipts copies of the relevant challans.
  • Preserving copies of the relevant challans for future reference and submission to the relevant governmental authority.
Step-3: Monthly compliance activities
  • Monthly Withholding/Tax Deducted at Source(TDS) Statement Submission (excluding Salary TDS)
    • Preparing monthly withholding Statement.
    • Arranging relevant withholding tax challans for onward submission to respective tax circle office along with
    • Withholding (TDS) statement.
    • Submitting Monthly TDS Statement along with treasury and withholding challans.
    • Collecting and preserving receipt copy of monthly TDS Statement and,
    • Providing documents and explanation as per the requirements of the respective Deputy Commissioner of taxes (DCT).
  • Monthly Withholding (TDS) Statement Submission (Salary TDS)
    • Preparing monthly withholding Statement for salary expenses.
    • Arranging relevant withholding tax challans for salary expenses onward submission to respective tax circle office along with Withholding (TDS) Statement.
    • Submitting monthly TDS Statement for salary expenses along with treasury and withholding challans.
    • Collecting and preserving receipt copy of monthly TDS return for salary expenses and,
    • Providing documents and explanation for salary expenses as per the requirements of the respective Deputy Commissioner of taxes (DCT).
Step-4: Quarterly compliance activities:
    1. Quarterly Advance Income Tax Computation and Submission.
    2. Quarterly Accounting Reporting
      • Preparing Quarterly Return as per Bangladesh Bank and Bangladesh Investment Development Authority and National Board of Revenue.
      • Take the necessary steps to submit the Financial Statements with govt. authority (e.g. Bangladesh Investment Development Authority, Bangladesh Bank and National Board of Revenue as and when applicable).
Step- 5: Semiannually compliance activities
  1. Preparing a semi-annual statement for withholding tax.
  2. Arranging relevant withholding tax challans for onward submission to tax office along with
  3. withholding tax return.
  4. Submitting the withholding tax return to the respective income tax office.
  5. Collecting and preserving receipt copy of the withholding tax return, and,
  6. Providing documents and explanation as per the requirements of Deputy Commissioner of Taxes (DCT).
Step-6: Annually compliance activities
  1. a) Annual return submission U/S 108 regarding payment of Salaryb) Annual return submission U/S 109 regarding payment of Interestc) Annual return submission U/S 110 regarding payment of Dividend

    d) Annual corporate tax return Submission

     

    The following documents are needed to be submitted at the time of submission of the annual tax return.

    i. Audit Report:

    ii. Withholding Tax Return:

    iii. Pay Order of Remaining Tax:

    iv. Advance Tax Payment Copy:

    v. Bank Statements:

Assessment
  1. A company can assess the income tax in the simplified procedure and Universal Self-Assessment Procedure.
    • For returns submitted under simplified Procedure, assessment is made after hearing from Deputy Commissioner of Taxes (DCT).
    • For returns submitted under Universal Self-Assessment Procedure, the acknowledgment slip is determined to be an assessment order. Universal Self-Assessment is, of course, subject to audit.
    • A company’s tax liability depends on the operation and legal status of a particular company in Bangladesh. The income tax rate varies depending on the company’s types of operations activity and legal status of the company. The applicable rate of income tax is given below:
    Types of Company The rate of taxes on profit
    Private limited company (not listed company) 35%
    Publicly traded and listed company in stock exchanges 25%
    Publicly traded bank, insurance, and non-banking financial institution 40%
    Non- Publicly traded bank, insurance, and non-banking financial institution 42.5%
    Merchant Bank 37.5%
    Mobile phone operator company 45%
    Cigarette and Tobacco product manufacturing company 45%

Current Revenue Regime

The current fiscal regime of Bangladesh consists of direct and indirect taxation. It is governed by the National Board of Revenue (NBR). Revenue is also generated from non-NBR sectors and under the laws and acts of related ministries. The NBR taxes include Customs Duty, Value Added Tax (VAT), Supplementary Duty (SD), Personal Income Taxes (PIT) and Corporate Income Taxes (CIT). Personal and Corporate Income Tax, the single largest source of direct tax, is governed by the Income Tax Ordinance, 1984 (XXXVI of 1984). The income tax laws consist of the following statutes (apart from
the main statute) (Bala, Swapan Kumar 2009):

  • Income Tax Ordinance 1984 – the parent statute;
  • Income Tax Rules 1984;
  • S.R.O. (Statutory Rules and Order)/Gazette Notification;
  • Income Tax Circular;
  • General or Special Order;
  • Explanation/Office Memorandum;
  • Verdicts of Appellate Tribunal for the equivalent fact;
  • Verdicts of the High Court Division on the question of law; and
  • Verdicts of the Appellate Division on the judgment of the High Court Division.

Besides fiscal income from direct sources (e.g. income tax), Bangladesh generates a substantial share of its revenue from indirect sources through import and excise duties (customs duties). Customs duties are normally payable on the following goods: a) imported and exported goods; b) goods brought from any foreign country to any customs station and without payment of duties there, transhipped or thence carried to and imported at any other customs station; and c) goods brought in from one customs station to another. The main legislation relating to customs and excise duties are:

– The Central Excises and Salt Act, 1944;
– The Central Excises and Salt Rules, 1944
– The Protective Duties Act, 1950;
– The Customs Act, 1969;
– The Customs Tariff Act, 1969/2000

Overview of Individual Income Tax

If the person, at any time during the income the year fulfills any of the following conditions, namely: owns a motor car/owns membership of a club registered under VAT Law/ runs a business or profession having trade license/ Any professional registered as a doctor, lawyer, income tax practitioner, Chartered Accountant, Cost & Management Accountant, Engineer, Architect, and Surveyor or any other similar profession/ Member of a Chamber of Commerce and Industries or a trade Association/ Runs for an office of any paurashava, city corporation/ participates in a tender/Serves in a board of a company or group of company.

Tax Rates

The tax rates during the assessment year for individual male taxpayers are as follows:

Total Income Rate of Tax
For first Tk 250,000 0%
For next Tk 400,000 10%
For next Tk 500,000 15%
For next Tk 600,000 20%
For next Tk 3000,000 25%
For the rest of the amount 30%

 

The minimum amount of income tax for the assessee who lives in Dhaka North and Dhaka South and Chittagong city corporation area is Tk.5,000, Tk.4,000 for other than living in city corporations and Tk.3,000 for other taxpayers.

In Bangladesh, individual income tax return filing is mandatory for both resident and non-resident Bangladeshi imposed by The National Board of Revenue (NBR).

Time to Submit Tax Return

30th November following the end of the income year;
The next working day following the tax day if the day mentioned above is a public holiday.

Required documents

A person has to furnish the description of his income, investment, and his assets and liabilities in the particular forms prescribed by the National Board of revenue.

Consequences for failure to submit Tax return

If an assessee fails to submit return then he will be treated as assessee in default by the rules of Income Tax Ordinance, 1984 and he would have to pay penalties for such action. Also, he will be liable to pay additional charges for continuing default period. Various regulatory bodies of Bangladesh require tax acknowledgment receipt for authorization purpose and this document can be obtained by submitting the tax return.