What are the proposed major changes in income tax through Finance Bill 2021 for personal and corporate taxpayers in Bangladesh?
Finance Bill 2021 has been placed in National Parliament on last 03 June 2021 which has been proposed to change the direct tax and indirect tax. And the changes will impact in the financial year 2021-22.
In this article, today you will know the salient features of Finance Bill 2021 for direct tax portion i.e., income tax which will divided into personal tax and corporate tax. The indirect tax i.e., Value Added Tax (VAT) and Supplementary Duty (SD) will be covered in next article. To get the regular update about important tax issues, you may subscribe to our news letter by registering you name and email in the right hand of this article.
The discussion will be going on brief so that you could get an overview in a very short time.
So, let’s start!
Tax-free Threshold and Tax Rate
There is no change in tax-free threshold and slab wise tax rates for individual taxpayers. You know, last year through Finance Act 2020, tax-free limit had been increased from BDT 2.5 lakh to BDT 3 lakh. And the starting tax rate reduced to 5% from 10%. Slab wise tax rates and tax-free threshold have been presented in the annexure 01 and 03 below of this article respectively.
The notable inclusion in the proposed budget is that third gender has been included with the women and senior citizen aged 65 years and above. The tax-free limit for these taxpayers is BDT 3.5 lakh. Third gender taxpayer will also calculate tax liability if the taxable income exceeded this limit.
Twelve-digit Taxpayer’s Identification Number (TIN) shall obtain if any person is engaged in purchasing savings instruments (Sanchayapatra) of exceeding BDT 2 lakhs; opening postal savings accounts of exceeding BDT 2 lakhs and obtaining registration of co-operative society. In these three cases, Finance Bill 2021 proposed to obtain TIN certificate.
And another major change through Finance Bill 2021 is that investment allowance limit has been reduced to BDT 1 crore. You know that investment allowance shall be considered the lower amount among three figures i.e., 25% of total taxable income or actual investment or BDT 1.5 crore. And as per proposed Finance Bill 2021, it will be BDT 1 crore instead of BDT 1.5 crore. So, you have to keep in mind this amount during calculation of investment allowance. Though this change will not affect the majority taxpayers. This will affect only the high-income earner.
The Finance Bill 2021 will also affect the wealthy person during calculation of surcharge on their tax liability. You know that if amount of wealth exceeds BDT 3 crore, then he shall pay surcharge on his tax liability using the prescribed rate. The surcharge calculation will also be changed from next year. There will be no minimum surcharge but no surcharge shall be paid if the taxpayer’s taxable income does not exceed the tax-free limit. Surcharge rates are provided in annexure 4.
These are the major proposed changes for individual taxpayers through Finance Bill 2021. But what are the proposed major changes for corporate taxpayers?
Company Tax Rate
Last year, corporate tax rate reduced by 2.5% for both publicly traded and non-publicly traded company. Again, the rate is proposed to reduce by 2.5% for the above companies. On the other hand, Mobile Financial Services (MFS) corporate tax rate has been proposed to increase to 37.5% for publicly traded MFS and 40% for non-publicly traded MFS from 32.5%.
You know, in 2020, One Person Company (OPC) was introduced in Companies Act 1994 and the corporate tax rate for this new company is proposed to fix at 25%. In other cases, corporate tax rate will remain unchanged. See the annexure 2 for corporate tax rates.
Tax Deducted at Source (TDS) and Advance Income Tax (AIT)
Tax deducted/collected at source has been changed in several areas. Each year after Finance Act, I publish full TDS rates with section reference in this blog. Please keep your eyes on this blog to get the full TDS rates.
You may know that if the payee does not have the TIN, then the tax rate shall be 50% higher under section 52. The Finance Bill 2021 proposed another new condition that if the payee does not receive payment by bank transfer or by MFS or any other digital means approved by the Bangladesh Bank then tax rate shall also be 50% higher under this section.
And another change has been proposed under this section which is “specified person”. The area of specified person has been proposed to extend. E-commerce platform includes with specified person. You know that specified person shall deduct tax under section 52 and in addition, you will find that specified person are responsible person to deduct tax at source. That’s why, it is important to know about the specified person to comply with tax deducted at source.
You also know that upto BDT 50,000 received by the beneficiary of the WPPF fund is tax free income but during making the payment to such beneficiary, 5% tax shall deduct at source by the employer. The Finance Bill 2021 proposed two new conditions, if both the conditions are fulfilled then tax shall not be applicable under section 52DD, the receiver income is not taxable and he does not receive more than BDT 25,000 from WPPF.
Except the above areas, there are also several areas where tax deducted or collected has been proposed to change. All the changes will be incorporated in the month of July on my blog which I do each year.
You know, last year advance tax for the owners of private motor car had been increased significantly. This year there is no such increase but included the electric motor car based on kilowatt (kw). The amount of advance income tax on private motor car is provided in annexure 5.
Deduction not admissible under section 30
You know section 30 is most important for corporate taxpayer because any payment which is not complied with this section shall be disallowed subject to tax at proposed rate 30% which is huge. That’s why it is important to know the changes made in section 30.
Tax deduction at source, cash payment upto certain limit and payment through banking channel are the compliance requirements as per tax law. You know in few cases, payment through crossed cheque was allowable but the Finance Bill 2021 proposed to delete the payment through crossed cheque. And payment against raw materials purchase was allowed to pay in cash even the amount exceed BDT 50,000. But from now on, no payment shall be made in cash if the amount exceeds BDT 50,000.
Exemption for Industrial Undertakings
You know already there are 22 IT business under paragraph 33, Part A, Sixth Schedule of Income Tax Ordinance 1984. The Finance Bill 2021 proposed to extend the area of IT sectors for tax free facility upto 2024. The new areas are cloud service, system integration, e-learning platform, e-book publications, mobile application development service and IT Freelancing.
Section 82C: Minimum Tax
A minor change has been proposed in section 82C. The minimum tax rate on gross receipts shall be 0.25% instead of 0.50% in case of individual other than individual engaged in mobile phone operation or in the manufacturing of cigarette, bidi, chewing tobacco, smokeless tobacco or any other tobacco products, having gross receipts BDT 3crore or more.
And any more major changes in income tax…
One significant proposed move is, taxpayment method to government treasury. Upto BDT 500,000 taxpayment to the government treasury shall be made through e-payment using the NBR hosted website. It is a positive move which will help taxpayers to make the payment easily without physical presence in the Bank.
Depreciation rate under Third Schedule for general building and factory building is proposed to 5% and 10% instead of 10% and 20% respectively. So, your tax depreciation calculation will be changed now.
Tax exemption facility for 10 years has been proposed for IT hardware, light engineering, hospitals in specified areas. Hope, these sectors will attract new investment from entrepreneurs.
So, you have learned the major changes in income tax and in next article I will cover the indirect tax as I said earlier. So, keep your eyes on this blog.
Please note that this article is developed to give an overview of the major changes in income taxes of Bangladesh and does not cover the area to reach a decision solely based on it.
So, please rely on main tax related resources if any complexity arises during your decision making.
Annexure 1: Individual Taxpayers Tax Rates Other Than Companies
|Income slab||Tax Rate|
|On first BDT 300,000||0%|
|On next BDT 100,000||5%|
|On next BDT 300,000||10%|
|On next BDT 400,000||15%|
|On next BDT 500,000||20%|
|On the balance of total income||25%|
|Income of non-resident||30%|
Annexure 2: Company Tax Rate
|Publicly Traded Company||22.5%|
|Non- Publicly Traded Company||30%|
|One Person Company (OPC)||25%|
|Publicly traded Bank, Insurance, Financial Institute (other than Merchant Bank) and Mobile Finance Services (MFS)||37.5%|
|Non-publicly traded Bank, Insurance, Financial Institution (other than Merchant Bank) and Mobile Finance Services (MFS)||40%|
|Publicly traded mobile phone company||40%|
|Non- Publicly traded mobile phone company||45%|
|Special Tax Rate|
|Cigarette, bidi, zarda, chewing tobacco, gul or any other tobacco products manufacturers||45%|
|Income of Co-operative Society||15%|
|RMG factories having green building certification||10%|
|RMG factories without having green building certification||12%|
Annexure 3: Tax-Free Threshold For Individual Taxpayers
|Third gender, women and senior citizen aged 65 years and above||350,000|
|Person with disability||450,000|
|Gazette war-wounded freedom fighters||475,000|
Annexure 4: Surcharge Based on Disclosed Net Wealth of Individual Taxpayer
|Amount of net wealth||Rate on income tax|
|Upto BDT 3 crore||0%|
|Exceeding BDT 3 crore to BDT 10 crore Or Ownership of more than one motor car; or Ownership of house property having an aggregate area of 8,000 square feet in a city corporation||10%|
|Exceeding BDT 10 crore to BDT 20 crore||20%|
|Exceeding BDT 20 crore to BDT 50 crore||30%|
|Exceeding BDT 50 crore||35%|
Annexure 5: Advance Tax for the Owners of Private Motor Car
|Type and engine capacity of motor car||Amount (BDT)|
|A car or a jeep, not exceeding 1,500 cc or 75kw||25,000|
|A car or a jeep, exceeding 1500cc or 75kw but not exceeding 2000cc or 100 kw||50,000|
|A car or a jeep, exceeding 2000cc or 100 kw but not exceeding 2500cc or 125 kw||75,000|
|A car or a jeep, exceeding 2500cc or 125 kw but not exceeding 3000cc or 150 kw||125,000|
|A car or a jeep, exceeding 3000cc or 150 kw but not exceeding 3500cc or 175 kw||150,000|
|A car or a jeep, exceeding 3500cc or 175 kw||200,000|