What are the proposed changes in income tax after submitting finance bill 2019 in the national parliament by finance minister A H M Mustafa Kamal FCA?
From 01 July the changes will be implemented in your finance or accounts related transactions.
Or are you a CA student?
You regularly require the updated tax rules and regulations to conduct audit work or are you preparing yourself for the next November-December 2019 exam?
I have divided the changes of income taxes into following major areas which will help you to know the changes at a glance:
- Tax rate, reduced tax rate and minimum tax
- Payment of tax before assessment
- Tax exemption and tax holiday
- Return and tax audit
- Replace of section/schedule
- New section/schedule inserted
- Including specific rate in separate annexure.
You will find the changes below in bullet point under above mentioned each major area.
Total national budget in 2019-20 comes at BDT 523,190 crore and the NBR revenue collection projects at BDT 325,600 crore.
NBR will collect the above huge volume of revenue from following four sources:
- Income and corporate tax
- Import and export duty
- Value Added Tax (VAT)
- Supplementary duty
About 85% of revenue is collected by the NBR. In 2017-18, the growth rate of NBR tax revenue was 20.24%.
But collection from income tax was not satisfactory even a decade ago, which was only 20% of total NBR tax revenue. And the finance minister said they have a target to raise this percentage to 50% by 2021-22. And the contribution has increased to 35% during the tenure of current government.
Now the question is how the NBR will collect the revenue as target set in the budget 2019-20?
As per budget speech of finance minister in the national parliament of Bangladesh following steps will be implemented by NBR:
- Conducting survey
- Bringing administrative reforms
- Making TIN compulsory for receiving utility services
- Encouraging TIN holders to submit return
- Automating and digitizing the income tax process
- Broadening the tax base without increasing the tax rate
- Tax offices will be set up in every upazila
- The number of Taxes Zone will be increased to 63 from existing 31
- Various reform initiatives will be taken such as automation, modernization of tax system
By doing the above initiatives, the number of income taxpayers will be raised to above 0ne crore by the next few years.
Remembering the above consideration, each year the national budget is figured out by the finance minister which affect the income tax of Bangladesh.
So let’s start to see the major changes in income tax for the financial year 2019-20.
Tax Rate, Reduced Tax Rate and Minimum Tax
Slab wise tax rate for individual taxpayers and corporate taxpayers remain unchanged in 2019-20.
Last couple of years, corporate taxpayers often complain that the tax rate is high compare to other countries but finance ministers of this government said that the government has done a close examination of that fact and is not supported.
Last year the tax rate for banks and financial institutes reduced by 2.5% and this year the finance minister added that due to tax reduction in this sector tax collection significantly reduced.
Budget size is increasing year after year. And this big figure will be collected from taxpayers. So if the tax rate is reduced and other benefits is provided to taxpayers then how the figures will be achieved?
This is the main reason to shrink the benefit to the taxpayers.
Now, telecom sector is in the first place to collect revenue and the government is also try to shift the burden in this sector. The minimum tax for mobile companies raise to 2% of their turnover from 0.75%.
The major changes in the tax rates for individual and corporate taxpayers are:
- Individual taxpayers slab wise tax rate remain unchanged (Please see annexure 1).
- Minimum tax remain unchanged for individual taxpayers who have a total income exceeding tax exemption threshold:
- Dhaka North, Dhaka South and Chittagong City Corporation Taxpayers BDT 5,000
- Other City Corporation Taxpayers BDT 4,000
- Other places Taxpayers BDT 3,000
- Corporate tax rate remain unchanged (Please see the annexure 2).
- 15% tax on stock dividend by a listed company within 60 days from the date of stock dividend declaration in Bangladesh.
- 15% tax on retained earnings where in any income year the total of retained earnings, any reserve or any other equity exceeds 50% of paid up capital on such excess amount.
- Any advance/security money received by the owner of the house property exceeding BDT 200,000 other than bank transfer shall be taxable in the receiving year. If the amount is received through bank transfer then it shall be adjustable within 05 years and if not possible then the remaining amount shall be taxable in that year.
Payment of Tax before Assessment
Payment of tax before assessment is very important for accounts people. Day to day transactions are involve with tax and require to deduct tax at source (TDS).
The changes made through finance bill are presented below. After passing Finance Act 2019 in the national parliament, I have published full TDS rates with section references for the financial year 2019-20 in this blog as I did in the last two years.
So, please keep your eyes in this blog!
- Advance tax payment shall be eligible if any taxpayers latest assessed income is BDT 600,000 which was BDT 400,000.
- TDS rate on the bill of contractors and suppliers also changes as follows:
- Up to BDT 25 lakh @ 2%
- Above BDT 25 lakh but below BDT 50 lakh @ 3%
- Above BDT 50 lakh but below BDT 1 crore @ 4%
- Above BDT 1 crore @ 5%
- TDS @ 5.25% from the payment for survey for coal, oil or gas exploration by a non-resident.
- TDS @ 20% from the payment of fees etc. of surveyors of general insurance company by a resident.
- Wheeling charge for electricity transmission by electricity distribution company is subject to TDS @ 4% if the base value is up to BDT 25 lakh but 5% if it exceeds BDT 25 lakh.
- TDS on media buying agency commission is reduced to 2.5% from 3.5%.
- Tax at source from interest on saving instrument has been increased to 10% from 5%.
- Payment made for courier service and packing and shifting service to resident is subject to TDS @ 1.5% and 10% respectively if the base value is up to BDT 25 lakh but 2% and 12% respectively if it exceeds BDT 25 lakh.
- Micro credit organization having license with Micro Credit Regulatory authority and an association of person included as tax withholding person
- Payment of rent for hotel accommodation by tenant is subject to TDS @ 5%.
- TDS on cash incentives provided by government increased to 10% from 3%.
Tax Exemption and Tax Holiday
There was a huge debate about tax exemption threshold in printing, electronic and social media over the last few years.
The outcry is to increase the tax exemption threshold for individual taxpayer to BDT 300,000. The reason behind the demand were: a) last couple years it was stuck in this figure, b) living expenses is going up, c) considering the inflation affect etc.
But the answer of the new finance minister is same as ex-finance minister. The ultimate objective of the finance minister is to raise the budget by collecting the revenue from taxpayer.
The finance minister said that the taxpayers got habituated with the existing tax rate.
Though the exemption has not increased for individual taxpayers, the exemption is increased for the corporate and national sector.
Under the existing law, 21 industrial undertakings and 19 physical infrastructure have been enjoying tax holidays on the basis of geographical locations which has expired on 30 June 019.
In this budget, this facilities will continue with extended areas of potential manufacturing sectors such as agricultural machinery, furniture, home appliance- rice cooker, blender, washing machine etc. mobile handset, toys, leather and leather goods, LED television, plastic recycling.
The major changes in the exemptions are as follows:
- Tax rebate on purchase of computer and laptop has been deleted.
- Tax exemption threshold remain unchanged in general cases. For details tax exemption threshold for individual taxpayers please see the annexure 3.
- Tax exemption facilities at different rates for 10 years from income generated through production of goods and services in Economic Zones and High-Tech Parks.
- No question will be raised by the tax department if any investment is made by taxpayers in Economic Zone and Hi-Tech Parks by paying tax @ 10%.
- SMEs income tax exemption threshold limit based on turnover has increased, no tax if turnover is upto BDT 50 lakh which was previously BDT 36 lakh.
- Tax exemption facilities for income derived from the export of handicrafts, cinema hall or Cineplex, income from rise burn oil business has been extended for the next five years which will expire on 30 June 2019.
- RMG sector is enjoying reduced tax rate @ 12%. The rate is 10% if there is green building certificate. These rates will remain unchanged for another more year.
- Textile sector also enjoying reduced tax rate @ 15%. They will also enjoy this reduced tax rate facility for next three years.
- 5% rebate on total tax if any taxpayer employees at least 10% of total work force from physically challenged people.
- 5% additional tax on schools, colleges, universities and NGOs if they fail to ensure special accessibility for physically challenged persons from assessment year 2020-21 which was introduced last year for medical service provider.
- Tax exemption facility for industrial undertakings and physical infrastructure have been extended for next 05 years which will expire on 30 June 2019. But the 100% exemption facility for the first year was reduced to 90%. The areas of tax exemption facilities have been extended to the following sectors:
- Agriculture machineries
- Automatic bricks
- Home appliances (blender, rice cooker, microwave oven, electric oven, washing machine, induction cooker, water filter, etc.)
- Leather and leather goods
- LED TV
- Locally produces fruits and vegetables processing
- Mobile phone
- Plastic recycling
- Toy manufacturing
- Cash dividend exemption limit for individual taxpayers increased to BDT 50,000 from BDT 25,000.
- Tax dividend exemption facilities for corporate taxpayers also extended for non-resident companies as well.
Surcharge on net wealth of individual taxpayers has been introduced by the government in last few years to combat the risk of increasing inequalities resulting from the continuous economic growth of country.
The objectives of surcharge is not meet as large number of wealthy people show little income in their tax return despite they possess huge amount of wealth as per statement of finance minister. But on the other hand, the surcharge limit increased from BDT 2.25 crore to BDT 3 crore.
Besides the risk of inequalities, surcharge also implemented for the hazardous products which are harmful for health like tobacco products.
- An individual taxpayer having a net wealth BDT 50 crore or above shall pay 0.1% of net wealth or 30% of his income tax payable which is higher.
- Raise the limit of surcharge on net wealth from BDT 2.25 crore to BDT 3 crore for individual taxpayers (Please see the annexure 4 for details slab wise surcharge rates).
- 2.5% surcharge on the income from the business of producing cigarette, bidi, zarda, gul and other tobacco items remain unchanged.
The minimum surcharge is BDT 3,000 if the net wealth exceeds BDT 3 crore and BDT 5,000 if net wealth exceeds BDT 10 crore.
Return and Tax Audit
- No more relief from tax audit under section 82BB by financial institution will be enjoyed though their return shows 15% higher total income than the total income assesses in the immediately preceding assessment year.
- Approval for audit of withholding tax return has been changed to related tax commission from the Board.
- Declare and submit the details of international transactions in the tax return by the companies who are engaged in transfer pricing.
- Submit return of income by the non-resident taxpayers who are doing business in Bangladesh through Permanent Establishment (PE).
- TIN is mandatory during the transfer for foreign donation of NGO and Micro Credit Organization.
- Requirement of mentioning twelve-digit Taxpayer’s Identification Number in certain documents relating to transfer of land, building or apartment situated within a city corporation, or city corporation, or cantonment board, or a paurashava of district headquarters has been mandatory for the both seller and buyer if the deed value exceeds BDT 100,000.
- Return submission is mandatory for operating business by a non-resident through permanent establishment in Bangladesh.
- Return submission is mandatory for Micro credit organization having license with Micro Credit Regulatory authority
Amendment, replace and new section/schedule
You know that in each financial year, there was comparatively more changes in amendment of section/schedule than replace or inserted of new section/schedule.
Most of the amended of section/schedule are mentioned in the above major areas. For further clarification you may download the finance act 2019.
The section/schedule including the headline of replaced and new section/schedule is mentioned in the following paragraphs so that you could understand where the changes have happened.
It will help you to easily find out the changes in the income tax.
Replace of section/schedule
- 19BBBBB Special tax treatment in respect of investment in residential building, apartment, or land
- 52F Collection of tax from brick manufacturers
- 52P Deduction of tax for services from convention hall, conference centre, etc
- 53A Deduction at source from house property
- 53J Deduction at source from rental value of vacant land or plant or machinery
New section/schedule inserted
- 16F Charge of tax on stock dividend
- 16G Charge of tax on retained earnings
- 19(22A) Advance/security money received by the owner of a house property
- 19(32) Any payment made for acquiring any asset or constitutes any asset
- 19DD Special tax treatment in respect of investment in Economic Zones or Hi-Tech Parks
- 30B Treatment of disallowances
- 46BB Exemptions from tax of newly established industrial undertakings set up between the period of July 2019 and June 2024
- 46CC Exemptions from tax of newly established physical infrastructure facility set up between the period of July 2019 and June 2024 etc. in certain cases
- 94B Assessment without jurisdiction
- 184CC Requirement of mentioning twelve-digit Taxpayer’s Identification Number in certain documents
Please not that this article is developed to give an overview of the 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 250,000||0%|
|On next BDT 400,000||10%|
|On next BDT 500,000||15%|
|On next BDT 600,000||20%|
|On next BDT 3,000,000||25%|
|On the balance of total income||30%|
|Income of non-resident||30%|
Annexure 2: Company Tax Rate
|Publicly Traded Company||25%|
|Non- Publicly Traded Company||35%|
|Publicly traded Bank, Insurance and Financial Institute (other than Merchant Bank) Newly established Bank, Insurance and Financial Institutions approved by government in 2013||37.5%|
|Non-publicly traded Bank, Insurance and Financial Institution||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%|
Annexure 3: Tax exemption threshold for individual taxpayers
|Women and senior citizen aged 65 years and above||300,000|
|Person with disability||400,000|
|Gazette war-wounded freedom fighters||425,000|
Annexure 4: Surcharge based on disclosed net wealth of individual taxpayer
|Amount of net wealth||Rate on income tax||Minimum Surcharge|
|Upto BDT 30,000,000||0%||BDT 3,000|
|From BDT 30,000,001 to BDT 50,000,000 Or Ownership of 2 motor cars; or Ownership of house property having an aggregate area of 8,000 square feet in a city corporation||10%|
|From BDT 50,000,001 to BDT 100,000,000||15%||BDT 5,000|
|From BDT 100,000,001 to BDT 150,000,000||20%|
|From BDT 150,000,001 to BDT 200,000,000||25%|
|Where net wealth exceeds BDT 200,000,000||30%|