Tax

Salient features of Finance Bill 2020 (all about income tax)

June 14, 2020
Finance Bill 2020

What are the salient features of Finance Bill 2020 for income tax?

Finance Bill 2020 has been placed in National Parliament on last 11 June 2020 which has been proposed to change the direct tax and indirect tax. And the changes will impact in the financial year 2020-21.

In this article, today I will cover the 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) has been covered in another article.

The discussion will be going on brief so that you could get an overview in a very short time.

So, let’s start!

PERSONAL TAX

Tax-free Threshold and Tax Rate

You already know that the major changes in the Finance Bill 2020 is the tax-free limit has 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 news about tax-free limit increase and the starting tax rate reduction had been published in media few weeks ago. And the individual taxpayer was happy mainly because the earning is collapse due to COVID-19 effect.

People has lost their job or reduced monthly salary by 50% or 25% in some cases. So, when the news come out in the media salaried individuals were happy.

But the proposed slab wise tax rates will not give benefit to all of the taxpayer. Lower level income and upper level income holder are the most benefited group, but middle-income people are not much benefited compare to those two groups of income holders.

Different income holders tax calculation was provided by professional people. If you are regular reader of my blog or viewer of my YouTube channel, then you may know that I have illustrated to find out the benefit enjoy by the taxpayer.

After finance bill 2020, I have again illustrated the calculation based on the same example to find out the benefit will be enjoyed by the same income holder. You may watch the below video to see what amount of tax will be reduced for you.

TIN and Tax Filing

Area of TIN registration has been extended this year. Now the Zilla Parishad Chairman and Vice-chairman, participates in a shared economic activity by providing motor vehicle, space, accommodation or any other assets and obtaining or maintaining a license for arms shall have to collect TIN certificate.

Another big change is that all of the TIN holders shall have to file tax return except an individual assessee who has no taxable income but require to have TIN for selling a land and for obtaining a credit card. And if this changes finally approved in Finance Act then from upcoming assessment year 2020-21, they have to submit tax return.

But don’t worry.

Tax authority is planning to introduce a single page tax form for the marginal taxpayer which will be very easy to complete and submit. And another issue is that the TIN holders who will have no taxable income shall not have to pay minimum tax because the minimum tax for individual taxpayer is only applicable if tax-free limit exceeds proposed BDT 300,000 for male.

You may know that statement of asset, liability and lifestyle is not mandatory if the gross wealth does not exceed BDT 25 lakh but now it proposed to increase BDT 40 lakh. And another statement is lifestyle. The taxpayer who has income below BDT 300,000 from salary or business or profession except shareholder director shall not require to submit this statement. This limit also proposed to increase BDT 400,000.

These two changes will also reduce the hassle of taxpayers.

Tax rebate and surcharge are remained unchanged as previous year. But to encourage the online tax filing, BDT 2,000 tax rebate will be provided for the first-time tax filing through NBR online platform.

Surcharge rate for individual taxpayer has been presented in annexure 04 below this article.

Income Received from Fund

The salaried taxpayer enjoys the tax-free benefit for pension fund and gratuity fund upto a certain limit. The Finance Bill 2020 proposed to keep this facility only for approved fund by the NBR.

So, when you will receive any amount from this fund, please ensure whether the fund is approved or not because this will impact your tax liability.

Special Tax Treatment

This year the benefit also widened for the people who have undisclosed money. If those people pay tax at 10% within investing the money in capital market and remain the investment upto three years then this facility will be enjoyed by them without any question.

This same type benefit also given in the area of movable and immovable property at reduced tax rate and 10% tax respectively.

But the criticism is that this type of benefit does not have significant impact for tax collection from the targeted people.

CORPORATE TAX

Company Tax Rate

Company tax rate mostly remain unchanged except non-publicly traded company for which tax reduced by 2.5% to 32.5%.

Reduced tax rate facility for RMG factories has been extended for another two years. Currently, RMG factories having green building certification pay tax at 10% and RMG factories without having green building certification pay tax at 12%. For details company tax rate, please see the annexure 02.

Tax Deducted/Collected at Source

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.

I have made the below video for the corporate tax people based on the Finance Bill 2020 where I have presented all the major changes including the TDS rates with section references in a slide.

Last year, the advance tax instalment eligibility limit has been increased to six lakh from four lakh. This year for the new advance taxpayer, the limit has been aligned with the existing advance taxpayer.

Advance tax for the owners of private motor car has been increased significantly. The tax for upto 1500cc motor car or jeep was BDT 15,000 which is now proposed to BDT 25,000. In all other cases, the advance tax has changed severely.

Deduction not admissible under section 30

There is certain limit prescribed in the tax law to incurred by the company, if it exceeds the limit then the exceeded amount are disallowed means increase the company tax liability. In the following cases, the new limit will be:

  • Overseas travelling expenses over 0.50% of disclosed turnover instead of 1.25%.
  • Promotional expenses over 0.50% of disclosed turnover
  • Royalty, technical service fee, technical know how fees or technical assistance fees shall be of net profit from business or profession excluding any profit or income of subsidiary or associate or joint venture

Capital gain

Two new sections have been inserted through the Finance Bill 2020. Following two sections will impact the tax calculation for the company taxpayer:

Section 31A: Capital gains from the transfer of business or undertaking; and

Section 32A: Computation of capital gains from the transfer of business or undertaking

Though the consideration also stated in the section, after Finance Act, the NBR will publish paripatra where the explanation will be given and then ultimately it will be cleared how to calculate the capital gain.

Exemption for Industrial Undertakings

The areas of exemption facilities have been extended for the industrial undertakings. Following industrial undertakings will enjoy the tax benefit at different rates for different years:

  • Electrical transformer;
  • Artificial fiber or manmade fiber manufacturing;
  • Automobile parts and components manufacturing;
  • Automation and Robotics design, manufacturing including parts and components thereof;
  • Artificial Intelligence based system design and/or manufacturing;
  • Nanotechnology based products manufacturing;
  • Aircraft heavy maintenance services including parts manufacturing;

Return of Withholding Tax

Return of withholding tax is half-yearly. January to June period return is required to submit before 31 July and July to December period return is required to submit before 31 January.

The Finance Bill 2020 proposed to extend the following organization to file withholding tax return:

  • A university,
  • A private hospital,
  • A clinic,
  • A diagnostic centre,
  • An English medium school providing education following international curriculum,
  • Local authority,
  • Artificial juridical person,

Section 82(c): Minimum Tax

The areas of minimum tax have been broadened and now wheeling charge for electricity transmission and professional service, technical services fee, or technical assistance fee have been included under minimum tax.

And another significant change under minimum tax is to include individual taxpayer. A now rate has been introduced for 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 taka 3 crore or more.

They will pay minimum tax at 0.50% of the gross receipt.

And any more…

Discount, interest or profit on securities, collect at 5% at the time of making payment or credit, whichever is earlier. Previously, the tax was collected on upfront basis during the purchase of securities but now tax will be collected during the payment or credit.

Another change is under section 52, who has imported goods, they pay advance tax under section 53E and again when they sell then again tax was deducted under section 52 based on prescribed formula.

The Finance Bill 2020 proposed to change in the formula. Under this new formula, the calculation will be, in case of the goods supplied by any distributor or any other person under a contract under section 53E (3), the term “B” shall be computed as follows: 

B= {the selling price of the company to the distributor or the other person as referred in section 53E (3)} x 7% x 5%.

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 bill 2020.

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

  • 51 Deduction at source from discount, interest or profit on securities
  • 52Q Deduction of Tax from any income remitted from abroad in connection with any service, revenue sharing, etc.
  • 53BBB Collection of tax from Member of Stock Exchanges

New section/schedule inserted

  • 16H Charge of tax on the difference of investment, import and export made
  • 19AAAA Special Tax Treatment in respect of investment in Securities
  • 19AAAAA Special Tax Treatment in respect of undisclosed property, cash, etc
  • 31A Capital gains from the transfer of business or undertaking
  • 32A Computation of capital gains from the transfer of business or undertaking
  • 184G Power to condone or extend, etc.

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 slabTax Rate
On first BDT 300,0000%
On next BDT 100,0005%
On next BDT 300,00010%
On next BDT 400,00015%
On next BDT 500,00020%
On the balance of total income25%
  
Income of non-resident30%

Annexure 2: Company Tax Rate

DescriptionTax Rate
Publicly Traded Company25%
Non- Publicly Traded Company32.5%
Publicly traded Bank, Insurance and Financial Institute (other than Merchant Bank) Newly established Bank, Insurance and Financial Institutions approved by government in 201337.5%
Non-publicly traded Bank, Insurance and Financial Institution40%
Merchant Bank37.5%
Publicly traded mobile phone company40%
Non- Publicly traded mobile phone company45%
Special Tax Rate 
Cigarette, bidi, zarda, chewing tobacco, gul or any other tobacco products manufacturers45%
Income of Co-operative Society15%
RMG factories having green building certification10%
RMG factories without having green building certification12%

Annexure 3: Tax-free threshold for individual taxpayers

StatusAmount (BDT)
General Taxpayers300,000
Women and senior citizen aged 65 years and above350,000
Person with disability450,000
Gazette war-wounded freedom fighters475,000

Annexure 4: Surcharge based on disclosed net wealth of individual taxpayer

Amount of net wealthRate on income taxMinimum Surcharge
Upto BDT 30,000,0000%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 corporation10%
From BDT 50,000,001 to BDT 100,000,00015%BDT 5,000
From BDT 100,000,001 to BDT 150,000,00020%
From BDT 150,000,001 to BDT 200,000,00025%
Where net wealth exceeds BDT 200,000,00030%

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