How to calculate minimum tax for corporate taxpayer in Bangladesh

What is the minimum tax for corporate taxpayer?

How it is determined?

Today I will discuss with you about how to calculate minimum tax for corporate taxpayer in Bangladesh with practical example. Hope it will help you to get clear idea about calculation of minimum tax for corporate taxpayer. You may know that if company tax calculation applying the applicable rate is less than the minimum tax calculation discussed below then the minimum tax shall be the company tax liability.

Guess you have already gone through the section 82C minimum tax in Income Tax Ordinance 1984. Under this section, in sub-section 5, clearly describe what will be the minimum tax. In that sub-section, minimum tax will be higher one from the following two figures:

1. The minimum tax under sub-section (2); or

2. The minimum tax under sub-section (4).

But here you have to remember that if the both above sub-sections are exist in any business organization then this will be applicable.

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So we will have to find out the two figures. When you will go in details in the above two sub-sections under 82C minimum tax then you will again get two or more figures under each sub-section.

What are those figures?

Don’t worry.

I will describe all of the sections step by step here.

Under section 82C minimum tax, sub-section (2),  minimum tax on income on sources shall be the tax has been deducted or collected under ‘certain sections’ as mentioned in this section. You all ready know from my previous article that there are 31 sections in total under section 82C.

Under section 82C, sub-section (2), we will get three figures from the following headlines:

1.a) Minimum tax excluding three partial sections of 52, 53 and 53F;

1.b) Minimum tax when any income under final settlement tax; and

1.c) Income from regular source in addition to income from 31 sections

Under this sub-section, minimum tax will be the aggregated amount of the above three figures.

And now another figure will come out from section 82C, sub-section (4), from which we will get following two figures:

2.a) Minimum tax from gross receipts; and

2.b) Minimum tax with exempted or reduced tax rate

Again minimum tax under this sub-section will be the aggregated amount of the above two figures.

Realizing it is getting more complex!

Please read attentively.

When you will go the above issues with practical example then it will be easy to understand.

Here, I will give an example which will cover all the areas of the minimum tax under section 82C and I think garment manufacturing company will fit in this regard.

Assume, abc is a 100% export oriented garment manufacturing company. Financial information of the company for the year ended are as follows:

i. Sales BDT 240,000,000

ii. Net loss BDT 50,000,000

iii. Cash subsidy received BDT 5,000,000

iv. Dividend received BDT 500,000

We have got all the financial information of the company.

Now we will calculate what will be the minimum tax under different situations?

So let’s start!

1.a) Minimum tax excluding three partial sections of 52, 53 and 53F

If you have already read my previous article how to determine minimum tax then hope you know that under section 82C minimum tax, there are 31 sections in total. And from those total 31 sections, partial portion of three sections as mentioned in the headline are outside the minimum tax calculation.

Except those three partial sections if any deductions are made at source of payment then the deducted tax shall be treated as minimum tax. And the deductible amount will not be adjusted even though the company is loss making organization.

From the above example, as the abc is 100% export oriented company, so the sales amount falls under the minimum tax and the applicable TDS rate is 0.70%.

At the time of export proceeds, tax will be deducted from that amount by responsible person of the bank.

So the total deducted tax will be BDT 1,680,000 (BDT 240,000,000X0.70%).

As the company incurred loss BDT 50,000,000 so no tax is applicable on it’s profit. But has to pay tax under section 82C which is known as minimum tax.

And the deductible tax BDT 1,680,000 will be minimum tax for abc company.

Besides the above issue, you also know that six sections are mentioned as final settlement out of total 31 sections under 82C minimum tax.

Under those six sections, if any income incurred during the year and any tax deducted at source from that income then the treatment of those tax shall be different.

1.b) Minimum tax when any income under final settlement tax

If you have already gone through the full list included under section 82C then you know that income from cash subsidy by the company falls under the final settlement tax.

When the company has entitled to receive the cash subsidy from his export amount then tax should be deducted at source by the bank at applicable rate 3% on total income as cash subsidy.

So the final settlement tax from cash subsidy is BDT 150,000 (BDT 5,000,000X3%).

The tax under final settlement should be added separately after calculating all the tax liability from different income sources.

The benefit of final settlement tax is if your tax liability on regular income sources is higher than the minimum tax then you should not pay more tax under regular tax rate for which tax has already been deducted as final settlement.

But regular tax rate is applicable for other sections of the minimum tax. And this is the benefit of final settlement.

But to enjoy the facilities, the company must have to be profitable.

1.c) Minimum tax in case of income from regular source in addition to 31 sections

Regular source means any source for which minimum tax is not applicable as mentioned the sources under section 82C minimum tax.

So we have clearly understand that in the example of abc company, dividend income falls under the regular source as this income is only outside the 31 sections.

You also know that the TDS rate for dividend income is @ 20% for corporate taxpayer which is also the regular tax rate during calculation of tax liability of corporate taxpayer.

So the tax deducted at source from dividend income is BDT 100,000 (BDT 500,000X20%).

We have got all the three figures and the minimum tax under sub-section (2) will be:

SI	Headline	Minimum Tax (BDT)
1.a	Minimum tax excluding three partial sections of 52, 53 and 53F	1,680,000
1.b	Minimum tax when any income under final settlement tax	150,000
1.c	Minimum tax in case of income from regular source in addition to 31 sections	100,000
Total		1,930,000

So we have got minimum tax under 31 sections as per section 82C sub-section 2.

Now we have to find out another figure under sub-section (4).

2.a) Minimum tax on gross receipts as prescribed rate

At the initial stage, minimum tax was only applicable on gross receipts at a single rate.

But after few years, a full section inserted in replace of final settlement under section 82C and the minimum tax calculation become more complex to taxpayer.

Under this criterion, tax should be given even if the company is incurred loss in any income year. And the tax will be on gross receipts of the company.

Three different tax rates for different business categories are applicable on total receipts of the company.

Minimum tax should be calculated on gross receipts by applying the particular rate for specific business category.

There is a definition of gross receipts which should be included during calculation under the gross receipts.

Except manufacturer of cigarette, bidi, chewing tobacco or any other tobacco products and mobile phone operator the minimum tax rate for any other assessee is 0.60%.

So at 0.60%, the minimum tax of abc company on its gross receipts will be:

Receipts	Amount Received (BDT)	Minimum Tax (BDT)
Cash subsidy	5,000,000	30,000
Dividend	500,000	3,000
Total		33,000

Guess you have noticed I have excluded a major income source and that is sales.

Why?

2.b) Minimum tax with exempted or reduced tax rate

Some businesses get extra facilities from government. And the garment manufacturing industry is one of them.

You know they are enjoying reduced tax rate in the corporate sector which is only 12%. The other businesses are paying tax from 25% to 45%.

Generally in Bangladesh it is assumed that 35% is the normal tax rate in corporate sector.

Under section 82C, sub-section (4), minimum tax for receipts from sources that enjoys tax exemption or reduced tax rate shall be calculated by applying the rate as mentioned on gross receipts as reduced in proportion to the exemption of tax or the reduction of rate of tax.

That’s why I have separated the sales amount which will be calculated proportionately and the minimum tax on this amount is BDT 493,714 (240,000,000X0.60%X12/35).

So now the minimum tax under sub-section (4) will be BDT 526,714 (BDT 33,000+493,714).

What is the minimum tax?

So we have got two figures:

1. The minimum tax under sub-section (2): BDT 1,930,000

2. The minimum tax under sub-section (4): BDT 526,714

And it is simple the higher one from the above two figures will be the minimum tax of abc company.

So the minimum tax is BDT 1,930,000

Conclusion

Yet it seems more complex?

I have tried to explain the minimum tax in a more easy way and that’s why I have written a series articles on it. Total three articles on minimum tax will help you to cover the all issues under section 82C.

More study and practice will help you to clear the topics. You may print out the article. Read it several times and hope it will be easy.