General info on Tax & VAT

Tax Structure and Rates of Different Taxes (As on 01 July, 2022):

Income Tax

For the purpose of computation of total income and charging tax thereon, sources of income can be classified into 7 categories, which are as follows:

• Salaries
• Interest on securities
• Income from house property
• Income from agriculture
• Income from business or profession
• Capital gains
• Income from other sources.

Tax Rate (Assessment Year- 2022-2023)

• Rate of tax on companies listed with stock exchange is 25% while for others the rate is 35% for the assessment year 2015-16.
• Tax rate of listed companies would, however, be 35% if they fail to declare at least 10% dividend or fail to distribute the declared dividend within the time specified by the Securities and Exchange Commission.
• If a listed company declares dividend of more than 30% and distributes it within the specified time, it would get rebate @10% from the due income tax and the tax rate would be 24.75%.
  
• For banks, financial institutions and insurance companies, the rate is 42.5% and same sort of companies listed with stock exchange is 40% and same sort of companies approved by Govt. in 2013 is also 40%.
• For merchant banks, the rate of tax is 37.5%.
• For cigarette manufacturing companies, the tax rate is 45%. 
  
• For mobile phone operator companies the rate is 45%. If a mobile phone operator company is converted into a publicly traded company by transferring at least 10% of shares, of which Pre Initial Public Offer Placement must not exceed 5%, through Stock Exchange, the rate of tax would be 40%.
• The rate of tax on inter-corporate dividend is 20%. Rate of corporate capital of gain tax is 15% irrespective of the period of retention of the asset.
• Remittance of post-profit tax by branch companies is taxed @ 20% as dividend.
• Non-resident individuals except non-resident Bangladeshis are taxed at the maximum rate of 30%.
• If capital gain arises to a person other than a company on disposal of an asset after five years of acquisition, tax would be payable at the rate of 15% of the capital gain or at the rate applicable to the total income including the capital gain whichever is lower. If, however, the capital gain arises on disposal of the asset within five years of acquisition, tax would be payable on the total income including the capital gain.

Principal Indirect Taxes are Customs Duty, VAT and Supplementary Duty.

Customs Duty

Customs duty has four tiers. On capital machinery and spares the rate is 3%, on basic raw materials it is 5%, on intermediate raw materials it is 12% and on finished products it is 25%. Duty on capital machinery imported by export-oriented industries and garment manufacturing industries registered by Board of Investment (BOI) and enlisted with their respective association is, however only 1%.

VAT

VAT is payable on production and specified services @15% if the annual turnover is or above Taka 60 lakhs. On imports, VAT is payable at the same rate of 15% irrespective of the quantum. In respect of several services VAT is imposed at truncated rates as fixed by the National Board of Revenue. If annual turnover of production and services is less than Taka 60 lakhs, Turnover Tax is payable at the rate of 4%. In specified cases, however, VAT is payable irrespective of turnover and in such cases VAT registration is mandatory.

Truncated Base / Fixed Value Addition:

In some of the cases of goods and services producers and sellers face difficulties in availing VAT credit/adjustment facilities due to non availability of invoices from the sellers of input. In order to remove this operational difficulty fixed bases such as 10%, 25%, 30%, and 60% value addition is taken into account for calculation of VAT for a number of goods and services. In such circumstances net VAT rate for different rates of value addition comes to 1.5%, 2.25%, 4.5% and 9%.

VAT at the wholesale and retail stage:

In case of wholesalers and retailers, there is a special provision for a 1.5% percent VAT known as Trade VAT on the total sale, provided that the wholesaler/retailer do not avail the facility of input credit/adjustment. Such tax is also collected at the import stage from importers of finished goods as an advance trade VAT.

Tariff Value for imposition of VAT:

Under the VAT Law, the government is empowered to fix Tariff Value for some items for the collection of VAT. Example: tariff value for mild-steel products produced from imported/locally procured re-rollable scraps is TK 4000.00 per MT. Normal VAT input credit is also not available under this system.

Deduction of VAT at source:

As deduction at source is also practiced in case of VAT on certain services, Government, Semi-Government, Autonomous Bodies, NGOs, Banks, Insurance Companies and Limited Companies are authorized by the government to deduct applicable VAT on the services at source

Supplementary Duty

This duty is imposed on the production and import of non-essential, luxury, harmful and socially undesirable goods. Except those exempted or rate of those otherwise specified, the common rate of Supplementary Duty is 20%. Considering however, the extremely harmful effects on health and environment, the rates of a few goods are much higher varying from 60% to 350%.

Withholding Tax

The system of Withholding Tax is there both for income tax and VAT at varying rates. Withholding income tax rates vary from 1% to 45% depending on the source of income, nature of business and residential status of the taxpayer. Withholding VAT rates vary from 1.5% to 15% depending on the nature of services/supplies.

Other taxes that may affect foreign investors

Stamp Duty

Charge is:  On transfer of property 3% on the value of consideration.

On transfer of shares of a company 1.5% on the value of consideration.

Facilities for foreign investors (As of 01 July, 2010):
Foreign Investment Incentives:

Government of Bangladesh provides lot many incentives for foreign investors. These are, in brief, as follows:

Protection of foreign investment and its repatriation:

Protection of foreign investment from expropriation by the state is fully ensured. Moreover, full repatriation of capital invested from foreign sources is allowed. Similarly, post-tax profits and dividend accruing to foreign investors are allowed to be transferred in full. Remittance of approved post-tax royalties, technical know-how and technical assistance fees is also allowed in full. Foreigners employed in Bangladesh are entitled to remit 50 per cent of their salary and full repatriation of their savings and retirement benefits.

Fiscal incentives:

• Avoidance of double taxation on the basis of bilateral agreements.
• Tax at reduced rate of 10% of capital gains from transfer of shares of public companies listed with stock exchange.
• Tax Holiday- Tax holiday for 5/7 years is available to defined sectors of industry and physical infrastructure on fulfillment of certain conditions.
• Concessionary import of Capital Machinery- Concessionary import duty and exemption from VAT and supplementary duty are available in case of import of capital machinery.
• Incentives to Private Sector Power Generation- Private Sector power generation companies are allowed tax holiday for 15 years from the date of commercial production.
• Special incentives to Oil and Gas sectors- In respect of petroleum operation undertaken by a contractor entering into production sharing contract (PSC) with the government, government holds and keeps the contractor harmless from all present and future Bangladesh taxes except where specifically provided to the contrary.
• Facilities for export-oriented industries- Import of capital machineries and parts thereof is allowed on nominal duty of 1% besides the facilities of Bonded Warehouse, Back to Back Letter of Credit and Duty Draw Back in case of export-oriented industries.
• Additional facilities in the Export Processing Zones- There are several additional benefits for industries set up in the Export Processing Zones, viz. tax holiday for 10 years, duty-free import of machinery, equipment and raw materials, complete exemption of tax on dividend of foreigners for tax holiday period, off-shore banking facilities, freedom from customs formalities, provision of electricity, water, gas and telecommunication connections on the same day applied for. After the expiry of tax holiday period, 50% of income of such industries attributable to export sales is exempt from income tax.