Business Taxation in Bangladesh

Introduction
Each and every person is affected by tax. The dictionary meaning of tax is a contribution
exacted by the state. According to Justice Oliver Wendell Holmes, Jr. (mentioned in the verdict
of Compania de Tabacos v. Collector case in 1927), Taxes are what we pay for a civilized
society. In the similar way, the US President Franklin D. Roosevelt (1936) has also mentioned
that Taxes, after all, are the due that we pay for the privileges of membership in an organized
society. In the broader sense, A tax can be defined meaningfully as any nonpenal yet
compulsory transfer of resources from the private to the public sector, levied on the basis of
predetermined criteria and without reference to specific benefit received, in order to accomplish
some of nations economic and social objectives (Ray M. Sommerfeld, H. M. Anderson and H. R.
Brock, 1980). One member of the British Parliament once mentioned that a man is now born with
tax and dies with tax, and he has to pay tax for everything he does even for his laughter, for his
cries. However, disguised tax payment has no legal bearing, but the concern is when you are
accountable to the tax authority for fiscal matters.
Tax Function Activities under Income Tax Laws:
Tax function activities are of two types:
1. Tax compliance activities, and
2. Tax planning activities.
Tax Compliance Activities: These include the functions or obligations according to the provisions
of various fiscal statutes.
Following are the tax compliance activities as per various sections the Income Tax Ordinance
1984:
(1) As an assessee (taxpayer):
- Collection of TIN (Tax-payers Identification Number) Certificate: u/s (under section) 184B,
184A
- Advance income tax payment, if applicable u/s 48, 64-73
- Preparation of tax return u/s 75
- Payment of tax as per tax return u/s 74
- Filing of tax return and statements in prescribed forms u/s 75
- Maintenance of accounts and documents: u/s 35
- Production of accounts and documents: u/s 79
- Cooperation with income tax authority during inspection (u/s 114), survey (u/s 115), enquiry
(u/s 116), and search and seizure (u/s 117)
- Compliance with Notice of Demand (u/s 135) and other notices by tax authority [to file return
u/s 77, to file statement of assets and liabilities u/s 80, to attend hearing u/s 83(1), to inform re-
assessment u/s 93(1) and others], and
- Joint liability in case of partner of partnership firm (u/s 98 and 99), member of association of
persons (AOP) [u/s 98], director of a private company (u/s 100), liquidator of a private company
(u/s 101).
(2) As a tax collector on behalf of tax authority:
- Tax deduction at sources (TDS), if applicable, and deposit thereof to the Treasury u/s 48-63
- Giving documents of TDS with necessary information u/s 58, and
- Furnishing annual returns in case of payment of salary (u/s 108), interest (u/s 109) and
dividend (u/s 110).
(3) As an authorized/related person of the assessee:
- Appearance on behalf of the assessee at any income tax proceedings u/s 174
- Legal representative to be treated as deemed to be assessee in case of a deceased person
u/s 92, and
- Liability in certain cases (as a representative of another person u/s 95, as an agent of a non-
resident principal u/s 96, 102 and 103A).
Tax Planning Activities:
Tax planning means dealing with the tax matters of a taxpayer with a view to maximizing the
after-tax rate of return on investments after ensuring voluntary tax compliance. All changes in tax
regimes involve turning two types of dials:
Levels of tax rates
Relative tax rates varying
- Across different tax paying units
- Across different tax periods for the same taxpayer
- Across different economic activities for the same taxpayer and same time period.
Thus, following are the types of income tax planning activities:
(a) Attempts to have income converted from one type to another (ordinary income vs. capital
gain, regular income vs. windfall income, domestic income vs. foreign income, set-off of loss
under any head);
(b) Attempts to have income shifted from one pocket to another (taxable vs. tax-exempt
sources); and
(c) Attempts to have income shifted from one time period to another (delaying recognition of
income, if tax rates are constant or declining over time, instant salary vs. deferred compensation).
Income Tax Rates
Following table shows income tax rates for different taxpayers.
Table-1: Comparative Tax Rates for Assessment Years 2003-04, 2004-05 and 2005-06
Types of
Assessee
Type of Income Tax Rates for AY
2003-
04
2004-
06
Bank
a
, insurance,
financial
institutions
(1) Capital gain arising
out of
- Transfer of stocks & shares of private limited
company
15% 10%
- Transfer of other capital assets 15% 15%
(2) Dividend income - Subject to dividend distribution tax u/s 16D
b
nil Nil
- Not subject to dividend distribution tax u/s 16D 15% 15%
(3) Other income Both for publicly traded and not publicly traded
company
45% 45%
Other company
(except RMG
company where
tax rate is 10%
and textile and jute
companies where
tax rate is 15% for
AYs 2004-05 to
2005-06)
c

(1) Capital gain arising
out of
- Transfer of stocks & shares of private limited
company
15% 10%
- Transfer of other capital assets 15% 15%
(2) Dividend income - Subject to dividend distribution tax u/s 16D
b
nil Nil
- Not subject to dividend distribution tax u/s 16D 15% 15%
(3) Other income - For publicly traded company
e
* Dividend declared
by less than 10% or failure to pay declared
dividend within SEC stipulated time
* Other situation
37.5%
30%
37.5%
30%
- For other company 37.5% 37.5%
Local authority (1) Long-term capital
gain
d

15% or ATR on total income including capital gain, lower one Same
(2) Dividend income - Subject to dividend distribution tax u/s 16D
b
nil Nil
- Not subject to dividend distribution tax u/s 16D 15% 15%
(3) Other income 37.5% 37.5%
Resident individual
assessee, non-
resident
Bangladeshi,
association of
persons, firm and
other artificial
juridical persons
f

(1) Long-term capital
gain
d

15% or ATR on total income including capital gain, lower one Same
(2) Accidental income
u/s 19(13)
20% or ATR on total income including accidental income, lower
one
Same
(3) Other income Slab of Total
Income
2003-04 2004-
2005 &
2005-06


On first Tk.On
next Tk.
On next Tk.
On next Tk.
On balance
Tk.
90,000
150,000
150,000
250,000
Balance
100,000
200,000
250,000
350,000
Balance
Nil
10%
15%
20%
25%
Nil
10%
15%
20%
25%
Minimum tax (Tk.) 1,200 1,500
Table-2: Comparative Tax Rates for Assessment Years 2003-04, 2004-05 and 2005-
06 (contd)
Types of
Assessee
Type of Income Tax Rates for AY
2003-
04
2004-
06
Non-company non-
resident assessee
(except any
Bangladeshi)
Total income 25% 25%
Note: u/s = under section; RMG = readymade garments; ATR = average tax rate, FA = Finance Act.
a
Under section 16C
inserted by the FA 2002, a bank company operating under the Bank Companies Act 1991, if shows, in the return, profit
exceeding 50% of the aggregate sum of capital and reserve, shall pay tax @ 15% of such excess profit as additional tax.
b
Provision of section 16D (inserted by Finance Act 2003) is applicable for dividends declared on or
after J uly 2003, but not applicable for two types of dividends defined u/s 2(26): (1) any profit remitted
outside Bangladesh by a company not incorporated in Bangladesh under the Companies Act, 1994 [clause
(dd)], and (2) any payment by a private company of any sum (whether as representing a part of the assets
of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such
company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the
company, in either case, possesses accumulated profit [clause (e)]. Under para 22 (amended by Finance
Act 2003) of Part A, Sixth Schedule, dividend income on which dividend distribution tax (DDT) is payable
by the copany u/s 16D is totally non-assessable and under the provision of the new proviso u/s 54
(replaced by Finance Act 2003), no tax shall be deducted at source on this dividend. Under para 22A
(inserted by Finance Act 2003) of Part A, Sixth Schedule, dividend income from a mutual fund or a Unit
Fund is non-assessable up to Tk. 25,000.
c
Last year (AY 2003-04), tax rate for RMG company was also 10%, but textile company was subject to
tax rate of 20% and this declared for AY 2003-04 to 2006-07). For new rates, see Rahman, 2004b: 37.
d
Long-term capital gain means the capital gain arising from transfer of capital assets after 5 years from
the date of acquisition.
e
For publicly traded company, if dividend payment is more than 20%, a rebate of 10% of income tax will
be allowed (FA 2002, FA 2003 and proposed FA 2004). However, by inserting section 16B by the FA 2002
(not applicable to a banking or insurance company), a provision has been made to impose additional tax on
undistributed profit @ 5% if the dividend payment or issue of bonus share within 6 months after the end of
the income year has not been at least 15% of paid up capital. For AYs 2002-03 and 2003-04, undistributed
profit means total income with accumulated profit including free reserve as reduced by the aggregate of
dividend or bonus share issued, declared or distributed for that year, the tax which is payable under section
74 and the paid-up capital. From AY 2004-05, undistributed profit means accumulated profit including free
reserve (changed by FA 2004).
f
For this category of assessee who owns a small or cottage industry located in the Less Developed
Areas or the Least Developed Areas engaged in the production of goods, income tax rebate is allowed
for increased production volume as follows:
Increase in production volume than preceding year Rate of Rebate (% of income tax attributable to
such income)
(a) Exceeds 15%, but does not exceed 25% 5%
(b) Exceeds 25% 10%
TIN (Tax-payers Identification Number) Certificate under Income Tax Laws:
Under section 184B, each assessee or any person who applies for TIN in the Form prescribed u/r
64B will be given a TIN. The NBR may, with prior approval of the Government and by notification
in the official Gazette, specify any class of documents where TIN is to be mentioned (u/s 184AA).
However, TIN certificate is compulsory at the time of
- opening a L/C (letter of credit) for the purpose of import;
- submitting an application for the purpose of obtaining an import registration certificate;
- renewal of trade license in the area of a corporation or of a Paurashava of a divisional
headquarter;
- submitting tender documents for the purpose of supply of goods, execution of a contract or
for rendering services;
- submitting an application for membership of a club registered under the Companies Act
1994;
- issuance or renewal of license or enlistment of a surveyor of general insurance;
- registration of purchase of land, building or an apartment situated within any city
corporation, deed value of which exceeds one lakh taka (not applicable in case of purchase by
non-resident Bangladesh);
- registration, change of ownership or renewal of fitness of a car, jeep or a microbus;
- sanction of loan exceeding five lakh taka to a person by a commercial bank;
- issue of credit card;
- issue of practicing license to a doctor, a chartered accountant, a cost and management
accountant, a lawyer or an income tax practitioner;
- giving connection of ISD (International Subscribers Dialing) connection to any kind of
telephone;
- registration of a company under the Companies Act 1994 in respect of sponsor directors;
and
- submission of application for a licence as a Nikah Registrar under the Muslim Marriages
and Divorce (Registration) Act, 1974. But this is not applicable for a person who has already
obtained the licence of a Nikah Registrar, however he has to obtain such certificate within three
months from the date of commencement of this provision.
Submission of Income Tax Return: u/s 75
(1) Regular submission Income Tax Return [u/s 75(1)]: Every person is required to
submit the income tax return (i) if his total income during the income year exceeds the
exemption limit (Tk. 100,000 for income year 2003-04), or (ii) if he was assessed to tax for any
one of the 3 years immediately preceding the income year.
(2) Compulsory submission Income Tax Return [u/s 75(1A) and 75(1B)]: Under section
75(1B), each company is liable to submit the income tax return irrespective of its total income and
it is also liable to file the return for the income of any other person for whom the company is
assessable. However, under section 75(1A), submission of income tax return is mandatory for the
following persons:
person residing in a city corporation or a pourashava, or a divisional headquarter or a district
headquarter, if he: (i) owns a building which consists of more than one storey and the plinth area of
which exceeds one 1600 square feet, (ii) owns a motor car (including a jeep and micro-bus), (iii)
subscribes a telephone, and (iv) own a member of a club registered under the Value Added Tax
Act 1991;
person who runs any business or profession having trade license from a city corporation, a
pourashava or a union parishad, and operates a bank account;
person who has registered with a recognized professional body as a doctor, dentist, lawyer,
income tax practitioner, chartered accountant, cost and management accountant, engineer,
architect or surveyor or any other similar profession;
person who is a member of a chamber of commerce and industries or a trade association;
person who is a candidate for an office of a paurashava, city corporation, or a Member of
Parliament;
person who participates in a tender floated by the government, semi-government, autonomous
body or a local authority; and
person who has a taxpayers identification number (TIN) in accordance with the provision of
section 184A.
Timing: Under section 75(2)(c), each company has to submit the income tax return by the 15
July next following the income or, where the 15 July falls before the expiry of 6 months from the
end of the income year, before the expiry of such 6 months. Other assessees have to submit the
return by 30 September following the income year
Forms of Income Tax Return: There are two Forms for submission of income tax return, which
have been outlined in the Appendices.
Appendix-I: Form of Return of Income: FORM A, a 6-page Form for any income taxpayer (can
be used for Self Assessment purpose by writing Self Assessment on the title page of the
Form)
Appendix-II: Form of Return of Income: FORM B, a 1-page Form for individuals having
limited income from salary, wages and/or self-employment (to be used for Self Assessment
only)
Statements and Documents to Be Attached: Under section 75(2)(d), the income tax return is
to be accompanied by the following documents:
(a) Auditors Certificate/audited accounts in the case of company;
(b) Statement of income and expenditure account/ Manufacturing, Trading, Profit & Loss
account and Balance sheet in the case of other assessees;
(c) Depreciation chart claiming depreciation as per Income Tax Law;
(d) Computation of income according to Income Tax Law;
(e) Statement of assets, liabilities and expenses u/s 80 and u/r 25 in Form IT10B (compulsory
in case of self-assessment return or where total income exceeds Tk. 3 lakh);
(f) Statement in the prescribed form and verified in the prescribed manner giving particulars of
an individual assessees personal and family expenditure to be called life style from income year
2003-04 in Form IT10BB.
(g) Under the first proviso to section 82, a return filed by an assessee, being a company not
less than fifty per cent. of whose paid-up capital is owned by persons other than Bangladeshis or
a public limited company or a body corporate established or constituted by or under any law for
the time being in force, or any nationalised banking, insurance or other financial institution, shall
be deemed to be correct and complete if the return is accompanied by a certified copy of the
accounts of the assessee audited by a chartered accountant and a certificate as to the
correctness of the total income of the assessee signed and issued by the chartered
accountant himself in the prescribed form [as per Rule 64A]. The statement showing
computation of total income shall be enclosed with the prescribed Form of Certificate u/r 64A.
Income Tax Deducted at Sources: u/s 48-63
Following are the relevant sources from which tax is to be deducted or collected along with the
tax rates of deduction.
Sl.
#
Sources Sec-tion Rule Rate of Deduction/Collection
01 Salary 50 Normal average rate of individual taxpayers
02 Discount on Bangladesh Bank
bills
50A
Individual
25%
Bank, insurance, financial institutions
45%
Publicly traded company
30%
Company not publicly
traded 37.5%
03 Interest on security (not
applicable on interest on
debenture issued by a local
authority or company)
51 20%
04 a. Contractor and Suppliers
*


52

16

a. Up to Tk. 1,00,000 NilTk. 1,00,001-
5,00,000 1%


b. Oil supply by oil
marketing companies
*



52


16
Tk. 5,00,001-15,00,000 2.5%
Tk. 15,00,001-25,00,000 3.5%
Above Tk. 25,00,000 4%
b. Up to Tk. 2,00,000 Nil
Above Tk. 2,00,000 0.75%
c. Indenting
commissiond. Shipping agency
commission
5252 17(1)17(2) c. 3.5% of total commissiond. 5% of total
commission
05 a. Fees for doctors
serviceb. Royalty or technical
know-how fee
*

c. Fees for professional
or technical service
52A(1)
52A(2)

52A(3)

a. 5% of feesb. 10% of royalty or fees

c. 5% of fees
06 Payment to a private security
service agency and stevedoring
agency
52AA 5% of amount payable
07 Commission to a clearing and
forwarding (C&F) agent
*

52AAA 5% of amount payable
08 Cigarette manufacturers
(manufacturing manually without
any mechanical aid)
*

52B 3% of value of banderoles
09 Compensation for immovable
property acquired by
Government
52C 6% of compensation
10 Interest on savings instruments
(purchased after 10-06-1999 to
before 01-01-2004)
*

52D 5% of interest
11 Bonus to shareholders 52E 10% of the amount of bonus
12 Brick manufacturer 52F Tk. 5,000 for each brick field (at the time of permission)
13 Letter of credit (L/C) Commission 52I 5% of commission
14 Import
*
53 17A 3% of value of imported goods
15 House property 53A 17B Monthly payment:Up to Tk.
15,000 Nil
Tk. 15,001-35,000 3%
Above Tk. 35,000 5%
16 Export of manpower
*
53B 17C 10% of service charge or fees determined by Government
before issuing clearance
17 Goods or property sold by public
auction through sealed tender or
otherwise
*

53C 17D 3% of sale price
18 Payment to actor and actress 53D 17E 5% of amount payable, if annual total payment
exceeds Tk. 36,000
19 Commission, discount or fees 53E 5% of commission or fees payable, or
discount allowed
20 Commission or remuneration to
foreign buyers
agent/representative
53EE 2.5% of commission, charges or remuneration
Sl.
#
Sources Sec-
tion
Rule Rate of Deduction/Collection
21 Interest on savings/fixed/ term
deposit in any scheduled bank
including a cooperative bank or share
of profit on term deposit with an
Islamic bank
53F 17H 10% of interest or share of profit
22 Insurance commission to a resident
*
53G 5% of commission, if annual total commission
exceeds Tk. 40,000
23 Remuneration or fees of surveyor of
General Insurance
*

53GG 5% of payment
24 Transfer of property
*
53H 17I 5% of document value of the property on which stamp
duty is chargeable
25 Dividends (not applicable where
dividend distribution tax @ 10% is
applicable u/s 16D)
54
Resident person not being a company, if
dividend receipts exceed Tk.
25,000 10%
Non-resident non-company
person 25%
Bank, insurance, financial
institutions 15%
Publicly traded
company 15%
Company not publicly
traded 15%
26 Receipt by way of winnings from
lotteries, crossword puzzles, card
games and other games of any sort
or from gambling or betting in any
form or of any nature whatsoever [u/s
19(13)]
*

55 20% of the cash receipts or in case of goods or assets,
20% of the value of the goods or assets
27 Income of non-resident (unless such
person is himself liable to pay tax as
agent)
56
Person not being a
company 25%
Bank, insurance, financial
institutions 40%
Publicly traded
company 30%
Company not publicly
traded 35%
*
Section 82C applicable, i.e., tax deducted at sources (TDS) shall be treated as settled tax.
In the following cases, TDS shall be treated as the settled tax or as the final discharge of tax
liability.
(1) TDS on Contractor and Suppliers [Section 52 and Rule 16] at following rates:
Up to Tk. 1,00,000 Nil
Tk. 1,00,001-5,00,000 1%
Tk. 5,00,001-15,00,000 2.5%
Tk. 15,00,001-25,00,000 3.5%
Above Tk. 25,00,000 4%
(2) TDS on Oil supply by oil marketing companies [Section 52 and Rule 16] at following
rates:
Up to Tk. 2,00,000 Nil
Above Tk. 2,00,000 0.75%
(3) TDS on Royalty or technical know-how fee[Section 52A(2)] at 10% of royalty or fees.
(4) TDS on Commission to a clearing and forwarding (C&F) agent[Section 52AAA] at 5%
of amount payable.
(5) TDS on Cigarette manufacturers (manufacturing manually without any mechanical
aid)[Section 52B] at 3% of value of banderoles.
(6) TDS on Interest on savings instruments (purchased after 10-06-1999 to before 01-01-
2004)[Section 52D] at 5% of interest.
(7) TDS on Import [Section 53] at 3% of value of imported goods.
(8) TDS on Export of manpower[Section 53B and Rule 17C] at 10% of service charge or fees
determined by Government before issuing clearance.
(9) TDS on Goods or property sold by public auction through sealed tender or
otherwise[Section 53C and Rule 17D] at 3% of sale price.
(10) TDS on Insurance commission to a resident [Section 53G] at 5% of commission, if
annual total commission exceeds Tk. 40,000.
(11) TDS on Remuneration or fees of surveyor of General Insurance [Section 53GG] at 5%
of payment.
(12) TDS on Transfer of property [Section 53H and Rule 17I] at 5% of document value of the
property on which stamp duty is chargeable.
(13) TDS on Receipt by way of winnings from lotteries, crossword puzzles, card games
and other games of any sort or from gambling or betting in any form or of any nature
whatsoever [u/s 19(13)][Section 55] at 20% of the cash receipts or in case of goods or assets,
20% of the value of the goods or assets.
Under rule 13, all sums deducted or collected at sources shall be paid to the credit of the
Government within 1 week from the date of such deduction or collection by the person making
the deduction or collection. The Deputy Commissioner of Taxes (DCT) may, in a special case
and with the approval of the Inspecting Additional Commissioner of Taxes or the Inspecting Joint
Commissioner of Taxes, permit an employer to pay the tax deducted from any income
chargeable under the head Salaries quarterly on September 15, December 15, March 15 and
June 15.
Under rule 14(1), the amount of tax deducted or collected shall be paid to the credit of the
Government by remitting it into the Bangladesh Bank or the Sonali Bank, as the case may be,
accompanied by an income tax challan, blank copies of which can be had from the office of the
DCT for the purpose.

Under rule 14(2), the person responsible for making deduction, with respect to following 5 cases
shall issue a cheque equivalent to the amount of tax deducted at source in favour of the
concerned DCT and hand over the same to the person from whom such tax has been deducted
and such person shall deposit the cheque through income tax challan form to Bangladesh Bank
or the Sonali Bank, as the case may be, and on production of the counter foil of the challan, he
shall be entitled to get his remaining dues on the concerned account:
(i) supply of goods or execution of contract under section 52,
(ii) fees for professional or technical services under section 52A(3),
(iii) fees for services rendered by doctors under section 52A(1),
(iv) house property under 53A, and
(v) commission or fees under section 53E.
Under section 117A, the NBR or any other authority empowered by the NBR in this behalf may
enter the premises of a deducting or collecting authority to examine, monitor or verify books of
accounts and relevant records in relation to: (a) deduction or collection of tax by the concerned
authority under the provisions of Chapter VII (u/s 48-63); and (b) deposit of the tax so collected or
deducted to the credit of the government as per rules [rules 13-14].
Computation of Income from Business or Profession for Income Tax Purpose:
Scope of Income from Business or Profession: u/s 28
Following incomes are to be included in Income from Business or Profession:
(1) Profit or gains of any business or profession carried on or deemed to be carried on by the
assessee [u/s 28(1)(a)].
(2) Income derived by any trade or professional association or other association of like nature
on account of specific services performed for its members [u/s 28(1)(b)].
(3) Value of any benefit or perquisite, whether convertible into money or not, arising from
business or profession [u/s 28(1)(c)].
(4) Deemed income from business or profession u/s 19:
(i) Subsequent receipt back of any loss, bad debt or expenditure [u/s 19(15)(a) and
28(1)(d)].
(ii) Interest on loan from commercial or specialised banks or share of profit to Islamic bank
unpaid for two years [u/s 19(15)(aa) and 28(1)(d)].
(iii) Benefit received from any trading liability [u/s 19(15)(b) and 28(1)(d)].
(iv) Trading liability unpaid for three years [u/s 19(15)(c) and 28(1)(d)].
(v) Revenue profit or depreciation recovery from disposal of any building, machinery or
plant used for business or profession [u/s 19(16) and 28(1)(e)];
Maximum amount = Original Cost Written down value (WDV).
(vi) Insurance, salvage or compensation money received on discarding, demolishing or
destroying any building, machinery or plant used for business or profession [u/s 19(18) and
28(1)(f)];
Maximum amount = (Original Cost WDV) Scrap value.
(vii) Sale proceeds of any capital expenditure on scientific research which is allowed as a
deduction u/s 29(1)(xx) [u/s 19(20) and 28(1)(g)].
(viii) Export value of garments exportable against the export quota which has been transferred
[u/s 19(23) and 28(1)(h)]. Under rule 30A, an amount equal to 3% of the export value of the
garments exportable against the export quota transferred by the assessee shall be deemed to be
his income u/ 19(23).
(ix) Profits and gains from any insurance business carried on by a mutual insurance
association the income of which is to be computed under paragraph-8 of Fourth Schedule [u/s
19(14)].
(5) Partially income from business or profession[u/s 26(3) and Rules 30, 31 and 32]:
(i) 40% of income from sale of tea [under rule 31]
(ii) 40% of income from sale of rubber [under rule 32]
(iii) Tobacco, sugarcane or other agricultural produce used as raw materials in any
industrial production process the income of which is to be computed under the head Income from
Business or Profession as follows [under rule 30]:
Business income = (Sale value of the concerned agricultural produce recorded in the accounts of
the business)
(Market value of the agricultural produce used as raw materials).
Allowable Deductions to Determine Taxable Income from Business or Profession:
1. List of Deductions Allowable u/s 29
i)Rent for the premises used for business or profession [u/s 29(1)(i)].
ii)Repair expense incurred by the assessee:
For the hired premises in which the business or profession is carried on [u/s 29(1)(ii)].
For the buildings, machinery, plant or furniture used for business or professional purposes [u/s
29(1)(vi)].
iii)Interest payment or profit shared with an Islamic bank in respect of capital borrowed for
business or profession [u/s 29(1)(iii)].
iv)Amount credited to any persons profit sharing account or deposit with an Islamic bank by way
of distribution of profit by that Islamic bank [u/s 29(1)(iv)].
v)Amount up to 10% of total income carried to any special reserve (the aggregate amount in
which does not exceed the paid up share capital) created by Government approved financial
institutions for any approved purposes [u/s 29(1)(v)].
vi)Insurance premium on buildings, machinery, plant or furniture, stocks or stores used for
business or professional purposes [u/s 29(1)(vii)].
vii)Depreciation on the assessees building, machinery, plant or furniture used for business or
professional purposes as per Third Schedule:
Initial depreciation allowance: From assessment year 2002-03, under paragraph 5A of the
Third Schedule, initial depreciation allowance is allowed for the first year at 10% on the cost of
building and 25% on the cost of machinery or plant (other than ships or motor vehicles not plying
for hire or any machinery or plant which has previously been used in Bangladesh).
Accelerated depreciation allowance @ 100% widened: From assessment year 2002-03,
under paragraph 7 of the Third Schedule, 100% of cost of machinery is admissible for new
industrial undertakings as accelerated depreciation allowance in cases of prescribed sectors.
Normal depreciation allowance: The normal depreciation allowance under paragraph 3 of the
Third Schedule is allowed at the specified rates on written down value of the concerned asset.
viii)Investment allowance [u/s 29(1)(xa)]: Investment allowance is allowed as a deduction in the
year of investment @ 25% on investment by a company in the purchase of new plant or
machinery for installation in an industrial undertaking set up in Bangladesh and owned by the
company for the purpose of BMR (balancing, modernization or replacement) of the existing plant
or machinery [not allowed from income year 2003-04, since this clause is repealed by the
FA 2004].
ix)Obsolescence allowance [equal to excess of written down value (WDV) over sale proceeds or
scrap value] :
For building, machinery or plant after having been used for business or professional
purposes, discarded, demolished or destroyed or the assets sold transferred by way of exchange
or compulsorily acquired by a legally competent authority, or exported outside Bangladesh[u/s
29(1)(xi)]. Obsolescence allowance will be computed under Para-10(c) of Third Schedule.
x)Write-off allowance [equal to the difference between the original cost of the animal and the
money from sale or other disposition of the carcass]: For dead or useless animal used for
business or professional purposes otherwise than as stock-in-trade)[u/s 29(1)(xii)].
xi)Land development tax or rent, local rates or municipal taxes for the premises used for business
or professional purposes [u/s 29(1)(xiii)].
xii)Bonus including festival bonus and commission paid to employee
(Bonus other than festival bonus and commission is reasonable with reference to general practice
of similar business or profession, profit of the organization and the pay and other conditions of
service of the employee) [u/s 29(1)(xiv)].
xiii)Bad debts:
a) Bad debts actually written off in the income year as an established irrecoverable item [u/s
29(1)(xv)].
b) Bad debts prematurely written off but allowed as a deduction in subsequent year when
established to have been irrecoverable [u/s 29(1)(xvi)].
c) Bad debts actually written off in an income year but which became irrecoverable in earlier
income year (not falling beyond 4 years immediately preceding the income year in which it has
been written off) allowed as a deduction in such earlier income year [u/s 29(1)(xvii)].
xiv)Provision for bad debts :
a) Provision for bad and doubtful debts by and interest thereon made by a Commercial Bank,
Bangladesh Krishi Bang (BKB) and Rajshaahi Krishi Unnyan Bank (RKUB) of a sum equal to
2% of the outstanding loan including interest thereon or the amount of actual provision, whichever
is less (allowable during the assessment years from 1990-1991 to 2004-2005; rate of AY 2002-03
was 3%). (Conditions: Applicable only in respect of such loan as the Bangladesh Bank may from
time, classify as bad or doubtful debts. If recovered, the recovered amount will be deemed to be
profit.) [u/s 29(1)(xviiiaa)]
xv)Expenditure on Scientific research or for research institute :
a) Revenue expenditure on scientific research in Bangladesh related business [u/s 29(1)(xix)].
b) Capital expenditure on Scientific research in Bangladesh related to business [u/s
29(1)(xx)].
c) Amount paid to approved Scientific Research Institute , Association or other body or to
approved University, College , Technical, School or other Institute for the purpose of Scientific
research or technical training related to relevant business class [u/s 29(1)(xxi)].
xvi)Expenditure on Educational Institution or Hospital for employees :
Expenditure laid out or expended on any Educational Institution or Hospital established for the
benefit of assessees employees their families and dependents or on the training of industrial
workers: (a) Revenue expenditure [u/s 29(1)(xxii)], and (b) Capital Expenditure [u/s 29(1)(xxiii)].
xvii)Expenditure on training of Bangladeshi citizens in connection with a scheme approved by
NBR [u/s 29(1)(xxiv)].
xviii)Expenditure (not being capital or personal) on visits abroad as a member of a trade
delegation sponsored by the Government [u/s 29(1)(xxv)].
xix)Annual membership subscription to a registered trade organization or to a professional
institution [u/s 29(1)(xxvi)].
xx)Residuary / Omnibus Clause :
Any expenditure (not being capital or personal) made exclusively for business or professional
purposes [u/s 29(1)(xxvii)].
(1) Cost of raw materials, stores and spare parts consumed, (2) Printing and stationery, (3)
Postage, telegrams and telephones, (4) Traveling and conveyance, (5) Law charges and
expenses, (6) Audit fees, (7) Losses arising in the regular course of business, (8) Loss of stock
due to fire , flood etc. (9) Provision for retirement benefits to employees, (10) Exchange loss, etc.
Limitations on deduction [u/s 29(2)]:
Where any premises, building, machinery, plant (where plant includes ships, vehicles, books,
scientific apparatus and surgical and other instruments or equipments used for business or
professional purposes), or furniture is not wholly used for business or professional purposes, the
deduction allowable from Income from Business or Profession is the fair proportional part of the
amount which would be allowable if such premises, building, machinery, plant or furniture was
wholly so used.
2. List of Deductions Inadmissible u/s 30
i) Payment of salary, if tax thereon has not been deducted at source u/s 50 [vide u/s
30(a)].
ii) Any payment subject to deduction of income tax or VAT (value added tax), but
these taxes are not deducted at the time of payment [u/s 30(aa)].
iii) Payment of interest, salary, commission or remuneration made by a firm or an AOP
(association of persons) to its partners or members [u/s 30(b)].
iv) Payment of brokerage or commission to a non-resident person without deduction of
tax at source u/s 56 [vide u/s 30(c)].
v) Payment to employees provident fund or other funds unless effective arrangement
has been made for deduction of tax at source while making the payments from the fund which are
taxable under the head Salaries [u/s 30(d)].
vi) Payment of perquisites or other benefits to an employee in excess of Tk. 1,50,000
[u/s 30(e)]. But this provision is not applicable to employer where perquisites or other benefits
were paid to an employee according to Government decision published in the official Gazette to
implement the recommendation of a Wage Board constituted by the Government [Proviso to sec.
30(e)].
vii) Entertainment expenditure exceeding the limits specified below as per Rule 65
[vide u/s 30(f)(i)]:
*


Profits, income and gains before
considering entertainment expenditure
Admissible deduction
a) First Tk. 10 lakh 4% of the above profit, income and gains
b) On the balance 2% of the above profit, income and gains
viii) Expenditure exceeding 10% of the profit under the head of Head Office expenses by
a company, not incorporated in Bangladesh under the Companies Act 1994 [u/s 30(g), inserted
by the FA 2003]. Here, the profit will be profit before charging this expenditure.
*

ix) Payment by way of royalty, technical services fee, technical know how fee or
technical assistance fee exceeding 2
1
/
2
% of the profit [u/s 30(h), inserted by the FA 2003]. Here,
the profit will be profit before charging this expenditure.*
x) Expenditure on foreign travels of employees and their dependents (spouse and
minor children including step and adopted children) for holidaying and recreation exceeding the
limit under Rule 65A [vide u/s 30(f)(ii)]: 3 months basic salary, or
th
of the actual
expenditure, whichever is less and the foreign travels shall not be oftener than once in every 2
years.
xi) Publicity and advertisement (illegal and capital type) [u/s 30(f)(iii)].
xii) Distribution of free samples exceeding the following limit as per Rule 65C [vide u/s
30(f)(iv)]:
Turnover Deduction for expenses for free sample as % of turnover
Pharmaceutical Industry Other Industry
Up to Tk. 5 crore 2 % 1.5%
Exceeding Tk. 5 crore, but up to Tk. 10 crore 1 % 0.75%
Exceeding Tk. 10 crore 0.5% 0.375%
xiii) Other non-deducible allowances :
(a) Personal gifts to employees (but not gratuity)
(b) Fines for violation or non-compliance of any law of the land
(c) Income tax (including fines and penalties etc.)
(d) Expenditure on inland leave or travel of employees when provided beyond the terms and
conditions of service of employees
(e) Law charges incurred for defending or in connection with violation or non-compliance of
any law or Government policy or in connection with the criminal cases, mortgage suits, capital
reduction and winding up of company
(f) Loss on speculation
(g) Transfer to reserves [except as allowed u/s 29 (1)(v) for Government approved financial
institutions]
(h) Provision for bad and doubtful debts [excepts as allowed u/s 29(1)(xviiia) and
29(1)(xviiiaa) for commercial banks and specialised banks]
(i) Contribution to sinking fund.
Provision for Disallowance u/s 30A: Notwithstanding contained in sections 28, 29, and 30, the
Deputy Commissioner of Taxes (DCT) shall not make any disallowance or deduction for any year
from any claim made by an assessee in the trading account or profit or loss account without
specifying reason for such disallowance or deduction [inserted by FA 2002].
Conclusion
In the preceding discussion, the provisions for income taxation have been enumerated mainly for
business enterprises. For income taxation, business organizations having partnership and
corporate forms are themselves liable to pay income tax by their own TIN, but in case of sole
proprietorship business, the sole owner is personally liable to pay tax on his/her business income.
However, individual partners of a partnership firm are liable to show their share of income from
firm in the income tax return although that income will be treated as a tax-free income subject to a
tax-rebate at average tax rate, if the firm has already paid tax on its income. On the other hand,
individual shareholders of a corporate entity are liable to show their dividend income or capital
gain from shareholding in the income tax return although that income will be tax-exempted. But
under the
income tax, any entity is liable to act as a tax-collector on behalf of the Government, where
income tax to be deducted/collected at sources. Thus, even in case of tax exemption, an entity
may have some fiscal obligation under the tax statutes.