ICAB?s suggestions and recommendations on upcoming amendments on Income Tax ordinance 1984


        ICAB’s suggestions and recommendations on upcoming amendments on Income Tax ordinance 1984


The Institute of Chartered Accountants of Bangladesh (ICAB) at members’ conference on Sunday, 15 March 2020 has come up with its suggestions and recommendations on upcoming amendments on Income Tax ordinance 1984 include widening the tax net for revenue generation and higher Tax - GDP ratio, for increasing private sector investment, employment generation , export diversification,  to attract more FDI (foreign direct investment), to improve "Paying Taxes" indicator for ease of doing business in Bangladesh.


Abu Hena Md. Rahmatul Muneem, Senior Secretary, Internal Resources Division (IRD) & Chairman, National Board of Revenue (NBR), Ministry of Finance was present be the Chief Guest of the conference.


Nahar Ferdousi Begum, Member (Taxes Legal & Enforcement),  Ranjan Kumar Bhowmik, Member (Tax Survey & Inspection) and  Md. Masud Sadiq, Member (VAT Policy) , National Board of Revenue (NBR), Ministry of Finance were present as Special Guests. ICAB President Muhammad Farooq FCA delivered address of welcome. Mohammad Al Maruf Khan FCA, Partner, Howladar Yunus & Co., Chartered Accountants and Mr. Snehasish Barua FCA, Partner, Snehasish Mahmud & Co., Chartered Accountants presented  the Key Note paper.



ICAB President said, the Institute believes that there is a need for the rationalisation of the tax rate at the higher end and also at the lower end of the scale. Again, there has been no tax reform in the country for long time, he added. As an apex professional institute of the country, ICAB felt necessary to reform our tax system to meet the demand of the changing world, he suggested.


Thus ICAB has taken an initiative to prepare a policy paper on the Upcoming Amendment of Income Tax Ordinance 1984 based on the practical experience of the ICAB members. Outcome of this initiative is this policy paper, he went on and said, the paper focuses the



general design issues on how to make the tax system in Bangladesh more growth-friendly, simple and transparent and fairer.

The policy paper is organised into four key categories which include:


  1. Widening the tax net for revenue generation and higher Tax - GDP ratio:


A.1. Automation of tax Administration: Current guidelines and facilities for electronic filing of return, online documents submission to complete assessment and to perform other activities needs up gradation. Our neighboring country (India) has successfully introduced the e-filing facility and reduced the cost of Tax collection and improved the taxpaying environment/ culture.

A.2. Integrated automation with other statutory organization: To ensure filing return of all entitled assessees, ETIN must be linked to BRTA, land records office and City Corporation. Such automation will ensure bringing potential tax filers under tax net and encourage them to file returns online without any hassle. In addition, with such automation process, tax payer will not face any difficulties for availing their due tax credit.

A.3. While framing the assessment, the assessing officer takes consideration the documents and information submitted to them. Time has come to evaluate the external information.  Provision to share draft assessment order with the assessee before finalization of order and detailed provision regarding assessment of discontinued business need to incorporate in the Ordinance. Income tax authority might initiate the process of providing a formal attendance at the time of hearing like VAT authority. NBR may also consider to introduce new Rule detailing the procedures of assessment along with the process of inspection to be carried out by a tax inspector in discharge of his duties. A notification should be issued from NBR to refrain tax officials from dealings with consulting services.

A.4. Encourage more people: To attract individual assessees to file income tax return it is required to increase threshold limit and reduce the initial tax rate to 5% to encourage the small tax payers to file return and pay tax.

A.5. Currently NBR does not have any Standard Industrial Classification Code (SIC) in line with the classification code of BBS. As such it is not possible to assess the performance of the individual sectors and its contribution to the national exchequer. NBR may consult with BBS and gather the Standard Industrial Classification (SIC) Codes to classify each sector and their related industries. This will then be embedded in the ETIN database to identify the sectors.

A.6. Increasing number of tax return filing:  There are some assesses who do not file income tax return even after having a TIN certificate and being required to submit return as per provision of law. NBR should identify the assesses who did not file the return and ensure filing of return. Rigorous follow up will be helpful to ensure filing of return.

A.7. Payment to international suppliers and contractors: Most mega projects in Bangladesh are owned by government or government authorities or contractors which are operating here as a branch office. Usually these projects are funded by foreign organizations which pay directly to the supplier of the materials or services. Hence, tax deduction from these payments is not possible and NBR is losing their potential TDS. We recommend to include a concrete guideline in the ITO, 1984 for collection of TDS from the value of the goods and services supplied & consumed in Bangladesh. 

A.8. Tax on foreign national working in Bangladesh: A huge number of foreign personnel working in Bangladesh with E-Visa and provide technical services without getting permission from appropriate authorities. They remit the money through non-banking channel and do not hold TIN number. Huge amount of money is remitted outside without paying any tax to NBR. Our proposal will be to impose more penalties on employers of these organizations who employ such unauthorized employees and cancel all benefits (like, reduced rate/ bond facilities) they receive from NBR.

A.9. Undeclared income coming from Agricultural Industry: To promote agricultural sector the government of Bangladesh is allowing tax incentive through SRO No. 254/Law/Income tax/2015 dated 16 August 2015 and SRO 199/Law/Income tax/2015 dated 30 June 2015. Some assessees manipulate these incentives to evade taxes and/or legalize their illegal income. NBR can introduce a threshold limit such as “up to 25 lakh taka” to minimize the evasion / manipulation.

A.10. Provision for industry wise uniform assessment: It has been observed that due to lack of uniform and standardized assessment procedure companies in similar industries are assessed in different way by assessing officer from different tax circles and zones. A uniform and standard assessment manual should be introduced so that assessing office can apply standard procedure for assessment. This will reduce potential dispute resultant from arbitrary assessment and will save administrative time.

A.11. Difference between IFRS & ITO: During the assessment of an assesses DCT considers the audited Financial Statement (FS) as the main document and as per section 35 ITO, 1984 every company shall prepare the audited FS based on IFRS/IAS. Due to lack of specific guideline assessing officer is reluctant to allow certain expenses (e.g. amortization of intangibles, impairment, foreign exchange loss, depreciation of leased assets and WPPF expenses) which is business expenses as per IFRS but not specifically mentioned in the Ordinance. We would like NBR to incorporate specific provision under section 29 to allow business expenses as per IFRS.

A.12. Thin Capitalization rule: In absence of restriction on ‘thin capitalization’ and ‘rate of interest’ many organizations borrow from foreign lenders at a higher interest rate disproportionate to their capital size to get tax benefit for the interest expenses.  Corporations sometime borrow at higher rate and transfer a portion of profit without paying tax. Moreover, countries like Canada, USA, Australia, Singapore and Mexico follow thin capitalization rules to prevent tax evasion. NBR should incorporate such rule in the ITO.

A.13. Sale of share outside Bangladesh: Sale of shares by foreign owner of a Bangladeshi company to another non-resident person is subject to tax in Bangladesh if there is transfer of any assets situated in Bangladesh. Due to lack of proper reporting liability such company is not liable to disclose such gain. NBR may require assessee to disclose such transaction at the time of filing return.

A.14. Unauthorized representation by foreign advisory firm: As per section 174(2) of ITO, 1984 legal practitioner, chartered accountant or cost and management accountant can be an “Authorized Representative” of an assessee. A provision requires to be incorporated under section 174 that such accountants shall be a practicing chartered accountants and cost management accountant.

A.15. Deactivating E-TIN in certain cases: In certain cases, where assesses requires to complete assessment for discontinuing tax identification number (TIN). Our recommendation will be to include a provision that makes the assessee responsible for applying for deactivating the TIN once assesses has decided to pay the demand.

A.16. Alignment of the sections / chapters of the Income tax ordinance with the Income tax rules, SROs, Etc: Income tax laws are changing regularly through SROs, Notifications and explanations. It is very difficult to accumulate all the required laws for general users. To make the income tax law more user friendly synchronization / alignment of sections and chapters of the Ordinance and the Rules are very important. We recommend synchronizing the rules according to section reference and chapters of the Income Tax Ordinance.

A.17. Advance Ruling arrangement: certain industries usually face problems to implement the certain provisions of Income tax law due to their uniqueness of the business nature/ processes. Hence, there should be a provision in the Income tax laws which shall empower the assesses to seek for an advance tax ruling and NBR will be bound to issue a written interpretation on the implication of the tax provisions for the said industries. There is a similar provision in the Customs Act.

A.18. Annual report of NBR for 2017-18 was published in mid of February 2020. Annual reports from 2014-15 to 2016-17 was published in April 2019. Since the market trends are rapidly changing, if information is available on a timely basis it will benefit the potential investors, policy makers, economists and organizations to assess the economy, performance and make decisions accordingly.

  1. For increasing private sector investment/ employment generation / export diversification :


B.1. Reduction of CIT rate for investment: Our corporate tax rate is higher compared to tax rate of our neighboring country. Because of the provisions under section 82(c), in many circumstances corporate tax has become turnover tax / transaction tax, tax is not charged on the profit/loss of the company. To create further investment and employment, NBR may reduce tax rate subject to a certain portion of the tax savings are required to be re-invested and rationalize the TDS rate for the industries, particularly which are subject to under double TDS both at import and export stages made in Bangladesh.

B.2. Made in Bangladesh: To promote the products made in Bangladesh, there should be a provision for being taxed at a lower rate up to certain period for the new investment. There should not be provision of minimum tax provision for new investment and the burden of final tax for tax deduction at source be waived for them. This facility should be open for the both export and import substitution industries. 

B.3. Tax rate to be applicable on prospective basis: Any changes made in the law currently have retrospective effect which sometime creates challenges for assessee to prepare accurate budget. If such changes are made on prospective basis, investor will get benefited to prepare budget and plan accordingly based on the tax rate. So investor will invest more in sectors where government has given benefits.

B.4. Review of tax exemption policy: NBR should carry research and take a strategic decision about allowing exemption to increase the government revenue from private sector.

  1. To attract more FDI (foreign direct investment) in the country;


C.1. Reduction of rate u/s 56 and ratification of treaty: TDS rate is high under section 56 of ITO, 1984 for the services/goods received from outside Bangladesh compare to our neighboring countries. Currently government does allow remitting money as management fees, technical knowhow services but the process is very critical and time consuming. NBR should reduce the TDS as per global practice and should start the dialogue to ratify the treaty incorporating the changes brought in the UN model in 2017. This will attract investor by ensuring their return on investment.

C.2. Joint Venture (JV) or Consortium: Currently a large number of mega projects are running on JV/consortium basis and many of these do not have any legal entity in Bangladesh. Hence, their operations remain outside the purview of tax compliance and they also face consequence while distributing profit to their partners. Hence, a detailed guideline and provision are required to be brought in the ITO, 1984 so that such JV/consortium runs with proper tax compliance.

C.3. Guideline on Merger and Acquisition: Nowadays “Mergers and Acquisitions” (M&A) is a very common practice to expand business. Since there is no provision in ITO, 1984 regarding the process of amalgamation, merger and de-merger, sometime the assessing officer does not understand the consequences.  A provision is required to be incorporated in the Ordinance providing guideline for assessment in such case for better tax compliance. Such guideline shall include carry forward of business loss and unabsorbed depreciation sustained by the amalgamating company.

C.4. Creation of digital PE/digital place of supply rules for income tax and VAT respectively.

Taxing the Digital Platform by tax authority is becoming challenging each day, as lack of institutional knowledge and business processes allows organisations to take advantage of avoiding tax liabilities, hence losing out on taxable income. NBR can proactively address this concern by issuing an SRO to apply the business connection rule and should have a matching change in the VAT Act 2012 in place of supply rules. I have annexed a draft that can be recommended to NBR, if they are willing to address the issue through either the Act or the SRO. See section C4 for details.

C.5. Taxation of offshore Indirect Transfers (OIT)

Many foreign companies, which are owned and held by another entity in other jurisdictions, are enjoying licensing and other natural resources exploitation rights in Bangladesh, while the gains on transfer of their shares are beyond our tax jurisdiction, hence escaping tax liabilities. The country in which the underlying asset is located may wish to tax gains realized on such transfers. Such treatment might reasonably be applied to telecom licenses and other rights issued by government. The provisions of both the OECD and the UN Model treaties suggest wide acceptance that capital gains taxation of OITs of “immovable” assets can be imposed by the location country and Article 13 (4) of the treaty model is suggested to be negotiated; however, such taxing right requires appropriate definition in the domestic law.

  1. To improve "Paying Taxes" indicator for ease of doing business in Bangladesh;


D.1. In “Doing Business 2020” index Bangladesh advanced only 8 notches in global ranking to 168th from 176th out of 190 countries. As per report the jump was aided by the country’s improved score in the areas of starting a business, dealing with construction permits, getting electricity, registering property and getting credit. However, based on the ranking methodology Bangladesh failed to make improvement in "Paying Taxes". To ensure better score NBR needs to Introduce online tax payment system, online submission of appeal, effective tax refund system and reduction of the frequency of tax payment.


Create Date : 16/03/2020

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