Impact of Finance Act 2021 on income tax and VAT

Impact of Finance Act 2021 on income tax and VATJuly 2021

Impact on Income Tax and VAT | Finance Act 2021© 2021 Deloitte Bangladesh 2

Preface

The Finance Act, 2021 was published by the Government of Bangladesh on 30 June 2021; it cameinto effect from 1 July 2021.

This publication summarises the major changes brought to income tax and value added tax lawprovisions through the Finance Act, 2021. It is intended to capture the major changes. Thus, it is nota comprehensive piece.

The information contained here is of a general nature. Although we endeavour to provide accurateinformation at the time of preparation, there can be no assurance that such information wouldcontinue to be accurate in the future. No one should act on such information without appropriateprofessional advice.


Company type AY 2020-21 AY 2021-22 Change

Non-listed companies

(e.g., private limited companies in general)

32.5% 30%

Listed companies (other than FI, mobile, and tobacco companies)

25% 22.5%

One Person company (OPC) - 25% new

Change in the tax rate for listed and non-listed companies

Corporate taxCorporate tax rates


Company type FY 2020-21 FY 2021-22

Non-listed companies (private limited and

non-listed public limited cos)32.5% 30%

Listed companies (other than bank, insurance, NBFI,

and mobile cos)25% 22.5%

Listed banks, insurance cos, and NBFIs 37.50% 37.50%

Non-listed banks, insurance, and NBFIs 40% 40%

Merchant banks 37.50% 37.50%

Listed mobile companies 40% 40%

Non-listed mobile companies 45% 45%

Tobacco/cigarette companies 45% 45%

One Person Company (OPC) - 25%

Artificial juridical person and other entity Average rate 30%

Association of Persons (AoP) 32.5% 30%

Co-operative society 15% 15%

Private universities, private medical/dental colleges, private engineering colleges and private colleges engaged in imparting education on information technology

15% 15%


Payment through non-banking modes

Payments other than bank transfer (e.g., cash payment) are tax deductible in the following cases.

• Payment of gross salary/remuneration

• Payment to Government bodies

• Purchase of raw materials

• Purchase of raw materials

Maximum BDT

20,000

Maximum BDT

50,000

Maximum BDT

500,000

Set-off losses

Clarification for set-off of business losses has been made with the following clauses:

• Any loss from business that is “exempted from tax” or loss from business that is taxed at a reduced rate, shall not be set off against any income from any other source.

• Loss from any “speculation business” or “capital gains’’ shall be set off only against income from “speculation business” or “capital gains.’’

Deduction from payment to contractors (section 52, rule 16)

New TDS rates have been applied on supply of goods and execution of contracts. The payer will deduct tax at a 50% higher rate on payments to contractors (u/s 52), if the payee does not receive payment by bank transfer or mobile financial services or any other digital means approved by a Bangladeshi bank.

FY 2020-21

Income limit TDS rate

Where base amount does not exceed BDT 15 lakh 2%

Where base amount exceeds BDT 15 Lakh but does not exceed BDT 50 lakh 3%

Where base amount exceeds BDT 50 lakh but does not exceed BDT 1 crore 4%

Where base amount exceeds BDT 1 crore 5%


FY 2021-22

Income limit TDS rate

Where base amount does not exceed BDT 50 lakh 3%

Where base amount exceeds BDT 50 lakh but does not exceed BDT 2 crore 5%

Where base amount exceeds BDT 2 crore 7%

E-commerce platform is a tax withholding authority

The platform entities have been included as a responsible entity to withhold tax from payment made to contractors. If annual turnover of an e-commerce platform entity exceeds BDT 1 crore, it has todeduct tax at source at the time of payment.

Deduction from payment to a beneficiary of workers’ participation fund

The regular withholding tax (WHT) rate remains same @ 5% on payment of WPPF to employees. However, no tax shall be deducted from the beneficiary of WPPF if:

• the beneficiary does not have taxable income; and• amount of fund does not exceed BDT 25,000.

Collection of tax on transfer of property

Tax is collected at the time of registering property at applicable rates. No such tax will be collected, if:

• transfer of property to a trust or special purpose vehicle established only for the purpose of issuing Sukuk approved by the government or Securities Exchange Commission and vice versa;

• sale by a bank or any financial institution; and • mortgage of any property to any bank or financial institution.

Deduction of tax from any income remitted from abroad

Inward remittance in Bangladesh from abroad regarding any income is subject to withholding tax.

Type of income WHT rate

Income from contracts on manufacturing, process or conversion, civil work, construction, engineering, or works of similar nature

7.5%

Income from sale of software or the ITES business NIL

Income earned in abroad by each Bangladeshi citizen NIL

Any other inward remittance 10%


Collection of tax on account of import of goods

Tax collection at source during import has been capped at maximum 20%. Such tax deducted will be considered as advance tax on the value of imported goods. It will be collected by the Commissioner of Customs at the time of customs assessment.

Collection of tax on account of rental power

Regular WHT rate remains same as 6% on payment to any person on account of purchase of power.

If a power company is exempted from tax or subject to a reduced tax rate in an income year, it can apply and collect a certificate from NBR to that effect. Upon production of the certificate, the payee company will refrain from deduction of tax or deduct tax at an applicable reduced rate accordingly.

Tax Deduction at Source (TDS)

Source of income FY 2020-21 FY 2021-22

Supply of cement, iron, and iron products 3% 2%

Import of raw materials related to cement production3% on import value

2% on import value

Sale of goods or property by public auction 7.5% 10%

Tax depreciation rate (changes)

Asset class FY 2020-21 FY 2021-22

Buildings (general) 10% 5%

Factory buildings 20% 10%

Stevedoring/berth operationFY 2020-21 FY 2021-22

Where base amount does not exceed BDT 25 lakh

Where base amount exceeds BDT 25 lakh

Where base amount does not exceed BDT 25 lakh

Where base amount exceeds BDT 25 lakh

a) On commission or fee 10% 12% 10% 12%

b) On gross bill amount - - 1.5% 2%


Income tax exemptions Sixth schedule, Part – A additions

Information technology business definition expanded

The information technology-based business was already defined in tax law. The definition has been widened by adding the below sources of income. ITES income is exempted from income tax until 30 June 2024.

• Cloud service

• System integration

• E-learning platform

• E-book publications

• Mobile application development service

• IT freelancing

Tax holiday (new sectors)

Tax holiday has been offered for 10 years to the following sectors, subject to fulfilment of certain conditions and commencement of the commercial production between 1 July 2021 and 30 June 2030.

Motor car/automotive

(3- or 4-wheelers)

Diploma and vocational

education on agriculture,

fisheries, science, and

IT

Hospital and

healthcare services

Home and kitchen

appliances

Motherboard, UPS, sound system, USB cable, CCTV,

and pen drive


Other major changes

5% tax rebate facility for the employer who will employ transgenders containing 10% of employees.2

1Tax is exempted for income derived from SME business engaged in production of any goods:• having an annual turnover of not more than BDT 50 lakh; in general; and

• having an annual turnover of not more than BDT 70 lakh where the SME isowned by a female


Individual tax

Resident and non-resident Bangladeshi

AY 2020-21 AY 2021-22

Income Rate of tax Rate of tax

On the first TK. 300,000 of total income of male assessee Nil Nil

On the first TK. 350,000 of total income of female assessee Nil Nil

On the first TK. 350,000 of total income of third gender assessee - Nil

On the first TK. 350,000 of total income of persons aged 65 years and

aboveNil Nil

On the first TK. 450,000 of total income of person with disability Nil Nil

On the first TK. 350,000 of total of income of father/TK. 400,000 of total

of income of mother of person with disabilityNil Nil

On the first TK. 475,000 of total income for gazetted war wounded

freedom fightersNil Nil

On the next TK. 100,000 of total income 5% 5%

Individual tax rates


AY 2020-21 AY 2021-22

Income Rate of tax Rate of tax




On the balance of total income 25% 25%

Non-resident individual foreigner assessee 30% 30%

Resident and non-resident Bangladeshi

Surcharge (based on individual net wealth)

Assessment year: 2021–2022

(Income year: 2020-2021)

Total net worth Rate

Up to TK. 3 crore Nil

More than TK. 3 crore but not more

than TK 10 crore

10%

Individual having more than 1 motor

vehicles

10%

Individual having house property in

city corp. of more than 8,000 sft.

10%

More than TK. 10 crore but not

more than TK. 20 crore

20%



30%

More than TK. 50 crore 35%

Assessment year: 2020–2021

(Income year: 2019-2020)

Total net worth Rate

Up to TK. 3 crore Nil


more than TK. 5 crore; or,

10%

Individual having more than 1

motor vehicles in his/her own

name

10%

Individual having house property in

city corp. of more than 8,000 sft

10%



15%



20%



25%

More than TK. 20 crore 30%


Requirement of twelve-digit taxpayer’s identification number in certain cases

New insertion (extension of tax net)

Postal savings accounts

Opening postal savings accounts of amount exceeding BDT 2 lakh

Savings certificate

Purchasing savings instruments (Sanchayapatra) of amount exceeding BDT 2 lakh

Co-operative society

Obtaining registration of co-operative society

Minimum tax (Section 82C) for individual assessee

Minimum tax rate for individual assesseewith gross receipts of BDT 300 million or more in “business or profession” will be applicable as follows (other than individuals engaged in the business of mobile phone operation or manufacturing of cigarette, chewing tobacco, smokeless tobacco, or any other tobacco products)

Gross receipt

0.50%FY 2020-21

0.25%FY 2021-22


Special tax treatment in respect of undisclosed property (money whitening)

No question as to the source of any undisclosed property shall be raised by any authority, if an individual assessee pays tax at the rate specified in the following tables and submits tax return/revised tax return.

Investment in securities/ shares

If the investment is withdrawn within

one year, 10% penalty will be

imposed

25% tax on the total investment +5% penalty on the

tax amount

Tax on land and apartment per

specified rate based on location of the

property

Tax of BDT 200 to BDT 20,000

payable per square meter based on

location

Cash, bank deposits, financial instruments

All kinds of deposits, saving instruments,

or certificates

25% tax on the total amount +

5% penalty on the tax amount

Investment in new industrial

undertaking between

1 July 2021 and 30 June 2022

10% tax on the investment

amount

Individual investment tax credit

Assessment year: 2020–2021(Income year: 2019-2020)

Individual assesses can claim tax rebate on investments. Allowable investment will be calculated at the lower of the following:

• 25% of taxable income; or

• Actual investment

• 1.5 crore taka

Assessment year: 2021–2022(Income year: 2020-2021)

Individual assesses can claim tax rebate on investments. Allowable investment will be calculated at the lower of the following:

• 25% of taxable income; or

• Actual investment

• 1 crore taka


Statement of assets, liabilities, and life style

Individuals fulfilling the following conditions are required to submit the wealth statement, along with tax return.

Individual who

a) Had gross wealth exceeding BDT 40 lakh in the last date of income year

b) Owns a motor car

c) Invested in a house property or an apartment in the city corporation area

Same as last year

Every non-resident Bangladeshi in respect of assets located in

Bangladesh

New provision inserted this year

Every foreigner in respect of assets located in Bangladesh

Every individual assessee, whose total income exceeded BDT

400,000 as on the last date of the income year

Every individual assessee, being a shareholder director of a company


Value Added Tax (VAT)

VAT agent of non-residents

In Bangladesh, the VAT law has provisions of VAT registration for non-residents. VAT agents arerequired to apply to NBR for VAT registration on behalf of non-residents. Earlier, a VAT agent wasjointly and severally responsible for represented non-resident’s VAT payment/liabilities. Finance Act2021 has updated this clause as below.

• Non-resident will be liable for all VAT payments (VAT, interest, and penalty).

• VAT agent will be responsible for VAT compliance reporting activities of the represented non-resident.


VAT registration and compliance of non-residents through consultant/firm acting as a VAT agent

Non-resident to submit EOI

to consultant/ firm to act

as a VAT agent

Consultant/firm applies to NBR to

act as a VAT agent on behalf of

non-resident

NBR appoints

consultant / firm as a VAT agent

Non-resident

applies to NBR

through a VAT agent

for VAT registration

NBR to issue a VAT registration certificate

to non-resident

VAT agent to maintain

VAT compliance

for non-resident

Non-resident to

make applicable

VAT payment

through the VAT agent

Advance VAT (AT)

Import stage AT Previous rate New rate

Import of raw materials for manufacturing 4% 3%

All other import of goods 5% 5%

Change in VDS rate

Particulars Previous rate New rate

S001.20: Non-AC restaurantS001.20: AC restaurantS001.10: Non-AC hotelS001.10: AC hotel

7.5%15%7.5%15%

5%10%7.5%15%

Input VAT creditThe exporter can claim input VAT credit.

Central VAT registration This will not be applicable for supply of tobacco products for better monitoring by NBR

Zero VAT rate for service exportService export outside Bangladesh is likely to be zero rated as before. The related conditions thereto have been removed through Finance Act 2021.

Input-Output co-efficient is required for goods and not for servicesThe coefficient form is required to be reported for supply of goods. It is not required for supply of service.


Input VAT creditIf output (sales) value is less than input (purchase) value, input VAT credit will not be allowed.

Submission of audited financials to VAT authorityAudited financial statements need to be submitted to VAT authority within six months from the end of each income year. Timeline may be extended for additional six months through application.

Adjustment time limit for VDSThe VDS adjustment timeline starts from “date of payment” against the supply. Decreasing adjustment for such VDS should be made in the same tax period or within the next tax period from the date of payment.

Input VAT credit on bank, insurance, and port authority invoice Bank, insurance, and port authorities issue invoices specifying VAT amount. These invoices do not resemble the VDS format. However, these can also be treated as Mushak 6.3 and allowed for input VAT credit.

VAT penalty and interest

Item Non-compliance Previous rate New Rate

VAT penalty Payment of less output tax, wrong input tax credit/adjustment, and VAT evasion

Two times of the VAT demand amount

One time of the VAT demand amount

Interest on VAT(other than VDS)

Any VAT non-compliance About 2% on VAT liability per month

About 1% on VAT liability per month

Connect with us

[email protected]

Nurul HaqueCountry Managing Partner, Tax and Legal

mailto:[email protected]

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Impact of Finance Act 2021 on income tax and VAT