The clarifications of NBR on the Finance Act, 2005 and SRO’s Issued were NOT available while writing the paper presented before you to day and therefore, I could not make any comment on same.
I have studied the clarifications of NBR on the F.A., 2005 and the SRO’s issued after writing of my paper and I have some comments on same.
I will now summarise the important changes made by the F.A., 2005 and SRO’s issued concerning Income Tax Law & VAT.
A. INCOME TAX
General
.01 Certain amendments are made and changes brought in the Income Tax laws by the Finance Act., 2005 without considering the implications, incidence and effect of same which created anomalies and made these unworkable and inoperative and which will lead to dispute and appeal unless clarified by NBR.
I may mention certain such amendments which ignored the existing continuing provisions NOT expressly withdrawn with retrospective effect by amendment nor by the Hon. Finance Minister in his budget Speech. These and related issues may create anomalies and some of such amendments were NOT necessary at all. These amendments are :
(a) Deletion of Section 16D (charge of Dividend Distribution Tax)
(b) Deletion of Proviso to S.54(2) exempting from deduction of Tax from payment of Dividend where the Company is liable to pay Dividend Distribution Tax.
(c) Deletion of Paragraph 22 of Part A of the Sixth schedule exempting income from Dividend for which Dividend Distribution Tax is payable.
According to the existing provision of Section 16D, Dividend declared on or after the first day of July, 2003 shall be subject to the Dividend distribution Tax payable within 60 days from the date of such declaration. This means that U/S 16D, the Dividend declared on or before 30.06.05 is liable to such Tax payable within 60 days from the date of declaration and the Prescribed 60 days may be on any date after 30.06.05 and in such cases, the Provisions of Proviso to 54(2) and paragraph 22 of Part A of 6th Schedule shall continue to apply to such Dividend even if Dividend Distribution Tax is paid after 30.06.05 as the deletions were made w.e.f 01.07.05 without expressly giving retrospective effect of same.
In view of the legal Position noted above :
(i) The Section 16D should not have been deleted and rather this section could have been amended by inserting the words & figures, “and on or before 30.06.05” after the words or figures, “on or after the first day of July, 2003”
(ii) The deletions of Proviso to S.54(2) and the said paragraph 22 were NOT at all necessary as these relate to Dividend Distribution Tax payable.
The deletions made have created the anomalies which will lead to unnecessary dispute and appeal and these are :
(aa) In the case of Dividend declared on or before 30.06.05 and on which Dividend Distribution Tax has been paid after 30.06.05 within Prescribed Period of 60 days, the benefit of exemption from deduction of Tax from payment of such Dividend and the benefit of exemption of said dividend income will not be available though such exemptions should be available where such Tax is paid within prescribed period of 60 days after 30.06.05.
(bb) The company will have to deduct tax from payment of Dividend after 30.06.05 though dividend declared on or before 30.06.05 and Dividend Distribution Tax on same has been paid after 30.06.05 within 60 days of the date of such declaration. As a result, the Company will have to deduct tax from payment of Dividend on which Dividend Distribution Tax has already been paid.
The NBR has not removed the anomalies noted above and rather it clarified and confirmed that Tax is to be deducted from payment of Dividend declared on or before 30.06.05 on which Dividend Distribution Tax has not been paid within 30.06.05 which is not practically possible and that in such case, the shareholder shall have to pay tax on such Dividend. While giving the clarifications, the NBR has ignored the existing Provision of payment of Dividend Distribution Tax within 60 days of the date of declaration of Dividend and the prescribed 60 days may fall after 30.06.05.
In order to avoid unnecessary dispute and appeal, it is necessary that the NBR shall further clarify that Dividend Distribution Tax shall attract on Dividend declared on or before 30.06.05 and that in the case of Dividend declared on or before 30.06.05 and Dividend Distribution Tax paid on same after 30.06.05, i.e., within 60 days of such declaration, the shareholder will get the benefit of exemption of Dividend income and tax shall not be required to be deducted from payment of such Dividend.
(d) NOT Practically Possible for certain undertaking to comply with new requirement of compulsory investment of 10% of Tax holiday Profit within 3 months of the end of the income year in the shares of Listed Companies.
The statutory period of 3 months from the end of the income year had already expired on or before the 30.06.05, i.e., before the commencement of the F.A., 2005 in the case of undertaking enjoying Tax holiday who closed annual accounts on or before 31.03.05 (corresponding to the assessment year 2005-206) and therefore, it will not be practically possible for such undertaking to meet the new condition of investment resulting into cancellation of Tax holiday for no fault of the undertaking but the fact of which has not been considered while making the amendment.
In order to remove the practical difficulty arising out of new amendment and to avoid legal dispute, it will be necessary for NBR to clarify that investment in such case shall be made within such period as deemed reasonable by it.
(e) The amended S.37 has disallowed carry forward of loss of Exempt undertaking to the succeeding years for set off against Exempt income which is contrary to provisions of S.38 and S.46A(6).
It appears from the budget Speech of the Hon. Minister for Finance that loss of exempt undertaking can not be set off against taxable income but he did not mention anything about carry forward of such loss.
The S.37 is amended in a manner whereby such loss can not be carried forward to the succeeding years for setting off against Exempt income although it was not the intention of the amendment.
It is contradictory to the Provision of S.46A(6) according to which Tax Holiday loss can be carried forward to the succeeding years for set off against Tax holiday Income during Tax Holiday Period.
The provision of S.38 (Carry forward of business losses) has not disallowed carry forward of loss from business, the income of which is exempt from tax and thus, the amended S.37 is also contradictory to provision of S.38.
Such contradictions and anomalies may be clarified by NBR in order to avoid dispute.
.02 Timely Availability of SRO’s clarification and open circular issued by NBR.
At present, there is no arrangement for easy and timely availability to the common assessees of the SRO’s, clarification & open circulars issued by NBR from time to time resulting into default, non-compliance and sufferings.
It is advisable that NBR may open a counter in its office so that any one can have these at prescribe price from the counter and it is also advisable that the NBR may, if possible, issue notification in the press in respect of same for information and benefit of the assessees & others concerned.
.03 Frequent changes of law regarding taxability, exemptions & deduction of tax at source particularly in respect of Dividend are difficult for assessees to keep track of such frequent changes and to claim benefit arising therefrom.
Exemption limits of Dividend were set at different amounts in different years. Tax deducted from dividend was made final settlement of Tax liability and it was withdrawn later. Dividend Distribution Tax payable by the Company by allowing exemption of Dividend received by the shareholders and exemption from deduction of Tax from dividend were introduced but withdrawn in the year 2005.
It is evident that the Govt. has no definite policy in respect of taxability of Dividend resulting into different laws in different years and this makes the common assessees suffer for ignorance of frequent changes.
It is advisable to have a minimum rational & definite policy of Govt. in this respect in order to avoid major frequent changes.
.04 Introduction of New forms (new SRO No. 207-Law/Income Tax/2005 dated 06.07.05).
Income Tax Rules 24, 25 & 25A are amended and prescribed New forms of Income Tax Return, statement of Assets & Liabilities and Life Style of assessees respectively. The photograph of assessee will have to be submitted along with Income Tax Return.
It is advisable for NBR to make arrangement for availability of New forms to the assessees as early as possible.
RELIEFS AND RELAXATIONS.
.01 Reduction In Tax Free Limit & Lower Tax Rates For Assessees Other Than Companies.
The new rates are prescribed for the assessment year 2006-2007 with Tax free limit increased from Tk. 1,00,000 to Tk. 1,20,000. The increase in tax free limit by Tk. 20,000 will contain a part of inflation and it is just. Maximum rate of Tax of 25% will be applicable on income over Tk. 10,20,000 as against existing income over Tk. 9,00,000 which is a relief. The incidence of Tax will also be reduced by about 13% to 8% in the case of assessees having amount of annual income between Tk. 2,50,000 to Tk. 12 lacs without considering Investment allowance.
.02 Removal of anomalies on the taxability of perquisites by re-defining “Perquisites”
We were suggesting for many years to define “Perquisites” as the existing inclusive definition of “Perquisites” led to many disputes over what is perquisite or not and the decisions available in appeal were also contradictory. It is praiseworthily to note that a new definition of perquisite is given and this is definite and exclusive in nature.
It appears from new definition that Dearness Allowance, gratuity & the employer’s Contribution to Recognised Provident Fund will be considered as perquisites though these are nothing but salaries. It is therefore, recommended to exclude these items from definition of perquisites.
.03 Increase in the limit of Allowability of Perquisite as expense of Employer.
The allowable limit is increased from Tk. 1,50,000 to Tk. 1,92,000 being perquisite to an employee by an Employer and this is undoubtedly a relief to the employer.
04. Extension of Tax Holiday for 3 years to 30.06.08 for specified undertaking for reduced period.
The benefit of tax Holiday was available to an undertaking commencing commercial production/operation on or before 30.06.05 but it is now extended to 30.06.08 for specified undertakings.
It may be noted here that the benefit will now he available to specified undertakings only for reduced period of 4/6 years in place of existing period of 5/7 years.
It may also be noted here that in the cases of undertakings who commenced commercial production / operation on or before 30.06.05 but tax holiday is yet to be approved and the undertakings already enjoying tax holiday, the period of tax holiday will continue to be for 5/7 years instead of 4/6 years under amended provision and this requires clarification by NBR to avoid dispute.
The new condition for investment will definitely be applicable to undertaking already enjoying tax holiday but it also requires clarification by NBR to avoid dispute.
.05 Exemption of Income of Private Hospital.
New SRO has been issued allowing exemption of income of Private Hospitals from 01.07.05 to 30.06.08 subject to fulfillment of certain conditions of which reservation of 10% of beds for free treatment of poor is important.
.06 Extension of the period of exemption of certain Income.
The period of exemption of income has been extended to 30.06.08 from 30.06.06. in the case of income from Fish Farming, poultry Dairy, pellated food, etc. This extension of period of exemption is just in view of social needs.
.07 Extension of benefit of allowability of deduction of provision for Bad & doubtful debt of Bank.
This benefit was allowable up to the assessment year 2004-2005 but it is now extended to the assessment years 2005-2006 and 2006-2007 but the benefit has been reduced from 2% to 1% of the total outstanding loan including interest thereon in the books of the assessee whichever is lower. This will mitigate partly the constrain of Banks now saddled with huge bad and doubtful debt.
.08 Allowance for approved Donations.
This benefit withdrawn in the year 1992 is again re-introduced and it will be applicable to donation to a philanthropic or educational institution which is approved by the Govt. for this purpose.
It is yet to know the procedure and condition of the said approval.
.09 The acceptance of undisclosed income declared within 30.06.06 on payment of Tax @ 7.5% on same without requiring to disclose the sources of said income.
Such amnesty though unethical from social point of view may help Govt. to collect increased revenue.
As per SRO No. 200/Law/2005 dated 06.07.05, it is provided for declaration of undisclosed income as “Income from other sources” in a prescribed form subject to the following conditions :
(a) Such declared income is to be shown under separate block and NOT to be included in total Income.
(b) Such declared income should NOT include the “Income from other sources” shown in the return of immediately preceding year and assessed tax at normal rates on same
(c) The benefit of this relief will not be available to income in respect of which proceeding u/s 93 is initiated.
(d) Tax @ 7.5% on the said declared income is to be paid on or before the date of declaration.
It appears from clarification of NBR that undisclosed sanchay patra and Bank deposit can also be declared on payment of Tax @ 7.5% on same but in the prescribed form of declaration, there is no separate column for same.
.10 Exemption of Income from computer Soft-ware business.
New SRO no. 216/Law/Income Tax/2005 dated 16.07.05 is issued allowing exemption of Income from computer soft-ware business during the period from 01.07.05 to 30.06.08. This exemption is applicable to all Resident assessees including companies but no application or approval will be necessary for the said exemption. It will however, be necessary to submit annual Income Tax Return claiming exemption to the Deputy Commissioner of Taxes Concerned.
.11 Exemption of Income upto Tk. 25,000 from investment in Zero Coupon Bond.
New SRO No. 203-Law/Income Tax/2005 dated 06.07.05 is issued allowing exemption of Income upto tk. 25,000 from investment in Zero Coupon Bond issued with the approval of Bangladesh bank and Securities & Exchange Commission.
The NBR clarified that the said income in excess of Tk. 25,000 will be added to income but tax @ 10% will have to be deducted at source on the entire income including the exempt income of Tk. 25,000.
.12 Benefit of Exempt perquisite under Rule 33 has been made available to share holder Director receiving Salaries and Allowances from one Company.
NBR clarified that in the case of receipt of Salaries & Allowances from more than one Company, the aforesaid benefit will be available once only, i.e., receipt from one Company only.
Hitherto, no such benefit was available.
CHANGES AFFECTING ASSESSEES ADVERSELY
.01 Increase in Minimum Tax Payable for the assessment year 2006-2007 from Tk. 1,500 to Tk. 1,800
The increase in Minimum Tax Payable by Tk. 300 (20%) is unjust when there is an increase in Tax-free limit in addition to decrease in the incidence of Tax as per new rates.
.02 Increase in the rate of Tax Payable for the assessment year 2006-2007 by non-listed and Private limited companies from 37.5% to 40%.
This increase in rate by 2.5% may have negative effect on the disclosure of income and collection of Tax as such companies may find constrain in parting with 40% of Income for Tax instead of existing 37.5%.
.03 Compulsory submission of statements of assets, liabilities and Life style along with Income tax Return irrespective of any income or not and non-compliance will attract heavy penalty.
Hitherto, submission of such statements was compulsory where total income exceeds Tk. 3 lacs.
The failure to submit the said statements attract minimum penalty of Tk. 2,500 in addition to penalty of Tk. 250 per day during which default continues.
It will, therefore, be hardship for assessees having no income but require to file return under operation of other Provisions of law. Many of such assessees are not aware of such statements.
.04 Collection of Tax by customs @ 4% of Freight earned by Resident shipping companies and Tax so collected shall be deemed to be the final discharge of Tax liability.
Resident shipping companies running at loss and having huge carry forward of losses will be hard hit by this provision.
.05 100% increase in the rate of Tax deductable at source from Fees payable for professional & technical services.
The increase in the rate of Tax from 5% to 10%, i.e., at the same rate as presently applicable to Royalty or technical know-how fee.
100% increase in the rate of deduction from fees of professionals including Chartered Accountants (other than Doctors) is unreasonable when fees for services of Doctors is subject to deduction @ 5%.
Moreover, the payment of Royalty & Technical know-how fee can not be equated with fees to chartered accountants other professionals.
.06 There are also increases in the rate of Tax deductable at source in the cases of cigarette (manually) and Brick manufactures.
.07 Dividend of any amount will now be subject to deduction Tax irrespective of the amount of Dividend due to withdrawl of exemption of exemption from deduction of Tax on receipt of Dividend not exceeding 25,000 on the basis of certificate given by the DCT.
.08 Withdrawl of benefit of acceptance as complete and correct return showing loss of income lesser than the last assessed income certified by a chartered Accountant or assessment on the basis of which will result in refund.
.09 Withdrawl of investment allowance available in addition to accelerated depreciation.
.10 Insurance companies (other than life Insurance) will now require to submit return on the basis of income computed after adjusting expenses allowable under the Insurance Act and this will increase incidence of Tax.
.11 Withdrawl of 50% Exemption of Income of Resident shipping companies.
.12 To collect Tax from Export of knit wear and woven Garments and Tax so collected shall be deemed to be the Final discharge of Tax liability but income arising out of disallowances u/s 19 & 30 will be treated as income liable to Tax as per SRO no. 205-Law/Income Tax /2005 dated 06.07.05.
The Bank is authorised to collect Tax @ 0.25% of total export proceeds at the time of crediting the proceeds.
Taxes so collected shall be deemed to be the final discharge of tax liability as per new SRO but the provision of which has not been brought U/S 82C.
The deemed income will be computed taking into account the rate of Tax @ 10%.
The existing provision of the applicability of reduced rate of Tax of 10% is withdrawn by deleting the relevant SRO.
.13 Deduction of Tax from Interest on securities at Reduced rate of 10% in place of existing 20% at the time of sale of securities instead of on maturity is introduced. The Power of DCT to exempt from deduction of Tax at source is withdrawn. Interest on securities purchased before 01.07.05 will, however, continue to subject to deduction of tax @ 20% on maturity as per clarification given by NBR.
B. VAT
1. New Exemptions to 11 items at import and Trade level and 3 items of service.
2. Introduction of Duty Draw back allowable to 100% Exporters at prescribed rates on Natural Gas & 5 items of Service.
3. Inclusion of SIM CARD under VAT ( m¤ú~iK ïé) by fixing Tariff Value at Tk. 2,172 on which m¤ú~iK ïé @ 35% is leviable.
Exemption of VAT exemption facilities of some services & utility charges at both the stages of import & export for the enterprises situated in EP2 and those engaged in deemed export.
Reduction of Minimum Fine Payable
This is reduced from Tk. 25,000 to Tk. 10,000. However, maximum fine livable of Tk. 50,000 will continue as before.
Thursday, March 26, 2009
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