KPMG in Bangladesh provides updates on corporate tax rate changes for certain companies, tax holidays for industries and investments, and the country's new VAT Act.
Bangladesh has shown remarkable economic performance, achieving GDP growth of 6 percent on average over the last decade and of 7.1 percent in its fiscal year 2015/16. To sustain this performance, the government of Bangladesh passed a budget on 30 July 2016 of 43 billion US dollars (USD), which would see government spending rise by 15.42 percent over the previous year’s budget and comprise 17.37 percent of the country’s GDP.
About 59 percent of this outlay will be met from tax revenue, with income tax and value added tax expected to contribute approximately 35 percent each and the balance coming from customs duties and other taxes. As a result, the government intends to broaden the tax net on the income tax and value added tax system in the current and future fiscal years.
The country is focused on developing its infrastructure and improving its energy sector. It has recently signed memorandum of understandings with China, Japan and Russia to increase foreign investment in these areas, and the tax authority has already initiated the process of issuing formal gazettes, orders or notifications.
The parliament amended several tax laws by enacting Finance Act 2016. The amended law generally maintains the previous corporate rate structure under which listed entities are taxed at 25 percent and non-listed entities are taxed at 35 percent. However, certain companies are taxed at different rates, such as:
Generally, a company’s export earnings are 50-percent exempt.
The current tax legislation provides tax holidays for:
Idustries set up in economic zones enjoy duty-free imports of raw materials, finished goods, construction materials and other goods. These industries also enjoy tax exemption on dividends.
Most imports of capital machinery into Bangladesh enjoy zero/reduced customs duty and tax exemptions.
The government of Bangladesh allows investors an exemption from capital gains arising from a stock market in Bangladesh if the investor is entitled to a similar exemption on capital gains in their resident country.
Other changes in the budget of special interest to international investors include the following:
Bangladesh enacted new VAT and Supplementary Duty Act 2012 to modernize its current VAT Act, which was introduced in 1991. The new VAT Act, which is expected to take effect on 1 July 2017, eliminates the truncated VAT system currently in place for certain services and supplies and introduces a single standard VAT system applying at the rate of 15 percent on all goods and services.