Bangladesh – New VAT law, corporate tax rate changes | KPMG | GLOBAL

Bangladesh – New VAT law, tax holidays, corporate tax rate changes

Bangladesh – New VAT law, corporate tax rate changes

KPMG in Bangladesh presents highlights of the country’s Finance Act 2017 and related regulations, which preserve current tax holidays for certain investments, make corporate tax rate changes, and introduce an income tax exemption for certain infrastructure work done through public-private partnerships.

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GDP growth continues

Bangladesh has shown remarkable economic performance, achieving GDP growth of 6 percent on average over the last decade and of 7.4 percent in its fiscal year 2016/17. To sustain this performance, the government of Bangladesh passed a budget on 1 June 2017 of 50 billion US dollars (USD).  

Tax revenue is expected to meet about 72 percent of this outlay, with income tax and value added tax (VAT) expected to contribute about 35 percent each and the balance coming from customs duties and other taxes. As a result, the government intends to broaden the tax net for income tax and VAT in the current and future fiscal years. 

Bangladesh continues to focus on developing its infrastructure and improving its energy sector. Recently signed memoranda of understanding with China, Japan, Russia and India aim to increase foreign investment in infrastructure and energy. The tax authority has already begun issuing formal gazettes, orders and notifications in this regard. 

New VAT law postponed

Application of the new VAT Act 2012 has been postponed until 1 July 2019. The VAT Act 1991 and related rules remain in effect with no significant changes for 2017. However, all businesses must obtain a nine-digit electronic business identification number (e-BIN) by 31 December 2017.

Corporate tax rates

The tax law generally maintains the previous corporate tax rate structure, which imposes income tax at 25 percent on listed entities and 35 percent for non-listed entities. Corporate tax rate changes announced this year include:

  • an additional surcharge of 2.5 percent on income of companies in the tobacco sector
  • a reduction of the corporate income tax rate for companies in the readymade garments sector to 12 percent (from 20 percent)
  • a further 2 percent rate reduction (to 10 percent) for companies in the readymade garments sector that have an internationally recognized green building certificate. 

Certain companies remain taxed at different rates. For example:

  • Banking companies, insurance companies and non-banking financial institutions are taxed at 40 percent if they are listed and 42.5 percent if non-listed.
  • Cigarette manufacturers and mobile phone operator are taxed at 45 percent (before the additional surcharge on cigarette manufacturers noted above)
  • Companies that produce or export jute products are taxed at 10 percent.Generally, a company’s export earnings are 50 percent exempt.

Tax exemption for public-private partnerships

In 2017, the government introduced tax exemptions for work in public-private partnerships (PPP) by project companies involved in the following projects:

  • National highways and expressways and related service roads
  • Flyovers
  • Elevated and at-grade expressways
  • River bridges and tunnels
  • River, sea and air ports
  • Subways, monorails and railways
  • Bus terminals and depots
  • Elderly care homes.

Qualifying PPP companies will be exempt from tax as follows:

  • Business income are fully exempt from income tax for 10 years after commercial operations commence.
  • Capital gains arising from transfers of share capital, royalties, technical know-how and technical assistance fees paid by the company are fully exempt from income tax for 10 years after commercial operations commence.
  • Foreign technicians appointed by a PPP company gain a 50 percent tax exemption for 3 years from the date of their appointment, provided the PPP company has been commercially operating for 5 years or less. If the company has commercially operated for more than 5 years, the exemption for foreign technicians is not available.

To qualify for the above exemptions, the PPP company must:

  • obtain a 12-digit Taxpayer’s Identification Number
  • maintain accounts as per section 35 (Method of Accounting) and submit income tax return as per section 75 of the Income Tax Law.

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