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

Bangladesh – VAT law, corporate tax rate changes

Bangladesh

KPMG in Bangladesh presents highlights of the country’s Finance Act 2017 and subsequent statutory regulatory orders (SRO’s), preserves current tax holidays for certain investments, and makes minor adjustments to corporate tax rates.

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, and the tax authority has already begun issuing formal gazettes, orders and notifications in this regard.
 

New VAT law been postponed

New Value Added Tax Act 2012 has been postponed until 1 July 2019. Hence Value Added Tax 1991 and related rules are now still effective. However, all businesses must obtain 9 digit electronic business identification number (e-BIN) by 31 March 2018. There is no significant change in the year 2017.
 

Corporate tax rates

The tax law generally maintains the previous corporate 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 Partnership (PPP) Project

In the year 2017, Government has introduced tax exemption as mentioned below (a, b and c) for Public Private Partnership (PPP) work by Project Companies involved in the following PPP projects:

  • National Highways or Expressways and related Service Roads
  • Flyovers
  • Elevated and At-Grade Expressways
  • River Bridges
  • Tunnels
  • River port
  • Sea port
  • Air Port
  • Subway
  • Monorail
  • Railway
  • Bus terminals
  • Bus depots
  • Elderly care home

a) Income Tax exemption of the business income of PPP Project Company: 

The business income is 100% exempted from Income tax for next 10 years from the date of commercial operation.

b) Income Tax exemption of capital gains arising from the transfer of share capital of PPP Project Company, Royalty, Technical Know-how and Technical assistance fee paid by such company:

The capital gains arising from transfer of share capital, Royalty, Technical Know-how and Technical assistance fee paid by such company are 100% exempted from Income tax for next 10 years from the date of commercial operation.

c) Income Tax exemption for foreign technicians employed in PPP Project
Company:

The foreign technicians appointed in PPE Project Company will get 50% tax exemption for next 3 years from the date of appointment subject to such company does not cross 5 years from the date of commercial operation i.e. the company who has crossed 5 years from the date of commercial production, their foreign technicians can not avail this benefit.

Please note that, the above exemptions are subject to the following condition being met by the project company: 

  • Obtain 12 Digit Taxpayer’s Identification Number; and
  • Maintain accounts as per section 35 (Method of Accounting) and submit income tax return as per section 75.