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Concept of the Corporate Income Tax

Concept of the Corporate Income Tax

Concept of the Corporate Income Tax

A corporate tax, also called corporation tax or company tax, is a direct tax imposed by a
jurisdiction on the income or capital of corporations or analogous legal entities. Many
countries impose such taxes at the national level, and a similar tax may be imposed at the state or
local levels. The National Board of Revenue (NBR) is the central authority for tax
administration in Bangladesh. Administratively, it is the attached department to the Internal
Resources Division (IRD) of the Ministry of Finance (MoF). MoF has 4 Divisions, namely,
the Finance Division the Internal Resources Division (IRD), the Banking Division, and the
Economic Relations Division (ERD). Each division is headed by a Secretary to the
Government. Secretary, IRD is the ex-office of the Chairman of NBR. NBR is responsible for the
formulation and continuous re-appraisal of tax policies and tax laws in Bangladesh. Every
company, Branch office, liaison office, and representative registered in Bangladesh must file an
annual tax return to the National Board of Revenue (NBR). An annual Company tax return is
provided information regarding the company’s income, expenses, net profit before tax, assets, and
liabilities. It is also used to determine tax liability, Tax deducted at source, etc.
The tax liability of a company in Bangladesh depends on the activity and legal status of
a particular company. The income tax rate is varying according to the company’s types of business
activity and its legal status of company. The Rate of income tax and corresponding legal
status is given below:

Types of Company Rate of taxes on profit

Private limited company, Non listed company. Non Resident
Company

35%

Publicly traded Listed Company in stock exchanges 25%
Publicly traded bank, insurance, and non-Banking Financial
institution

40%

Non- Publicly traded bank, insurance, and non-Banking Financial
institution

42%

Merchant Bank 37.5%
Cigarette Manufacturing Company 45%
Tobacco Product Manufacturing Company 45%
Mobile operator Company 45%

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The tax rate is 15% on the capital gain. The company must be paid minimum tax @0.3% tax on their gross
receipt if their normal tax (that specified in the above table) liability falls less than minimum tax.
A company can get the benefit of reduced taxes in numerous ways. Different kinds of reduced
tax benefits are given below:
i. Offset taxable loss and carry forward up to six years,
ii. Given depreciation allowances,
iii. Tax exemption is given on newly established” industrial undertakings”
iv. Tax exemption given on income of “tourist industry”
v. Tax exemption is given on newly established “physical infrastructure facility”.
vi. Tax exemption is given to those companies if those manufacturing company set up their
plant in the area under the “Bangladesh Export processing zone Association” (BEPZA).
vii. If any Company converts it as a public limited company by transferring 20%
of its paid-up capital to the stock exchange by Initial public offering (IPO), then those
public companies get a 10% tax rebate for the year of IPO.
viii. Income of the Company’s provident fund and gratuity income are exempted if
their provident Fund and gratuity fund are approved by NBR.
ix. Company get a rebate on their approved Corporate Social Responsibility (CSR)
Activity.

Concept of the Corporate Income Tax.

Concept of the Corporate Income Tax
A company taxpayer must file their annual tax return by the 15 th day of the seven months
following the close of its tax year. For example: if a company accounting year ends on 30 June,
2015 the last time of filing a return is 15 January 2016. A company taxpayer may get
an extended time period after the permission of the Deputy Commissioner of taxes.
A company is making payments to their suppliers, service providers, and salary to employees
for different purposes. According to NBR rules, a company must deduct tax on the source of their
payment at a specific rate and deposit the same to the government exchequer. It is also known
as Withholding Tax. A Company must file a withholding tax return every six month
(December & June). Withholding tax return included all payment amounts which are subject
to TDS and a copy of treasury challan. Details of the TDS rate will be found in this link:
A company must deduct tax from their employee’s salary on an average rate if their
employees have taxable salary income and deposit the same in the government exchequer
through treasury challan with code of specific employee Zone. The company must show both
TDS and salary amount into their Withholding tax return.

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The tax law 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 the income of companies in the tobacco sector
 a reduction of the corporate income tax rate for companies in the readymade garments
sector to 15 percent (from 20 percent)
 a further 1 percent rate reduction (to 14 percent) for companies in the readymade
garments sector that has 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 operators are taxed at 45 percent (before the
additional surcharge on cigarette manufacturers noted above)
 Companies engaged in the production and export of knitwear and woven garments enjoy
a reduced corporate tax rate of 20 percent, and companies that produce or export jute
products are taxed at 10 percent.
Generally, a company's export earnings are 50 percent exempt.
For companies, the tax day (i.e. tax return due date) is now the 15th day of the seventh month
following the end of the income year; alternatively, where that fifteenth day is before the 15
September, the tax day is 15 September of the year following the end of the income year.
Finance Bill 2017 makes no changes to the current tax legislation providing tax holidays for:
 industries established in export processing zones (5 to 7 years, depending on location)
 investment in economic zones (10 years) and development of economic zones (12
years)
 industrial undertakings (5 to 10 years, depending on location)
 physical infrastructure (10 years)
 coal-based private power generation companies (15 years)
 non-coal-based power generation companies (10 years).
The tax holiday (until 2024) for companies engaged in “information technology enabled
services” also remains intact, although Finance Bill 2017 includes specifically defines these services.

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