For quite some time, the world has been observing an incredible upward curve of the Bangladesh economy. Without any doubt, today's Bangladesh is an emerging force to be reckoned with. But unfortunately the taxation system of the country is not up to date. This might threaten the ongoing steady growth of the economy in the near future. Since tax collection from the citizens is one of the most important sources of funding of development activities being carried out by the government, it is vital that the flow of revenue is kept steady and regular. But if we analyse the number of pending tax cases in the High Court even after its best efforts and alarmingly increasing number of tax disputes heading towards the High Court, we can certainly say our taxation policy is not working as expected. The underlying reasons of case disputes are embedded both in the application of the existing tax law and within the law itself which are often obsolete, confusing and inconclusive. Here we intend to recommend some essential changes and additions to the Income Tax Ordinance 1984 (ITO) keeping the national budget for 2016-2017 fiscal ahead.
CHAPTER 2 OF THE ITO: Bangladesh has adopted International Accounting Standard (IAS) and International Financial Recoding Standard (IFRS) to maintain uniformity with global accountancy. Therefore, it is essential that the National Board of Revenue (NBR) of Bangladesh and the ITO (income tax ordinance) evolve around new standards. To materialise the due changes and reflect that on the taxation system, the significance of inclusion of new 'words', connotation of due explanation of related terms and modification in the ITO is paramount.
For example, terms like Market Value, Fair Value, Deferred Tax, Permanent Different, Timing Difference, Current Tax, Accounting Income, Taxable Income, Income, Tax Expense, Impairment Loss of Asset and so on require further clearer and more conclusive explanations in the second section (Definition) of the first chapter (Preliminary) of the ITO.
FORMATION OF A COMMITTEE TO LOOK INTO CAUSES OF DISPUTES: As mentioned earlier more and more tax disputes are heading towards the High Court resulting in a huge amount of tax only to be held up no matter which way the verdict may tilt. These disputes, mainly arising from factual points rather than law points, could easily be resolved partially, perhaps totally in some cases, with added initiatives taken by the tax authority.
In this regard, some additional laws are necessary to be formed that can possibly enable the NBR to establish a three-way communication, for a disputed case, consisting of representatives from NBR, involved tax officials and representative of the assessee. Any disputed case that is forwarded to the High Court holds up the total tax due from the assessee as assessed by the tax officials although there was a large portion of the assessment that both the assessee and the tax officials agreed on unanimously. If a suitable negotiation could be struck among the assessee and the tax officials for a disputed case, at least the agreed portion of the tax could easily be collected before the High Court passes its verdict which sometime takes 10 to 15 years. Thus, a steady flow of revenue collection and preservation of assessees' right could both be ensured.
In this regard we suggest the inclusion of the following under chapter 2 in ITO:
PROPOSAL: “Notwithstanding anything contained in the ordinance the board may, with the approval of the government appoint an advisory committee consisting of at least one member each from the NBR, the Deputy Commissioner of Taxes (DCT) and the assessee having appropriate professional skill and experience to review the first assessment order, CT appeal order and the tribunal order formed by the tax officials and disagreed by the assessee, to resolve the disputes or at least fix a certain amount of tax to the extent of amount resolved by the committee, to be paid by the assessee before moving to the High Court. The appointed committee shall be deemed to be income tax authority and the decision of the advisory committee, if found agreeable by all parties unanimously, will lead the DCT to deliver a revised order based upon the dispute resolution. The rest of the claim might be settled at High Court compiling all the sections mentioned/s 160 of the ITO.”
PROPOSAL TO AMEND SECTION 16CCCC:
Fact: As repeatedly mentioned earlier that the High Court is being flooded with disputed tax cases and more and more collection of revenue is held up for years, it is high time the government found a way to minimise the disputes. In this regard, a new section be inserted in the ITO under chapter four as new section 16cccc to avoid the option of disputes regarding estimate of sales, estimates of GP and disallowances of expenses claimed towards calculating the net profit by the DCT, as under:
Proposal: "Notwithstanding anything contained in any other provision of the ordinance every firm or company shall, irrespective of its profit or loss in an assessment year for any reason whatsoever, may submit its tax return along with audited report declaring net income and tax payable @ 5 per cent on gross sales less VAT (95:5 Ratio) shall be acceptable without asking any question to assessee by DCT and shall issue assessment order within 15 days of submission of return, IT 30 demand note for the respective assessment year being a correct and complete return of income, violation of which will be regarded as a professional misconduct under the above section.
"Provided that return of income so filed under this section and section 75(2)(c) shall be verified and examined if any omission or concealment of income, assets and liabilities are found within 3 years from the date of delivery of A.O, demand note 135 and IT 30. The assessee will be asked to explain such discrepancies and pay further tax and penalty as may be applicable u/s 123 to 128 of the ITO."
PROPOSAL TO AMEND RULE NO. 12 OF THE ITO: Fact: According to the rule no. 12 of the ITO, an assessee cannot raise an additional ground before the tribunal unless that was taken earlier. But as the cases progress and the assessees get more time to study the case, they often find new reference to support their claims which are vital and of material importance to their claim but unfortunately they cannot take those as new grounds due to the existing law. To change this situation, we suggest that the chapter three, section two of the ITO be revised:
Proposal: "If the assessee desires to file any ground for the first time before the tribunal which the assessee could not file earlier for some reason or other at DCT level and CT appeal level, be allowed by the tribunal for hearing in line with rule 12 of ITO but before completion of hearing at the tribunal."
PROPOSAL TO ADD A SUB-SECTION UNDER SECTION 16 OF THE ITO: Fact: It is observed that most of the assessing officers (AOs) are not aware of the tax procedure to be adopted for a liaison office of any foreign company established in Bangladesh under the permission from Bangladesh Bank, NBR and Board of Investment and they charge undue income tax. Such companies do not conduct business and generate profit as a resident assessee rather they oversee and assess the remittal activity of the company in Bangladesh. Therefore, they are not subject to income tax. We suggest that the following sub-section be added under section 18(2) of ITO:
Proposal: “When a return or revised return has been filed by a liaison office of a foreign company situated in Bangladesh with the permission of Bangladesh Bank, NBR and Board of Investment, the return may be assessed for the computation of taxes on expenditure, not for computation of total income and tax thereon. To satisfy the assessing officer about the proper tax deduction on expenditure claimed through audited accounts is to be duly compiled with the return by the liaison office.
Once clearance certificate is issued on the basis of return by DCT, thereafter no case shall be reopened by the same or other DCT unless there is any specified point found against the liaison office subsequently.”
PROPOSAL TO ALLOW VOLUNTARY DISCLOSURE OF INCOME, ASSET OR LIABILITY: Fact: With a view to bringing more concealed income or asset under the radar of taxation a new section can be added under the chapter three section 19E to encourage the assessee in voluntary disclosure of the above items which were inadvertently not taken into accounts by the assessee earlier:
Proposal: “Notwithstanding anything contained in this ordinance any person who could not claim any income, asset or liability inadvertently in earlier assessment year may be accepted by the tax authority subject to payment of tax at the prevalent rate of tax applicable to an assessee plus interest @15 per cent for maximum of two years from the end of first assessment. The market value shall apply for charging tax of the concealed asset.”
PROPOSAL TO AMEND SECTION 19(7): Fact: Existing section 19(7) stipulates that tax on dividend shall be taxed at the rate as applicable to an assessee as and when such dividend is declared by a company. Though it is fixed that the dividend declared should be paid to the shareholder within 60 days of declaration, in reality the dividend is often paid much later but in the meantime tax is demanded which is injustice to the assessee. Therefore, we suggest that the tax on dividend be paid on receipt basis to avoid any further confusion. The section 19(7) be amended as following:
Proposal: “Dividend instead of declaration basis will be taxed on receipt basis only to avoid any confusion with regard to charging of tax”.
PROPOSAL TO REPLACE SUB-SECTIONS 19(20), 19(21A), 19(21B), 19(26), 19(28): Fact: To compute the tax on loan, advance or gift subsequently paid back within 3 years there are several sections and sub-sections available in the ITO which frequently confuses both the assessing officer and the assessee. To eliminate such confusion, we recommend that a new law under section 19 in place of 19(20), 19(21A), 19(21B), 19(26), 19(28) be enacted under one single section:
Proposal: Where any sum is claimed to have been received by an assessee individual, company, firm as loans, advance, gift or receipt of any other nature from any person, not being a banking company and financial institution other than crossed checks or bank transfer from bank to bank and has not been paid back in full within three years from the end of the income year in which it is claimed or showed to have been received. The said sum or part thereof which had not been paid back shall be deemed to be income of the assessee for the income year immediately following the expiry of the said three years and classifiable under the head 'Income from Other Source'.
“Provided that when the total loan refund in this sub-section is paid back in a subsequent income year, the amount so paid shall be deducted in computing the income in respect of that subsequent year or may apply under section 173 of ITO to determine the total income and taxation.”
Akhter Zamil, FCA, a former Chairman of Karma Sangsthan Bank, is Vice Chairman of Taxation & Corporate Laws Committee (ICAB) and Senior Partner of Akhter Abbas Khan & Co.
[email protected]
