Dispute regarding annual value and income from housing property has been a major point of dispute among the assessee and the tax officials over the years. The officials often arbitrarily estimate the rental income without verifying the reality and violating the section 2(3) and Rule 8A of the Income Tax Ordinance (ITO) 1984. To eliminate such confusions and discrepancies we suggest the following amendment u/s 2(3)(a):
Proposal: a. 'Annual Value' shall be deemed to be in relation to any property including commercial building, shopping mall, and outlet the sum for which property let out for rent from year to year to be determined on the basis of a valid rental agreement existent between the landlord and the tenant confirming the rate of rent per square feet or rental value per month declared before a court of first class magistrate or before a notary public duly authenticated.
b. Rental income actually received by the landlord will be calculated following Rule 8A of ITO
c. 15 per cent of the related value of property is to be determined for the purpose of the levy of municipal tax.
d. Annual value will be accepted in respect of the above whichever is higher.
Also section 25 (f)(i) be amended as under:
"Any business house or company running a business by letting out partly or fully of a commercial building shall be entitled to claim expenses for running and maintenance of the office by payment of salary and allowances, depreciation allowance, other administrative expenses be allowed as deduction from 'Annual Value' to arrive at net income from commercial building.
PROPOSAL TO AMEND TAXATION OF BAD DEBT ALLOWANCE: Fact: With the changing trend and new techniques and systems introduced in modern-day businesses, businesses are managed and controlled in a new way. To match the situation, the National Board of Revenue (NBR) has adopted Bangladesh Accounting Standard (BAS) and Bangladesh Financial Reporting Standards (BFRS) but the existing tax laws are not suitably framed to support such accounting standards. As a result, much confusion arises regarding bad debt provisions created by business entities. Although the accounting standards set in BAS and BFRS and also Bangladesh Bank require such provisions for bad debts, the tax officials refuse to admit such provisions and charge tax on it adducing the reason that the loss has not been genuinely incurred as yet. To eliminate such contradiction in accounting standards and the taxation law in this regard, we suggest the following amendment be brought u/s 29(1)(xviiiaa): (The existing law is 29(1) (xviiiaa) has been suspended by NBR from the assessment year 2006-2007)
Proposal: "In respect of provision for bad debt allowance and interest thereon made by a commercial bank, schedule bank, financial institution be allowed as deduction from income for the extent of 3.0 per cent of the total outstanding loan including interest thereon as on the date of closing of the accounts or the actual amount of provision for such bad or doubtful debt and interest thereon in the book of the assessee whichever is less without charging tax on the claim of provision for bad and doubtful debts.
Provided further that the deduction from income shall be applied from the assessment year 2017-2018,
Provided further that any amount out of the amount so allowed as tax free is ultimately recovered, the same shall be deemed to be a profit of the year in which it is recovered and to be charged tax, if tax is not charged earlier prior to assessment year 2016-2017, and
Provided that any adjustment of bad debt written off or recovery of bad debts amount shall be recorded in the assessment order by the DCT for future reference."
PROPOSAL TO AMEND SECTION 30(E) OF THE ITO: Fact: Under section 30(e), the tax authority had imposed a limitation on the payment of the perquisites under rule 33(a) to 33(j). On the other hand, NBR had permitted to allow perquisites @4,50,000 taka per employee by the employer. Recently, the High Court has given rulings whereby any excess perquisites paid to an employee should be taxed in the hands of employee and not in the hands of the employer. But the tax authority is reluctant to admit such ruling of the High Court and it charges tax on the employer arbitrarily. Now to eliminate such confusions, we propose amendment of the section 30(e) as following:
Proposal: "Perquisites or excess perquisites allowed to an employee in cash or any kind under rule 33(a) to 33(J) of ITO shall not exceed Tk. 450,000 per employee or 30 per cent of the total income of the assessee from the assessment year 2014-2015.
"Notwithstanding anything contained in this ordinance any excess perquisites allowed to an employee are taxable in the hands of the employee, not the employer."
PROPOSAL TO AMEND SECTION 30(J) OF THE ITO: Fact: Incentive bonus to the employee of the banking sector is admissible expense up to 10 per cent of the net profit u/s 30 (j). But provisions made for such expenses in the accounts are disallowed by the tax officials on the ground that the expense is not actually paid in the year and is rather an estimate only. But such an allegation of the tax officials is not true and proof of the payment can be found in the books of the accounts of the subsequent year. Moreover, such provisions for the government banks are created only based on the instruction of the Ministry of Finance (MoF) through a clear circular. In such cases, even if the total amount of incentive bonus including the provision for incentive bonus is excess of 10 per cent of net profit, it should be allowed being permitted by the MoF fully. To bring due changes in the taxation law in this regard, we suggest the following amendment u/s 30(j):
Proposal: "Despite limitation in the payment of incentive bonus to the employee u/s 30(j) of the ITO, the provision so made in the accounts of incentive bonus on the basis of the circular issued by the Ministry of Finance in case of banks and the financial institutions be allowed fully without charging taxes on the amount of the provision made in the accounts."
PROPOSAL TO AMEND SECTION 29(XV, XVI, XVII): Fact: The existing tax law requires that any debt that is written off from the books of the accounts be established as 'irrecoverable'. But there is no condition or standard set in the ITO to establish the word 'irrecoverable' in terms of bad debts written off. This creates contradiction among the assessee and the tax officials in computation of tax. Ultimately tax officials do not accept the written-off amount of bad debt as deduction from income and charges tax on the assessee although tax was charged and subsequently realised from the assessee earlier when provision for bad debt was created. Thus double tax is imposed on the assessee in case of claim not admitted by the tax officials. To eliminate such unlawful tax treatment against the assessee, we suggest the following amendments be made.
The amount of any debt or part thereof which tax is charged by the Deputy Commissioner of Taxes (DCT) and subsequently paid by the assessee which has actually been written off in the books of accounts and reported in the audit report under the head particulars of advance duly confirmed by the auditors may be allowed without following the requirements of the word 'irrecoverable' which may be defined in the rule.
This sub-section (xv) shall be applicable in the case of business of banking of money lending carried on by the assessee. In the ordinary course of business, including sundry debtors shown recovered in the book of the accounts by trading of commercial and trading houses, shall also be allowed provided provision for bad and doubtful debts are made in the accounts and charged for tax and subsequently paid by the assessee.
Proposal: Section 29(xvi) be amended as under: "Where any amount of debt or part thereof actually has been written off as irrecoverable in the books of the accounts of the assessee but has not been allowed on the ground that it has not yet become irrecoverable, so much of such debt or part thereof as has been established to have become irrecoverable in any subsequent income year shall be allowed as deduction in that income year without question."
Section 29(xvii) be amended as under:
"Where any such debt or part thereof is written off as irrecoverable in the books of the accounts of the assessee for the peevious income year may be allowed as deduction on the basis of an appeal order or on approach by the assessee to DCT for previous year without asking any question in case of the preceding four years from the end of the assessment year and correct the relevant assessment order u/s 173 of ITO of the relevant income year."
PROPOSAL TO AMEND 75(2)(C) REGARDING INCOME TAX OF IT SECTOR: Fact: To empower the information technology (IT) sector in Bangladesh, the government has exempted tax from income for the IT sector entity from 2008 to 2019. But some limitations debar the assessee from IT sectors to enjoy the privilege. There is a provision that the assessee should file return of income following section 75(2)(c) of the ITO. This law creates some misunderstanding between the assessee and the tax authority regarding acceptance of tax return beyond the time limit for submission of return. Section 75(2)(c) is related to imposition of penalty and fine only in case of an assessee failed to submit return in due time. There is no instruction in the paragraph 33 whereby the assesseee will be taxed on total income in case of its failure to submit tax return in due time. Such confusions cause a lot of hardship and uncalled for trouble for the assessee which is not desirable. A clear-cut instruction from NBR is required to resolve the issue. Also there is a lot of reasons that an assessee cannot submit the return in time where foreign currency is involved. To clarify the provision, we suggest the language of the provision be as following:
Proposal: "Provided that the person engaged in the business of software development shall face penalty and fine u/s 75(2)(c) if he failed to submit tax return in time. But in no circumstances tax will be imposed on the total income of the person on the basis of section 75(2)(c)."
PROPOSAL TO AMEND SECTION 178: Fact: Service of notice by the DCT to assessee for allowing the hearing of the tax cases has been facing some undesirable situation. In most of the cases, the assessee does not get the so-called notice issued by DCT and consequently faces exparte assessment under section 84 of the ITO. In the section 178, two types of notices are required to be served by DCT to the assessee, but DCT serves only one note of service, i.e. service of notice by registered post only. Service of summons in a manner so provided for service as per code of civil procedures 1908 (Act of 1908) is not being followed by the assessing officer. This is not fair and assessees are being harassed and subjected to unnecessary demand of tax.
Proposal: "In case where the assessee does not get the notice of hearing assessment order, a form of computation of tax or refund or any other documents DCT will allow the assessee more time at least not less than 6 months from the end of the stipulated time or the assessee will send letter to DCT requiring a date of hearing without the prescribed time limit of submission of tax return."
PROPOSAL TO ADD A NEW SUB-SECTION U/S 29(1) REGARDING LUNCH SUBSIDY: Fact: It has been observed that the public-sector banking companies are allowing 'Lunch Subsidy' to their employees to get more service from its employees. These expenses are being accepted by the tax authority for the last 40 years or more. Now DCT is treating the said expenses under head 'Excess Perquisites' under section 30(e) of the ITO, though the section 2(45) does not contain the word 'lunch subsidy' as perquisites. This is simply food expenses incurred for the employees.
Proposal: "In computing the income under the head income from business or profession the amount paid in the form of 'Lunch Subsidy' by the banking company be allowed as deduction unless such expenditure capital in nature or personal expenses of the assessee."
PROPOSAL TO ADD A NEW SECTION U/S 29 REGARDING PROVISION FOR IMPAIRMENT LOSS: For requirement of clause 36 of the BAS, an entity is required to make provision against anticipatory loss of investment of shares against profit/loss account of the entity. On the other hand, the tax authority does not allow such loss being not actual loss and charge tax on the provision. Alternatively in a situation when prices of the shares are raised, reversal entry is required. In this case, the reversal of the provision for impairment loss so taxed earlier be allowed in the year of claim.
In case of reversal of the entry, the tax so collected against earlier provision made in the books of the accounts of the entity, be allowed as deduction against income of the same income year or alternatively the provision be created by deleting retained profit (Provision Account) as compared to avoid charging of tax.
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.
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