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ICAB Professional Examination-III

TAXATION- II

SUGGESTED ANSWER (MAY JUNE 2002 TO NOV DEC 2006) Courtesy: Saiful Islam Mozumder smozumder@outlook.com ShirazkhanBasak& Co.


Suggested Answers Taxation — II Professional Examination — Ill May — June, 2002 Question 1 (a) Under what circumstances and by whom an assessment can be reopened under section 120 of Income Tax Ordinance, 1984? Answer 1(a):

What circumstances: When any order passed by the Deputy Commissioner of Taxes is erroneous in so far as it is prejudicial to the interests of the revenue. By whom: The Inspecting Joint Commissioner may call for from the Deputy Commissioner of Taxes and examine the record of any proceeding under ITO 1984. Proceedings: The Inspecting Joint Commissioner may after giving the assessee an opportunity of being heard, and after making or causing to be made, such inquiry as he thinks necessary, pass such order thereon as in his view the circumstances of the case would justify, including an order enhancing or modifying the assessment or canceling the assessment and directing a fresh assessment to be made. Question 1(b) What are the remedies available to an aggrieved assessee on receipt of an order under sec 120 of Income Tax Ordinance, 1984? Answer 1(b):

Remedies available to an aggrieved assessee: The aggrieved person may go for appeal according to section 153(1A) of ITO 1984 of the said order. Question 1 (c) Briefly describes the procedures, advantages and disadvantages of each remedy. Answer 1(c): Remedies Appeal u/s 153(1A)

Procedures, Advantages and Disadvantages Procedures: 1) An application is to be made to the Commissioner (Appeals) within 45 days of the order. 2) A fee of tk.200 3) Payment of tax u/s 74. 4) Decision within 90 days of application. Advantage: 1) The applicant gets reasonable opportunity of hearing. 2) Can submit grounds of appeal. Disadvantage: 1) No further appeal i.e to the tribunal.

Question

2 (a) Mr. Bilgrami is an importer of milk food. An amount of Tk. 75,580 has been deducted from him at source at import stage as advance income tax in December 2000. He also has been has got a retail hardware shop from which he earned a net profit of Tk.275,000 in the financial year ended on 30 June, 2001. You are required to calculate the following of Mr. Bilgrami for assessment year 2001, 2002:i) Total Income ii) Taxes payable. Answer 2(a) Mr. Bilgrami Income year ended 30 June 2001 Assessment year 2001-2002 Computation of total income and tax payable Income For net profit from retail hardware On first tk.120,000 tax rate is 0%

,

120,000

Tax payable

Nil


On balance tk.155,000 tax rate is 10%

155,000

15,500

95,000

9,500

For import of milk food from which advance tax was deducted: On first 95,000 tax rate is 10%

On next tk.300,000 tax rate is 15% 300,000 45.000 On next tk.105,400 tax rate is 20% 105,400 21,080 775,400 Total income and tax payable ............................. 91,080 Less: Final discharge as per section 82C 75,580 Tax liability ............ 15,500 Note: 1. Income from import of milk food is determined by back calculation. Here the calculation has been carried out to find out the income that attracted the TDS of Tk.75,580. 2. R at e o f has been consi dered for the assessment year-2006-2007. Question 2 (b): Briefly describe the provisions of section 82C and give example of three heads of deduction of advance tax at source, which are subject to assessment under section 82C Income Tax Ordinance, 1984 as final discharge. Section 82C deals with Income in respect of which tax has been deducted or collected at source on account of supply of goods or execution of contract, manufacture of cigarettes, import of goods, value of property for the purpose of collection of tax, interest on savings instruments, winnings, export of manpower, remuneration or reward ,auction purchase ,payment on account of survey ,payment on account of fees for technical services shall be deemed to be the final discharge of tax liability under this Ordinance. Examples: a) the amount representing the payments on account of supply of goods or execution of contract to which tax is deductible under section 52 of ITO 1984; b) the amount of the value of the banderols computed for the purpose of collection of tax on account of the manufacture of cigarettes under section 52B of ITO 1984; c) the amount as computed for the purpose of collection of tax under section 53 of ITO 1984 in respect of goods imported, not being goods imported by an industrial undertaking as raw materials for its own consumption; Question 3. Arun & Company Ltd. is a public limited company listed with Dhaka Stock Exchange. Its authorized capital is Tk. 250,000,000 and paid up capital is Tk. 50,000,000. During the year ended 30 June 2001,the company made a net profit of Tk. 27,500,000 which included the following:a. The company is a first class construction contractor and a supplier to Defense Department and made a profit of Tk. 7,500,000 in a contract of construction of a bridge under Roads and Highways Department of the Government of the Bangladesh, under Ministry of Communication and made another profit of Tk. 2,000,000 from supply business. b. A gain of Tk. 1,500,000 out of sale of a Mercedez Car purchased in 1994 at a cost of Tk. 2,500,000. The book value of the car was nil as on 30 June, 2000. c. A net dividend of Tk. 3,400,000 from a bank of which the company is a shareholder and the Company's Managing Director is a director of the bank. d. An insurance claim of Tk. 4,500,000 received against a fire insurance claim of Tk. 5,000,000 made three years back. The company wrote off the fire loss in the year of claim but the taxes department did not allow the same as a deduction on the ground that the insurance company did not settle the claim in that year and as such the quantum of loss was unascertained. No further amount is receivable from the insurance company. e. The company purchased a land of Tk. 2,000,000 in the year 1990 and sold the same for Tk. 4,000,000 during the year making a capital gain of Tk. 2,000,000. The sale deed was registered on 31-03-2001; d) The company is also a manufacturing of machine made bricks from which a net profit of Tk. 5,900,000 has been earned after allowing depreciation of TK. 1,600,000 on 1


fixed assets. The tax written down value of fixed assets as at 30 June,2000 was as follows:i) F u r n i t u r e - - - - - - - - - - Tk. 1,816,348 ii) Motor car --------------------Tk. 629,145 iii) Office equipments-------- Tk. 4,532,582 iv) Construction equipments----Tk. 8,648,756

The directors have declared a dividend of Tk. 15,000,000 for the year 2000-01 and the same has been approved by the shareholders in the Annual General Meeting held on 30-11-2001. Considering the foregoing facts you are required to:Compute the total income of the company for assessment year 2001-02. Arun & Company Income year ended 30-06-2001 Assessment year 2001-2002 Notes Tk'000 Net profit as per Profit and Loss a/c 27,500 Separate considerable items: Less: Dividend income (3,400) ,

Add: Accounting depreciation Less: Capital gain on sale of land Less: Gain on sale of car

1

Deduct: Allowable or deductible items: Loss on stock Tax depreciation

2

Add: Allowable Gain on sale of car Total income from business or profession Income from other sources Dividend income Income from capital gain: Capital gain on sale of land Total Income Note 1: Allowable profit on sale of car: Purchase of car in 1994 Allowable as per 3 rd Schedule Para 11(3)(g)(proviso)of ITO 1984 Sales amount So allowable profit is (1,000,000/2,500,000)*1,500,000

1

1,600 (2,000) (1,500) 22,200 (500) (2,944) 18,756 600 19,356 3,400 2,000 24,756 Tk. 2,500,000 Tk. 1,000,000 Tk. 1,500,000 Tk. 600,000

Note 2: Calculation of tax depreciation: Calculation of tax depreciation: Construction equipments = (8,648,756 X 20%) = Tk.1,729,751 Office equipments = (4,532,582X20%) = Tk.906,516 Furniture =(1,816,348X10%)= Tk.181,635 Motor Car =(629,145X20%)= Tk.125,829 Total = TK. 2,943,731 Motor tax Cardepreciation = (629,145X20%)= Tk. 125,829 Question 4. What are the offences and punishments prescribed under section 164 of Income Tax Ordinance,1984?

Answer 4: According to Section 164 of ITO 1984:


Nature of defaults Fails to deduct or collect and pay any tax a s r e q u i r e d u n d e r t h e p r o v i s i o n s o f Chapter VII except advance payme nt of t a x o r f a i l s t o de d u c t a n d p a y t a x o n attachment notice issued by the DCT as required under section 143(2);

Penalty Imprisonment for a term w h i c h may extend to one year or fine or both. .

Fails to produce, or cause to be produced, on or before the date mentioned in any notice under Chapter VIII, or under section 8 3 , s u c h a c c o u n t s , d o c u m e n t s o r statements as are referred to in such notice;

Do

Fails to furnish, in due time, the return of income which he is required to furnish under section 75, or by notice given under section 77 or 93; Refuses to permit inspection or to allow copies to be taken in accordance with the provisions of section 114; Fails to afford necessary facilities or to furnish the required information to income tax authority exercising powers under section 115; or

Do

Refuses to permit or in any manner obstructs the exercise of powers under section 117 by an income tax authority.

Do

Do Do

Question 5. State the provisions of law for availing tax holiday by a tourist industry mentioning at

least five documents that are required to be submitted along with application for tax holiday. Answer 5: Tax holiday for tourist Industry u/s 46 2A,2B &2C a) Conditions for tax holiday i) Tourist Industry set-up in Bangladesh between the first day of July, 1995 and the thirtieth day of June, 2000 (both days inclusive). ii) Tourist industry means a business, industry or undertaking which caters for the tourists including setting up, establishments, running of hotels, motels, hunting lodges, amusement and theme park, holiday home, tourist resort, family fun and games, energy park and private picnic spots of such standard as the National Board of Revenue specify. iii) The industry is owned and managed by a Bangladeshi Company having a subscribed and paid up capital of not less than one lakh taka on the date of commencement of commercial services. iv) 30% per cent of the income exempted is invested in the said undertaking or in any new industrial undertakings or in stocks and shares of a public company during the period of exemption or within one year from the end of the period to which the exemption. Provided that the quantum of investment shall be reduced by the amount of dividend. if any, declared by the company enjoying tax holiday. v) Tourist Industry must by approve by the board. rd The National Board of Revenue vide S.R.O No. 200-L/2000 dated 3 July, 2000 specified the following standards to be maintained by a tourist industry for the purpose of tax holiday The number of guest rooms should not be less than 30 if the industry is set up at Dhaka, Chittagong and Khulna and 10 if it is set up in other places and each such industry should have adequate public facilities, such as dining hall, lobby space etc. Each guest room should have an attached bathroom equipped with modern sanitary fittings; At least 50% of the guest rooms should be air conditioned; Each guest room should be fitted with a telephone or there should be at least one telephone for each floor. b) Approval procedure i) An application is made to the Board within 180 days from the date on which the tourist industry is put into commercial services.


ii)

The Board shall give its decision within three months from the date of receipt of the application by the Board, failing which the undertaking shall be deemed to have been approved by the Board.

c) Period of exemption For "Special Economic Zone" For " Least Developed Areas" For " Less Developed Areas" For the city of Dhaka, Chittagong, or K h u l n a , o r t h e M u n i c i p a l i t y o f Narayangonj or within 15 milies from the outer limits thereof.

12 Years 9 Years 7 Years 5 Years

The following documents are required to be submitted along with application money: The application shall be accompanied by --(a) an attested copy of certificate of incorporation; (b) an attested copy or the certificate of commencement of services; (c) an attested copy of the letter of the Government conveying sanction to the issue of capital; (d) an attested copy of the Memorandum and Articles of Association of the company; (e) in case the company has already commenced services certified copy of the audited balance sheet and profit and loss accounts for the three latest completed years or any lesser period which the accounts have been prepared (for and incomplete year trial balance may submitted); (f) an attested copy of the complete scheme of the unit as submitted to the Government at the time of obtaining the sanction; (g) a certified copy of blue print of the building where the tourist industry for which exemption of income sought is located, showing the installed position of the machinery

Question 6. Messrs Delton Limited, a public limited company with its registered office in Dhaka, shown

net profit of Tk. 837,413 in the audited accounts for the income year 31st July,2000. You are required to compute total income and tax payable on correct return u/s 82 and rule 64A of ITO and ITR 1984 indicating the assessment year and after considering the following facts:a) Excess perquisites calculated u/s 30 (e) Tk. 145,000 b) Salaries and allowances amounting to Tk. 176,200 section 30(a) not complied with; c) Registration Expenses and fees include Tk. 215,701 found to be personal entertainment in nature; d) Advertisement and publicity expenses include Tk. 125,000 as donation to a local sports club; e) Gratuity provision during the year is Tk. 677,937 but actual payment is Tk. 276,434; f) Rent, rates and taxes claimed at Tk. 368,212 out of which Tk. 214,640 paid as rent not complied with section 53A of ITO 1984. g) Accounting depreciation as per audited accounts is Tk. 2,979,211 and tax depreciation as calculated with reference to previous year assessment is Tk. 4,726,422 Answer 6. Messers Delton Limited (A public limited company) Income year Ass ess m en t y ea r

Computation of total income Income from business or profession: Net profit as per profit and loss accounts Add: Items for separate consideration Accounting depreciation --------------------------------- ----------

Tk.

Tk.

837,413 --

2,979,211 3,816,624

Add: Inadmissible expenses: Excess perquisites (Note 1) -----------------------------------Salaries and allowances (Note 2) -------------------------------Registration expenses and fees -----------------------------------

145,000 176,200 215,701


Donation to local sports club --- ----------------------------Gratuity provision less actual expenses (Tk. 677,937-Tk. 276,434)---Rent, rates and taxes --------------------------------------------

125,000 401,503 214,640 1,278,044

Less: Tax depreciation .......... Total taxable income- ...................................

5,094,668 (4,726,422 368,246)

Tax payable @ 30% on 368,246 (assumed publicly traded company)-110,473 -Question 7: S t ate the purpose of and benefit arising from an agreement for avoidance of d o u b l e

taxation between Bangladesh and any foreign country. Is there any other provision for relief in respect of foreign income? If so please explain. Answer 7:

According to section 144 of ITO 1984

The Government of Bangladesh may enter into an agreement with the Government of any other country for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income leviable under this Ordinance and under the correspo nding law in force in that country. Benefits and purpose of Double taxation avoidance agreement a. Relief from the double tax payable; b. Determining the income accruing or arising, or deemed to be accruing or arising, to non -

residents from sources within Bangladesh; c. Where all the operations of business or profession are not carried on within Bangladesh,

determining the income attributable to operations carried on within or outside Bangladesh, or the income chargeable to tax in Bangladesh in the hands of non-residents, including their agencies, branches or establishments in Bangladesh; d. Determining the income to be attributable to any person resident in Bangladesh having any special relationship with a non-resident; e. Recovery of tax leviable f. Exchange of information for the prevention of fiscal evasion g. To attract FDI in Bangladesh. Relevant information Bangladesh generally follows UN model of Avoidance of Double Taxation Agreement, which consists 29 Articles. Instances are Scope of the convention; Taxes covered. General definitions, Permanent establishment, Dividends, Interest, Royalties etc. . Name of countries to which Double taxation agreement in force: Republic of Korea, Canada, Pakistan, United Kingdom of Great Britain and Northern Ireland, Singapore, Sweden, Romania, Sri Lanka, France, Japan, India, Malaysia, Germany, Italy, The Netherlands, Denmark, China, Belgium, Thailand, Poland, Philippines. Norway, USA. According to Section 145 of ITO 1984: Relief in respect of income arising outside Bangladesh. Any resident in Bangladesh in any year proves to the satisfaction of the Deputy Commissioner of Taxes that, in respect of any income which has accrued or arisen to him during that year outside Bangladesh, he has paid tax, by deduction or otherwise, in any country with which there is no reciprocal agreement for relief or avoidance of double taxation, the Deputy Commissioner of Taxes may, deduct from the tax payable by him under this Ordinance a sum equal to the tax calculated on such doubly taxed income at the average rate of tax of Bangladesh or the average rate of tax of the said country, whichever is the lower. Explanation.--The expression "average rate of tax" means the rate arrived at by dividing the amount of tax calculated on the total income by such income. Question 8. State the provisions regarding information to be furnished to the Tax Authorities in connection with payment of salary, interest and dividend. Answer 8: According to section 108,109,110 of ITO 1984


The following information is to be furnished to the Tax Authorities in connection with payment of Salary. Interest and Dividend: In case of Salary: (a) the name and address of every person to whom such payment has been made, or was due, during the preceding financial year if the payment exceeds such amount as may be prescribed; (b) th e a m o u n t o f p a ym en t s o m a d e , o r d u e ; (c) the amount deducted as tax from such payment; and (d) such other particulars as may be prescribed: In case of Interest: (a) the name and address of every person to whom such payment has been made. or was due, during the preceding financial year; (b) the amount o f pa yment so made or due ; a nd (c) such other particulars as may be prescribed. In case of Dividend: (a) the name and address of every shareholder, as entered in the register of shareholders, to whom a dividend or the aggregate of dividends has been paid or distributed during the preceding financial year if such payment exceeds such amount as may be prescribed; (b) the amount of dividend or dividends so paid or distributed; and (c) such other particulars as may be prescribed. (

Question 9(a) Describe gifts which are not chargeable to gift tax under section 4 of the Gift Tax Act, 1990 Answer 9(a) According to Section 4 of Gift tax Act, 1990 The followings are the gifts that are exempt from gift tax:  Gift of a property situated outside Bangladesh;  Gift made to the Government or any local authority;  To the following funds or institutions for charitable purposes: i) any university established under the law in force in Bangladesh or any educational institutions including polytechnic institute, recognized by the education board or recognized or run by the Government: ii) any hospital recognized or run by the Government or any local authority or any hospital aidedby the Govt. or any local authority; iii) any flood or disaster management fund established or approved by the Government: iv) Such institutions or funds for religious or charitable purpose not being a private religious institutions or funds which does not ensure for the benefit of the public, as are established in Bangladesh and approved by the Government for such purposes or to any institutions established for religious or charitable purposes and registered under any law for the time being in force, up to 20% of total income determined for the concerned year or Tk. 100,000 whichever is less;  To dependent relative up to Tk. 20,000 on the occasion of his/her marriage;  By way of payment of policy on insurance or annuity for any person (other than wife) dependent upon him for support and maintenance up to Tk. 20,000;  Under a will;  Under contemplation of death;  To sons, daughter, father, mother, his/her spouse, own brothers and sisters. General exemption Gift tax shall not be charged under this Act in respect of gifts made by any person during any financial year, subject to a maximum of Tk. 20,000 in the value. Question-9(b) Who is liable to file return of gift tax and when? Answer 9(b): According to section 7 of Gift Tax Act 1990: Return of gifts:


a) Every person who has made any taxable gifts during a financial year shall, before the 15th day of September of the corresponding assessment year, furnish to the Deputy Commissioner of Taxes a return in the prescribed form and verified in the prescribed manner. b) If the DCT is of opinion that the gifts made by a person during any financial year is liable to gift tax then he may serve a notice upon such person requiring him to furnish within such time as may be specified in the notice a return in the prescribed form and verified in prescribe manner. Question 9(C) To whom the gift tax return is to be filed? Answer 9(c): Return to be furnished to Deputy Commissioner of Taxes. If the DCT is of opinion that the gifts made by a person during any financial year is liable to gift tax then he may serve a notice upon such person requiring him to furnish within such time as may be specified in the notice a return in the prescribed form verified in prescribed manner. Question 9(d) How are the value of gift determined under section 5 and rule 6 of the Gift Tax Act /Rules, 1990? Answer 9(d) According to Section 5 of Gift tax Act, 1990 The value of any property other than cash transferred by way of gift shall be estimated to be the price, which in the opinion of the Deputy Commissioner of Tax would fetch if sold in the open market in the date on which the gift was made. Where the value of any property cannot be estimated because it is not salable in the open market, the value shall be determined in the prescribed [Rule #6] manner. According to Rule 6 of Gift tax Rule, 1990 Insurance policy: The amount of money that would be received by encashment of gifted insurance policy would be the price of the said policy. Shares of Private limited company or firm: The value share shall have to be determined in the proportion of asset of the concerned company or firm in the year in which shares were gifted. Question 10(a) Explain the procedures of payments of VAT as provided under Rule 23 submission of returns under Rule 24. Answer 10(a) According to Rule 23 of VAT rule 1991: Procedures of payments of VAT:  In case of supply of goods or rendering of services pay the VAT after deducting the allowable input from the output tax or any other Government dues, by depositing the net amount in the treasury, under the head "1/1133/0000/0311"  The registered person shall, before the removal of any consignment of goods from the place of manufacture or production or business, determine the payable tax on it and at the time of removal of the goods pay the tax through necessary adjustment in account current and for this purpose, there shall have to be sufficient balance in his account:  Tax payable shall have to be determined by multiplying the price inclusive of tax by 3/23 and at the end of the supply of whole day.  Where the amount of value added tax is not shown separately in the invoice given by the supplier of goods or the renderer of service, the amount of the value added tax payable shall be determined multiplying by 15/115 the gross sale price, inclusive of the amount of value added tax due or received. According to Rule 24 of VAT rule 1991: Procedures of submission of returns:  Every manufacturer or producer or businessman of taxable goods or renderer of taxable service shall have to deposit in the local value add tax office two copies of a return in Form "Musak-19" for each tax period within (ten) working days of the month next after the tax period: Provided that in the case of an insurance company, for each tax period two copies of the return shall have to be submitted to the local value added tax office within 20 (twenty) working days of the month next after tax period.


A person who, after purchasing or manufacturing or producing goods, supplies or exports it shall have to append to his return the following documents, namely:a) the original copy of account current register (where applicable); b) bill of entry or Musak-11 relating to purchase of inputs or raw material during the concerned tax peri od or any other document relating to purchase during that period; and c) any other document demanded by the Commissioner. A person who renders or supplies taxable service shall have to furnish with the return the following documents, namely:-

a) original and second copy of the treasury Challan (where applicable) as an evidence of payment of the payable tax: b) bill of entry relating to the inputs or raw material purchased or Musak -11 or any other document relating to purchase during the relevant period; and c) any other document demanded by the Commissioner Question 10 (b) What are the provisions with regard to refund of VAT on exports? An exporter can take refund of VAT in any of the following three ways:a) Self maintained current Account: VAT registered exporters whose tax liabilities on local supplies (VAT+SD) is not lesser than the drawback claim, can adjust their refundable t axes (custom duty, supplement duty, excise duty etc.) in the form of rebate against output tax in the current account. However, such drawbacks or rebates shall have to be reported in the related tax return. In this case, the exporter does not need to approach DEDO and VAT drawback would not be at all necessary. Because rebate has already been obtained through the current account. From commercial Bank directly: Direct payment to the exporters bank accounts are allowed on the following 16 items of exports. 1. Processed leather (crushed and finished) 2. Jute products (carpets) 3. Urea fertilizer 4. Ceramic/melamine products 5. Espadrilles 6. Transfer paper 7. Tea chest 8. Printed calendars 9. Stainless steel cutleries 10. Cigarettes 11. News print 12. Card pin 13. Refined glycerin 14. Automatic PP container batteries 15. Tracks made of finished leather of cow, buffalo, goat and lamb 16. Men’s leather shoe (oxford type) Drawback from DEDO Drawback can be obtained from DEDO in those cases where any of the above two ways or services is not applicable. Note: Commercial exporters who purchase goods from local market and sell or export them aboard. They act as intermediaries in the export process and do not undertake any manufacturing activities. Question 10( c ) W h o a r e e n t i t l e d t o t r u n c a t e d s y s t e m o f V A T p a y m e n t ? Answer 10 (c):

Truncated based VAT: Under truncated system VAT is paid on truncated value and effective rate is lower than the standard rate of 15%. This VAT is collected from the consumers (who may or may not be final consumers) and the seller cannot set off her/his input tax against his/her output tax. Examples of services:


Provider of services

Dockyard Construction firm Printing press Audit and accounting firm Medical institution

Value addition (%)

30% 30% 30% 30% 15%

Truncated rate (%)

4.5% 4.5% 4.5% 4.5% 2.25%

Question 10(d) State the provisions of law for determination of value under section 5 of Value Added Tax Act, 1991. Answer 10(d):

According to section 5 of the Value Added Tax Act 1991: In case of Importation: In case of importation of goods, the amount on which the value added tax shall be payable shall be determined by adding the amount of import duty, supplementary duty and all other duties and taxes, (if any), except advance income tax payable, to the assessable value determined under section 25 or 25A of the Customs Act. In case of goods supplied: The price shall be the consideration receivable from buyer by the producer or business person, which will include purchase price of materials and all expenditure incurred by the manufacturer and also commission, charges fess and all supplementary duty excluding VAT and profit; If any registered person sells goods directly or through his own brand name or sales centres, distributors or commission agents under his own brand name, the value added tax shall, in the case of the goods with brand-name be determined on the basis of the consideration due from the purchaser to the owner of the brand-named goods In case of services: Value added tax shall be imposed on the total receipts. In case goods subject to trade discount: Goods on which trade discount is allowed, value added tax would be charged on the value of the goods after deduction of trade discount: Question 10(e) State the provisions of law for offences and penalty under section 37 of Value Added Tax Act, 1991. Answer 10(e) According to Section 37 of Value Added Tax Act 1991: The followings are the offences:  fails to submit an application for registration under this Act, though required to submit such an application; and  fails to submit a return within the specified date; or  fails to inform the value added tax officer about any change of information in relation to registration; or  fails to comply with the direction of any summons under section 25; or  violates any other provision of this Act, Prosecutions: Shall be liable to pay a fine of taka not less than ten thousand and not more than fifty thousand. Offences:  fails to give a tax-invoice or gives a tax-invoice untrue in relation to material information; or  fails to pay value added tax or, where applicable, value added tax and supplementary duty on goods or service supplied by him though directed twice by the concerned officer, or fails to submit the return for a tax period even after lapse of the time specified for such submission; or  submits return untrue in relation to material information; or  attempts to evade payable value added tax by supplying goods without recording information regarding sales in the sales accounts register (Mushak-17) and payable value added tax in the account current register, (Mushak-18); or


evades or attempts to evade tax by submitting forged or false documents to a value added tax officer; or  Does not preserve any document which is required to be preserved under this Act or the rules; or destroys or alters such document or mutilates any part of such document; or  demonstrates it to be false; or does not preserve the document as per requirement of this Act; or  makes consciously a false statement or declaration; or  obstructs or prevents from entering his business place any value added tax officer authorized under this Act to inspect or seize any record, register or any other document relating to value added tax; or engages himself in receiving, acquiring possession of or transacting in goods though he knows or he has reason to believe that value added tax or, where applicable, supplementary duty payable on such goods has been evaded; or  takes a credit of input-tax through forged or fake invoice; or  evades or attempts to evade value added tax or supplementary duty by any other means; or  gives an invoice in which an amount of value added tax is specified, though he is not a registered person; Prosecutions:  he shall be liable to a fine of an amount not less than equal to, and not more than 2.5 times the amount of value added tax or, where applicable, value added tax and supplementary duty, payable upon the goods or service; and, if convicted for the said activity in a court of Magistrate, he shall be liable to imprisonment for not less than three months and not more than two years, or to a fine not less than equal to, and not more than two and half times of, the amount of value added tax or, where applicable, value added tax and supplementary duty, or to both. For irregularities other than evasion of revenue, he shall be liable to a fine of not less than twenty five thousand taka and not more than three lac taka.  If any registered service renderer fails or has failed to submit return or to pay value added tax or, where applicable, value added tax and supplementary duty within the specified date, then he shall be required to pay that unpaid value added tax or, where applicable, value added tax and supplementary duty along with an additional tax at the rate of two per cent per month on the unpaid amount of the tax and duty. Offences:  fails to become registered within one month of the receipt of an order for compulsory registration Prosecutions:  if he is a registered person, his business premises may be but under lock and key and his registration may also be cancelled; and  if he is a registrable person, his business premises may be but under lock and key. Questioq 10(f) What records are required to be kept under section 31 of Value Added Tax, Act, 1991 and Under Rule 22 of Value Added Tax Rule of 1991? Answer 10(f): Followings are the Books of Accounts u/s 31 & rule 22 that are to be maintained :  Purchase Register: Mushak-16: Rule 22(1)  Sales Register: Mushak-17: Rule 22(1)  Current Account: Mushak-18: Rule 22(1)  Challan (Invoice): Mushak-11: Rule 16(1)  Challan (Cash Memo): Mushak-11kha: Rule 16(1)  Statement of input & FG stock, production statement  The accounts of production or manufacture of goods or raw materials, services, etc Followings are the Records that are to be maintained:  VAT Challan (invoice) for local input purchases  Bill of entry & Invoice for imported input  Treasury challan copy  Copy of Dakhil-patra (Return): Mushak -19: Rule-24(1)  Credit Note, Mushak-12 (if any)  Debit Note, Mushak-12 kha (if any) 


Suggested Answers Taxation — II Professional Examination — Ill November — December, 2002 Question 1(a) Define the following in relation to Income Tax Ordinance. 1984:i. Employee; ii. Perquisites; iii. Written Down Value Answer 1(a) According to Section 2(28) of ITO 1984: Employee: "Employee", in relation to a company, includes the managing director, or any other director or other person, who irrespective of his designation performs, any duties or functions in connection with the management of the affairs of the company; According to Section 2(45) of ITO 1984: Perquisite: i. any payment made to an employee by an employer in the form of cash or in any other form excluding basic salary, festival bonus, incentive bonus not exceeding ten percent of disclosed profit of relevant income year, arrear salary, advance salary, leave encashment or leave fare assistance and overtime, and ii. any benefit, whether convertible into money or not, provided to an employee by an employer, called by whatever name, other than contribution to a recognized provident fund, approved pension fund, approved gratuity fund and approved superannuation fund. According to section 2(68) and Third Schedule para 11(5) "Written down value" meansa) where the assets were acquired in the income year, the actual cost thereof to the assessee; b) where the assets were acquired before the income year, the actual cost thereof to the assessee as reduced by the aggregate of the allowances for depreciation allowed under ITO 1984 or the Incometax Act, 1922 (XI of 1922), in respect of the assessments for earlier year or years; Question 1 (b) : State the power of an Inspecting Additional Commissioner of Taxes u/s 120 of Income Tax Ordinance, 1984. Answer 1(b): Acco rding to Sectio n 120 of I TO 19 84 : The Inspecting Joint Commissioner may call for from the Deputy Commissioner of Taxes and examine the record of any proceeding under this Ordinance, and .if he considers that any order passed therein by the Deputy Commissioner of Taxes is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made. such inquiry as he thinks necessary, pass such order thereon as in his view the circumstances of the case would justify, including an order enhancing or modifying the assessment or canceling the assessment and directing a fresh assessment to be made. Exception: No order shall be made after the expiry of four years from the date of the order sought to be revised.

Question 2.State the penal provision of section 164 of Income Tax Ordinance, 1984. Answer 2: According to Section 164 of ITO 1984: Nature of defaults

Fails to deduct or collect and pay any tax as required under the provisions of Chapter VII except advance payment of tax or fails to deduct and pay tax on attachment notice issued by the DCT as required under section143(2);

Penalty Imprisonment for a term which may extend to one year or with fine or both.

Fails to produce, or cause to be produced, on or before the date mentioned in Do any notice under Chapter VIII, or under section 83, such accounts, documents or statements as are referred to in such notice; Fails to furnish, in due time, the return of income which he is required to furnish Do under section 75, or by notice given under section 77 or 93;


Refuses to permit inspection or to allow copies to be taken in accordance with the provisions of section 114;

Do

Fails to afford necessary facilities or to furnish the required information to an income tax authority exercising powers under section 115; or

Do

Refuses to permit or in any manner obstructs the exercise of powers under section 117 by an income tax authority.

Do

stion Question 3.

Briefly describe the provision of law for carry forward of:-

i .Business loss; i i .Loss from A gri cul tu re; i i i .C a p i t a l G a i n Answer 3: Business Loss: Business loss other than speculation business which cannot be According to Section 38 of wholly set off ITO 1984: under section 37 of ITO 1984 can be carried forward to the next following assessment year, and— (a) it shall be set off against the income, if any, from the business or profession for which the loss was originally computed (b) if the loss cannot be wholly so set off, the amount of the loss not so set off shall be carried forward to the next assessment year and so on for not more than six successive assessment years.

Loss from Agriculture: Loss from Agriculture which cannot be wholly set off under-section 37 of According to Section 41 of ITO 1984 can be carried forward to the next following assessment year, ITO 1984: and— a) it shall be set off against agricultural income, if any, of the assessee assessable for that assessment year; and b) if the loss cannot be wholly so set off the amount not so set off shall be carried forward to the next assessment year and so on for not more than six successive assessment years. Capital gain Loss under the head "Capital Gains" can be set off against income According to Section 40 of from the same head during the income year. If the loss cannot be ITO 1984: set off in the above manner, the loss or portion thereof can be carried forward to the next assessment year and set off against income under the same head in that year. The loss can be carried forward upto 6 successive assessment years. Loss upto Tk. 5,000/- cannot be carried forward . Question 4: State the provision of law for filing return under self -assessment scheme by a P rivate Limited Company. Answer 4: Self-assessment of Private Limited companies According to Section 83AA and Rule38 A private limited company may also file return under the self- assessment procedure by fulfilling the conditions as mentioned below: a) Files a return on or before the date specified in clause (c) of sub-section (2) of section 75, b) The income shown in such return is higher by not less than 5% over the last assessed income and has also increased by at least a further sum of 5% for each preceding assessment year in respect of which the assessment is pending c) Pays tax on the basis of such income or Tk.50,000 whichever is higher on or before the date on which the return is filed. d) Such return shall be accompanied by a copy of the accounts of the company audited by a chartered accountant;


e) Tax shall be paid on or before the date on which the return is filed f) The assessment on the basis of such return shall not result in any refund. Question 5. State the provision of law for tax clearance certificate required for persons leaving Bangladesh. Answer 5: According to Section 107 of ITO 1984 A person who is not domiciled in Bangladesh, or a person who being domiciled in Bangladesh at the time of his departure is not, in the opinion of an income tax authority likely to return to Bangladesh, shall not leave Bangladesh without obtaining from the Deputy Commissioner of Taxes authorized in this behalf by the Board.-(a) a tax clearance certificate, or ( (b) if he has the intention of returning to Bangladesh, an exemption certificate which shall be issued only if the Deputy Commissioner of Taxes is satisfied that such person has such intention; and such exemption certificate may be either for a single journey or for all journeys within the period specified in the certificate. Question 6: What penalties can be imposed for:a) Failure to file return u/s 75; b) Failure to pay Taxes u/s 74; c) For furnishing inaccurate particulars of income Answer 6: Particulars Penalty Failure to file return u/s 75: Penalty amounting to 10% of tax imposed o n l a st (According to Section 124 of ITO 1984) a s s es s ed i n c om e s ub j ec t t o m in im um of Tk . 2 , 5 0 0 a n d a f ur t h er s um of Tk. 250 for everyday of continuing default. Failure to pay Taxes u/s 74; (According to Section 127 of ITO 1984)

25% of the tax due or 25% of the short fall as the case may be.

For furnishing inaccurate particulars of income (According to Section 128 of ITO 1984)

General: Two and half times the tax sought to be evaded; In case of self-assessment: 5 times the tax sought to be evaded.

Question

7: State the provision of law for recovery of taxes through special magistrate. Answer 7: According to Section 142A of ITO 1984: The DCT may forward to a Magistrate in whose territorial jurisdiction the office of the Deputy Commissioner of Taxes is situate, or the assessee resides, or owns property or carries on business or profession a certificate under his signature specifying the amount of arrears due from the assessee, and the Special Magistrate shall, on receipt of such certificate, proceed to recover from the assessee the amount specified therein as if it were an arrear of land revenue and the Special Magistrate were a Collector of D i s t r i c t .

The DCT may, at any time, recall from the Special Magistrate a certificate forwarded to him and upon such recall, all proceedings commenced in pursuance of the certificate shall abate. Specific condition: The recall of a certificate shall not affect any recoveries made by the Special Magistrate before the recall ,

Question 8: An international NGO having also an office in Bangladesh and employing International, Regional and Bangladeshi personnel has approached you regarding salary taxation of their different status of persons in Bangladesh concept and basis. Give a write-up to the Head of it's Bangladesh office relating to taxation of income from salary under Bangladesh concept and basis including the routines to be followed both by the employer and the employee as applicable to International, Regional and National appointments of its office in Bangladesh. Answer 8: Country Director, Dear Sir, Sub:- Concept and basis salary taxation in Bangladesh This has reference to your letter of‌‌. regarding concept and basis of salary taxation. We are pleased to furnish the followings for your kind consideration.


(1)

Salary is taxable on accrual basis for the month it is due and on a receipt basis it is paid in advance or any arrears not included in the taxable income for any earlier year paid. (2) It is taxed on the basis of earning and under Sec. 18 salaries shall be deemed to accrue or arise in Bangladesh whenever paid if (a) it is ear ned i n Bangladesh (b) it is paid by the Government or a local authority in Bangladesh to a citizen of Bangladesh in the service of such Government or authority (foreign mission, special army mission etc.) (3) Residents and non-residents are to be taxed under this head. But non-residents are not entitled to any allowances and exemptions. Besides non-residents are taxed at the maximum rate i.e. 25%. (4) Employee's income tax when paid by the employer, is not treated as part of salary, benefit or perquisite and no tax is payable on it. In other words, there is no tax on tax (SRO No. 182-L/99-1 July, 1999). (5) Unlike other heads of income salaries are taxed in the income year applying the tax rates, allowances etc. of the previous assessment year, which is also the year of earning through deduction at source. However, adjustment of tax if needed is done in the assessment year. (6) Maximum tax-free benefit and perquisites are Tk.1,92,000 i.e. Tk. 1,80,000 for house rent and Tk. 12000 for traveling. However, expenditure or allowances reimbursed by the employer would not be treated as perquisites. In respect of motorcar and maintenance expenses only a part i.e. 7.5% of basic salary is added with salary. ( 7) There is no distinction or separate tax treatment for furnished and unfurnished accommodation provided by the employer 25% of the basic salary or rented value whichever is less, shall be added with salary. Since you are employing international and regional employees, you may require higher perk for your senior executives and therefore we are furnishing further explanation over the issue. "

C

A

"

:

7

7

6

‘

'

Under see.29(e) perquisites and benefits given to an employee by the employer exceeding Tk.1,92,000 would be disallowed when assessing the employer. In other words, the excess perquisites calculated case basis, are added back with the profits of the employer who may be subject to higher rate of tax. This is a double taxation. Firstly, the employeris taxed on the amount exceeding the limits as shown earlier under valuation of perquisites may be at the maximum rate of 25%. Secondly, the employer is taxed again on the amount exceeding Tk.1,92,000 per employee, may be at his own rate of taxation at 45% what boils down on each Tk. 100 perk or benefit to the employee the effective tax is (45+25) = Tk. 70. Please be frank to enquire anything over the issue. Yours sincerely, Question 9.Bangladesh Ceramics Ltd., a joint venture company with participation of foreign invested capital having its manufacturing plant in Savar, is engaged in production of ceramics wares. The Company has already been enjoying tax holiday since November,1999. Presently the company contemplates for going for the additional line for the ceramics plant and also for the installation of one sanitary ware plant. You are required to advise the company about the form of the new industrial undertaking i.e. whether it is beneficial to go for a new company with entirely different status from the existing one or to have a different unit of the same company, citing the provisions of the laws particularly income-tax implications. Your advice may be in the form of a letter to the Managing Director of the Company. Answer 9: Dated ........ Managing Director, Bangladesh Ceramics Limited Dear Sir, Sub: Tax holiday for expansion of business This has reference to our discussion held in your office on last. We are pleased to present the followings for your kind perusal. We observed that you are enjoying tax holiday since November 1999 and contemplated to establish additional line for the ceramic plant and also for the installation of one sanitary ware plant. As provided u/s 46 A of the ITO 1984, profits and gains of an industrial undertaking, tourist industry or st th physical infrastructure facility set up in Bangladesh between the 1 day of July, 1995 and the 30 day of June 2008 shall be exempt from the tax for specific period. As enacted by Finance Act 2005, the benefit is not allowed to the expansion of existing unit and restricted to specific industry. Both ceramics and sanitary ware are within the package of the industries allowed tax holiday facility but the difficulty is in connection with the interpretation of the word expansion'. Since you are already running ceramic business, the new line of ceramic plant would be treated as expansion of existing unit. As


for Answer 10: installati Bashakhi Limited Taka in '000 on of Income year ended 31-12-2001 sanitary Assessment year 2002-2003 ware plant, it is completely separate product and apparently not an expansion of existingT a x a b l e unit. However, the perception of tax authority regarding expansion of existing undertaking differ from common understanding and as observed in some recent cases any sort of expansion under the umbrella of an existing company has been disown for this purpose. In view of above, we recommend formation of new company to run both new line of ceramic plant and sanitary ware plant to avoid unwanted controversy. We would appreciate any query over this issue and assure prompt reply. Thanking you, 6,825.0 Sincerely yours, 1,237.5 -----------------------------------

Question 10. Bashakhi Limited is a hundred percent export oriented industrial company. It enjoyed tax holiday up to 30-06-2001. For the year ended on 31-12-2001, it 8,062.5 earn a net profit of Tk. 16,000,000 which included the following:a) A net income of Tk. 850,000 received as dividend from a Public Limited Company; b) A receipt on account of insurance claim amounting to Tk. 500,000 in respect of an insurance claim for loss of Stock due to fire occurred in 1999. The cheque was received on 29-06-2001 but the same was encashed by the bank on 10-07-2001 and credited in the cash book on the same date. The actual loss of fire was Tk. 525,000 which was charged in the accounts for the year 1999 but was disallowed by the Deputy Commissioner of Taxes in the said year. c) An amount of Tk. 1.000,000 in respect of income from Sale of a Sedan Car. The car was sold on 31-052001 and purchased in 1997 at a cost of Tk. 2,000,000. Its book value was nil. The company has purchased another car for Tk. 2,500,000 during the year. From the scrutiny of the accounts, the following further particulars were revealed:i) An amount of Tk. 1,200,000 was being carried forward from 1997 in respect of a trading liability; ii) The accounting depreciation for the year, charged on a straight line method @ 20% for all assets was Tk. 2,475,000. Irrespective of period of use full depreciation is charged in the year of addition but no depreciation is charged in the year of deletion: iii) The Tax Written Down value of fixed assets were Factory Building Tk. 6,278,000, Plant and Machinery Tk. 14,860,000 , Furniture and Fixtures Tk. 316,000, Transport Vehicles Tk. 1,134,883. iv) One machinery costing Tk. 15,000,000 purchased in 1996 was sold to a leasing company for Tk.12,000,000 under buy back arrangement for the same amount payable in four years in equal monthly installments. This transaction was not reflected in the accounts. However, eight installments paid within the year have been shown as additions to fixed assets. From the above, you are required to calculate the following:i) Total Income of the Company; ii) Tax Payable by the Company.

Taka in ‘000

Bashakhi Limited Income Year ended 31-12-2001 Assessment year 2002-2003

Notes Net profit as per audited Profit and Loss a/c Separate considerable items: Less: Dividend income (Less)/Add: Insurance claim Less: Income from sale of car Add: Accounting depreciation Trading liability Profit from sale of machinery Deduct: Allowable or deductible items: Loss on stock

Total 16,000 (850) (500) (1,000) 13,650

1

Exempted

6,825.0 1,237.5 1,200.0 7,084.8 16,347.3 25.0

Taxable

6,825.0 1,237.5 8,062.5


2 3 5

Tax depreciation Rent payment Loss from sale of car Total income from business or profession Income from other sources: Dividend income Total Income Tax thereon On Business income: (Tk.6,169.4 x 50% x 40%)

2,243.1 1500.0 557.2 12,579.2

2,243.1 500.0

…… 12,579.2

850.0 6,169.4

5319.4

1,233.9 127.5

4

On Dividend income: (Tk.850.0 X 15%, deducted at source)

1361.4

Tax Payable Note 1: Profit from sale of machinery: Profit on sale of Machinery Year 1996 1997 1998 1999 2000 Sold WDV (15,000,000 – 10,084,800) Profit Note 2: Calculation of tax depreciation: Calculation of tax depreciation: Factory Building: Tk. 6278,000 © 20% Plant and machinery: Tk. 14,860,000 @ 20% Furniture and fixtures: Tk. 316,000 @ 10% Transport vehicles: Tk. 1,134,883 © 20% Total tax depreciation Note 3: Rent payment Total rent payment Number of installments Per Installment amount Already paid Amount shown in exempted period Amount shown in taxable period

Principal amount 15,000,000 12,000,000 9,600,000 7,680,000 6,144,000

Rate 20% 20% 20% 20% 20%

Depreciation 3,000,000 2,400,000 1,920,000 1,536,000 1,228,800 10,084,800

12,000,000 4,915,200 7,084,800

Taka 1,255,600 2,972,000 31,600 226,976 4,486,176

Tk. 12,000,000 48 i.e 12X4years Tk.250,000 8 installment 6X Tk.250,000=1,500,000 2XTk.250, 000= 5 00,00 0

Note 4: Exemption on income from export business: As per 6th Schedule part A para 28 an exemption is allowed up to 50% on income on export business. Note 5: Calculation of profit on the sale of car Taka Taka Cost of acquisition (1997) 2,000,000 Depreciation: 150,000 1997 @ 20% on Tk. 750,000 = 1998 @ 20% on Tk.6,00,000 = 120,000 96,000 1999 @ 20% on Tk. 480,000 = 76,800 2000 @ 20% on Tk. 484,000= 2001 year of disposal, no depreciation 442,800 -

-


1,557,200 Fiscal WDV at the time of disposal Sales proceeds 1,000,000 Fiscal loss 557,200 Question 11(a): What are the essential features of a gift? Answer 11(a): According to Section 2(d) of Gift tax Act, 1990 Gift means the transfer, by one person to another, of any existing movable or immovable property made voluntarily and without any consideration on money or money's worth. So it may be noted that transfer of property can attract gift tax liability, if the following conditions are satisfied: a) the transfer must be voluntarily; b) the transfer must be an existing property and c) the transfer must be without or with inadequate consideration in money or money's worth. Questio Question 11(b) : How is the value of gifts to be determined u/s 5 and Rule 6 of Gift Tax Act and Rule, 1990. Answer 11(b): According to Section 5 of Gift tax Act, 1990 The value of any property other than cash transferred by way of gift shall be estimated to be the price, which in the opinion of the Deputy Commissioner of Tax it would fetch if sold in the open market in the date on which the gift was made. Where the value of any property cannot be estimated because it is not salable in the open market, the value shall be determined in the prescribed [Rule #6] manner. According to Rule 6 of Gift tax Rule, 1990 Insurance policy: The amount of money that would be received by encashment of gifted insurance policy would be the price of the said policy. Shares of Private limited company or firm: The value share shall have to be determined in the proportion of asset of the concerned company or firm in the year in which shares were gifted. Question 11( c ) . What are the remedies available to an assessee aggrieved with the order of the DCT under the Gift Act, 1990? Answer 11(c): According to Section 12 of Gift tax Act, 1990 Any person aggrieved by the order of the DCT can appeal to the authority as prescribed in the Income Tax Ordinance and if aggrieved by the decision of that appellate authority then he can appeal for revision and reference to the authority as prescribed by the Income tax ordinance 1984. -

Time limit for filing an appeal: Particulars

Filling of appeals (According to Section 12 of Gift tax Act, 1990) ,

Time limits Any person aggrieved by the order of the DCT or Tax Recovery officer can appeal to the authority as prescribed in the Income Tax Ordinance. First appeal: within 45 days of the receipt of the concerned order;

To whom: Appellate

additional/Joint Commissioner of Taxes

Second appeal: Within 45 days of the receipt of the concerned order of first appeal To whom: Taxes Appellate Tribunal

Reference: Within 90 days from the date of receipt of the order of Appellate Tribunal. To whom: High court division. Question 11 (d): What gifts are not chargeable to Gift Tax under Gift Act, 1990? According to Section 4 of Gift tax Act, 1990 The followings are the gifts that are exempt from gift tax:  Of property situated outside Bangladesh;  Gift made to the Government or any local authority;  To the following funds or institutions for charitable purposes: i) any university established under the law in force in Bangladesh or any educational institutions including polytechnic institute, recognized by the education board or recognized or run by the Government;


ii) any hospital recognized or run by the Government or any local authority or any hospital aided by the Govt. or any local authority; iii) any flood or disaster management fund established or approved by the Government; iv) Such institutions or funds for religious or charitable purpose not being a private religious institutions or funds which does not ensure for the benefit of the public, as are established in Bangladesh and approved by the Government for such purposes or to any institutions established for religious or charitable purposes and registered under any law for the time being in force, up to 20% of total income determined for the concerned year or Tk. 100,000 whichever is less;  To dependent relative up to Tk. 20,000 on the occasion of his/her marriage;  By way of payment of policy on insurance or annuity for any person (other than wife) dependent upon him for support and maintenance up to Tk. 20,000;  Under a will;  Under contemplation of death;  To sons, daughter, father, mother, his/her spouse, own brothers and sisters. General exemption Gift tax shall not be charged under this Act in respect of gifts made by any person during any financial year, subject to a maximum of Tk. 20,000 in the value. Question 12 (a)State the services and the applicable rate from which VAT has to be collected or deducted at source at various rates as provided in VAT regulation. Answer 12(a) According to SRO No. 193-/law/2003/389-mushak, dated, July 2003: The followings are the services from which VAT has to be collected or deducted at source: Services Deduction rate (%) Construction firms 4.5 Indenting firms 15 Lease holders 15 Motor garages and workshop 4.5 Dockyards 4.5 Printing press 4.5 Advertising firms 15 Consultancy firms & Supervisory firms 4.5 Carrying contractors-Petroleum products 2.25 Carrying contractors-Others 4.5 Persons attending board meeting 15 Survey firms 15 Lessors of vehicle 4.5 Procurement providers 2.25 Audit and accounting firms 4.5 1.5 Buyers of auctioned-goods Question 12 (b) What are the particulars that are to be mentioned in the certificate by the Person, collecting or deducting VAT to the person rendering services? Answer 12(b) The followings are the particulars that are to be mentioned in the certificate by the person collecting or deduction VAT to the person rendering services: i. Registration number of value added tax payer; ii. Total amount paid on account of service value or commission; iii. Value of value added taxable service or commission; iv. Amount of value added tax collected or deducted and v. Any other particular required as per rule. Question 12( C ) If the person responsible to deduct VAT fails to do that, what are the consequences? Answer 12 (c) Any person responsible i.e Government organization, Semi-Government organization, Autonomous organization, NGO's, Banks, Insurance companies & Limited companies to deduct VAT fails to do that, shall be subject to pay the VAT together with 2% as interest per month on the same. If VAT deducted at source is not deposited within two months, the person liable for the default may be fined with an amount up to tk. 25,000. Question 12(d) State the Provision of section 42 of Value Added Tax Act, 1991 regarding appeal. Answer 12(d) According to section 42 of VAT Act 1991: .


Any value added tax officer or any person aggrieve by any decision or order given by a value added tax officer may appeal against such order within three months of giving such decision or order. To the Commissioner (Appeal) Against the decision or order given by an Additional Commissioner or any value added tax officer below that rank;

To the Appellate Tribunal

Against the decision or order given by the Commissioner, the Commissioner (Appeal) or any value added tax officer of equivalent rank.

 If the appeal is preferred to Commissioner (Appeal), Commissioner (Appeal) may make an enquiry about the appeal if he considers it necessary or collect information and may, after giving to the appellant reasonable opportunity of being heard, uphold the decision or order appealed against or amend it, or reject it or give such fresh decision or order as he deems fit.  The Commissioner (Appeal) is satisfied that the appellant could not prefer the appeal within the said three months' time due to sufficient reason, he may permit the appellant to prefer an appeal within two months next following the said period.  If any person intends to prefer an appeal against a decision or order relating to a demand of value added tax payable on any goods or services or to fine imposed he shall have to pay, at the time of preferred his appeal.  In the case of an appeal preferred to the Commissioner (Appeal), ten per cent of the fine imposed or tax demanded.  In the case of an appeal preferred to Appellate Tribunal against an order given by Commissioner or any value added tax officer of his equivalent rank, twenty-five per cent of tax demanded or fine imposed.  If the appellate authority fails to give any decision on the appeal within twelve-months from the date of its receipt, the appeal shall be deemed to have been granted by the appellate authority.


Suggested Answers Taxation — II Professional Examination — III May-June — 2003 Question No. 01 (a)Who is an assessee? Ans. No. 01.(a) (a)As per u/s 2(7) of I.T.O. 1984 an "Assessee" means a person by whom any tax or other sum of money ispayable under this Ordinance, and includes (a) every person in respect of whom any proceeding under this Ordinance has been taken for the assessment of his income or the income of any other person in respect of which he is assessable, or of the amount of refund due to him or to such other person; (b) every person who is required to file a return under section 75, section 89 or section 91; (c) every person who desires to be assessed and submits his return of income under this Ordinance; and (d) every person who is deemed to be an assessee, or an assessee in default, under any provision of this Ordinance; Question No. 01 (b)What is meant by residential status of an assessee? Ans. No. 01.(b) The residential status of an assessee as defined u/s 2(55) of Income Tax Ordinance 1984 has nothing to do with the nationality of a particular individual. A foreign national may be treated as a 'Resident' for a particular year if he or she fulfills the legal requirements as stated below, whereas a Bangladeshi national may be treated as a 'Non-Resident' if he, or she does not fulfill the legal requirements. Under the Income Tax Ordinance a person is charged to tax on the basis of his residential status in Bangladesh during the relevant 'income year'. An individual is treated as a resident in Bangladesh in respect of any income year; (a) If he or she has been in Bangladesh for a total period of 182 days or more in that year; or (b) If he or she has been in Bangladesh for a period or for periods amounting in all to ninety days or more in that year having previously been in Bangladesh for a period of or for a periods amounting in all to three hundred sixty-five days or more during four years preceding that year. If any individual fails to fulfill the above conditions, he or she will be treated as a 'Non-Resident' for the purpose of taxation. Question No. 01 (C)How would you find out residential status of an assessee with reference to t he following? (I) Individual. (ii) Company. Ans. No. 01.(b) The residential status of an assessee with reference to (I) individual (II) Company will be determined as follows : (I) Individual : (a)an individual is resident in Bangladesh if he remains in the income year in Bangladesh for a period of, or for periods amounting in all to, one hundred and eighty-two days or more in that year; or (b) For a period of, or periods amounting in all to, ninety days or more in that year having previously been in Bangladesh for a period of, or periods amounting in all to, three hundred and sixty five days or more during four years preceding that year; (II) Company : a Bangladeshi company or any other company is resident in Bangladesh if the control and management of whose affairs is situated wholly in Bangladesh in that year; Question No. 01 (d) The incomes of Mr. Suruj Miah for the income year 2001-2002 were as follows: (i) Salary income Tk.1,24,000. (ii) Agricultural income in Bangladesh Tk.40,000. (iii) Debenture interest from a company in Nepal Tk.30,000 received in Bangladesh (iv) Share of profit from a partnership business in Pakistan Tk.70,000 which has not been brought in Bangladesh. (v) Income from property Tk.60,000. (vi) Loss of a business in Bangladesh Tk.25,000. Find out total income of Mr. SurujMiah if he is a : (i) Resident; (ii) Non-Resident. (d) (i)

(i)

Mr. SurujMiah Assessment Year 2001-2002 Computation of Total Income Resident :

Salary Income Agricultural income Less : Cost of production 60%

124,000 40,000 24,000

16,000


Debenture Interest (Nepal) Profit on partnership firm (Pak) Income from property Less : A Repair

30,000 70,000 60, 00 0 15, 00 0

Less : Loss of Business

(ii)

45,000 285,000 25,000 260,000

Non-Resident : Salary Income Agricultural income Debenture Interest (Nepal) Share of Profit on partnership (Pak) Income from property

124,000 40,000

60,000

70,000 30,000 60,000

3,24,000 Less : Loss of Business

25,000 299,000

Q uestion No. 02 State the provision of law in the following cases: (a) Ex e mp tion in re sp e ct of inv e stment (sec. 19A AA ). (b ) Special tax treatment in respect of investment in house property (sec. 19B) (c) Special tax treatment in respect of investment in land property (sec.19BB). (d ) Under what circumstances and by whom an assessment can be reopened under section 120 of Income Tax Ordinance, 1984? (e ) State the remedies under section 120 of Income Tax Ordinance, 1984 available to an aggrieved assessee on receipt of an order. Ans. No. 02. The Provisions of Law in the following cases are as follows : (a) Exemption in respect of investment: Section 19AAA Any investment made by an individual, firm, Association of persons or a private limited company between the 1 st July, 2002 and the 30 th June, 2005 in any trade, commercial or individual venture engaged in production of goods or services shall be exempted from tax without any question. Also the invested in the purchase of shares of a listed company between the 1 st July, 2003 and the 30 th June,2005 shall be accepted without raising any question and without imposing any tax thereon. Provided that this provision will not apply to shares so purchased which are transferred within two years from the date of their purchase.

(b) Special Tax treatment in respect of Investment in House Property : Section 19B Provision has been made in the above newly inserted section that the source of investment in the construction or purchase of any building or apartment shall not be raised if the assessee pays tax, before the assessment is completed for the relevant assessment year at the following rates: Size of plinth area of the building or the apartment

(i) (ii)

Where the plinth area of the building or apartment does not exceeds 200 square metre. Where the plinth area of the building or apartment exceeds 200 square metre.

Rate of Tax Take 150/- per square metre Take 250/- per square metre

(c ) Special Tax treatment in respect of Investment in Land : Section 19BB This section was introduced by Finance Act, 2002. No question will be raised above the source of any investment made by any person in purchase of land in city corporation. Pourashava or cantonment Board if the assessee pays tax at 5% of the deed value before the assessment is made. (d) The Inspecting Joint Commissioner u/s 120 of I.T.O. 1984 may call for from the Deputy Commissioner of Taxes and examine the record of any proceeding under this Ordinance, and, if he considers that any order passed therein by the Deputy Commissioner of Taxes is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made, such inquiry as he thinks necessary, pass such order thereon as in his view the circumstances of the case would justify,


including an order enhancing or modifying the assessment or canceling the assessment and directing a fresh assessment to be made. (e) Any assessee, being aggrieved by any order of an Inspecting Joint Commissioner may prefer an appeal to the Additional Commission (Appeals) / Commissioner (Appeals) against the order of section 120 of I.T.O. 1984. Question No. 03 M/s John Morris Inc. is a multinational company doing business in Bangladesh Branch. The company filed return of income for the assessment year 2002-2003 showing income at Tk. 30,00,000. Examination of the audited statement of accounts filed with the return of income revealed the following: a) Salary includes Tk. 3,30,000 paid to a Director working at the head office at California. He has never Visited Bangladesh and no taxes, as such, has been deducted at the time of making the payment. b) Head office expenses charged Tk. 11,00,000. No evidence could be produced for this other than HO auditors certificate. c) Fine Tk. 11,000 paid for violation of customs law charged to P & L Account. d) Two Nissan Petrol Jeeps purchased for Tk. 45,00,000 during the year. Depreciation @20% charged on the full cost of the full cost of the vehicles. e) To procure business Tk. 10,00,000 has been paid as commission to a local agent. In making the payment.the provision of section 53E of. I.T. Ordinance, 1984 has not been complied with. f) The company sold a motor vehicle for Tk. 4,65,000. Original cost of the vehicle was Tk. 5,25,000 and the written down value was Tk. 3,25,000. This has not been reflected in the accounts. g) Tk. 15,000 donated a non-recognized school. h) Miscellaneous expenses include Tk. 72,000 paid as salaries to three servants who are working at the residence of the Managing Director. i) Conveyance expenses include Tk. 2,20,000 paid for the plane fare of the wife and son of the Managing Director for the visit of the neighbouring countries. j) Interest expense claimed at Tk. 33,50,000. The company has outstanding bank loan of Tk. 2.10 crores. The company advanced Tk. 75,00,000 interest-free loan to a sister concern in Bangladesh From the above information compute the total income of the company for tax purpose. Ans. No. 03. M/S. John Morris Inc. Assessment year 2002-2003 Note Taka Taka Returned Income 3,000,000 Add :- Disallowances : ( a) Salary 1 330,000 ( b)Head office Expenses 2 ----( c)Fine for Violation of customers law 3 11,000 (d )Dep re ciation on Ve hicle @ 20% on Tk . 4,500,000 will be 4 900,000 considered later on (e)Commission to local agent 5 1,000,000 (f)Sale of Motor Vehicle to be considered latter on 6 ----(g)Donation to non recognised school 7 15,000 (h)Miscellaneous Expenses 8 72,000 ( i) Conveyance Expenses 9 220,000 (j)Interest Expenses to be considered later on 10 3,350,000 5,898,000 8,898,000 Less : Depreciation 4 200,000 Interest Expenses 10 2,153,571 2,353,571 6,544,429 Add : Profit on sale of motor vehicle 6 1,40,000 Total Income for Tax Purpose 6,684,429 Notes : 1. Since the company did not deduct tax while making payment of salary u/s 50 of I.T.O 1984 or the DCT has no notice that head office at California has deducted tax from the said salary be covered under double taxation relief. Thus the payment of salary will be disallowed. 2. Head Office expenses will be considered as verified by the H.O auditors certificates. So, will a allowable expenses for this assessment year 2002-2003. (But if it would be for assessment 2003-2004, only 10% of the total Head Office expenses is entitled to be allowed). 3. Fine paid for violation of customs law may not be considered business expenses hence will be disallowed. 4. Nissan Petrol Jeep purchased this year will be allowed depreciation on Tk. 1,000,000/- @ 20% p.a. So depreciation will be Tk. 200,000/- instead of to be charged on full cost of the vehicle. 5. As the company did not deduct tax @ 5% u/s 53(E) while making payment of commission will be disallowed. 6. Profit on sale of motor vehicle will be as follows : Sale Value Tk. 465,000 Less : Written down value Tk. 325,000 Profit on Sale Tk. 140,000


This will be included in the income being considered normal business profit. Donation to non-recognized school considered non-business expenses and hence will be disallowed. Assumed that salaries paid to servants working at Managing Director is not a part of contractual obligation of the company and hence is be considered non-business expenses will be disallowed being personal expenses of M.D. 9. Conveyance expenses paid for MD's wife and son is a personal expenses of MD and will be disallowed. 10. Interest expenses claimed will allowed proportionately as full amount of loan has not been utilized. The calculation will be as follows : 7. 8.

3,350,000 X 7,500,000 21,000,000

= 1,196,429

Allowable amount will be = 3,350,000 — 1,196,429 = 2,153,571

Question No. 04 (a) State the provision of law for tax clearance certificate required for persons leaving Bangladesh. Ans. No. 04 (a) a) The Provisions for clearance certificate required for persons leaving Bangladesh u/s 107 f I.T.O. 1984 are as follows : (1) subject to such exceptions as the Board may make in this behalf, a persons who is not domiciled in Bangladesh, or a person who being domiciled in Bangladesh at the time of his departure is not, in the opinion of an income tax authority likely to return to Bangladesh, shall not leave Bangladesh without obtaining from the Deputy Commissioner of Taxes authorised in this behalf by the Board (a) a tax clearance certificate, Question No. 04(b)Under what conditions a newly established hospital will be eligible for exemption from Income Tax? Please explain. Ans. No. 04 (b) A newly established private hospital will be eligible for exemption from income tax for five years subject to the following conditions which was came into existence as per SRO No. 180-L/99 Dated 1st July 1999. (1) the hospital is owned by a company registered under the companies Act, 1913 or the Companies Act, 1994. (2) The hospital is established between the period from 1st July, 1999 to 30th June, 2005. (3) The hospital is housed in a building constructed on the company's own land. (4) The hospital has number of beds as mentioned below : (a) 200 beds in the case of general hospital. (b) 50 beds in the case of specialized hospital for heart, kidney and cancer patients. (5)10% of the beds must be kept reserved for treatment of poor patients free of charge. The owner of the hospital enjoying exemption from tax shall file return of return of income to the concerned Deputy Commissioner of Taxes along with statement of accounts and relevant documents & evidences in respect of the concerned year of exemption and the Deputy Commissioner of Taxes will determine the income u/s. 28 and 29 along with the owner's income from other sources if any, and make the income-tax assessment accordingly.

Question No. 04 (c )What are the offences and punishments prescribed under section 165 of Income Tax Ordinance. 1984? Ans. No. 04 (c) A person is guilty of an offence punishable with imprisonment for a term which may extend to three years, but shall not be less than three months,or with fine, or with both u/s - 165, if he (a) make a statement in any verification, etc. in any return or any other document furnished under any provisions of this Ordinance which is false (b) knowingly and willfully aids, abets, assists, incites or includes another person to make or deliver a false return, account, statement, certificate or declaration under this Ordinance, or himself knowingly and willfully makes or delivers such false return, account, statement, certificate or declaration on behalf of another person; (c) signs and issues any certificate mentioned in the first or second proviso to section 82 which he either knows or believes to be false or does not believe to be true; (d) refuses to furnish such information as may be necessary for the purpose of survey under section 115.

Question No. 04 (d )Explain the provision under sections 93 and 94 of the Income Tax Ordinance, 1984 regarding timelimit for finalisation of assessment and also reassessment in consequence of appeal. Ans. No. 04 (d) The provisions u/s 93 and 94 regarding time limit for finalisation of assessment and re-assessment is as follows : (i) Notwithstanding anything contained in sub-section (1), assessment under section 93 may be made — a) the cases falling under section 93 (3) (a) and (b), within two years from the end of the year in which notice under the said sub-section was issued ; and b) in the cases falling under section 93 (3) (c), within one year from the end of the year in which notice under the said sub-section was issued. (ii) Notwithstanding anything contained u/s 94, limiting the time within which any action may be taken or any order or assessment may be made, order or assessment, as the case -may be, to be made on the assessee or any other person in consequence of or to give effect to, any finding or direction contained in an order under section 120, 121, 156, 159, 161 or 162 or, in the case of a firm, an assessment to be ,


made on a partner of a firm in consequence of an assessment made on the firm, shall be made within thirty days from the date on which the order was communicated and communicate such revisal to the assessee within thirty days next following. Question No. 05 XYZ Ltd. is a publicly traded company carrying on the business of manufacture and sale of textile goods. Accounts are maintained on mercantile basis. The audited profit and loss account for the year ended 30 June, 2002 disclosed a net profit of Tk. 20,15,000. In the course of the assessment proceedings, the following facts are ascertained: (a) The opening and closing stocks of cloths, values of which were taken at Tk. 27,00,000 and Tk. 45,00,000 respectively were valued at 10% less than their respective costs. The market price thereof on 30 June, 2001 and 30 June, 2002 were higher than their costs. (b) Goods to the value of Tk. 4,90,000 had been purchased from a relative of a Director and its fair market value would be Tk. 4,10,000 (the genuineness of the transaction is not in dispute). (c) Out of the preliminary expenses, Tk. 25,000 was written off to the debit of Profit and Loss Account. (d) During the tax year, it had sold its machinery for Tk. 5 lakhs. Its original cost in 1993 and W.D.V as on 1 July, 2001 were Tk. 3 lakhs and Tk. 1 lakh respectively. The surplus has been directly credited to Capital serve in the Balance Sheet. (e) A sum of Tk. 1,20,000 (representing 2.5% of the total sundry debtors) was debited to Profit and Loss Account and set apart for bad and doubtful debts. The auditors have certified this as reasonable. (f) Tk. 25,000 representing unclaimed wages was shown in the Balance Sheet as at 30 June, 1998 as a liability. It is ascertained that more than 3 years have passed since the liability arose and the legal remedies for workers to claim the wages were not available. (g) The services of a dishonest employee were terminated. He filed a suit against the company for damages for termination of services without notice and was awarded a sum of Tk. 5,000. The company paid the damages. It also incurred an expenditure of Tk. 1,000 in this connection. The total sum of Tk. 6.000 was debited to General Charges. (h) Salary expenses include an amount of Tk. 4,00,000 paid to an engineer who supervised the work of the installation of the machinery. Due taxes were not deducted at sources but the engineer duly accounted for due taxes through his annual IT Return. (i) Tk. 65,000 was paid for insurance against loss of profit in the event of strikes. (j) Miscellaneous expenses include Tk. 15,000 paid as salaries to two servants who are working at the residence of the managing director. (k) Advertisement expenses of Tk. 5 lakhs representing charges for the five years ending 30 June, 2006 were paid to a cinema company for slides. (l) Tk. 15,000 was paid as interest on money borrowed by the company which was advanced to a Director without interest. The interest was debited to the Profit & Loss Account. (m) The company owns two house properties, A and B constructed in 1995. of which property A has been let out to employees for an aggregate rent of Tk. 60,000, occupation of this property by the employees is necessary for and subservient to the business of the company. The other property B has been let out for Tk. 90,000 to outsiders. Thus the Profit and Loss Account was credited with rent receipts of Tk. 1,50,000 [Note: 'Rent, Rates and Taxes', include municipal taxes of Tk. 25,000 and Tk. 30,000 in respect of properties A and B respectively.] Compute company's total income giving reasons for additions and allowances, and tax liability. Ans. No. 05. XYZ Ltd. Assessment year 2002-2003 Particulars

A

Note

Taka

Taka

Total Income :

2,015,000

Net Profit as per accounts

410.000

Add : a) Closing Stock Value as per account

4,500,000

Less : Opening Stock as per account

2,700,000 1,800,000

Closing Stock if 10% fair market is considered 4,500,000 @ 10%

4,950,000

Opening Stock as above 2,700,000

2,970,000 1,980,000

(1,980,000 – 1,800,000)

Taka

1

180,000

80,000


(b)Goods Purchased

4,90,000

Less : Fair Market Value

2

4,10,000

( c) Preliminary Expenses

3

------

(d)Profit on sale of Machinery

4

200,000

(e)Bad Debt

5

----

(f)Unclaimed Wages

6

25,000

(g)General Expenses

7

6,000

(h)Salary Expenses

8

400,000

(i)Insurance Premium

9

65,000

(j)Miscellaneous Expenses

10

15,000

(k)Advertisement Expenses

11

(l)Interest

12

15,000

13b

30,000

(m)Municipal Tax of H. P. B.

80,000 -----

----

1,016,000 3,031,000

Less: Property income for

separate (60.000+90,000)

consideration

13a,b

150,000 2,881,000

House property — A. has already been considered in clause— n. So no further effect will be required

13a

Add: House Property — B , Note — 13(b)

--------37,500

Total Taxable Income

2,918,500

Tax Liability :

B.

On Tk. 2,918,500 @ 30% Tax on Capital Gains on Tk. 200,000 @ 15%

875,550 4

30,000 905,550

Notes:

1.

The market price of opening / closing were valued 10% less of their cost. As a result the profit of the company has been reduced which has now been adjusted as per calculation shown at para (a) above 2. The market value of the goods purchase considering genuineness of the transaction is adjusted and profit to the extent reduced has been added as per calculation shown at para (b) above. 3. Prelim in ary exp enses written off is a genu ineness transaction and henc e allow able expenses. 4. Calculation of Capital Profit : Sale of Machinery Tk. 5.00 Lakhs Cost of Machinery Tk. 3.00 Lakhs Capital gain : Tk. 2.00 Lakhs As the asset is transferred after expiry of 5 years for the date of acquisition, the capital gains will be taxed at the usual rate applicable to the assessees total income including the capital gain or @ 15% whichever is lower. Here it will be 15% on capital gain The profit / gain in disposal of machinery will as follows : Original Cost Tk. 3.00 Lakhs Written Down Value on July 01, 2001 Tk. 1.00 Lakhs Business Profit / Gain Tk. 2.00 Lakhs

5.

As the auditors have certified the bad debts of Tk. 120,000 as reasonable should be allowed.


6.

As per Sec. 19(15)(c) any trading liabilities as has not been paid - within 3 years will be considered as income. 7. The company did not observe the legal formalities by serving required notice as per law. Hence the amount of Tk. 6,000 will be disallowed. 8. The salary paid to as engineer to supervise the work of the installation of machinery will be considered as capital expenditure and hence will be disallowed. 9. The insurance premium against loss of profit in the event of strikes is considered non -business expenditure and hence disallowed. 10. Assumed that miscellaneous expenses paid as salaries for MD's residence is not a cont ractual obligation of the company and considered personal expenses of the MD. Hence will be disallowed. 11. Advertisement expenses paid for Cinema Slides has been capitalised being deferred revenue expenses and are distributed within 5 years is a allowable expenses. 12. Inter est paid for Director advance is considered to be non -business expenses and will be disallowed. 13. (a) Assumed that house property A has been let out to employees as per contractual obligation with the company and is considered as business expenses and the Municipal Taxes will also be considered business expenses as included in the Rent, Rates and Taxes. So, the income added will be deducted as follows : Rent 60,000 Will be a allowable expenses and deducted from income Municipal Taxes 25,000 W ill be a allowable expenses and hence no action as already been 85,000 included in Rent, Rates & Taxes.

13.(b) House Property B : will be dealt under the head "income from house property� u/s 24 (where issued for commercial or residential purpose). Rent Less : Municipal Tax 1/4 th repair Income from profit

90,000 30,000 22,500

52,500 37,500

Question No. 06 (a) state the gifts that are exempted from gift tax under the Gift Tax Act, 1990. Ans. No. 06. (a) Exemption from Gift Tax : Section 4 Gift tax shall not be charged under this Act in respect of the Gifts made by any person : 1) of property situated outside Bangladesh. 2) to the Government or any local authority. 3) to the following funds or institutions, for charitable purposes : a) any University established under the law in force in Bangladesh or any educational institution including polytechnic institute, recognised by the Education Board or recognised or run by the Government. b) any hospital recognised or run by the Government or any Local Authority or any hospital aided by the Government or any Local Authority. c) any flood or disaster management fund established or approved by the Government. d) such institution or funds for religious or charitable purposes, not being a private religious institutions or fund which does not ensure for the benefit of the public, as are established in Bangladesh and approved by the Government for such purposes or to any institution established for religious or charitable purposes and registered under any law for the time being in force, upto 20% of the total income determined for the concerned year or Taka One lakh, whichever is less. 4)to dependent relative upto Tk. 20,000/- on the occasion of his marriage. 5)by way of payment of policy of insurance or annuity for any person (other than wife) dependent upon him for support and maintenance upto Tk. 20,000/-. 6) u n d e r a W i l l . 7)u n d e r c o n t e m p l a t i o n o f d e a t h . 8)to sons, daughters. father, mother, his or her spouse. own brothers and sisters. In addition to the above exemption, gifts made in any financial year upto value of Tk. 20,000/- is exempt from gift tax. The Government may by notification exempt any class of gift or any class of person from gift tax. The provisions of this Act shall not apply to gifts made by - Section -20 i. A body corporate established or constituted by or under any law. ii. Any institution or fund, income whereof is exempt from income tax under Paragraph 1 and 2 of Part A of the Sixth Schedule of the Income Tax Ordinance, 1984. Question No.6 (b) Compute taxable gifts and the amount of gift tax payable for the assessment year 2002 2003 from the following information. MR. Ali Ahmed has made the following gifts during the year ended on 30-062002: i. Gift made to his son-in-law a house in Dhaka valued at Tk. 15,00,000 with the condition that he will get return of Tk. 50,000 every year up to five years from his son-in-law.


ii. iii. iv. v. vi. vii. viii.

Mr. Ali Ahmed opened a bank account on 1-7-2001 jointly with his son for Tk. 2,00,000 out of his own money. An amount of Tk. 1,25,000 was withdrawn on 1-1-2002 from the above bank account for the marriage ceremony of his son. Cash gifts to niece on the occasion of her marriage Tk. 60,000. He transferred an amount of Tk. 50,000 from his bank account in U.K. to his daughter's account. Gift to widowed daughter in the expectation of death Tk. 1,00,000. Cash donation to brother-in-law on the occasion of his marriage Tk. 35,000. Charity to a local mosque Tk. 25,000. Gift of Tk. 1,00,000 was made for the business of his eldest son.

Ans Question 6(b).

Mr. Ali Ahmed Assessment year 2002-2003 A.

Computation of Taxable Gift : (i) Income from Gift made to his Son-in-Law (Note - 01) (ii) Opening of Bank Account (Note - 02) (iii) C as h G if t t o n i ec e Less : Exemption (Note - 03)

50,000

----

-----

60,000 20,000

40,000

----

(iv) Transfer of Tk. 50,000/- to daughter (Note - 04) (v) Gift t o W id ow ed d au ght er

100,000

Less : Exemption (Note - 05) (vi) C ash d on at ion t o Br oth er - in -L aw

100,000 35,000

-----

20,000

15,000

Less : Exemption (Note -06) (vii) Ch ar it y t o a loc al M osq u e (N ot e - 0 7) (viii)G i f t t o S o n Less : Exemption (Note -08)

25, 000 100,000 100,000 130,000

Less : General Exemption (Note - 09) B.

20,000 110,000

Amount of Gift Tax : Up-to Tk. 500,000/- = NIL Notes : 1. It is assumed that the gift made to his Son-in-Law is made under a will and hence return as per will is considered as taxable gift. 2. Opening of Bank Account with son has no relation with gift. 3. It is assumed that his niece is dependent to him and hence Tk. 20,000 is deductable exemption. 4. Transfer of Tk. 50,000 to daughter account has no relation with gift. 5. Gift to widowed daughter is a allowable exemption. 6. It is assumed that his Brother-in Law is his dependent relative and hence Tk. 20,000 is deduction exemption. 7. Local Mosque is a private religious institution and not approved by Government and hence is a taxable gift. 8. Gift to Son irrespective any particular purpose is exempted from gift tax. 9. General exemption is Tk. 20,000.

Question No. 07

What changes have been brought about by the Finance Act, 2002 and thereafter in the imposition and collection of Foreign Travel Tax? Ans. No. 07. The following are the changes made by Finance Act 2002 in respect of section 12 of Act. XXIII of 1980 relating to the Foreign Travel Tax :


(ka) Sub — section (1), “ (a) In clause (a), the words eighteen hundred taka" is replaced by the words "two thousand and five hundred taka". (b) In clause (b) the words "six hundred taka" is replaced by the words "eight hundred taka." (c) In clause ( c) the words "thirteen hundred taka" is replaced by the words "one thousand and eight hundred taka." (kha) In sub-section (1A) the words "two hundred and fifty taka" is replaced by the word "five hundred taka" The following are the procedures to be followed for imposition and collection of Foreign Travel Tax. (1) Mode of Levy (i)Travel by Air-Foreign Travel Tax is payable on all foreign air travel by all Bangladesh nationals holding Bangladesh Passports at the rate of (a) For travel to any country of the continents of North America, South Tk. 2,500 America, Europe, Africa, Australia and New Zealand and any country of the Far East (b) For SAARC Countries Tk. 800 Tk. 1,800 (c) For any other country (ii)Travel by land and sea — Foreign Travel Tax payable on all foreign travels by land or sea by Bangladesh nationals holding Bangladesh Passports at the rate of five hundred taka per traveler by land and six hundred taka per traveler by sea. All on and off line airlines will collect foreign travel tax through air tickets in respect of foreign travel by air. The Government may by notification make any exemption or reduction in rate in respect of foreign travel tax in favour of any class of traveler for such period or periods it may decide. (2) The Collection Foreign Travel Tax will be made through any of the designated branch of the Sonali Bank or Janata Bank as the case may be. Question No. 08 As per provision of the Customs Act, 1969, explain the following terms: (a) Imp or t M an if e s t. (b ) E x p o r t M a ni f e s t. (c ) B i l l o f E x p o r t . (d ) B i l l o f E n t r y . (e ) S p e cial B onde d W are house . (f ) What is the present maximum and the minimum rate of import duty in Bangladesh?

Ans. No. 08. a)

b) c) d) e) f)

'Import manifest' means an import manifest delivered under sections 43 and 44, and includes electronically transmitted import manifest in such cases and in such manner containing such particulars as the Board may specify. Generally it includes the name of vessels of imported goods, number of sailors, details of the imported goods etc. 'Export manifest' means an export manifest delivered under sections 53, and includes electronically transmitted export manifest in such cases and in such manner containing such particulars as the Board may specify. Generally it includes the name of vessels of exported goods, number of sailors, details of the exported goods etc. 'Bill of export' means a bill of export delivered under section 131, and includes an electronically transmitted bill of export in such cases and in such manner containing such particulars as the Board may specify. Generally it includes the details of the exported goods. 'Bill of entry' means a bill of entry delivered under section 79, and includes, an electronically transmitted bill of entry in such cases and in such manner containing such particulars as the Board may specify. Generally it includes the details of the imported goods. "Special bonded warehouse" means a private warehouse licensed under section 13 and which is a hundred percent export oriented industry to be determined as such by the Board for the purpose of exemption from the provision of sub-section (2) of section 91;" The present maximum and minimum rate of import duty in Bangladesh are as follows i) Maximum : 32.5% ad. Val. ii) minimum : 7.5% ad. Val.

Question No. 09 What are the changes and the conditions that have been made and imposed in the Finance Act, 2002 for the import of reconditioned or old vehicles? Ans. No. 09. The following are the changes and conditions, which were made and imposed by the Finance Act 2002 for the import of reconditioned or old vehicle a) Import duty has been reduced from 32.5% to 30% ad. Val. b) Letter of credit (L/C) margin structure has been charged. Previously it was 15% or to be fixed by parties on mutual negotiation. But the same has increased to 50% for the vehicle upto 1649 cc and 100% for the vehicle above 1649 cc. c) Previously the goods could be kept in port yard for indefinite period on importation but the same has been restricted to 90 days or otherwise the same will disposed of through auction sale.


Q ue s tion No. 10

(a) State the circumstances that permit to obtain VAT registration centrally by a person. (b) To whom application for VAT registration centrally is to be submitted. (c) State the provision of law for compliance by a person registered centrally under the VAT Act, 1991. Ans. No. 10. a) If any person or organisation supplies taxable goods or services or an importer of any goods and exporter of any goods or services manages his business centrally and maintain his accounts and kept records centrally is entitled to obtain VAT registration centrally. b) The application for VAT registration centrally is to be submitted to Board and the authorised officer of the Board will be give registration accordingly. c) The responsible officer of the organisation will submit VAT return and others necessary documents as per normal procedures like others registrants. However, the person who are given registration centrally have to maintain accounts and records centrally or otherwise registration will be cancelled. Question No. 11

What do you mean by Supplementary Duty (SD)? How is the value determined for the imposition of SD? Briefly describe schedule-3 and relevant ruling SROs pertaining to SD. Ans. No. 11. Supplementary duty (SD) will be imposed under the Value Added Tax Act 1991. The duty will be imposed at varying rates on luxury goods imported into Bangladesh, non-essential and socially undesirable goods produced and supplied in Bangladesh and similar services rendered in Bangladesh. In order to impose supplementary duty the cost of the goods or services will be taken as : a) That value upon which import duty is imposed under section 25 or 25A of the Customs Act in order to impose import duty on imported goods. b) The price charged to the buyer by the producer or manufacturer of goods produced or manufactured in Bangladesh or by the supplier in the case of goods otherwise supplied in which Value Added Tax or supplementary duty is not included. In the case of goods on which Value Added Tax is imposed on the basis of retail price, where goods the retail price of which is stated in section 5 (3) of this Act, are subject to supplementary duty, the supplementary duty will be considered as included in the retail price of those goods. c) The total amount received for providing services in Bangladesh in which Value Added Tax or supplementary duty will not be included. The goods and services liable for supplementary duty and the rates have been mentioned in the Third Schedule of the value Added Tax Act 1991 as amended upto 30th June 2003. The relevant SRO in this respect is 167-Ain/2003/375/VAT Dated 16.06.2003.


S uggeste d Answers Taxation — II Professional Examination — Ill November- December, 2003 Question 1. (a) Define the following in relation to income Tax Ordinance, 1984:(i) Income (ii) Assessment year: (iii) Resident. Answer 1(a) (i) Income: According to Section 2(34) of ITO 1984:  any income, profits or gains, from whatever source derived, chargeable to tax under the income tax ordinance 1984 which includes income from salary, income from house property, income from interest, income from business or profession, agricultural income, income from capital gain and income from other sources;  any loss of such income, profits or gains;  the profits and gains of any business of insurance carried on by a mutual insurance association ;  Any sum deemed to be income or any income accruing or arising or received, or deemed to accrue or arise or be received in Bangladesh. Exception:  Provided that the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by any company registered in Bangladesh under the Companies Act 1994 to its shareholders with a view to increase its paid-up share capital shall not be included as income of that share holder. Answer 1(a) (ii) Assessment Year: According to Section 2(9) of ITO 1984: "assessment year" means the period of twelve months commencing on the first day of July every year; and includes any such period which is deemed, under the provisions of this Ordinance, to be assessment year in respect of any income for any period; Answer 1(a) (iii) Resident According to Section 2(55) of ITO 1984: Individual: An individual who has been in Bangladesh: (i) for a period of, or for periods amounting in all to, one hundred and eighty -two days or more in that year; or (ii) for a period of, or periods amounting in all to, ninety days or more in that year havin g previously been in Bangladesh for a period of, or periods amounting in all to, th r ee hundred and sixty-five days or more during four years preceding that year; Hindu Undivided family: A Hindu undivided family, firm or other association of persons, the control and management of whose affairs is situated wholly or partly in Bangladesh in that year; and Company: A Bangladeshi- company or any other company the control and management of whose affairs is situated wholly in Bangladesh in that year; Question 1(b). State the power of inspecting joint commissioner to revise orders of deputy Commissioner of taxes. Answer 1(b): power of inspecting joint commissioner to revise orders of deputy Commissioner of taxes. According to Section 120 of ITO 1984: The Inspecting Joint Commissioner may call for from the Deputy Commissioner of Taxes and examine the record of any proceeding under this Ordinance, and , if he considers that any order passed therein by the Deputy Commissioner of Taxes is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made, such inquiry as he thinks necessary, pass such order thereon as in his view the circumstances of the case would justify, including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment to be made. Exception: No order shall be made after the expiry of four years from the date of the order sought to be revised. Q.2(a) What are the provisions of law relating to the assessment and collection of tax from a deceased person?


Mr. Badrul owned a house property at Gulshan .He filed his income tax return showing income of aka 4,70,000 from that house property for the assessment year 2001-2002. He died on 31-12-2001 leaving three sons. The income from property would be taka 6, 40,000 for the assessment year 2002-2003 .How would your complete the assessments for the year 2001-2002 and2002- 2003 on what income and on whom? Answer 2(a): Provisions of law relating to the assessment of a deceased person: According to section 92 of ITO 1984: Whenever any person dies his executor, administrator or other legal representative is liable under the law to pay out of the estate of the deceased any tax which was payable by him and any other tax liability which might be payable in consequence of any assessment made after his death. Liability of the legal representative is limited to the extent to which deceased's estate is capable of meeting. When it so happens that a person dies before the due date of filling a return of income or before he is served with a notice for filing such return or that he dies after having furnished an incorrect return, his legal representatives in all these circumstances will be liable to file the return of income as well as to produce any accounts, documents or evidences which the deceased person would have had to produce if he had not died. Legal representative shall be deemed to be an assessee for the purpose of this ordinance, provided a notice to that effect is issued to him by the Deputy Commissioner of Taxes. Assessment year On what income On Whom 2001-2002 470,000 Mr. Badrul 2002-2003 640,000 Mr. Badrul's sons -

.

Q.2 (b) State briefly the tax exemption and reduction in rate of tax in some case that have been b r o u gh t t h r ou gh t h e c h a n g es i n t h e Fi n a n c e A ct , 2 0 0 3 Answer 2 (b) :Exemption made by the changes in ITO 1984 through Finance Act 2003 are the followings:(U/s 19AAA of ITO 1984 :Exemption in respect of investment No question as to the source of any sum invested by an assessee, being an individual, firm, association of persons or a private limited company,(a) between the first day of July, 2002 and thirtieth day of June, 2005 (both days are inclusive) in any trade, commercial or industrial venture, engaged in production of goods or services shall be raised and no tax thereon shall be imposed; and (b) between the first day of July, 2003 and the thirtieth day of June, 2005 (both days are inclusive) in the purchase of shares of a company listed with any stock exchange shall be raised and no tax thereon shall be imposed: provided that the provisions of this clause shall not apply in respect of shares so purchased which are transferred within two years from the date of their purchase. Under Paragraph 22 of Part A of the sixth schedule Any income from dividend for which dividend distribution tax is payable by the company under section 16D Under Paragraph 22A of Part A of the sixth schedule Any income from dividend of a mutual fund or a Unit Fund where such dividend does not exceed twenty five thousand taka Under Paragraph 31A of Part A of the sixth schedule Any income from capital gains from transfer of machinery or plant used for the purpose of business or profession. Question No-3: From the following particulars compute the total income and tax liability of Mr. M for the income year ending 30 June ,2003:(a) Salary Income Basic Salary-Tk.25,000 p.m Dearness allowance -20% of basic salary Bonus -1 month's basic salary House rent allowance-35% of basic salary Medical allowance-Tk.500 p.m Conveyance allowance-Tk. 1,200 p.m Leave travel concessions (inland)-Tk. 60,000 (bills approved Tk.51,500) Subscription to RPF -10% (Employer's contribution is the same).Interest accrued Tk. 96,000 on P.F balance calculate at 16% p.a . Provision of free lunch and tiffin at office for which the monthly average expense of the company is Tk 1,500 . (b)Interest on Securities:14% ABC Ltd debenture of the face value of 2,00,000


12% PQ Ltd debenture of the face value of Tk. 2,00,000 which was sold on 15, June 2003 and invested the amount so received in purchasing 14% debenture of XY Ltd at par. The sale and purchase was affected through Salvo Bank Ltd. which charged Tk. 4,000 as commission: 8.5% National Bonds Tk. 200,000 (3 years term and maturing on 01 May 2003) (c) Income from House Property:Mr. M has one residential house-one half of which is let out at a monthly rent of Tk. 2,000 and the other half —self occupied Following expenditures were incurred by Mr M:Taka 20,000 Municipal tax 60,000 Repairs and maintenance 12,000 Insurance premium 30,000 Salary of caretaker (d)Income from Land: Sale of paddy from land given on "Adhi" system-Tk. 1,25,000. sale proceeds from trees of spontaneous growth in Mr. M's land Tk.20,000 (e)Income from Business: Share of profit from a partnership firm Tk. 75,000 (f)Capital Gains: He sold a land property. ( bought 6 years back) at Abdullahpur,Tongi and earned therefore a capital gain of Tk. 40.00 lakhs . He then bought a flat at Dhanmondi costing Tk. 35.00 lakhs during the year. (g)Income from other Source: Dividend (net) from a listed company Tk.45, 000 Interest (net) on savings bank account Tk. 5, 400. During the year Mr. M made the following investmenti) Life insurance premium(Policy Value Tk. 500,000) Tk 60,000; ii) Investment in shares of a listed company Tk. 100,000; iii) Donation to charitable institutions as approved by NBR Tk.30,000 Answer 3: Mr. M Income Year ended 30 June 2003 Assessment Year 2003-2004 Computation of Total Income Income from salary u/s 21:

Tk.

Basic salary (25,000*12) Dearness allowance (20% of basic salary) (300,000*20%)---------------Bonus :1 months basic salary -------------------House rent allowance (35% of basic salary) (300,000*35%) = Tk. 105,000 Less: Lower of 50% of basic salary i.e Tk. 150,000 Or Tk.15,000 per month i.e Tk. 180,000 So house rent allowance Tk.(105,000-150,000)Medical allowance (500*12) Less: Actual expenditure assumed

300,000 60,000 25,000

Nil

Tk. 6,000 Tk. 6,000

Nil

Conveyance allowance Tk.(1,200X12)-----Tk.14,400 Less: Exempted -------------------------------------- Tk. 18 000

Nil

Leave travel concessions ----------------------Tk . 60,000 Less: Actual (Passage as per rule 33C) -Less: Exempted -------------------------------------Tk.Tk.1851,500 000

8,500 30,000

Employer contribution to recognized provident fund•(300,000*10%)-------Interest accrued Less: exempted up to 1/3 of basic salary i.e 100,000 or (14.5% of (96,000/0.16)) i.e 87,000 (Lower one)

Tk. 96,000 Tk. 87,000

9,000

Tk.


Total income from salary Income from interest on security: u/s 22-23 Interest on 14% debenture of ABC Ltd. (200,000*14%) -----------------------------------------Tk.28,000 Less: Exemption --------------------------------------Tk. 20,000 Interest on 12% debenture of PQ Ltd. (200,000*12%) --------------------------------------- Tk. 24,000 Less: Commission to Bank Tk. 4,000 ,

-

-

432,500

-

8.5% interest on national Bond [(200,000*8.5%)/12]x 10 Total income from interest on security Income from House property u/s 24-25: Rental income (Tk.2000X12) -------------- Tk. 24,000 Less: Municipal tax ------------------------------Tk. 10,000 Less: Insurance premium ------------------------- Tk. 6,000 Less: Repairs and maintenance (24,000*25%) -------------------------------------------- Tk. 6,000 Total income from house property ........................ -Income from Agricultural land u/s 26-27: Sale of paddy- ------------------------------------- -------------Total income from agricultural land ..........................

8,000

20,000 14,167

42,167

2,000 125,000

2,000 125,000

Income from Business or Profession u/s 28-30 Share of profit from a partnership firm Total income from Business or Profession u/s 28 -30

75,000 75,000

Income from capital gain u/s 31-32 Sold a land property ----------------------------------------------4,000,000 Total income from capital gain .......................... 4,000,000 Income from other sources u/s 33 -34 Sale from trees of spontaneous growth-----------------------20,000 Dividend income from a listed company ---- Tk. 45,000 (net) and by grossing up it is (45000*100)/90 50,000 Interest on savings bank deposit (5400*100)/90 ----5,400 25,400 Total income other sources ................................ Total taxable income 4,752,067 Calculation of Investment allowance: a) Calculation of Actual investment: Particulars Tk. Employers and employees contribution to recognized provident fund 60,000 14% Debenture in XYZ Limited ---------------------------------------------200,000 Life insurance premium (maximum 10% of policy value) ------------------50,000 (500,000*10%)Investment of a listed company------ -------------------- 100,000 Donation to charitable institution --------------------------------------------30,000 Total Actual investment 440,000 b) 20% of total income excluding employers contribution to recognized provident fund and interest thereon= Tk.(4,752,067-39,000)*20% =Tk.942,613.4 So investment allowance shall be calculated on Actual investment Tk. 440,000 Or Tk. 250,000 Or 20% of total income excluding employer’s contribution to recognized provident fund and interest thereon Tk. 942,613 (Lower one) So investment allowance is Tk.250,000 and Tax credit = Tk. 250,000*15%= Tk.37,500


Calculation of tax liability: Particulars Rate(%) On first Tk.120.000 0% On Next Tk. 250,000 10% On Next Tk.300,000 15% On Next Tk. 350,000 20% Balance Tk.3,732.067 25% Total tax liability Or consideration of capital gain separately: Particulars Rate(%) On first Tk.120,000 0% On Next Tk. 250,000 10% On Next Tk.300,000 15% On Balance Tk.82,067 20% On Capital gain Tk. 4,000,000 15% Total tax liability

Tax liability (Tk.) 0.00 25,000 45,000 70,000 933,017 1,073,017 Tax liability (Tk.) 0.00 25,000 45,000 16,413 600,000 686,413

So Tax payable according to Second Schedule Para 2 is equal to Tk. 686,413 Less: tax credit Investment allowance Tk.37,500 Tax deducted at source Tk. 600 Tax on partnership business (686,413/4,752,067)*75,000= Tk.10,833 Tk. 48,889 So tax liability =Tk. (686,413 - 48,933) = Tk. 637,480 Question 4 (a): Mr. Hamidur Rahman (proprietor of M/S Rahman and Co.) the assessee, carried on business in cloth in Narayangonj; He Purchased mill cloth, got it bleached and dyed and printed through chemicals, dyed cloths in its own factory by engaging workers and sold the dyed cloths in the market. Beside, the assessees was also buying dyed cloths in the market, got it printed and sold it. The assessee was also buying and selling readymade dyed and printed cloth, In addition to that the assessee was also selling mill and handloom cloth undyed and unprinted. For the assessment year 2002-2003, the assessee filed return showing income of Tk. 3,08,590 from business and total turnover at Tk. 16,97,280. The G. P. worked out to 18% on sales. The DCT rejected the books as defective and estimated the income at Tk. 18,00,000. The DCT found that the assessee did not account for Tk. 55,530 being the value of dyes and chemicals and that, the corresponding suppressed turnover in dyeing and dyeing cloth would come to Tk. 11,11,920. Adding this to the disclosed turnover, the disclosed turnover, the DCT determined the total turnover in the branch and dyeing and printing cloth at Tk. 2.3,50,000 and relying on two comparable cases fixed the rate of G.P at 50%. The details of the materials relied upon and the details of comparable cases were not furnished to the assessee. Please state whether the assessment made by the DCT is justified in law by citing any decided case in support of your answer. Answer 4(a): The DCT is empowered to disallow any expenses if it is not supported by acceptable evidence. However, as provided under section 30A of ITO 1984 the DCT shall not make any disallowance or deduction for any year from any claim made by an assessee in the trading account or profit or loss account without specifying reason for such disallowance or deduction. In given case the DCT has arbitrarily fixed the rate of GP at 50% against 18% shown by the assessee. The DCT relied upon two comparable cases. Reliance of DCT upon comparable cases is not unjustified but in such circumstances the assessee is entitled to get so much of the information regarding the comparator enable him to understand the basis on which his income is sought to be estimated. Since, the DCT has not provided information of the comparator of Mr Hamidur Rahman, said arbitrarily fixed GP would not be tenable to appellate authority. There are case laws in favour and against assessment of profit at flat rat e. When no method of accounting has been regularly employed by the assessee where his books of account are rejected, the DCT may reasonably and judicially compute the profits by applying flat rate of certain percentage to the admitted or estimated turnover or gross receipts or to the out lay. Feroz Shah V CIT 219 (PC). However, where the true profits can be ascertained without much trouble by reference to the accounts book, assessment of profit at a flat rate should not generally be made, CIT V. Achrulal ITR 255.


As for backward calculation of the turnover of Tk. 11,11,920 on the basis of non recorded input of Tk. 55,530 the assessee cannot overrule the addition of the DCT unless provides valid reason for such non-inclusion. In view of above, the assessment on the basis of arbitrarily fixed GP is not justified. Reference case Modern Dyeing and Screen Printing Ltd, VCT (2004) xxx 11, BTD 30. However, the DCT would require further supporting or documents and call for hearing to establish additional turnover on the basis of unrecorded input. Question 4(b): When the return of income furnished by the assessee becomes defective or incomplete. What actions may be taken by the assessing officer in situations rendering the return of income filed by the assessee defective or incomplete?

Answer 4 (b) Return of income furnished by the assessee become defective or incomplete if the assessee does not follow the following instructions at the time of furnishing the return According to rule 24 of ITO 1984: Fails to disclose:  Auditor's Certificate/audited accounts in the case of company;  Statement of income and expenditure A/C / Manufacturing, Trading, Profit & Loss A/C and Balance sheet in the case of other assessees;  Depreciation chart claiming depreciation as per Income tax Law.  Computation of income according to Income tax Law;  Statement of assets, liabilities and expenses.  This return of income shall be signed and verified by the individual assessee or person as prescribed u/s 75 of the Income Tax Ordinance 1984.  Documents furnished to support the declaration should be signed by the assessee or his authorised representative. The assessing officer takes the following actions:  May propose the assessee to submit revised return u/s 78 of ITO 1984 before the assessment is made;  The assessing officer require accounts and documents u/s 79;  May give notice u/s 80 for statement of assets and liabilities; Question 5(a): What is Gift Tax? Give some examples of gifts exempt from gift tax. Answer 5(a): Gift Tax: According to Section 2(d) of Gift tax Act, 1990 Gift means the transfer, by one person to another, of any existing movable or immovable property made voluntarily and without any consideration on money or money's worth. So it thus may be noted that transfer of property can attract gift tax liability, if the following conditions are satisfies (a) the transfer must be voluntarily; (b) the transfer must be an existing property and (c) the transfer must be without or with inadequate consideration in money or money's worth. According to Section 4 of Gift tax Act, 1990 The followings are the examples of gifts that are exempt from gift tax  Of property situated outside Bangladesh;  Gift made to the Government or any local authority;  To the following funds or institutions for charitable purposes: i. any university established under the law in force in Bangladesh or any educational institutions including polytechnic institute, recognized by the education board or recognized or run by the Government; ii. any hospital recognized or run by the Government or any local authority or any hospital aided by the Govt. or any local authority; iii. any flood or disaster management fund established or approved by the Government; iv. Such institutions or funds for religious or charitable purpose not being a private religious institutions or funds which does not ensure for the benefit of the public, as are established in Bangladesh and approved by the Government for such purposes or to any institutions established for religious or charitable pruposes and registered under any law for the time being in force, up to 20% of total income determined for the concerned year or Tk. 100,000 whichever is less;  To dependent relative up to Tk. 20,000 on the occasion of his/her marriage;


 By way of payment of policy on insurance or annuity for any person (other than wife)dependent upon him for support and maintenance up to Tk. 20,000;  Under a will;  Under contemplation of death:  To sons, daughter, father, mother, his/her spouse, own brothers and sisters. General exemption Gift tax shall not be charged under this Act in respect of gifts made by any person during any financial year, subject to a maximum of Tk. 20,000 in the value. Question 5(b): State the time limits under the Gift tax Act, 1990 for:i) Filling of appeals; ii) Rectification of errors; Answer Q-5(b): According to Section 12 of Gift tax Act, 1990 Particulars Time limits

Filling of appeals (According to Section 12 of Gift tax Act, 1990)

Rectification of errors( Section 9 and 15)

Any person aggrieved by the order of the DCT or Tax Recovery officer can appeal to the authority as prescribed in the Income Tax Ordinance. First appeal: within 45 days of the receipt of the concerned order; Second appeal: Within 45 days of the receipt of the concerned order of first appeal In case of any omission orwrong statement that was furnished with return then at any time before the assessment is made; In case of mistakes at any time within 2 years from the date of any order passed by the Deputy Commissioner of Taxes and any Appellate Authority;

Question 6(a): How are the value of goods and services determined for imposition of VAT? Answer 6(a): According to section 5 of the Value Added Tax Act 1991: In case of Importation: In case of importation of goods, the amount on which the value added tax shall be payable shall be determined by adding the amount of import duty, supplementary duty and all other duties and taxes, (if any), except advance income tax payable, to the assessable value determined under section 25 or 25A of the Customs Act. In case of goods supplied: The price shall be the consideration receivable from buyer by the producer or busines s person, which will include purchase price of materials and all expenditure incurred by the manufacturer and also commission, charges, fees and all supplementary duty excluding VAT and profit, If any registered person sells goods directly or through his own brand name or sales centres, distributors or commission agents under his own brand name, the value added tax shall, in the case of the goods with brandname be determined on the basis of the consideration due from the purchaser to the owner of the brandnamed goods In case of services: Value added tax shall be imposed on the total receipts. In case goods subject to trade discount: Goods on which trade discount is allowed, value added tax will be charged on the value of the goods after deduction of trade discount: Question-6(b): Rahman Industries Ltd. a vehicle assembly plant has imported CKD parts and companies for trucks amounting to Taka 2,500,000 in the month of July 2003. Rahman Industries Ltd. has assembled and manufactured 4 trucks from the above imported parts and components and then sold those 4 trucks to their dealer M/s Karim and Co. @ Tk. 1,000,000 each. M/s Karim and Co. then sold 3 (three) trucks to M/s Chowdhury Transport and Co. @ Tk. 1,100,000 each. Calculate VAT @ 15% payable at import stage and each stage of sale.


Answer 6(b): A/C: Rahman Industries Limited: Value

VAT @ 15% thereon

Taka

Taka

Imp ort- v alue of C&D p arts & components

25,00,000

Paid:

3,75,000

Sale to Karim & Co: 4 Trucks: each Tk 10,00,000

40,00,000

Realised

6,00,000

Net VAT payable balance: / depositable balance:

Tk 2,25,000

A/C: Karim & Co: Value

VAT @ 15%thereon

Taka

Taka

Purchase from Rahman Ind. Ltd- as above

40,00,000

Paid:

Sale to Chowdhury transport: 3 Trucks at Tk 11 lacs each

33,00,000 Realised

Net VAT balance: adjustable against future sale

6,00,000 4 ,95,000 Tk 1,05,000

A/C: Chowdhury Transport- as above: Value

33,00,000 : VAT 4,95,000 For 3 Trucks Tk 37,95,000 Q.7(a) Briefly describes the preshipment inspection scheme of the imported goods. Answer 7(a)

U/s 25: PSI Agencies and assessment on the basis of PSI-A's certificate: CRF.

The Government may, by notification in the official gazette —  appoint pre-shipment inspection agencies and audit agencies, and  determine the scope and manner of certification, and also the scope and manner of audit, and any matter related to su certification and audit. The Government may declare the quality, quantity, price, description and customs classification of any goods for verification and certification U/s 25B: Mandatory PSI Mandatory PSI u/s 25B of the Customs Act (# 4) 1969: Importers to have their importable goods inspected by a PSI Agency before or at the time of shipment of those goods on board of a Vessel, Air-craft, Surfacetransport or any other conveyance like Animal: other than those specifically exempted/dispensed with by SRO # 173-L-2005/2079-CKS U/s 25C: PSI Charge: Not exceeding 1% of the value of goods Question 7 (b) What are the goods that are exempted from compulsory pre-shipment inspection? Answer 7(b) The following goods are exempted from compulsory pre-shipment inspection vide SRO th h No.173/Law/2005/2079/Cus date 9 June,2005 in suppression of SRO No. 138-AIN/2002/1957 date 6' June, 2002  Goods excepting computer, computer peripherals, computer CD & accessories full exempted from customs duty in the First Schedule to the Customs Act, 1969(IV of 1969) under the H.S. Code against which zero customs duty have been shown;  Goods which are exempted from customs duty by the Government from time to time;  Goods imported by a Government. semi-government, sector corporation or autonomous organization:  Perishable goods enlisted as determined by the Board in the gazette notification;  Goods imported as relief materials;  Goods imported by a diplomat or under the coverage of diplomatic facility as per Vienna convention 1961;  Machinery and equipment imported for the rehabilitation of deaf , dumb, blind and physically and mentally handicapped persons; th  Defense stores as described in the NBR memo No. 9(41) dated 10 April , 1981;  Goods imported under Non-trust Baggage rules;  Goods imported under post parcel and imported as commercial samples;  Reimported goods exported for repair or warranty or replacement;


ďƒ˜ Goods imported for Trade fair approved by the Government. ďƒ˜ Life saving drugs and medical equipment not exceeding (C&F value) US$100. Question 7(c):How is the value of imported and exported goods determined u/s 25 of the Customs Act,1969? Answer 7( c): According to section 25 of the Customs Act, 1969, values of imported and exported goods are determined by the following ways: a) The value of any imported or exported goods be deemed to be the price at which such or like goods are ordinarily sold, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale. b) The Government may, by notification in the official Gazette , fix for the purpose of levying customs duties, tariff values or minimum values for any goods imported or exported as chargeable with customs duty ad valorem; c) The rate of exchange for computation of the value of any imported goods shall be the average rate of exchange prevailing during the month preceding the month during which the bill of entry is delivered under section 79 or electronically transmitted to the Customs computed system and as fixed by the Board or such officer as the Board may authorize in this behalf prior to the beginning of the month.


Suggested Answers Taxation — II Professional Examination — III

May — June, 2004 Question 1(a) State the services and the applicable rate from which VAT has to be collected or deducted at source at various rates as provided in VAT regulation. Answer 1(a): According to SRO No. 193-/law/2003/389-mushak, dated, July 2003: The followings are the services from which VAT has to be collected or deducted at source: Services Deduction rate (%) Construction firms 4.5 Indenting firms 15 Lease holders 15 Motor garages and workshop 4.5 Dockyards 4.5 Printing press 4.5 Advertising firms 15 Consultancy firms & Supervisory firms 4.5 Carrying contractors-Petroleum products 2.25 Carrying contractors-Others 4.5 Persons attending board meeting 15 Survey firms 15 Lessors of vehicle 4.5 Procurement providers 2.25 Audit and accounting firms 4.5 Buyers of auctioned goods 1.5 Question 1(b) What are the particulars that are to be mentioned in the certificate by the person collecting or deducting VAT to the person rendering services? Answer 1(b): The followings particular should be mentioned in the certificate by the person collecting or deducting VAT from the person rendering services:

    

Registration number of value added tax payer; Total amount paid on account of service value or commission; Value of value added taxable service or commission: Amount of value added tax collected or deducted and Any other particular required as per rule.

Q u e s t i o n 1 ( c ) I f the person responsible to deduct VAT fails to do that, what are the Consequences? Answer 1(c): Any person responsible i.e Government organization, Semi-Government organization, Autonomous organization, NGO's, Banks, Insurance companies & Limited companies to deduct VAT fails to do that, shall be subject to pay the VAT together with 2% as interest per month on the same. If VAT deducted at source is not deposited within two months, the person liable for the default may be fined with an amount up to tk. 25,000. Question 1 (d) State the provisions of Section 42 of Value Added Tax Act, 1991 regarding appeal. Answer 1(d): According to section 42 of VAT Act 1991:  Any value added tax officer or any person aggrieve by any decision or order given by a value added tax officer may appeal against such order within three months of giving such decision or order.


To the Commissioner (Appeal)

Against the decision or order given by an Additional Commissioner or any value added tax officer below that rank;

To the Appellate Tribunal

Against the decision or order given by the Commissioner, the Commissioner (Appeal) or any value added tax officer of equivalent rank.

 If the appeal is preferred to Commissioner (Appeal), Commissioner (Appeal) may make an enquiry about the appeal if he considers it necessary or collect information and may, after giving to the appellant reasonable opportunity of being heard, uphold the decision or order appealed against or amend it, or reject it or give such fresh decision or order as he deems fit.  If the Commissioner (Appeal) is satisfied that the appellant could not prefer the appeal within the said three months' time due to sufficient reason, he may permit the appellant to prefer an appeal within two months next following the said period.  If any person intends to prefer an appeal against a decision or order relating to a demand of value added tax payable on any goods or service or to fine imposed he shall have to p ay at t h e t i m e of pr efe r re d h i s a p pe al .  In the case of an appeal preferred to the Commissioner (Appeal), ten per cent of the fine imposed or tax demanded.  In the case of an appeal preferred to Appellate Tribunal against an order given by Commissioner or any value added tax officer of his equivalent rank, twenty five percent of tax demanded or fine imposed.  If the appellate authority fails to give any decision on the appeal within twelve months from the date of its receipt, the appeal shall be deemed to have been granted by the appellate authority. Question 1(e) What are the goods and services exempt from payment of VAT? Answer 1(e): According to Fi rst Schedule of VAT Act 1991 huge number of items including livestock, frozen meats, milk , potato, tomato and many other goods that are exempted from VAT. )

According to Second Schedule of VAT Act 1991 huge number of items including basic services essential to life, social welfare oriented services, culture oriented services, finance and finance related services, transport services, personal services, and many other services that ate

exempted from VAT

Board notification: In addition the Board may by notification in the official gazette may exempt such other goods and services as it deems fit in this respect. Such as:  Cottage industry by following certain conditions is exempt from VAT.  Imports of approved educational institutions, scientific apparatus, spares and inputs;  Farm insecticides;  Diplomatic Missions,  International organizations;  Power generation. Question 2 (a) Point out various forms of assessment. State the procedures of best judgment assessment and reassessment in case of income escaping assessment. Answer 2(a): Forms of assessment: Particulars Section reference according to ITO 1984 Provisional assessment 81 Assessment on correct return 82 Assessment under simplified procedure 82A Assessment on the basis of return 82B Tax on income of certain persons(Final settlement) 82C Spot assessment 82D


Assessment after hearing 83 Self assessment 83A Self assessment of private limited companies 83AA Assessment on the basis report of a Chartered Accountant 83AAA Best judgment assessment 84 Special provisions regarding assessment of firms 85 Assessment in case of change in the constitution of a firm 86 Assessment in case of constitution of new successor firm 87 Assessment in case of succession to business otherwise than on death 88 Assessment in case of discontinued business 89 Assessment in case of partition of a Hindu undivided family 90 Assessment in case of persons leaving Bangladesh 91 Assessment in case of income of a deceased person 92 Assessment in case of income escaping assessment, etc 93 Best judgment assessment: According to Section 84 of ITO 1984 Where any person fails (a) To file the return required by a notice under section 77 (b) Has not filed a return or revised return under section 78 (c) To comply with the requirements of a notice under section 79 — Production of accounts and documents (d) To comply with the requirements of a notice under section 80 — Statement of assets, liabilities and life style. (e) To comply with the requirements of a notice under section 83(1) - Assessment after hearing. Consequence: Best Judgment assessment The Deputy Commissioner of Taxes shall, by an order in writing, assess the total income of the assessee to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment; and in the case of firm, may refuse to register it or may cancel its registration if it is already registered, and communicate such order to the assessee within thirty days next following. Relevant information Deputy Commissioner of Taxes shall be construed as misconduct; if he/she has proved by the Board that the best judgment assessment made by him/her shows lack of proper evaluation of legal and factual aspects of the case, which has resulted in an arbitrary and injudicious assessment. Income escaping assessment: Section 93 of ITO 1984.

If, for any reason, any income chargeable to tax for any assessment year  has escap e d assessm ent  has b een under assessed or  has been assessed at too low a rate or  has been the subject of excessive relief or refund The Deputy Commissioner of Taxes may issue a notice to the assessee containing all or any of the requirements which may be included in a notice under section 77(Notice for filling return) and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, Rate of tax The tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made Special Conditions No proceeding shall be initiated unless definite information has come into the possession of the Deputy Commissioner of Taxes and he has obtained the previous approval of the Inspecting Joint Commissioner in writing to do so, except in a case where a return has not been filed under section 75 or 77. Issuance of notice with time limitation The Deputy Commissioner of Taxes may issue a notice i. Any case in which he has reason to believe that the assessee or any other person on his behalf has not filed a return under section 75 or 77, at any time;


ii.

Any case in which he has reason to believe that the assessee has for any assessment year concealed  particulars of his income or  furnished inaccurate particulars thereof or  omitted or failed to disclose all material facts necessary for the assessment for such year, within five years from the end of the assessment year for which the assessment is to be made. iii. any other case, within two years from the end of the assessment year for which the assessment is to be made. Where an assessment or any order has been annulled, set aside, cancelle d or modified, the concerned income tax authority may start the proceedings from the stage next preceding the stage at which such annulment, setting aside, cancellation or modification took place Question 2 (b) State the tax rates for corporate tax payers on incomes including the changes that have been given effect to by the Finance Act, 2003. Answer 2(b) Particulars Tax rate Every company which is publicly traded At 30% on total taxable income except dividend company except Bank, Insurance and income. Condition 1: If any publicly traded company pay financing organizations dividend @ 20% or more then it will get tax rebate @ 10% on applicable income tax. i.e. 27%. Condition 2: If a publicly traded company pay dividend less than 10% or fails to pay dividend within the prescribed time as declared by SEC then tax rate will be chargeable @37.5%. Every company other than publicly traded At 37.5 on total taxable income except dividend companies income. In case of Bank, Insurance and finance At 45% on total taxable income except dividend Organizations income. The company who is registered under companies act 1994 and declares dividend whether interim or otherwise on or after the first day of july, 2003 shall pay, in addition to tax payable under this ordinance dividend distribution tax at the rate of 10% on such dividend within sixty days from the date of such declaration. Question 3(a) List a summary of the various provisions relevant to Turnover Tax under the VAT Act, 1991 and the VAT Rules, 1991. Answer 3(a)

According to section 8(1) of VAT Act 1991 & para 4 of VAT Rules,1991 If the annual turnover of any supplier of taxable goods or any renderer of taxable service, is less than taka Twenty lacs, he shall pay “turn over tax at the rate of 4% percent on the annual turnover. The followings are the provisions that are related to Turnover Tax:  Application for registration in Mushak-6 to Superintendent  If satisfied, Superintendent will enlist the applicant within 7 days and issue a Certificate  A declaration of estimated annual turnover and payment system in prescribed form “Mushak-2KHA” to be submitted within 30 days from the date of enlistment and every succeeding year  The superintendent, if satisfied with the declaration relating to turnover, shall approve and send a copy to registered person within next 30 working days  Payment can be made annually, quarterly or monthly  Return to be filled in Mushak-4 within 15th of the following month and for one time in case of annual ToT payment, 4 times and 12 times in case of quarterly and monthly respectively


 Failure to pay ToT attract penalty @ 2% per month on arrear but not exceeding Tk 5,000  Accounts of transactions (Purchases & Sales) to be maintained in Mushak-17KA: Rule 4 (16)  ToT registered person is not allowed to take credit of input VAT  Consumer or service receiver (VAT registered) are also not allowed to take rebate from the ToT challan  Refund of excess tax paid registered person is allowed u/s 67  Cash memo mentioning the ToT registration number will be treated as lawful challan Question 3(b) Write notes on: Regulatory Duty, Anti-dumping Duty, Duty Drawback. Answer 3 (b) Regulatory Duty: “Regulatory Duty" means the duty which the Government may, by notification in the official Gazette levy, subject to such conditions, limitations or restrictions as it may deem fit to impose, a regulatory duty on all or any of the goods specified in the First Schedule at the rate not exceeding the highest rate of Custom duty specified in the said schedule. Anti-dumping Duty: Where any goods are exported from any country or territory (hereinafter in this Section referred to as the exporting country or territory) to Bangladesh at less than the normal value, then, upon the importation of such goods into Bangladesh, the Government may, by notification in the official Gazette impose an anti-dumping duty not exceeding the margin of dumping in relation to such goods. "Margin of dumping" in relation to any goods means the difference between its export price and its normal price. Duty Drawback: When any goods capable of being easily identified, which have been imported into Bangladesh and upon which customs-duties have been paid on importation are exported to any place outside Bangladesh or as provisions or stores for use on board a conveyance proceeding to a foreign territory [such duties. not exceeding seven-eight thereof) shall be repaid as drawback Question 4.A,B & C are partners sharing profits and losses in the ratio of 2:2:1. The particulars on income for the year ended 30 June, 2003 are as under. a) House properties: The firm owns a building consisting of three storeys of identical specifications two of which are used for the firm's business and one is let out at a rent of Tk. 10,000 per month. The firm has earned Tk. 30,000 by putting up a display of an advertisement hoarding of a multinational company on the roof of the building during the year. b) Business in Cotton Textiles: The trading account for the year was as under: Debtor Taka Creditor Taka Opening stock 500,000 Sales 5,400,000 Purchases 4,500,000 Closing stock 600,000 Gross profit 1,000,000 Total 6,000,000 6,000,000 The closing stock has been uniformly valued at 12.50% under-cost. Depreciation and other expenses debited to the Profit and Loss Account amount to Tk. 400,000 which included among other things following items: Taka Taka i) Repairs to the Building: Let out portion 8,000 Portion used for business 12,000 20,000 ii) Municipal Taxes: The total Municipal taxes for the year were Tk. 27000 Of which tenant paid Tk.4,000 23,000 iii) Annual contribution to Cotton Dealers Association A trade association 2,000 iv) Contribution to Prime Minister's Relief Fund 5,000 v) Salaries to the Partners:


A ................................. Tk. 24,000 B ........................................ Tk. 48,000 C ........................................ Tk. 72,000 144,000 vi) Interest paid on a loan of Tk. 500,000 taken for installing Computer accounting system in the firm's premises (The Computer and peripherals were duly installed during the period) 75,000 vii)It is claimed that Tk. 10,000 credited in the Profit and Loss Account should be deducted as representing receipt of capital Nature. It was stated that the amount has been received from a Textile mill as damages for failure to deliver goods as per Contract. ......... , viii) Loss on speculation transactions 150,000 A had no other sources of income but B and C were also partners in another firm with D as the third partner. The shares of B, C and D for the year ended 30 June 2003 were as under: Partners Salary (Tk.) Interest (Tk.) Profit/(Loss) (Tk.) Total (Tk.) B (50000) (50000) C (50000) (50000) D 60,000 20,000 (50000) 30000

B has also income from a house property at London amounting to Tk. 600,000 (after deduction of 25% tax at source) C has other personal income of Tk. 50,000. Required: (a) Compute tax to be paid by the firm in which A, B and C are partners and total taxable income in the hands of those partners from all sources. (b) State the principles governing the basis of taxability of total income of A,B & C. Answer 4(a) A,B & C Income year ended 30 June, 2003 Assessment year 2003-04 Taka Taka Computation of total income of firm ABC 1)Property incom e: Rental income (12*10,000) Municipal tax paid by the tenant Deemed annual value Less: 30% allowance for repairs & maintenance (124000*30%) Municipal tax Adjusted income

120,000 4,000 124,000 (37,200) (4,000) 82,800

2)Busine ss incom e -Cotton Textile Gross profit as per trading account Add: Understatement of stock /o

to

Less: Depreciation and other expenses charged in P& L a/c (Note 2) Add: Inadmissible items: Repairs -let out portion Salary to partners Loss on speculative transaction Adjusted profit Income from other sources(Advertising hoarding) Note 1 Total income

1,000,000 14,285 1,014,285 (400,000) 614,285 8,000 144,000 150,000 916,285 30,000 1,029,085


Particulars On First Tk. 100,000

Rate (%)

Tax (Tk.)

0%

Nil

10% 15% 20% 25%

20,000 30,000 60,000 57,271 167,271

(

On Next Tk. 200,000 On Next Tk. 200,000 On Next Tk. 300,000 On Balance Tk. 229,085 Total tax payable by the firm Allocation of profit to partners: Particulars Salary Shareof profit (2:2:1)

A (Tk.) 24,000 354,034

B(Tk.) 48,000 354,034

C(Tk.) 72,000 177,017

Total (Tk.) 144,000 885,085

Total

378,034

402,034

249,017

1,029,085

Computation of total income of firm BCD: Particulars Net loss allocated to partners Add: Inadmissible items Salary and interest Total income/(loss) Allocation to partners of BCD firms: Particulars Salary & interest

Tk. (150,000) 80,000 (70,000) B (Tk.)

C(Tk.)

D(Tk.) 80,000

Total(Tk.) 80,000

Net loss(equally)

(50,000)

(50,000)

(50,000)

(150,000)

Total

(50,000)

(50,000)

30,000

(70,000)

Assessment of partners: Partner A: The entire amount is tax free income and no further tax is payable by A nor he can claim any refund. Partner B: Particulars Tk. Share of profit in ABC 402,034 (50,000) Share of loss in BCD (set off) Total income 352,034 Since the resultant total income is less than his share of profit in ABC, he does not have to pay further tax, nor he can claim any refund for rebate on tax free income. Partner C: Particulars Tk. Share of profit in ABC 249,017 Other income 50,000 Share of loss in BCD (set off) (50,000) Total income 249,017

Since the resultant total income is equal to his share of profit in ABC, he does not have to pay further tax, nor he can claim any refund for rebate on tax free income. Notes: a) Advertising hoarding receipt has been treated as income from other sources; b) Assume tax depreciation and accounting dep reciation is same. c) Difference between opening and closing stock is Tk. 100,000 which has been undervalued and the amount has been calculated as follows: (100*100,000)/87.5=114,285 (114,285-100,000)=14,285 d) Loss on speculative transaction is not a business expense. e) B's income from house property arising in London has been excluded because of Double taxation agreement between Bangladesh and U.K


Answer 4(b): Principles Governing the basis of taxability of total income : We consider guidelines as mentioned in section 43 of Para 3 of ITO 1984.  Total income includes all income arising or deemed to be arising in the concerned income year.  Share of profit or loss in the firm includes any salary, interest or remuneration received;  Rebate on average basis is allowed when total income of any partner i ncludes share of profit of any firm which is taxed in the hands of the firm;  Rebate can be claimed but a refund can not be claimed;  No further tax is payable by a partner when his total income is less than the share profit of the firm or when he does not have income from any other sources. Question 5(a) Outline the provisions of I.T Ordinance 1984 with regard to Advance Payments of Tax with particular reference to:Those assesses who are required to make advance payments and the nature of income in respect of which such payments must be made; Answer 5(a) According to section 64 of ITO 1984 Advance tax shall be payable by an assessee during each financial year if the total income of the assessee for the latest income year in respect of which he has been assessed by way of regular assessment, or has been provisionally assessed exceeds two lakh taka. Income from "Agricultural income" and "Capital gains" shall not included in compu tation of income. A new assessee who has not been assessed to tax previously is also liable to pay advance tax if his income during any financial year is likely to exceed two lakh taka. Question 5(b) Outline the provisions of I.T Ordinance 1984 with regard to Advance Payments of Tax with particular reference to:The basis of which advance payments should be calculated for existing assesses and for new assesses and the due dates of payments. Answer 5(b) According to section 65/66/67 of ITO 1984 The amount of advance tax payable by an assessee in a financial year shall be the amount equal to the tax payable on his total income of the latest income year as assessed on regular basis or provisionally, as the case may be, as reduced by the amount of tax required to be deducted or collected at source. Advance tax is payable in four equal installments on 15 th September, 15th December, 15th March, 15th June. If one estimates that one's income during any financial year will be less than the last assessed income, one may submit an estimate on income and pay the advance tax accordingly. A new assessee who has not been assessed to tax previously shall pay advance tax on the basis of own estimate by 15 June of the financial year. Calculation rate The tax shall be calculated at the rates in force in respect of the financial year for which income applying the ruling Question 5 (c) Outline the provisions of I.T Ordinance 1984 with regard to Advance Payments of Tax with particular reference to:When and how the balance of tax is payable. Answer 5( c) :

According to section 66 of ITO 1984 If before the fifteenth day of May of the year, an assessment of the assessee is completed in respect of an income year, later than that on the basis of which the tax was comput ed the assessee shall pay in one installment on the specified date or in equal installments on the specified dates, if more than one falling after the date of the said assessment, the tax computed on the revised basis as reduced by the amount, if any, paid in accordance with the original computation. However, the balance of tax if any shall be payable with the return. Question 5 (d) Outline the provisions of I.T Ordinance 1984 with regard to Advance Payments of Tax with particular reference to:The penalties for non-compliance. Answer 5(d):

According to section 69, 70 and 73 of ITO 1984


 Where, an assessee who is required to pay advance tax fails to pay any installment of such tax, as originally computed or, as the case may be, estimated, on the due d ate, he shall be deemed to be an assessee in default in respect of such installment.  Simple interest @ 10% shall be charged where an assessee who is required to pay advance tax, fails to pay tax in due time.  Where, in any financial year, an assessee has paid advance tax on the basis of his own estimate and the advance tax so paid together with the tax deducted at source, if any, is less than seventy-five per cent. of the amount of tax payable by him as determined on regular assessment, the assessee shall pay, in addition to the balance of tax payable by him, simple interest at ten per cent per annum on the amount by which the tax so paid and deducted falls short of the seventy-five per cent (75%) of the assessed tax. Period for charging simple interest: The period for which interest shall be payable shall be the period from the first day of July of the year in which the advance tax was paid to the date of regular assessment in respect of the income of that year or a period of two years from the said first day of July, whichever is shorter. Question 6. (a) The tax assessment is often not done by DCT's in accordance with filed returns and information submitted. This results in disputes on GP rate, disallowances done by DCT on his own judgment. This leads to appeals and counter appeals. What would be your suggestion t o NB R f or avoidance of su ch situ at i on ? Answer 6 (a) The practice of arbitrary assessment particularly in case of small and medium entrepreneurs is common in our environment. The assessees as well as assessing officers are equally involved in this wrongdoing. Assessee are evading tax and assessing officers are taking undue advantage at the cost of national interest. Tax practitioners and auditors are playing the role of matchmaker in maximum cases. To resolve the issue we propose the followings for the consideration of the NBR. *The salary and benefits of the revenue officers are not sufficient to maintain minimum standard of life. Observance of austerity having the chance of easy inflow of fund is truly a tall order job. Therefore, the government should come up with regular incentive scheme for all revenue officers ensuring specific reward for achieving prefixed target.  All corporate assesssee are taxed at even rate irrespective of size. To encourage small and medium entrepreneurs the Government may consider reduce rate of tax for them.  At the backdrop of the downtrend in foreign source of fund, internal resource generation has no alternative for the economic emancipation of the country. The nation needs to develop a tax culture and the NBR being key revenue earning agency of the country should have intensive campaign in this regard.  In welfare economy, tax payers are honoured by the nation in different way including arrangement of old age allowance based on their contribution to exchequer. Unfortunately, in our country tax payers are harassed at the time of the payment of tax and gets nothing against the deposit of their hard earned money when out of job or at old age. NBR should propose for the enactment of unemployment allowance and old age pension for tax payers based on their contribution to national exchequer.  The Government proceeded one Step forward in curbing arbitrary assessment enacting sec.30 A by Finance Act 2002 but no progress thereafter. Every year specific provision should be made targeting elimination of discretionary authority of assessing officer in course of time.  Self assessment is the globally tested system of less harassment and much revenue. Self assessment system should be eased and coverage to be enlarged. Question 6(b): Do you think that the judicial character of the taxes appellate tribunal cannot be restored unless it is reconstituted with judicial personnel and made accountable to Ministry of Law and parliamentary Affairs? State your arguments. Answer 6(b) : In pursuance with sec. 11 of the ITO 1984 Taxes Appellate Tribunal is consisting of a President and such oth er members as the Government may, from time t o time appoint. The l aw


prescribed 8 categories of person to be member of the Tribunal out of whom one is appointed President thereof. There was a provision for judicial member shall be a person who is or has been a District Judge or who has practiced as an advocate in a District or Session Judge court for a period of not less than ten years. Finance Act 2002 omitted the provision and thereafter employment of judicial member became optional. The Taxes Appellate Tribunal is with quasi-judicial authority and absence of judicial member has undermined its judicial character. Further the Taxes Appellate Tribunal is administered by the Ministry of Finance being the enforcing agency of tax laws. Administration of judiciary function by enforcing agency is contradictory to the principle of independent judgment. In view of above, reconstitution of the Tribunal with judicial person and to make it accountable to the Ministry of Law and Parliamentary Affairs seems essential to restore its judicial character. Question 7. OBL Ltd. is a hundred percent export based industry. Its tax holiday ended on 30- 06 -2003. For the year ended 31-12-2003 it earns a net profit of Tk. 25,000,000 of which first 6 months profit is Tk. 18,000,000. The profit included as follows: a) A net income of Tk. 3,000,000 received as dividend from a listed company. b) Insurance claim on stock loss of Tk. 3,000,000 received in tax holiday period Tk. 2,700,000. c) Earned a capital profit on land sale at Tk. 1 crore for Tk. 50 lac which was reinvested in factory. d) Other income Tk. 15 lac earned during 1st half of 2003. e) Deduction of tax at source on rent was not made on Tk. 2,400,000 due to disagreement with landlord but provision for rent was made for full amount in the accounts. From the scrutiny of the accounts the following further particulars came up:a) An amount of Tk. 1,000,000 was paid in cheque to BB Ltd. in 2001 as loan; b) The WDV of taxed assets as per last assessment was Factory building Tk. 7,000,000, Plant and Machinery Tk. 15,750,000, Furniture and fixtures Tk. 950,000, Motor Vehicles Tk. 1,850,000. c) The accounting depreciation for the year charged on a straight-line basis @ 18% for all assets and additions during the year. d) Lease rentals were Tk. 1,500,000 charged in P & L while the leased assets were Tk. 9,500,000 on 31-12-2003 at cost. e) Tax deduction on FDR of the 5 crores matured after 1 year on 30-11-2003 was Tk. 5 lac being interest for full year. Interest for December 2002 not accounted for in assessment order for the assessment year 2003/04. Taking the above information into cognizance please calculate the following: Total income of the company; i) Tax payable by the company; ii) Asset value (WDV) as per assessment for 2004-2005 assessment order/return. Answer 7 : OBL Ltd.- a hundred percent export based industry. Income year ended 31-12-2003 Assessment year 2003-04 Tk

Net profit as per audited Profit and Loss a/c Separate considerable items: Dividend income Less: Capital gain on sale on land Less: Other Income Add. Inadmissible items: Non deduction on tax on rent (Note -1) Accounting Depreciation Deduct: Allowable or deductible items: Loss on stock(Net of claim received)

Exempted 18,000,000

Taxable 7,000,000 (3,000,000)

(5,000,000) (1,500,000) 6,500,000

4,000,000

5,535,589 17,035,589

2,400,000 5,535,589 11,935,589

300,000

-


Tax depreciation

2,507,500

2,507,500

Total income from business or profession

14,228,089

9,428,089

Income from other sources -

Dividend income ( Note -2) Other Income (Note-3) Interest on FDR (AIT 500,000/0.10)-Grossing up(Matured 30.11.2003) (Note 3) Capital Gain Total Income

"

'

1,500,000 5,000,000 5,000,000 20,928,089

14,228,089

Tax thereon Tk.1,885,618 Tk.1,300,000

On Business income (Tk.9,428,089X20%)= On other sources (Tk. 6,500,000X20%) =

Tk. 750,000 Tk. 3,435,618

On Capital Gain (Tk. 5,000,000X15%) = Tax Payable Tk.3,935,618-Tk. 500000 =

Calculation of tax depreciation: Factory building =(7000,000X20%)= Tk. 1400000 Plant and machinery =(15750,000X20%)= Tk. 3150,000 Furniture and fixtures =(950,000X10%)= Tk.95000 Transport vehicles= (1850000X20%)= Tk.370000 Total tax depreciation = TK. 5,015,000 Calculation of Accounting depreciation: Tk. 11,071,178 Factory Plant Building machinery Year Rate 20% Rate 20%

Tax WDV(given)

2003

Tax WDV (7000000/0.80)

2002

Tax WDV(8750000/0.80)

Transport Rate 20%

15,750,000

950,000

1,850,000

8,750,000

19,687,500

1,055,556

2,312,500

2001

10,937,500

24,609,375

1,172,840

2,890,625

Tax WDV (10937500/0.80)

2000

13,671,875

30,761,719

1,303,155

3,613,281

Cost Price (13671875/0.80)

1999

17,089,844

38,452,148

1,447,950

4,516,602

3,076,172

6,921,387

260,631

812,988

Accounting Depreciation @ 18% on cost Total accounting depreciation

7,000,000

Furniture and Fixtures Rate 10%

11,071,178 Written down value for 2004-05 5,600,000 12,600,000 855,000 1,480,000 assessment year Note -1: In-spite of tax-holiday, any payment made by an assessee to any person without deduction of tax as per law would be disallowed (Sec 30 aa and 46A 7c of ITO 1984) Note-2: Assumed that the dividend was paid in the 2 nd half on which dividend distribution tax was paid u/s 16 D and accordingly exempted from tax as per clause 22 part B of 6th schedule. Note-3: As provided u/s 46A, only the profits and gains u/s 28 of tax holiday company are exempted from tax. Assumption: The Company commenced operations from July 1999, acquired al l assets in 1999 and made no addition thereafter.


Suggested Answers Taxation — II Professional Examination III November- December,2004 Question 1: "Incomes are subject to deduction of tax at source under section 49(1)." List the heads of income from which such deductions are applicable. Explain in brief the provision of rate of such deduction from at least ten heads of Income. Answer 1: Income under the following heads are subject to the deduction of tax at source under Section 49(1) of ITO 1984: —

                                       

Salary to an employee. Discount on the real value of Bangladesh Bank Bills, Interest on securities, Supply of goods, or execution of contracts, Import of goods, Indenting commission, Winning from lottery or crossword puzzles, Income from house property, Export of manpower, Purchase of goods or property (other than plot of land) by public auction, Acting in films, Shipping agency commission, Commission, discount or fees payable to a distributor or marketing agent of a manufacturer, Interest on savings deposits, fixed/term deposits and share of profits on term deposits, Insurance commission payable to an insurance agent, Income under 'capital gains', Fee for professional or technical services, Royalty or technical know-how fee, Commission receivable by a clearing and forwarding agent, On the sale of banderols of cigarettes manufactured manually, Compensation against acquisition of property, Interest on savings instruments, Income derived by brick manufacturers, Services rendered by doctors to a hospital or a diagnostic centre, Commission on letters of credit, Fee to a surveyor of general insurance company, Commission or charges to a foreign buyer's agent, Dividends, Stevedoring and private security services, Shipping business of a resident, Business of real estate and land developer, Export of knitwear or woven garments, Transactions of shares, debentures, mutual funds, bonds or securities by a member of stock exchange, Income of courier business by a non-resident, Export cash subsidy, Use of credit card by a credit card holder, Transfer of property, Income chargeable under the Ordinance payable to a non-resident, On registration or renewal of fitness of bus, truck, minibus, coaster, etc, On registration or renewal of certificate for marine vessels plying on inland water including cargo, coaster, dumb barge but excluding oil tanker.

Ten heads of income from which tax deducted at source and the applicable rates:

1 53A Income from House Property: classifiable Up to Tk15,000/month = Nil under the head "income from house Above Tk 15,000 to 35,000 /month @ 3% property" Above Tk35,000/month @ 5% 10% 2 53B Export of Manpower: Deemed Income derived on account of export of manpower 3 53C Purchase of Public Auction: Deemed 3% of Sale price Income derived on account of purchase by public auction excluding land

Final discharge Final discharge


5% 4 53D Income of Actors: when exceeding Tk 36,000 in a year derived on account of acting in films5 52 Shipping AgencyCommission: Income derived 5% on account of shipping agency Commission -

6 53E Distributor's Commission: Income derived fromcommission. discount or fees payable to distributors for Distribution or marketing of manufactured goods

5%

7 53F Interest on Saving Deposit e t c : I n c o m e d e r i v e d o n account of interest on saving deposits, fixed deposits or term deposits and/or share of profit on term deposits from Banks or w.e.f 01July'05Financial Institutions including Leasing at House Finance 8 53G Insurance Commission: Income derived on account of insurance commission or otherwise 9 53H Property Transfer: DeemedIncome-on transfer/ registration of "immoveable" Property 10 53A Doctor' Fee - Payable by any hospital or (1) diagnostic Centre.

10%

.

5%

Final discharge

5%

Final discharge

5%

Question 2(a)"In every income tax case the first and most important factor is the residential status of the assessee". Discuss the factor, distinguishing the various residential categories andstate how the appropriate category is determined in the case of an individual, a firm and a company. To what extent is the taxable income or the rate of tax is affected by the residential status. Answer 2(a): Distinguishing factor: a) Days the person (Individual) has been in Bangladesh b) In case of company the control and management; c) In case of firm the control and management. d) Income; e) Rat e di fferen ce Determination of residential status: According to Section 2(55) of ITO 1984: Individual: An individual who has been in Bangladesh: (i)for a period of, or for periods amounting in all to, one hundred and eighty-twodays or more in that year; or (ii)for a period of, or periods amounting in all to, ninety days or more in that yearhaving previously been in Bangladesh for a period of, or periods amounting in all to, three hundred and sixty-five days or more during four years preceding that year: Hindu Undivided family: A Hindu undivided family, firm or other association of persons, the control and management of whose affairs is situated wholly or partly in Bangladesh in that year; and Company: A Bangladeshi company or any other company the control and management of whose affairs is situated wholly in Bangladesh in that year; Taxable income and the rate: Resident Non-resident U/s 2(55) U/s 2(42) Tax on "Global' (work) income Tax on Bangladesh income only Tax at prescribed rate(s): Tax at prescribed rate(s): Individual: Entitled to threshold exemption of Tk 150K Individual: At a maximum rate of 25%having no such and investment allowance (30% of total income-limit benefits. Tk=250K) rebate at 15%


Company: At prescribed applicable rate — including entitlement to tax-holiday(4/6 years) or reduced rate (10%-20%) exemptionin applicable case(s)

Company: Not entitled to (i) Publicly traded status ( i i ) T a x - h o l i d a y Or (iii)Certain reduced rate or exemption Question 2(b) Discuss the legality of action where property is attached in lieu of tax in arrears when no intimation of arrears was received by the assessee and explain whether or not fee paid to advocate for defending the transfer of factory land under the settlement scheme are exempt from levy of tax. Answer 2(b): The DCT is empowered to issue certificate for the recovery of tax to the Tax Recovery Officer(TRO) U/S 138 of ITO 1984. On receiving the certificate the TRO may proceed for the attachment and sale, or sale without attachment, of any moveable or immovable property of the assessee U/S 139. However, intimation of arrear to the assessee is a pre-requisite for the attachment of the property( Misri Bai V. ITO ITR 487 and N.BFilms V. Daya Shankar, ITR 676) Since legal fee paid to advocate for defending the property under settlement scheme is a genuine business expenditure, the amount would be an allowable expenditure U/S 29 of ITO 1984. Question 3: "Certain conditions and procedures are to be fulfilled in case of self-assessmentfor private limited company". Discuss the provisions relating to self-assessment under section 83AA for Private Limited Companies. Answer 3: Self-assessment of Private Limited companies According to Section 83AA and Rule38 A private limited company may also file return under the self-assessment procedure by fulfilling the conditions as mentioned below: a) Files a return on or before the date specified in clause ( c) of sub-section(2)of section75, b) The income shown in such return is higher by not less than 5% over the last assessed income and has also increased by at least a further sum of 5% for each preceding assessment year in respect of which the assessment is pending c) Pays tax on the basis of such income or Tk.50,000 w hich ever is higher on or before the data on which the return is filed. d) Such return shall be accompanied by a copy of the accounts of the company audited by a chart ered acco unt an t; e)Tax shall be paid on or before the date on which the return is filed f ) The assessment on the basis of such return shah not result in any refund.

Question 4:Given below is the Profit & Loss A/c. of M/s. Arzoo Textile Mills Ltd. Savar, for the year ended 30th .June 2004 :Particulars Cotton Stores Mills Salaries & Wages General Expenses Replacement of Plant & Machinery Stamp Duty, Registration, Legal Fees etc. Motor Car Overhauling Expenses Purchase of two Paintings for MD’s Office X-Mas Gift given to the Foreign Contractor Refreshment, Food, Drinks etc., at one of its Business Meetings Expenditure incurred on Catering and refreshments for shareholders and guests at general body meeting Donation Rates & Insurance Office Expenses Directors’ Fees Auditors Fees Interest Repairs to Building & Machinery Trade Penalties, Legal Expenses & Professional

Taka 11,417,950 1,835,648 3,831,984 29,010 2,039,000 250,000 15,000 30,000 10,000 25,400 50,600 10,000 40,376 240,694 9,000 30,000 211,850 124,556 120,000

Particulars Sale of Yarn Sale of Textile Products Export Subsidy / Incentive received in Cash Sale of Waste Rent of Bungalows Dividend Interest on PSP

Taka 10,811,956 10,926,425 407,687 121,508 57,902 17,400 15,000


Charges Entertainment Workmen’s Welfare Expenditure Contribution to Staff Provident Fund Provision for Gratuity Reserve for Meeting Contingent Liability Loss for Discarding Ageing Machinery Selling Agent’s Commission Net Profit (Subject to Depreciation)

249,700 55,184 75,500 150,000 30,000 205,397 201,690 1,069,339 22,357,878

22,357,878

From the foregoing, compute the company’s taxable income from business, the total income (computation should include necessary reasons), and tax liability for the assessment year, 2004 – 2005 taking into account; i) Sale of textile products includes Tk. 89,249 from export. ii) Payment of Mills Salaries includes Tk. 75,000 for payment of tax for a foreign technician engaged by the company; iii) Expenses for stamp duty, registration, legal fees, etc. amounting 250,000 have been incurred in raising loans; iv) Rates Tk. 1,800, insurance Tk. 2,500 and repairs to building Tk.7,544 in respect of bungalows; v) The break-up of trade penalties, legal expenses and professional charges for Tk. 120,000 is as follows: a) Trade penalties and law expenses constitute Tk. 20,000. b) Assessee company has spent Tk. 50,000 for successfully defending the allegation of black marketing. c) Professional charges include Tk. 20,000 paid to an Income tax practitioner to represent the cases to the Deputy Commissioner of Taxes and Tk. 30,000 to represent an Income tax Appeal before Appellate Tribunal. vi) Donation includes Tk. 5,000 contribution to Zakat Fund; vii) The Staff Provident Fund is a recognized one; viii) It is found that the amount of gratuity actually paid during the year was Tk. 100,000; ix) Dividend income has been subject to dividend distribution tax; x) The amount of depreciation allowable for assets used for the company’s business is worked out at Tk. 551,710; xi) It is revealed that outstanding trading liabilities amount to Tk. 1,100,000. The date of origin of the trading liabilities are as follows: a) b) c) d)

Assessment year 2000 – 2001 Assessment year 2001 – 2002 Assessment year 2002 – 2003 Assessment year 2003 – 2004

350,000 300,000 150,000 300,000 1,100,000

Answer 4:

M/s Arzoo Textile Mills Ltd. Saver Income year 2003-2004 Assessment year 2004-2005 Computation of Taxable Income Net Profit Less: Export Subsidy / Incentive for separate consideration Rent of bungalows (income from house property) Dividend Interest on PSP

Add: Inadmissible expenses: X-Mas Gift Given to the Foreign Contractor Donation Rates, insurance & repairs (1,800 + 2,500 + 7,544) Trade penalties law expenses Provision for Gratuity

Taka 1,069,339 407,687 57,902 17,400 15,000 497,989

10,000 5,000 11,844 20,000 150,000

Taka

571,350


Reserved for meeting contingent liability Entertainment Expenses Outstanding Liabilities not paid within 3 years Replacement of Plant & Machinery being capital expenditure Less. :Gratuity Paid: Tax depreciation

30,000 249,000 350,000 2,039,000 100,000 551,710

Less: Entertainment Expenses First 1,000,000 @ 4% Next 1,785,194 @ 2% Business Income

40,000 35,704

Income from Export Incentive 407,687 / 95x5/0.15 Total Business Income

Tax on Business income of Tk. 2,709,490 @ 15% (SRO : 218 -11/2003 of 19.07.2003) Tax on cash Subsidy (Final Settlement) 82C Other Income: Income from dividend Less: Exemption Interest on PSP (assuming purchase after 1 January 2004) Less: Exemption Income from House Property: Rental income that is annual value Less: Rates and insurance Less: repairs 25%

2,865,544 3,436,894 651,710 2,785,194

75,704 2,709,490 143,047 2,852,537 Total 406,424 21,457

17,400 17,400 15,000 15,000

57,902 4,300 14,475

Nil Nil

39,127

Notes: (i) Payment of employee's tax for Tk. 75,000 paid by the employer is allowable expenditure and such tax is exempted from payment of tax in the hand of employee- SRO: 182-L/99 of 01, July 1999. (ii) Expense for stamp duty, registration legal fees amounting to Tk. 2,50,000 is allowable expenses u/s 29 (xvii) (iii) Professional & legal fees are allowable but fine & penalties for Tk. 20,000 are not considered. (iv) Donation to Zakat fund is an allowable expense. (v) Replacement of plant & machinery is capital nature of expenditure. (vi) Purchase of two paintings for MD's office is a decoration expenses is allowable expenditure u/s 29. (vii) Since the company is paying tax at reduced rate, tax rebate for export of Tk. 89,13,249/- could not be allowed (clause 28 Part A of 6th schedule). (viii) Dividend income from listed company was exempted from tax till 30 th June 2005. (ix) Gift is an allowable expenditure if given for business purpose. However, in absence of specific indication regarding purpose, one given to foreign contractor has been disallowed. (x) The trading liability not cleared within 3 years of the expiration of income year is being considered as an income u/s 19 (15) (c) of ITO 1984. (xi) The amount of Tk. 50,000 being spent for defending the allegation of black marketing is allowable expenses. Question 5(a) Point out the distinctions between setoff of losses and carrying forward of losses. Answer 5(a) Particulars Set off loss u/s 37 Carry forward of losses: u/s 38-42 Income from Business or Profession except Speculation business

Loss arising year: Limit six years: only Set off as mentioned u/s 37 and if not set off against business loss fully then carry forward to the subsequent year.


Speculation loss

Set off against speculation loss

Limit six years:only against speculation income

Loss under capital gain

Set off against capital gain from other sources of capital gain. Loss arising year: Set off as mentioned u/s 37 and if not set off fully then carry forward to the subsequent year

Limit six years: only if in e x c e ss of T k 5 ,0 0 0 against capital gain Limit six years: only against Agricultural income

Agricultural income

Question 5(b) The following particulars of income of Mr. Ali Ahmed are available for the assessment year ,2004-2005 Income from house property Taka 100,000 Business income (after allowing for current year’s depreciation of the Tk.20,000) Taka 70,000 The following sums have been brought forward from the preceding year: Unabsorbed depreciation Taka 80,000 Business loss Taka 50,000 Deputy Commissioner of taxes is proposing to assess him on a total income of Tk. 100,000 by setting off only of the business loss of Tk. 50,000 and part of the unabsorbed depreciation of Tk. 20,000 against the business income of Tk. 70,000.1s he right in his action? Answer 5(b): The DCT is not right in his action. The assessment should be done in the following manner Taka Particulars Business Profit/(loss): profit for the year Previous business "loss" - b/f

70,000 (50,000) 20,000 (20,000) Nil 100,000 (60,000) 40,000

Less: Unabsorbed depreciation Business profit Property income Unabsorbed depreciation c/f: Taxable income

Mr. Ali Ahmed should not accept the DCT's proposal. He should submit the proposal which is in line with law. Moreover if the DCT still remain in his decision and assessed in his (DCT's) own view then he (Ali Ahmed) may prefer an appeal to the appellate authority. Question 6(a) What are the procedures and time for payment of Value Added Tax? Answer 6(a) According to Section 6 of VAT Act 1991: In case of imported goods: The method of payment of VAT will be the same as per the Customs Act In the case of supply of goods by a registered person, value added tax shall be payable on the first occurrence of any of the following events:a) When goods are delivered; b) When related delivery challan is issued; c) When goods are used for personal purpose or transferred for the use of others d) When payment is received either in part or in full. I n c as e of re nd e ri ng se rv i ce s v al ue ad d ed t ax s hall be p ay ab le on t he first occurrence of any of the following events: a) When services are rendered; b)When related challan is issued; c)When payment is received either in part or in full. Question 6(b): What is self registration? List down the documents which will be required for compulsory registration. .

Answer 6(b) According to section 17 of VAT Act 1991: Any person exempted from registration under section 16 can apply in prescribed form and procedures to the concerned office for self registration and as such to be treated as supplier or provider of taxable goods or services and upon full satisfaction about the compliance of such application, the official shall register the person and issue him a registration certificate mentioning therein his business identification number.


Since compulsory registration is imposed by the VAT authority on a person who required to be registered but does not applied, the question of submission of documents is not arrived. However, followed by registration the authority may ask for the following documents for reference and record. ” a) Application in form "Mushak-6 b) Trade licensee; c) TIN certificate (if available) d) IRC/ERC certificate (Where applicable) e) List of all sale centers when applied for central registration; f) A declaration in form Mushak-7 regarding place of production or business, plant, machinery, fittings, goods to be produced or purchase or sale or stock of goods and its inputs.*** Question 7(a) How does an aggrieved person get redressed under VAT Act 1991? Answer 7 (a): a)Any person aggrieved by an order U/S 9 (2) of VAT Act 1991 for adjustment of account current by or in the return canceling the rebate (credit) taken may raise a written objection U/S 9(2a) to superior officer against said order. b) Any person aggrieved by any decision or order given by a VAT officer under VAT Act 1991 or VAT Rules 1991 may appeal against such order, except against an order of seizure or sale issued under section 56 in case of supply of goods or rendering of services or those issued under sections 82 and 98 of the Customs Act in the case of import of goods, within 3 months of giving such decision or order. The Appeal to be placed:To the Commissioner (Appeal) against the decision or order issued by an Additional Commissioner or any VAT Officer subordinate to him. To the Customs, Excise and VAT Appellate Tribunal, against the decision or order issued by the Commissioner, the Commissioner (Appeal) or any VAT officer of equivalent rank and status. Question 7(b): When Zero tax rates is imposed under the Value Added Tax Act? Answer 7(b): Zero rated tax shall be imposed on the following goods or services, namely: (a)any goods or services exported or deemed to have been exported from Bangladesh; (b)food and other things supplied in accordance with section 24 of the Customs Act, 1969 (V of 1969) hereinafter referred to as the Customs Act to any transport leaving Bangladesh, for consumption outside Bangladesh: Exception: Zero rated tax shall not be applicable to the following goods, namely: (a)any goods intended to be re-imported into Bangladesh; (b)such goods as have been presented for export in accordance with section 131 of the Customs A ct b ut not exported, within thirty days of submission of the bill of export or extended time,if any, allowed by the Commissioner in this behalf. Question 8. Mr. K.T. Hossain has recently started a Plastic Chair Manufacturing Company in Dhaka under Super Quality Plastic Product. While marketing his products his goods are seized by VAT Inspector for non-maintaining of books records and payments of VAT. He does not know the system of recording under existing law of VAT and request you to give him an advice on the following:What books and records are required by him as per existing system and what are provision with regard to offences and prosecution under VAT Act 1991? Answer 8: Mr.K.T.Hossain Proprietor Dear Sir,

This has reference to your letter No ………..of ................. We are pleased to furnish the followings suggestions for your consideration. In pursuance with sec. 31 read with rule 22 your firm require the followings Books of Accounts:  Purchase Register: Mushak-16: Rule 22(1)  Sales Register: Mushak-17: Rule 22(1)  Current Account: Mushak-18: Rule 22(1)  Challan (Invoice): Mushak-11: Rule 16(1)  Challan (Cash Memo): Mushak-11 kha: Rule 16(1)  Statement of input & FG stock, production statement  The accounts of production or manufacture of goods or raw materials, services, etc Followings are the Records that are to be maintained:  VAT Challan (invoice) for local input purchases


 Bill of entry & Invoice for imported input  Treasury challan copy  Copy of Dakhil-patra (Return): Mushak -19: Rule-24(1)  Credit Note, Mushak-12 (if any)  Debit Note, Mushak-12 kha (if any) According to Section 37 of Value Added Tax Act 1991: The followings are the offences:  fails to submit an application for registration under this Act, though required to submit such an application; and  fails to submit a return within the specified date; or  fails to inform the value added tax officer about any change of information in relation to registration; or  fails to comply with the direction of any summons under section 25; or  violates any other provision of this Act. Prosecutions: Shall be liable to pay a fine of taka not less than ten thousand and not more than fifty thousand. Offences:  fails to give a tax-invoice or gives a tax-invoice untrue in relation to material information; or  fails to pay value added tax or, where applicable, value added tax and supplementary duty on goods or service supplied by him though directed twice by the concerned officer, or fails to submit the return for a tax period even after lapse of the time specified for such submission; or  submits return untrue in relation to material information; or  attempts to evade payable value added tax by supplying goods without recording information regarding sales in the sales accounts register (Mushak-17) and payable value added tax in the account current register, (Mushak-18); or  evades or attempts to evade tax by submitting forged or false documents to a value added tax officer; or  Does not preserve any document which is required to be preserved under this Act or the rules; or destroys or alters such document or mutilates any part of such document; or demonstrates it to be false: or does not preserve the document as per requirement of this Act: or  makes consciously a false statement or declaration; or  obstructs or prevents from entering his business place any value added tax officer authorized under this Act to inspect or seize any record, register or any other document relating to value added tax; or  engages himself in receiving, acquiring possession of or  transacting in good though he knows or he has reason to believe that value added tax or, where applicable, supplementary duty payable on such goods has been evaded; or  takes a credit of input-tax through forged or fake invoice: or  evades or attempts to evade value added tax or supplementary duty by any other means; or  gives an invoice in which an amount of value added tax is specified, though he is not a registered person: Prosecutions:  he shall be liable to a fine of an amount not less than equal to, and not more than 2.5 times the amount of value added tax or, where applicable, value added tax and supplementary duty, payable upon the goods or service; and, if convicted for the said activity in a court of Magistrate, he shall be liable to imprisonment for not less than three months and not more than two years, or to a fine not less than equal to, and not more than two and half times of, the amount of value added tax or, where applicable, value added tax and supplementary duty, or to both. For irregularities other than evasion of revenue, he shall be liable to a fine of not less than twenty five thousand taka and not more than three lac taka.  If any registered service renderer fails or has failed to submit return or to pay value added tax or, where applicable, value added tax and supplementary duty within the specified date, then he shall be required to pay that unpaid value added tax or, where applicable, value added tax and supplementary duty along with an additional tax at the rate of two per cent per month on the unpaid amount of the tax and duty. Offences:  fails to become registered within one month of the receipt of an order for compulsory registration Prosecutions:  if he is a registered person, his business premises may be put under lock and key and registration may also be cancelled; and  if he is a registerable person, his business premises may be but under lock and key.


According to Rule 35 of Value Added Rule 1991: Offences and prosecutions: A registered person who contravenes any provision of the rules shall be liable to a penalty of an amount, being not less then half, and not more then two times, the amount of value added tax or, where applicable, the value added tax and supplementary duty, and the goods or service (where applicable) related to such contravention shall be forfeited to the Government. We are ready to furnish any clarification as and when required by you. Thanking you ---------Question 9(a) What do you mean by Truncated based VAT? Discuss the procedure and method of payment of VAT under this system. Answer 9(a): Truncated based VAT: VAT is levied on truncated value under this system. Truncated value is the extent of value addition deemed to be made by certain service providers on which standard 15% VAT is chargeable. Input tax rebate is not allowed under truncated system. Examples of services:

Provider of services Dockyard Construction firm Printing press Audit and accounting firm Medical institution

Value addition(%) 30% 30% 30% 30% 15%

Truncated rate (%) 4.5% 4.5% 4.5% 4.5% 2.25%

Procedure and method of payment: VAT to be paid when a) service rendered; b) issuance of invoice; c) receipt of part or full payment Which occurs first Question 9(b) Define TOT as per section 8 of Value Added Tax Act,1991. What are the provisions in Rule 4 in the following cases? i)Payment; ii) Penalty on default payment and process of appeal. Answer 9(b): According to section 8 of Value Added Tax Act 1991:  Any producer or manufacturer or trader of taxable goods or provider of taxable services, who is not required to be compulsory registered, shall pay turnover tax at the rate of four percent of his annual turnover.  The Board may, after consideration of the importance of the public interest and proper investigation, by order published in the official Gazette, exempt any goods or service from turnover tax, subject to such limits and conditions as may be specified in the order. According to rule 4 of Value Added Rule 1991: Payment:  Every supplier of taxable goods and services shall have to pay turnover tax annual turnover when it does not exceed Tk.20 lac.  Any person subject to turnover tax shall have to be enlisted with superintendent for payment of turnover tax.  A declaration stating projected turnover of the year and the manner of tax payment shall have to be made to the superintendent.  Any enlisted person shall have to pay turnover tax from the date of registration. The enlisted person can pay turnover tax annually, monthly or quarterly.  The enlisted person should submit turnover tax return with main treasury challan copy Penalty on default payment If the enlisted person fails to pay the turnover tax fixed by the superintendent, in the manner described in the laws, the superintendent may impose an additional tax at the rate of 2% per month on the unpaid amount, in addition to a fine not exceeding Tk. 5,000. Process of appeal: Any enlisted person aggrieved by the decision of superintendent may appeal to the commissioner (appeal) u/s 42(1) of VAT Act 1991. .


Suggested Answers Taxation — II Professional Examination — III May — June, 2005 Question 1. Write short notes on the following in relation to Income Tax Ordinance 1984: a)Business connection b)Excess perquisites on employer's assessment c)Excess profit tax d)Unabsorbed depreciation e)Dividend distribution tax Answer 1(a) Business Connection In generality there should be a business in Bangladesh and a connection between the person sought to be taxed and that business or person should have earned income from that connection. Business connection is referred to the following Sections and Rules of ITO and ITR 1984: Section 18(2) (a) of ITO 1984 Income deemed to accrue or arise in Bangladesh Any income accruing or arising, whether directly or indirectly, through or from any business connection in Bangladesh. According to Section 104 of ITO 1984 Any business carried on between a resident and a non-resident, arranged in a manner that relevant transactions produces to the resident either no profit or profit less than the ordinary profit is treated as business connection by the Deputy Commissioner of Taxes. According to Rule 34 of ITR 1984 If the actual amount of the income, profits or gains accruing or arising to any person residing out of Bangladesh whether directly or indirectly through or from any business connection in Bangladesh or through or from any property in Bangladesh or through or from any asset or source of income in Bangladesh in cash or in kind cannot be ascertained, a reasonable percentage of the turnover so accruing or arising treated as income. Answer 1(b) Excess perquisites on employer's assessment According to Section 2(45) of ITO 1984: Perquisite means (i)any payment made to an employee by an employer in the form of cash or in any other form excluding basic salary, festival bonus, incentive bonus not exceeding ten percent of disclosed profit of relevant income year, arrear salary, advance salary, leave encashment or leave fare assistance and overtime, and (ii)any benefit, whether convertible into money or not, provided to an employee by an employer, called by whatever name, other than contribution to a recognized provident fund, approved pension fund, approved gratuity fund and approved superannuation fund. (iii)According to Section 30(e) of ITO 1984: Excess perquisites on employer's assessment means so much of the expenditure by an assessee on the definition of perquisites, as defined above, to any employee exceeds taka two lakh Answer 1(c) Excess profit tax According to Section 16 (C) of ITO 1984: Where a banking company shows profit in its return of income for an income year at an amount exceeding fifty per cent of its capital as defined under the said Act together with reserve, the company, in addition to tax payable, shall pay an excess profit tax for that year at the rate of fifteen per cent on so much of profit as it exceeds fifty per cent of the aggregate sum of the capital and reserve as aforesaid.

Answer,1(d) Unabsorbed depreciation According to Section 42(6) & (7) of ITO 1984: The amount of depreciation allowance of any year which cannot be absorbed due to the non-availability of profits or gains chargeable for that year or such profits or gains being less than the allowance then, the allowance or part of the allowance to which effect has not been given is treated as unabsorbed depreciation. The amount of unabsorbed depreciation of any year shall be added to the amount of the allowance for depreciation for the following year and be deemed to be part of that allowance or if there is no such allowance for that year, be deemed to be the allowance for that year and so on for succeeding years. When depreciation allowance is carried forward, then it can be set off after giving effect of business loss and speculation loss. Answer 1(e) Dividend Distribution tax According to Section 16(D) of ITO 1984:


Where a company registered under Company's Act 1994 declares otherwise, on or after the first day of July, 2003, the company shall pay, in addition to tax payable, dividend distribution tax at the rate of ten percent on such dividend within sixty days from the date of such declaratio n. Dividend distribution tax was withdrawn by Finance Act 2005. Question 2(a) Mention the rate of normal depreciation of the following class of assets as per the Third schedule, ITO 1984: I) Building (general) II) Factory building III) Machinery & plant IV) Mineral oil concern-below ground installation Answer 2(a) Normal depreciation rate: According to clause 3(1) of Third Schedule of ITO 1984: Particulars Depreciation rate i) Building (General) 10% ii) Factory Building 20% iii) Machinery & Plant- General 20% 12-24% iv) Machinery & Plant- Ships Machinery & Plant- Cinema machinery, Battery 20% Machinery & Plant- Motor vehicles plying for hire 24% Machinery & Plant- Motor vehicles Not plying for hire 20%

iv)Mineral oil concerns —below ground installation .

100%

(b) A Ltd. bought a machine for Tk.50 lakhs on 10 July, 2000 to be used in its expansion unit in Tongi, Gazipur. The investment qualified for both accelerated depreciation under Third Schedule and investment allowance under section 29,ITO 1984. It sold the machine on 15 January 2003 for Tk.20 lakhs. A Ltd's year ends on 30 June. Calculate depreciation and other relevant admissible allowance for the concerned years. Answer 2(b) Calculation of depreciation and other relevant admissible allowance: According to clause 7 of 3rd Schedule of ITO 1984: Accelerated depreciation allowance is allowed in the case of any machinery or plant (other than office appliances and road transport vehicles) which, not having been previously used in Bangladesh, has been or is used in an industrial undertaking includes an expansion unit set up in Bangladesh between the first day of July, 1977 and the thirtieth day of June, 2008 (both days inclusive) Here A Ltd. bought machinery on 10 July 2000 at Tk.5,000,000. a)Calculation of accelerated depreciation allowance: Assessment Year Amount (Tk.) 2001-2002 100% of 5,000,000=5,000,000 b) Investment allowance under section 29(x)(a)(Omitted by FA 2004) In the case of any machinery or plant which is entitled to accelerated depreciation under paragraph 7 of the Third Schedule, an investment allowance, for the year in which the undertaking starts commercial production, at the rate of 25 percent of the amount invested by the assessee. So A Ltd is entitled to get investment allowance: Assessment Year Amount (Tk.) 2001-2002 25% of 5,000,000=1,250,000 ..--- -

c) A Ltd sold the machine for Tk.2000,000 on 15 January 2003 Written Down Value (WDV)= Nil Sale proceeds =Tk. 2,000,000 So Business income which is taxable u/s 28(1)(e)= Tk 2,000,000 Q3.Biki (Bangladesh) Co. Ltd. engaged in trading business of consumable goods. In the income year ended 31 December, 2004 the company produced the following goods for commercial purpose: Date Description Import Purchase from local market July 2004

Goods imported at C&F price Goods purchased

USD 500,000 Tk.2000,000


October 2004

Goods

imported at C&F price

USD 400,000

Goods purchased

Tk. 3000,000

Assuming import duty @20%, supplementary duty @25% was paid at import point .VAT and advance income tax was also suffered at applicable rates at import stage. Custom's assessed value for goods imported in July,2004 and October,2004 was USD 550,000 and USD 440,000 respectively. All the imported goods were sold to one special customer. The customer did not deduct any income tax at the time of making payments to Biki (Bangladesh) Co. Ltd. Goods purchased locally were sold to five customers -A, B, C, D and E as follows: Sales to customer Date Total (Tk.) C(Tk.) A (Tk.) _ B(Tk.) D(Tk.) E(Tk.) 10 July 2004 200,000 150,000 300,000 80,000 400,000 1,130,000 24 October 2004 400,000 500,000 300,000 700,000 500,000 2,400,000 28 November 2004 500,000 300,000 400,000 400,000 400,000 2,000,000 (Exchange rate to be used USD 1=TK. 60) From the above you are required toi) Calculate advance income tax, supplementary duty and VAT suffered by Biki (Bangladesh) Co. Ltd. at import point. ii) Calculate advance income tax deducted at source by each customer iii) Compute income and tax liability of Biki (Bangladesh) Co. Ltd. under section 82c of the Income Tax Ordinance,1984 corporate tax rate may be considered as 37.50%. Answer 3 (i) Calculation of advance income tax, supplementary duty and VAT suffered by Biki (Bangladesh) Co. Ltd. at import point. Date of Value Value Custom Custom Import AIT SD VAT Import C&F C&F assessed assessed duty (TK.)'000 (Tk.)'000 (Tk.)'000 (USD)' (Tk.)'000 (USD)'000 (Tk.)'000 @20% @3% 25% @15% 000 (Tk.)'000 July 2004 October 2004 Total

500 30,000 400 24,000

550 440

33,000 26,400

6,600 5,280

990 792

9,900 7,920

7,425 5,940

900 54,000

990

59,400

11,880

1,782

17,820

13,365

Notes: 1)Import duty calculated on Custom Assessed Value; 2)AIT calculated on Custom Assessed Value; 3)SD calculated on the sum result of Custom Assessed Value and Import duty; 4)VAT calculated on the sum result of Custom Assessed Value and Import duty and Supplementary duty. Answer 3 (ii) Calculation of advance income taxes deducted at source. The customers will deduct tax as advance tax (according to section 52 of ITO 1984 and rule 16) by applying following rates: Amount of payments (Tk.) Rate of deduction SL No. 1. Where the payment does not exceed taka 100,000 (one la kh) Nil 2. Where the payment exceeds taka 100,000 (one lakh but does not exceed 1% taka 5,00,000 (five lakh) 3. 4. 5.

Where the payment exceeds taka 5,00,000 (five lakh) but does not exceed taka 15,00,000 (fifteen lakh) Where the payment exceeds taka 1500,000 (fifteen lakh) but does not exceed taka 25,00,000 (twenty five lakh) Where the payment exceeds taka 25,00,000 (twenty five lakh)

Date 10 July 2004

Sales to customer A (Tk.) B(Tk.) C(Tk.) 200,000 150,000 300,000

D(Tk.) 80,000

E(Tk.) 400,000

2.5% 3.5% 4%

_.-

Total (Tk.)> t' 1,130,000


24 October 2004 28 November 2004 Total TDS @ 2.5%

400,000 500,000 1,100,000 27,500

500,000 300,000 950,000 23,750

300,000 400,000 1,000,000 25,000

700,000 400,000 1,180,000 29,500

500,000 400,000 1,300,000 32,500

2,400,000 2,900,000 5,530,000 138,250

Answer 3 (iii) Calculation of Total income and tax liability: Total income: Goods sold to customers Tax deducted at source (Tk.)

Imported goods Local purchased goods

1,782,000 138,250

Applicable tax rate Total Income (TK.) u/s 82(c) 4,752,000 (Note 1) 37.5%

37.5%

Total income

368,760 (Note 2) 5,120,670

Note 1. Calculation: (1,782,000*100)/37.5% Note 2. Calculation : (138,250*100)/37.5% Tax Liability As all the sales (both locally purchased goods and imported goods) are subject to final discharge of tax liability u/s 82C(2)(a,c) &(4) and advance tax is also deducted by customers u/s 52 &53 and Rule 16 & 17(A) the tax liability is TK. 1,920,250 (1,782,000+138,250). Q4(a) W hich mistake/errors can b e rectif ied under section 173 of the Income Tax Ordinance,1984? What are the provisions of the law for failure to rectify the mistake/errors by the relevant authority? Who can rectify the mistake? b)In which scenario tax depreciation is allowed on straight line method? c) In which case, reduced rate of tax are applicable? d) In which case capital gains arising on transfer of shares are exempted Answer 4 (a): Particulars

Explanation

Which mistake/errors can be rectified under section 173 of the Income Tax Ordinance, 1984?

Any error apparent from the record either of its own motion or on the error having been brought to its notice by the assessee or any other income tax authority

What are the provisions of the law for failure to rectify the mistake/errors by the relevant authority?

Where any error is brought to the notice of the authority concerned by the assessee andno amendment is made by such authority within the financial year next following the datein which the error is brought to its notice, the amendment under that sub-section shall be deemed to have been made so as to correct the error.

Who can rectify the mistake?

Any income tax authority or the Appellate Tribunal

Answer 4 (b): When Straight line method of depreciation is allowable Straight line method is allowed in case of second hand Ocean —going ship. According to SRO #177 —IT/2002 under 44(4)(b) of 03 July 2002 wef (July 1 2002) New (Industrial/infrastructure/tourism) ventures neither expansion unit not take the privilege of tax holiday (u/s 46A) or accelerated depreciation or not entitled to those, set up in between 01 July 2002 -30 June 2005 are entitled to reduce @20% rate of tax for five years. In this case the ventures use straight line depreciation method rather than written down value method. Answer 4 (c): Reduced rate of tax are applicable in the following cases: Cases Rate According to SRO #177 —IT/2002 under 44(4)(b) of 03 July 2002 wef (July 20% 1 2002 New (Industrial/infrastructure/tourism) ventures neither expansion unit not take the privilege of tax holiday (u/s 46A) or accelerated depreciation or not entitled to those, set up in between 01 July 2002 -30 June 2005 are entitled to reduced rate of tax for five years.


According to SRO #218 —IT/2003 under 44(4)(b) of 19 July 2003 Textile sector industries not enjoying tax holiday According to SRO #217 —IT/2003 under 44(4)(b) of 19 July 2003 Ready made garments (RMG) not enjoying tax holiday According to SRO #218 —IT/2004 under 44(4)(b) of 13 July 2004 Jute sector industries not enjoying tax holiday According to SRO #169 —L/2001 under 44(4)(b) of 28 June 2001 Local authorities rendering public utility services, having NBR approval

15% 10% 15% 25%

Answer 4 (d): The following cases where capital gains arising on transfer of shares are exempted According to section 32(7) of ITO 1984: where a capital gain arises from the transfer of a capital asset being Government securities and stocks and shares of public companies listed with a stock exchange in Bangladesh, then no tax shall charged. According to SRO#114-L/99 of 26 May 1999 —On transfer of shares of " Private Power Generation Company" Q.5. ABC Bank Ltd. has shown a net profit before tax amounting to Tk. 390 million for the year ended 31 December 2003. You are required to compute the tax liability of the bank for the assessment year 20042005 considering the following facts: i) Accounting depreciation charged in the accounts was Tk. 14 million whereas tax depreciation has been calculated as Tk.25 million ii) Inadmissible expenses have been found to be as follows: Particulars Tk. In Million Perquisites 4.00 Subscriptions and Donations 0.25 Printing, Advertisement etc. 1.00 Sundry Expenses 0.45 iii) Extracted from the Balance Sheet Particulars Paid up capital Statutory Reserve Retained profit-Opening Retained profit- Closing Exchange Equalization fund

Tk. In Million 408 130 42 148 1

iv)

Classification of Loans and Advances including Bills discounted and purchased Particulars Tk. In million Unclassified 8,065 Sub-standard 25 Doubtful 15 Bad/Loss 5 v) Unclassified Loans and Advances include staff loan of Tk.45 million. Other expenses include entertainment expense of Tk.4 million vi) Provision for bad and doubtful debts shown in the profit and loss account includes Particulars Tk. In million Specific provision 1 million General provision 10 million vii) Other income includes dividend of Tk.5 million received from a publicly listed company.

Particulars Net Profit as per Profit and Loss A/C

ABC Bank Ltd. Income year ended December 31,2003 Assessment year 2004- 2005 Notes Tk. In Million

Tk. In Million 390.00


Separate Considerable Items: Dividend Accounting depreciation -fiscal depreciation is allowable

(5.00) 14.00

Add: Inadmissible Items: Excess Perquisites Subscriptions and Donations Printing, Advertisement etc. Sundry Expenses Other Expenses Entertainment (for considering as per rule-65) Bad and Doubtful debt Provision (General plus specific)

4.00 0.25 1.00 0.45 4.00 11.00

Deduct: Allowable or Deductible Items: Fiscal Depreciation Entertainment allowance-as incurred Provision for Bad and doubtful debt Income from Business Income from Other Sources Dividend Total Income Tax thereon Income Tax @ 45% on Tk.379.70 Excess Profit Tax Tax Payable

2

1

4

3

Note-1: Entertainment Allowance: On First 1 Million @ 4% On Balance 398.7 Million @ 2%

25.00 4.00 11.00

9.00 399.00

20.70 419.70

40.00 379.70 379.70 170.87 13.38 184.25 Taka .04 7.974 8.014

Note-2: Bad and Doubtful Debts: Actual provision 1% of total debt of Tk. 8,110 million So allowable up to lower of actual provision or 1% of total debt according to u/s 29(1)(xviiiaa)

Note-3: Excess Profit Tax Capital and Reserve: Paid up Capital Statutory Reserve Retained Profit - Opening Exchange Equalization Fund Total 50% thereof Total Income Excess Profit (379.7 - 290.5) Excess Profit Tax @ 15% Note -4 : Dividend :

11 81.1 11

408 130 42 1 581 290.5 397.7 89.20 13.38

Dividend received from companies registered in Bangladesh is exempted from tax as per clause 22 of Part . B of 6th schedule. However, along with dividend distribution tax, the provision was omitted by FA-2005


Q6. Mention the applicable amount/rates of stamp duty on the following instruments with exceptions, if any: a) Articles of Association of a company b) Memorandum of Association of a company c) Transfer of shares in a company Answer 6: Applicable amount/rates of stamp duty: According to Stamp Act Particulars Articles of Association

Where the nominal share capital does not exceed ten lakh taka Where the nominal share capital does not exceeds ten lakh taka but not exceeding three core taka Where the nominal share capital exceeds three core taka

Memorandum of Association

Transfer of Shares in a company

Amount (Tk)/ Rates 1,500/= 4,000/= 10,000/=

Not formed for profit and registered u/s 26 of the Companies Act, 1000/= 1994 Accompanied by Articles of association u/s 17 of the Companies 5000/= Act 1994 If not accompanied where the nominal share capital does not 1000/= exceed one lakh taka If not accompanied where the nominal share capital exceeds one 1500/= lakh taka Memorandum of any association not formed for profit and registered No fee under Section 26 of the Companies Act, 1994 On transfer of non-listed shares 1.5% of consideration or value of the transfer

Transfer through (listed shares) (Form # 117)

No fee

Q 7(a) Mention the amount of travel tax payable on foreign air travels by Bangladeshi nationals holding Bangladeshi passports. (b) What are the consequences of failure to deposit the collected travel tax to the Government Treasury within the scheduled time? Answer 7(a): The amount of travel tax payable on foreign air travels by Bangladeshi nationals holding Bangladeshi passports. According to SRO 209/Law/Travel Tax/2005 dated 06 July 2005Foreign Travel Tax is payable on all foreign air travel by all Bangladeshi nationals holding Bangladeshi Passports at the rate of — SI no. Mode of travel Amount (Tk.) (a) For travel to any country of the continents of North America, Tk 2,500 South America, Europe, Africa, Australia and New Zealand and any country of the Far East. For SAARC countries Tk 800 (b) For any other country Tk 2,000 (c)

Answer 7(b): Consequences of failure to deposit the collected travel tax to the Government Treasury within the scheduled time 1) Interest @ 2% per month payable for delayed deposits shall be realized from the persons who have the responsibility of collecting travel tax. 2) May forfeit the bank account of the concerned person or association for the default. 3) May take steps through the Civil Aviation authority prevent the flying of the Aircraft of the concerned airlines from the soil of Bangladesh. 4) May take steps for prevention of repatriation of any money of the concerned Airlines out of Bangladesh. 5) May take any necessary measures/modes of recovery similar to the ones available under the provisions of section 143 of the IT Ordinance 1984.


Q.8(a) State the provision of section 17 of Value Added Tax, 1991 regarding self registration. What are the procedures of registration under Rule 9? Answer 8(a)

According to section 17 of Value Added Tax, 1991:  Any person exempted from compulsory registration may apply for voluntary registration, as a supplier of taxable goods or renderer of taxable service and the proper officer shall, if he is satisfied that the application is in order in all respects, register the applicant and give him a registration certificate mentioning therein his business identification number. According to rule 9 of Value Added Rule 1991: Procedure of registration  If the annual turnover of the supplier of taxable goods or taxable service is not less than taka twenty lacs he shall have to submit an application for registration in Form 'Musak-6' to a Divisional officer or to an officer, not being below the rank of Assistant Commissioner specified by an order by the Board in this behalf.  If the turnover of a person in respect of the taxable goods supplied or taxable service rendered becomes, at any time during twelve consecutive months after his being exempt from the requirement of registration he shall within thirty days of the expiry of such period, submit an application for registration to the Divisional Officer or an officer, not below the rank of an Assistant Commissioner, specified by order by the Board in this behalf.  A person who intends to start the business of supplying taxable goods or rendering taxable service shall, before starting the business, apply to the divisional office or such officer, not below the rank of Assistant Commissioner, as the Board may, by order, empower in this behalf, for registration, if the annual turnover of the business is estimated to be at least taka twenty lakhs.  Where more than one taxable nods or service are supplied or rendered or import or exports are made from the same place of manufacture or production or rendering of service or import or export, only one registration shall be required.  A person required to be registered shall, along with the application for registration submitted in Form Musak-7 a declaration containing particulars of premises, plant, capital machineries and fittings and goods to be produced or purchased and sold or stocked and major inputs Q.8(b) What are the offences and penalties under section 37 and Rule 35 of VAT Act Rules,1991 Answer 8(b) Offences and penalties According to Section 37 of Value Added Tax Act 1991: The followings are the offences:

 fails to submit an application for registration under this Act, though required to submit such an application; and  fails to submit a return within the specified date; or  fails to inform the value added tax officer about any change of information in relation to registration; or  fails to comply with the direction of any summons under section 25; or  violates any other provision of this Act, Penalties: Shall be liable to pay a fine of taka not less than ten thousand and not more than fifty-thousand. Offences:  fails to give a tax-invoice or gives a tax-invoice untrue in relation to material information; or  fails to pay value added tax or, where applicable, value added tax and supplementary duty on goods or service supplied by him though directed twice by the concerned officer, or fails to submit the return for a tax period even after lapse of the time specified for such submission; or  submits return untrue in relation to material information; or  attempts to evade payable value added tax by supplying goods without recording information regarding sales in the sales accounts register (Mushak-17) and payable value added tax in the account current register, (Mushak-18); or  evades or attempts to evade tax by submitting forged or false documents to a value added tax officer: or  Does not preserve any document which is required to be preserved under this Act or the rules; or destroys or alters such document or mutilates any part of such document; or demonstrates it to be false; or does not preserve the document as per requirement of this Act: or  makes consciously a false statement or declaration: or  obstructs or prevents from entering his business place any value added tax officer authorized under this Act to inspect or seize any record, register or any other document relating to value added tax: or


engages himself in receiving, acquiring possession of or transacting in goods though he knows or he has reason to believe that value added tax or, where applicable, supplementary duty payable on such goods has been evaded; or  takes a credit of input-tax through forged or fake invoice: or  evades or attempts to evade value added tax or supplementary duty by any other means; or  gives an invoice in which an amount of value added tax is specified, though he is not a registered person; Penalties:  he shall be liable to a fine of an amount not less than equal to, and not more than 2.5 times the amount of value added tax or, where applicable, value added tax and supplementary duty, payable upon the goods or service; and, if convicted for the said activity in a court of Magistrate, he shall be liable to imprisonment for not less than three months and not more than two years, or to a fine not less than equal to, and not more than two and half times of, the amount of value added tax or, where applicable, value added tax and supplementary duty, or to both. For irregularities other than evasion of revenue, he shall be liable to a fine of not less than twenty five thousand taka and not more than three lac taka.  If any registered service renderer fails or has failed to submit return or to pay value added tax or, where applicable, value added tax and supplementary duty within the specified date, then he shall be required to pay that unpaid value added tax or, where applicable, value added tax and supplementary duty along with an additional tax at the rate of two per cent. per month on the unpaid amount of the tax and duty. Offences:  fails to become registered within one month of the receipt of an order for compulsory registration Penalties:  if he is a registered person, his business premises may be but under lock and key and his registration may also be cancelled; and  if he is a registrable person, his business premises may be but under lock and key. According to Rule 35 of Value Added Rule 1991: Offences and penalties: A registered person who contravenes any provision of the rules shall be liable to a penalty of an amount, being not less than half, and not more than two times, the amount of value added tax or, where applicable, the value added tax and supplementary duty, and the goods or service (where applicable) related to such contravention shall be forfeited to the Government. Q.8(c)Mention the rate of VAT based on value additions fixed by NBR applicable to the following service providers: i) C a r r y i n g c o n t r a ct o r ii) Adverti sing firm iii) Printing press Answer 8(c): Particulars Value addition VAT rate Carrying contractor 30% of total receipt 4.5% Advertising firm a) Garments, Nationalized Bank etc 100% of total receipt 15% 60% of total receipt 9% b) O t h e r s Printing press a ) P ri n ti ng w it h i np ut s 30% of total receipt 4.5% b ) Printing charges alone 100% of total receipt 15% Q.9. Mention the gift, which are exempted. Answer 9: According to Section 4 of Gift tax Act, 1990 The followings gifts are exempt from gift tax:  Of property situated outside Bangladesh;  Gift made to the Government or any local authority;  To the following funds or institutions for charitable purposes:


i) any university established under the law in force in Bangladesh or any educational institutions including polytechnic institute, recognized by the education board or recognized or run by the Government; ii) any hospital recognized or run by the Government or any local authority or any hospital aided by the Govt. or any local authority; iii) any flood or disaster management fund established or approved by the Government; iv) Such institutions or funds for religious or charitable purpose not being a private religious institutions or funds which does not ensure for the benefit of the public, as are established in Bangladesh and approved by the Government for such purposes or to any institutions established for religious or charitable purposes and registered under any law for the time being in force, up to 20% of total income determined for the concerned year or Tk. 100,000 whichever is less;  To dependent relative up to Tk. 20,000 on the occasion of his/her marriage;  By way of payment of policy on insurance or annuity for any person (other than wife) dependent upon him for support and maintenance up to Tk. 20,000;  Under a will;  Under contemplation of death;  To sons, daughter, father, mother, his/her spouse, own brothers and sisters. General exemption Gift tax shall not be charged under this Act in respect of gifts made by any person during any financial year, subject to a maximum of Tk. 20,000 in the value Q10. State the following relating to Customs regulations: a)Value for imposition of duty b)Tiers of duty-which are those c) HS Code Answer 10: a) Value for imposition of duty:: According to section 25 of the Customs Act, 1969, values of imported and exported goods are determined by the following ways: i. The value of any imported or exported goods be deemed to be the price at which such or like goods are ordinarily sold, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale. ii. The Government may, by notification in the official Gazette , fix for the purpose of levying customs duties, tariff values or minimum values for any goods imported or exported as chargeable with customs duty ad valorem; iii. The rate of exchange for computation of the value of any imported goods shall be the average rate of exchange prevailing during the month preceding the month during which the bill of entry is delivered under section 79 or electronically transmitted to the Customs computed system and as fixed by the Board or such officer as the Board may authorize in this behalf prior to the beginning of the month. b) Tiers of duty Tier Rate 1 0 2 10 3 15 4 25 c) HS code Harmonized System Code used in Customs /VAT scenario globally

11. What do you understand by a) IDSC; b) PSI fee?


Answer 11: a) IDSC IDSC means Infrastructure Development Sur-charge (IDSC) was leviable @ 4% mostly on imported merchandise. IDSC was withdrawn by Finance Ordinance 2007. b) PSI Fee PSI means Pre-Shipment Inspection. PSI companies carry out this inspection. In pursuance with Sec. 25 A of Customs Act 1969, the Government may appoint pre-shipment inspection and audit agencies to verify and certify the quality, quantity, price, description and customs classification of any imported goods. PSI service charge is currently 1% of the value of imported goods.


Suggested Answers Taxation — II Professional Examination — III November- December, 2005 Q-1. Write short notes on the following in relation to Income Tax Ordinance,1984: a) Double taxation avoidance agreement b) Best Judgment assessment d) Capital gain c) Refund of tax Answer: 1(a) Double taxation avoidance agreement According to section 144 of ITO 1984 The Government of Bangladesh may enter into an agreement with the Government of any other country for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income leviable under this Ordinance and under the corresponding law in force in that country. Objectives of Double taxation avoidance agreement (a)Relief from the double tax payable; (b)Determining the income accruing or arising, or deemed to be accruing or arising, to non-residents from sources within Bangladesh; (c)Where all the operations of business or profession are not carried on within Bangladesh, determining the income attributable to operations carried on within or outside Bangladesh, or the income chargeable to tax in Bangladesh in the hands of non-residents, including their agencies, branches or establishments in Bangladesh; (d)Determining the income to be attributable to any person resident in Bangladesh having any special relationship with a non-resident; (e)Recovery of tax leviable (f)Exchange of information for the prevention of fiscal evasion (g)To attract FDI in Bangladesh. Relevant information Bangladesh generally follows UN model of Avoidance of Double Taxation Agreement, which consists 29 Articles. Instances are Scope of the convention; Taxes covered, General definitions, Permanent establishment, Dividends, Interest, Royalties etc. Name of countries to which Double taxation agreement in force: Republic of Korea, Canada, Pakistan , United Kingdom of Great Britain and Northern Ireland, Singapore, Sweden, Romania, Sri Lanka, France, Japan, India, Malaysia, Germany, Italy, The Netherlands, Denmark, China, Belgium, Thailand, Poland, Philippines, Norway, USA. Answer 1(b) Best Judgment assessment According to section 84 of ITO 1984 Where any person fails (a)To file the return required by a notice under section 77 (b)Has not filed a return or revised return under section 78 (c)To comply with the requirements of a notice under section 79 - Production of accounts and documents (d) To comply with the requirements of a notice under section 80 - Statement of assets, liabilities and life style. (e)To comply with the requirements of a notice under section 83(1)- Notice for the production of evidence and supporting and for hearing. The Deputy Commissioner of Taxes shall, by an order in writing, assess the total income of the assessee to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment; and in the case of firm, may refuse to register it or may cancel its registration if it is already registered, and communicate such order to the assessee within thirty days next following. The assessment under section 84 of ITO 1984 is commonly known as exparte or best judgment assessment. An exparte assessment shall be construed as misconduct of concerned Deputy Commissioner of Taxes if the Board proves him/her that the best judgment assessment made by him/her shows lack of proper evaluation of legal and factual aspects of the case, which has resulted in an arbitrary and injudicious assessment. Answer 1(c) Refund of tax According to section 146 of ITO 1984


A person, who satisfies the Deputy Commissioner of Taxes or other authority appointed by the Government in this behalf that the amount of tax paid by him or on his behalf, or treated as paid by him or on his behalf, for any year exceeds the amount with which he is properly chargeable for that year, shall be entitled to a refund of any such excess. Claim of refund for deceased or disabled persons u/s 147of ITO 1984 In case of death, incapacity, insolvency, liquidation or other cause, a person, is unable to claim or receive any refund due to him, his legal representative, or the trustee, guardian or receiver, can claim or receive such refund for the benefit of such person or his estate. Correctness of assessment, etc., not to be questioned u/s 148 of ITO 1984 No question shall be raised by the claimant regarding correctness or validity of any assessment or other matter, which has become final and conclusive Interest on delayed refund u/s 151 of ITO 1984 Interest at the rate of 7.5% per annum shall be payable to the assessee on the amount of refund from the month following the said two months to the date of issue of the refund. Where a refund due to an assessee is not paid within two months of the date of the claim for refund. Answer 1(d) Capital gain Tax shall be payable by an assessee under the head "Capital gains" in respect of any profits and gains arising from the transfer of a capital asset and such profits and gains shall be deemed to be the income of the income year in which the transfer took place: What is capital gain? In a transfer of capital asset, amount remaining after deduction of the followings from the full value of consideration receivable or the fair market value of the asset whichever is higher, would be treated as capital profit or capital gain. (a)Any expenditure incurred solely in connection with the transfer of the capital asset. (b)The cost of acquisition of the capital asset and any capital expenditure incurred for any improvements Relevant information "Cost of acquisition of the capital asset" means-(i)Where it was acquired by the assessee by purchase, the actual cost of acquisition; and (ii) Where it became the property of the assessee Under a deed of gift, bequest or will; or  Under a transfer on a revocable or irrevocable trust; or  On any distribution of capital assets on the liquidation of a company; or  On any distribution of capital assets on the dissolution of a firm or other association of persons or the partition of a Hindu undivided family; The actual cost of acquisition to the previous owner of the capital asset as reduced by the amount of depreciation, if any, allowed to the previous owner; and where the actual cost of acquisition to the previous owner cannot be ascertained, the fair market value at the date on which the capital asset became the property of the previous owner: Where in the opinion of the Deputy Commissioner of Taxes the fair market value of a capital asset transferred by an assessee as on the date of transfer exceeds the full value of the consideration declared by the assessee by an amount of not less than 15% of the value so declared, the fair market value of the capital asset shall be determined with the previous approval of the Inspecting Joint Commissioner.

Where in the opinion of the Deputy Commissioner of Taxes the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the declared value thereof by more than 25% of such declared value, the Government may offer to buy the said asset in such manner as may be prescribed. Where a capital gain arises from the transfer of a capital asset being Government securities and stocks and shares of public companies listed with a stock exchange in Bangladesh, then no tax shall be charged. Example: Cost of a capital asset Tk.100, 000 Written down value Tk. 60,000 Sales value or consideration received Tk.120, 000 Here Capital gain= Tk (120,000-100,000)= Tk.20,000 Q2. Prepare, in brief a schedule of incomes that are included in "Income from other sources". Under section 33 of the Income Tax Ordinance, 1984. What are the admissible and inadmissible expenses under this head? According to section 33 of ITO 1984 The following income of an assessee shall be classified and computed under the head "Income from other sources", namely: a)Dividend and interest;


b)Royalties and fees for technical services; c)Income from letting of machinery, plants or furniture belonging to the assessee, and also of buildings belonging to him if the letting of buildings is inseparable from the letting of the machinery, plant or furniture; d)Any income which falls under section 19 (1)-Unexplained credit. 19(2) —Under recorded investment in bullion, jewellery 19(3) — Unexplained expenditure 19(4) — Unexplained investment 19(5) - Unrecorded investment 19(8)- Purchase value of assets is shown less than the fair market value. 19(9)- Lump sum amount received for salami or premia 19(10) Goodwill money received 19(11)- Cancellation of indebtness 19(12) —Managing agency commission 19(13)- Winning from lotteries & 19(21) or 19(21A) applies. (e) Any other income of any kind or from any source that is not classifiable under any of the other heads Admissible items According to section 34 of ITO 1984 the followings are admissible items: (1) The amount of interest paid in respect of money borrowed for the purpose of acquisition of shares of a company. (2) Any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, incurred solely for the purpose of making or earning the relevant income. (3) Where the income is derived from letting on hire of machinery, plant or furniture belonging to the assessee and also of building belonging to him if the letting of the building is inseparable from the letting of such machinery, plant or furniture. Inadmissible items (a) Any interest chargeable under this Ordinance which is payable outside Bangladesh on which tax has not been paid and from which tax has not been deducted at source. (b) Any payment. which is chargeable under the head "Salaries" if tax has not been paid thereon or deducted there from Q 3 (a) What are the changes brought in the Finance Act 2005 in section 46A of the ITO 1984 regarding investment of exempted income of a tax holiday company? Answer 3(a): The following changes/brought in the Finance Act 2005 in section 46: a) 30% of the exempted income to be invested during the period of the exemption or within one year there after in the said undertaking or in any new industrial undertaking b) 10% of the exempted income to be invested within 3(three) months of the year closing in listed shares. Provided that the quantum of investment shall be reduced by the amount of dividend, if any, declared by the company enjoying tax exemption under this section. Q3(b) XYZ Ltd. A private limited company engaged in the production of textile, enjoying tax holiday for four years with effect from 1 July 2004. For the income year ended on 30 June 2005 the company disclosed a net profit of Tk. 2,000,000. As the tax manager of the company you have examined the accounts of the company and noted the following: - Salary as shown in the accounts includes an aggregate amount of Tk. 800,000 paid to taxable employees from which tax was not deducted. - As aggregate amount of Tk.720,000 paid during the year to the following landlords as office rent without deduction of tax: Landlord Amount A 120,000 (monthly rent Tk. 10,000) B 600,000 (monthly rent Tk. 50,000) - Capital gain on sale of fixed assets amounting to Tk. 500,000 credited to profit and loss account; - Sales during the year include an aggregate amount of Tk. 8,000,000 representing sale to another taxable company and the directors of XYZ Ltd are also directors of that company. Sales were made at a price higher than the market price. Write a report to the Managing Director of the company explaining the tax implication of the above matters.


Answer 3(b) To The Managing Director XYZ Limited Dear Sir, Sub: Impact of the non-compliance with the provision of Tax laws. I am pleased to state herein under the tax implications of certain non-compliance observed at the time of the examination of accounts for the year ended on 30th June 2005 for your kind information a) Consequent to the non-deduction of tax as per Sec. 50. Tk.800,000 paid to taxable employees would be disallowed U/S 30(a) and to be added to the income. And in pursuance with Sec. 46A(7)c the company should pay tax on Tk. 800,000 in spite of tax holiday. b) Office rent paid to landlord A is not subject to deduction of tax at source under Rule 17 B whereas the amount paid to landlord B attracts tax at source and due to non-deduction U/S 53A would be disallowed U/S 30(aa) and to be added to the income. And in pursuance with Sec. 46A(7) c the company should pay tax on Tk. 600,000 in spite of tax holiday. c) Capital gain on sale of fixed assets amounting to Tk. 500,000 credited to profit and loss account shall also attract tax in according with Section 31/32 and 46(7)(b). d) Sales amounting to Tk. 8,000,000 to another taxable company, at a price higher than the market price, having common directors is an act that caused the tax holiday for the year under review deemed to have been withdrawn. In view of above I recommend your strong direction to the head of treasury to ensure compliance with the provision of income tax laws. Thanking you, Yours sincerely Tax Manager :

Q-4. Discuss the provisions of ITO 1984 regarding penalties for the following defaults: a) Failure to file return of income under section 75 b)Failure to p ay advance under section 64. c)Failure to deduct tax at source d)Failure to comply with notices for production of accounts under section 79 e)Failure to p ay tax on the b asis of the return of income under se ction 74 Answer 4 : Nature of defaults Penalties According to section 124 of ITO 1984 Failure to file return of income under section 75 10 % of tax imposed on last assessed income subject to a minimum of Tk 2500 and a further sum of Tk.250 for each day of continuing default. According to section 125 of ITO 1984 Failure to pay advance tax under section 64. The amount by which the payment falls short of the amount that should have been paid. Failure to deduct tax at source

According to section 57 of ITO 1984 Defaulter may be classified as assessee in default and 2% interest per month is imposable till the day of deposit.

Failure to comply with notices for production of accounts under section 79

According to section 126 of ITO 1984 Sum equal to the amount of tax.

Failure to pay tax on the basis of the return of income or if the tax paid is less than 80% of the tax on the basis of the return under section 74

According to section 127 of ITO 1984 25% of the tax due or 25% of the short fall.

Q5(a) Who is liable to pay advance tax? Answer: 5(a) According to section 64 of ITO 1984 Advance tax shall be payable by an assessee during each financial year if the total income of the assessee for the latest income year in respect of which he has been assessed by way of regular assessment, or has


been provisionally assessed exceeds three lakh taka. Income from "Agricultural income" and "Capital gains" shall not included in computation of income. A new assessee who has not been assessed to tax previo usly is also liable to pay advance tax if his income during any financial year is likely to exceed three lakh taka. Q5(b) How advance tax is computed? Answer: 5(b) According to section 65 of ITO 1984 The amount of advance tax payable by an assessee in a financial year shall be the amount equal to the tax payable on his total income of the latest income year as assessed on regular basis or provisionally, as the case may be, as reduced by the amount of tax required to be deducted or collected at source The tax shall be calculated at the rates in force in respect of the financial year for which income applied. Q5(c) How advance tax is payable? Answer: 5(c) According to section 66/67/68 of ITO 1984 Advance tax is payable in four equal installments on 15 th September,15th December, 15th March, and 15 th June. If the estimated income of any financial year is less than the last assessed income, the assessee may pay the advance tax on the basis of estimate. In case of new assessee by 15 June of the financial year. Additional condition If before the fifteenth day of May of the year, an assessment of the assessee is completed in respect of an income year, later than that on the basis of which the tax was computed the assessee shall pay in one installment on the specified date or in equal installments on the specified dates, if more than one falling after the date of the said assessment, the tax computed on the revised basis as reduced by the amount, if any, paid in accordance with the original computation. Q.5(d)B Ltd. computed its advance tax payable for income year 2004 -05 based on latest assessed income of Tk.500,000 for the income year 2002-03.Assessment for the income year 2003-2004 was completed on 15 April 2005 at a loss of Tk.600,000. Calculate the amount of advance tax to be paid by B Ltd in each quarter for the assessment year 2005-06. Answer:5(d) Calculation of the amount of advance tax: Here the latest assessed income Tk. 500,000 for the income year 2002-03. Amount of Tax =Tk.500,000 X40%= Tk. 200,000. Payable in 4 quarterly installments Date of installments Installment due (Tk.) Paid (Tk.) 15 September 2005 50,000 50,000 15 December 2005 50,000 50,000 15 March 2006 50,000 50,000 15 June 2006 50,000 According to section 66 of ITO 1984 the last installment is not required to be paid because the assessment for the income year 2003-2004 was completed on 15 April 2005 at a loss of Tk.600, 000. Relevant information If before the fifteenth day of May of the year, an assessment of the assessee is completed in respect of an income year, later than that on the basis of which the tax was computed the assessee shall pay in one installment on the specified date or in equal installments on the specified dates, if more than one falling after the date of the said assessment, the tax computed on the revised basis as reduced by the amount, if any, paid in accordance with the original computation. Q6. Messers Orion Limited a listed public limited company with its registered office in Dhaka, has shown net profit of Tk.837,413 in the audited accounts for the income year ended 30 June, 2005. You are required to compute total income and tax payable on correct return u/s 82 of the ITO 1984 indicating the assessment year and after considering the following facts: a) Excess perquisites calculated u/s 30(e) Tk.145,000 b) Salaries and allowances of Tk.176,200 paid without complying with the provisions of section 30(a), c) Registration expenses and fees include Tk.215,701 found to be personal entertainment in nature d) Advertisement and publicity expenses include Tk. 125,000 as donation to a local sports club. e) Gratuity provision during the year is Tk. 677,937 but actual payment is Tk.276.434.


f)

Rent, rates and taxes claimed at Tk.368,212 out of which Tk.21, 640 paid as rent complied with the provision of section 53A of the ITO 1984. g) Accounting depreciation as per audited accounts is Tk. 2,979,211 and tax depreciation as calculated with reference to previous year assessment is Tk. 3,726,422. h) Technical fee of Tk. 210,000 paid to foreign collaborators charged in the accounts i) Export turnover was 10% of the total sales of the company j) The company declared 60% dividend for the year. An s we r:

Orio n Lim ited-A listed public Company I ncome Year ended 30 J une 20 05 As s es s m ent y ear 2 0 0 5 - 0 6

Notes

Taka

Taka 837,413

Net profit as per audited Profit and Loss a/c Add : Items to be considered separately:

Technical Know how fee

1

Accounting depreciation-fiscal depreciation allowable

210,000 2,979,211

Gratuity provision —payment allowed

677,937

3,867,148 4,704,561

Add. Inadmissible items:

Excess perquisites u/s 30(e)

145,000

Salaries and allowance -for non deduction of tax at source u/s 50 and u/s 30(a) of ITO 1984. Advertisement & Publicity included donation to a local sports club

176,200

Registration fee included personal entertainment Rent without deduction of applicable tax u/s 53A, Rule 17B,u/s 30(aa)

215,701 214,640

125,000 876,541 5,581,102

Deduct: Allowable or deductible items:

Gratuity paid

276,434

Fiscal depreciation Technical Know how fee allowable @2.5% of profit

3,726,422 1

39,456 4,042,312

Total Income Tax thereon Tax @ 30% reduced by 10% thereof as dividend declared more than 20% means 27% on Tk.1,538,790 Less: Export rebate of 50% on Export turnover of 10% that is 5%(50% of 10%) of Tk.415,473 Tax Payable

1,538,790

415,473 2

20,774 394,699

N ote 1: Technica l Know h ow:

Allowable upto @2.5%( 5% from 1st July 2007) of profit of Tk. 1,578,246 u/s 30(h) of ITO 1984. Note 2: Export tax rebate:

10% of sale of manufactured goods is exports, the company enjoy the opportunity of 50% tax rebate on export business under clause 28 of Part A of 6 th schedule of ITO 1984. Question 7(a) How under the Gift Tax Act, 1990 the following gifts are valued:i) Li fe i n su ran ce pol i cy; ii) Interest in partnership firm iii) S h ares in privat e compan y. Answer 7(a):


. . -

Particulars Life insurance policy

Valuation procedure The amount of money that would have been rec eiv ed b y enc ashm ent o f the g if ted insurance policy

Interest in partnership

The value of shares shall have to be determined in the proportion of asset of the concerned firm in the year in which share was gifted.

Shares in a private company.

The value of shares shall have to be determined in the proportion of asset of the concerned private limited company in the year in which share was gifted.

Question 7(b) What re the provisions under the Gift Tax Act regarding submission of return and payment of tax? Answer 7(b): According to section 7 of Gift Tax Act 1990: Return of gifts: a) Every person who has made any taxable gifts during a financial year shall, before the 15th day of September of the corresponding assessment year, furnish to the Deputy Commissioner of Taxes a return in the prescribed form and verified in the prescribed manner. b) If the DCT is of opinion that the gifts made by a person during any financial year is liable to gift tax then he may serve a notice upon such person requiring him to furnish within such as may be specified in the notice a return in the prescribed form and verified in prescribed manner. According to section 8 of Gift Tax Act 1990 Payment of tax: a) Every person who is required to furnish a return shall pay on or before the date on which he furnished such return, the amount of tax payable on the basis of the return. b) Failure to pay the tax without reasonable cause then he shall be deemed to be an assessee in default. Question 8: State the provision of the Custom Act,1969 with regard to the following: a) Mandatory Preshipment Inspection; b) When no drawback allowed; c) Provisional assessment of duty d) Register of bonds. Answer 8: (a) Mandatory Pre-shipment Inspection: Mandatory PSI was provided u/s 25B of the Customs Act (# 4) 1969: Importers to have their importable goods inspected by a PSI Agency before or at the time of shipment of those goods on board of a Vessel, Air-craft, Surface-transport or any other conveyance like Animal; other than those specifically exempted/ dispensed with by SRO # 173-L-2005/2079- CKS (b) When no drawback allowed: U/s 39 of the Customs Act (# 4) 1969: No drawback (of duty) is allowed: i. upon goods which are required to be included in export manifest and are not so included, or ii. when the claim is for drawback amounting, in respect of any single shipment, to less than hundred taka, or iii.unless the claim for drawback has been made and established at the time of export [or within six months from the date of export]. (c) Provisional assessment of duty: U/s 81 of the Customs Act (# 4) of 1969: In a case, where technical tests or further enquiry and/or documents are required, a customs officer, not below the rank of Assistant Commissioner, may order for such "Provisional" assessment of goods and the Importer/Exporter pays the duty or taxes accordingly including security money or bank guarantee. The (final) assessment of which to be done, within 150 (one hundred fifty) working days or within such period as the NBR may allow. (d) Register of bonds:


U/s 114 of the Customs Act (# 4) of 1969: A register of all bonds of warehoused goods on which customs duty is leviable and enter removal of goods therefrom u/s 113 and obtain discharge of such bond when goods are fully cleared for consumption, export or otherwise and entire duty paid for. Question 9(a) Discuss the salient features of changes in VAT Act, 1991 brought about by Finance Act, 2005. Answer 9(a): Amendment of Section (2) of VAT Act. 1991 (Act. xxii of 1991)  For the words "Taxes office" occurring after clause "Ja" of section (2) of VAT Act. : 1991, the words "office of the superintendent of Taxes, large tax payers unit, VAT office" shall be substituted.  For the words - "Divisional office" occurring in clause "Ra" of section (2), the words "Divisional office or Divisional office of the large tax payers unit" shall be substituted. Amendment of Section 13

The government shall, by gazette notification fix the rate of refund of customs or duty in applicable cases of certain determined materials utilised for the manufacturer of goods, for export, production or used in exportable services or goods designated as exportables. Amendment of Section 37 The words removal of goods shall be replaced by the words - "of removal goods or service provide" and the words "removal of goods" shall be substituted by the words "removal of goods or service provider Amendment of Section 56 The words Customs or Excise occurring in clause (kaa) of sub-section (1) of section 56 shall be substituted by the words - "Customs, VAT or Excise officers". Question 9(b) Define the following services as per VAT Act.1991: i) Procu remen t provi der; ii) Security services; iii) R e n t a c ar s er vi c e s . Answer 9(b): Procurement provider It means any person, organization or firm who supplies goods or services or both in exchange of value to various government, semi- government, autonomous bodies, NGO, bank, insurance and limited companies against quotation or tender. Basis of valuation and vat rate: Value addition by a procurement provider is estimated at 15% of the total bill and the truncated vale on the whole bill is 15%*15%=2.25% Security services: It means any person or organization engaged in the supply of guards, workers or work forces for the security of any movable or immovable property, building, complex, premises, office or any other establishment on commercial basis. Rent a car services: It means any person, organization or firm who lets on hire any car (other than taxi cab) jeep, bus, coaster, minibus, launch, speedboat, tractor, or any other vehicle or vessel of any other name and, nature to government, semi-government, autonomous or any private person, organization or firm on commercial basis and in exchange of value. Question 10(a). How do you maintain a VAT current register (VAT-18) as per VAT Act and Rules 1991 Answer 10(a):

Current account contains record of all VAT deposit. payable and adjustment. A registered person can maintain computerized current account with the permission of the Board. BIN Number including name, address and telephone number of registered person is recorded at the top of Current Account. The Account Current made up 10 column and has cross reference with purchase and sales book. All input tax, rebate due to sales return, balance of previous month Current Account and all other dues and return are taken into rebate column. All dues like output tax, cancellation of rebate due to purchase return, penalties and all other dues are goes to payable column. Treasury deposit is shown in the column designated thereof. The Account Current should always be maintained with positive balance. Question 10(b) Excellent Shoe Co. Ltd. incurred the following transactions in September 2005:  Raw materials aggregating to Tk. 500,000 were purchased on 5 September,2005,VAT on the same paid and the VAT challan along with the goods were received on10 September,2005.


Shoes delivered to customers in the month at approved price as follows: 8 September 2005 Tk. 300,000 9 September 2005 Tk. 200,000 10 September 2005 Tk. 500,000 15 September 2005 Tk. 600,000 The following deposits were made to the Govt. Exchequer through treasury challan: 7 September 2005 Tk.20,000 12 September 2005 Tk. 30,000 15 September 2005 Tk. 70,000 Balance of deposit at 1 September 2005 in VAT-18 was Tk. 50,000. You are required to: -Enter the above transactions in VAT-18 of the company; - Write a letter to the management on the irregularities noted by you in completing the VAT current register (VAT-18) and implications of the same on the company. Answer 10(b)

Current Account (As per Rule 22(1) Taxpayers' Identification Number: Name: Excellent Shoe Co. Ltd Address: Telephone: SI.No Date Details of Dues Closing Remarks Purchase or Treasury Rebate Transaction deposit Balance Sales Register SI.No Date 1 2 3 4 10 5 6 7 8 9 1 01.09.2005 Opening Bl. 50,000 50,000 2 07.09.2005 Treasury 20,000 70,000 3 08.09.2005 Delivery , 45,000 25,000 4 09.09.2005 Delivery 30,000 -5,000 5 10.09.2005 Purchase 75,000 70,000 6 10.09.2005 Delivery 75,000 -5,000 7 12.09.2005 Treasury 30,000 25,000 8 15.09.2005 Treasury 70,000 95,000 9 15.09.2005 Delivery 90,000 5,000 Managing Director, Excellent Shoe Co. Ltd. Dear Sir, Sub: Review of VAT Current Account We have gone through the VAT transactions of the period from 1st September to 15th September 2005, recorded in Current Account and observed negative balance at two occasions which is a clear violation of Rule 22(1) Gha, mandated maintenance of sufficient balance required in the Current Account, by which adjustment or payment of payable output tax can be made by accumulating the balance with the deposited money and the rebate (credit) of input tax. This is an offence U/S 37 (2) (Nio Nio Nio) which attracts a monetary penalty of an amount not less than 1 /2 and more than 2 times of , the amount of VAT or, where applicable, VAT and Supplementary duty, payable upon the goods and services and if convicted in a court of Magistrate, liability to imprisonment for not less 3 months and not more than 2 years, or to a fine not less than 1/2 and more than 2 times of , the amount of VAT or, where applicable, VAT and Supplementary duty or both. However, for irregularities other than evasion of revenue, the amount of fine is limited to not Iess than Tk 5,000 and not more than Tk. 300,000. We recommend strict compliance with the provision of VAT laws to avoid punitive actions. Pl. don't hesitate to enquire any question on any matter on VAT with particular attention to the issue concerned herein. Thanking you, Yours sincerely, -


Suggested Answers Taxation — II Professional Examination — Ill May- June, 2006 Q 1. Write short notes in relation to the ITO 1984:a) Advance tax b) Sel f-ass essment c) T ax holiday

Answer 1(a) Advance tax: The provision for the payment of tax in advance of assessment is commonly known as advance tax. In pursuance with section 64 of ITO 1984 advance tax shall be payable by an assessee during each financial year if the total income excluding Agricultural incom e and Capital gain of the latest income year in respect of which he has been assessed by way of regular assessment, or has been provisionally assessed exceeds three lakh taka. As per section 65 of ITO 1984 the amount of advance tax payable by an assessee in a financial year shall be the amount equal to the tax payable on his total income of the latest income year as assessed on regular basis or provisionally, as the case may be, as reduced by the amount of tax required to be deducted or collected at source. Advance tax could also be paid on the basis of estimate, when tax payable by the assessee for relevant assessment year is likely to be less than the amount of tax as computed under section 65. The tax is calculated at the rates in force in respect of th e financial year for which income applying and payable in four equal installments on 15th September, 15th December, 15th March, 15th June.

Answer 1(b) Self-assessment The scheme of assessment of tax by assessee himself is known Self -assessment. As provided in Sections 83A and 83AA of ITO 1984 and Rule 38 of ITR 1984, subject to certain condi ti ons al l as s ess ee other than publ i c li mi ted compani es derivi ng i ncome under any head can s ubmit thei r retu rn under the s cheme. T he return s hal l be marked as 'self assessment'. There need not be any separate assessment order, however, the receipt i ss ued by the tax department s hall be deemed to be an assess ment order under section 82 of the ITO 1984. Answer 1 (C) Tax holiday Tax holiday means tax exemption. Subject to certain conditions the profits and gains of an industrial undertaking, tourist industry or physical infrastructure facility are exempted from tax under section 46A and Rules 59A of ITO/ITR 1984. The application for tax holiday is made to the Board within six months from the end of the month of commencement of commercialproduction or operation and the Board shall give its decision within forty-five days from the date of receipt of the application. The period of tax holiday is 4 years for developed area and 6 years for least develop area. The profits and gains of the undertaking shall be computed separately from other income, profits and gains of the assessee and loss could only be set off against the profits and gai ns of the same undertaking but could not be carried forward beyond the period of exemption. The capital gain earned by a tax holiday unit and the dividend distributed out of exempted profit shall not be exemp t f rom tax.

Q 2.W hat are the income that are excluded as per the 6th Schedule, part A of the ITO 1984 in computing total income of the following assessees : a)NonGovernmentOrganisation registered with NGO Bureau: b)T r u s t : c)Religious or charitable institution Answer 2. Issues Section/Schedule reference Income that are excluded Non-Government Organization Clause 1A of Part-A of Income derived from Micro credit (NGO) registered with NGO Affairs 6 th Schedule under section operation. Bureau 44(1) of ITO 1984


Clause 1of Part-A of 6th Income from house property where the Schedule under section 44(1) house property is used wholly for of ITO 1984 r e l i g i o u s o r c h a r i t a b l e purpose and in the case of property so held in part only f o r s u c h p u r p o s e s , t h e income applied or finally set a p a r t f o r a p p l i c a t i o n thereto.

Trust

Clause 2 of Part-A of 6th Income from voluntary contribution and Schedule under section 44(1) used solely for religious or charitable of ITO 1984 purpose. The part of the total income of a private religious trust that does not ensure the benefit of the public shall not be exempt from tax. Q 3.Discuss the provisions of section 93 of the ITO 1984 for assessment in case of income escaping assessment. Answer 3: Assessment in case of income escaping assessment If, for any reason, any income chargeable to tax for any assessment year  has escap e d assessm ent  has b een under assessed or  has been assessed at too low a rate or  has been the subject of excessive relief or refund The Deputy Commissioner of Taxes may issue a notice to the assessee containing all or any of the requirements which may be included in a notice under section 77(Notice for filling return) and may proceed to assess or determine, by an order in wr iting, the total income of the assessee or the tax payable by him, Rate of tax The tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made. Special Conditions No proceeding shall be initiated unless definite information has come into the possession of the Deputy Commissioner of Taxes and he has obtained the previous approval of the Inspecting Joint Commissioner in writing to do so, except in a case where a return has not been filed under s e c t i o n 7 5 o r 7 7 . Issuance of notice with time limitation The Deputy Commissioner of Taxes may issue a notice i) In any case in which he has reason to believe that the assessee or any other person on his behalf has not filed a return under section 75 or 77, at any time: ii) In any case in which he has reason to believe that the assessee has for any assessment year concealed  particulars of his income or  furnished inaccurate particulars thereof or  omitted or failed to disclose all material facts necessary for the assessment for such year, within five years from the end of the assessment year for which the assessment is to be made. iii)In any other case, within two years from the end of the assessment year for which the assessment is to be made. Where an assessment or any order has been annulled, set aside, cancelled or modified, the concerned income tax authority may start the proceedings from the stage next preceding the stage at which such annulment, setting aside, cancellation or modification took place. Religious institution

or

charitable

Q4. a) What are the basic information an individual assessee is required to provide in IT 10BB? b) How the information provided in IT 1OBB is linked with the information contained in IT-10B of the assessee? Answer 4(a) IT 10BB referred to section 75(2) (d) (i),section 80 and rule 25 A of ITO/ITR 1984 An individual assessee is required to file the following basic information in IT 10 BB: 1.Information about residence 2.Information regarding vehicle 3.Annual expenses on electricity and telephone 4.Information children's education institution and expenses 5.Information regarding foreign visit(s) during the year


Answer 4(b) IT 10 B is the prescribed proforma of assets, liabilities and expenses of self, spouse, minor children or dependents of an assessee which he require to file under section 75(2) (d) (i), section 80 and rule 25 of lTO/ITR 1984. IT 10BB asked for the information regarding ownership of assessee's house and vehicle whereas IT 10 B is for the disclosure of house and vehicle owned by the assessee. IT10 B asked for thedisclosure of family expenditure and other special expenditure and IT 10BB called for children education expenses, electricity, telephone and car maintenance expenses. Q5.XYZ Ltd. is a publicly traded company carrying on the business of manufacture and sale of jute products. Accounts are maintained on mercantile basis. The audited profit and loss account for the year ended 31 December, 2005 disclosed a net profit of Tk. 2,510,000. Examination ofthe books of accounts revealed the following facts: a) A preliminary expense of Tk. 50,000 was written off to the profit and loss account. b) One Nissan Petrol Jeep was purchased during the year for Tk. 2,500,000. Depreciation @ 20% was charged on the cost of the vehicle. c)Depreciation claimed at Tk. 1,200,000 including depreciation on a leasehold asset of Tk. 1,000,000. The company claimed depreciation on leasehold assets Tk. 200,000. The lease rental for the year was Tk. 150,000 in respect of the leasehold asset. d)Depreciation in respect of all other assets has been claimed as per Income Tax Law. e)Interest on loan aggregating to Tk. 400,000 has been waived by Sonali Bank during the year which has been credited to the profit and loss account. f) Over provision for certain expenses as well as under provision for certain expenses inrespect of previous year amounting to Tk. 500,000 and Tk.300,000 respectively have been adjusted with the retained earnings brought forward from previous year. g) Net profit includes Tk. 800,000 representing income from sale of imported products. The company suffered AIT aggregating to Tk. 200,000 at import stage at the time of import of jute products. h) Entertainment expenses of Tk. 120,000 debited to the profit and loss account. i)Technical Know how fee of Tk. 300,000 paid to foreign collaborators charged in the accounts. j)50% of sale of manufactured goods is exports. You are required to compute total income and tax payable by the company for the income year ended 31 December 2005. Answer: Question 5

XYZ Ltd. A publicly Traded Company Engaged in the business of Jute Manufacture & Sales Income year ended 31 December 2005 Assessment Year 2006-07

Net profit as per audited Profit and Loss a/c Separate considerable items: Accounting depreciation on new Nissan Petrol Jeep:20% of Tk2,500,000 - for separate consideration Entertainment expenses -for separate consideration Technical know how fee Profit on sale of imported Jute products -forseparate consideration(Treated as final discharge u/s 82 (C)(2)(c) & 4 Add. Inadmissible items: Preliminary expenses Over(Tk.500,000)and under provision(Tk.300,000) for certain expenses adjusted during the year Depreciation on leased assets

Note s

Taka

1

500,000

2 3

120,000 300,000 (800,000)

Taka 2,510,000

120,000 2,630,000

50,000 200,000 200,000

450,000 3,080,000

Deduct: Allowable or deductible items:


1 200,000

20% fiscal depreciation on Tk.1,000,000 of a Nissan Petrol Jeep is allowed Interest on loan waived by Sonali Bank Technical know how fee -allowable @2.5% of profit before such charge Entertainment expenses

4

400,000

2

72,545 78,195

750,740 2,329,260

Total Income i) Profit on imported Jute products (AIT 200,000 )/0.40

500,000 2,329,260

ii) As computed —above

2,829,555

Tax thereon i) Profit on imported Jute products on Tk. 5 00,000 @ 40% ii) On Tk. 2.329,260 X0.15 Less : AIT on Sale of imported Products Tax Payable

5 5

200,000 349,389

549,389 200,000 349,389

Note1: Depreciation on Petrol Jeep: As per 3 r d Schedule Para 11(3)(g) proviso)of ITO 1984 depreciation is calculated on Tk.1,000,000. Note 2: Entertainment expenses: Entertainment expenses is allowable u/s 30(f)(i) of ITO 1984 and rule 65 of ITR 1984: Particulars Tk. Entertainment expense iscalculated on (Tk. 3,080,000 –Tk.200,000- Tk.400,000 - Tk. 72,545+Tk.500,000)= Tk.2,907,455 So on first Tk.1,000,000X4% 40,000 On balance tk. 1,907,455 X2% 38,195 Allowable entertainment expenses 78,195 Note 3: Technical know how: Allowable upto @2.5% (Tk. 3,080,000- Tk.200,000- Tk.400,000 — 78,195+Tk.500,000)= Tk.2,901,805 of profit i.e 2,810,000 before such charge (Tk.300,000) u/s 30(h) of ITO 1984. Note 4: Interest on loan According to the proviso to clause 11 of section 19 of ITO 1984 interest waived by bank is not taxable . Note 5: Applicability of tax rate: The Company enjoy reduced tax rate @ 15% by virtue of SRO #169-L/IT/2006 of 06 July 2006. Note 6: Export tax rebate: Though 50% of sale of manufactured goods is exports, but the company cannot enjoy the opportunity of 50% tax rebate under clause 28 of Part A of 6 thSchedule because the assesseeis opting for reduced tax rebate @15% by virtue of SRO #169-L/IT/2006 of 06 July 2006. Q 6.Write short notes on the following in relation to Income Tax Ordinance 198 4: a) Annual value of the house b) Accelerated depreciation c) Set off & carry forward of losses —change made by FA 2005. d) Intangible additions e) Tax audit Answer 6(a) Annual value of the house According to section2(3) of ITO 1984 "Annual value" in relation to any property let out,— (i)the sum for which property might reasonably be expected to let from year to year; or (ii)where the annual rent in respect thereof is in excess of the sum referred to in paragraph (i), the amount of the annual rent;

Answer 6(b) Accelerated Depreciation According to paragraph of 7 of 3 rd schedule of ITO 1984


In the case of any machinery or plant (other than office appliances and road transport vehicles) which, not having been previously used in Bangladesh, has been or is used in an industrial undertaking set up in Bangladesh between the first day of July, 1977 and the thirtieth day of June, 2008(both days inclusive), an amount by way of accelerated depreciation allowance shall, be allowed and computed subject to fulfillment of certain conditions: i) The industrial undertaking is owned and managed by a Bangladeshi company, or a body corporate formed in pursuance of an Act of Parliament, having its registered office in Bangladesh; ii) It belongs to such class of industries as the Board may, by notification in the official Gazette, specify in this behalf; iii) The particulars as required have been furnished (

Accelerated Depreciation rate (a) for the first year in which the undertaking starts commercial production

50% of the actual cost of plant assessee

and machinery to the

(b) for the next following second year --

30% of the actual cost of plant and machinery to the assessee (c) for the next following third year20% of the actualcost of plant and machinery to the assessee. The machinery or plant on which accelerated depreciation has been allowed under this paragraph shall not be entitled to any other depreciation allowance under this Ordinance or the Income-tax Act,1922 (XI of 1922) According to paragraph of 7(A) of 3 rd schedule of ITO 1984 (Expansion unit) Accelerated depreciation is also applicable on machinery and plant subject to fulfillment of certain conditions: In the case of machinery or plant (other than office appliances and road transport vehicles) which not having been previously used in Bangladesh, has been or is useda) In the expansion unit, set-up between the first day of July, 1995 and the thirtieth day of June,2005(both daysinclusive) in any existing undertaking b)Between the first day of July, 1995 and the thirtieth day of June, 2005(both days inclusive) in the treatment and disposal of toxic and environmentally hazardous wastes (a) for the first year in which the expansion unit starts commercial production (b)for the next following year--

80% of the actual cost of plant and machinery to the assessee 20% of the actual cost of plant and machinery to the assessee

Answer 6(c) The set off and carry forwardoflosses -change made by Finance Act 2005 The changes made by Finance Act 2005 relating set off and carry forward of losses under section 37 of ITO 1984 is as follows; Provided that any loss in respect of any speculation business or an y loss under the head "Capital gains" or any loss from any other source, income of which is exempted from tax shall not be so set off, but shall, excluding any loss from any other source, income of which is exempted from tax, in accordance with the provisions of the Income Tax Ordinance 1984, be set off, or be carried forward to succeeding assessment year or years for set off, against any income in respect of speculation business or any income under the head "Capital gains" Provided further that for the purpose of this section the Deputy Commissioner of Taxes shall, in computting any loss, deduct any amount received in cash as subsidy from the Government. Answer 6(d)Intangible additions These are like Goodwill, Patent, Trademark or Brand, which are capitalized, items-not allowable as revenue expenses. Answer 6(e) Tax Audit Tax audit referred to Section 83AAA of ITO 1984


Where a return or revised return is filed by an assessee being a company and the Board has reasonable cause to believe that the return or revised return is incorrect or incomplete, the Board may appoint a registered chartered accountant to examine the accounts of that assessee. Key point: i. The chartered accountant shall exercise the powers and functions of the Deputy Commissioner of Taxes ii. The chartered accountant, after examination of the accounts shall submit a report in writing to the Board along with findings within specified time iii. On receipt of the report the Board shall forthwith forward the report to the concerned Deputy Commissioner of Taxes for consideration. iv. On receipt of the report the Deputy Commissioner of Taxes shall serve a notice upon the assessee for hearing. v. The Deputy Commissioner of Taxes shall, after hearing the person appearing and considering the evidences by an orderin writing, assess within thirty days after the completion of hearing or consideration, as the case may be, the total income of an assessee and shall determine the sum payable by the assessee on the basis of such assessment, and communicate the said order to the assessee within thirty days from the date of such order. Q.7. Mr. Awal is a service holder. Following are the particulars of his income, investment and expenditure for the year 2004-05. Compute his income from salary, and tax payable under the following situation: i) The provident f und is recognized ii) T he p ro viden t f und is Gov t. one iii) The provident fund is unrecognized. a) Basic salary Tk.9,000 per month. b) Dearness allowance @ 20% on basic salary. c) Bonus: two bonuses @ one month basic salary for each. d) Rent free quarter (Annual value Tk.30,000) e) Conveyance allowance Tk. 1,200 per month f) Medical allowance Tk.300 per month (Actual expenses Tk.2,500) He contributes 10% of his basic pay to the provident fund. Interest on provident fund balance for the year is Tk.2,500 @ 15% interest. He paid life insurance premium Tk. 5,000 for the year and purchased share of a company for Tk.4,000. Answer 7 : Mr. Awal-A service holder Income Year 2004-05 Assessment year 2005-06

Particulars Basic Salary Dearness Allowance Bonus Rent Free Quarter Conveyance Allowance Medical Allowance Employers Contribution to Provident Fund 10% Interest of PF Balance

Total Income

9,000 x 12 20% of Basic Salary 9,000 x 2 25% of Basic Salary or Annual Value (Tk. 30,000) Lower one 1,200 x12 =14,400 exempted Upto 18,000 300 x 12 = 3,600 exempted up to actual expense (Tk. 2,500) 108,000 x 0.1

15% of Fund balance. Exempt up to Lower of 1/3rd of basic salary or 14.5%

Recognised 108,000 21,600 18,000 27,000

Govt. One 108,000 21,600 18,000 27,000

Unrecognised 108,000 21,600 18,000 27,000

-

-

-

1,100

1,100

1,100

10,800

0

10,800

83

0

2,500

1,86,583

1,75,700

1,89,000


Calculation of tax On first Tk.120,000 On Balance @10% Tax payable Less: 15% tax rebate on investmentallowance

Tk.120,000 X 0.00

0 6,658 6,658 (4,590)

0 5,570 5,570 (2,970)

0 6,900 6,900 (1,350)

Tax liability 2,068 2,600 5,550 Note 1: Interest on Provident fund: @ 15% on balance Tk. 2,500 Less: Exempted Tk. 2,417 Taxable Tk. 83 (Lower of 1/3 of basic salary or 14.5% as per clause 5(2) of Part B of 1 st Schedule u/s 2(52) and clause 25 of Part A of 6th Schedule u/s 44(1) of ITO 1984.) Note 2: Calculation of Investment allowance: Govt. Recognized Unrecognized One Actual investment Clause #1 of Part B of 6th Life insurance premium 5,000 5,000 5,000 Schedule Employees Clause #4 of Part B of 6th contribution to PF 0 Schedule 10,800 10,800 Employers Clause #5 of Part B of 6th contribution to PF 0 Schedule 10,800 0 Clause#8(c) of Part B of Purchase of shares 4,000 4,000 4,000 6th Schedule Total actual 30,600 19,800 9,000 investment

Investment allowance

Here Actual investment 20% of Tk 175,700 According to Section 44(3) Lower one Investment allowance @15%

15% of Actual investment or 20% of total income Tk.175,700 (excluding employer's contribution to PF and interest on ) or Tk 250,000 according to section 44(3) of ITO 1984 Lower one

30,600 35,140

19,800 35,140

9,000 35,140

250,000

250,000

250,000

30,600

19,800

9,000

4,590

2,970

1,350

Q 8.Discuss the conditions relevant to charging tax on house property. What deductions are allowed for determining taxable amount for charging income tax? Answer 8: Conditions relevant to charging tax on house property According to section 24 of ITO 1984: Tax shall be payable by an assessee under the head "Income from house property" in respect of the annual value of any property whether used for commercial or residential purposes, consisting of any building and land appurtenant thereto of which he is the owner, other than such portions of the property as he may occupy for the purposes of any business or profession carried on by him. Annual value as referred in section 2(3) of ITO 1984 in relation to any property let out, (i)The sum for which property might reasonably be expected to let from year to year; or (ii)Where the annual rent in respect thereof is in excess of the sum referred to above, the amount of the annual rent;


Where two or more persons own the property and their respective shares are definite and ascertainable, the owners are assessable on their respective share of income from the property. Deductions are allowed According to section 25 of ITO 1984: i)any sum payable to Government as land development tax or rent on account of the land comprised in the property; ii)the amount of any premium paid to insure the property against risk of damage or destruction: iii)where the property is subject to mortgage or other capital charge for the purpose of extension or reconstruction or improvement, the amount of any interest payable on such mortgage or charge; iv)where the property is subject to an annual charge not being a capital charge, the amount of such charge: v)where the property is subject to ground rent, the amount of such rent vi)where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital; vii)where the property has been constructed with borrowed capital and no income was earned from that property during the period of such construction, the interest payable during that period on such capital, in three equal proportionate installments for subsequent first three years for which income i s assessable from that property; viii)in respect of expenditure for repairs, collection of ren t ,w ater and sewerage, electricity and salary of darwan, security guard, pump-man, lift-man and caretaker and all other expenditure related to maintenance and provision of basic services; a. an amount equal to 1/4 of the annual value of the property is used for residential purpose b. an amount equal to 30% of the annual value of the property where the property is used for commercial purpose; ix) where, the whole of the property is let out and it was vacant during a part of the year, a sum equal to such portion of the annual value of the property as is proportionate to the period of the vacancy; and x)where, the property is let out in parts, a sum equal to such portion of the annual value appropriate to the vacant part as is proportionate to the period of the vacancy of such part. No deduction is allowed under section 25 in respect of any interest or annual charge payable outside Bangladesh on which tax has not been paid or deducted as per provisions of chapter VII of ITO 1984.

Q.9.How would you compute the income from the following sources? i)Income from tea gardens ii) Income from Rubber plantation iii) Income from Tobacco Industry Answer 9(i) Income from tea gardens According to Rule 31 of ITR 1984: Allocation of income: a) 60% agricultural income b) 40% business income Allowable deductions: Cost of replacing bushes and development of "new" area under plantation Answer 9(ii) Income from Rubber plantation According to Rule 32 of ITR 1984: Allocation of income: a) 60% as agricultural income b) 40% as business income Allowable deductions: Development expense for new plantation area. Answer 9(iii) Income from Tobacco Industry According to Rule 30 of ITR 1984, in the case of income which is partially "agricultural income "and partially income from ―business", in determining that part of income which is from ―business‖ the market value of any agricultural produce which has been raised by the assessee or received by him in kind and which has been utilized as raw material in such business or the sale proceeds of which are included in the accounts of the business shall be deducted and no further deduction shall be made in respect of any expenditure incurr ed by the assessee as a cultivator or receiver of the produce in kind. Q.10. State the provisions of law in respect of following sections of Income Tax Ordinance 1984: i) 19AA ii) 19AAA iii) 19B ,


iv) v)

19BB 19BBB Answer 10(i): 19AA: Special tax treatment in certain cases of investments i)No question as to the source of any sum invested by any person in the expansion or balancing, modernization, renovation and extension of an existing industry or in the purchase of stocks and shares of public limited company listed with any stock exchange in Bangladesh or any sum used for repayment of industrial loan during the period between the first day January, 1997 and the thirty first day of December, 1999 (both days inclusive), shall be raised if the assessee pays, before the filing of the return for the relevant income year, tax at the rate of 7.5% on such sum. ii)To qualify for the special tax treatment noted in (i) above, stock and shares of a public limited company purchased from secondary market to be held by the assessee at least for one year from the date of acquisition. Answer 10 (ii) : 19AAA: Exemption in respect of investments i) No question as to the source of any sum invested by an assessee ; being an individual, firm, association of persons or a private limited company(a) Between the first dayof July, 2002 and thirtieth day of June, 2005 (both days inclusive) in any trade, commercial or industrial venture, engaged in production of goods or services shall be raised and no tax thereon shall be imposed; and (b) Between the first day of July, 2003 and he thirtieth day of June, 2005 (both days are inclusive) in the purchase of shares of a company listed with any stock exchange shall be raised and no tax thereon shall be imposed ii)Purchase of shares of a company listed with any stock exchange must be hold for 2 years Answer 10(iii) 19B Special tax treatment in respect of investment in house property i)No question as to the source of any sum invested by any person in the construction or purchase of any building or apartment shall be raised if the assessee pays, before the assessment is completed for the relevant assessment year, tax at the rate of Upto 200SM Areas Beyond 200SM (Tax rate) (Tax rate) Tk. 500 per SM Gulshan Model Town, Banani, Baridhara, Defence Officers Tk 300 per SM Housing Society(DOHS), Dhanmondi Residential Area, Lalmatia Housing Society, Uttara Model Town, Bashundhara Residential Area , Dhaka Cantonment, Motijheel Commercial Area, Dilkusha Commercial Area ,Kawran Bazar Commercial Area of Dhaka and Khulshi Residential Area, Panchlaish Residential Area of Chittagong; Tk 300 per SM Other areas Tk 200 per SM Answer 10(iv) 19BB Special tax treatment in respect of investment in land property No question as to the source of any sum invested by any person in purchasing of any land shall be raised if the assessee pays, before the assessment is completed for the relevant assessment year, tax at the rate of seven and half percent of the deed value of the said land. Answer 10(v) : 19BBB Special tax treatment regarding investment in motor vehicles i)No question as to the source of any sum invested by any person in purchasing of motor vehicle, not plying for hire, shall be raised if the assessee pays tax at the following rate, at the time of registration of the motor vehicle or before the assessment is completed for the relevant year: a) 15% of the purchase value where the car or jeep exceeds 1500 c.c b) 10% of the purchase value where the car or jeep does not exceed 1500 c.c. Q11.a) What do you mean by gift tax? b)Explain how gifts are valued. c)Explain how escaped gifts are valued and taxed Answer 11(a) A ccording to Section 2(d) of Gift tax Act, 1990 Gift means the transfer, by one person to another, of any existing movable or immovable property made voluntarily and without any consideration on money or money's worth. So it thus may be noted that transfer of • property can attract gift tax, if the following conditions are satisfied: a) the transfer must be voluntarily; b) the transfer must be an existing property and c) the transfer must be without or with inadequate consideration in money or money's worth.


Answer 11(b) According to Section 5 of Gift tax Act, 1990 The value of any property other than cash transferred by way of gift shall be estimated to be the price, which in the opinion of the Deputy Commissioner of Tax would fetch if sold in the open m a r k e t i n t h e d a t e o n which th e gift was made . Where the value of any property cannot be estimated because it is not salable in the open market, the value shall be determined in the prescribed [Rule #6] manner. Answer 11(c) According to Rule 6 of Gift tax Rule, 1990 Insurance policy: The amount of money that would be received by encashment of gifted insurance policy would be the price of the said policy. Shares of Private limited company or firm: The value share shall have to be determined in the proportion of asset of the concerned company or firm in the year in which shares were gifted. Q.12. Mention the gifts which are exempted from Gift Tax. Answer 12 According to Section 4 of Gift tax Act, 1990 The followings are the gifts that are exempt from gift tax:  Of property situated outside Bangladesh:  Gift made to the Government or any local authority;  To the following funds or institutions for charitable purposes: i) any university established under the law in force in Bangladesh or any educational institutions including polytechnic institute, recognized by the education board or recognized or run by the Government; ii) any hospital recognized or run by the Government or any local authority or any hospital aided by the Govt. or any local authority; iii) any flood or disaster management fund established or approved by the Government; iv) Such institutions or funds for religious or charitable purpose not being a private religious institutions or funds which does not ensure for the benefit of the public, as are established in Bangladesh and approved by the Government for such purposes or to any institutions established for religious or charitable purposes and registered under any law for the time being in force, up to 20% of total income determined for the concerned year or Tk. 100,000 whichever is less;  To dependent relative up to Tk. 20.000 on the occasion of his/her marriage;  By way of payment of policy on insurance or annuity for any person (other than wife) dependent upon him for support and maintenance up to Tk. 20,000;  Under a will;  Under contemplation of death;  To sons, daughter, father, mother, his/her spouse, own brothers and sisters. General exemption Gift tax shall not be charged under this Act in respect of gifts made by any person during any financial year, subject to a maximum of Tk. 20,000 in the value Q.13. What are the consequences for failure to deposit travel tax collected under section 3(5) of the Travel Tax Act, 2003 within the prescribed time? Answer 13: Consequences of failure to deposit the collected travel tax to the Government Treasury within the scheduled time 1) Interest @ 2% per month payable for delayed deposits shall be realized from the persons who have the responsibility of collecting travel tax. 2) May forfeit the bank account of the concerned person or association for the default; 3) May take steps through the Civil Aviation authority prevent the flying of the Aircraft of the concerned airlines from the soil of Bangladesh. 4) May take steps for prevention of repatriation of any money of the concerned Airlines out of Bangladesh. 5) May take any necessary measures/modes of recovery similar to the ones available under the provisions of section 143 of the IT Ordinance 1984. Q.14. You have been appointed as a Finance Manager in a new manufacturing company which will start commercial production of VATable goods very soon. You are required to submit a report to the Managing


Director mentioning the formalities to be followed, documents and records to be maintained and submitted to VAT authorities for due compliance with the VAT Law. Answer 14: Formalities to be followed, documents and records to be maintained and submitted to VAT authorities for due compliance with the VAT Law. a. Formalities to be followed- to begin with: As a Manufacturer. the company needs to apply & obtain VAT registration [u/s 15-Rule 9- Form: Mushak # 6, 7 & 8), if annual turnover is expected to be at least Tk20 lacs, before the start of business. Will require to be registered under Turnover Tax (ToT)[u/s 8-Rule-Mushak # 2kha, 4, 6, 7, 8, ] if the annual turnover is less than Tk.20 lacs and/or compulsory VAT registration (u/s 15/4) is not required u/s 8(4): SRO # 138-L/2006/466 - Mushak of 08 June 2006. If such Manufacturer is to be involved in Imports and/or Exports, it will need to apply & obtain "Import Registration Certificate (IRC) and/or Export Registration Certificate" (ERC) respectively forthwith before applying for VAT or ToT registration. Separate VAT registration may be necessary for each separate place(s) [like factory] of business (location) but one VAT registration should be adequate in one place for different types of activities. b. Procedures to be followed: for:  

(i) VAT Registration: Application to divisional office in prescribed form in Mushak-6 Following documents to be enclosed: a) T rade Li cens e b) TI N Certi fi cate c) IRC/ERC Certificate d) Land documents/Tenancy agreement e) A declaration in form Mushak-7 containing map of place, description of machinery, plant, catalogue of plant, fittings, product name, unit, raw materials name and quantity required for production of one unit of finished goods f) Photo of proprietor/chairman/MD or authorized signatory g) Ban k st at emen t h) Details of subsidiary (if any)  If individual in charge were satisfied with the application, then he would issue a Registration Certificate within 2 days from the date of receipt in prescribed form Mushak-8. (ii) TOT Registration:    

If annual turnover is below 20 lacs Application for registration in Mushak-6 to Superintendent If satisfied, Superintendent will enlist the applicant within 7 days and issue a Certificate A declaration of estimated annual turnover and payment system in prescribed form "Mushak2KHA" to be submitted within 30 days from the date of enlistment and every succeeding year  The superintendent, if satisfied with the declaration relating to turnover, shall approve and send a copy to registered person within next 30 working days  Applicable rate of turnover tax is 4%  Payment can be made annually, quarterly or monthly th  Return to be filled in Mushak-4 within 15 of the following month and for one time in case of annual TOT payment, 4 times and 12 times in case of quarterly and monthly respectively  Failure to pay TOT attract penalty @ 2% per month on arrear but not exceeding Tk 5,000  Accounts of transactions (Purchases & Sales) to be maintained in Mushak-17KA: Rule 4 (16)  TOT registered person is not allowed to take credit of input VAT  Consumer or service receiver (VAT registered) are also not allowed to take rebate from the TOT challan  Refund of excess tax paid registered person is allowed u/s 67  Cash memo mentioning the TOT registration number will be treated as lawful challan (iii) If Central Registration: Other than Manufacturing location: A provision for the registration of Head/Corporate Office centrally for supplying of goods (except manufacturing stage), rendering of services or import or export where  Business is controlled centrally from Head/Corporate Office  Maintenance of the books of Accounts and records at Head/Corporate Office


For Central Registration, application to be made before the Member of VAT, NBR and if satisfied. then NBR may award the Central Registration facility to the applicant by special or general order: Proviso under subsection (2) of section 15. c. Documents & records to be maintained Documents & records to be submitted to the VAT

(i) Price declaration for product: Connected documents & records-including generally required books of account- u/s 5/7 (3rd Schedule) -Rule 3 (ii) VAT/SD Payments: records — u/s 6/7- Rule 23/24 - Mushak # 11 or 11ka & 18 — Dakilpatra (Return): u/s 35/36: Rule 24/25. (iii) Books of account & records: u/s 31/32 — rules 16, 17, 17ka, 18, 22 )

authority (i) Mushak, # 1 or 1ka-tariff value, to the Divisional in-charge of VAT before supply of any vatable manufactured goods (ii) Mushak # 19 (Dakhilpatra) within 10 (ten) working days (iii) Submission of documents or records to VAT authority on demand-u/s 34

Books of Accounts u/s 31 & rule 22 Records  Purchase Register: Mushak-16: Rule 22(1)  VAT Challan (invoice) for local input purchases  Sales Register: Mushak-17: Rule 22(1)  Bill of entry & Invoice for imported input  Current Account: Mushak-18: Rule 22(1)  Treasury challan cop y  Challan (Invoice): Mushak-11: Rule 16(1)  Copy of Dakhil-patra (Return):  Challan (Cash Memo): Mushak-11kha: Rule Mushak19: Rule-24(1) 16(1)  Credit Note, MuShak-12 (if any)  Statem ent of inp ut & F G stoc k, production statement  Debit Note, Mushak-12 kha (if any)  The accounts of production or manufacture of goods or raw materials, services, etc Q.15. Sunshine Ltd. submitted a price declaration to the VAT authority on 1 July ,2005 showing the price for levy of VAT at Tk. 50 per unit of VATable goods. On 20 July, 2005 the VAT authority approved the price per unit at Tk. 80 rejecting the price declared by the company without giving any opportunity of hearing to the company. As the Chief Accountant of the company, you are asked by the company management to take necessary steps to protest the actions of the VAT authority. What are the legal steps you would take and explain the grounds in support of your action plan? Answer 15: Necessary legal steps to protest the 'arbitrary" actions of VAT authority: (i) As the "price declaration" (Mushak #1) was made on 01 July 2005, the approval therefor was supposed to be issued within 15 (fifteen) days i.e. by 15 July 2005 but as it was done on 20 July 2005; hence, the declared "price" is "deemed to have been approved". (ii) Also, an application should be preferred before the Commissioner of VAT within 30 (thirty) working days of receipt of such "arbitrary" & out of time" Price approval. (iii) The VAT Commissioner will need to dispose of such application, giving an opportunity of being heard, within 15 (fifteen) days of such application. Otherwise, it shall be deemed to have been disposed of favouring the Assessee. Q.16.What are the conditions to be fulfilled in order to claim delivery of goods as deemed export under Rule 31 of the VAT Rule 1991? Answer 16: Following are the conditions to be fulfilled in order to claim delivery of goods as deemed export under rule 31 of the VAT rule 1991: (1) Proceeds thereof receivable in foreign currency through official channel (2) Refund (input VAT minus output VAT) claimable u/R 29- based on applicable Dakhilpatra (Return) u/s 35 - Rule 24 - Mushak # 19. (3) Otherwise i.e. when Return (u/s 35 - rule 24: Mushak # 19) submission is not applicable, in that scenario, refund (of input-vat) to be claimed u/R 30. (4) Evidencing documents, like Tender, acceptance thereof, work completion guidelines /directions & receipt of FC payment officially, will need to be furnished to VAT Authority. Q.17. State the salient features of changes made by FA 2005: a) VAT Act b) Customs Act; c) Travel Tax Regulations Answer 17:


a) VAT Act: Amendment of Section (2) of VAT Act.1991 (Act. xxii of 1991)  For the words "Taxes office" occurring after clause "Ja" of section (2) of VAT Act. : 1991, the words "office of the superintendent of Taxes, large tax payers unit, VAT office" shall 'be substituted.  For the words - "Divisional office" occurring in clause "Ra" of section (2), the words "Divisional office or Divisional office of the large tax payers unit" shall be substituted. Amendment of Section 13 The government shall, by gazette notification fix the rate of refund of customs or duty in applicable cases of certain determined materials utilised for the manufacturer of goods, for export, production or used in exportable services or goods designated as exportables. Amendment of Section 37 The words removal of goods shall be replaced by the words - "of removal goods or service provide" and the words "removal of goods" shall be substituted by the words "removal of goods or service provider Amendment of Section 56 The words Customs or Excise occurring in clause (kaa) of sub-section (I) of section 56 shall be substituted by the words - "Customs. VAT or Excise officers". b) Customs Act i. Amendment of section 7. of the Customs Act 1969 (Act-IV of 1969) In section 7 (of the Customs Act. 1969) the words "Narcotics and liquor" shall be replaced by "central intelligence cell of the National Board of Revenue, Civil Aviation Authority of Bangladesh. Chittagong Port authority. Mongla Port Authority. Registrar of Joint Stock Companies. Department of Narcotics Control". ii. Amendment of Section 30 In the clause (b) of Section 30, the words "on which the goods are actually removed from the ware house shall be replaced by the words-"a bill of entry was presented under section 79 and the bill of entry number was allocated thereto. iii. Amendment of Section 79(2) The words "forty-five" days and within "thirty days" occurring in sub-section (2) of Section 79 shall be substituted by It"' words "thirty" and within "twenty-one days". iv. Amendment of Section 81 In the subsection (2) of section 81 for the words ―one hundred and fifty" the words one hundred twenty shall be inserted. v. Amendment of section 82 In the subsection (1) of section 82  The words thirty and twenty one shall be substituted for the words "forty five and thirty"  The words or "customs —inland containers depot" shall take place after the words "land customs station" c) Travel tax regulations:  The travel tax authority for realization of travel tax shall include the commissioner of Taxes and Inspecting Joint Commissioner of Taxes appointed under clause (19) & (36) of section 2 of the I.T Ordinance,1984.  The word interest shall be replaced by the word "penalty" —Amendment of section 3 of Act 5 of 2003.  The persons or associations aggrieved by the order subsection (6) may file petition before the NBR for review or reconsideration within 30 days of the receipt of the order;  The NBR shall dispose of the petition filed under subsection(7) by the aggrieved persons or associations within 60 days of the receipt of the petition and on this matter the decision of Board shall be final. Q.18. What do you understand by: a) IDSC b) PSI fee c)HS Code d) Bonded warehouse e) Stamp duty chargeable on transfer of shares Answer 18:

a) IDSC IDSC means Infrastructure Development Sur-charge (IDSC) was leviable @ 4% mostly on imported mercendise. IDSC was withdrawn by Finance Ordinance 2007. b) PSI Fee


PSI means Pre-Shipment Inspection. PSI companies carry out this inspection. In pursuance with Sec. 25 A of Customs Act 1969, the Government may appoint pre-shipment inspection and audit agencies to verify and certify the quality, quantity, price, description and customs classification of any imported goods. PSI service charge is currently 1% of the value of imported goods. c) H S c o d e Harmonized System Code used in Customs /VAT scenario globally d) Bonded w arehouse Under section 13 of Customs Act 1969 the Commissioner of Customs (Bond) or any other Commissioner of Customs authorised by the Board may, license private warehouses wherein dutiable goods imported by or on behalf of the licensee, or any other imported goods in respect of which facilities for deposit in a public warehouse are not available, may be deposited. Bonded warehouse enjoys exemption u/s 91(2) of Customs Act 1969. e) Stamp duty chargeable on transfer of shares (i) No fee for transfer (Form # 117) of listed shares (ii) O n tr a nsf er of n o n- lis t e d s h ar es : @ 1 . 5 % of t h e Va l u e of C o nsi d er a ti o n Q.19. How does an aggrieved person get redressed under VAT regulations? Answer 19: a) Any person aggrieved by an order U/S 9 (2) of VAT Act 1991 for adjustment of account current by or in the return canceling the rebate (credit) taken may raise a written objection U/S 9(2a) to superior officer against said order. b) Any person aggrieved by any decision or order given by a VAT officer under VAT Act 1991 or VAT Rules 1991 may appeal against such order, except against an order of seizure or sale issued under section 56 in case of supply of goods or rendering of services or those issued under sections 82 and 98 of the Customs Act in the case of import of goods, within 3 months of giving such decision or order. The Appeal to be placed:To the Commissioner (Appeal) against the decision or order issued by an Additional Commissioner or any VAT Officer subordinate to him. To the Customs, Excise and VAT Appellate Tribunal, against the decision or order issue d by the Commissioner, the Commissioner (Appeal) or any VAT officer of equivalent rank and status. c) When the base value fixed by Divisional Officer under Rule 3(3) is higher than one declared under Rule 3(1), than the registered person, within 30 working da ys of the order may submit a prayer to the Commissioner to reconsider the base value and if the Commissioner fails to give a decision on the prayer within 15 working days from the date of the receipt of the prayer, it shall be deemed to be accepted.


Suggested Answers Taxation - II Professional Examination - Ill November - December, 2006 Question 1: Write short notes in relation to Income Tax Ordinance, 1984:a) Unabsorbed depreciation b) Exparte assessment c) T ax audi t : d) Perquisite. Answer:1(a)Unabsorbed depreciation According to Section 42(6) & (7) of ITO 1984: The amount of depreciation allowance of any year which cannot be absorbed due to the non-availability of profits or gains chargeable for that year or such profits or gains being less than the allowance then, the allowance or part of the allowance to which effect has not been given is treated as unabsorbed depreciation. The amount of unabsorbed depreciation of any year shall be added to the amount of the allowance for depreciation for the following year and be deemed to be part of that allowance or if there is no such allowance for that year, be deemed to be the allowance for that year and so on for succeeding years. When depreciation allowance is carried forward, then it can be set off after giving effect of business loss and speculation loss. Answer 1(b) Exparte assessment According to section 84 of ITO 1984 Where any person fails – a) T o f i l e t h e r et u r n r e qu i r e d b y a n ot i c e u n d e r se c t i o n 7 7 b) Has not filed a return or revised return under section 78 c) To comply with the requirements of a notice under section 79 - Production of accounts and documents d) To comply with the requirements of a notice under section 80 - Statement of assets, liabilities and life style. e) To comply with the requirements of a notice under section 83(1)- Notice for the production of evidence and supporting and for hearing. The Deputy Commissioner of Taxes shall, by an order in writing, assess the total income of the assessee to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment; and in the case of firm, may refuse to register it or may cancel its registration if it is already registered,andcommunicate such order to the assessee within thirty days next following. The assessment under section 84 of ITO 1984 is commonly known as exparte assessment. An exparte assessment shall be construed as misconduct of concerned Deputy Commissioner of Taxes if the Board proves him/her that the best judgment assessment made by him/her shows lack of proper evaluation of legal and factual aspects of the case, which has resulted in an arbitrary and injudicious assessment. Answer 1 (c)Tax audit According to Section 83AAA of ITO 1984 Where the Board has reasonable cause to believe that the return or revised return filed by a company is incorrect or incomplete, the Board may appoint a registered chartered accountant to examine the accounts of that assessee. Key point: i) The chartered accountant shall exercise the powers and functions of the Deputy Commissioner of Taxes ii) The chartered accountant, after examination of the accounts shall submit a report in writing to the Board along with findings iii) On receipt of the report the Board shall forthwith forward the report to the concerned Deputy Commissioner of Taxes for consideration. iv) On receipt of the report the Deputy Commissioner of Taxes shall serve a notice forhearing. v) The Deputy Commissioner of Taxes shall, after hearing the person appearing and considering the evidences by an order in writing, assess within thirty days after the completion of hearing or consideration, as the case may be, the total income of an assessee and shall determine the sum payable by the assessee on the basis of such assessment, and communicate the said order to the assessee within thirty days from the date of such order. Answer 1(d) Perquisite According to Section 2(45) of ITO 1984: (i) any payment made to an employee by an employer in the form of cash or in any other form excluding basic salary, festival bonus, incentive bonus not exceeding ten percent of disclosed profit of relevant income year, arrear salary, advance salary, leave encashment or leave fare assistance and overtime, and (ii) any benefit, whether convertible into money or not, provided to an employee by an employer, called by whatever name, other than contribution to a recognized provident fund, approved pension fund , approved gratuity fund and approved superannuation fund.


Question 2:Mr. Azgaris the General Manager of a Mill. He had the following income for theyear ended 30 June, 2006:i) Basic salary Tk. 10,000 per month; ii) Two months bonus on two Eid festivals each equivalent to respective months basic salary; iii) He received medical allowance of Tk. 3,600 for the year and his actual expenses were Tk. 5,000. iv) He received conveyance allowance at Tk. 500 per month. He has been provided with a rent free quarter for which employer deducts 7.5% of basic salary per month. Theannual value of house estimated at Tk. 25,000. He contributes 10% of his basic salary to a recognized provident fund to which his employer also contributes the same amount. During the year his investments were as follows: i) Purchase of ICB Certificate and shares of a company Tk. 5,000 and Tk. 10,000 respectively; ii) Payment of life insurance premium Tk. 5,000 for himself and Tk. 4,000 for wife; iii) Contribution to group insurance and Benevolent Fund Tk.150 and Tk. 50 respectively. Compute taxable income and tax on the same. Answer 2: Mr. Azgar Income year 2005-2006 Assessment year 2006-2007 Computation of Total Taxable Income Tk. Tk. Income from salary U/S 21: Basic Salary (10,000*12) 120,000 Festival Bonus (10,000*2) 20,000 Medical allowance ----------------- 3,600 Less: Actual expenses ------------ 5,000 Conveyance allowance---- (500*12) = Less: Exempted up to

=

6,000 1,8000

-

Rent free accommodation: Annual value of the house 25,000 or 25% of basic salary (120,000*.25) 30,000 So lower one is Less: Employer's deductionfrom basic Salary (120000*.075)

25,000 9,000

Employer contribution to recognized provident fund

16,000 12,000 168,000

Total taxable income

168,000

Calculation of Investment allowance: 1.Actual investment calculation: Particulars

Tk.

Purchase of ICB Certificate Shares of a company Payment of life insurance premium for himself Payment of life insurance premium for wife; Contribution to group insurance and Benevolent Fund (150+50) Employee and Employer contribution to recognized provident fund Total Actual investment

5,000 10,000 5,000 4,000 200 24,000 48,200

2 . 20% of Total income of Tk.168,000/- comes to Tk.33,600/Actual investment =Tk. 48,200 Highest allowable limit = Tk.250,000 Taking lowest one investment tax credit stand at (33,600 *.15) Tk. 5,040 Calculation of tax: Particulars On first Tk.120,000 Balance Tk. 48,000

Tax rate (%) 0% 10%

Tax (Tk.) 0.00 4,800


Tax payable Less: Investment tax credit / Tax Rebate Tax liability / (Refundable) But minimum tax should be So tax liability

4,800 5,040 (240) 1,800 1,800

Question3(a) What is meant by a company under Income Tax Ordinance 1984? What are the tax free incomes of a company? State the procedure of asse ssment of a company and its taxrate. Answer 3(a): According to Section2 (20) of ITO 1984: "Company" means a company as defined in the Companies Act, 1913 (VII of 1913) or Companies Act 1994 and includes—  a body corporate established or constituted by or under any law for the time being in force;  any nationalized banking or other financial insti tution, insurance body and industrial or business enterprise;  an association or combination of persons, called by whatever name, if any of such persons is a company as defined in the Companies Act, 1913 or Companies Act 1994.  any association or body incorporated by or under the laws of a country outside Bangladesh; and;  any foreign association or body,[ not incorporated by or under any law], which the Board may, by general or special order, declare to be a company for the purposes of this Ordinance; Tax free incomes of a company:  50% of the income derived from export business. The exemption would not be allowed to a company not registered in Bangladesh and the company who is enjoying exemption of tax or reduction in the rate of tax by any notification made under ITO 1984(clause 28 of Part A of 6th Schedule of ITO 1984).  Income from capital gains from transfer of machinery or plant used for the purpose of business or profession (clause 31A Part A of the 6th schedule of ITO 1984).  Any income not exceeding twenty five thousand taka received from interest on savings instruments (clause 31B Part A of the 6th schedule of ITO 1984),  Any income from dividend of a mutual fund or a Unit Fund where such dividend does not exceed twenty five thousand taka (clause 22A Part A of the 6th schedule of ITO 1984).  Any interest classifiable under the head "Interest on securities" receivable by an assessee on any security of the Government, which is issued with the condition that interest thereon shall not be liable to tax (clause 24 Part A of the 6th schedule of ITO 1984).  Any income received by an assessee in respect of any share of income out of the capital gains on which tax has been paid by the firm of which the assessee is a partner(clause 18 Part A of the 6th schedule of ITO 1984).  Capital gain arises from the transfer of capital being buildings or lands to a new company registered under the Companies Act, 1913 (VII of 1913) or Companies Act 1994 for setting up of an industry, and if the whole amount of capital gain is invested in the equity of the said company, then the capital gain shall not be charged to tax as income of the year in which the transfer took place[Sec.32(10) of ITO 1984].  Where a capital gain arises from the transfer of a capital asset being Government securities and stocks and shares of public companies listed with a stock exchange in Bangladesh, then no tax is chargeable [Sec.32(7) of ITO 1984]. Procedure of assessment of a company and its tax rate: The procedure of assessment of companies as noted in ITO 1984 are the followings:a) Provisional assessment u/s 81 b) Assessment on correct return u/s 82 c) Assessment under simplified procedure (other than public limited company) u/s 82 A d) Assessment on the basis of return u/s 82 B e) Assessment after hearing u/s 83 f) Self assessment for private limited companies u/s 83AA g) Assessment on the basis of report of chartered accountant u/s 83 AAA h) Best judgment assessment u/s 84 The rate of tax for companies are as follows Nature of company Rate of tax Remarks Publicly traded company

30%

10% rebate for the company who pay more than 20% dividend and 40% tax for the company who pay less than 10%.


For company other than publicly 40% traded company For Bank, Insurance and 45% Financial Institution Question 3(b) Explain the provision of Income Tax regarding granting, renewal and cancellation of registration of a partnership firm. Answer 3(b) Granting, renewal and cancellation of registration of a partnership firm. Section 111 of ITO 1984 referred to granting, renewal and cancellation of registration of a partnership firm. However, the section was omitted by Finance Act 1995 Additional Information regarding cancellation: If a firm fails to  Comply with notice for filling return u/s 77;  Comply with filling of revised return u/s 78;  Production of accounts and documents u/s 79;  Statement of assets and liabilities u/s 80  Comply with notice u/s 83(1) In the case of firm, m ay ref use t o regi st er or m ay cancel i t s regi st rat i on i f i t i s al ready regi stered Question 3(c) What penal measures can be taken in the following cases: i) Failure to submit books of account s required by Income tax authorities; ii) N o n su b m i ssi o n o f t ax r e t u r n b y t h e a sse s s e e ; iii) F ai l ure of t he em pl oye r t o de duct t ax at so ur ce; iv) S u b m i s si o n o f f a l se r e t u r n b y t h e a s s e s s e e Answer 3(c) :

Penalty

Cases

Failure to submit books of accounts According to Section 126 of ITO 1984: required by Income tax authorities; Sum not exceeding the amount of tax chargeable on the total income of such person Non submission of tax return the assessee;

by

According to Section 124of ITO 1984: Penalty amounting to 10% of tax imposed on last assessed income subject to minimum of tk. 2,500 and a further sum of tk. 250 for everyday of continuing default.

Failure of the employer to deduct tax According to Section 57 of ITO 1984: at source; a)The person responsible for making such deduction shall be deemed to be an assessee in default in respect of the tax b)In addition to such tax, pay an amount at the rate of two percent (2%) per month of such tax for the period commencing on the date after the expiry of 15 days of collection of tax and ending on the date of the actual payment of the tax. Submission of false return by the assessee

According to Section 128 of ITO 1984; General: Not exceeding two and half times of the amount of tax which would have been avoided; Self assessment: Not exceeding 5 times of the amount of tax which would have been avoided;

Question 4: Discuss the provision of new section 16CC and 19(24) inserted in the Finance Act, 2006 regarding minimum tax for company and income from other sources. "The provision of section 16CC is ill framed and contradicts with section 17 of the Income Tax Ordinance". Please comment in the context of computation of income and tax liability thereon under the provisions of Income Tax Ordinance, 1984 Answer 4: According to section 16CC regarding minimum tax:


A company for any reason whatsoever, including the sustaining of a loss, the setting off of a loss of an earlier year, the application of tax credits or rebates, or the claiming of allowances or deductions (including depreciation and amortization deductions) allowed under this Ordinance or any other law for the time being in force, tax is not payable or paid by such company for an assessment year, or tax payable or paid by such company for an assessment year is less than 0.25% of the amount representing such company's turnover from all sources for that year or taka five thousand whichever is higher. ďƒ˜ the aggregate of the company's turnover assessed for the assessment year shall be deemed to be the income of such company for the year chargeable to tax; ďƒ˜ such company shall pay as income tax for the assessment year an amount equal to 0.25%of the turnover assessed for the year or taka five thousand whichever is higher. Explanation: For the purposes of this section, "turnover" means-. a. the gross receipts derived from the sale of goods; b. the gross fees for rendering services or giving benefits including commissions or discounts; c. t he gross recei pt s deriv ed f rom any heads of i ncom e excl udi ng i ncom e f rom capital gains and receipts under speculation business; d. the company's share of the amounts stated above of any association of persons of which the company is a member. According to section 19(24) regarding income from other sources: Where an assessee, being a private limited company or a public limited company not listed with a stock exchange, discloses investments in it's equity received from any shareholder or director during any income year, the amount so received as equity not being received by crossed cheque or bank transfer, shall be deemed to be the income of such assessee for that income year classifiable under the head "Income from other sources". The provision of section 16CC is ill framed and contradicts with section 17 of the Income Tax Ordinance According to section 17 the total income from whatever source derived of a person who is a resident includes (i) is received or deemed to be received in Bangladesh by or on behalf of such person in such year; or (ii) accrues or arises, or is deemed to accrue or arise to him in Bangladesh during that year; or (iii) accrues or arises to him outside Bangladesh during that year; and So under sec 17 it is clear that a person is liable to pay tax only when he has income from any source whereas under 16CC a company has to pay tax even if it is sustaining a loss. Example: ABC, a private limited company, engaged in Garments business for last few years. For the income year ended on 31st December 2006 the company submitted a return showing a loss of Tk1,000,000 whereas enclosed financial statement disclosed a sales of Tk. 20,000,000. In that case According to section 17 the company is not liable to pay any tax as it has shown a net loss of Tk. 1,000,000. But under section 16CC the sales of the company amounts to Tk. 20,000,000 should be treated as income of the company and a tax of Tk 50,000 (20,000,000*0.25%) to be levied thereon. Therefore, section 16CC has clear contradiction with section 17 of ITO 1984. Q.5. Marine Fisheries Limited, a Private Limited Company, is engaged in Deep Sea fishing business for last few st years. For the Income year ended on 31 July 2005 the company has submitted to you a statement of accounts consisting of Trading and Profit and Loss Account for filing income tax return, As a Manager finance, of the company you have examined the accounts which are as follows :

Particulars Cost of Diesel Crew, Captain Salary and allowances

Catch Incentive & Festival Bonus Carrying and Forwarding Packing & Processing Fishing Gear Vessel Operational Expenses Loading & Unloading Expenses Export Expenses

Marine Fisheries Limited Trading Account For the year ended 31st July 2005 Taka Particulars 59,416,425 Sales : 20,928,739 Export 94,465,822 Local 59,817,456 4,677,749 99,254 4,204,789 2,947,474 5,601,743 373,350 7,656,229

Taka

154,283,278


Fee & Taxes Insurance Repairs & Maintenance Expenses Gross Profit

Particulars Directors Remuneration Staff Salary

Staff Bonus Staff Overtime Contribution to recognized P.F License & Renewal Traveling Expenses Conveyance Entertainment Advertisement Telephone Expenses Car Maintenance Electricity Expenses Printing & Stationery Canteen Subsidy Canteen Gas Expenses Office Decoration Office Rent Postage & Photocopies Paper & Periodicals Telex & Telegram Security Bills Agency Commission WASA Deferred Revenue Written off Bank Interest Staff Welfare Expenses Miscellaneous Expenses Depreciation Net Profit

(1) (2) (3) (4) (5)

319,400 7,724,583 6,810,438 33,523,105 154,283,278 Marine Fisheries Limited Profit and Loss Account st For the year ended 31 July 2005 Taka Particulars 300,000 Gross Profit

154,283,278

Taka 33,523,105

9,344,035

Income from Dividend 646,646 1,530,965 Add : AIT 114,114 121,974 286,547 672,787 427,548 125,321 125,321 54,875 494,637 311,458 401,578 161,587 115,487 45,154 1,377,903 1,026,647 135,487 102,154 120,248 71,125 2,52,000 60,548 1,01,879 8,65,128 4,58,796 1,48,845 4,681,665 10,362,924 34,283,865

760,760

34,283,865

The company has paid VAT of Tk. 80,02241 against the payment of cost of diesel which has been refunded for Export earning of Tk. 9,44,65,822. There was eleven taxable employees. The company has disbursed total Tk. 35,40,000 out of Tk. 93,44,035 without complying with the provision of section 30 (a). The Company has imported packing materials and fishing gear from Korea. The custom authority has collected income tax of Tk. 2,40,500 from this consignment at the time of delivery of goods. Wasa bill includes Tk. 30,000 for director’s personal residence. Excess perquisites of Tk. 360,300 paid to technical staff of the company.


(6)

Crew, Captain salary and allowance include Tk. 360,300 as Income Tax of 5 Engineers engaged on contract basis paid on behalf of the Company to Government Account. (7) Insurance expenses charges in Trading Account include Tk. 2,18,500 found to be director’s personal yearly premium. (8) Miscellaneous expenses include Tk. 25,000 as donation to Local Orphanage Center approved by NBR. (9)

Office Rent Claimed at Tk. 10,26,647 out of which rent @ Tk. 60,000 per month paid without complying with the provision of section 53A of Income Tax Ordinance 1984. (10) Tk. 1,50,000 paid as picnic expenses of sister concern of the Company out of Tk. 4,58,796 debited to staff welfare expenses. (11) Export turnover tax rebate will be allowed for the company. (12) Tax depreciation as calculated with reference to previous year final assessment is Tk.33,90,000. You are required to compute total Income, final tax liability allowing credit of tax paid at Custom stage and tax paid on dividend income after considering the above fact supplied by the Management. Answer 5:

Marine Fisheries Limited Computation of total income and tax thereon Income year ended on 31st July 2005 Assessment year 2006-2007 Particulars Net profit as per profit and loss account Less : Gross dividend income to be considered separately Add : Refund of VAT against ex e ort sales Add : Accounting depreciation Income from business Add : Inadmissible Expenses : Salary WASA bill Excess perquisite Insurance expenses Office rent Staff welfare expenses Entertainment expenses Misc. Expense (donation to orphanage)

Note

Amount Tk. 10,362,924

Note - 1

(760,760) 8,002,241 4,681,665 22,286,070

Note - 2 Note - 3 Note - 4 Note - 5 Note - 6 Note - 7 Note - 8

3,540,000 30,000 360,300 218,500 720,000 150,000 25,000 5,043,800 (3,390,000) 23,939,870 760,760

Less : Fiscal depreciation Business income Add : Income from other sources - Dividend Total income Computation of Tax liability On business income of Tk. 23,939,870 @37.5% On dividend income of Tk. 760,760 @ 20% Total Tax liability Less : Tax rebate on export earning Less : Tax rebate on donation to orphanage Less : AIT collected by customs authority Less : AIT on Dividend Income Tax Payable u/s 74 of ITO 1984

Amount Tk.

24,700,630 8,977,451 152,152 9,129,603 Note - 9 Note - 10

2,748,394 2,500 240,500 114,114

(3,105,508) 6,024,095


Note - 1 : Refund of VAT against export sales. Since the rate of VAT on export is zero, relevant input VAT turned into cost unless drawn back from the Government. Therefore, the refund of VAT has been added to income. Note - 2 : Inadmissible Salary. In pursuance with sec 30 (a) of ITO 1984, payment of salary without deduction of tax at source is an inadmissible expense. Note - 3 : Inadmissible WASA bill. The WASA bill relating to director's personal residence is not a business expenditure and therefore disallowed. Note - 4 : Excess perquisites. The perquisite in excess of the limit prescribed u/s 30(e) is an inadmissible expense and therefore added back to fiscal income. Note -5 : Inadmissible insurance expenses. The personal insurance premium of the director is not a business expenditure and therefore disallowed. Note -6 : Inadmissible office rent. In pursuance with Sec 30 (aa) of ITO 1984, payment of rent without deduction of tax at source u/s 53A is an inadmissible expense. Note -7 : Staff welfare expenses. The amount spent for the picnic of sister concern is not a business expenses of the assessee and therefore disallowed. Note -8 : Computation of allowable entertainment expenses u/s 30(f) of ITO 1984 read with rule 65 ofITR 1984 : Business profit before entertainment expenses

Tk. 23,914,870

st

Allowed on 1 Tk. 1,000,000 @ 4% On the balance Tk. 22,914,870 @ 2% Total But restricted to actual expenditure of

Tk. 40,000 Tk. 458,298 Tk. 498,298 Tk. 125,321

Note — 9 : Computation of export turnover tax rebate as per clause 28 part A of the 6th Schedule : Sales Tk. 154,283,278 Fiscal Profit Tk. 23,939,870 Fiscal profit on export sales Tk. 23,939,870/ 154,283,278 X 94,465,822 Tk. 14,658,099 Tax on the fiscal profit out of export sales 37.5% of 14,658.099= Tk. 5.496,787 Rebate 50% of Tk. 5,496,787= Tk. 2,748,394 Note — 10 In accordance with SRO # 229 of 04.07.2011, donation to an organization approved by Board is considered as CSR expenses and against such CSR expenses, 10% rebate is allowed. [25000X10% =2,500] Question. 6. Mr. A made the following gifts during the Income year 2005-2006:i.Gift to Mrs. A on her birthday Tk. 50,000. ii.Gift to a relative not dependent on him Tk. 30,000. iii.Gift to Chittagong Medical College Tk. 20,000. iv.Gift to his brother made in contemplation of death Tk. 35,000 v.Gift to his son-in-law a house property at Canada valued at Tk. 200,000 including furniture worth Tk. 40,000. vi.He transferred an amount of Tk. 60,000 from his Bank Account in U.K to his daughters account. vii.Payment to the widow of one of his employee Tk. 35,000 who died in an accident. Investigation disclosed that he had waived off his claim against his brother for Tk. 20,000 who took it as loan. He also transferred a piece of land to his brother's wife at Tk. 60,000 market value of which estimated at Tk. 150,000. Compute gift tax to be paid by Mr. A. Answer 6: Items/gifts Ref. of Gift Exempted Subject to Tax Act .... (Tk.) GT (Tk.) Gift to Mrs. A on her birthday Tk. 50,000. Gift to a relative not dependent on him Tk.30,000. Gift to Chittagong Medical College Tk. 20,000. Gift to his brother made in contemplation of death Tk. 35,000 Gift to his son-in-law ahouse property at Canada valued at Tk.200,000 including furniture worth Tk. 40,000.

Sec.4(1)(h) Sec. 4(I) (d) Sec.4(1)(c)(ii) Sec.4(1)(g)(h) Sec.4(1)(a)

50,000

He transferred an amount of Tk. 60,000 from his Bank Account in U.K to his daughters account.

Sec.4(1)(a)

60,000

Payment to the widow of one of his employee Tk. 35,000 who died in an accident.

Sec. 4(I)(g)

35,000

30,000 20,000 35,000 200,000


He also transferred a piece of land to his brother's wife at Tk. 60,000 market value of which estimated at Tk. 150,000. Less : General Exemption Total taxable gift Gift tax liability @ 5% on 160,000

150,000

Sec. 4(2)

180,000 20,000 160,000 8,000

ďƒ˜ It is assumed that the fair market value on his / her marriage of the land is Tk. 150,000/ďƒ˜ General exemption limit of Tk. 20,000 Question7: What are the conditions required for Cottage Industry to get exemptions from VAT and Supplementary duty on their products? Do you think that the criteria set are restrictive and impartial? Answer 7: Conditions required for Cottage industry: SRO No. 168-Law/2003/376-Mushak has set tour criteria for cottage industry. These are: a) it must not be a joint stock company; b) capital investment therein on plant, machinery and equipment, shall not exceed Tk. 5 lacs at any time of the year; c) turnover of the industry shall not exceed Tk.20 lacs annually; d) no branded goods of others are produced within the business premises. Cottage industry is exempted from VAT as per SRO # 168-law/2003/376- shuk dated 12 th June 2003.The intention of such fiscal incentive is obviously to encourage and patronize cottage industries. However, to ensure level playing field the government has imposed said criteria to qualify for the benefits. However, the maximum limits stated in criteria (b) and (c) needs an upward adjustment in changed socio economic environment. Question 8. What do you mean by Input Tax rebate and what are the conditions to be fulfilled in order to claim Input Tax rebate? Value addition is the important principle of VAT. Please explain in the context of VAT Act, 1991? Answer 8: Input tax rebate: According to section 9 of VAT Act 1991: Input tax paid by a registered person on the inputs imported or purchased by him can be adjusted under section 9 and rule 19 of VAT Act 1991 and VAT Rules 1991 against output tax liability in the current account for a certain tax period which is called input tax rebate. Conditions to fulfill in order to claim Input Tax rebate: a) Person willing to obtain input tax rebate must be registered and shall have to obtain rebate against output tax liability. b) Documents relating to input tax payment including the name, address and registration no i.e bill of entry on Mushok-11 Challan or any other papers or records deemed to be challan must exist which should be retained for 4 years: c) Rebate must be obtained in the concerned tax period, however delay on reasonable ground may be acceptable; d) In the price declaration, proper analysis or break down of costs of concerned inputs must be made; e) Rebate can not be obtained against challan of turnover tax. Principle of Value addition: ( Value Added Tax (VAT) means tax on value addition. It is charged on the value of consumption, applied at each point of transactions of goods or services from primary production to final consumption. At every stage one has to pay as well as collect VAT before reaching the stage of the final consumption. So, every one, except final consumer, does not have to bear any VAT from his own account. Because whatever the person other than the final consumer has paid as VAT at the time of purchase he will collect that amount of VAT from persons who will buy his goods or services and also collect tax on value which is added by him before selling. The addition done by seller before selling is difference amount between the sales price of the goods or services and raw material that is (output-input) is called value addition. The standard rate of VAT is 15%. The distinctive feature of VAT is that unlike erstwhile sale tax, it does not have any cascading or tax on tax effect. Under sales tax regime there was no scope to adjust sales tax paid as input tax against output tax payable and it used to be compounded at each intermediate stage. By introduction of value addition concept the tax base has been expanded significantly with the expansion of manufacturing and service sector in the economy. Question 9: What do you understand by PSI, H.S.Code and Bonded Warehouse? Discuss its importance in the context of import and back to back export business. Answer 9: PSI PSI means Pre-Shipment Inspection. PSI companies carry out this inspection. In pursuance with Sec. 25 A of Customs Act 1969, the government may appoint pre-shipment inspection and audit agencies to verify and certify the quality, quantity. price, description and customs classification of any imported goods. PSI service charge is currently 1% of the value of imported goods. HS code Harmonized System Code used in Customs /VAT scenario globally Bonded warehouse


Under section 13 of Customs Act 1969 the Commissioner of Customs (Bond) or any other Commissioner of Customs authorised by the Board may, license private warehouses wherein dutiable goods imported by or on behalf of the licensee, or any other imported goods in respect of which facilities for deposit in a public warehouse are not available, may be deposited. Bonded warehouse enjoys exemption u/s 91(2) of Customs Act 1969. Importance in the context of import and back-to-back export business. The export deal that contains a term to export a product manufactured by the input supplied by the buyer is generally known as back-to-back export business. Bonded warehouse facilitates the back-to-back export business avoiding overlapping of formalities and unrealistic stress on working capital. Question 10. Sun Moon Company has imported one consignment from Korea. Goods are lying Chittagong Port for clearance. Assessed value of the imported goods is Tk. 5 lacs. Under H.S Code of this goods. The duty and tax structure is as follows:Custom duty Supplementary duty VAT ATV

5% 20% 0% 1.5%

Please complete the total custom duty and other taxes of this particular consignment. Answer 10: Value of Custom Supplementary VAT @ imported duty @ duty@20% 0% (Tk.) goods (Tk.) 5% (Tk.) (Tk.)

500,000

On Tk. 500,000 @5%= Tk.25,000

On 525,000 @20%= 105,000

Tk.

On Tk.630,000 @ 0%= Tk.0

ATV @1.5% (Tk.)

On Tk.693,000@1.5% = Tk. 10,395 (Including 10% Value addition i.e Tk.630,000*.10)= Tk.63,000)

Question 11.Discuss the provision of Custom Act, 1969 with regard to the following:a) Provisional assessment of duty; b) Failure to submit mandatory PSI certificate to the custom authority: c) Wrong declaration of imported consignment. Answer 11: (a)Provisional assessment of duty: U/s 81 of the Customs Act 1969: In a case, where technical tests or further enquiry and/or documents are required, a customs officer, not below the rank of Assistant Commissioner, may order for such "Provisional" assessment of goods and the Importer/Exporter pays the duty or taxes accordingly including security money or bank guarantee. The (final) assessment of which to be done, within 150 (one hundred fifty) working days or within such period as the NBR may allow. (b) Failure to submit mandatory PSI certificate to the custom authority Such person shall be liable to pay Pre-shipment Inspection service charge at the rate as determined by the government by the notification published in the official Gazette and a penalty not exceeding the value of the goods, but not less than ten percent of the value of the goods. (c )Wrong declaration of imported consignment: Such person shall be liable to a penalty not exceeding fifty thousand Taka or three times the value of the goods in respect of which such offence is committed, whichever be higher and such goods shall also be liable to confiscation; and upon conviction by a Magistrate such person shall further be liable to rigorous imprisonment for a term not exceeding five years or to a fine not exceeding taka fifty thousand or to both.

Icab pe iii taxation ii suggested answer may june 2002 to nov dec 2006  

ICAB PE-III Taxation -II Suggested Answer May June 2002 to Nov Dec 2006

Icab pe iii taxation ii suggested answer may june 2002 to nov dec 2006  

ICAB PE-III Taxation -II Suggested Answer May June 2002 to Nov Dec 2006

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