Withholding Tax

The business entities and organizations need to deduct tax from any payment made during their operations to be allowed as the expense of the organization and it is called withholding tax. Upon deduction, the organization must furnish a withholding tax certificate to the person/entity from which the tax had been deducted.

 Withholding Tax Authorities

Every person, being a company or a co-operative society or a non-government organization registered with NGO Affairs Bureau [a Micro Credit Organization having licence with Micro Credit Regulatory Authority, [a university], a private hospital, a clinic, a diagnostic centre, [an English medium school providing education following international curriculum, artificial juridical person, local authority,] a firm or an association of persons], shall file or cause to be filed, with the Deputy Commissioner of Taxes under whose jurisdiction he is an assesses, a return of tax deducted or collected under the provisions of Chapter VII of this Ordinance.

Responsibilities:

• Monthly TDS Return Deposit:
• TDS Certificate Issuance
• Tax Return Under 75A

Find the Withholding Tax Rate of Bangladesh HERE➤

Entities Required to Register for VAT

However, the following individuals/institutions must register for VAT/BIN and submit monthly returns regardless of their annual turnover/sales (even if zero):

All individuals/institutions engaged in import-export business.
All individuals/institutions supplying goods/services against tenders/contracts/work orders.
All individuals/institutions supplying/producing/importing goods/services subject to supplementary duty.

As per General Order-17, the following must mandatorily register for BIN/VAT:
i) Manufacturers of 75 types of products.
ii) Providers of 79 types of services.
iii) Traders of 7 types of products.
iv) Shops located in supermarkets and shopping malls.
v) Any manufacturing institution located within a city corporation/district town.

Products and services that must mandatorily register for BIN/VAT as per point 4:

Product Manufacturing: Milk products, chocolate, biscuits, chanachur (a spicy snack), pickles, paint, soap, coil, foam, plastic products, wood and leather products, lozenges, noodles, ink, packaging materials, bricks, fans, TV, bulbs, parts, etc.

Service Provision: Online product sales, ITES services, ready-made garment retailers, ride-sharing services, businesses operating on rented office spaces, architects, graphic designers, tailoring shops, courier services, hotels/restaurants, car garages, advertising agencies, printing presses, confectioneries, furniture manufacturing and sales, parlors, consultancy firms, suppliers, fitness centers, coaching centers, clinics and security services, supermarkets, shopping mall shops, rod and cement shops, electronics product sales shops, etc.

VAT Deducted at Source (VDS):

The below-mentioned business entities and organizations need to deduct VAT from any payment made during their operations to be allowed as the expense of the organization, known as withholding VAT/Source VAT Deduction. Upon deduction, the organization must furnish a VAT Deduction certificate to the person/entity from which the VAT had been deducted.

Entities required to deduct VAT at source:

(a) Any government entity;
(b) Any private institution approved by the NGO Affairs Bureau or the Department of Social Services;
(c) Any bank, insurance company, or similar financial institution;
(d) Any secondary or higher-level educational institution; or
(e) Any limited company.

Responsibilities:

• Monthly VAT Return
• Monthly VDS Return
• Providing VAT deduction Certificate in a prescribed form to the Vendor

To know about the VAT rates for different services in Bangladesh, please visit here>

Regulations for VAT collection on online sales of goods/services

Selling Products/Services on Own Platform: If a manufacturer/business/service provider sells their own products/services through their own online platform/website/Facebook page/group, they must pay VAT at the specified rate according to the VAT law for those specific products/services. For example:

1. In the case of a product manufacturer, 15% VAT or the applicable rate for the product specified in the Third Schedule of the Ordinance.
2. In the case of a service provider, the applicable VAT rate according to the code for the relevant service.

Note: In this case, an additional 5% VAT for online services will not be applicable.

Selling Products/Services on Other Platforms: In the case of selling one’s own products/services on a third party or other online platforms, a 5% VAT will be applicable on the commission/profit/revenue sharing provided to the service provider of the relevant online platform. Additionally, the applicable VAT for the relevant product/service must be pre-paid as per the law. If this VAT is not pre-paid, then VAT on the relevant product/service must be collected from the final consumer.

TDS, VDS on Procurement Supply Business

Although the Income Tax Act does not provide a specific definition of supplier services, under section 52, it stipulates the rates at which tax is to be deducted at source (TDS) in the case of “supply of goods.”

However, in the VAT Act, a specific definition is provided, and it states that anyone wanting to provide services as a supplier must be VAT-registered as a supplier (service code S037). It also mentions that no manufacturer, trader, or service provider (for services with specific definitions) will be considered as a supplier.

Rates of Tax Deduction at Source (TDS) and VAT Deduction at Source (VDS) from bills for the supply of goods/supplier services are as follows:

Note:

• If the supplier does not have an ETIN or if payment is made in cash, the above TDS rates will increase by 50%.
• The base amount refers to the higher of the contract value, invoice value, or bill payment amount, which will be the base amount for TDS deduction.
• There is no base amount for VAT.

Allowable General Deductions in the Computation of Business Income

Subject to the provisions of this Act, in determining the taxable income of any person derived from business for any income year, the following categories of expenditures, when incurred exclusively and necessarily for the purpose of carrying on each distinct and separate business activity, shall be allowable as general deductions from such business income:

Direct Cost of Goods and Inventory

 Any expenditure incurred in connection with the acquisition or purchase of:

• Raw materials;
• Trading stock or inventory;
• Goods intended for use or consumption in the course of business; and
• Any cost relating to obsolete or written-off inventory, as appropriately recognized under applicable accounting standards.
• Taxes, Duties, and Government Charges
• Payments made, for business purposes, in the nature of:

Custom duties and excise taxes;

• Municipal taxes, local rates, and charges;
• Land development tax, rent, or khajana (revenue payable for land); and
• Statutory or regulatory fees payable to any government authority:
• Provided that such taxes, duties, or charges are not otherwise recoverable under the provisions of this Act or under the Gift Tax Act, 1990 (Act No. 44 of 1990).

Premises and Property-Related Expenses

• Rental payments, maintenance charges, and development expenses related to land, buildings, or premises used exclusively for business operations.
• Employee-Related and Compensation Expenses
• Expenses incurred on account of:
• Remuneration, salaries, wages, bonuses, allowances, and other employment benefits recognized as income from employment under this Act;
• Employee welfare expenses; and
• Other employment-related payments made in compliance with applicable labour laws.
• Maintenance and Insurance

Costs incurred in relation to:

Repair and routine maintenance of business assets and infrastructure;

• Insurance premiums paid for the protection of business assets, liabilities, or operations.
• Utilities and Operational Services
• Expenses borne for essential operational services, including:
• Electricity and other energy sources;
• Water, fuel, and gas supplies;
• Internet, telecommunication, and postal services.

Transportation, Distribution, and Clearing

Outlays associated with:

• Transportation and delivery of goods;
• Clearing, forwarding, or logistics services.

Sales and Marketing

• Legitimate commercial expenditure incurred as:
• Sales commissions, brokerage, or discounts;
• Warranty charges or similar sales-related costs;
• Advertisement and promotional costs;
• Expenditures for product awareness or market development.
• Capacity Development and Representation
• Training and development expenses incurred for employee upskilling.
• Expenditures related to conferences, workshops, or accommodation and lodging provided to sales representatives or field staff.
• Travel and Hospitality
• Business travel-related expenses, including domestic and international travel undertaken for the advancement of business objectives.
• Expenses incurred for hosting clients, guests, or business partners in the ordinary course of business hospitality.
• Professional and Advisory Services

Payments made in respect of services rendered by professionals or consultants, including:

Legal advisory services;

Audit and assurance services;

Accounting, tax, or other professional services.

Foreign Exchange and International Transactions

Realized foreign exchange losses on monetary assets or liabilities, to the extent permitted by the Third Schedule to this Act.

Memberships and Contributions

• Entrance fees and membership subscriptions paid to clubs or trade associations, where such memberships are reasonably necessary for the conduct of business and entitle the taxpayer to access institutional facilities and networks.
• Expenses incurred in connection with participation in trade delegations sponsored by the Government of Bangladesh, including travel, accommodation, and incidental costs of representatives.

Royalty, Technical Services, and Head Office Charges

Reasonable amounts paid as:

• Royalties or license fees;
• Technical service fees or consultancy charges;
• Head office expenses or cost allocations from a foreign principal, subject to substantiation and compliance with transfer pricing and deductibility limitations.
• Statutory Contributions under Labour Laws
• Contributions made, not exceeding five percent (5%) of the disclosed net business profit, to the following funds, as required under the Labour Act, 2006 and the Bangladesh Workers Welfare Foundation Act, 2006:

Participation Fund;

Welfare Fund;

Workers Welfare Foundation Fund.

Miscellaneous

Any other expenditure, not falling under the above categories, which is wholly, exclusively, and necessarily incurred for the purpose of carrying on business.

Non-Allowable Company Expenses

Notwithstanding any other provisions contained in the Act, in computing the income derived from business operations, the following categories of expenditure or payments shall not be admissible as allowable deductions:

(a) Any expenditure or payment in respect of which the provisions set forth under Part 7 of this Act have not been duly and properly complied with;

(b) Any amount paid by a partnership firm or an association of persons to any partner or member thereof, whether by way of interest, salary, commission, or other form of remuneration;

(c) Any commission, discount, or similar payment made by a company to a shareholder who is also a director of that company;

(d) Any sum exceeding BDT 1,000,000 paid to an employee as a perquisite, as defined under the Explanation to Section 32 of this Act:

Provided, however, that this restriction shall not apply where such payments are made in accordance with the recommendations of a wage board constituted by the Government by notification in the official Gazette, based on an express Government decision;

(e) Any expenditure incurred towards royalty, license fee, technical service fee, technical know-how fee, technical assistance fee, or any analogous fee for the use of intangible assets, insofar as such expenditure exceeds ten percent (10%) of the net business profit as disclosed in the taxpayer’s financial statements;

(f) Any expenditure incurred by the head office or on account of intra-group charges by a company not registered in Bangladesh, under any nomenclature, to the extent such expenditure exceeds ten percent (10%) of the net business profit disclosed in the financial statements;

(g) Foreign travel expenses incurred for business purposes, to the extent such expenses exceed zero point five percent (0.5%) of the business turnover reported in the financial statements:

Provided that the aforementioned limitation shall not apply in respect of foreign travel undertaken for the purpose of providing services to the Government;

Provided further that if the taxpayer furnishes adequate evidence substantiating the commercial necessity and reasonableness of the excess amount, the prescribed limitation under this clause shall not apply;

(h) Entertainment expenses exceeding the following thresholds:

• Four percent (4%) of the first BDT 1,000,000 of business income (as computed prior to deduction of such expenses); and

• Two percent (2%) of the amount of business income in excess of BDT 1,000,000 (also computed prior to such deduction);

(i) Expenditure incurred on the distribution of free samples, beyond the following prescribed thresholds:

(i.1) Pharmaceutical Industry:

• Two percent (2%) of turnover up to BDT 50 million;

• One percent (1%) of turnover above BDT 50 million but not exceeding BDT 100 million;

• Zero point five percent (0.5%) of turnover exceeding BDT 100 million;

(i.2) Food, Cosmetics, and Perfumery Industry:

• One percent (1%) of turnover up to BDT 50 million;

• Zero point five percent (0.5%) of turnover above BDT 50 million but not exceeding BDT 100 million;

• Zero point two five percent (0.25%) of turnover exceeding BDT 100 million;

(i.3) Other Industries:

• Zero point five percent (0.5%) of turnover up to BDT 50 million;

• Zero point two five percent (0.25%) of turnover above BDT 50 million but not exceeding BDT 100 million;

• Zero point one percent (0.1%) of turnover exceeding BDT 100 million;

(j) Any promotional expenditure, excluding advertisement expenses, in excess of zero point five percent (0.5%) of the business turnover;

(k) Any payment deemed to be income from employment, if such payment is made otherwise than through a recognized banking channel;

(l) Any payment treated as income from rent, if made through any mode other than a recognized banking channel;

(m) Any payment exceeding BDT 500,000 in respect of procurement of raw materials, if such payment is made otherwise than through a recognized banking channel;

(n) In the case of all other expenses not falling within clauses (k), (l), or (m), any amount exceeding BDT 50,000 made otherwise than through the banking channel;

(o) Any payment made to a person who, at the time of such payment, has failed to submit documentary evidence of having filed their income tax return as required under clauses 25, 26, 28, 29, 36, 37, 42, and 43 of sub-section (3) of Section 264;

(p) Any expenditure of a capital nature, or any expense of a personal nature incurred by the taxpayer;

(q) Any provision or liability claimed as a deduction which is not determinable with reasonable clarity or specificity;

(r) Any expenditure that is not directly attributable to or incurred in connection with the taxpayer’s business activities;

(s) Any depreciation or interest expense claimed in respect of a Right-of-Use asset pursuant to the International Financial Reporting Standards (IFRS):

Provided that rent, maintenance, or development costs related to such assets used exclusively for business purposes shall be allowable as deductions;

(t) Any impairment loss recognized on intangible assets;

(u) Any amount paid into a fund or reserve requiring prior approval under this Act, where such approval has not been obtained;

(v) Any expense unsupported by documentation or records, in circumstances where the taxpayer has failed to maintain accounts in accordance with the prescribed accounting methods.

Explanation:

1. For the purpose of this Section, “Net Business Profit” shall refer to profit generated directly from the taxpayer’s own business operations, and shall expressly exclude any income derived from subsidiaries, associates, or joint ventures.

2. The term “Promotional Expense” shall mean any expenditure incurred in providing any goods, financial benefits, or other forms of consideration to a person for the purpose of promoting business activities, and shall not include expenditure on advertisements.

DVS Audited Report Compliance

Many of you may already know that from now on, every limited company is required to submit its annual financial statements at its office each year. Previously, this was only mandatory to be submitted to the Income Tax Office and the RJSC.

In the past, many used to prepare the financial statements of their organizations as they pleased. Some even created fake/false financial statements. Additionally, some prepared multiple types of financial statements in the name of a single company within a year and submitted them to various places for different purposes, which was entirely illegal.

Starting from last year, regulatory bodies (government, NBR, RJSC, ICAB, banks) have introduced a new rule. A company can no longer prepare more than one audit report in a year. To enforce this, ICAB has introduced a system where each audit report must include a DVC (Digital Verification Code) number through the DVS (Digital Verification System). This system generates a unique number that, once issued in the name of a company for a particular year, cannot be reissued for that company in that same year. Thus, no additional audit reports can be created for that company within that year. If someone fraudulently prepares and submits such a report somewhere, the concerned institution can easily verify the authenticity of the DVS number online. As a result, penalties and sanctions will be imposed for submitting fake audit reports.

Now, let’s discuss submitting audit reports to the VAT office. Many are not submitting monthly VAT returns, some are submitting zero VAT returns despite having sales, some are concealing actual sales, and some are not showing the actual amounts in monthly VAT returns despite transactions through banking channels. Consider this: when a VAT officer verifies the sales amount shown in your submitted audit report against the amount shown in your monthly VAT returns, or checks how much VAT you have deducted at source as a source VAT deductor against the expenses shown in your financial statements, or compares the sales amount with your bank statement, what will happen to you and your organization?

To check the company DVS signing dates with the Audit Firm, visit here>.

Company Tax Return Checklist

1. Company Trade License
2. TIN Certificate
3. AOA & MOA of the Company
4. Form 12 of the Company
5. Bank Statements of all bank accounts up to 30th June of the Financial Year
6. All TDS deposit Slips
7. All VAT deposit Slips
8. All VDS deposit Slips
9. ALL 9.1 Return Forms
10. All 75A returns & Salary Return or other Statutory Return Forms
11. Update Schedule 10
12. Annual General Meeting
13. Business Identification Number (BIN)
14. Previous Years Audited Reports
15. Pervious Years Tax Return Submission Forms, Acknowledgements & Clearance Certificates
16. Employee Salary Sheets
17. Journals, Monthly Ledger or Expense Book
18. Sales Reports & Sales Book
19. Tax Exemption Certificate (if any)
20. Auditor Appointment Letters