Taxation Policy for Non-Profit and Charitable Organizations in Bangladesh under the Income Tax Act, 2023

1. Executive Summary

Bangladesh’s taxation landscape for non-profit and charitable organizations has undergone a significant transformation with the enactment of the Income Tax Act, 2023 (ITA 2023). This new legislation, gazetted on June 22, 2023, and effective from July 1, 2023, comprehensively replaces the Income Tax Ordinance, 1984, signaling a fundamental policy shift towards a more formalized, transparent, and potentially stricter tax regime across all sectors, including non-profits.The primary objectives of the ITA 2023 are to modernize and streamline the country’s income tax system, promote transparency, and enhance taxpayer compliance.

A central element of this new policy is the stringent definition of “charitable purpose,” which now explicitly excludes certain general public welfare initiatives if they involve business or commercial activities, or substantial exchanges of services for goods, unless specifically approved by the Tax Commissioner [User Query]. Donations and grants, while broadly defined as “income” under the new Act , are generally exempt from taxation if received by religious institutions or charitable organizations approved by the Tax Commissioner and are subsequently spent for religious or charitable purposes [User Query]. A separate exemption pathway exists for voluntary contributions received by entities approved by the NGO Affairs Bureau (NGOAB), although these are subject to the overarching applicability of Section 76, Sub-sections (5) and (6) of the ITA 2023 [User Query]. Compliance with regulatory bodies such as the National Board of Revenue (NBR) and the NGOAB is paramount for securing and maintaining tax-exempt status and adhering to broader regulatory obligations. The comprehensive replacement of the 1984 Ordinance with the 2023 Act underscores a legislative intent for a more stringent and actively monitored tax environment, requiring non-profits to adapt to new compliance standards.

1. Introduction to the Income Tax Act, 2023 and the Non-Profit Sector in Bangladesh
2. Evolution of Income Tax Legislation

The Income Tax Act, 2023 (ITA 2023), represents a pivotal moment in Bangladesh’s fiscal policy. This legislation was officially passed by the Jatiya Sangsad (National Parliament) and subsequently gazetted on June 22, 2023, with its provisions coming into effect on July 1, 2023. This enactment is not merely an amendment but a complete overhaul of Bangladesh’s income tax framework, explicitly repealing the Income Tax Ordinance, 1984, which had been the governing statute for nearly four decades. The decision to replace a long-standing ordinance with an entirely new Act highlights a significant legislative commitment to modernizing the taxation system.

The primary objectives driving this comprehensive reform include streamlining tax procedures, enhancing transparency, fostering a more business-friendly environment, and improving overall taxpayer compliance. The ITA 2023 introduces several key features designed to achieve these goals. These include a simplified tax structure with revised rates and slabs, a strong emphasis on digital transformation to facilitate tax administration—encompassing easier online filing of returns and digital judicial processes—and the incorporation of robust anti-avoidance provisions aimed at deterring tax evasion and ensuring a level playing field for all taxpayers. Furthermore, in a notable development, the new Act has been published in Bengali, with provisions for an authentic English text, enhancing accessibility and clarity for the local population and international stakeholders alike. This legislative update reflects a strategic effort to enhance revenue mobilization and compliance across the nation.

1. Legal Framework for Non-Profit and Charitable Organizations

Non-profit and charitable organizations in Bangladesh operate within a multi-layered and often complex legal framework. The specific legal entity chosen for registration dictates the governing laws and regulatory oversight. This fragmented regulatory landscape means that a non-profit’s initial legal structuring decision is critically important, as it pre-determines much of its subsequent regulatory and tax compliance burden.

Organizations can register under several distinct acts:

• The Companies Act, 1994: Non-profit organizations may be established as companies limited by guarantee, without a share capital, under this Act. This structure offers a corporate legal identity while maintaining a non-profit objective.
• The Societies Registration Act, 1860: This Act is particularly suitable for organizations formed for literary, scientific, or general charitable purposes. It requires a minimum of seven individuals to subscribe their names to a memorandum of association. Registration under this Act is overseen by the Registrar of Joint Stock Companies and Firms (RJSC), which falls under the Ministry of Commerce.
• The Trust Act, 1882: This legislation governs the establishment of trusts, defining a trust as an obligation annexed to property ownership, arising from confidence reposed for the benefit of another. While the Act primarily addresses private secular trusts, charitable trusts are also established under its principles. Charitable trusts often seek registration with the RJSC under the Societies Registration Act, 1860, especially if they intend to apply for approval from the NGO Affairs Bureau (NGOAB).
• The Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961: This ordinance is typically utilized by organizations that provide social welfare services to specific vulnerable groups, such as women, the elderly, or children. Registration under this ordinance falls under the purview of the Department of Social Services (DSS), which operates via the Ministry of Social Welfare.
• The Foreign Donations (Voluntary Activities) Regulation Act, 2016: This is a crucial piece of legislation that specifically governs Non-Governmental Organizations (NGOs) and International Non-Governmental Organizations (INGOs) that receive and operate with foreign funds in Bangladesh. This Act places significant regulatory oversight under the NGO Affairs Bureau (NGOAB), an integral component of the Prime Minister’s Office. The Act also contains stringent provisions that allow for actions, including the cancellation or withholding of approval, against foreign-funded NGOs found to be engaging in “anti-state activities” or “making derogatory comments about the Constitution and constitutional institutions”. The existence of multiple, distinct registration pathways, coupled with the specific Foreign Donations Act, highlights that there isn’t a single, unified legal identity for “non-profit” in Bangladesh. This layering of legal frameworks necessitates careful consideration during the establishment and operation of any non-profit entity to ensure adherence to all applicable regulations.

1. Purpose and Scope of the Report

This expert-level report provides a comprehensive legal and tax analysis of non-profit and charitable organizations operating within Bangladesh. Its primary focus is on the significant implications introduced by the newly enacted Income Tax Act, 2023. The report aims to clarify the intricate definitions of “charitable purpose” and “income” as they apply to these entities. It meticulously examines the relevant income tax exemption clauses, detailing the conditions under which donations and grants can be excluded from taxable income. Furthermore, the report delves into the roles and processes of key regulatory bodies, specifically the Tax Commissioner (under the National Board of Revenue) and the NGO Affairs Bureau, highlighting their approval mechanisms and ongoing compliance requirements. Beyond income tax, the report addresses other pertinent tax obligations, including Value Added Tax (VAT), customs duties, and property taxes, providing a holistic understanding of the overall tax burden and compliance landscape for the sector. The objective is to offer multi-layered understandings into the legal framework, ensuring clarity and practical guidance for all stakeholders involved in the non-profit sector in Bangladesh.

III. Defining “Charitable Purpose” under the Income Tax Act, 2023

1. General Definition of “Charitable Purpose”

The concept of “charitable purpose” is fundamental to determining the eligibility of non-profit organizations for tax exemptions in Bangladesh. While the explicit, full definition under Section 2(15) of the Income Tax Act, 2023, is not fully elaborated in the provided information, its essence can be inferred from the user query and references to similar legal provisions, particularly Section 2(15) of the Indian Income Tax Act 1961, which often serves as a precedent due to historical legal ties and shared legislative principles.

Generally, “charitable purpose” encompasses a range of activities aimed at public benefit. These typically include:

• Relief of the poor: This category covers a wide array of initiatives for the welfare of economically and socially disadvantaged or needy individuals, such as providing aid to destitutes, orphans, the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans, or senior citizens in need.
• Education: This involves the instruction or training of individuals to improve or develop their capabilities, or the instruction of the public on subjects beneficial to the community. Examples include primary schools, colleges, professional or trade schools, public discussion groups, and cultural institutions like museums or orchestras.
• Medical relief: This broadly covers activities related to providing healthcare services.
• Advancement of any other object of general public utility: This is a broad category intended to cover purposes that benefit the public at large, not falling under the specific heads mentioned above.
• Other specified purposes, such as the preservation of the environment (including watersheds, forests, and wildlife), preservation of monuments or places of artistic or historic interest, and promotion of yoga, are also typically included.

The overarching principle is that an organization must be established and operated exclusively for one or more of these charitable purposes to qualify for tax-exempt status.

1. Exclusions from “Charitable Purpose” for General Public Welfare Initiatives

The user query explicitly introduces critical limitations to what constitutes a “charitable purpose” for initiatives promoting “general public welfare.” These limitations are designed to prevent commercial entities from masquerading as charities and to ensure that tax benefits are directed towards genuine public service. Such initiatives will not be considered a charitable purpose if they meet certain criteria:

• (A) Unless it is approved by the Tax Commissioner: This provision grants significant discretionary power to the Tax Commissioner. It implies that even if a general public welfare initiative engages in activities that might otherwise disqualify it (as per point B below), it can still be deemed a charitable purpose if it secures explicit approval from the Tax Commissioner. This underscores the importance of proactive engagement and formal approval from the National Board of Revenue (NBR) for such organizations. This mechanism allows the tax authority to exercise judgment on a case-by-case basis, potentially overriding strict interpretations of commercial involvement if the public benefit is deemed substantial and genuine.
• (B) If it is involved in any of the following activities:
  • (1) Any business or commercial activity, regardless of its nature or type: This is a broad and stringent exclusion. It indicates a clear intent to prevent entities primarily engaged in commercial operations from claiming charitable status under the guise of general public welfare. This seemingly absolute prohibition is, however, nuanced by the concept of “incidental” activities, as discussed in the next section. The emphasis on “regardless of its nature or type” suggests a strict interpretation against direct commercial ventures.
  • (2) If services are provided in exchange for goods and the total value of such goods exceeds 1 (one) crore taka in any tax year: This sets a specific monetary threshold (BDT 1 crore, equivalent to 10 million Taka) for activities that involve the exchange of services for goods. If the total value of such goods exceeds this limit in any tax year, the initiative will automatically be disqualified from being considered a “charitable purpose” for general public welfare, unless the Tax Commissioner’s approval (as per point A) explicitly overrides this. This financial threshold introduces a clear quantitative test for commercial involvement, aiming to curb large-scale commercial transactions under the guise of charitable service.

1. Incidental Commercial Activities

While the general rule for “advancement of any other object of general public utility” is stringent regarding commercial activities, the tax law provides for certain nuances, particularly concerning “incidental” commercial activities. Drawing from interpretations of similar provisions, such as Section 2(15) of the Indian Income Tax Act 1961, an activity will notbe considered a charitable purpose if it involves trade, commerce, or business, or the rendering of services related to them, unless:

• Such activity is undertaken in the course of actually carrying out the advancement of the general public utility objective. This means the commercial activity must be directly linked to and supportive of the charitable mission, not an independent, profit-driven venture. For example, a charitable organization providing vocational training might sell products made by its trainees, where the sale is secondary to the training itself.
• The aggregate receipts from such business or commercial activities during the previous year do not exceed 20% of the total receipts of the trust or institution for that previous year. This sets a clear quantitative limit on the permissible scale of commercial engagement, ensuring that the primary character of the organization remains charitable. This 20% threshold acts as a safeguard against organizations becoming predominantly commercial while claiming charitable status.

It is important to note a differentiation in the treatment of incidental commercial activities for different charitable purposes. For core charitable purposes like “relief of the poor,” “education,” or “medical relief,” incidental commercial activities are generally permissible without the strict 20% receipt limit, provided the business is genuinely incidental to the attainment of the main charitable objects. This suggests a greater degree of flexibility for organizations providing fundamental social services, acknowledging that some revenue-generating activities might be necessary to sustain their core mission. This differentiation in the treatment of incidental commercial activities reveals a strategic policy to protect fundamental social services while tightening controls on more generalized public welfare initiatives that might be prone to commercial exploitation.

To ensure compliance and transparency, organizations undertaking such incidental commercial activities are advised to maintain separate books of account for the business and to disclose these receipts separately in their income tax returns.This practice enables tax authorities to easily verify that the commercial activities are indeed incidental and within permissible limits.

Table 1: Key Conditions for “Charitable Purpose” under ITA 2023

Aspect of “Charitable Purpose”	Description/Rule	Applicability/Approval	Legal Reference (if available/inferred)
General Definition	Relief of the poor, education, medical relief, advancement of any other object of general public utility, preservation of environment, monuments, yoga.	Universal application for core charitable objectives.	Section 2(15) (inferred from similar acts)
Exclusion for Business/Commercial Activity (General Public Welfare)	Any business or commercial activity, regardless of nature or type, undertaken by an initiative for general public welfare.	Excluded, Unless approved by the Tax Commissioner.	User Query
Exclusion for Services-for-Goods > BDT 1 Crore (General Public Welfare)	Provision of services in exchange for goods, where the total value of such goods exceeds BDT 1 crore in any tax year, by an initiative for general public welfare.	Excluded, Unless approved by the Tax Commissioner.	User Query
Condition for Incidental Commercial Activity (General Public Utility)	Commercial activity is permissible if: 1) It is incidental to the actual carrying out of the general public utility objective; AND 2) Aggregate receipts from such activity do not exceed 20% of the total receipts of the institution in the previous year.	Applies specifically to the ‘advancement of any other object of general public utility’ limb. Not applicable to relief of poor, education, or medical relief where incidental business is generally allowed without this strict limit.	Section 2(15) (inferred from similar acts)

1. Taxation of Entities Established for Charitable Purposes: Understanding “Income”
2. Legal Obligation to Pay Income Tax

The foundational principle of taxation in Bangladesh, as articulated in the user query, is that “All taxable entities defined as ‘income’ under Section 2, Clause (63) of Income Tax Act, 2023 have a legal obligation to pay income tax.” This statement establishes a crucial default position: any entity operating within Bangladesh, including those established for non-profit or charitable purposes, is subject to income tax. Exemptions from this general obligation are not automatic; rather, they are specific exceptions that must be explicitly provided for by the Act and meticulously adhered to by the organization. This means that the onus is on the non-profit to demonstrate its eligibility for any tax relief, rather than the tax authority needing to prove taxability.

1. Interpretation of “Income” under Section 2, Clause (63)

The explicit, full definition of “income” as specified under Section 2, Clause (63) of the Income Tax Act, 2023, is not detailed within the provided information. While various snippets reference other definitional clauses, such as Section 2(15) for “income year” and Section 2(22) for “taxpayer” , the specific content of Section 2(63) remains unelaborated in the research material.

However, based on the user query’s direct reference to Section 2(63) as defining “income” for all taxable entities, and the general principles underlying the ITA 2023, it can be inferred that this clause delineates the comprehensive scope of what constitutes taxable receipts. The broader context of the ITA 2023 indicates a legislative intent to expand the tax base and clarify taxable events.

1. Broader Scope of Income for Tax Purposes

A significant development introduced by the Income Tax Act, 2023, is the expansion of the ambit of “income” to encompass a wider range of receipts than previously defined. This expansion is a critical change for all taxpayers, including non-profit organizations, as it fundamentally alters the default assumption about their financial inflows.

Beyond traditional heads of income, such as employment income, business profits, rent, capital gains, and income from financial assets , the ITA 2023 explicitly states that “Income now includes any inheritance, will, bequest or trust, donations and alike”. This is a pivotal inclusion for non-profit and charitable organizations. It means that voluntary contributions, grants, and donations, which constitute the primary funding sources for these entities, are

prima facie considered taxable income under the new Act.

The Act further clarifies that “Any acquisition of assets that is not by natural means, not by own creation, at value other than transfer or sales or other than foreclosure against lease or liabilities will be considered as income as well”. This broad definition ensures that various forms of asset acquisition, even those not directly from commercial transactions, fall under the purview of taxable income.

Consequently, with donations and grants now explicitly defined as income, non-profit and charitable organizations must rely entirely on specific exemption provisions within the Act to exclude such receipts from their total taxable income. This shift places a greater burden on these organizations to understand and meticulously comply with the conditions for exemption, as the default position is now taxability, rather than presumed non-taxability for voluntary contributions. This reflects a policy of greater scrutiny over all financial inflows into such organizations.

1. Income Tax Exemptions for Donations and Grants: Clause 12 of Part 1 of the Sixth Schedule
2. Overview of Clause 12, Part 1 of the Sixth Schedule

Clause 12 of Part 1 of the Sixth Schedule of the Income Tax Act, 2023, is a crucial provision for non-profit and charitable organizations, as it outlines the specific conditions under which donations or grants are exempt from income tax. While the full, explicit text of this clause is not directly available in the provided research material , its content is precisely detailed in the user query, which serves as the direct source for its provisions. The Sixth Schedule generally deals with “Exclusions from Total Income” , indicating that this clause specifies certain receipts that are to be excluded from an entity’s total income for tax computation purposes, thereby providing the necessary relief from the broader definition of “income” that now includes donations.

1. Conditions for Exemption for Religious Institutions and Tax Commissioner Approved Charitable Organizations

Clause 12(a) of Part 1 of the Sixth Schedule [User Query] stipulates that any donation or grant is exempt from taxable income if it meets two cumulative conditions, ensuring both formal recognition and proper utilization of funds:

• Received by a religious institution or an organization operating for charitable purposes approved by the Tax Commissioner: This condition emphasizes the absolute necessity of formal recognition and explicit approval from the Tax Commissioner. The Tax Commissioner, an authority under the National Board of Revenue (NBR), acts as a critical gatekeeping mechanism, ensuring that only legitimately recognized charitable entities benefit from the tax exemption on donations. This approval process involves a rigorous review of the organization’s objectives, activities, and governance to confirm its genuine charitable nature. Recent NBR notifications, such as those granting income tax exemptions on donations to specific social welfare organizations, demonstrate an active and ongoing process of granting and managing such approvals.
• And spent for religious or charitable purposes: This “utilization clause” is equally vital. It mandates that the received funds must actually be applied or expended directly towards the stated religious or charitable objectives of the institution. This prevents the diversion of tax-exempt funds for non-charitable or private purposes, reinforcing accountability and ensuring that the public benefit intended by the exemption is realized. Organizations must maintain meticulous records to demonstrate that these funds are indeed used for their approved purposes.

The combined effect of these conditions is that “if such voluntary contributions or grants or donations are received by a religious institution or an organization operating for charitable purposes approved by the Tax Commissioner and spent for religious or charitable purposes, it will not be considered as taxable income in the hands of that institution” [User Query]. This dual requirement of approval and utilization is central to the integrity of the tax exemption regime for these entities.

1. Exemption for Persons Approved by the NGO Affairs Bureau

Clause 12(b) of Part 1 of the Sixth Schedule [User Query] provides a distinct pathway for exemption on donations and grants: such contributions are also not considered taxable income if they are “Received by any person approved by the NGO Affairs Bureau.” This highlights the significant role of the NGO Affairs Bureau (NGOAB), which is specifically responsible for registering and regulating NGOs operating with foreign funds. NGOAB approval serves as a separate and equally valid basis for tax exemption on voluntary contributions, particularly for organizations involved in international development or humanitarian work.

A crucial caveat accompanies this exemption: the user query explicitly states, “However, in this case, Section 76, Sub-sections (5) and (6) of Income Tax Act, 2023 will always be applicable” [User Query]. This mandatory applicability implies that even with NGOAB approval, certain conditions, limitations, or ongoing compliance requirements stipulated in Section 76(5) and (6) must still be met for the exemption to remain valid. This suggests a continuous oversight mechanism, indicating that the government maintains a strong regulatory leash, ensuring that even tax-exempt entities remain accountable for their operations and financial conduct. The dual approval mechanisms for tax exemption on donations (Tax Commissioner vs. NGOAB approval) suggest a layered governmental oversight strategy, likely reflecting different policy priorities or risk assessments associated with domestic versus foreign funding. The explicit and continuous applicability of Section 76(5) and (6) specifically for NGOAB-approved entities further supports the idea of a potentially more stringent and continuous oversight for organizations handling foreign contributions, possibly due to concerns about foreign influence or financial transparency.

Table 2: Income Tax Exemption Criteria for Donations/Grants (Clause 12, Part 1, Sixth Schedule)

Exemption Category	Source of Approval Required	Utilization Requirement	Tax Status of Donation/Grant	Additional Applicability/Conditions	Legal Reference
Religious Institution / Tax Commissioner Approved Charitable Organization	Tax Commissioner	Must be spent for religious or charitable purposes.	Not considered taxable income.	None explicitly stated in this clause.	Clause 12(a), Part 1, Sixth Schedule, ITA 2023 [User Query]
NGO Affairs Bureau Approved Person	NGO Affairs Bureau	Not explicitly stated in this clause, but implied by NGOAB’s general mandate.	Not considered taxable income.	Section 76, Sub-sections (5) and (6) of ITA 2023 will always be applicable.	Clause 12(b), Part 1, Sixth Schedule, ITA 2023 [User Query]

Export to Sheets

1. Applicability of Section 76, Sub-sections (5) and (6) of the Income Tax Act, 2023
2. Context of Section 76: Exemption from Tax

Section 76 of the Income Tax Act, 2023, is a pivotal provision broadly titled “Exemption from tax”. This section is strategically located within Chapter I of Part VI of the Act, which is dedicated to “Exemptions, Reductions and Exclusions”. This placement signifies its role as a primary legal basis for granting various forms of tax exemptions, exclusions, or reductions from total income for different categories of persons or specific types of income. It is the legislative mechanism through which the general obligation to pay income tax is selectively lifted or reduced, often to encourage certain activities or support specific sectors, such as non-profit and charitable endeavors.

1. Specific Provisions of Sub-sections (5) and (6)

The detailed content of Section 76, Sub-sections (5) and (6) of the Income Tax Act, 2023, is not explicitly provided or elaborated upon in the available research material. While the snippets confirm the existence and general purpose of Section 76 , they do not delve into the specifics of these particular sub-sections.

However, the user query’s explicit statement that these sub-sections “will always be applicable” to voluntary contributions or grants received by any person approved by the NGO Affairs Bureau carries significant weight. This mandatory and continuous applicability, despite their donations being exempt under the Sixth Schedule, signifies a robust governmental mechanism for continuous oversight and accountability, extending beyond initial approval. This legal layering implies that the exemption granted under Clause 12 of the Sixth Schedule is not absolute or unconditional.

Based on general tax principles, the National Board of Revenue’s (NBR) stated objectives of modernizing tax laws, strengthening anti-avoidance provisions , and actively reviewing and tightening tax exemptions , these sub-sections could potentially relate to:

• Ongoing Compliance Conditions: These sub-sections may stipulate continuous requirements for maintaining tax-exempt status, such as adherence to specific accounting standards, regular submission of audited financial statements, and strict rules regarding the proper utilization of funds. This ensures that organizations remain true to their charitable objectives post-approval.
• Restrictions on Activities: They might impose prohibitions or limitations on engaging in certain types of activities that could lead to the revocation of tax exemption. This could include restrictions on political activities, excessive commercial ventures not genuinely incidental to the charitable purpose, or any activities deemed contrary to public policy.
• Reporting and Disclosure Obligations: Specific requirements for comprehensive reporting and disclosure of foreign donations, detailed utilization of funds, or other financial and operational details to the NBR or NGOAB could be mandated. This enhances transparency and allows for closer monitoring of financial flows.
• Anti-Abuse Provisions: These sub-sections could contain mechanisms empowering the Tax Commissioner to withdraw or deny exemptions if there is evidence of tax evasion, misuse of funds, non-compliance with the stated charitable purpose, or violation of any other conditions. The NBR’s current drive to “rationalise the exemption” and ensure benefits are given based on genuine contribution rather than “connections” further implies that these sections might be critical tools for enforcing accountability and preventing abuse of tax-exempt status.

The mandatory and continuous applicability of Section 76(5) and (6) to NGOAB-approved entities, despite their donations being exempt under the Sixth Schedule, suggests that the government maintains a strong regulatory leash. This ensures that even tax-exempt entities remain accountable for their operations and financial conduct, aligning with the broader trend of strengthened anti-avoidance provisions and active monitoring of non-profit activities.

VII. Regulatory Bodies and Approval Processes for Non-Profit Organizations

1. The Tax Commissioner’s Role in Charitable Purpose Approval

The Tax Commissioner, operating under the National Board of Revenue (NBR), holds a significant and explicit role in determining the tax-exempt status of certain charitable organizations in Bangladesh. As established in the user query, the Tax Commissioner’s explicit approval is a mandatory condition for “general public welfare” initiatives to be recognized as a “charitable purpose,” particularly if they involve business or commercial activities or significant exchanges of goods for services. This grants the Tax Commissioner substantial discretionary power in conferring and maintaining the tax-exempt status of such organizations.

The process for obtaining this crucial approval typically involves a formal application submitted to the NBR, which serves as the central authority for tax administration in Bangladesh. The NBR is responsible for issuing Statutory Regulatory Orders (SROs) and notifications that guide and implement various tax exemptions and policies. These notifications illustrate an active and ongoing process of granting and managing such approvals. For instance, the NBR has recently granted income tax exemptions on donations made by individual taxpayers to nine specific social welfare-oriented organizations, including the Bangladesh Thalassemia Foundation, Mastul Foundation, and Dhaka Ahsania Mission. These exemptions are valid for five years, until June 30, 2030, and aim to encourage philanthropic contributions to organizations engaged in public health, education, and social welfare. This demonstrates a targeted approach by the NBR to incentivize specific charitable activities through tax policy.

1. The NGO Affairs Bureau (NGOAB)

The NGO Affairs Bureau (NGOAB) plays a pivotal and distinct role in the regulatory landscape for non-profit organizations in Bangladesh, particularly those dealing with foreign funding.

• Mandate and Functionality: Established in 1990, the NGOAB operates under the direct supervision of the Prime Minister’s Office. Its primary mandate is to register and regulate all Non-Governmental Organizations (NGOs) and International Non-Governmental Organizations (INGOs) that receive and operate with foreign funds within Bangladesh. This authority is enshrined in the Foreign Donations (Voluntary Activities) Regulation Act, 2016. The extensive and multi-layered approval, monitoring, and reporting requirements imposed by NGOAB, particularly for foreign-funded NGOs, indicate a strong governmental policy of not just financial transparency but also significant control and oversight over the non-profit sector, especially concerning external financial flows and potential political activities.
• Detailed Approval Process for NGO Registration: The registration process with NGOAB is comprehensive and multi-staged, reflecting the detailed scrutiny applied to organizations handling foreign funds:
  • Application Submission: Any organization or individual intending to undertake voluntary activities with foreign donations must submit a formal application to the Director General of the NGOAB. This application must be submitted using the prescribed Form FD-1, typically requiring nine copies.
  • Document Checklist (for Local NGOs): For local NGOs, Form FD-1 must be accompanied by an extensive set of supporting documents. These include: a list of the Executive Committee members (6 copies, prepared in accordance with NGOAB’s prescribed chart), the organization’s Constitution (6 copies), a detailed Plan of Operation (6 copies, outlining work procedures and the organizational structure or organogram), an Activities Report (6 copies), minutes of the meeting regarding the constitution of the executive committee (6 copies, along with a list of signed names of general members present at the meeting), an attested copy of the undertaking given by the foreign donor (6 copies, attested by a gazetted officer), attested photographs and National ID (NID) copies of all executive committee members (6 copies, attested by a gazetted officer), a comprehensive list of general members (6 copies, including Name, Father’s Name, Address, and signature), and deposit receipts for the prescribed registration fee (BDT 50,000) and associated VAT (copy of treasury challan). The authority may request additional documents at any stage after initial verification.
  • Internal Review and Security Checks: Upon receiving the application, the NGOAB initiates an internal review process, forwarding the application to the Ministry of Home Affairs for their opinion. A crucial and mandatory step involves security scrutinization by law enforcement agencies such as the National Security Intelligence (NSI) or the Special Branch of Police. These agencies conduct thorough checks on the permanent and present addresses, criminal records of officials, previous charitable activities of the organization, and the physical office address.
  • Timeline: The entire registration procedure with NGOAB can be time-consuming, potentially taking up to 90 working days to complete. This timeline is, however, subject to any queries raised by the NGOAB during its review and the opinion provided by the Ministry of Home Affairs.
• Compliance and Reporting Obligations Post-Registration: Registration with NGOAB is not a terminal event but initiates a continuous cycle of stringent compliance requirements and ongoing accountability:
  • Periodic Reporting: NGOs are held accountable to the NGOAB for all aspects of their operations, including registration status, project approvals, fund releases, and the continuous monitoring of their activities.
  • Financial Statements: The annual submission of audited financial statements to the NGOAB is a mandatory requirement, ensuring financial transparency and oversight.
  • Project and Fund Approvals: Any new projects undertaken by the NGO require prior approval from the NGOAB. Furthermore, NGOs must obtain annual approval from the NGOAB for the release of funds for each project, and this approval is contingent upon the satisfactory completion of the previous year’s plan and activities.
  • Ministry and Local Authority Reporting: Depending on the nature and scope of their activities, NGOs may also need to obtain approvals from concerned ministries and are required to report periodically on project progress. NGOs that maintain local branches must report to local authorities, such as the office of the Deputy Commissioner (DC) and the Upazilla Nirbahi Officer (UNO). They are also required to submit monthly reports to the NGO Coordination Committee on the implementation of development and credit activities.
  • Yearly Audit: Every NGO is legally mandated to conduct a yearly audit by an audit firm enlisted with the NGOAB and submit the comprehensive audit report to the NGOAB.
  • Declaration of Foreign Donation: Unless specifically exempted by a written government order, any NGO or individual undertaking voluntary activities fully or partially funded by foreign donations must submit a detailed Declaration to the Director General of NGOAB. This declaration must be submitted within a prescribed timeframe and manner, and it must contain precise information on the amount of foreign donation received, its source, and its utilization.
  • Expatriate Employee Appointments: If approved project proposals necessitate the appointment of foreign consultants, advisors, or officers, the NGO must apply to the Director General of NGOAB for their appointment, extension of appointment, and security clearance. These appointments must adhere strictly to the approved man-month limits for such expatriate employees or consultants.

The extensive and multi-layered approval, monitoring, and reporting requirements imposed by NGOAB, particularly for foreign-funded NGOs, indicate a strong governmental policy of not just financial transparency but also significant control and oversight over the non-profit sector. This is especially pronounced concerning external financial flows and potential political activities, reflecting a broader regulatory agenda to ensure accountability and, potentially, ideological alignment.

Table 3: NGO Affairs Bureau (NGOAB) Registration Document Checklist (Local NGOs)

Document Name	Number of Copies	Specific Requirements	Snippet Reference
Form FD-1	9 copies	Prescribed format
List of Executive Committee	6 copies	In accordance with NGOAB’s prescribed chart
Constitution	6 copies
Plan of Operation	6 copies	Details work procedures and organogram
Activities Report	6 copies
Minutes of Executive Committee Meeting	6 copies	With list of signed names of general members
Foreign Donor Undertaking	6 copies	Attested by a gazetted officer
Photograph of EC Members	6 copies	Attested by a gazetted officer
NID copy of EC Members	6 copies	Attested by a gazetted officer
List of General Members	6 copies	Including Name, Father’s Name, Address, and signature
Prescribed Fee Deposit Receipt	Copy	BDT 50,000 (copy of treasury challan)
VAT on Fee Deposit Receipt	Copy	(copy of treasury challan)

VIII. Other Tax Implications for Non-Profit and Charitable Organizations

Beyond income tax, non-profit and charitable organizations in Bangladesh are subject to various other tax obligations, including Value Added Tax (VAT), customs duties, and property taxes. Understanding these implications is crucial for comprehensive financial planning and compliance.

1. Value Added Tax (VAT) Implications

• Standard VAT Rates: In Bangladesh, the standard Value Added Tax (VAT) rate is 15% for the majority of goods and services. However, the VAT Act 2012 also specifies reduced VAT rates of 5%, 7.5%, and 10% for particular goods and services, as detailed in its Third Schedule. This tiered structure means that the VAT burden can vary significantly depending on the nature of goods and services procured or supplied by non-profits.
• VAT Withholding Entity Status: A key administrative implication for non-profit organizations is their designation as “VAT withholding entities.” Specifically, Non-Governmental Organizations (NGOs) approved by the NGO Affairs Bureau or the Directorate General of Social Welfare are required to withhold VAT. This means that when these organizations make payments for certain procurements of goods or services, they are legally obligated to deduct VAT at source and remit it directly to the National Board of Revenue (NBR). This designation shifts a portion of the tax collection responsibility onto the non-profit, adding an administrative burden to their financial operations, as they effectively become part of the government’s tax collection mechanism.
• Specific VAT Exemptions: While a general blanket VAT exemption for all non-profits is not broadly indicated, specific goods and services are exempted from VAT through official notifications and the First Schedule of the VAT Act. The NBR has demonstrated a willingness to grant targeted VAT exemptions to individual charitable foundations for “all activities” through Statutory Regulatory Orders (SROs). A notable example is the VAT exemption granted to the July Shaheed Smrity Foundation, which also extended to organizations providing services or products to the foundation, exempting them from paying VAT at source. This illustrates that specific SROs may be issued for particular organizations or categories of activities, providing tailored VAT relief. This highlights the importance of staying updated on specific NBR notifications relevant to a non-profit’s operations.

1. Customs Duties Exemptions

The import of goods into Bangladesh is generally subject to import duties, which typically include a 15% VAT, unless specific exemptions are provided through official notifications. For non-profit and charitable organizations, customs duties can impact the cost of importing necessary equipment, supplies, or relief materials.

General customs duty exemptions exist for various categories of goods, which may indirectly benefit non-profits depending on their import needs. These categories include capital machinery, raw materials for medicine, poultry medicine, feed & machinery, defense stores, chemicals for leather goods, private power generation units, textile raw materials and machinery, solar power equipment, relief goods, and goods specifically for the blind and physically challenged. The inclusion of “relief goods” is particularly relevant for humanitarian organizations.

While broad customs duty exemptions specifically for all non-profit organizations are not detailed in the provided information, the NBR has historically issued SROs granting duty exemptions for specific items, such as emergency medical items during the Covid-19 pandemic. This suggests that targeted exemptions might be available for specific charitable imports through application or special governmental directives. Additionally, corporate social responsibility (CSR) activities by companies can receive income tax exemptions on expenditures, which might indirectly facilitate the import of goods for charitable purposes if a company is supporting such activities.

1. Property Tax Implications

Property ownership and transactions in Bangladesh are subject to various taxes that can impact charitable organizations.

• Types of Property Taxes:
  • Land Tax: This is a primary property-related tax in Bangladesh, with charges based on the ownership and size of the land.
  • Holding Tax: Levied annually by municipal corporations on property owners, this tax is calculated based on property size and location. Properties within city corporation areas, such as Dhaka and Chattogram, generally face higher holding tax rates.
  • Advance Income Tax (AIT): This tax is deducted at the time of property transactions, with rates varying based on the property’s value. For instance, rates can range from 1% for values below BDT 10 million to up to 4% for values above BDT 50 million.
  • Capital Gains Tax: Applicable on profits derived from property sales, the rates for this tax vary based on the duration of ownership (e.g., 15% for ownership less than 5 years, 10% for more than 5 years). Inherited property is generally exempt from capital gains tax.
  • Municipal Taxes: Local municipalities implement additional taxes to fund essential local services such as street cleaning, water supply, and drainage maintenance. These fees differ based on the city and the specific services offered.
• Exemptions for Religious Institutions and Registered Charities: Certain properties and entities are explicitly eligible for property tax exemptions, recognizing their public benefit contributions:
  • Religious Institutions: Properties used exclusively for religious purposes may qualify for exemptions from property taxes.
  • Registered Charities: Government-registered non-profit organizations may also qualify for property tax exemptions. This acknowledges their role in social welfare and public service.
• Conditions for Exemption and Application Process: To qualify for property tax exemptions, the property in question must primarily be used for charitable purposes and generally owned by the charitable organization.Maintaining clear and accurate records of property usage and ensuring that the primary use of the property aligns directly with the organization’s charitable mission are crucial for securing and maintaining exemption status. Any significant portion of property used for commercial purposes, even if incidental to the broader mission, may lead to the loss of its exemption for that portion.

The application process for obtaining a property tax exemption typically involves several key steps: gathering required documentation (e.g., proof of charitable status, property deeds, evidence of property usage), accurately completing the exemption application form, and submitting it to the relevant tax authority within specified deadlines. Prompt responses to any additional information requests from the tax authorities are vital for a smooth application process.

Table 4: Summary of Other Key Tax Exemptions for Non-Profits

Tax Type	General Rule/Rate	Specific Implication/Exemption for Non-Profits/Charities	Legal/Regulatory Basis
Value Added Tax (VAT)	Standard 15% on most goods/services; reduced rates (5%, 7.5%, 10%) for specific items.	– NGOs approved by NGOAB or DSS are VAT withholding entities.	– Specific SRO-based exemptions for certain organizations or activities (e.g., July Shaheed Smrity Foundation).	VAT Act 2012, NBR SROs
Customs Duties	Import duties (often including 15% VAT) apply unless exempted.	– General exemptions for relief goods, certain medical items, capital machinery, etc..	– NBR issues SROs for specific item exemptions (e.g., emergency medical items).	– Corporate CSR activities may receive income tax exemptions, indirectly aiding charitable imports.	Customs Act, NBR SROs
Property Tax (Holding Tax, Land Tax, etc.)	Varies by type (land, holding, AIT, capital gains, municipal); rates based on value, location, usage.	– Properties used exclusively for religious purposes may qualify for exemptions.	– Government-registered non-profit organizations may qualify for property tax exemptions, provided property is used for charitable purposes.	Local Government Acts, NBR notifications

1. Conclusion

The Income Tax Act, 2023, marks a significant legislative overhaul in Bangladesh, fundamentally reshaping the tax landscape for non-profit and charitable organizations. The transition from the Income Tax Ordinance, 1984, to this new Act underscores a clear governmental direction towards greater transparency, modernization, and a more stringent approach to tax compliance across all sectors.

A primary implication for non-profits is the expanded definition of “income,” which now explicitly includes donations and grants. This shift means that voluntary contributions, previously often implicitly outside the tax net, are now prima facietaxable, placing the burden squarely on organizations to qualify for specific exemptions. This necessitates a meticulous understanding and adherence to the conditions outlined in Clause 12 of Part 1 of the Sixth Schedule.

The definition of “charitable purpose” itself has become more nuanced, particularly for “general public welfare” initiatives. These are now subject to explicit Tax Commissioner approval and face strict exclusions if they engage in commercial activities or significant exchanges of services for goods, unless specific approvals are obtained. The differentiation in treatment for incidental commercial activities, allowing more flexibility for core charitable purposes (relief of the poor, education, medical relief) compared to the stricter 20% receipt limit for “general public utility” activities, reveals a targeted policy to protect fundamental social services while controlling potential commercial exploitation.

The dual approval mechanisms involving the Tax Commissioner and the NGO Affairs Bureau (NGOAB) for income tax exemptions on donations reflect a layered governmental oversight. The NGOAB’s extensive registration, monitoring, and reporting requirements, particularly for foreign-funded entities, signify a robust governmental mechanism for continuous oversight and accountability. The mandatory and continuous applicability of Section 76, Sub-sections (5) and (6) for NGOAB-approved entities, despite their donations being exempt, further reinforces this continuous regulatory scrutiny, ensuring ongoing compliance with broader conditions beyond initial approval.

Beyond income tax, non-profits must navigate other tax obligations, including VAT, customs duties, and property taxes. Their designation as VAT withholding entities adds an administrative burden, requiring them to act as tax collectors. While general and specific exemptions exist for customs duties on certain imports (e.g., relief goods, medical items) and for property taxes (for properties used exclusively for charitable or religious purposes), these are not universal and often require specific applications or adherence to strict usage criteria.

In conclusion, the new tax regime in Bangladesh demands heightened vigilance and professional expertise from non-profit and charitable organizations. Success in navigating this environment will depend on proactive engagement with regulatory bodies, meticulous record-keeping, strict adherence to the redefined “charitable purpose” and exemption conditions, and continuous monitoring of evolving tax policies and notifications. The era of implicit tax benefits is receding, replaced by a framework that emphasizes explicit compliance and demonstrable public benefit.

Different Types of Charitable Organizations in Bangladesh

Any group of individuals intending to establish a charitable organization in Bangladesh for social welfare may opt for one of the following legal entities, based on their specific objectives, long-term goals, and operational capacities, as stipulated under the relevant laws:

1. As a Society or Foundation: Register under the Societies Registration Act, of 1860, suitable for organizations focused on social, cultural, and educational activities. See detail guide>
2. A Charitable Trust: Established under the Trust Act, of 1882, appropriate for entities aiming to provide financial assistance, healthcare, and educational support. See detail guide>
3. As a Social Welfare Organization: Register under Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 (Ord. No. XLVI of 1961). See detail guide>
4. A Non-profit Trade Association:: Incorporated under the Companies Act, 1994, suitable for non-profit organizations intending to operate on a larger scale without issuing shares. See detail guide>

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