Features of Finance Act 2009
Tuesday, 21 July 2009
M. A. Baree, FCA
AFTER a lot of discussions and debates in the parliament, though mostly on the whitening of black money provisions, Finance Act 2009 has been passed on 29 June 2009. There are many timely and appropriate amendments and changes while others are more ritualistic and bureaucratic in flavour. In this writing an attempt has been made to discuss and explain the changes made in the Income Tax Ordinance 1984.
Sec. 2 Definition of Annual Value of Property: This has been amended to include the amount received by letting out furniture, fixtures and fittings into the annual value of property. The amendment is appropriate because in the case of furnished lettings, the practice of showing income there from as property income for letting premises and business income for furniture etc. gave rise to many tax litigations in the past.
Sec. 11 - Appellate Tribunal: The amendment relates to the appointment of member in the Tribunal. The law has been extended to include present member of National Board of Revenue (NBR) and holding current charge to be eligible.
Sec. 19 - Unexplained investments, deemed income: Earlier, under sub-sec. 21, if any assessee shows an amount over Tk. fifty thousand as loan received from any person otherwise than by a crossed cheque and has not paid that within three years, is used to be treated as income from other sources. In the present law, the limit has been increased to Tk. one lakh, which has caused much relief to concerned assessees and tax administrators as well.
Sec. 19A - Special tax treatment in respect of investment in new industry: This law has replaced the entire Sec. 19A. Under this, the tax authorities shall raise no question about the source of any sum invested by any person in a company for setting up of new industry or physical infrastructure between July 01, 2009 to June 30, 2010, when the assessee pays 10% of the invested or investible amount as income tax before the filing of return.
The list of new industry and infrastructure, referred to in this section, is quite exhaustive. The assessee, however, would be required to furnish a declaration under Income Tax (IT) Rule 25AA mentioning the name of the industrial undertaking in which investment is or to be made. The rule requires the assessee to disclose the source and probable completion date of investment including number of employees to be employed. The provisions of this section will, however, not to be applied where proceedings under Sec. 93 for concealment of income have been initiated, prior to the payment of tax under this section. Further, the provisions also will not be applied if the assessee fails to fulfill the conditions as declared.
The provisions about disclosure of hitherto 'undisclosed' income sparked an avalanche of criticism both within and outside the Parliament on moral and fiscal grounds. The question of morality is obvious since it is plainly immoral and unfair to give concessions to undisclosed or untaxed money of the assessees allowing them to whiten the money on payment of 10% tax where as the regular tax payers pay the tax say, at the maximum rate of 25%, 37.5% or 45% as the case may be. Others on fiscal grounds claim that such a provision would encourage tax evasion and discourage the honest taxpayers.
Perhaps, the arguments are partially true but what the Finance Minister or the Government wants to do is to bring at least some portion of the huge undisclosed, undeclared hidden money into the tax net and eventually to the economy through some tax concession with some compulsions regarding investment sharing. However, some portion of the amount as tax revenue become those who hold such money as are not in a position to fully reveal the source thereof. It is sure that, favouring the illegal activities of the taxpayers is immoral but the argument on tax evasion and not encouraging tax payment on account of equity is too theoretical as the people of Bangladesh do not pay taxes in comparison to others and they do so, when they are forced to do it.
Besides, the list of new industries and infrastructures for the declared investment, as has been mentioned earlier, is too lengthy with broad headings that may cause sufficient confusions or disputes or litigation. The alternative was simply to mention the negative areas where investment of the amount would not be accepted.
Moreover, the provision for the reversal of privilege allowed under this section for non-compliance with conditions stipulated in the declaration i.e. qualified investment and employment generation may be harsh to the assessees and self-defeating to the revenue. For investment, apart from fund, other factors like land, power, materials and market are essential. At the moment the government cannot provide sufficient land and power to the industrial units and it would be grossly unfair to reverse the tax privilege for no-fault of the taxpayers.
Again, no one could certify the compliance or otherwise. Indeed, tax personnel may not be independent, objective and unbiased and here lies the possibility of collateral interest and we may end up with huge black money on the other side without substantive and desired investment.
Sec. 19AAA, Special tax treatment for investment in stocks and shares: This is also a replacement section, which provides the same privilege as in 19A and 19AA, above upon payment of 10% tax on any amount used for the purchase of stocks and shares of a listed company between July 01, 2009 and June 30, 2010. However, public limited companies, whether listed or not, have been excluded from the privilege. Moreover, the shares or stocks purchased cannot be transferred or sold within two years of purchase.
Non-compliance would invite reversal. The provisions of this section would not apply in cases of detection of concealed income where proceedings under Sec. 93 have been initiated prior to the tax payment.
This is a case of another superfluous provision apparently made by the government under pressure of the bourses who enjoy bubbles in stock market. Our stock market is now a place for more speculation than of genuine investment. The government action to push more money in this sector is unnecessary since fund is no problem at the moment for share market; rather, availability of sufficient good scripts is, of course, a problem. The merchant banking wing of most commercial banks and other financial institutions along with new margin rule for loan to investors, have driven the market to a new height which is, speculative and dangerously akin to 1996 share scamp.
Besides, illegal or undisclosed money holders do not need any government incentive to invest in stocks and shares and a good number of them, I guess, have already joined in the field with or without the knowledge of the Revenue. There is no capital gains tax on stocks and shares and for trading although there is income tax. I doubt whether our taxpayers are so efficient and smart to establish and pay the income tax. Therefore, in absence of any problem, why will one pay 10% tax that might invite problem in future, if not this year?
Sec. 19BBB, Special tax treatment in respect of investment in house properties: Under this section similar privilege has been offered for investing in building or apartment with a different rate of tax, depending on the size and location of the concerned properties. There are six rates, which are summarised below:
(a) Tk 800 per square meter of a building or apartment when plinth area of which does not exceed 100 square metre in Gulshan, Banani, Baridhara, DOHS, Dhanmondi, Lalmatia, Uttara, Bashundara, Dhaka Cantonment, Motijheel C/A, Dilkusha C/A and Kawran Bazar in Dhaka city Khulshi R/A and Panchalish R/A in Chittagong city.
(b) Tk 1000 per square meter when plinth area exceeds 100 square meter but not 200 square meters for areas mentioned in (a) above.
(c) Tk 1500 per square meter in the case of plinth area exceeding 200 square meters for areas mentioned in (a) above.
(d) Tk 400 per square meter when the plinth area does not exceed 100 square meters for the areas other than mentioned in (a).
(e) Tk 600 per square meter when the plinth area exceeds 100 square meter but not 200 square meters for areas other than mentioned in (a).
(f) Tk 1000 per square meter when the plinth area exceeds 200 square meters for areas other than mentioned in (a) above.
However, the privilege is restricted to one flat or apartment or one floor of a building. Because of this restriction, it appears that only one floor of a building, may be with multi-storied investment plan, would only qualify leaving the major portion of proposed investment questionable for tax purpose. For this, the provision may not attract the desired investment in construction sector.
Sec. 24: Income from house property: Due to the amendment to sec. 2, as the definition of annual value has been extended to include the income from let out furniture, fixtures and fittings along with any building, this section now incorporates that income within the meaning of property income.
Sec. 30: Inadmissible deductions (expenses): In matters of royalty etc., under (h) of this section earlier, the limit for inadmissibility were 5.0% of the profit for payment of royalty, technical service fee, technical know-how fee or technical assistance fee. The limit has now been raised to 8.0%.
Sec: 44: Exemption and allowances: The aggregated allowances, admissible under part B of Sixth Schedule other than paragraphs 15 and 16, has now been raised to Tk 10 lakh from earlier Tk 5.0 lakh.
Sec. 46A, 46B: Tax exemption for newly set up industries in certain areas: This refers to investment compulsion for exempting income, which restricts any ready-made garment industry from investing in stocks or strikes of a listed company for the purpose of this section when it invests 40% of the exempted income either in the said or in any new industrial undertaking during the exemption period or within one year of such exemption.
To make it simple, exempted garment industries are not required to invest in stocks or shares when they invest 40% of exempted income within existing or new industrial undertaking. For others requirement of 30% investment in industries and 10% in stocks or shares still remains.
Sec. 49: Deduction at source: Clause (zf) of sub-sec 1 of this section has been replaced to include income arising from shipping business both inside and outside Bangladesh to a resident assessee.
Clause (zk), income from cash subsidy, has been deleted and as such there would not be any deduction thereon.
A new clause (zt), income of foreign technicians engaged in diamond cutting industry, has been newly introduced.
Sec. 52: Deduction from compensation and acquisition of property. The rate of deduction has been reduced to 2% from earlier 6.0%.
Sec. 52: Collection from foreign technicians engaged in diamond cutting industry: This is a new section, the salaries of a technician engaged in diamond cutting industry who is neither a citizen nor was a resident in Bangladesh in any of the immediately preceding four years of his arrival in Bangladesh on a contract not exceeding three years from the date of his arrival to Bangladesh, will be subjected to deduction of tax @ 5.0% at the time of payment or credit whichever is earlier. However, the provisions of this section will not be applied to foreign technicians appointed after 30 June 2010.
Sec. 53AA: Collection of tax from resident shipping business of a resident: A new provision has been added to this section requiring collection of tax @ 3.0% of total freight received from services rendered between two or more foreign countries by a resident. In other cases 5.0% deduction still remains.
Sec. 53BB: Collection of knitwear and woven garment exporter: This section has been replaced to bring into deduction on net terry towel, carton and accessories of garment industry, jute goods, frozen food, vegetables, leather goods, packet food export @ 0.25% where only knitwear and woven garment exports were subjected to deduction earlier.
Sec. 53BBB: Collection of tax from Stock Exchange members: The rate of deduction has been increased to 0.25% from 0.15% earlier levied on the value of transactions.
Sec. 53BBBB: Collection of tax from export of any goods other than mentioned in Sec. 53BB: The rate of collection is 0.25% of the export proceeds.
Sec. 53DD: Deduction from export cash subsidy: The section has been repealed resulting in no deduction on such receipts.
Sec. 53FF: Collection of tax from real estate business: This section has been replaced with amendments for tax on land. The amendments are as follows:
(i) 5.0% of the deed value in case of transfers of land within any City Corporations, Pourashava or Cantonment Board up to August 31, 2009 and 2.0% from September 01, 2009. The rate was 5.0% earlier.
(ii) For non-agricultural land exceeding one lakh taka in value outside City corporation, Pourashava or Cantonment Board, the rate of tax will be 5.0% of the deed value up to August 31, 2009 and 1.0% after that.
Sec. 62A: Procedure for collection or deduction at source: This is a new section re-confirming the procedure for tax collected or deducted at source in accordance with specifications laid down in newly included Eighth Schedule and in case any conflict provisions of Chapter VII, payment of tax before assessment will prevail.
Sec. 74: Payment of tax on the basis of return: The scope of this section has now been expanded to include persons submitting return u/s 75, 77, 78, 89(2), 91(3) or 93(1) are required to pay tax on the basis of return. Earlier the requirement was only for persons submitting return u/s 75.
Sec. 82BB: Universal Self-Assessment: Two new sub-sections 4 and 5 have been added to this section.
Sub-sec 4 says, no question as to the source of investment by a new assessee deriving income from business or profession will be made when he shows a minimum income of 25% of invested capital and pays tax before filing of return.
Sub-sec. 5 says that initial capital investment will not be transferred or let out within five years from the end of the assessment year in respect of which return of income has been filed under this section.
Sec. 82C: Tax on income of certain persons: Clause (1g) of sub-sec 2 deemed the income on export cash subsidy has been abolished since there is no deduction of tax on the amount now. Two new clauses have been added as: (N) The amount received on account of export of certain items where tax is deductible under section (u/s) 53BB. (O) The amount of salaries of a foreign technician serving in a diamond cutting industry where tax is deductible under sec. 52. In other words, the amount collected or deducted under the above two clauses would be treated as final settlement.
To be continued. The writer is partner, Hoda Vasi Chowdhury & Co. He may be reached at
e-mail: mabaree@hodavasi.com
AFTER a lot of discussions and debates in the parliament, though mostly on the whitening of black money provisions, Finance Act 2009 has been passed on 29 June 2009. There are many timely and appropriate amendments and changes while others are more ritualistic and bureaucratic in flavour. In this writing an attempt has been made to discuss and explain the changes made in the Income Tax Ordinance 1984.
Sec. 2 Definition of Annual Value of Property: This has been amended to include the amount received by letting out furniture, fixtures and fittings into the annual value of property. The amendment is appropriate because in the case of furnished lettings, the practice of showing income there from as property income for letting premises and business income for furniture etc. gave rise to many tax litigations in the past.
Sec. 11 - Appellate Tribunal: The amendment relates to the appointment of member in the Tribunal. The law has been extended to include present member of National Board of Revenue (NBR) and holding current charge to be eligible.
Sec. 19 - Unexplained investments, deemed income: Earlier, under sub-sec. 21, if any assessee shows an amount over Tk. fifty thousand as loan received from any person otherwise than by a crossed cheque and has not paid that within three years, is used to be treated as income from other sources. In the present law, the limit has been increased to Tk. one lakh, which has caused much relief to concerned assessees and tax administrators as well.
Sec. 19A - Special tax treatment in respect of investment in new industry: This law has replaced the entire Sec. 19A. Under this, the tax authorities shall raise no question about the source of any sum invested by any person in a company for setting up of new industry or physical infrastructure between July 01, 2009 to June 30, 2010, when the assessee pays 10% of the invested or investible amount as income tax before the filing of return.
The list of new industry and infrastructure, referred to in this section, is quite exhaustive. The assessee, however, would be required to furnish a declaration under Income Tax (IT) Rule 25AA mentioning the name of the industrial undertaking in which investment is or to be made. The rule requires the assessee to disclose the source and probable completion date of investment including number of employees to be employed. The provisions of this section will, however, not to be applied where proceedings under Sec. 93 for concealment of income have been initiated, prior to the payment of tax under this section. Further, the provisions also will not be applied if the assessee fails to fulfill the conditions as declared.
The provisions about disclosure of hitherto 'undisclosed' income sparked an avalanche of criticism both within and outside the Parliament on moral and fiscal grounds. The question of morality is obvious since it is plainly immoral and unfair to give concessions to undisclosed or untaxed money of the assessees allowing them to whiten the money on payment of 10% tax where as the regular tax payers pay the tax say, at the maximum rate of 25%, 37.5% or 45% as the case may be. Others on fiscal grounds claim that such a provision would encourage tax evasion and discourage the honest taxpayers.
Perhaps, the arguments are partially true but what the Finance Minister or the Government wants to do is to bring at least some portion of the huge undisclosed, undeclared hidden money into the tax net and eventually to the economy through some tax concession with some compulsions regarding investment sharing. However, some portion of the amount as tax revenue become those who hold such money as are not in a position to fully reveal the source thereof. It is sure that, favouring the illegal activities of the taxpayers is immoral but the argument on tax evasion and not encouraging tax payment on account of equity is too theoretical as the people of Bangladesh do not pay taxes in comparison to others and they do so, when they are forced to do it.
Besides, the list of new industries and infrastructures for the declared investment, as has been mentioned earlier, is too lengthy with broad headings that may cause sufficient confusions or disputes or litigation. The alternative was simply to mention the negative areas where investment of the amount would not be accepted.
Moreover, the provision for the reversal of privilege allowed under this section for non-compliance with conditions stipulated in the declaration i.e. qualified investment and employment generation may be harsh to the assessees and self-defeating to the revenue. For investment, apart from fund, other factors like land, power, materials and market are essential. At the moment the government cannot provide sufficient land and power to the industrial units and it would be grossly unfair to reverse the tax privilege for no-fault of the taxpayers.
Again, no one could certify the compliance or otherwise. Indeed, tax personnel may not be independent, objective and unbiased and here lies the possibility of collateral interest and we may end up with huge black money on the other side without substantive and desired investment.
Sec. 19AAA, Special tax treatment for investment in stocks and shares: This is also a replacement section, which provides the same privilege as in 19A and 19AA, above upon payment of 10% tax on any amount used for the purchase of stocks and shares of a listed company between July 01, 2009 and June 30, 2010. However, public limited companies, whether listed or not, have been excluded from the privilege. Moreover, the shares or stocks purchased cannot be transferred or sold within two years of purchase.
Non-compliance would invite reversal. The provisions of this section would not apply in cases of detection of concealed income where proceedings under Sec. 93 have been initiated prior to the tax payment.
This is a case of another superfluous provision apparently made by the government under pressure of the bourses who enjoy bubbles in stock market. Our stock market is now a place for more speculation than of genuine investment. The government action to push more money in this sector is unnecessary since fund is no problem at the moment for share market; rather, availability of sufficient good scripts is, of course, a problem. The merchant banking wing of most commercial banks and other financial institutions along with new margin rule for loan to investors, have driven the market to a new height which is, speculative and dangerously akin to 1996 share scamp.
Besides, illegal or undisclosed money holders do not need any government incentive to invest in stocks and shares and a good number of them, I guess, have already joined in the field with or without the knowledge of the Revenue. There is no capital gains tax on stocks and shares and for trading although there is income tax. I doubt whether our taxpayers are so efficient and smart to establish and pay the income tax. Therefore, in absence of any problem, why will one pay 10% tax that might invite problem in future, if not this year?
Sec. 19BBB, Special tax treatment in respect of investment in house properties: Under this section similar privilege has been offered for investing in building or apartment with a different rate of tax, depending on the size and location of the concerned properties. There are six rates, which are summarised below:
(a) Tk 800 per square meter of a building or apartment when plinth area of which does not exceed 100 square metre in Gulshan, Banani, Baridhara, DOHS, Dhanmondi, Lalmatia, Uttara, Bashundara, Dhaka Cantonment, Motijheel C/A, Dilkusha C/A and Kawran Bazar in Dhaka city Khulshi R/A and Panchalish R/A in Chittagong city.
(b) Tk 1000 per square meter when plinth area exceeds 100 square meter but not 200 square meters for areas mentioned in (a) above.
(c) Tk 1500 per square meter in the case of plinth area exceeding 200 square meters for areas mentioned in (a) above.
(d) Tk 400 per square meter when the plinth area does not exceed 100 square meters for the areas other than mentioned in (a).
(e) Tk 600 per square meter when the plinth area exceeds 100 square meter but not 200 square meters for areas other than mentioned in (a).
(f) Tk 1000 per square meter when the plinth area exceeds 200 square meters for areas other than mentioned in (a) above.
However, the privilege is restricted to one flat or apartment or one floor of a building. Because of this restriction, it appears that only one floor of a building, may be with multi-storied investment plan, would only qualify leaving the major portion of proposed investment questionable for tax purpose. For this, the provision may not attract the desired investment in construction sector.
Sec. 24: Income from house property: Due to the amendment to sec. 2, as the definition of annual value has been extended to include the income from let out furniture, fixtures and fittings along with any building, this section now incorporates that income within the meaning of property income.
Sec. 30: Inadmissible deductions (expenses): In matters of royalty etc., under (h) of this section earlier, the limit for inadmissibility were 5.0% of the profit for payment of royalty, technical service fee, technical know-how fee or technical assistance fee. The limit has now been raised to 8.0%.
Sec: 44: Exemption and allowances: The aggregated allowances, admissible under part B of Sixth Schedule other than paragraphs 15 and 16, has now been raised to Tk 10 lakh from earlier Tk 5.0 lakh.
Sec. 46A, 46B: Tax exemption for newly set up industries in certain areas: This refers to investment compulsion for exempting income, which restricts any ready-made garment industry from investing in stocks or strikes of a listed company for the purpose of this section when it invests 40% of the exempted income either in the said or in any new industrial undertaking during the exemption period or within one year of such exemption.
To make it simple, exempted garment industries are not required to invest in stocks or shares when they invest 40% of exempted income within existing or new industrial undertaking. For others requirement of 30% investment in industries and 10% in stocks or shares still remains.
Sec. 49: Deduction at source: Clause (zf) of sub-sec 1 of this section has been replaced to include income arising from shipping business both inside and outside Bangladesh to a resident assessee.
Clause (zk), income from cash subsidy, has been deleted and as such there would not be any deduction thereon.
A new clause (zt), income of foreign technicians engaged in diamond cutting industry, has been newly introduced.
Sec. 52: Deduction from compensation and acquisition of property. The rate of deduction has been reduced to 2% from earlier 6.0%.
Sec. 52: Collection from foreign technicians engaged in diamond cutting industry: This is a new section, the salaries of a technician engaged in diamond cutting industry who is neither a citizen nor was a resident in Bangladesh in any of the immediately preceding four years of his arrival in Bangladesh on a contract not exceeding three years from the date of his arrival to Bangladesh, will be subjected to deduction of tax @ 5.0% at the time of payment or credit whichever is earlier. However, the provisions of this section will not be applied to foreign technicians appointed after 30 June 2010.
Sec. 53AA: Collection of tax from resident shipping business of a resident: A new provision has been added to this section requiring collection of tax @ 3.0% of total freight received from services rendered between two or more foreign countries by a resident. In other cases 5.0% deduction still remains.
Sec. 53BB: Collection of knitwear and woven garment exporter: This section has been replaced to bring into deduction on net terry towel, carton and accessories of garment industry, jute goods, frozen food, vegetables, leather goods, packet food export @ 0.25% where only knitwear and woven garment exports were subjected to deduction earlier.
Sec. 53BBB: Collection of tax from Stock Exchange members: The rate of deduction has been increased to 0.25% from 0.15% earlier levied on the value of transactions.
Sec. 53BBBB: Collection of tax from export of any goods other than mentioned in Sec. 53BB: The rate of collection is 0.25% of the export proceeds.
Sec. 53DD: Deduction from export cash subsidy: The section has been repealed resulting in no deduction on such receipts.
Sec. 53FF: Collection of tax from real estate business: This section has been replaced with amendments for tax on land. The amendments are as follows:
(i) 5.0% of the deed value in case of transfers of land within any City Corporations, Pourashava or Cantonment Board up to August 31, 2009 and 2.0% from September 01, 2009. The rate was 5.0% earlier.
(ii) For non-agricultural land exceeding one lakh taka in value outside City corporation, Pourashava or Cantonment Board, the rate of tax will be 5.0% of the deed value up to August 31, 2009 and 1.0% after that.
Sec. 62A: Procedure for collection or deduction at source: This is a new section re-confirming the procedure for tax collected or deducted at source in accordance with specifications laid down in newly included Eighth Schedule and in case any conflict provisions of Chapter VII, payment of tax before assessment will prevail.
Sec. 74: Payment of tax on the basis of return: The scope of this section has now been expanded to include persons submitting return u/s 75, 77, 78, 89(2), 91(3) or 93(1) are required to pay tax on the basis of return. Earlier the requirement was only for persons submitting return u/s 75.
Sec. 82BB: Universal Self-Assessment: Two new sub-sections 4 and 5 have been added to this section.
Sub-sec 4 says, no question as to the source of investment by a new assessee deriving income from business or profession will be made when he shows a minimum income of 25% of invested capital and pays tax before filing of return.
Sub-sec. 5 says that initial capital investment will not be transferred or let out within five years from the end of the assessment year in respect of which return of income has been filed under this section.
Sec. 82C: Tax on income of certain persons: Clause (1g) of sub-sec 2 deemed the income on export cash subsidy has been abolished since there is no deduction of tax on the amount now. Two new clauses have been added as: (N) The amount received on account of export of certain items where tax is deductible under section (u/s) 53BB. (O) The amount of salaries of a foreign technician serving in a diamond cutting industry where tax is deductible under sec. 52. In other words, the amount collected or deducted under the above two clauses would be treated as final settlement.
To be continued. The writer is partner, Hoda Vasi Chowdhury & Co. He may be reached at
e-mail: mabaree@hodavasi.com