Making tax laws work better
Akhter Zamal FCA | Tuesday, 3 June 2008
IT has been observed while assessing income of banking companies by the tax officials in respect of bad-debt, written-off claim for deduction from income, the tax officials refuse to allow the claim of bad-debt written off. This is done on the pretext that assessee has failed to establish the fact of recoverability of the debt. In fact the claim is made as per section 29(l) (xv) (xvi) of the Income Tax Ordinance 1984 and as per guidelines of the Bangladesh Bank.
It may be noted that the assessee banks on disbursement of the loan charge interest to the advance accounts of the customers as income and credit the profit and loss (P/L) account and due tax is paid every year. Making provision for doubtful debts on the said advance, is used to be disallowed by the tax authority and tax is imposed by it on the same. Disallowance of bad-debt, written-off claim means tax on the same amount. This is tax paid claim and disallowance of the claim by tax officials will mean triple payment of tax in the hands of the assessee. bad-debt, written-off claim is determined on the basis of the guideline circulated by the Bangladesh Bank (BB), allowing waiver/exemption of the total amount of outstanding loan due by the defaulting customer. There are also misunderstanding and misconception among the tax officials and auditors of the offices of the Auditor General (AG) that by claiming such exemption the bank is evading tax.
To remove this misunderstanding, the NBR may make a provision in the Tax Ordinance that the amount of bad-debt, written-off be allowed as deduction from income while computing total income of the assessee bank under certain conditions.
In view of the above, this writer proposes that a provision may be incorporated in the Income Tax (IT) Ordinance 1984, in line with the provision made in section 29(l) (xviiiaa), to avoid confusion in the minds of tax officials and auditors of the AG office and to give relief to the assessee bank from illegitimate harassment in respect of Banking Companies only. Therefore, a new provision should be inserted in the section 29 (1) (xv) (xvi) (xvii) of the Income Tax Ordinance 1984 accordingly.
After existing section 29 (1) (xv) (xvi) (xvii) of the Income Tax Ordinance 1984, a new "proviso" can be inserted as under:
"Provided that the amount of bad-debt, written-off claim by a banking company be allowed as deduction from income of the related year while computing the total income of the bank if the amount of bad-debt, written-off is verified and certified by the Chartered Accountants, being statutory auditors of the company, subject to approval of bad-debt written off by the board of directors of the company".
Provided further that if the amount of bad-debt written off so allowed is ultimately recovered later on, the same shall be deemed to be profit of the year in which it is recovered and tax has to be paid. But no tax shall be applicable on the amount of bad-debt written off if tax is paid earlier.
Background for the Proposed Amendment in respect of adoption of BAS-16: A seminar was held under the chairmanship of the then National Board of Revenue (NBR) chairman, Mr. Khairuzzaman Chowdhury, now Ambudsman appointed by the Govt. for solving tax problems. The seminar was arranged by the Institute of Chartered Accountants of Bangladesh (ICAB). In that seminar, Bangladesh Accounting Standards (BAS)-16, in respect of revaluation of assets, property, plant, and machinery was adopted. A circular by the ICAB was also issued subsequently with a copy sent to members of the institute, the ministry of finance, the Bangladesh Bank, NBR and other relevant agencies.
But while working on the same following the adoption of the contents of BAS-16 by the auditors in practice, the tax authority refuse to act on the same line, raising questions that the terms and conditions contained in BAS-16 are not acceptable to tax authority as the conditions are not incorporated in the 1. T. Ordinance, 1984. The tax officials do not accept the method of revaluation of assets like land, and building and plant and machinery etc., of the banking companies and disagree to allow depreciation on the revalued assets suggested in BAS-16. The depreciation on revaluation of assets is also suggested by the Bangladesh Bank in case of banking companies.
In view of the above situation, the incorporation of the following sub-clause (3) after sub-clause (1) & (2) in clause 9 of the Third Schedule of the 1. T. Ordinance 1984 with retrospective effect is proposed here.
After the existing Third Schedule of Income Tax Ordinance 1984 clauses 9 (1) (2), a new sub-clause (3) should inserted as under:
Clause 9(3) of the Third Schedule: "The claim of depreciation allowance on the revalued assets viz, building, land, plant and machineries by a banking company be allowed, provided surplus of revaluation/ capital reserve resulting from the revaluation are transferred to income account of the company in proportion to the depreciation amount claimed in the accounts of the income year".
Background for the Proposed Amendment: Under section 93, if any assessment is escaped by an assessee or under-assessed or assessed at too low a rate or has been the subject of excessive relief or refund under the Ordinance, the concerned Deputy Commissioner of Taxes (DCT) may issue a notice to assessee containing all or any of the requirements which may be included in a notice under section 77 and may proceed to assess or determine by an order in writing. But nothing is contained therein about the opportunity to the assessee of being heard and no time limit is mentioned for the assessment to be completed. This is unjust and detrimental to the interest of the assessee.
In view of the above position, the proposal is being made here for insertion of the following sub-clause 93 (3) (d) after sub-clause 93(3)(a)(b)(c) of the Income Tax Ordinance 1984. "93 (3) (d) Notwithstanding anything contained in section 93, assessment under section 93 shall be completed within two years from the date of issue of notice under section (u/s) 93 after allowing an opportunity to the assessee of being heard".
The failure to complete the assessment within two years by a DCT shall be construed as misconduct and disciplinary action will be taken against him.
Background for the Proposed Amendment: It has been seen from the chapter IX of the 1. T. Ordinance 1984 regarding assessment and communication of the said order to the assessee, no time limit for delivery of the assessment order has been expressly fixed in the said Ordinance, except sections 82, 82A, 83, 83AA, 83AAA, 84 and 94. Regarding communication of the assessment orders under section 82B, 82BB, 82C, 82D, 83A, 85, 86, 87, 88, 89, 90, 91, 92 & 93, the Board remains silent. This is unjust and unacceptable. In order to get relief from unlawful disallowances by any DCT, an assessee is in need of the assessment order, Demand Note and 1. T. 30, which are the requisite documents for filing appeal to the appellate authority, when aggrieved by an assessee against the said orders. To prevent an assessee from preferring an appeal in a proper forum by non-delivery of the orders, and other forms, is illegal and denial of natural justice and human rights. As such, the NBR should frame a law for the communication of Assessment Order, Demand Note and 1. T. 30 to the assessee in time and to facilitate filing appeal in time, if he desires so.
In view of the above, the proposal is made here for including a "provision" in this regard, by inserting a new section 94AA in the Income Tax Ordinance, 1984 as under:
"The Deputy Commissioner of Taxes while making assessment of income of an assessee shall take care of the facts and, on completion of the assessment order, communicate the assessment order to the assessee within 30 days of framing the order which if delayed by the DCT beyond the time limit shall be construed as misconduct". This section shall be applicable for the sections 82B, 82BB, 82C, 82D, 83A, 85, 86, 87, 88, 89, 90, 91, 92, 93 and 94".
Background for the Proposed Amendment: It has been experienced, while attending tax hearing in response to a notice on behalf of the client, that after completion of hearing, the DCT and the Additional Commissioner of Taxes (ACT) finalise the assessment order beyond the time limit specified under the tax law for reasons best known to them. Again, the concerned members of the staff under the offices of DCT/AJCT/IJCT communicate the order, long after the specified time due for delivery of the said order, to the assessee or to the authorised representatives. In some cases, the staff responsible for delivery of the order retain the same with him for his personal interest or other reasons beyond the period of time limit fixed for appeal. Sometimes the concerned members of the staff endeavour to show the delivery of the order through 1. T. Form 57 within the stipulated time by showing the receipt of the order by putting fake signature and seal of the office of the assessee. As a result, the assessee had to face difficulties in the Appeal and Tribunal level to establish that the assessee did not receive the order in time.
In view of the above situation, the NBR should make a definite provision in the Ordinance for punishment of the responsible persons in an appropriate manner under the Chapter XXI of the Income Tax Ordinance 1984.
"Section 165 BB - An employee/ official/ any member of the staff of concerned Taxes Circle indulging in corrupt practices and defaulting in delivery of notices, statements, assessment orders, demand notes, 1. T. 30 beyond the time limit prescribed by law shall be subjected to gross misconduct and severe punishment including dismissal from the service".
Background for the Proposed Amendment: It has been observed that Taxes Appellate Tribunal reject the appeal filed beyond the time limit of 60 days by an assessee unless the appeal is accompanied with a condonation letter from the assessee. But any appeal filed by the department beyond the time limit without seeking condonation for delay is admitted without question for hearing by the Tribunal. This discrimination should not prevail under Law.
Therefore, a definite and common direction should be followed while disposing of the appeals by taxes appellate tribunal and the required law may be framed in the manner as stated below:
"158 (3)" An appeal shall not be admitted for hearing by the Taxes Appellate Tribunal unless the appellant (either the assessee or the department) produces before the Appellate Tribunal a condonation letter for delay in submitting the appeal. The condonation letter should be filed along with the appeal application to the Taxes Appellate Tribunal showing sufficient cause for delay in submitting the appeal within prescribed time limit of 60 days for the consideration of Taxes Appellate Tribunal authority".
VAT: Background for the Proposed Amendment: As per section 46 of the VAT Act 1991, any person including chartered or cost management accountants, desirous of acting as professional consultants under VAT Act & Rules, the Customs, VAT, & Excise, are required to hold a licence from customs authority under section 196K of the Customs Act. In order to obtain the said licence, a person is required to undergo an examination of 200 marks, both written and viva. The licence is issued by the Customs Academy, provided such persons obtain the qualifying marks of 100. But in case of a lawyer, no such requirement is mentioned in the law. This is discrimination under law and should be removed.
We understand that Tax and VAT departments are the two wings of the NBR in Bangladesh.
Under section 174 (2) (d) (e) of the 1. T. Ordinance, 1984, Chartered Accountants, Cost and Management Accountants and legal practitioners are entitled to tax practice but the customs authority has debarred the above consultants from acting as VAT consultants without further obtaining the licence.
In this behalf, the ICAB may approach the customs and VAT authorities through the NBR to remove this discrimination under law and make a provision in the relevant VAT laws to allow Chartered Accountants and Cost & Management Accountants to act freely in this regard in future, by enacting a law in the manner as given below:
"After the existing section 46 and sub-section (i) and (ii) a new sub-section (iii) is inserted allowing a Chartered Accountant or a Cost & Management Accountant to appear before the VAT, Customs Authorities to act as representatives or VAT consultants".
The writer is Senior Partner, Howladar Yunus & Company. He may be reached at e-mail: [email protected]
It may be noted that the assessee banks on disbursement of the loan charge interest to the advance accounts of the customers as income and credit the profit and loss (P/L) account and due tax is paid every year. Making provision for doubtful debts on the said advance, is used to be disallowed by the tax authority and tax is imposed by it on the same. Disallowance of bad-debt, written-off claim means tax on the same amount. This is tax paid claim and disallowance of the claim by tax officials will mean triple payment of tax in the hands of the assessee. bad-debt, written-off claim is determined on the basis of the guideline circulated by the Bangladesh Bank (BB), allowing waiver/exemption of the total amount of outstanding loan due by the defaulting customer. There are also misunderstanding and misconception among the tax officials and auditors of the offices of the Auditor General (AG) that by claiming such exemption the bank is evading tax.
To remove this misunderstanding, the NBR may make a provision in the Tax Ordinance that the amount of bad-debt, written-off be allowed as deduction from income while computing total income of the assessee bank under certain conditions.
In view of the above, this writer proposes that a provision may be incorporated in the Income Tax (IT) Ordinance 1984, in line with the provision made in section 29(l) (xviiiaa), to avoid confusion in the minds of tax officials and auditors of the AG office and to give relief to the assessee bank from illegitimate harassment in respect of Banking Companies only. Therefore, a new provision should be inserted in the section 29 (1) (xv) (xvi) (xvii) of the Income Tax Ordinance 1984 accordingly.
After existing section 29 (1) (xv) (xvi) (xvii) of the Income Tax Ordinance 1984, a new "proviso" can be inserted as under:
"Provided that the amount of bad-debt, written-off claim by a banking company be allowed as deduction from income of the related year while computing the total income of the bank if the amount of bad-debt, written-off is verified and certified by the Chartered Accountants, being statutory auditors of the company, subject to approval of bad-debt written off by the board of directors of the company".
Provided further that if the amount of bad-debt written off so allowed is ultimately recovered later on, the same shall be deemed to be profit of the year in which it is recovered and tax has to be paid. But no tax shall be applicable on the amount of bad-debt written off if tax is paid earlier.
Background for the Proposed Amendment in respect of adoption of BAS-16: A seminar was held under the chairmanship of the then National Board of Revenue (NBR) chairman, Mr. Khairuzzaman Chowdhury, now Ambudsman appointed by the Govt. for solving tax problems. The seminar was arranged by the Institute of Chartered Accountants of Bangladesh (ICAB). In that seminar, Bangladesh Accounting Standards (BAS)-16, in respect of revaluation of assets, property, plant, and machinery was adopted. A circular by the ICAB was also issued subsequently with a copy sent to members of the institute, the ministry of finance, the Bangladesh Bank, NBR and other relevant agencies.
But while working on the same following the adoption of the contents of BAS-16 by the auditors in practice, the tax authority refuse to act on the same line, raising questions that the terms and conditions contained in BAS-16 are not acceptable to tax authority as the conditions are not incorporated in the 1. T. Ordinance, 1984. The tax officials do not accept the method of revaluation of assets like land, and building and plant and machinery etc., of the banking companies and disagree to allow depreciation on the revalued assets suggested in BAS-16. The depreciation on revaluation of assets is also suggested by the Bangladesh Bank in case of banking companies.
In view of the above situation, the incorporation of the following sub-clause (3) after sub-clause (1) & (2) in clause 9 of the Third Schedule of the 1. T. Ordinance 1984 with retrospective effect is proposed here.
After the existing Third Schedule of Income Tax Ordinance 1984 clauses 9 (1) (2), a new sub-clause (3) should inserted as under:
Clause 9(3) of the Third Schedule: "The claim of depreciation allowance on the revalued assets viz, building, land, plant and machineries by a banking company be allowed, provided surplus of revaluation/ capital reserve resulting from the revaluation are transferred to income account of the company in proportion to the depreciation amount claimed in the accounts of the income year".
Background for the Proposed Amendment: Under section 93, if any assessment is escaped by an assessee or under-assessed or assessed at too low a rate or has been the subject of excessive relief or refund under the Ordinance, the concerned Deputy Commissioner of Taxes (DCT) may issue a notice to assessee containing all or any of the requirements which may be included in a notice under section 77 and may proceed to assess or determine by an order in writing. But nothing is contained therein about the opportunity to the assessee of being heard and no time limit is mentioned for the assessment to be completed. This is unjust and detrimental to the interest of the assessee.
In view of the above position, the proposal is being made here for insertion of the following sub-clause 93 (3) (d) after sub-clause 93(3)(a)(b)(c) of the Income Tax Ordinance 1984. "93 (3) (d) Notwithstanding anything contained in section 93, assessment under section 93 shall be completed within two years from the date of issue of notice under section (u/s) 93 after allowing an opportunity to the assessee of being heard".
The failure to complete the assessment within two years by a DCT shall be construed as misconduct and disciplinary action will be taken against him.
Background for the Proposed Amendment: It has been seen from the chapter IX of the 1. T. Ordinance 1984 regarding assessment and communication of the said order to the assessee, no time limit for delivery of the assessment order has been expressly fixed in the said Ordinance, except sections 82, 82A, 83, 83AA, 83AAA, 84 and 94. Regarding communication of the assessment orders under section 82B, 82BB, 82C, 82D, 83A, 85, 86, 87, 88, 89, 90, 91, 92 & 93, the Board remains silent. This is unjust and unacceptable. In order to get relief from unlawful disallowances by any DCT, an assessee is in need of the assessment order, Demand Note and 1. T. 30, which are the requisite documents for filing appeal to the appellate authority, when aggrieved by an assessee against the said orders. To prevent an assessee from preferring an appeal in a proper forum by non-delivery of the orders, and other forms, is illegal and denial of natural justice and human rights. As such, the NBR should frame a law for the communication of Assessment Order, Demand Note and 1. T. 30 to the assessee in time and to facilitate filing appeal in time, if he desires so.
In view of the above, the proposal is made here for including a "provision" in this regard, by inserting a new section 94AA in the Income Tax Ordinance, 1984 as under:
"The Deputy Commissioner of Taxes while making assessment of income of an assessee shall take care of the facts and, on completion of the assessment order, communicate the assessment order to the assessee within 30 days of framing the order which if delayed by the DCT beyond the time limit shall be construed as misconduct". This section shall be applicable for the sections 82B, 82BB, 82C, 82D, 83A, 85, 86, 87, 88, 89, 90, 91, 92, 93 and 94".
Background for the Proposed Amendment: It has been experienced, while attending tax hearing in response to a notice on behalf of the client, that after completion of hearing, the DCT and the Additional Commissioner of Taxes (ACT) finalise the assessment order beyond the time limit specified under the tax law for reasons best known to them. Again, the concerned members of the staff under the offices of DCT/AJCT/IJCT communicate the order, long after the specified time due for delivery of the said order, to the assessee or to the authorised representatives. In some cases, the staff responsible for delivery of the order retain the same with him for his personal interest or other reasons beyond the period of time limit fixed for appeal. Sometimes the concerned members of the staff endeavour to show the delivery of the order through 1. T. Form 57 within the stipulated time by showing the receipt of the order by putting fake signature and seal of the office of the assessee. As a result, the assessee had to face difficulties in the Appeal and Tribunal level to establish that the assessee did not receive the order in time.
In view of the above situation, the NBR should make a definite provision in the Ordinance for punishment of the responsible persons in an appropriate manner under the Chapter XXI of the Income Tax Ordinance 1984.
"Section 165 BB - An employee/ official/ any member of the staff of concerned Taxes Circle indulging in corrupt practices and defaulting in delivery of notices, statements, assessment orders, demand notes, 1. T. 30 beyond the time limit prescribed by law shall be subjected to gross misconduct and severe punishment including dismissal from the service".
Background for the Proposed Amendment: It has been observed that Taxes Appellate Tribunal reject the appeal filed beyond the time limit of 60 days by an assessee unless the appeal is accompanied with a condonation letter from the assessee. But any appeal filed by the department beyond the time limit without seeking condonation for delay is admitted without question for hearing by the Tribunal. This discrimination should not prevail under Law.
Therefore, a definite and common direction should be followed while disposing of the appeals by taxes appellate tribunal and the required law may be framed in the manner as stated below:
"158 (3)" An appeal shall not be admitted for hearing by the Taxes Appellate Tribunal unless the appellant (either the assessee or the department) produces before the Appellate Tribunal a condonation letter for delay in submitting the appeal. The condonation letter should be filed along with the appeal application to the Taxes Appellate Tribunal showing sufficient cause for delay in submitting the appeal within prescribed time limit of 60 days for the consideration of Taxes Appellate Tribunal authority".
VAT: Background for the Proposed Amendment: As per section 46 of the VAT Act 1991, any person including chartered or cost management accountants, desirous of acting as professional consultants under VAT Act & Rules, the Customs, VAT, & Excise, are required to hold a licence from customs authority under section 196K of the Customs Act. In order to obtain the said licence, a person is required to undergo an examination of 200 marks, both written and viva. The licence is issued by the Customs Academy, provided such persons obtain the qualifying marks of 100. But in case of a lawyer, no such requirement is mentioned in the law. This is discrimination under law and should be removed.
We understand that Tax and VAT departments are the two wings of the NBR in Bangladesh.
Under section 174 (2) (d) (e) of the 1. T. Ordinance, 1984, Chartered Accountants, Cost and Management Accountants and legal practitioners are entitled to tax practice but the customs authority has debarred the above consultants from acting as VAT consultants without further obtaining the licence.
In this behalf, the ICAB may approach the customs and VAT authorities through the NBR to remove this discrimination under law and make a provision in the relevant VAT laws to allow Chartered Accountants and Cost & Management Accountants to act freely in this regard in future, by enacting a law in the manner as given below:
"After the existing section 46 and sub-section (i) and (ii) a new sub-section (iii) is inserted allowing a Chartered Accountant or a Cost & Management Accountant to appear before the VAT, Customs Authorities to act as representatives or VAT consultants".
The writer is Senior Partner, Howladar Yunus & Company. He may be reached at e-mail: [email protected]