Tax laws should regularly be updated

Taxation, no doubt, is a critical subject. It needs meticulous study of tax Acts, rules and other related materials to understand the intricacy of the "language/terms" used in the relevant tax Acts. Lack of adequate explanatory notes often causes serious difficulty not only in understanding the true meaning of the terms and jargons, but may also lead to misinterpretations. Sufficient explanatory notes for the "terms" will surely provide clarity for the users in the interest of the business community of the country as well the foreign investors.
The existing definitions of the 'terms' found in under Section 2(1) are not enough to meet the present day requirement by lawyers, tax consultants, chartered accountants involved in this area.
Different types of tax-related terms are twisted in different ways by assessing officers and it makes the assessments contradictory and inconsistent with law. We expect more attention to the following areas and terminologies that require further clarification and lawful explanations so that the purpose of introducing such terms, laws and ordinances are legally justifiable:
(1) Amortisation of licence, preliminary expenses, scientific research expenses etc., and their admissibility.
(2) Public Trust, Charitable Trust, Religious Trust, Private Trust and other Trust, P. F., Gratuity, Pension Super Annuation Trust, Death Relief Grant Trust Fund, in place of Group Insurance etc., and their admissibility.
(1) Cash Credit, Unexplained Investment, Unexplained Money, Unexplained Expenditure, and the situations when these will not be admissible.
(2) Fringe benefits, Amenities, Perquisites paid by employers and their admissibility in the hands of employers.
(3) Software development business operations-examples of full tax exemption.
(4) Prospective or retrospective effects of SROs, Circulars, General orders, Notification by NBR.
(5) "Public are substantially interested" -- when it is applicable and its area of application.
(6) Foreign company, branch company, liaison office and subsidiary company-- when set up by non-residents and residents.  
(7) Specified date for a transaction and specified business and its position under tax law.
(8) "Save and except" -- meaning of the phrase under tax law.
Along with the above, more clarified meaning is necessary regarding -- Fresh assessment, Re-assessment, Additional assessment, Annulment of assessment order, Revised Assessment order, Remand of the Tax cases by Tax authority and Higher judicial authority.
EXISTING TAX AND VAT PRACTICES AND DESIRABLE AMENDMENTS: Followings are some areas that should be taken into consideration by the NBR (National Board of Revenue):
1. PERQUISITES
We find disputes arising at the time of assessment of income of an assesseee on the issue of perquisites paid by the employer to the employee. By statute, perquisites are always taxable for the employee. But tax officials do not agree with this principle and dual tax (both on employer and employee) is imposed on the excess amount of perquisites particularly when it exceeds the limit prescribed by the tax authority under section 30 (e). This practice is inconsistent as the state cannot charge tax twice for a particular income; once on employee and again on the employer. Recently, the honorable High Court has given a ruling on the question of allowability of perquisites in IT reference: Application 2011, where it is stated that tax on perquisites is applicable on employees only if it exceeds the limit; the perquisites are not taxable to the employer. If employees' tax is paid by the employer it is also considered by tax authority as perquisites and tax is imposed on the employer.
PROPOSAL: Any payment of excess perquisites by employer to employee is treated as perquisites and if it exceeds the limit as prescribed in section 30(e), tax shall not be applicable to the employer. Amendment to be made by way of "provision" of the section 30 (e) of the I. T. Ordinance, 1984 as under:
"Section 30(e) Provided that any excess payment of 'perquisites to employee by employer over the prescribed limit be taxable in the hands of employee and not in the hands of the employer as it represents double taxation".
2. AMORTISATION OF INTANGIBLE ASSETS U/S 29(1)(VIIIAA) & 10A OF THIRD SCHEDULE: Amortisation of licence fee is an allowable expense against profit u/s 29(1) (viiia) of the I. T. Ordinance, 1984 for Resident Companies only. But tax authority is not ready to accept the claim of writing off preliminary expenses incurred for the formation of a company or any initial expenditure incurred prior to commercial operations by a company and its removal of unallocated expenditure from books being fictitious assets although it has been directed in the company's relevant section of the Act to do so.
Proposal: We propose that any intangible assets be allowed to be written off proportionately within 5 years by charging P/L account.
"Amendments should be made in section 29(1)(viiia) and paragraph 10A of the Third Schedule whereby any claim of Amortization by writing off any intangible assets having no intrinsic value be allowed to be written off after 1st July 2015 on proportionate basis within next 5 years".
3. CAPITAL GAIN: The government in 1995 had introduced a section 32(7) whereby if Capital Gain arises from purchase and sale of shares being capital assets by the transfer of share and securities of publicly traded company listed with stock exchange was tax exempted. But in the financial year 2010, such exemption on capital gain was withdrawn except gain on sale of government securities being tax free. At the same time, capital gains from sale of shares were subjected to payment of tax @ 5 per cent in the hands of sponsor shareholders and in the hands of corporate bodies @ 10 per cent. But gain on sale of shares of public company in the hands of individual shareholders has also been made tax free. Again, shares of non-listed Public Ltd Companies as well as Private Ltd Companies were subjected to payment of tax @ 15 per cent as per Second Schedule of I. T. Ordinance, 1984.
The incidence of tax @ 15 per cent on the shareholders of both private and public companies not linked with stock exchange appears irrational and unjust.
PROPOSAL: In order to bring fairness in capital gain tax by the general shareholders of both public and private companies, tax should be limited at par (5 per cent) with sponsor shareholder of public Ltd. Co.
Therefore, a "provision" may be made in section 32(7) as under:
"Provided that where a capital gain arises from transfer of shares of both public and private companies being capital assets, the shareholder shall be liable to pay tax on capital gain @ 5 per cent same as sponsor shareholder and director of a company".
4. INCOME FROM BUSINESS OR PROFESSION-- SECTION 28(3): Under this section, tax authority has allowed an option to treat interest suspense either as deferred income by the assesseee or as income in the income year in which its is credited to its profit and loss account for that year or as the case may be in which it is actually received, whichever is earlier.
This facility is allowed to Bangladesh Development Bank Ltd. (BDBL), Investment Corporation of Bangladesh (ICB) and any Commercial Bank including Bangladesh Krishi Bank (BKB), and Rajshahi Krishi Unnayan Bank (RKUB). But "Financial Institutions" are debarred from enjoying such benefits by the tax authority on the ground that the words 'Financial Institution' is not included in section 28(3) of the Ordinance.
It is surprising to note that BDBL, BKB and RKUB are financial institutions and enjoy the facility. The word 'Financial Institution' is defined u/s 2(31A) of the Ordinance. But such definition is ignored by the tax officials including the appellate tribunals. This needs to be amended.
PROPOSAL: The words financial institution may be inserted appropriately in section 28(3), and remove the names of the aforementioned organisations.
5. DEDUCTION FROM BUSINESS OR PROFESSION- SECTION (29): In this section, a list of expenses are considered and allowed as business expenses to an assesseee being revenue expenses against business income. This section contains as many as 27 heads of expenses. By the passage of time, new types of business, trade and commerce have been expanding throughout the World. Therefore, varied nature of transactions are found nowadays. In section 29(1) (xxvii) it is mentioned that any claim of business expenses not being capital in nature shall be allowed as business expenses. In practice, we find that assessing officers are reluctant to follow the stated section and admit any such expenses under the mentioned section, if claimed by the assesseee. As a result the assesseee is denied his legitimate claim.
Proposal: We feel that section 29(1) should be revised thoroughly to include some new heads of expenses in tax computation of income.
6. REVISED ASSESSMENT ORDER: The question of Revised Assessment Order arises only in case of complying with the 1st Appeal order or second appeal order by the Deputy Commissioner of Taxes (DCT) on receipt of  communication from two Appellate Bodies under section 156 (5) and 156(4) of the I. T. Ordinance, 1984. No separate section for revised order is included in the Tax Ordinance, 1984. Nothing has been precisely defined in the ordinance with regard to the functions of the DCT. Our experience in this respect is very bad and unfortunate. The DCTs always try to avoid the direction of the superior authority and issue orders according to their own discretion.
As we understand, DCTs are supposed to carry out orders of their superiors. If the DCTs do not agree with the decision of their superiors, s/he has the option to file appeal against the assesseee. Besides the documents on the basis which C. T. (Appeal) or Tribunal authority issues appeal order, the DCTs ask for resubmission of those before delivering the revised order.
PROPOSAL: In order to make the procedures clear and transparent and to avoid harassment, a new section 84A may be inserted to read as under:
Subject to section 156(5) and section 156(4) on the basis of the order of Appellate Joint Commissioner or the Commissioner (Appeal) and the Appellate Tribunal, the DCT shall revise any assessment order accordingly and communicate the  mentioned order to the assesseee without asking any further reference or without making any addition, alternation or deviation of the order of the Appellate Joint Commissioner of Taxes or Commissioner of Appeal and Tribunal. Any violation of the above section by DCT shall be construed as misconduct.
7. FESTIVAL BONUS VS INCENTIVE BONUS U/S 29(1) (XIV): Payment of festival bonus to the assesseee is admissible u/s 29(1) (xiv) of the I. T. Ordinance, 1984 under certain conditions, which refer to -
(a) the general practice in similar business
(b)the profit of the business or profession in that year, and
(b) the pay and other conditions of services of the employees.
In case of payment of incentive bonus, clause (b) above is not being considered by the employers and they pay such bonus as they like. Clause (b) deserves the attention of the management while sanctioning the incentive bonus. Incentive bonus equivalent to 2/3 times of basic salary deserves comparable computation of profit of the year earned with past profit by the entity.
 The basis for determining incentive bonus should be the profit of the year under consideration with that of the past year's profit. There should not be any restriction on the payment of incentive bonus by tax authority. Determination of incentive bonus should not be based on working capital of the entity for a year.
PROPOSAL: An amendment may be brought to the existing section 29(1) (xiv) and a new provision added to the Ordinance as under:
"Provided that incentive bonus may be allowed to employees once a year @ 10 per cent of the net profit earned during the year, to be authenticated in the audited accounts. The existing section 30(J) relating to incentive bonus is hereby deleted."
8. TAX LAW SHOULD NOT CONTRADICT BANGLADESH  BANK POLICY: Very often we find that determining the total income of the assesseee is fraught with difficulties and the practice is also not in keeping with the policies of the Bangladesh Bank. For the sake of transparency, law should be framed in such a manner that there should not be any confusion and conflict in implementing it to control monetary and fiscal transactions of the assesseees.
(9) PROPOSAL FOR AMENDMENT IN TAX ORDINANCE, 1984: Any unexplained income shown in the books of accounts as credit should be treated as deemed income. According to sub-section-16, if any building, machinery or plant having been used by an assesseee for the purpose of any business or profession carried on by him is disposed off during any income year and the sale proceeds of such assets exceed the written down value or the difference between original cost and the written down value shall be deemed to be business income of the assesseee. This sub-section is contradictory and needs to be deleted. Income arising out of disposal of assets may be charged @ 15 per cent under 2nd schedule of I. T. Ordinance, 1984 which will be fair and logical.
(a) TAX DEDUCTION AT SOURCE: Section 49 is related to tax deduction at source under chapter VII of the I. T. Ordinance, 1984. Every year, the NBR widens its tax net by inclusion of new heads for deduction of tax from income. Officials who are engaged to deduct tax at source from customers are being over burdened with a huge task. The heads of accounts against which taxes are being deducted are not shown as income in the heads of relevant assesseees. This is arbitrary and inconsistent. All incomes need to specified in the relevant sections.
(b) ALLOWABILITY OF EXPENSES: Rent, Rates, Taxes, Repairs and Insurance paid by the tenants should be allowed as expenses even if tenants pays it for repairs of rented building. As the assessee has undertaken the cost of repairs, the amount should be allowed on account of such repairs. This expense shall not be considered if any expenditure in the nature of capital expenditures is claimed.
(c) SPORTS EXPENSES BY BUSINESS ENTITY: Sports expenses claimed by corporate organisations are disallowed by the tax officials as expense because they claim this not related to business. There is no cogent reason to disallow the claim.
(d)    FLAT RATE OF VAT BE Replaced BY TRUNCATED RATES: The government is going to introduce flat rate VAT @15 per cent on all vatable items for the year from 2015-2016 as prescribed by the IMF. It will cause great hardship for the public for sure. If you consider VAT for each items of consumption, the aggregate value of VAT will be beyond the reach of general public. Audit fees and consultancy fees are subject to VAT, and aggregate value of tax and VAT comes to 25 per cent. Now only 75 per cent of the turnover remains after the VAT and tax payment; if 65 per cent of the total turnover is utilised to maintain office expenses, only 10 per cent remains for the service renderer. This cannot provide honorable livelihood for members of organisations like  ICAB or ICAMB and other professionals. This needs immediate consideration by the NBR. The rate of VAT may be fixed on income ceiling basis -- like turnover tax where sale up to Tk 3.4 million is taxable @ 3 per cent. Similarly, independent professionals like members of ICAB and ICAMB may pay VAT @ 5% for earning fees up  to Tk 3.0 million, @ 7.5 per cent for Tk. 6.0 million, @ 10 per cent for Tk 9.0 million and so on.
In VAT Act, it is provided that claim of refund must be lodged with VAT authority within 9 months from the date of payment. This is a very short time to claim the refund. To establish VAT refund, an applicant is required to collect many documents and records from different quarters. Sometimes it is found very difficult, particularly when question arises as to who is to file claim application for refund by insurance companies. Therefore, VAT authority should allow at least one year time.
CONCLUSION: To keep pace with the fast-changing global trade and commerce, it is highly desirable that we create a congenial atmosphere for the investors to make investment and ensure proper taxation practice to encourage both the citizens and the entrepreneurs to pay taxes without being harassed or discriminated. To reach such a state, laws should be made accessible and understandable by all parties involved and should also be legally justifiable. In addition to adding new laws, the existing laws should also be updated on a regular basis to cope with the modern day practices. [The article has been abridged.]
Akhter Zamil FCA is a practising chartered accountant and senior partner of Akhter Abbas Khan & Co. Chartered Accountants.
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