Where laws need to be changed
Thursday, 9 April 2009
Akhter Jamil FCA
IT is unfortunate that despite adoption of an "Accounting Standard" by many Asian countries including India and Pakistan, to improve the standards in the world of accounting, Bangladesh is still lagging behind. Accounts are being prepared by the auditors following the "Bangladesh Accounting Standards" as required by Securities Exchange Commission (SEC) and as adopted by the Institute of Chartered of Accountants of Bangladesh (ICAB). But tax practitioners are facing tough opposition from the tax officials in the case of assessing tax on accounts based on such standard.
As such, immediate adoption of the "Bangladesh Accounting Standard" (BAS) and insertion of appropriate provisions in section 35 of the Tax Ordinance 1984 have become an imperative. A law has to be enacted to restrain outright rejections of some claims by the tax officials. Bangladesh is part of the global economy and if it has to keep abreast with developments or attract investment, it has to follow global standards. Seen from this perspective, the sooner we adopt the "Accounting Standard", the better for us. When the world is following standard, can we lag behind?
Sir David Tweedie, Chairman, International Accounting Standard Board (IASB) lists the benefits: "The goal is to create one single set of accounting standards that can be applied anywhere in the world, savings millions for firms with more than one listing and investors to compare the performance of business across geographic boundaries for the first time".
As issuers of securities, companies will be able to access investors more easily, audit firms will be better able to assure quality of audit and national audit agencies and regulators will benefit from the greater consistency and quality of information.
Accounting bodies throughout the world are striving to achieve a reasonable degree of uniformity in the accounting policies and have adopted the "Accounting Standard" in line with Bangladesh Financial Reporting Standard (BFRS).
The International Financeings Reporting Standard (IFRS) have assumed great importance in the recent times for the following reasons:
(a) Globalization of the economy has led to companies in Bangladesh expanding their operations across the borders and this calls for uniformity in accounts.
(b) Foreign investors would give more weightage to the accounts of those companies which are based on IFRS.
In view of the above situation, it is necessary to adopt "Bangladesh Accounting Standard" for which some amendments may be made in the Income Tax Ordinance 1984. This may be done in the following ways:
Section-35 Method of Accounting: (i) All income classifiable under the head agricultural income, income from business and profession, income from other source should be computed with due recognition of the "Bangladesh Accounting Standards" as adopted by the ICAB and followed in the assessee's accounting method.
(ii) Notwithstanding any thing contained in sub-section (1), the National Board of Revenue (NBR) in case of income from any business or profession, or class of business or profession of any other source or any class of persons may issue a direction by a general or special order to prepare accounts under such accounting standards as adopted by the ICAB and/or any other laws of the country in a prescribed manner and format
(iii) Without prejudice to the preceding sub-sections, every public or private company as defined in the Companies Act 1913 (VII of 1913) or Companies Act 1994 (XVIII of 1994) should furnish the return of income required to be filed under this Ordinance for any income year, a copy of the trading account, profit and loss account, cash flow statement and the financial statement in respect of that income year certified by a Chartered Accountant.
Proposal # 2: The income from business and profession should be computed in accordance with the "Accounting Standard" as adopted by the ICAB considering the methods under (a) cash system (b) mercantile system (c) mixed system or accrual concept basis under the framework of para 22 of "Bangladesh Accounting Standard" and followed by the assessing officers while computing total income.
Proposal # 3: Definition of the word "Paid" used in paragraphs 8 of the Provident Fund and 6 of the "Gratuity Fund" under First Schedule Part B & Part C of the Income Tax (IT) Ordinance 1984 needs to be inserted to remove confusion, about the words 'Paid" "outstanding" and "provision" made for expenses in any form.
The income from business and profession is to be computed on the basis of "Accounting Standard" and the method of accounting regularly employed by the assessee. In this connection, it is necessary to further specify the meaning of the word "Paid" as to whether it represents only the cash transactions or also the specific provisions made for any expenses/loss where assessee follows the mercantile system of accounting, expenses incurred for "cash" or by "provision" shall be treated to have been "Paid" irrespective of the fact that they are actually paid or not.
As such a new section 2 (43A) involving definition of the word "Paid" needs to be inserted after the existing section 2 (43), which may be as under:
"Paid" means expenses or charges actually paid in cash or settled otherwise and also includes expenses incurred by way of provisioning according to the method of accounting adopted by an assessee in computing profit and gains under the head, "Income from business or profession".
Proposal # 4: Acceptance of the claim of bad debt written off by the tax officials under section 29 (1) (xv), (xvi) and (xvii). The claim of Bad Debt Written off by an assessee should be allowed by the Tax Department under section (u/s) 29 (1) (xv), (xvi) and (xvii) of the IT Ordinance, 1984 without questioning payment of Tax. Question of payment of Tax does not arise at all as per section 29 (1) of IT Ordinance 1984. Tax officials reject the claim on different pretexts. Every time, while assessing the income of an assessee bank despite the fact that section 29 (1) is still in operation, the assessing officer raises innumerable questions before the assessee and asks for so many impracticable information such as list of individual customers (consider about individual customers of the state owned banks and the number of doubtful customers for the above purpose) of the banks with amount, court proceedings in each individual case, (if settled on compromise as per Bangladesh Bank advice) approval from authority on each case and many other information according to their own sweet will on the plea for consideration of the claim. In reality, the assessee paid tax on many occasions "interest income" when accrued in the income taken into account in every year on finalization of accounts of the assessee bank on the first count and on the second count for the disallowed "provision for doubtful debts" by tax authority and taxed accordingly.
Thus the amount of bad debt written off should be considered as tax paid expenditure. Rejection of such claim will mean taxing the same amount for the third count as stated above.
In order to keep the assessee from harassment, relevant section of the 1. T. Ordinance 1984 needs to be modified particularly in case of money lending and banking companies, financial institutions, and leasing companies etc., where customers/ debtors are large in numbers except industrial & trading companies etc.
Therefore, after the existing section 29 (1) (xv), (xvi) and (xvii) a new section 29(l), a new section may be inserted as under:
Section 29 (1) A- In clause 29 (1) (a)- In the opinion of the statutory auditors of the company that the amount of Bad Debt Written Off claimed by banking companies, financial companies and leasing company etc. in the computation of tax liability for the year under consideration under the head "Bad Debt Written Off" which appears to be irrecoverable, the auditors of the company on verification of such claim, and due tax on the amount had been paid earlier by the assessee shall submit a certificate in this respect, and in that case the said amount of claim be allowed to be deducted from income or if tax not paid earlier, the assessing officer while framing assessment order shall ask the assessee to furnish an undertaking that in case of realisation of the bad debt amount it will be taken into income and be reflected in the accounts in the year of realisation and due tax will be paid. The amount of Bad Debt Written off claimed only by a banking and lending company should be allowed as deduction against income.
Proposal # 5: A new clause is to be inserted in sections 156 and 159 in respect of appeals under IT Ordinance 1984.
While appearing before any hearing in appeals by the authorised representatives, it has been observed that the appeal authority appears to be reluctant to receive any document giving acknowledgement of the same. On the other hand, arguments and counter agreements given by the assessee or AR in the appeal are not recorded in the appeal order by the appellate authorities. The contestant's views and arguments should be recorded in the appeal order for the perusal of the higher authorities like Tribunal and Honourable High Court. As such amendments are proposed as under:
Amendment in the existing section 156 (3) is hereby omitted and be substituted by the following new modified section:
"156 (3)- The order of the Appellate Joint Commissioner or the Commissioner (Appeals) in disposing of an appeal shall record the arguments and counter arguments by the assessee or by the Authorised Representative in the appeal order in writing and shall receive documents, written arguments related to cases under hearing by giving acknowledgement of the same and state the reasons for rejection of the claim and the decision thereon.
Amendment in the existing section 159 (1) is hereby omitted and be substituted by the following new modified section:
"159 (1)- The Appellate Tribunal may after giving opportunity on being heard to both the parties to the appeal, pass such orders as it thinks fit by recording the arguments and counter arguments and shall acknowledge the documents/ written arguments as may be furnished by the assessee or his Authorised Representatives".
Proposal # 6: Admissibility of expenses claimed by an assessee not covered under section 29 (1) o the IT Ordinance 1984;
A new clause should be inserted in the Income Tax Ordinance 1984 to accept the relevant sections, statutory regulatory orders (SRO), circulars, instructions etc., as may be issued from time to time by the ministries, NBR, Bangladesh Bank and other agencies at the time of assessment.
A new section 29 (1) (xxviii) to be inserted after the existing section 29 (1) (xxvii) is to read as under:
29 (1) (xxviii)- Any expenditure not being in the nature of capital or personal expenses of the assessee, paid out or expended wholly and exclusively for the purpose of business or profession of the assessee be allowed and accepted as expenditure on the basis of any order, Instructions and circulars issued by any Ministry, Board and Bangladesh Bank from time to time".
Allowabilily of depreciation on the assets acquired and used by an assessee (not being the leasing companies) by taking commercial loan, long term loan from financial institutions and under lease financing etc.,;
Recently it has been observed that tax officials are frequently rejecting the claim of depreciation by the companies on the ground that assets are acquired on loan under lease financing ignoring section 29 (1) (viii) of the 1. T. Ordinance 1984. The claim of depreciation by leasing companies has been restricted inserting a new clause/ paragraph in the Finance Ordinance 2007 and paragraph 4 of the Third Schedule of the IT Ordinance 1984. But it is unfortunate that the assessing officers are declining to allow claim of depreciation on the assets acquired and used by the assessee on taking loans from banks engaged in lease financing operation by keeping mortgage of the assets to the banks as security.
The object of the law maker was to debar leasing companies only from claiming depreciation and relevant change was brought in F. 0. 2007 and paragraph 4 of the Third Schedule. Such change of law under no way should affect the companies who are enjoying depreciation allowance under section 29 (1) (viii). Non-acceptance of such allowance by assessing officer is nothing but harassment of the assessee and injustice to them out of mere whims of the officers.
To remove the ridiculous idea from the minds of the assessing officers, the existing law requires amendment in the relevant sections and Third Schedule of IT Ordinance 1984 and to safeguard the assessee from unnecessary and unjust taxation, the following amendment is proposed:
Amendment in section 29 (1) (viii) and clause (4) of the Third Schedule of the 1. T. Ordinance, 1984 be made to read as follows:
(i) Section (viii)- At the end of the paragraph and in the last line the words "under the Third Schedule", the following words, letter is inserted "except in case of leasing companies, other assessee who acquires and uses such machinery, plant, vehicles or furniture by taking loan from banks, financial institutions and leasing companies be allowed such depreciation".
(H) At the end of the line in the paragraph under clause (4) of the Third Schedule of 1. T. Ordinance 1984, the part. "But this clause shall in no case be applicable to any other business entity".
Proposal # 8: Admissibility of interest paid long after due date of payment against loan taken by an assessee under lease financing, long term loan and commercial loan from commercial banks, financing institution, leasing companies etc.
On claiming interest actually paid long after due date of payment showing in the P/L account (for the amount charged as deferred interest under lease financing and outstanding liabilities was created), the assessing officers are rejecting the claim of interest payment considering assessee being default in payment. The views are detrimental to the policy of the Govt., while the Govt. is very much keen to collect defaulting loan and interest as early as possible through allowing some waiver even to the borrowers under sub-sections 19 (11), 19 (15) of the IT Ordinance 1984. The above attitude of the assessing officer needs to be removed for fairness and justice.
After the existing "First Provision" under sub-section 19 (15), an new sub-section 19 (15) may be inserted to read as under:
"Provided that where any interest or share of Profit is actually paid at any time long after the due date and in a subsequent year, the amount so paid shall be deducted in computing the income in respect of the year of such actual payment".
The provision is applicable in respect of any interest actually paid at any time long after due date to commercial banks, Bangladesh Krishi Bank, Rajshahi Krishi Bank, Bangladesh Shilpa Bank or Bangladesh Shilpa Rin Sangstha or a leasing company or a financial institution registered under F. 1. Act, 1993 (Act of 27 of 1993).
Proposal # 9: Allowability of capital gains from sales of government securities, shares and stocks as full -free income in the hands of the assessee including companies (like public and private companies, scheduled banks, financial institutions and leasing companies etc.) considering such gains as capital gains as referred to section 20(f) of the IT Ordinance 1984.
Very recently, the assessing officers while computing income of the banking companies/ financial institutions are rejecting the claim of capital gain as tax exempted income u/s 32(7) earned from sales of shares and stocks of listed companies and charging tax on the said gain treating the same as "business income". This is unfair and unlawful attitude being shown by the assessing officers towards assessee. Any income is assessable under section 20 "Heads of income- under chapter V of the IT Ordinance 1984" for the purpose of computing income. Under the heads of income section 20 (e) referred to "income from business or profession" and section 20(f) is related to "capital gain" and both the heads are separate and distinct from each other. Accordingly, income from "capital gain" cannot be treated as "income from business and profession" or vice-versa. The section 29 (1) is related to deduction for computation of income from business and profession and do not contain any sub-sections related to capital gain which is clearly falls under the section 31 and 32 of the IT Ordinance 1984 under the separate head "capital gain".
As such gain on transfer of capital assets which also includes shares and securities must be considered under section 20 (f) and tax to be charged as per the second schedule by applying rate of gain tax in certain special cases on the basis of section 16 (3) (ii) of the 1. T. Ordinance 1984.
According to section 31, tax is payable by an assessee under the head "capital gain" in respect of any profit and gains arising from the transfer of a "capital assets" and such profits and gains shall be deemed to be the income of the income year in which the transfer took place. Here, to treat an income under the head "capital gain" should be separately considered taking into consideration of the words, "capital assets", "transfer", "to" and "from". To consider capital gain on the other assets, as mentioned in section 29 (1) (xi) and paragraph -10 of the Third Schedule, it will be subject to tax under the head "capital gain" and section 20(e) of the IT Ordinance 1984.
The definition of capital assets under section 2 (15) means "property of any kind" held by an assessee, whether or not connected with his business or profession but shall not include stock in trade, personal effects and agricultural land with certain limitation.
From the above definition, it is clear that profit or gain on sales or transfer of capital assets which includes corporeal assets of material nature i. e. physical things like land, building, shares, cars, scooter etc., can be treated as capital gain but not the business profit.
In the above situation, if we consider section 2 (66) of the IT Ordinance in consonance with section 2 (15), and section 32 (7) of the IT Ordinance 1984, the gain on sale of shares (Listed Companies) can not be taxed as income from business in the hands of the persons i. e. individuals, companies, schedule banking companies, financial institution, leasing companies etc.
As such the existing section 32 (7) should be amended and modified to read as under:
"32(7) - Notwithstanding anything contained in this section or section 31, where capital gain arises in the hands of a "persons" including companies, scheduled banking companies, financial institution, leasing companies from the transfer of a capital assets including Govt. securities and stocks and shares of public companies listed with a stock exchange in Bangladesh, then no tax shall be charged under section 31".
VAT Matters: Proposal # 10: Proposal to appear before Commission of value added tax or VAT (Appeal) and Tribunal by the Chartered Accountants and Cost Management Accountants to represent the VAT and Customs cases as "Professional Consultants" under section 46 of VAT Act and 196K of the Customs Act.;
As per section 46 of the VAT Act 1991, any person desirous of acting as professional consultants under VAT Act and Rules, the Customs Act, the Excise and Salt Act 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 person obtains the qualifying marks of 100. But in case of lawyer no such requirement is necessary to act as consultant. This discrimination under law should be removed and members of the ICAB and Members of the Institute of Cost and Management Accounting of Bangladesh (ICMAB) should be allowed to act as consultants in any case under VAT Act, Customs Act, Excise Act and other cases up to the level of Appeal and Tribunal.
Under section 174 (2) (d) (e) of the IT Ordinance 1984, Chartered Accountants, Cost and Managements Accountants and legal practitioners are entitled to tax practice.
But the VAT and Customs authorities have debarred the above professionals from acting as VAT consultants without further obtaining the so called "licence".
In this connection, the ICAB may approach the Customs and VAT authorities through the NBR to remove this discrimination from the law and make a provision to allow Chartered Accountants and Cost and Management Accountants to act freely as consultants in this regard by inserting an amendment as mentioned below;
"After the existing section 46 and sub-section (1) and (11) a new sub-section (111) is inserted as under:
"Sub-section-46 (iii)- A Chartered Accountant or Cost and Management Accountant may appear before the Appellate and Tribunal Authorities in respect of VAT, Customs cases to act as Authorised Representative for VAT Consultants or Customs Consultant".
The writer is a Senior Tax Adviser and Audit partner of Howladar Yunus & Co.
IT is unfortunate that despite adoption of an "Accounting Standard" by many Asian countries including India and Pakistan, to improve the standards in the world of accounting, Bangladesh is still lagging behind. Accounts are being prepared by the auditors following the "Bangladesh Accounting Standards" as required by Securities Exchange Commission (SEC) and as adopted by the Institute of Chartered of Accountants of Bangladesh (ICAB). But tax practitioners are facing tough opposition from the tax officials in the case of assessing tax on accounts based on such standard.
As such, immediate adoption of the "Bangladesh Accounting Standard" (BAS) and insertion of appropriate provisions in section 35 of the Tax Ordinance 1984 have become an imperative. A law has to be enacted to restrain outright rejections of some claims by the tax officials. Bangladesh is part of the global economy and if it has to keep abreast with developments or attract investment, it has to follow global standards. Seen from this perspective, the sooner we adopt the "Accounting Standard", the better for us. When the world is following standard, can we lag behind?
Sir David Tweedie, Chairman, International Accounting Standard Board (IASB) lists the benefits: "The goal is to create one single set of accounting standards that can be applied anywhere in the world, savings millions for firms with more than one listing and investors to compare the performance of business across geographic boundaries for the first time".
As issuers of securities, companies will be able to access investors more easily, audit firms will be better able to assure quality of audit and national audit agencies and regulators will benefit from the greater consistency and quality of information.
Accounting bodies throughout the world are striving to achieve a reasonable degree of uniformity in the accounting policies and have adopted the "Accounting Standard" in line with Bangladesh Financial Reporting Standard (BFRS).
The International Financeings Reporting Standard (IFRS) have assumed great importance in the recent times for the following reasons:
(a) Globalization of the economy has led to companies in Bangladesh expanding their operations across the borders and this calls for uniformity in accounts.
(b) Foreign investors would give more weightage to the accounts of those companies which are based on IFRS.
In view of the above situation, it is necessary to adopt "Bangladesh Accounting Standard" for which some amendments may be made in the Income Tax Ordinance 1984. This may be done in the following ways:
Section-35 Method of Accounting: (i) All income classifiable under the head agricultural income, income from business and profession, income from other source should be computed with due recognition of the "Bangladesh Accounting Standards" as adopted by the ICAB and followed in the assessee's accounting method.
(ii) Notwithstanding any thing contained in sub-section (1), the National Board of Revenue (NBR) in case of income from any business or profession, or class of business or profession of any other source or any class of persons may issue a direction by a general or special order to prepare accounts under such accounting standards as adopted by the ICAB and/or any other laws of the country in a prescribed manner and format
(iii) Without prejudice to the preceding sub-sections, every public or private company as defined in the Companies Act 1913 (VII of 1913) or Companies Act 1994 (XVIII of 1994) should furnish the return of income required to be filed under this Ordinance for any income year, a copy of the trading account, profit and loss account, cash flow statement and the financial statement in respect of that income year certified by a Chartered Accountant.
Proposal # 2: The income from business and profession should be computed in accordance with the "Accounting Standard" as adopted by the ICAB considering the methods under (a) cash system (b) mercantile system (c) mixed system or accrual concept basis under the framework of para 22 of "Bangladesh Accounting Standard" and followed by the assessing officers while computing total income.
Proposal # 3: Definition of the word "Paid" used in paragraphs 8 of the Provident Fund and 6 of the "Gratuity Fund" under First Schedule Part B & Part C of the Income Tax (IT) Ordinance 1984 needs to be inserted to remove confusion, about the words 'Paid" "outstanding" and "provision" made for expenses in any form.
The income from business and profession is to be computed on the basis of "Accounting Standard" and the method of accounting regularly employed by the assessee. In this connection, it is necessary to further specify the meaning of the word "Paid" as to whether it represents only the cash transactions or also the specific provisions made for any expenses/loss where assessee follows the mercantile system of accounting, expenses incurred for "cash" or by "provision" shall be treated to have been "Paid" irrespective of the fact that they are actually paid or not.
As such a new section 2 (43A) involving definition of the word "Paid" needs to be inserted after the existing section 2 (43), which may be as under:
"Paid" means expenses or charges actually paid in cash or settled otherwise and also includes expenses incurred by way of provisioning according to the method of accounting adopted by an assessee in computing profit and gains under the head, "Income from business or profession".
Proposal # 4: Acceptance of the claim of bad debt written off by the tax officials under section 29 (1) (xv), (xvi) and (xvii). The claim of Bad Debt Written off by an assessee should be allowed by the Tax Department under section (u/s) 29 (1) (xv), (xvi) and (xvii) of the IT Ordinance, 1984 without questioning payment of Tax. Question of payment of Tax does not arise at all as per section 29 (1) of IT Ordinance 1984. Tax officials reject the claim on different pretexts. Every time, while assessing the income of an assessee bank despite the fact that section 29 (1) is still in operation, the assessing officer raises innumerable questions before the assessee and asks for so many impracticable information such as list of individual customers (consider about individual customers of the state owned banks and the number of doubtful customers for the above purpose) of the banks with amount, court proceedings in each individual case, (if settled on compromise as per Bangladesh Bank advice) approval from authority on each case and many other information according to their own sweet will on the plea for consideration of the claim. In reality, the assessee paid tax on many occasions "interest income" when accrued in the income taken into account in every year on finalization of accounts of the assessee bank on the first count and on the second count for the disallowed "provision for doubtful debts" by tax authority and taxed accordingly.
Thus the amount of bad debt written off should be considered as tax paid expenditure. Rejection of such claim will mean taxing the same amount for the third count as stated above.
In order to keep the assessee from harassment, relevant section of the 1. T. Ordinance 1984 needs to be modified particularly in case of money lending and banking companies, financial institutions, and leasing companies etc., where customers/ debtors are large in numbers except industrial & trading companies etc.
Therefore, after the existing section 29 (1) (xv), (xvi) and (xvii) a new section 29(l), a new section may be inserted as under:
Section 29 (1) A- In clause 29 (1) (a)- In the opinion of the statutory auditors of the company that the amount of Bad Debt Written Off claimed by banking companies, financial companies and leasing company etc. in the computation of tax liability for the year under consideration under the head "Bad Debt Written Off" which appears to be irrecoverable, the auditors of the company on verification of such claim, and due tax on the amount had been paid earlier by the assessee shall submit a certificate in this respect, and in that case the said amount of claim be allowed to be deducted from income or if tax not paid earlier, the assessing officer while framing assessment order shall ask the assessee to furnish an undertaking that in case of realisation of the bad debt amount it will be taken into income and be reflected in the accounts in the year of realisation and due tax will be paid. The amount of Bad Debt Written off claimed only by a banking and lending company should be allowed as deduction against income.
Proposal # 5: A new clause is to be inserted in sections 156 and 159 in respect of appeals under IT Ordinance 1984.
While appearing before any hearing in appeals by the authorised representatives, it has been observed that the appeal authority appears to be reluctant to receive any document giving acknowledgement of the same. On the other hand, arguments and counter agreements given by the assessee or AR in the appeal are not recorded in the appeal order by the appellate authorities. The contestant's views and arguments should be recorded in the appeal order for the perusal of the higher authorities like Tribunal and Honourable High Court. As such amendments are proposed as under:
Amendment in the existing section 156 (3) is hereby omitted and be substituted by the following new modified section:
"156 (3)- The order of the Appellate Joint Commissioner or the Commissioner (Appeals) in disposing of an appeal shall record the arguments and counter arguments by the assessee or by the Authorised Representative in the appeal order in writing and shall receive documents, written arguments related to cases under hearing by giving acknowledgement of the same and state the reasons for rejection of the claim and the decision thereon.
Amendment in the existing section 159 (1) is hereby omitted and be substituted by the following new modified section:
"159 (1)- The Appellate Tribunal may after giving opportunity on being heard to both the parties to the appeal, pass such orders as it thinks fit by recording the arguments and counter arguments and shall acknowledge the documents/ written arguments as may be furnished by the assessee or his Authorised Representatives".
Proposal # 6: Admissibility of expenses claimed by an assessee not covered under section 29 (1) o the IT Ordinance 1984;
A new clause should be inserted in the Income Tax Ordinance 1984 to accept the relevant sections, statutory regulatory orders (SRO), circulars, instructions etc., as may be issued from time to time by the ministries, NBR, Bangladesh Bank and other agencies at the time of assessment.
A new section 29 (1) (xxviii) to be inserted after the existing section 29 (1) (xxvii) is to read as under:
29 (1) (xxviii)- Any expenditure not being in the nature of capital or personal expenses of the assessee, paid out or expended wholly and exclusively for the purpose of business or profession of the assessee be allowed and accepted as expenditure on the basis of any order, Instructions and circulars issued by any Ministry, Board and Bangladesh Bank from time to time".
Allowabilily of depreciation on the assets acquired and used by an assessee (not being the leasing companies) by taking commercial loan, long term loan from financial institutions and under lease financing etc.,;
Recently it has been observed that tax officials are frequently rejecting the claim of depreciation by the companies on the ground that assets are acquired on loan under lease financing ignoring section 29 (1) (viii) of the 1. T. Ordinance 1984. The claim of depreciation by leasing companies has been restricted inserting a new clause/ paragraph in the Finance Ordinance 2007 and paragraph 4 of the Third Schedule of the IT Ordinance 1984. But it is unfortunate that the assessing officers are declining to allow claim of depreciation on the assets acquired and used by the assessee on taking loans from banks engaged in lease financing operation by keeping mortgage of the assets to the banks as security.
The object of the law maker was to debar leasing companies only from claiming depreciation and relevant change was brought in F. 0. 2007 and paragraph 4 of the Third Schedule. Such change of law under no way should affect the companies who are enjoying depreciation allowance under section 29 (1) (viii). Non-acceptance of such allowance by assessing officer is nothing but harassment of the assessee and injustice to them out of mere whims of the officers.
To remove the ridiculous idea from the minds of the assessing officers, the existing law requires amendment in the relevant sections and Third Schedule of IT Ordinance 1984 and to safeguard the assessee from unnecessary and unjust taxation, the following amendment is proposed:
Amendment in section 29 (1) (viii) and clause (4) of the Third Schedule of the 1. T. Ordinance, 1984 be made to read as follows:
(i) Section (viii)- At the end of the paragraph and in the last line the words "under the Third Schedule", the following words, letter is inserted "except in case of leasing companies, other assessee who acquires and uses such machinery, plant, vehicles or furniture by taking loan from banks, financial institutions and leasing companies be allowed such depreciation".
(H) At the end of the line in the paragraph under clause (4) of the Third Schedule of 1. T. Ordinance 1984, the part. "But this clause shall in no case be applicable to any other business entity".
Proposal # 8: Admissibility of interest paid long after due date of payment against loan taken by an assessee under lease financing, long term loan and commercial loan from commercial banks, financing institution, leasing companies etc.
On claiming interest actually paid long after due date of payment showing in the P/L account (for the amount charged as deferred interest under lease financing and outstanding liabilities was created), the assessing officers are rejecting the claim of interest payment considering assessee being default in payment. The views are detrimental to the policy of the Govt., while the Govt. is very much keen to collect defaulting loan and interest as early as possible through allowing some waiver even to the borrowers under sub-sections 19 (11), 19 (15) of the IT Ordinance 1984. The above attitude of the assessing officer needs to be removed for fairness and justice.
After the existing "First Provision" under sub-section 19 (15), an new sub-section 19 (15) may be inserted to read as under:
"Provided that where any interest or share of Profit is actually paid at any time long after the due date and in a subsequent year, the amount so paid shall be deducted in computing the income in respect of the year of such actual payment".
The provision is applicable in respect of any interest actually paid at any time long after due date to commercial banks, Bangladesh Krishi Bank, Rajshahi Krishi Bank, Bangladesh Shilpa Bank or Bangladesh Shilpa Rin Sangstha or a leasing company or a financial institution registered under F. 1. Act, 1993 (Act of 27 of 1993).
Proposal # 9: Allowability of capital gains from sales of government securities, shares and stocks as full -free income in the hands of the assessee including companies (like public and private companies, scheduled banks, financial institutions and leasing companies etc.) considering such gains as capital gains as referred to section 20(f) of the IT Ordinance 1984.
Very recently, the assessing officers while computing income of the banking companies/ financial institutions are rejecting the claim of capital gain as tax exempted income u/s 32(7) earned from sales of shares and stocks of listed companies and charging tax on the said gain treating the same as "business income". This is unfair and unlawful attitude being shown by the assessing officers towards assessee. Any income is assessable under section 20 "Heads of income- under chapter V of the IT Ordinance 1984" for the purpose of computing income. Under the heads of income section 20 (e) referred to "income from business or profession" and section 20(f) is related to "capital gain" and both the heads are separate and distinct from each other. Accordingly, income from "capital gain" cannot be treated as "income from business and profession" or vice-versa. The section 29 (1) is related to deduction for computation of income from business and profession and do not contain any sub-sections related to capital gain which is clearly falls under the section 31 and 32 of the IT Ordinance 1984 under the separate head "capital gain".
As such gain on transfer of capital assets which also includes shares and securities must be considered under section 20 (f) and tax to be charged as per the second schedule by applying rate of gain tax in certain special cases on the basis of section 16 (3) (ii) of the 1. T. Ordinance 1984.
According to section 31, tax is payable by an assessee under the head "capital gain" in respect of any profit and gains arising from the transfer of a "capital assets" and such profits and gains shall be deemed to be the income of the income year in which the transfer took place. Here, to treat an income under the head "capital gain" should be separately considered taking into consideration of the words, "capital assets", "transfer", "to" and "from". To consider capital gain on the other assets, as mentioned in section 29 (1) (xi) and paragraph -10 of the Third Schedule, it will be subject to tax under the head "capital gain" and section 20(e) of the IT Ordinance 1984.
The definition of capital assets under section 2 (15) means "property of any kind" held by an assessee, whether or not connected with his business or profession but shall not include stock in trade, personal effects and agricultural land with certain limitation.
From the above definition, it is clear that profit or gain on sales or transfer of capital assets which includes corporeal assets of material nature i. e. physical things like land, building, shares, cars, scooter etc., can be treated as capital gain but not the business profit.
In the above situation, if we consider section 2 (66) of the IT Ordinance in consonance with section 2 (15), and section 32 (7) of the IT Ordinance 1984, the gain on sale of shares (Listed Companies) can not be taxed as income from business in the hands of the persons i. e. individuals, companies, schedule banking companies, financial institution, leasing companies etc.
As such the existing section 32 (7) should be amended and modified to read as under:
"32(7) - Notwithstanding anything contained in this section or section 31, where capital gain arises in the hands of a "persons" including companies, scheduled banking companies, financial institution, leasing companies from the transfer of a capital assets including Govt. securities and stocks and shares of public companies listed with a stock exchange in Bangladesh, then no tax shall be charged under section 31".
VAT Matters: Proposal # 10: Proposal to appear before Commission of value added tax or VAT (Appeal) and Tribunal by the Chartered Accountants and Cost Management Accountants to represent the VAT and Customs cases as "Professional Consultants" under section 46 of VAT Act and 196K of the Customs Act.;
As per section 46 of the VAT Act 1991, any person desirous of acting as professional consultants under VAT Act and Rules, the Customs Act, the Excise and Salt Act 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 person obtains the qualifying marks of 100. But in case of lawyer no such requirement is necessary to act as consultant. This discrimination under law should be removed and members of the ICAB and Members of the Institute of Cost and Management Accounting of Bangladesh (ICMAB) should be allowed to act as consultants in any case under VAT Act, Customs Act, Excise Act and other cases up to the level of Appeal and Tribunal.
Under section 174 (2) (d) (e) of the IT Ordinance 1984, Chartered Accountants, Cost and Managements Accountants and legal practitioners are entitled to tax practice.
But the VAT and Customs authorities have debarred the above professionals from acting as VAT consultants without further obtaining the so called "licence".
In this connection, the ICAB may approach the Customs and VAT authorities through the NBR to remove this discrimination from the law and make a provision to allow Chartered Accountants and Cost and Management Accountants to act freely as consultants in this regard by inserting an amendment as mentioned below;
"After the existing section 46 and sub-section (1) and (11) a new sub-section (111) is inserted as under:
"Sub-section-46 (iii)- A Chartered Accountant or Cost and Management Accountant may appear before the Appellate and Tribunal Authorities in respect of VAT, Customs cases to act as Authorised Representative for VAT Consultants or Customs Consultant".
The writer is a Senior Tax Adviser and Audit partner of Howladar Yunus & Co.