tax report iba

8/7/2019 tax report iba

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1 Introduction

Taxation policy plays several important roles in many developing countries, including those in

Asia. These roles include financing the current and developmental budgets of the government,stabilizing national income and output, redistributing incomes and resources ensuring efficientproduction and trade of goods and services, amongst a host of others. Clearly, large quantitiesof resources have to be raised and spent efficiently. In addition, the gap between publicexpenditure and revenues must be sustainable in the sense that the debt/GDP ratio reaches afinite limit and is serviced efficiently. Furthermore, as events since the onset of the ongoingglobal financial crisis have reminded us, economic crises have serious impacts upon the poor. Inthe relative absence of efficient market forces, widespread poverty and inadequate privatesector resources the state is invariably called upon to address human developmentrequirements the need for which gets exacerbated during economic crises. This furtherunderscores the critical importance of taxation policy. This paper provides an overview of someof the key issues regarding taxation policy of Bangladesh, India, Malaysia, South Korea and isorganized as follows.

1.1 Origin

Dr. Md. Sajjad Hossain Bhuiyan, course instructor of Tax Management, assigned each studentthis individual report as part of the course requirement. Each student was asked to study thetax administration system of Bangladesh, Malaysia, South Korea and India and use theunderstanding from that for the betterment of the Bangladesh tax administration.

1.2 Objectives

The main objective of this report is to suggest how the taxation system of Bangladesh can beimproved after taking the examples of countries like Malaysia, South Korea and India. In thiscourse of action the following micro objectives were set for the overall analysis.

y Study the principles of a high quality revenue system

y Study the tax administration system of Bangladesh, Malaysia, South Korea andIndia

y See in which areas those countries are superior than Bangladesh

y To analyze whether incorporating those areas will benefit Bangladesh as well asthe govt. in colleting revenue


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1.3 Methodology

Mostly secondary data has been used in the analysis which is available at different websitesrelated to the taxation system of the concerned countries. Tax manual of Bangladesh has been

used for the study of Bangladesh taxation system. Also class lectures given by Dr. Md. SajjadHossain Bhuiyan has been taken as the basis of the study. At first the information has beenanalyzed, then compared and finally recommendations are suggested.

1.4 Scopes and limitations

The analysis has been based on mainly the secondary information contained in differentwebsites as it was the only source of getting tax related information of concerned countries.Primary data was not possible to collect due to resource constraints. The methods of analysis

used and the concepts applied have been limited to what is learnt in the Tax Managementcourse.

2 What is a Revenue System

A government s revenue system is the entire means by which a government acquires funding.The term system implies that relationships exist among the components and that the whole setof revenue-raising measures can be considered as a group. This report uses the terms taxsystem and revenue system partly as shorthand for all the means of raising taxes (or revenue)that a government happens to use. But the term also means more than that here.Revenue measures have an effect on each other; a state income tax, for example, is likely tomake an allowance, directly or indirectly, for the taxpayer s property tax. In addition, manystates make use of both sales and income taxes in part because the tendency of sales taxes tobe regressive is balanced by the tendency of income taxes to be progressive. The use of bothallows for lower rates for both than would be likely if the state relied on only one of them.Policymakers thus can use different revenue measures to offset the disadvantages of particulartaxes or changes. Whatever goals of equity, economic impact, and effect on behaviorpolicymakers may try to reach, they can do so more easily with a revenue system than withindividual revenue measures.

The central point of the principles that follow is that policymakers and taxpayers need to payattention to revenue systems as systems. The general character of a state or state and localrevenue system is more important than the nature of any single one of its components. Thecriteria suggested here can be applied more appropriately to systems than to individualrevenue measures.


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A tax system is based on certain basic principles. They are equity, progressivity, simplicity andefficiency.

Equity - The equity principle implies that taxation must be imposed in accordance with theability to pay principle. Equity has two dimensions, horizontal equity and vertical equity.

Progressivity - A tax system can either be progressive or regressive. Direct taxes for example,income tax is generally progressive in character with an exemption tax free threshold for thesmaller income receivers and a graduated rate schedule. The indirect taxes like the VAT, importduties excises and other consumption taxes are generally regressive in character neverthelessthe regressivity can be minimized to a certain extent through exemptions on basic consumptioncommodities and a differential rate system. The VAT for example has a list of exemptions forthe supply of basic commodities and a differential rate system of a standard rate of 15%together with a zero rate, a concessionary rate of 5% and a 20 % rate for luxuries.

Simplicity - A taxation system must be as simple as possible with a few taxes and uncomplicatedlegislation. However often tax systems are complex with a large number of taxes and leviesimposed for revenue considerations and tax legislation is necessarily complex in character.

Efficiency - Finally a tax system must be efficient. No amount of sound fiscal policy is effective if the tax administration system is inefficient or corrupt.

2.1 Principles of A High Quality Revenue System

y A high-quality revenue system comprises elements that are complementary, includingthe finances of both state and local governments.

y A high-quality revenue system produces revenue in a reliable manner. Reliabilityinvolves stability, certainty and sufficiency.

y A high-quality revenue system relies on a balanced variety of revenue sources.y A high-quality revenue system treats individuals equitably. Minimum requirements of an

equitable system are that it imposes similar tax burdens on people in similarcircumstances, that it minimizes regressivity, and that it minimizes taxes on low-incomeindividuals.

y A high-quality revenue system facilitates taxpayer compliance. It is easy to understandand minimizes compliance costs.

y A high-quality revenue system promotes fair, efficient and effective administration. It isas simple as possible to administer, raises revenue efficiently, is administeredprofessionally, and is applied uniformly.

y A high-quality revenue system is responsive to interstate and international economiccompetition.


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y A high-quality revenue system minimizes its involvement in spending decisions andmakes any such involvement explicit.

y A high-quality revenue system is accountable to taxpayers. 3 Taxation in Bangladesh

Bangladesh inherited a system of taxation from its past British and Pakistani rulers. The system,however, developed based on generally accepted canons and there had been efforts towardsrationalizing the tax administration for optimizing revenue collection, reducing tax evasion andpreventing revenue leakage through system loss. Taxes include narcotics duty (collected by theDepartment of Narcotics Control, Ministry of Home Affairs), land revenue (administered by theMinistry of Land and collected at local Tahsil offices numbered on average, one in every twoUnion Parishads), non-judicial stamp (collected under the Ministry of Finance), registration fee(collected by the Registration Directorate of the Ministry of Law, Justice and ParliamentaryAffairs) and motor vehicle tax (collected under the Ministry of Communication).

National Board of Revenue divided its total revenue collection into two wings. They are:

y Direct Tax: Direct Tax collecting wing is known as Income Tax Department.y Indirect Tax: Income Tax wing collects income tax, gift tax and wealth tax.

3.1 Direct tax

The root level office for collecting income tax is circle office. There are 292 circle offices forcollecting income tax. The circle office is headed by a class one officer of income tax cadre. He isassisted by one inspector and few clerks. There are four types of circles depending on jurisdictions and type of activities. These four types are companies circle, salaries circle,contractors circle and normal circle. Basically, company circle handles company cases andindividual cases of its directors. Salary circle and contractor circle holds jurisdiction of personalincome tax cases of salary holders and contractors respectively. A normal circle holds territorial jurisdiction of sole proprietorship and partnership businesses.

Circle office is monitored by inspecting range official. A range officer normally assigned tomonitor all functions of 5 to 6 circle offices. Range officer reports to Commissioner of Taxes

who is the administrative head of taxes zone.

Commissioner of tax is responsible for overall administration and management of a tax zone.He monitors every legal and administrative aspect of taxes circles. Generally, a tax zone consistsof four range offices and around 20 circles. A typical circle office processes 3000 to 4 000 income tax cases a year. Since everything is done almost manually with no significant support of information technology, managing a circle becomes a daunting task for an officer. There are


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some circles which handle more than 1 0 ,000 files, which is almost impossible to manageefficiently by a single officer.

3.1.1 Tax Mechanism in brief

Income tax procedure starts when a taxpayer submits returns. A taxpayer is required to submitreturn within the 30 th September of every year at the respective circle. NBR may extend thedeadline for return submission. Every taxpayer is entitled to submit return under Self Assessment System. Earlier only individuals had this opportunity but from FY 2007 -08 NBRintroduced Universal self Assessment system. By this system, all taxpayers are entitled tosubmit their return under self assessment. Because of Universal self assessment system,taxpayers are now free from any type of pressure from tax officials. After receiving the returns,

tax authority checks the returns. If the tax official found any discrepancy in the return, theywould call taxpayers for personal hearings. After hearing, tax authority issues an assessmentorder cum demand notice if additional demand is due from the taxpayer.

3.1.2 Sources of Income

Calculation of income for the purpose of tax calculation is guided by the following headsdetermined by the revenue board:

y Salariesy

Interest on securitiesy Income from house propertyy Income from agriculturey Income from business or professiony Capital gainsy Income from other sources

3.1.3 Registration

To become a taxpayer, every individual or company required to take a TIN. TIN is a computergenerated 1 0 digit number which remains unchanged for a taxpayer for good. Each taxpayer isassigned with a unique Taxpayer Identification Number (TIN). At present total number of TINstood at around 2 .2 million. For a country with a population around 15 0 million, this numberseems very poor. It is to be noted that many of these TIN holders are not active taxpayers.


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3.1.4 Who should submit Income Tax Return?

The following people are bound to submit their return with the NBR.

y If total income of any individual other than female taxpayers, senior taxpayers of 70

years and above during the income year exceeds Tk 1,65, 000 /-.

y If total income of any female taxpayer, senior taxpayer of 70 years and above during the

income year exceeds Tk 1, 80 ,000 /-.

y If any person was assessed for tax during any of the 3 years immediately preceding the

income year

y A person who lives in any city corporation/paurashava/divisional HQ/district HQ and

owns a building of more than one storey and having plinth area exceeding 1,6 00 sq.

feet/owns motor car/owns membership of a club registered under VAT Law.

y If any person runs a business or profession having trade license

y Any professional registered as doctor, lawyer, income tax practitioner, Chartered

Accountant, Cost & Management Accountant, Engineer, Architect and Surveyor etc.

y Member of a Chamber of Commerce and Industries or a trade Association

y Any person who participates in a tender

y A person who has a Taxpayer's Identification Number (TIN)

y Candidate for Union Parishad, Paurashava, City Corporation or Parliament election

3.1.5Income Tax Rates

From assessment year 2008 -09 National Board of Revenue introduced a new style of individualtax rates for individuals. NBR introduced separate tax rate for female, senior taxpayers of 70 years old and above. Female and old taxpayers will be required to pay tax if their initial incomeexceeds TK.1 80 , 000 . However, the overall tax rates for assessment year 2008 -09 has beenpresented in the following tables.

Income Range Tax RateFirst tk.1,65, 000 /-

Nil

Next tk.2 ,7 5,000 /-

10 %

Next tk. 15%


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3 ,2 5,000 /-Next tk.3 ,7 5,000 /-

20 %

Balance amount 2 5%

3.1.6 Fiscal Incentives

The main goal of government to design such a tax policy by which local and foreign investmentin the country will be benefited and the country will be able to attract more FDI. To motivatetaxpayers government announces the following fiscal incentives.

a. Tax Holiday

Tax holiday is allowed for industrial undertaking, tourist industry and physical infrastructure

facility established within 1st July 2008 to 30 th June 20 11 in fulfillment of certain conditions.

Industrial Undertaking Eligible for Tax holiday:

y An industry engaged in production of textile, textile machinery, jute goods, high value

garments, pharmaceuticals, melamine, plastic products, ceramics, and sanitary ware, steel

from iron ore, MS Rod, CI Sheet, fertilizer, insecticide & pesticide, computer hardware,

petro-chemicals, agriculture machinery, boilers, compressors, basic raw materials of drugs,

chemicals and pharmaceuticals.

y An industry engaged in agro-processing, ship building, diamond cutting.

P hysical Infrastructure Eligible for Tax holiday:

Sea or river port, container terminals, internal container depot, container freight station, LNGterminal and transmission line, CNG terminal and transmission line, gas pipe line, flyover, monorail, underground rail, telecommunication other than mobile phone, large water treatmentplant & supply through pipe line, waste treatment plant, solar energy plant, export processingzone.

Tourism Industry Eligible for Tax holiday:

a. Residential hotels of three stars or more are eligible for tax holiday.b. Accelerated depreciation: Accelerated depreciation on cost of machinery is admissible

for new industrial undertaking in the first year of commercial production 5 0 %, in thesecond year 30 % and in the third year 20 %.


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c. Income derived from any Small and Medium Enterprise (SME) engaged in production of any goods and having an annual turnover of not more than taka 2 .2 million is exemptfrom tax.

d. Industry set up in EPZ is exempt from tax for a period of 1 0 years from the date of

commencement of commercial production.e. Income from fishery, poultry, cattle breeding, dairy farming, horticulture, floriculture,mushroom cultivation and sericulture are exempt from tax up to 30 th June, 20 11,subject to investing at least 1 0 % of the exempted income that exceeds Tk.1 00 thousand,in government bonds

f. Income derived from export of handicrafts is exempted from tax up to 30 th June, 20 11.g. An amount equal to 5 0 % of the income derived from export business is exempted from

tax.h. Listed companies are entitled to 1 0 % tax rebate if they declare dividend of 20 % or

more.i. Income from Information Technology Enabled Services (ITES) business is exempted up to

30 th June, 20 11.b. Tax Rebate for Investment

Rate of Rebate:

Amount of allowable investment is either up to 2 5% of total income or Tk. 1 0 ,00 ,000 /-whichever is less. Tax rebate amounts to 1 0 % of allowable investment.

Types of investment qualified for the tax rebate

y Life insurance premiumy Contribution to deferred annuityy Contribution to Provident Fund to which Provident Fund Act, 1 92 5 appliesy Self contribution and employer's contribution to Recognized Provident Fundy Contribution to Super Annuation Fundy Investment in approved debenture or debenture stock, Stocks or Sharesy Contribution to deposit pension schemey Contribution to Benevolent Fund and Group Insurance premiumy Contribution to Zakat Fundy Donation to charitable hospital approved by National Board of Revenuey Donation to philanthropic or educational institution approved by the Governmenty Donation to socioeconomic or cultural development institution established in

Bangladesh by Aga Khan Development Network


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3.1.7 Tax Withholding Functions

In Bangladesh, withholding taxes are usually termed as Tax deduction and collected at source.Under this system, both private and public limited companies and any other organizationsspecified by law are legally authorized and bound to withhold taxes at some points of makingpayment and deposit the same to the Government Exchequer. The taxpayer receives acertificate from the withholding authority and gets credit of tax against assessed tax on thebasis of such certificate. Around 7 5% of income tax revenue comes from tax withheld at source.In recent years, tax administration is putting much emphasis on this area. At present, there are4 0 heads on which deduction or collection of tax at source is applicable.

3.1.8 Appeal

If a taxpayer is aggrieved with the assessment or not satisfied with the adjudication of tax

officials can go for appeal against that adjudication order. The law of the land has given thetaxpayers a lot of options so that they can get the real justice.

A taxpayer can file an appeal against the order of Assistant Commissioner of taxes or DeputyCommissioner of taxes to the Additional or Joint Commissioner of Taxes (Appeals)/Commissioner (Appeals).

If the taxpayer is not satisfied with the order of the higher officials of tax department he or shecan go to the Tax Appellate Tribunal against the adjudication order.

Against the adjudication order of Taxes Appellate Tribunal, the taxpayer with enough legalground can further go to the High Court Division of the Supreme Court of Bangladesh.

Finally, the aggrieved taxpayer may appeal against the verdict of High court Division to theAppellate Division of the Supreme Court. The overall structure shows a flow diagram like thefollowing:

3.1.9 Double Taxation Avoidance

The government may enter into an agreement with the Government of any other country forthe avoidance of double taxation and the prevention of fiscal evasion with respect to taxes onincome leviable under the Income Tax Ordinance 1 98 4 and under the corresponding law inforce in that country, and may by notification in the Gazette, make such provisions as may benecessary for implementing the agreement.

The objectives of a Bangladesh Double Taxation Avoidance Agreement are as follows:


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y To obtain a more effective relief from double taxation compared to relief gained underunilateral measures;

y To determine the income to be attributable to any person resident in Bangladesh havingany special relationship with a non-resident;

y To create a favorable climate for the inflow of foreign investment into the country;

y To make special tax incentives provided by Bangladesh fully effective for taxpayers of capital exporting countries; and

y To prevent evasion and avoidance of tax

3.1.10 Large Taxpayers Unit (LTU) Income Tax

To modernize the direct tax administration, government introduced Large Taxpayers Unit (LTU)as test case under the pressure of some donor organizations in November, 2003 . The LTU iscalled so-called functional unit. Except some exceptions, only the multinational and bigcompanies are the stakeholder of Large Taxpayers unit. The concept is regarded controversialwhich created discrimination between the traditional tax circle office and LTU. Moreover, theLTU is functioning. But it is very difficult to assess its achievement because all big and fairtaxpayers are the member of LTU.

LTU is responsible for collecting more than 30 % of the total income tax revenue. LTU arrangedaround 4 core groups of a typical tax administration -

Taxpayer Services Wing;

Revenue Accounting Wing;

Tax Collection Enforcement /Appeal Wing;

Audit Wing

In the organizational design audit function has the most emphasis. Major portion of humanresource is allocated for audit function of LTU. Basic activities of each functional wing are asfollows:

Taxpayers Service Wingy Providing taxpayers educationy Receiving returns and paymentsy Apprising taxpayers

Revenue Accounting Wing


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y Maintaining records of demand and paymentsy Making all correction, revision of demandy Maintaining all statistics audit report

Collection, Enforcement/Appeal Wing

y Monitoring of collection of advance tax, outstanding taxy Impose penalty on non-filers and defaultersy Filing appeal before Tribunal, High Courty Enforcement such as seizure, freezing, civil suit

Audit Wing

y Selecting audit casesy Determining audit pointsy Test and verification of audit pointsy Confront the audit findings with the taxpayery Determine the tax payable as per audit

3.2 Indirect Taxes

Indirect taxes in Bangladesh are Customs duties, VAT and Excise duties. These taxes arecollected by Customs, Excise and Value Added Tax wings of NBR. In case of indirect taxes,officials of Customs, Excise and VAT department are responsible for collecting total indirect

taxes under the same administration. The officers of indirect tax administration work indifferent wings of indirect tax in a regular rotation. Senior officers are recruited throughBangladesh Public Service Commission as Bangladesh Civil Service (Customs and Excise) Cadre.Firstly, we would discuss Customs department.

3.2.1 Customs Department

Customs department is responsible for the collections of overall customs duties at the importstage. Apart from collection of government revenue, it is also responsible for trade facilitation,enforcement of government regulations, protection of society and environment, preparation of

foreign trade statistics, trade compliance and protection of cultural heritage. In addition tothese activities, customs department leads the anti smuggling movements. Presently, there arefive main customs houses in Bangladesh. These are Customs House Chittagong (Import),Customs House Chittagong (Export), Customs House Dhaka, Customs House Mongla andCustoms House Benapole. Customs House Chittagong is the biggest and oldest customs housein Bangladesh. Recently, government divided this customs house into two parts namely


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Customs House Chittagong (Import) and Customs House Chittagong (Export). Now one houseexclusively working on import and the other on export. Because of the bifurcation, import andexport through the Chittagong custom houses have been enhanced which playing a vital role tothe overall growth of international trade of the country.

Besides five custom houses, seven Customs, Excise and VAT commissioners also look aftercustoms related activities throughout the country. Due to the geographical location of thecountry, it has international trade through land border with India and Myanmar. To continuebusiness with neighboring countries, Bangladesh has about 1 00 land customs stations on theboarder of the country of which around 5 0 stations are active. The biggest land customs stationis Customs House Benapole which executes international trade with India.

3.2.2 Customs Assessment System

Customs assessment procedure is the only partially automated area in the revenue departmentof Bangladesh. Customs department introduced ASYCUDA++ (Automated System for CustomsData) program for quick disposal of import-export consignment. After the implementation of this system an importer or an exporter can easily get his consignment assessed. By this system,an importer or his agent submits necessary documents to the data entry section of Customshouse. Then the data entry operators input the data in the soft copy of Bill of Entry. Computersystem automatically assigns a Bill of Entry number and assessment officers who would assessthe consignment. The assigned Principal Appraiser and Appraiser of customs calculate theduties and taxes if everything found correct. After the assessment, they would print anassessment notice and the importer would pay the duties and taxes in the bank counter of customs office as per assessment notice. Then the customs officer who stays in the bankcounter will issue a release order by which the importer can take delivery of his goods from theport. Customs department also introduced DTI (Direct Traders Input). By this DTI system, animporter or exporter need not come to the customs house; he can input data from his office tocustoms computer system through on line. DTI is not introduced in all customs houses exceptCustoms House Chittagong (Export) and Customs House Chittagong (Import).

3.2.3 Valuation System

Valuation is one of the important issues in customs administration. Traditionally, importedgoods were valued by the customs authority. Mainly, earlier they used reference value andtheir discretion to value the imported goods. Besides in many cases, there were specific tariff values determined by National Board of Revenue. But as a signatory of WTO, the customsauthority now is following the guidelines of WTO for valuation. In most of the cases, theassessment of imported goods is done as per transaction value. It is to be noted thattransaction value is the total declared amount by the importer which is actually paid or payable


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by the buyer to the seller to import goods. The importer submits the invoice of transactionvalue including insurance, freight and other necessary costs to the customs authority. Customsofficials assess the goods as per the very invoice submitted by the importer. If any disputearises in determination of value of the imported goods, customs authority has to follow the

prescribed method of WTO valuation rules. But the reality is that it is very difficult for customsauthority to find out any under invoicing or over invoicing in the transaction value as per WTOvaluation guidelines. It is needless to say that after implementation of transaction valuemethod of WTO, import and export has been enhanced remarkably.

3.2.4 Value Added Tax (VAT)

Value Added Tax (VAT) was introduced in Bangladesh on 1 July in 1 99 1 replacing Excise dutiespartially and Sales Tax completely. The single rate of VAT is 15%. This uniform rate is applicableon both service and product at import stage as well as domestic level. Besides, in some cases

VAT is calculated on truncated base.

3.2.5 Administration

Value Added Tax wing is another most vital wing of NBR. The VAT administration is run by theofficers of indirect tax department who are recruited as officers of Customs and Excisedepartment. They are being posted in Customs and VAT department in a regular rotation.Member (VAT) of NBR is the head of VAT department who has to report to the Chairman NBR.At present, there are eight VAT commissionerates including one Large Taxpayers Unit (VAT).The head of VAT commissionerate is Commissioner. Each commissioner is responsible for theadministration and management of his commissionerate. The Customs, Excise and VATCommissionerates are Dhaka (North), Dhaka (South), Chittagong, Rajshahi, Khulna, Jessore,Sylhet and Large Taxpayers Unit (VAT). There are some Divisions under each commissionerateand under each Division there are some Circle offices.

Customs Houses are responsible for collecting VAT at the import stages. Therefore, thesehouses and customs land stations are regarded as a vital point of VAT collection. On the otherhand, VAT chain starts from the customs points. VAT commissionerates and Customs Housesalways maintain a strong communication among them to calculate and find out the real VAT

payable by the importers and manufacturers.

Besides customs houses and VAT commissionerates, there are three more offices namely, VATaudit, intelligence and investigation, Duty Exemption and Drawback Office (DEDO), and AppealCommissionerate.


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The VAT audit, intelligence and investigation office is headed by a Director General (DG). Themain function of this office is auditing the vulnerable units throughout the country. The officialsof this office conduct secret investigation and intelligence work to catch VAT evaders. Afterbeing confirmed, they introduced intensive audit of selected business unit. This office enhances

the audit based VAT system in the country. It may be mentioned here that VATcommissionerate also conduct audit activities in a regular basis to ensure the transparency inVAT. But VAT audit department conduct their audit independently all over the country. If theyfind any discrepancy, they send the report to the respective VAT commissionerate to collect theunpaid revenue or to take the necessary measures against the taxpayers.

Duty Exemption and Drawback Office which is known as DEDO works for refund of VAT andcustoms duties. This office is headed by a Director General (DG). As per the provision of ValueAdded Tax Act 1 99 1, DEDO was introduced to encourage the exporter through the quick refundof VAT. If any exporter exports anything, he is entitled to get the VAT and other duties which

were paid during the purchase of the raw materials to produce that finished exported goods.Sometimes, National Board of Revenue determine a flat rate on the basis of duties and taxespaid on imported raw materials if the exporter apply to the Board to reduce the difficulties toget refund.

VAT appeal commissionerate is headed by a commissioner of VAT. If one taxpayer is aggrievedwith the decision of any officials other than the Commissioner of VAT, one can appeal to theCommissioner (appeal). If one is not satisfied with the decision of Commissioner (appeal), onecan appeal against the order of Commissioner (Appeal) to the President, Customs, Excise and

VAT Appellate Tribunal.

3.2.6 VAT Mechanism and Procedure

Value Added Tax is run as per The Value Added Tax Act, 1 99 1 and The Value Added Tax Rules,199 1. Value Added Tax is an indirect tax on consumption that is levied on the value addition of goods or services at each point in the chain of raw material stage to the final consumption.Personal end-consumers of products and services cannot recover VAT on purchases, butbusinesses are able to recover VAT on the materials and services that they buy to make furthersupplies or services directly or indirectly sold to end-users. In this way, the total tax levied at

each stage in the economic chain of supply is a constant fraction of the value added by abusiness to its products, and most of the cost of collecting the tax is borne by business, ratherthan by the state. It is already mentioned that VAT rate is 15% for all business or industrial unitswith an annual turnover of Taka 2 .3 million and above. If yearly turnover is less than taka 2 .3 million, the taxpayers can be registered as turn over taxpayers instead of VAT. At present,turnover tax rate is 4 %. In case of turnover tax, a taxpayer is not entitled to get credit. VAT is an


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audit based tax system and credit mechanism is the vital point of this system. In Bangladesh,taxpayers have to get registered first. There are two type of registration system in VAT namely,voluntary and compulsory. After being registered under VAT, the taxpayer has to submit returnin every month. The taxpayers have to maintain three important register for getting rebate

such as Purchasing Register, Selling Register and Current Account register. The taxpayer has topay tax before the delivery of goods or services and has to maintain a positive balance incurrent account register. If payment deposit is not satisfactory (positive balance) in the currentaccount register, the taxpayer cannot supply VAT-able goods or services outside of hispremises. Through the current account register the taxpayer can easily get rebate. The taxpayerregisters the amount of taxes in the current account register which is creditable. So he can takerebate automatically. If his credit amount is finished, he has to increase the balance by payingrevenue to the government. After one month he will show the total account in the prescribedreturn form to the respective tax office.

3.2.7 VAT Exemption

As a developing country, Bangladesh also has a big list of goods and services which areexempted from VAT. The list of goods exempt from VAT is given in the First Schedule of the VATAct, 199 1. Some goods are also exempted by Statutory and Regulatory Order. Importantexemptions are: live animals, poultry, fish, meat, milk, cream, eggs, natural honey, herbs andspices, vegetables, fruits, cereals, nuts, natural sand, natural rubber, animal hides, skins, hairand fur, wool, fuel wood, cotton and raw jute.

The list of exempted services has given in the Second Schedule of the VAT Act 1 99 1. Generallyservices necessary for livelihood, services for social welfare, services related to culture, servicesrelating to finance and financial activities, transport service, and personal services areexempted from VAT. Some services are also exempted by Statutory and Regulatory Order.

3.2.8 VAT Base

In the case of domestic supply of goods, VAT is levied on the total price received or deemed tohave been received, which may include the value of raw material, all cost of manufacture orproduction, profit and, where applicable, any charge, fee, all other duties and taxes except

advance income tax and VAT. In case of services, VAT is levied on the total receipt for thesupply of services including Supplementary Duties excluding VAT.

In case of imports, the VAT base is the total of the assessable value for customs duties, plus theamount of customs duties, supplementary duty and all other duties and taxes, (if any), exceptadvance income tax and VAT.


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Divisional Officer within 7 days before the execution of such a change. Currently, valuedeclaration is mandatory in case of goods only.

3.2.11 Large Taxpayers Unit (VAT)

Large Taxpayers Unit (VAT) was established in 200 4 . This unit was set up after theimplementation of income tax LTU. Almost all big multinational and national organizations areregistered under LTU (VAT). As only the big enterprises and the multinational companies whohave a very high goodwill they pay tax in LTU, so it is very difficult to evaluate whether there isany special charisma of LTU mechanism to enhance government revenue. The structure of VATLTU is similar to income tax LTU which have already been described in Income Tax chapter.

4Taxation in India

The Union Budget was presented before the Indian Parliament on 2 6 February 20 10 . Thebudget reflects continuity in the Government s measured and balanced response to the globaleconomic crisis. The timely and effective intervention through the stimulus packages insulatedIndia s economy from the crisis and was also instrumental in its quick recovery. A key feature of the current budget is the balance that it strikes between fiscal prudence and the need for acalibrated roll back of these packages. Despite the absence of significant fiscal reformmeasures, the budget sends a clear signal on the Government s commitment to fiscalconsolidation. The budget should provide a platform for a return to the growth trajectory from

which the global crisis had momentarily diverted India. Below is a summary of the key proposedmeasures in the Union Budget.

4.1 Direct tax

Direct tax code (DTC)

Further to the introduction of Direct Tax Code Bill, 2009 for public debate in August 2009 , theFinance Minister proposed the DTC to be introduced from 1 April 20 11. As a consequence, noDTC provisions have been incorporated in the current budget proposals.

4.1.1 Personal taxation

The basic exemption limit for individuals is proposed to be revised. The new slabs are asfollows:


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5. It is proposed that the common carrier capacity condition under section 3 5AD of the Act(which provides for tax incentive for laying and operating cross country pipelines) be alignedwith the regulations specified by the Petroleum and Natural Gas Regulatory Board.

6. In view of a high employment potential in the hotel sector, it is proposed to extend theinvestment linked tax incentive in respect of capital expenditure (other than on land, goodwilland financial instrument) incurred for the purpose of the business of building and operatingnew hotels of 2 -star category or above to hotels situated at anywhere in India, provided thatthe hotel starts functioning on or after 1 April 20 10 .

4.1.2.3 Exemptions and deductions

For units in Special Economic Zone (SEZ), the anomaly relating to the computation of profitseligible for the tax holiday was corrected last year in favour of taxpayers. It is now proposedthat the corrected formula be given retrospective effect from FY 200 5-0 6 and onwards.

To avail the developing and building housing projects of the existing tax holiday, it is proposedto extend the period allowed for completion of such housing projects (approved by localauthority on or after 1 April 200 5) from 4 years to 5 years. Furthermore, the condition relatingto the build-up area of shops and commercial establishments included in the housing projectshas been relaxed. The above are proposed to be effective retrospectively from FY 2009 -10 .

4.1.2.4 Limited liability partnership (LL P)

It is proposed that conversion of a private company or an unlisted public company into an LLP

would not attract capital gains tax subject to fulfillment of certain prescribed conditions. Onesuch condition being that the total sales, turnover or gross receipts of the company beingconverted into LLP do not exceed INR 6 million in any of the 3 preceding previous years.

Any unabsorbed business loss/depreciation allowance of the company converted into an LLPwould be eligible for carry forward and set-off in the hands of the successor LLP. However, anyunutilised MAT credit in the hands of the company would not be available to the successor LLP.

4.1.2.5 Other income

In order to curb the practice of transferring unlisted shares at prices below their fair marketvalue, it is proposed to tax transactions relating to transfer of unlisted shares of a company to apartnership firm or a limited liability company without consideration or for inadequateconsideration, with effect from 1 June 20 10 . Such transactions would be taxable in the hands of the recipient firm/company, subject to the treaty benefits as may be available to the foreignrecipient firm/company.


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Under existing provisions, receipt of an immovable property without consideration or forinadequate consideration by an individual is taxable. It is proposed that such receipt of immovable property shall be considered taxable only if the property is received withoutconsideration and shall exclude cases where the property is received for inadequateconsideration.

4.1.2.6 Assessments and appeals

It is proposed that the jurisdiction of Settlement Commission be enlarged to entertain searchcases, provided that additional income tax payable exceeds INR 5 million.

In addition, it is proposed to specifically provide that the High Court has power to admit anappeal even after the expiry of the period stipulated in the Act provided it is satisfied that thereis sufficient cause for the delay in filing of the appeal.

4.2 Indirect tax

4.2.1 Goods and services tax (GST )

The Finance Minister has announced the date of introduction of the dual GST to be 1 April20 11. The Finance Minister has indicated that concerted efforts of the Empowered Committeeand the Finance Commission in the last few months have led to a broad consensus on theintroduction of GST and have carved a platform for future discussions in finalizing the structureof GST and the modalities surrounding its introduction.

As a step towards the introduction of GST, various measures have been announced in the UnionBudget. These include adjusting the level of excise duty to 1 0 % (signifying a single rate of tax forgoods and services), rationalisation of duty rates and broadening of the tax base by way of introduction of new taxable services (see details below).

4.2.2 Customs

Budget 20 10 has not changed the peak rate of Basic Customs Duty (BCD) on all non-agriculturalproducts at 1 0 %. However, a number of tariff charges have been introduced in relation togoods pertaining to specified sectors such as oil and gas, telecommunication, food and

agriculture, healthcare and gems and jewellery.

Concessionary rate of BCD is imposed on additional projects notified under the Project ImportScheme . Project Import Scheme aims at facilitating set up and expansion of industrial projectsin India by allowing industrial units to import capital goods at concessionary rate for specifiedprojects.

Additional projects include:


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1. monorail projects for urban transport

2 . projects for installation of mechanised food grain handling systems and pallet racking system

3 . cold storage, industrial projects for preservation, storage or processing of goods relating to

specified sectors Effective from 2 6 June 2009 , a BCD of 16% has been imposed on electricalenergy transferred from SEZ to Domestic Tariff Area (DTA) or the non-processing areas of theSEZ.

An outright exemption from special additional duty of

customs is allowed to goods imported in pre-packaged form for retail sale.

Central excise

The following are the proposed measures in relation to central excise:

1. The standard ad-valorem excise duty rate has been increased from 8 % to 1 0 % on non-petroleum products.

2 . CENVAT on goods covered under Medicinal and Toilet Preparation Act is reduced from 16%to 1 0 %.

3 . Excise duty is increased from nil to 4 % on micro processors for computer (other thanmotherboards), hard disk drive, CD-ROM drive, DVD writer, flash memory and combo drive.

4 . Excise duty is increased from nil to 4 % on electrically operated vehicles, including two andthree wheeled electric motor vehicles and battery operated cars.

5. Inverted duty structure has been rationalised in some of the products such as ceramic tiles,umbrellas and ophthalmic blanks.

6. It is proposed to amend the relevant provisions of the law to provide explanations that nopenalty shall be imposed if duty along with interest is paid before issuance of show causenotice.

Service tax

The rate of service tax continues at 1 0 %. The Government has broadened the service tax baseby introducing eight new categories of services and has expanded the scope of certain existingservices. The government has announced some service specific exemptions and rationalised therefund procedure especially for service exporters.


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The export of services rules, 200 5 has been amended with effective from 27 February 20 10 torelax the usage requirements by omitting the condition of services provided from India andused outside India . Recent policy measures and legislative changes

4.3 Income tax

An alternative dispute resolution mechanism is introduced whereby disputes involving foreigncompany or transfer pricing related disputes can be referred to the Dispute Resolution Panel(DRP) which, after considering all evidence/objections, will issue binding directions to theassessing officer within 9 months. Orders passed by the assessing officer based on thedirections of the DRP can be directly appealed to the Income-tax Appellate Tribunal.

4.4 C ustoms law

A partial/full exemption from customs duty is granted to specified goods imported under theKorea Foreign Trade Agreement (FTA) or ASEAN FTA. The exemption is effective from 1 January20 10 . Under the ASEAN FTA, only Singapore, Thailand and Malaysia are included in theexemption notification.

4.5 Foreign trade policy

A 100 % export oriented unit that manufactures and exports more than one product is allowedto sell any of these products in DTA at up to 90 % of the free on board (FOB) value of exports of such products instead of the existing 7 5% of the FOB value of exports, provided that this iswithin the overall DTA sales entitlement of 5 0 % of the FOB value of total exports of the unit.

4.6 Foreign Exchange Management Act

The Reserve Bank of India (RBI) (i.e. India s Central Bank) has announced the procedures thatbecame effective on 1 February 20 10 relating to opening of branch office (BO) and liaison office(LO) in India by foreign entities, the annual filing to be done by such entities as well as theclosure of such offices. However, there would be no change for LO/ BO of foreign banks andinsurance companies.

Foreign nationals resident in India/Indian citizens employed by a foreign company ondeputation to a office/branch/ subsidiary/joint venture in India of such foreign company arenow allowed to receive 1 00 % (previously only 7 5%) of his salary (net of India taxes) from theforeign company for the services rendered in India by crediting his bank account openedoutside India.


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Citizens of a foreign state who are resident in India and being in employment with an Indiancompany are now permitted to open, hold and maintain a foreign currency account with a bankoutside India and remit the whole salary received in India in Indian Rupees to overseas bankaccount, subject to payment of income tax in India.

A Person of Indian Origin (PIO) is permitted to acquire and transfer specified immovableproperty in India subject to compliance with certain prescribed conditions. In this context, thedefinition of PlO has been widened to include an individual whose mother or grandmother wasa citizen of India by virtue of the Constitution of India or the Citizenship

Act, 19 55.

The RBI now permits the recognised stock exchanges to offer currency future contracts in thecurrency pairs EUROINR, JBP-INR and GBP-INR in addition to the USD-INR contracts. Personswho are resident in India can now trade in the aforesaid currency futures.

4.7 Inbound investment

Foreign direct investment in micro, small and medium enterprises is now permitted subject tosectoral equity caps, entry routes and other relevant sectoral regulations. With a view tofacilitate transfer of technology into the country, payments for royalty, lump sum fees fortechnology and payments for use of trademark/brand name made to a foreign entity outsideIndia are permitted under the automatic route and without any restrictions.

visa requirements

A foreign national coming to India for executing projects/ contracts will have to enter into Indiaon employment visa only. Employment visas would be issued to skilled or qualifiedprofessionals appointed under a contract or employment at a senior level. Employment visaswould not be granted for jobs of which a large number of qualified Indians are available andwhich are of routine, ordinary or clerical nature.

A business visa would be issued only to foreign businessmen who want to visit India for bonafide business purposes on satisfaction of certain conditions. The eligibility criteria and durationof a business visa and an employment visa have also been specified. Importantly, foreignnationals coming to India for attending technical meetings, board meetings or general meetingsfor providing business services support would be eligible for obtaining business visas.

Tax treaties and social security agreements

During the previous year, the Government of India has:


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1. signed a double taxation avoidance agreement (DTAA) with the Government of Luxembourg(agreement dated 9 July 2009 );

2 . notified the DTAAs signed with Myanmar, Tajikistan and Council of Ministries of Montenegrorespectively; and

3 . signed a social security agreement with Belgium, Switzerland, Luxembourg and Hungaryrespectively.

5 Taxation in Malaysia

5.1 Liberalising the Malaysian economyFollowing the mini Budget that was presented by the Finance Minister on 1 0 March 2009 ,several significant announcements were made regarding measures to liberalise the Malaysianeconomy so as to strengthen its competitiveness in attracting foreign investments as well astechnology and skilled professionals:

1. On 22 April 2009 , the Prime Minister announced the immediate liberalisation of 27 servicessub-sectors, with no local equity condition imposed. These subsectors are in the areas of healthand social services, tourism services, transport services, business services, and computer and

related services. Following the announcement, the requirement of a 30 % Bumiputra (ethnicMalays and other indigenous Malaysians) equity ownership in these subsectors was removed.

2 . On 29 April 2009 , new measures were announced to further liberalise the financial servicessector. These include the issuance of 9 new bank and insurance licences to world-class playersin the financial sector from 2009 20 11. Foreign players will now be allowed to hold up to 70 %equity in investment banks, Islamic banks, insurance companies and takaful operators (up fromthe previous 4 9 %) while new Islamic banks may have foreign equity interest of up to 1 00 % withminimum issued and paid-up share capital of US$1 billion (RM 3 .6 billion). However, maximumforeign ownership of commercial banks will remain at 30 %.

3 . On 29 June 2009 , an announcement was made on the deregulation of Foreign InvestmentCommittee s (FIC) guidelines. The FIC under the Prime Minister s Department, was establishedin 1 97 4 to regulate acquisitions, mergers, and takeovers by foreign or Malaysian interests andto ensure that all such activities are consistent with the government s objectives inrestructuring corporate ownership. It was announced that the FIC s guidelines on theacquisition of equity stakes, mergers and takeovers would be repealed with immediate effect.


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Also removed was the requirement of a 30 % Bumiputra equity stake for companies seekinglisting. However, companies seeking listing would have to offer half of the 2 5% public spread toBumiputra investors. FIC approval would be required only for acquisition of properties in excessof RM20 million from Bumiputra and government. In addition, the financial services sector was

further liberalised by allowing foreign ownership of up to 100

% for fund managementcompanies, and 70 % for unit trust management companies and stockbrokers (up from theprevious 4 9 %).

The measures to liberalise the Malaysian economy announced by the Prime Minister weremostly well received by the business community and perceived to have an impact in removingsome major obstacles to foreign investments. The new measures would better place Malaysiawith regional peers in attracting foreign investments and providing a more business friendlyenvironment for high technology, creative and value add sectors.

5.2 Budget 2010

Budget 20 10 was tabled in Parliament on 23 October 2009 . Some of the more significantproposals are highlighted below:

5.2.1 Personal taxation

1. The highest marginal rate of income tax on chargeable income exceeding RM1 00 ,000 isreduced from 27 % to 2 6% from the year of assessment (YA) 20 10 . However, this is still higherthan the corporate tax rate which is 2 5%. The flat rate of income tax for non-residentindividuals is also reduced from 27 % to 2 6%.

2 . Individuals who are knowledge workers residing in Iskandar Malaysia and deriving incomefrom an employment with a person who is engaged in a qualified activity in that region will betaxed at the rate of 15%.

3 Personal relief for an individual is increased from RM 8 ,000 to RM 9 ,000 from YA 20 10 .

4 . Deduction of up to RM5 00 per year will be given for broadband subscription fees paid by an

individual during the year (from YA 20 10 to YA 20 12 only).

5. The maximum relief for payments of life insurance premiums and contributions to anapproved pension fund by an individual is increased from RM6, 000 to RM 7 ,000 but theincreased relief of RM1, 000 is given solely in respect of premiums on an annuity schemecontracted on or after 1 January 20 10 .


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5.2.2 Tax incentives

1. Small and medium enterprises (SMEs)

Expenses incurred by SMEs in the registration of patents and trademarks are tax deductible

(from YA 20 10 to YA 20 14 only). A SME is defined to meet certain specified conditions.

2 . Islamic financing

(1) Existing incentives which are due to expire soon are extended to YA 20 15. These incentivesare double deduction for expenses incurred to promote Malaysia as an international Islamicfinancial centre (expiring in 20 10 ) and tax deduction for expenses incurred on issuing Islamicsecurities approved by Securities Commission (SC) (expiring in 20 10 ). The latter incentive is alsoextended to Islamic securities approved by the Labuan Offshore Financial Services Authority(LOFSA).

(2 ) Tax deduction for pre-commencement expenses incurred by an Islamic stock brokingcompany (originally for applications received by the SC before 3 1 December 2009 ) is nowavailable for applications received up till 3 1 December 20 15.

(3 ) Tax exemption on profits from non-Ringgit sukuk approved by the SC and issued in Malaysiais extended to cover profits from non Ringgit sukuk approved by LOFSA.

(4 ) Additional stamp duty exemption of 20 % allowed for instruments of Islamic financingapproved by certain authorities which were executed between 2 September 2008 and 3 1

December 2009 is extended until 3 1 December 20 15.3 . Health tourism

Healthcare service providers who derive income from a business of provision of healthcareservices to foreign clients where the services are provided in Malaysia (treated as exportincome) will enjoy an increased rate of exemption of 1 00 % (previously 5 0 % only) of the value of increased exports, limited to 70 % of statutory income (YA 20 10 to 20 14 only). Foreign clientsinclude entities such as a corporation or partnership registered outside Malaysia, or non-Malaysian citizens (excluding those holding a Malaysian student pass or work permit and their

dependents).

4 . Buildings awarded Green Building Index (GBI) certificate

Incentives are given to the following:


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(1) Owners will be entitled to tax exemption equivalent to 1 00 % of additional capitalexpenditure incurred to obtain GBI certificate, which can be offset against 1 00 % of statutoryincome for each year (for new buildings and upgrading of existing buildings).

(2 ) Buyers who purchase a qualified building from property developers will be entitled to anexemption of stamp duty on instruments of transfer of ownership on the additional costincurred to obtain the GBI certificate (only given once to the first owner).

5. Export of financial services

Income tax exemption granted to Malaysian banks on profits of newly established overseasbranches or income remitted by new overseas subsidiaries is now extended to insurancecompanies and takaful companies. The exemption period of 5 years may commence from adate to be determined by the company but should not be later than the third year of operations. (Applications to establish new branches or subsidiaries overseas should be receivedno later than 3 1 December 20 15.)

5.2.3 Real property gains tax (RPGT)

RPGT is a tax that is imposed on capital gains arising from the sale of real property or shares in areal property company (RPC) (collectively known as chargeable assets ).

A RPC is a controlled company that owns or acquires real property or shares of RPC with adefined value of not less than 7 5% of its total tangible assets. Gains from disposals of chargeable assets between 1 April 2007 and 3 1 December 2009 are not subject to RPGT.

However, from 1 January 20 10 , RPGT is re-imposed at the rate of 5% on chargeable gains fromdisposals of properties within 5 years of the date of acquisition.

5.2.4 Goods and services tax (GST)

The Goods and Services Tax Bill 2009 was tabled in Parliament for a first reading on 16December 2009 . The second and subsequent readings of the bill were scheduled for March20 10 . GST of 4 % is expected to be implemented in the second half of 20 11, allowing a timeframe of about 1 8 months for businesses to prepare for the implementation of the tax. GST willreplace the sales tax and services tax currently imposed and collected under the Sales Tax Act1972 and the Services Tax Act 1 97 5. Companies with revenue below a certain annual threshold(to be gazette separately, and expected to be RM5 00 ,000 ) are exempted from imposing GST.

5.3 Summary

Significant steps aimed at driving the economy forward to the next level were initiated duringyear 2009 . These include various measures to liberalise the services sector (including the


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financial services sector) and the deregulation of the FIC guidelines. The tabling of the GST Bill2009 in Parliament is a major step in the tax reform process in Malaysia. Economists and taxexperts view this measure as an unavoidable solution to the Malaysian economy s highdependence on petroleum revenue although the proposal has been received with mixed

reactions from both the business community and ordinary citizens. All these measures are partof Malaysia s response to developing a new economic model, which will be based oninnovation, creativity and high value to lift the country into the ranks of a high income nation by2020 .

6 Taxation in South Korea

The Korean tax system is comprised of both national and local taxes, the latter of which are

imposed by provinces, countries and municipalities. Examples of local taxes include propertytax, automobile tax, license tax and registration tax. National taxes, on the other hand, arecurrently made up of internet tax, custom duties, and education tax, international tax, whichconsists of direct tax and indirect tax, is thus the most significant type of tax payable in Korea.

Meanwhile, the 1 990 tax reform was undertaken to enhance the equity of the tax burden, tostrengthen the competitiveness of the manufacturing sector and to finance education and localgovernments.

A joint-venture company established in Korea with a Korean partner or a wholly-owned Korean

subsidiary, as well as Korean branch of a foreign company, is treated as domestic corporationsfor Korean tax purposes.

Tax advice can be obtained from certified public accountants, many of which have affiliationwith the "Big Eight" international accounting firms, or from international law offices.

6.1 Taxation of Domestic C orporations

Corporation tax: A corporation having its head office or its main ofice in Korea is liable to thecorporation tax. The corporation tax is assessed on the income accruing in each business year,

the liquidation income, and the capital gains. The amount of corporation tax on the income of adomestic corporation for each business year shall be an amount calculated by applying tax ratesto the amount of tax base.

6.2 Revision of the C orporate Taxation System


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* An unlisted large-scale corporation (paid-in capital of over five million won or shareholdersequity of 1 0 million won), which was accumulated 4 0 % or more of its distributable incomewithin the corporation shall be liable to pay the accumulated earnings tax at the rate of 2 5%.

* To foster sound management, the scope of losses ?(entertainment expenses, confidentialrepresentation expenses, interest payment on loans, donations, etc.) deducible in thecalculation of the tax base shall be narrowed.

* Tax incentives to promote R & D- Increase of the deductible reserve for development of technology and manpower from 1.5- 2 %to 3 -4 % of revenue.- Operational expenses of an in-house technical college shall be eligible for a 1 0 % tax credit.

* Revised corporate income tax rate system.

6.2.1 Corporate Income Tax Rate for General C orporations

Previous Revised

Tax base Tax rate Tax base Tax rate

80 million 20 % (2 4 %)100 millionwon or less

20 %

over 80

million won

*Unlisted Large-scale

Corp.: 33 % (39 .6-4 1.2 5)* Non-Profit Corp.: 27 %(32 .4 -33 .5%)* Corp., other than theabove: 30 % (3 6-37 .5%)

over 1 00

million won

20 million won + 3 4 % of an amount

in excess of 1 00 million won

* Tax incentives for small & medium-sized enterprises (SME)- An SME investing in industrial equipment or advanced office equipment may enjoy a 5% tax

credit of the invested amount.- The tax credit for developing technology and manpower shall be increased from 1 0 % to 15%.

* Introduction of the minimum tax system- A taxpayer, even if tax incentives are granted, shall pay a minimum amount. In the event of acorporation, this is 1 2 % of tax base before considering tax incentives or the tax amountreflecting such incentives, whichever is larger.


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Corporate tax return must generally be filled within fifteen days from the date when acompany's accounts are finalized. Any taxes still owed at that time must be paid within filingperiod for the company's tax return. Domestic corporations are also required to publish a copyof their balance sheets in a local daily newspaper within the same time period.

6.3 Inhabitant tax

Inhabitant tax is made up of a universally applicable and fixed tax of 7 .5% of the income taxpayable by a corporation, and a variable tax which is determined by the location of thecorporation. For cities with a population of five million or more, the variable tax rate is 4 0 ,000 won, and proportionately less for smaller cities. This is a local tax, administered by provincialauthorities.

6.4 Property acquisition tax

In the business year in which a corporation acquires real estate, a motor vehicle, heavyequipment or a vessel, property acquisition tax will be assessed. This is a one-time tax assessedat the rate of 2 % of the value of the acquired article. However, in the case of the acquisition of articles for business purposes in certain major cities, the rate is 1 0 %.

6.5 Property Tax

Property tax is assessed yearly by local tax authorities on the value of buildings, land, miningrights, aircraft and vessels. The purpose of the property in question will determine the tax rateapplicable. For factories located in certain geographic areas, tax is assessed at the rate of 0 .6%of the value of the land and buildings. Otherwise, commercial property is taxed at the rate of 0 .3 % of the value of the land and buildings.

6.6 Registration tax

At the time of officially registering the acquisition, transfer, creation or lapse of certain propertyrights, a registration tax must be paid. The types of property rights subject to this tax includereal estate, vessels, aircraft, corporations, branches, trade names, trademarks, copyrights,patents and commercial permits. The tax is assessed on the value of the property concerned,

which is calculated on the basis of a list of "Standard Values" prepared by the government.Where the actual value is less than the standard Value, tax based on the Standard Value will beimposed.

6.7 Value-added tax


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retirement allowance, capital gains and timberland income. The latter incomes of a non-resident are taxed on the same basis as that applied to a resident.

With respect to the income of a non-resident who does not have a domestic business place, thewithholding of taxation method is applied on each domestic source of income. A non-resident isrequired to pay income tax at the domestic business place. In the case of a non-resident whohas no domestic business place, income tax has to pay at the place where such income isderived.

7 Comparison with Bangladesh

South Korea s large tax administration comprising eight bureaus made it more bureaucraticthan Bangladeshi administration. Internal taxes include monies derived from income,inheritance, gift, liquor, stamp, real estate, and special excise. Most of these are similar toBangladesh. However, in Bangladesh gift and inheritances are not taxed, which made theprocess vulnerable to hide corrupted money. It is very common among third world countries toprovide officials with gift in return of some unethical jobs. They can also blur the source of money by transferring and presenting it to their relatives and close ones. Compulsory taxsystem may bring these sources in the sight of the tax officers.

Income tax levied in South Korea is higher than Bangladesh and is levied from the minimumincome. Bangladesh, on the other hand, cannot afford to impose taxes at the minimum income,

as a large portion population lives under hardships to meet their ends. For example: The topmarginal tax rate, including the residence surcharge is 38 .5%on taxable income in excess of W88 million, where in Bangladesh highest tax charge is 30 %.

When a person has a job overseas and stayed there for more than a year, but he has his generalliving relationship including his family and property in Korea, he shall be regarded as a residentof Korea and is subject to income tax on all incomes derived from sources both within andoutside Korea. This is less encouraging to both the Korean residents and the foreign residentsliving in Bangladesh. In Bangladesh, nonresident Bangladeshis are given more advantages overothers in terms of taxes. They also have a source of income from wage earner bond. Again, theforeign residents living in Bangladesh are not charged for their income earned outsideBangladesh. In both cases, Bangladeshis tax system is more desirable to the people.

Again, a non-resident is not entitled to personal deduction (except for oneself) and specialdeduction. Employee Gross Income/ Individual income can be categorized as taxable,nontaxable or tax-exempt. Taxable income includes global income, capital gains, and severance


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8 Conclusion

For a developing country like Bangladesh, domestic resource mobilization in the face of targeted socio-economic objectives is important in formulating an effective tax policy. It is also

required to create an efficient tax system, which includes appropriate tax expendituremeasures that serve social objectives as well as being economically feasible. Therefore, a criticalreview of the existing tax expenditure measures in Bangladesh is necessary in order to overseea balance between these two goals. Our analysis has identified some avenues for possibleexpansion of tax base through restructuring the existing tax expenditure measures, especially inthe categories of income tax and VAT. Along with restructuring the measures, the taxadministration requires a comprehensive organizational reinvention that is capable of meetingthe revenue needs of Bangladesh.

tax report iba

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