Budget 2014 – Direct Taxes – Part 2 – (July 2014_Issue 1)

July 17, 2014, by Junayed Chowdhury

In the annual budget for the Fiscal Year 2014-15 which was proposed by the Finance Minister Abul Maal Abdul Muhith at Jatiya Shangshad on June 5, 2014, and was passed by the Parliament on June 29, 2014, certain new tax incentives are introduced which are worth mentioning here.

 

(a) For creating investment-friendly atmosphere for industrialization, provisions are made to extend the existing tax holiday facilities from June, 2015 to June, 2019. The facilities of accelerated depreciation (as an alternative to tax holiday) for the new industrial entrepreneurs are also reinstated.

 

(b) To maintain stability in capital market together with its continual expansion and strengthening, tax exemption facilities for 5 years in graduated rate for Demutualized Stock Exchange is offered. Tax exempted dividend income is raised from BDT 10,000/- to BDT 15,000/-.

 

(c) There are provisions for tax holiday-facilities for pollution-free Hybrid Hoffman Kiln (HHK) brickfields.

 

(d) Industrialization in the areas other than City Corporations including Dhaka, Chittagong, Narayanganj, Gazipur is encouraged for creating employment opportunities in the least developed areas. Therefore, in the budget the following tax holiday and tax rebate facilities for the industrial undertakings set up in places other than City Corporation are made:

 

• 10% tax rebate for the industrial undertakings not eligible for tax holiday facilities set up in the least developed areas up to June 30, 2019. · 20% tax rebate for the industrial undertakings not eligible for tax holiday facilities set up between July 1, 2014 and June 30, 2019 in the least developed area up to 10 years next from the date of commencement.

 

• 20% tax rebate for the industrial undertakings shifted to least developed areas between July 1, 2014 and June 30, 2019 up to 10 years next from the date of commencing commercial operation after shifting.

 

• The period for the industrial understandings enjoying tax holiday facilities set up in the least developed areas has been extended to 10 years from 7 years.

 

• The period for the industrial understandings enjoying tax holiday facilities set up between July 1, 2014 and June 30, 2019 in the least developed areas has also been extended to 10 years from 7 years.

 

(e) In some cases, tax exemptions are made either to encourage domestic manufacturing or to benefit the general public. These are as follows:

• To encourage the export sector, the budget reduces the rate of deduction of tax at source on Cash Incentive from 5% to 3%.

 

• Tax deduction rate at source on garments export has been reduced from 0.8% to 0.3% and the rate, for all other exports, has been reduced from 0.8% to 0.6%. These rates will remain effective up to 30 June, 2015.

 

• Considering the pensioners’ retired life and the contribution of wage earners, tax is exempted on interest income from investment on pensioner savings certificate and wage earners’ bond up to BDT 5 lakh.

 

• To encourage activities under corporate social responsibility (CSR), tax facility is extended on contribution to any fund created and approved by the government to help victims of natural disaster and accidents as CSR. The expenditure limit is also raised from BDT 8 crore to BDT 12 crore keeping unchanged the existing condition of allowable limit at 20% of total income of any company in the said budget.

 

Finally, the following tax measures are noteworthy which would have some impact on the taxpayers:

 

(a) To deter tax evasion, amendments to the Income Tax Ordinance will be made to define house rent as both rent and service charges and to ensure payment of monthly house rent amounting to more than BDT 25,000/- through banks.

 

(b) To stop undervaluation at the time of registration of land transfer katha based advance tax is imposed, replacing existing 3% tax at source, on registration value of sale of land in the posh residential and commercially important areas of Dhaka and Chittagong. Further, specific tax is also imposed in the same manner based on per-square-feet in case of transfer of important residential/commercial and other structures in Dhaka, Chittagong, and Narayangonj City Corporations.

 

(c) Considering the issue of capital gain, tax rate at source on the deed value of land is increased from 3% to 4% in areas other than the important commercial and posh areas within the jurisdiction of RAJUK and CDA. Besides, tax is imposed at source at 3% on registration value in other City Corporations and municipalities at district headquarters and 2% in other municipalities and 1% in all other areas outside municipalities.

 

(d) Considering the views of different trade bodies including FBCCI, the budget reduces the deduction-rate at source from existing 5% to 3% on local L/C value of more than BDT 5 lac. However, tax deducted at source is not applicable on local L/C of daily necessary consumer items including rice, onion, dal, turmeric, chili, wheat, maize, flour, salt, edible oil, sugar, etc. Besides, a reduced tax rate is imposed from 5% to 3% on deemed commissions.

 

(e) Income of autonomous bodies, as per existing provision excluding revenue generated through rendering public services, is liable to tax at 37.5%. The main objective of the autonomous bodies is not to make mere profit but to provide essential services to the citizens. Considering this issue, the Budget reduced the rate of tax from 37.5% to 25% on income of all autonomous bodies including Dhaka WASA, Chittagong WASA, Khulna WASA, Rajshahi WASA, RAJUK, BTRC and CAAB.

 

(f) Microcredit organizations are not required to pay any taxes on their accrued interest income. This system shall continue. However, many micro credit organizations are running other businesses and the interest received from these businesses are not exempted from payment of taxes. The relevant provision of the law lacks some clarity on this. The Budget amended paragraph 1 of Schedule VI of the Income Tax Act, 1984.

 

Written by Junayed Chowdhury, Managing Partner  

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