Are you looking for Bangladesh corporate tax insights? If you are, then this article is for you. As a Bangladeshi citizens, we should know all about taxation. It is our loyal duty to pay taxes to the government. You may be new to the corporate world, so let’s get you a corporate tax insight.
What is Corporate Tax
A tax that is imposed on any organization on their revenue is called corporate tax. Corporate tax can also be called company tax or corporation tax. It is usually imposed on a national level, but in some larger countries, it may impose on a state or local level. Corporate tax is calculated based on the organization’s taxable income. Taxable income can be determined by subtracting the cost of goods sold(COGS) and other relevant costs from revenue.
Importance of Corporate Tax
Let’s look at the importance of corporate tax in an organization.
Tax authorities ensure the honesty of businesses by ensuring that all businesses pay their taxes. The government provides that the tax burden is distributed fairly. It is a tax levied on the income or profits of the company. Some countries use business taxes to finance the government. But others use them to generate revenue for other public services. However, it helps the country develop and sustain the local economy.
Corporate tax helps to control the economy. It can stimulate or slow down the economy at the same time, improve it, and reduce the deficits. A country’s main source of income comes from corporate tax. Corporate tax is imposed on the taxable income of a company. If an entity reaches the taxable threshold, it is taxed by applying the relevant CT percentage to its profits.
Has Advantages Over Personal Taxes:
Business taxes have some advantages over personal taxes for individuals and families. For example, corporate tax rates are more stable than personal income tax rates that fluctuate with the economy. Also, managing business taxes is easier than managing personal income. because only one organization needs to be looked at rather than families. As such, it has less impact on the business than personal taxes.
However, with online tax return submission, and tax management software, tax submission is much more hassle-free.
Reduces Public Debt:
Corporate tax can be helpful in social security and reducing public debt. Old age, disability, unemployment, and many other things get protected by social security. On the other hand, Public debt can be damaging to any country or economy. It affects currency value, interest rate, etc. These are directly related to the local businesses.
Funds Public Services:
With corporate tax, the government runs the public services. Healthcare, education, and transportation are the public services the government runs with the help of corporate tax. In order to maintain economic stability and citizens’ well-being, public services are necessary. When any organization submits their tax return documents, organization tax gets adjusted in the government’s fund. Afterwards, the fund is used for public services.
The corporate tax is usually used to protect local businesses from foreign organizations. As an example, the government of any country may impose high taxes on foreign organizations compared to local businesses. As a result, local businesses get s the opportunity to grow and contribute to the economic growth.
Why do we need to pay Corporate Tax
There are a few reasons why organizations need to pay taxes regularly. Some of the major reasons are discussed below:
- without the corporate income tax system, there will be no income tax. As a result, high earners may defer paying personal income tax on most of their income. High-income earners may want to avoid working or investing directly in businesses.
- Two-thirds of corporate income is exempt from personal income tax. If personal income tax is the only tax currently paid on the earnings of large corporations, two-thirds of profits will not be taxed.
- Income tax collected from employees is collected from business owners and is increasing. If corporate executives don’t trust their shareholders to pay their taxes, they won’t lobby Congress to lower taxes.
Read More: Tax Calculation In HR & Payroll Software
The Corporate Tax rate for FY 2022-2023
Finance Minister Mustafa Kamal delivered the budget speech for the year 2022-2023 on 9 June 2022. You can check the whole detailed speech here. The summary of the speech is as follows.
Corporate Tax changes for certain companies:
All receipts, income, expenses, and investments over BDT 1.2 million must be transacted through bank transfers.
- Shares issued by publicly traded companies worth more than 10% of the IPO have reduced from 22.5% to 20.0%. However, if the conditions are not met, the rate will be 22.5%.
- the publicly traded company that has issued shares worth 10% or less of its paid-up capital through an IPO is maintained at 22.5%. If conditions are not met, the rate is going to be 25.0%.
- non-publicly traded company – reduced from 30.0% to 27.5%, but with a rate of 30.0% if the condition is not met
- One Person Company (OPC) – reduced from 25.0% to 22.5%, but with a rate of 25.0% if the condition is not met
- association of persons – reduced from 30.0% to 27.5%, but with a rate of 30.0% if the condition is not met
- the artificial juridical person and other taxable entity – reduced from 30.0% to 27.5%, but with a rate of 30.0% if the condition is not met
Rate changes in tax deducted at source:
- Rates on supplies of trading goods changed from 7% to 5%.
- Rates on supplies of books, except government supplies, changed from 7% to 3%.
- Rates on supplies of raw materials to manufacturers changed from 7% to 4%.
- Rates on supplies of certain services by resident taxpayers changed from 12% to 10%.
- Rates of payments to non-residents on account of bandwidth payment changed from 20% to 10%.
- Rates of other non-scheduled payments to non-residents changed from 30% to 20%.
- The rate on bank interest increased from 10% to 20% for corporate taxpayers
- The rate of export proceeds increased from 0.5% to 1.0%.
- New introduction of rates of the gross bill for terminal operation/ ship handling as part of port operations, 5%.
- Introduction of a 5% rate on lease rent of water bodies, except for water bodies owned by the government
Certain incentive measures:
- Amendment of the tax incentives for the employment of persons with physical disabilities or persons of the third gender to provide that if such persons represent at least 10% of total employees or more than 25 employees, then the employer will be entitled to a tax credit (rebate) equal to 75% of the salary paid to such persons or 5% of the tax payable, whichever is less.
- Any start-ups in the information and communication technology (ICT) sector, including:
- an exemption from all reporting requirements except income tax returns
- the allowed carry forward and set-off of losses for up to 9 years
- the removal of restrictions on expenditure
- a reduction in the turnover minimum tax rate from 0.6% to 0.1%
- extension of the 15% tax rate for the textile sector until 30 June 2025 (currently set to expire on 30 June 2022)
- The export-oriented readymade garments (RMG) sector has a tax increase of 12% (10% for green factories) for all industries exporting goods and services
- inclusion of export of services in the definition of export in the tax statute so that such exports may qualify for long-term tax incentives provided for the export of goods
- Provisions for the amortization of pre-commencement expenditure of business were introduced.
- “Research and Development” should be defined in order to make it an allowable expense
- the allowable ceiling for perquisites changed from BDT 550,000 to BDT 1,000,000
- in the tax law regarding set-off and carry forward of loss, a special reserve of financial institutions as non-admissible expenditure is now considered
- hotels, resorts, community centers, and transport agencies are now included as tax-deducting/collecting authorities.
- the income tax authority shall investigate the source of any asset located abroad if a taxpayer pays tax on such assets. The tax rates are as follows:
- 15% for immovable property abroad
- 10% for movable property abroad
- 7% percent for cash and cash equivalents abroad
- tax exemption for capital gains on government securities no longer exists
- tax returns by non-residents without a permanent establishment are removed
- NBR will formulate rules of income and exemption of non-residents to ensure proper collection
- the presentation of proof of submission of a return is now mandatory
Tax submission in Bangladesh was a lengthy and stressful process. But not anymore. With tax return online, you can submit your tax files and return without any hassle. With the help of income tax Management software, submitting taxes is now easier than ever. PiHR is an HR software that can help you with tax submission and tax calculation.