On 22 June 2023, the Parliament of Bangladesh approved the Income Tax Act 2023. An official gazette has been published, and the new law will be in effect starting 01 July 2023. This Act replaces the previous Income Tax Ordinance of 1984. The new legislation comprises 25 chapters, further divided into 345 sections. Additionally, it includes eight schedules that provide specific guidelines and provisions related to various aspects of income taxation.
The new tax law of Bangladesh is not a complete overhaul of the current outgoing tax law. However, the notable increase in the chapters and sections indicates the intention to address any gaps and establish a more centralized and consistent legal framework. This reflects a concerted effort to align with international best practices in taxation. The objective is to enhance the effectiveness and efficiency of the tax system while ensuring compliance with global standards.
Here are some of the key features of the new law:
A modern approach: The New Taxation Law has been drafted in line with international best practices, demonstrating a contemporary approach to taxation. One notable aspect is the minimization of gaps in the utilization of international accounting and reporting standards (IAS and IFRS). The law now encompasses important provisions such as share-based payments, General Anti-Avoidance Rules (GAAR), thin capitalization, and demergers. These additions address critical areas and align the tax framework with global standards, ensuring a more comprehensive and robust system.
Language: In a significant development, the income tax law of Bangladesh has been published in Bengali for the first time. This decision aligns with the recent trend of enacting new laws in Bengali, ensuring accessibility and clarity for the local population. Furthermore, according to the provisions of the law, the Government of Bangladesh has the authority to publish an authentic English text of the law.
Synchronization: The new law incorporates a synchronized approach by consolidating similar tax provisions under the same chapter. This organizational strategy aims to enhance clarity, simplify comprehension, and promote consistency in applying tax regulations. By grouping related provisions, taxpayers and tax professionals can easily locate and reference the relevant information, ensuring a more streamlined understanding of the law.
Clarity on Mergers and Acquisitions (M&A): In contrast to the previous law, which provided limited guidance on M&A, the new law introduces a dedicated Schedule (i.e., Schedule-8) specifically addressing amalgamation, demergers, business restructuring, and start-ups. This inclusion marks a significant improvement, offering comprehensive guidelines and provisions for these complex transactions.
Valuation Report: While this was not required under the outgoing law, the new law introduces a crucial change by making the submission of a valuation report obligatory for non-listed share transfers. This requirement applies to transfers made by a resident to either a resident or a non-resident. Failure to comply with this provision will result in the registering officer denying the registration of the share transfer.
Deductible Expenses: The new law introduces an expanded scope for the deductibility of certain expenditures. For instance, it raises the cap on deductibility for royalties and technical fees. Under the previous law, these expenses were deductible up to 10% of the disclosed net profits for the initial three years of business operations and 8% in subsequent years. However, the new regulations remove the distinction based on the years in operation and increase the cap to a flat 10% regardless of the business’s operational duration.
Tax Refunds: The new law incorporates a streamlined tax refund mechanism emphasizing efficiency and convenience. Under the new regulation, tax refunds are now facilitated through electronic transfers directly into the taxpayer’s bank account. The law mandates that the refund be credited within 60 days of processing the relevant tax return, subject to adjustments with any other dues the taxpayer owes. In the event that the refund is not credited within the specified timeframe, the taxpayer retains the right to claim the refund in the prescribed manner.
The highlights above provide a glimpse of the changes brought about by the new tax law. While these highlights capture only a portion of the overall amendments, they reflect the significance of the reforms. If you are concerned as to how this new law may affect your business, we encourage you to seek guidance from your trusted DFDL advisor. They possess the expertise to provide tailored insights and ensure that you navigate the new tax landscape with confidence