TAXATION NOBBODOY PUBLICATION DHAKA, BANGLADESHTAXATION AS PER FINANCE ACT 2018 According to the following syllabus CMA (Management Level), ICMAB CMA (Professional Level - II), ICMAB Public, Private & National University BBA & BBS Honors in Accounting, Finance Author Mad. Sajjad Hossain CMA (4th Level), MBA (Accounting & Finance), BBA (Finance), LLB, ITP Income Tax Lawyer Member — Dhaka Taxes Bar Association Income Tax and Company Law Adviser NX NOBBODOY PUBLICATION DHAKA, BANGLADESHTAXATION ‘No part of this publication may be reproduced, stored, transmitted in any form or by any means of electronic, photocopying, recording or otherwise, without the prior written permission of the Author. All rights reserved Edition July 2018 Presented By Nobbodoy Publication Dhaka, Bangladesh Email: nobbodoy@gmail.com Copyright All rights reserved by the Author Price BDT 150.00 Only ‘Taxation, Written By: Md. Sajjad Hossain, Presented By: Nobbodoy Publication, Dhaka, Edition: July 2018PREFACE With the growing demand of education, Taxation has gained a huge popularity. A Taxation degree makes the candidates suitable for lots of opportunities. As more and more multi- nationals are coming into the world, demand for Taxation has further increased. ‘The main objective of this book is to meet the basic requirements of the Taxation courses. It is helpful to the students of Bachelor of Business Administration, and Bachelor of Business Studies. It is also helpful for professional students and the persons who are intended to get admission into a professional institute. This book is written by following the curriculum of ‘The Institute of Cost and Management Accountants of Bangladesh, Public and Private University, and National University of Bangladesh for the relative subject. am grateful and deserve my thanks to the publisher, printers, and designers of this book Any criticism, favorable or unfavorable, and any constructive suggestion in regards of this book will be gratefully received. Date: July 2018 Ma, Sajjad HossainDedicated to my parentsGMs 25 aT Raby sSTors Gas fort age FA SPIGA seCNfrT faa facaa feats asta ares fore arfirer SAT (9) 00 TRS PH TAHA THA TGs GTA AE TAA 2, Co, a aL a8 fr aac PA ASA BT Ahi TAA w,00,000 TAM TA, (2) SRT BSA AT Thi TAS w,00,000 BHA PA BF, (9) GaSaeTa Bre SIE ert Sv USTS BRS PT AG, (8) GCUBASNS, FTG BAST POPS ATE, (@) Go RTS oT I TATA, (&) UR, 3S, TRA, Hore LSVCSS, FF aS AAG AFTOES, (9) 3a fore sa IR, (8) FOR FRAT BIOS FSA TAS SAAT TS GT FACT fT) CArRR: 1 fora apoent \ atrfaaaft ea aficns sar Varte Reat power Rte ait at 1 Borerrafee \ wa amie a Seres ae aT 1 Rater caftieerr 1\ ea acres sifbfocet 58 a 1 be epoeae 1 Fabre serie ot snare a1 facrsy: anes ores Fay — GST DISC TIA opera ATTEN: Gps 26 seThaby DFT, TRATTT CREA: osessswiowdTABLE OF CONTENTS ‘hapter Ti Page Ne 1. Theories 07 2. Basics of tax 29 3. Investment allowance 32 4. Classification of income 34 5. Income from salaries (Section 21) 35 6. Assessment of companies 39 7. Assessment of individuals 80 8. Value Added Tax 92 9. Perquisite 100 10, Income from house property 103 11. Capital gain 105 12. Advance income tax 108 13, Set-off and carry forward of losses 109 14. Gift tax 112GMs 25 aT Raby sSTors Gas fort age FA SPIGA seCNfrT faa facaa afeavts asta aes fore arfirer Far (9) 00 TRS PH TAHA THA TGs GTA AE TAA 2, Co, a aL a8 fr aac PA ASA BT Ahi TAA w,00,000 TAM TA, (2) SRT BSA AT Thi TAS w,00,000 BHA PA BF, (9) GaSaeTa Bre SIE ert Sv USTS BRS PT AG, (8) GCUBASNS, FTG BAST POPS ATE, (@) Go RTS oT I TATA, (&) UR, 3S, TRA, Hore LSVCSS, FF aS AAG AFTOES, (9) 3a fore sa IR, (8) FOR FRAT BIOS FSA TAS SAAT TS GT FACT fT) CArRR: 1 fora apoent \ atrfaaaft ea aficns sar Varte Reat power Rte ait at 1 Borerrafee \ wa amie a Seres ae aT 1 Rater caftieerr 1\ ea acres sifbfocet 58 a 1 be epoeae 1 Fabre serie ot snare a1 facrsy: anes ores Fay — GST DISC TIA opera ATTEN: Gps 26 seThaby DFT, TRATTT CREA: osessswrowdTHEORIES Q. Explain the procedures of determining the value for charging VAT? CMA Adapted — December 2015 Answer. ‘The procedures of determining the value for charging VAT 1. In case of imported goods, the value would be the transaction value as determined under section 25 or 25A of the Customs Act plus the amount of import duty, supplementary duty and all other duties and taxes, (iff any), except advance income tax payable 2. In ease of supply of goods, the value would be the price receivable by the producer or manufacturer or by the business person from buyer which includes the cost of raw material all cost of manufacture or production and where applicable, any commission, charge, fee, all ‘other duties and taxes including SD (except VAT) and profit 3. In case of rendering service, VAT shall be imposed on the total receipts 4. Goods on which trade discount is allowed, VAT will be charged on the value of the goods after deduction of trade discount Q. What are the exemptions from tax under section 4 of the Gift Tax Act, 1990? CMA Adapted — December 2015 Ans. ‘The gifts that are exempted from tax under section 4 of the Gift Tax Act, 1990: 1. Gift of property situated outside Bangladesh, 2. Where the beneficiary is the government or any local authority, 3. Gifis to any educational institution recognized by any educational board established under any law in force in Bangladesh or run by the government. 4. Gift to any hospital recognized or run by government or any local authority, 5. Gifis to dependent relative up to Tk. 20,000 on the occasion of his/her marriage, 6. Gifls under a will, 7. Gifis to a sons, daughter, father, mother, spouse, brothers and sisters Q. What are the areas where registration is required for the purpose of VAT. CMA Adapted ~ April 2015 Ans. ‘The areas where registration is required for the purpose of VAT: 1. Suppliers of a taxable goods and services, 2. Importers of any goods, 3. Exporters of goods and servicesQ. State the books of accounts and statements that need to be maintained and submitted to the VAT authorities of Bangladesh. CMA Adapted — December 2014 Ans. ‘The books of accounts that need to be maintained are as follows: 1. Purchase accounts register: In this register, information relating to purchase of taxable and tax-exempted goods or purchase of service will be recorded, 2, Sales accounts register: In this register, information relating to supply of taxable and tax- ‘exempted goods or rendering of service or export of such goods or service shall be recorded, 3. Invoice register: Invoices printed according to Form ‘Musak-11” and where applicable, in form ‘Musak-11A’ shall be maintained 4. Current account register: In this register, the description of transactions the amount of payable output tax, ete are recorded. Q. Explain the procedures determining of goods the value for charging VAT. CMA Adapted — December 2014 Ans. ‘The provisions of law for determination of value U/S 5 of the VAT Act 1991 1. In case of imported goods, the value would be the transaction value as determined under section 25 or 25A of the Customs Act plus the amount of import duty, supplementary duty and all other duties and taxes, (if any), except advance income tax payable. 2. In case of supply of goods, the value would be the price receivable by the producer or manufacturer or by the business person from buyer which includes the cost of raw material, all cost of manufacture or production and where applicable, any commission, charge, fee, all other duties and taxes including $D (except VAT) and profit 3. Incase of rendering service, VAT shall be imposed on the total receipts. 4. Goods on which trade discount is allowed, VAT will be charged on the value of the goods afler deduction of trade discount. Q. Distinguish between “Zero-rate” and “exemption” under the VAT Act 1991. Or, Distinguish between zero rate of VAT and exemption of VAT. Where the zero rates of VAT are used? CMA Adapted — December 2013 Ans. Distinction between zero rate of VAT and exemption of VAT: Zero rate of VAT Exemption of VAT 1. Zero rate means that the particular | 1. Exemption means that the particular supplies of goods and services are treated as | goods and services are exempted from taxable, but the rate of tax zero. payment of VAT under this Act. 2. Business dealing with zero related [2. Business supplying only exempt goodstransactions have to fulfill all the VAT | or services are not required to fulfill any formalities. VAT formalities. 3. VAT registration is required 3.No VAT registration is required 4. Input tax credit is allowed 4, Input tax credit is not allowed. Zero rates of VAT are used in following areas: a) Any goods and services exported or deemed to be exported from Bangladesh b) Research institutions whose activities are not carried out for profit ¢) Certain charitable institutions 4) Certain health bodies, for example, National Health Service Trust Q. What are the losses that cannot be carried forward? CMA Adapted ~ April 2013 Ans, As per the provisions of the ITO 1984, carry forward is not possible for any loss computed under the head “Income from securities’ and ‘Income from house property Q. State the provision of section 17 of the VAT Act, 1991 regarding self-registration. What are the procedures of registration under Rule 9 of the VAT rules, 1991. CMA Adapted — December 2012 Ans. ‘The provision of section 17 of the VAT Act, 1991 regarding self registration: 1. Any person exempted from registration may apply in the form and manner specified by rules, to the proper officer for voluntary registration, The proper officer shall register the applicant and give him a registration certificate mentioning therein his business identification number. 2. The person intended to be registered voluntarily, shall submit an application to the local VAT office 30 days before the commencement of the tax period in which he intends to be registered. The voluntarily registered person shall be required to pay VAT or where applicable, SD from the 1* day of the period subsequent to the date of registration, ‘The procedures of registration under rule 9 of the VAT Rules, 1991: 1. If the annual turnover of the supplier of taxable goods or services is not more than 70 lac, he shall have to submit an application directly or through online for registration in the Form “Musak-6° to a divisional officer or to an officer not being below the rank of Assistant ‘Commissioner 2. If the turnover of any person exempted from registration exceeds 70 lacs during the continuous period of 12 months, in that case concerned person shall apply for registration to the above authority within 30 days of the expiry of such period3. Where more than one taxable goods or services are supplied or import or exports are made from the same place of manufacture or rendering of service, only one registration shall be required Q. Discuss offences and penalties as enacted under section 37 of the VAT Act, 1991 and under rules 4 and 35 of the VAT Rules, 1991. Ans, CMA Adapted — December 2012 Offences Penalties. 1 As per section 37 (1), ifany person: a) fails to apply for registration under this ‘Act even when it is necessary for him to apply. b) fails to submit a return within specified date ©) fails to inform the VAT officer about any change of information related to registration Fine of Tk. 10,000 to Tk. 20,000 Fine of Tk. 10,000 to Tk. 20,000 Fine of Tk. 5,000 to Tk. 10,000 2. As per section 37 (2), ifany person a) fails to submit return or submit false return b) fails to submit retum within the specified time though notice has been served twice on him A fine of an amount not less than equivalent amount not more than 0.50 times of the amount of tax (VAT and SD) payable upon or service. 3. As per section 37 (3), if any registered service provider or VAT deducting authority fails to deposit tax or fine or other dues to the Govt. treasury within prescribed time Shall have to pay the unpaid tax liability together with 2% per month as additional interest 4. As per section 37 (4), if a registered person fails to pay VAT within 3 months after notice has been served His business premises may be locked up and his registration may also be cancelled, 5. AS per rule 4(13a), ifa registered person fails to pay the turnover tax determined by the superintendent as per the rules He may be fined in maximum tate of Tk.5000 including excess 2 % tax per month on unpaid amount. 6. As per rule 35, if a registered person fails to comply with any provisions of the VAT Rules, 1991 shall be liable to ‘A penalty of an amount, being not less than 20% and not more than 75% of the amount of VAT (including SD). Q. What are the elements of a valid gift for gift tax purpose? Ans. CMA Adapted ~ December 2012 Following are the elements of a valid gift for gift tax purpose: 1. Transfer of existing property, either movable or immovable 2. Transfer must be made by one person (donor) to another (donee) 3. It must be transferred voluntarily4, Transfer must be made without or with inadequate consideration of money or money’s worth Q. What are the consequences if payment of advance tax is more or less than the required amount? CMA Adapted — August 2012 Ans. If payment of advance tax is more or less than the required amount, the following consequences are required i) If the amount of tax payable is determined on regular assessment and payment of advance tax is more than the required amount, the government shall pay simple interest at 10% per ‘annum on such excess payment. ii) If the amount on regular assessment and payment of advance tax is less than 75% of the required amount, the assessce shall pay, in addition to the balance of tax payable by him, simple interest at 10% per annum on the amount by which the tax so paid Q. State the provisions of law for determination of value U/S 5 of VAT Act, 1991. CMA Adapted — August 2012 Ans. ‘The provisions of law for determination of value U/S 5 of the VAT Act 1991 1. In case of imported goods, the value would be the transaction value as determined under section 25 or 25A of the Customs Act plus the amount of import duty, supplementary duty and all other duties and taxes, (if any), except advance income tax payable 2. In case of supply of goods, the value would be the price receivable by the producer or manufacturer or by the business person from buyer which includes the cost of raw material, all cost of manufacture or production and where applicable, any commission, charge, fee, all other duties and taxes including SD (except VAT) and profit 3. In case of rendering service, VAT shall be imposed on the total receipts. 4. Goods on which trade discount is allowed, VAT will be charged on the value of the goods after deduction of trade discount. Q. Explain the procedure of payments of VAT as provided under rule 23 and submission of returns under rule 24 VAT Act, 1991. CMA Adapted - August 2012 Ans, ‘The procedure of payments of VAT as provided under rule 23: 1. The board, in accordance to the rule can make provisions for advance payment including, fixation of time and procedures of payment of the VAT.2. The board may direct through official gazette to use stamp or special sign or mark on the body of the package or container of the goods, for the purpose of realizing value added tax. 3. The government may direct the service providers or receivers to collect or deduct VAT at source and deposit the same to the treasury through defined procedure. Where service provider being under foreign aided project have already paid all above mentioned VAT properly to the Government treasury VAT can not be deducted at source again from such parties Procedures of submission of returns under rule 24 VAT act 1991: ‘A manufacturer or producer or trader of taxable goods or renderer of taxable service shall submit a return to the concerned officer in the form and in the manner prescribed by rules for every tax period, showing there in all of his tax liabilities under this act within the specified date’ Following procedures are to be followed while submitting the VAT return 1. Every manufacturer or producer or businessman of taxable goods or renderer of taxable service shall have to deposit in the local value added tax office two copies of a return in Form “Musak-19° for each tax period within 10 working days of the month next after the tax period. But in case of an insurance company this time limit will be 20 working days: 2. A person, who supplies or exports goods after manufacturing, shall have to attach, along, with the return, the following documents, namely: ) Original copy of the current account, ) Any other documents claimed by the commissioner Q. What are the provisions with regard to refund of VAT on exports? CMA Adapted — August 2012 Ans. ‘The tax payer can claim a refund of excess VAT or SD paid due to mistake or wrong, explanation and the above tax will be refund in accordance with the procedure prescribed by rules. ‘The provisions with regard to refund of VAT on exports 1. In the case of claim for refund of VAT, the applicant shall have to submit to the concerned divisional officer or Commissioner of the Custom House or any officer, not below the rank of Assistant Commissioner, authorized by him in this behalf, the refund claim in Form “TR-31’, within six months of the payment of the tax 2. The divisional officer or the officer-in-charge of the customs house can approve the refund claim upon verification, The officer approving the refund then shall send the refund bill to the ‘commissioner or the officer-in-charge of the custom house for pre-audit. If, on pre-audit, the bill is considered to be correct, the concerned officer shall, after counting signing it, preserveone copy of the bill for office record and send one copy to the concerned divisional officer. It shall have to be disposed of within 90 days of the receipt of the application for refund claim. Q. According to the ITO 1984, differentiate between the following: (i Income year and Accounting year Universal Self Assessment and Assessment after hearing CMA Adapted — April 2012 Ans. i) Differentiation between income year and accounting year: Income year: Income year means the financial year immediately preceding the assessment year. Thus, if the assessment year is 2010-11, financial year 2009-2010 is the income year. Accounting year ‘Accounting year is a twelve months period over which a company’s financial accounts are calculated. Generally accounting year starts from 1* January and ends on 31% December every year ii) Differentiation between universal self-assessment (USA) and assessment after hearing: ssessment sessment is the assessment where an assessee, either manually or electronically furnishes a correct and complete return of income and the Deputy Commissioner of Taxes shall receive such return himself or by any other official authorized by him and issue a receipt of such return either manually or electronically. Assessment after hearing Assessment after hearing is the assessment where a return or revised return has been filed and the Deputy Commissioner of Taxes is not satisfied without requiring the presence of the person who filed the return or the presence of evidence that the return is correct and complete Q. In accordance with the provisions of ITO 1984, distinguish the following between: (i Revision U/S 120 and Revision U/S 121A; Appeal U/S 153 or 157 and Appeal U/S 158; ) Reference U/S 160 and Reference U/S 162. (i CMA Adapted ~ April 2012 Answer: i) Distinction between revision U/S 120 and Revision U/S 121 A: Revision U/S 120: a) The inspecting Joint Commissioner may call for the record of any proceeding under this ordinance from the Deputy Commissioner of Taxes (DCT) and examine the record, if he considers that any order passed there in by the DCT is erroneous, he may after giving heardand after making such inquiry as he thinks necessary includes an order of enhancing or modifying the assessment or canceling the assessment or directing a fresh assessment b) No order shall be made after the expiry of four years from the date of order sought to be revised, Revision U/S 121 A: a) The commissioner may on an application made by the assessee, call for the record of any proceeding under this ordinance in which an order has been passed by any authority subordinate to him and may make such enquiry or cause such enquiry to be made. b) The application for revision of an order under this ordinance passed by any authority subordinate to the commissioner shall be made within 60 days of the date on which such ‘order is communicated to the assessee or within such further period as the commissioner may consider fit ii) Distinction between Appeal U/S 153 or 157 and Appeal U/S 158: Appeal U/S 153: An assessee being a company or not being a company may prefer an appeal to the Appellate Joint Commissioner of Taxes when he is not satisfied with the order of the Deputy Commissioner of Taxes. 1. Assessee not being a company: An assessee not being a company, may prefer an appeal against such order a) The amount of loss computed U/S 37, b) Assessment of income, ) Determination of liability to pay, d) Computation of tax including advance tax. 2, In case of a company: In case of a company, an assessee may prefer an appeal against such order: 1a) The amount of loss U/S 37, b) Assessment of income, ) Determination of liability to pay, 4) Computation of tax including advance tax. Appeal U/S 157: Any person dissatisfied by an order of Tax Recovery Officer (TRO), may within 30 days from the date of such order, appeal to the Inspecting Joint Commissioner (IJC) to whom the ‘TRO is subordinate and decision of the IC on such appeal shall be final Appeal U/S 158: a) Appeal made hy the assessee: An assessee may appeal to the Appellate Tribunal if he is not satisfied by an order of an Appellate Joint Commissionerb) Appeal made by the Deputy Commissioner of Taxes: The Deputy Commissioner of ‘Taxes may with the prior approval of the Commissioner of Taxes, prefer an appeal to the Appellate Tribunal against the order of an Appellate Joint Commissioner. Reference U/S 160 and Reference U/S 162: Reference U/S 160: a) The assessee or the Commissioner may, within 90 days fiom the date of receipt of the order of the Appellate Tribunal communicated to him by application in prescribed form, accompanied in case of an application by the assessee by a fee of Tk. 2000 refer to the High Court Division any question of law arising out of such order. b) Before filling the appeal the assessee has to pay 25% of the differential amount specified by the ITO, 1984 when tax demand does not exceed Tk. 10 Lae. The requirement is 50% if tax demand exceeds Tk. 10 lac. Reference U/S 162: An appeal can be filed against the judgment of the High Court Division, in case of the following provisions: a) An appeal shall be lie to the appellate division from any judgment of the High Court Division which the High Court certifies to be a fit one for one appeal to the Appellate Division. b) The provisions relating to costs and payment of tax shall apply in case of an appeal to the Appellate Division as they apply to a reference to the High Court Division L/S 160. Q. Discuss the limitations of the carry forward of losses. CMA Adapted — April 2012 Ans. ‘The limitations of the carry forward of losses’ {) Where the assessee is a firm, the loss incurred by the firm under any head of income shall be set off only against the income of the firm under any other head and not against the income of any of the partners of the firm. ii) No person shall be entitled to set off the loss ftom business or profession against his income under any other head except he is the person who was incurring the loss, Q. What are the penalties those can be imposed for: (i) Non-submission of return in time, (ii) Concealment of income, (ii) Non-compliance of certain obligations, (iv) Improper use of TIN, CMA Adapted ~ April 2012 Ans,i) Penalties for non-submission of return in time: Where any person failed to submission of return in time without reasonable cause, the Deputy Commissioner of Taxes may impose upon such person a penalty amounting to 10% of tax impose on last assessed income, ii) Penalties for concealment of income: Where any person concealed his income or furnished inaccurate particulars of his income, the Deputy Commissioner of Taxes may impose upon such person a penalty of 10% of tax. Penalties for non-compliance of certain obligations: Where any person failed to comply certain obligations without reasonable cause, the Deputy Commissioner of Taxes may impose upon such a person a penalty not exceeding the amount of tax chargeable on the total income of such person iv) Penalties for improper use of TIN: Where any person used Tax-payer’s Identification Number (TIN) of another person or used fake TIN without reasonable cause, the Deputy ‘Commissioner of Taxes may impose upon such a person a penalty not exceeding Tk. 20,000 ‘on that person. Q. Under what situations, Input Tax Credit is not allowed under the VAT Act, 19917 Or, Mention 5 points where input tax rebate is not entitled (as per related section of VAT Act, 1991). CMA Adapted — April 2012 Ans. Input tax credit is not allowed under the following situations under the VAT Act, 1991 VAT paid on inputs used in the production of exempted goods, Supplementary duty paid on input used in the production of goods or rendering of service, VAT paid on package re-usable at any other time except for the first time, VAT paid against expenditure on travel, entertainment, etc., VAT paid on the goods not recorded as per the prescribed method, VAT paid on such goods and services related to the construction, replacement, repair of any establishment, etc AvAUN= Q Write short notes on the followings: (i Capital assets; (ii) Double taxation relief; and (iii) Truncated value addi CMA Adapted — December 2011 Ans. i) Capital assets. Capital assets means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include a) Any stock-in-trade (not being stocks and share) or raw materials held for the purpose of his business or professions, ) Personal effects, that is to say, movable property including equipment, furniture and fixtures, which are held for personal useii) Double taxation relief: a) The government may enter into an agreement with the government of any other country for avoidance of double taxation with respect to taxation on income livable under ITO, 1984 and under the corresponding law in force in that country. b) Where any such agreement made with the government of any other country, they provided for. i) Relief from the tax payable under this ordinance, ii) Determining the income arising or deemed to be arising to non-residents from sources within Bangladesh, iii) Recovery of tax leviable under this ordinance and under the corresponding law in force in that country, iv) Exchange of information for avoidance of tax )) Truncated Value addition: ‘Truncated value addition is one where VAT is charged at the standard of 15% on the deemed or estimated value addition, Since it is based on a shortened value, input tax rebate can not be obtained excepting on exports or deemed exports, Several services where this type of VAT is levied are as follows: 1. Audit & Accounting 2. Survey Firms 3. Architect, Designer 4, Procurement providers 5. Motor Garage, Workshop Q What do you mean by prohibited goods under the Customs Act, 1969? Mention the new items included in the list of prohibited items under section 15 of the Customs Act 1969 effective from July 01, 2011. CMA Adapted — August 2011 Ans. According to Customs Act, 1969, prohibited goods are the goods that can not be imported into Bangladesh. ‘The items included in the list on prohibited items: a) Counterfeit coin, b) Counterfeit currency notes, ) Any obscene book, paper, painting, photograph, film, video or audio recording 4) Goods involving infringement of copyright, industrial design, patents within the meaning of the Copyright Act, 2000 and the Patent Act, 1911 Q. Where are the Baggage Rules applicable? Mention any 5 consumable items which are tax free under the Baggage Rules. CMA Adapted ~ April 2011Ans. According to Baggage (Import) Rules, 2006, baggage rules are applicable to the all passengers except the passengers of Tourists Baggage (Import) Rules, 1981 and has privileged person (Customs Procedures) Rules, 2003 ‘The § consumable items which are tax free under the Baggage rules: 1. Desktop and laptop computer with printer and UPS, 2. Audio CD player, 3. Video Camera, 4, Normal or Electrical Type writer, 5. Fax machine and computer scanner. Q. Write short note on: (a)Gain Tax (b) Premium Tax (c) Value Added Tax (d) Fees for Technical Services (e) Perquisite CMA Adapted ~ December 2010 Ans, a) Gain Tax Gain tax is the tax paid on capital gains, It is not a separate tax, just part of income tax. b) Premium tax: Premium tax is a tax paid on general insurance premiums, c) Value Added Tax: Value Added Tax is a type of indirect tax in Bangladesh. It refers to the tax applied on value added as per prescribed rate d) Fees for technical services: Fees for technical services means any consideration (including any lump sum consideration) for the rendering any managerial, technical or consultancy services, but does not include consideration for any constitution, mining or like project undertaken by the recipient. ©) Perquisite Perquisite means any payment made to an employee by an employee by the employer in the form of cash or in any other form excluding basic salary, festival bonus, incentive bonus, arrear salary, advance salary, overtime ete. Q. What are the deadlines of VAT returns submission? CMA Adapted — December 2010 Ans. A manufacturer or producer or trader of taxable goods or renderer of taxable service shall submit a VAT return to the concerned officer in the form and in the manner prescribed by rules for every tax period, showing therein all of his tax liabilities under this Act, within the specified date. Every manufacturer or producer or businessman of taxable goods or renderer of taxable service shall have to deposit in the local VAT office two copies of a retum in Form *Musak-19° for each tax period within 10 working days of the month next after the tax period. In case of insurance company the time limit will be 20 working days Q. Do you support imposition of Supplementary Duty? Why? CMA Adapted — December 2010 Ans. Yes, I support imposition of Supplementary Duty because it is applied to luxurious, non- essential and socially undesirable goods Q. Define Drawback, under what situations drawback is not allowed? CMA Adapted — December 2010 Ans. When any duties, such as supplementary duty (SD), excise duty, VAT, ete paid on imported ‘goods or locally manufactured goods can be drawn back other than AIT and SD on natural ‘gas on fulfillment of certain conditions, this is known as duty drawback Under the following situations drawback is not allowed: a) When proper document about export or deemed export is not available b) When drawback claim in each challan is below Tk. 100 c) Excess tax paid but not allowed for drawback as per rules, 4) Unless foreign currency is remitted to Bangladesh Bank Q. State the gifts that are exempted from Gift Tax under the Gift Tax Act, 1990. CMA Adapted — December 2010 Ans. ‘The gifts that are exempted from gift tax under the Gift Tax Act, 1990. 1. Gift of property situated outside Bangladesh, 2. Where the beneficiary is the government or any local authority, 3. Gifis to any educational institution recognized by any educational board established under ‘any law in force in Bangladesh or run by the government. 4. Gift to any hospital recognized or run by government or any local authority, 5. Gifls to dependent relative up to Tk. 20,000 on the occasion of his/her marriage, 6. Gifls under a will, 7. Gifls to a sons, daughter, father, mother, spouse, brothers and sisters, Q. Discuss the relevant sections of search and seizure by the customs officer. CMA Adapted — December 2010 Ans. According to section 158 of the Customs Act, 1969, an appropriate officer of Customs Authority may search any person if he has reason to believe that the person is carrying goods liable to confiscation. The person, who has landed within Bangladesh Customs Area, may be searched in this regardAccording to section 168 of the Customs Act, 1969, the appropriate officer may seize any goods liable to confiscation under this act and where it is not practicable the seize any goods, he may serve on the owner of the goods or charge an order that he shall not remove such goods without permission of such officer. Q. Discuss the procedure and time of paying VAT w/s 6 of VAT Act, 1991. CMA Adapted — August 2010 Ans. ‘The procedure of paying VAT w/s 6 of VAT Act, 1991: 1. The board, in accordance to the rule can make provisions for advance payment including fixation of time and procedures of payment of the VAT. 2. The board may direct through official gazette to use stamp or special sign or mark on the body of the package on container of the goods, for the purpose of realizing value added tax. 3. The government may direct the service providers or receivers to collect or deduct VAT at souree and deposit the same to the treasury through defined procedure, Where service provider being under foreign aided project have already paid all above mentioned VAT properly to the Government treasury VAT can’t be deducted at source again from such parties, ‘The time of paying VAT U/S 6 of VAT Act, 1991: 1. VAT on imported goods shall be paid at the same time and the same manner as import duty is paid in accordance with the provisions of the customs act. 2. VAT will be payable upon goods manufactured for carrying out of business or on good imported, purchased or acquired by a registered or registerable person at the time of one of the following events whichever occurs first a) When the goods are delivered or supplied b) When an invoice relating to supply of the goods is issued ‘c) When part or full of payment is receive 3. VAT will be payable when a taxable service is rendered by a registered or registerable person during the operation of his business, at the time of any of the following activities, whichever occurs frst: a) When the service is rendered b) When an invoice relating to the service is issued ‘¢) When part or full payment is received Q. What is Truncated Base VAT? Mention 5 services where this type of VAT is levied. CMA Adapted ~ August 2010 Ans,Truncated base VAT: Truncated base VAT is one where VAT is charged at the standard of 15% on the deemed or estimated value addition. Since it is based on a shortened value, input tax rebate can not be obtained excepting on exports or deemed exports 5 services where this type of VAT is levied are as follows: 1. Audit & Accountancy 2. Survey firms 3. Architect, designer 4, Procurement provider 5. Motor garage, workshop Q. Distinguish between Value Added Tax and Turnover Tax as per Value Added Tax Act, 1991. CMA Adapted — August 2010 Ans, Distinction between VAT and Turnover Tax as per VAT Act, 1991. turnover of Tk. 60 lac, have to pay 15% tax on their value addition. VAT ‘Turnover Tax I. Importers, manufacturers and service | 1. If the annual tumover of any taxable providers, having minimum annual | goods supplier or service provider is not more than an amount of Tk. 70 lac and who is not required to be registered under section 15, he shall pay turnover tax @ 3% on the annual turnover, 2 Rebate is applicable for input at output stage 2. Rebate is not applicable 3. Registration can be done for any amount of turnover. 3. If the turnover does not exceed of Tk. 70 lac, any person can register under turnover tax Q. Why is Baggage rule necessary? Mention at least 5 consumable items which are tax free under baggage rule. Ans. CMA Adapted - August 2010 Baggage rules are necessary for the following purposes; 1. To make a discipline of baggage, 2. To control huger product import, 3. To protect domestic market against foreign market, 4. To control passengers unethical, illegal product manner, 5. It isa source of government revenue The 5 consumable items which are tax free under the Baggage rules: Desktop and laptop computer with printer and UPS, 1 2. Audio CD player, 3. Video Camera, 4, Normal or Electrical Type writer, 5. Fax machine and computer seanner.Q. Discuss Bill of Entry as per section 79 of the Customs Act, 1969 CMA Adapted — August 2010 Ans. “Bill of entry” means a bill of entry delivered under section 79 and includes an electronically transmitted bill of entry in such case and in such manner containing such particulars as the Board may specify. Q. What docs PSI stand for? Do you think PSI system is necessary for the Government, Why? CMA Adapted ~ August 2010 Ans. PSI stands for Pre Shipment Inspection. PSI companies carry out the inspection, The government may appoint pre shipment inspection and Audit agencies as per Customs Act, 1969 to verify and certify the quality, quantity, price and description of any imported goods before bordered by the exporters on vessel or air craft Yes, I think PSI system is necessary for the government because by PSI system the government can inform the quality, quantity, price and description of any imported goods Q. Differentiate the following terms (as per ITO, 1984): (a) Assessment year, Income year, Accounting year and Fiseal Year; (b) Salary and Profits in lieu of salary; (c) Resident and Non Reside (a) Partner and Person; and (e) Normal assessment and Universal self assessment. CMA Adapted — August 2010 Ans. a) Differentiation between assessment year, income year: counting year and fiscal Assessment year. ‘Assessment year means the period of 12 months starting on the 1* day of July every year. “Thus assessment year is July 01, 2018-June 30, 2019, Income year: Income year means the financial year immediately preceding the assessment year. Thus, if the assessment year is 2018-19, financial year 2017-2018 is the income year. Accounting year Accounting year is a twelve months period over which a company’s financial accounts are calculated. Generally accounting year starts from I* January and ends on 31% December every year.Fiscal Year: Fiscal year is a 12 months period that a company or government uses for accounting purposes and preparing financial statements. b) Differentiation between salary and profits in lieu of salary: Salary Salary includes any wages, annuity, pension or gratuity, commissions, fees, allowances, perquisites or profits in lieu of salary etc. Profits in lieu of Salary Profits in lieu of salary includes the amount of compensation due to or received by an assessee from his employer for the termination or modification of any terms and conditions relating to his employment. ¢) Differentiation between resident and non-resident: Resident: Resident in respect of any income year, means an individual who has been in Bangladesh ~ fora period of 182 days or more in that year, or - for a period of 90 days or more in that year having previously been in Bangladesh for a period of 365 days or more during 4 years preceding that year. Non-resident: Non-resident means a person who is not a resident 4) Differentiation between partner and person: Partner: Partner has the same meaning as assigned to it in the Partnership Act, 1932 and includes a person who has been joined to the benefits of partnership. Person: Person includes as individual, a firm, a company, an association of person and local authority. Q. Assume you are a Manager, VAT affairs of a manufacturing company. Which books of accounts you must maintain to comply law? How long will you preserve the books and records? CMA Adapted ~ April 2010 Ans. Asa VAT affairs manager of a manufacturing company, I must maintain the following books of accounts to comply law: 1. Purchase accounts register: In this register, information relating to purchase of taxable and tax-exempted goods or purchase of service will be recorded, 2. Sales accounts register: In this register, information relating to supply of taxable and tax- ‘exempted goods or rendering of service or export of such goods or service shall be recorded,3. Invoice register: Invoices printed according to Form ‘Musak-11° and where applicable, in form “Musak-11A” shall be maintained 4. Current account register: In this register, the description of transactions the amount of payable output tax, ete. are recorded ‘The time limit for preservation of books and records: According to the rules, a registered person who has obligation to preserve the above books and records, shall have to preserve the records in BD for at least 4 years following ‘completion of the tax period to whieh it relates, So, I will preserve the books and records for the mentioned time period Q. Define ‘Export’ and ‘Deemed Export’ as per changes made by Finance Act, 2009 for VAT Act, 1991? CMA Adapted ~ April 2010 Ans. Export: Export is defined as to more products to another country for the purpose of trade or sale Export is defined as to send goods or services across national boundaries for the purpose of sale Deemed export: It means any of the following activities: - Supplies to organization in EPZs or local 100% export oriented organizations; - Supplies of fuels and other goods to international flights. - Supplies against international tender in foreign currency made by registered person in Bangladesh. - Export of goods, imported on temporary basis in accordance with prescribed rule. Q Distinguish between appellate commi Tribunal of Customs and VAT? ner of customs and VAT and Appellate CMA Adapted — April 2010 Ans. Distinction between Appellate Commissioner of Customs and VAT of Customs and VAT and Appellate Tribunal Appellate Commissioner of Customs and VAT. Appellate Tribunal of Customs and VAT T. The appellate commissioner of Customs and VAT js appointed by NBR and work under the direct control of the board. T, The appellate Tribunal of Customs and VAT is the highest judicial authority and the members of this are appointed by the overnment, 2. The aggrieved assessee may appeal to them against the decision of the Additional Commissioner or any VAT officer below that rank 2. The aggrieved assessee may appeal to them against the decision of the commissioner,Appellate Commissioner or any VAT officer of equivalent rank, 3. Ithas administrative authority 3. Ithas judicial authority.a finguish between ‘Rebate’, ‘Drawback’ and ‘Refund’ as per VAT Act, 1991. CMA Adapted — April 2010 Ans. Distinction between ‘Rebate’, “Drawback” and ‘Refund’ as per VAT Act, 1991 Rebate: Input tax paid by a registered person on the inputs imported or purchased by him can be adjusted under certain sections of the VAT Act or Rules, ete. against output tax liability in the current account for a certain tax period which is called input tax rebate Drawback: When any duties, such as SD, excise duty, VAT ete paid on imported goods or locally manufactured goods can be drawn back other than AIT and S.D. on natural gas on fulfillment of certain conditions. This is known as duty drawback Refund: Refund of VAT means received of any excess payment of VAT or TOT where applicable as per section 67 Q. What are the salient features of valid gift? Who can make a valid gift? CMA Adapted ~ April 2010 Ans, ‘The salient features of a valid gift: 1. Transfer of existing property, either movable or immovable 2. Transfer must be made by one person (donor) to another (donee) 3. It must be transferred voluntarily 4. Transfer must be made without or with inadequate consideration of money or money’s worth The person can make a valid gi Every Bangladeshi person can make a valid gift who has the ability to provide or donate any existing movable or immovable domestic property made voluntary and without any consideration or money or money’s worth. Q. What consequences an importer shall fall if he fails to submit mandatory PSL certificate? CMA Adapted — December 2009 Ans. If.an importer fails to submit mandatory PSI (Pre Shipment Inspection) certificate, he shall be liable to pay PSI service charge at the rate determined by the government by the notification published in the official gazette and a penalty not exceeding the value of the goods but not Jess than 10% of the value of the goods Q. Discuss the importance of VAT as a source of revenue in the national economy? CMA Adapted ~ August 2009 Ans,‘The importance of VAT: 1. VAT has more revenue potential than other alternative indirect taxes, 2. Since VAT is carried through the retail level, it offers all the economic advantages of a tax. 3. VAT gives the Government the opportunity to bring back into the tax system all those persons who were give tax exemptions, Q. What are the legal obligations to get a VAT registration? What are the procedures for getting such registration? CMA Adapted — August 2009 Ans. ‘The legal obligations to get a VAT registra 1. Suppliers of a taxable goods and services, 2. Importers of any goods, 3. Exporters of goods and services ‘The procedures for getting VAT registration: 1. If the annual turnover of the supplier of taxable goods or services is not more than Tk. 70 Lakhs, he shall have to submit an application directly or through online for registration in the form “Musak-6' to a divisional officer or to an officer not being below the rank of Assistant ‘Commissioner. 2. If the turnover of any person exempted from registration exceeds Tk 70 Lakhs during the continuous period of twelve months, in that case concerned person shall apply for registration to above authority within 30 days of the expiry of such period 3. Where more than one taxable goods or services are supplied or import or exports are made from the same place of manufacture or rendering of service only one registration shall be required. Q. Write short notes on: (a) Baggage Rule, (b) Special Bonded Warehouse, and (©) Bill of Entry. CMA Adapted - August 2009 Ans. a) Baggage Rule: Every passenger entering or leaving a country’s border has to pass through customs check On his arrival the passenger is first cleared by immigration officer. Thereafter the passenger takes the delivery of his baggage from customs through passes. According to Baggage (Import) Rules, 2006, Baggage Rules are applicable to the all passengers except the passengers of Tourists Baggage (Import) Rules, 1981 and his privileged person (customs procedures) Rules, 2003. ‘The 5 consumable items which are tax free under the Baggage rules: 1. Desktop and laptop computer with printer and UPS, 2. Audio CD player,3. Video Camera, 4, Normal or Electrical Type writer, 5. Fax machine and computer scanner b) Special Bonded Warehouse: Special bonded warehouse means a private warehouse licensed under section 13 and which is 100% export oriented industry to be determined as such by the Board for the purpose of exemption from the provision of sub section 12 of Section 91 ©) Bill of entry: Bill of entry means a bill of entry delivered under section 79 and includes an electronically transmitted bill of entry in such case and in such manner containing such particulars as the Board may specify Q. What is Truncated System of VAT? Who are entitled to pay VAT under this system? CMA Adapted ~ April 2009 Ans, ‘Truncated system of VAT: ‘Truncated system VAT is one where VAT is charged at the standard of 15% on the deemed or estimated value addition, Since it is based on a shortened value, input tax rebate can not be obtained excepting on exports or deemed exports, Under this system, VAT shall be payable by: ~ the importers in case of import - the suppliers in case of goods manufactured in Bangladesh - service providers in case of service providing Q. What do you understand by PSI? Who are authorized to issue CRF? CMA Adapted — April 2009 Ans. PSI stands for Pre Shipment Inspection. PSI companies carry out the inspection, The government may appoint pre shipment inspection and Audit agencies as per Customs Act, 1969 to verify and certify the quality, quantity, price and description of any imported goods before bordered by the exporters on vessel or air craft. ‘The pre shipment inspector and audit agencies are authorized to issue CRF (Clean Report of Findings). If no discrepancies and other anomalies are detected or detected anomalies are corrected and NNRF can be cancelled. Then the ageney will issue a CRF. Q. Who are entitled to apply and get a Bond License? What requirements are to be fulfilled to apply and to get a bond license? CMA Adapted ~ April 2009 Ans, ‘The importers who imports dutiable goods for himself or being imported on his behalf are entitled to apply and get a bond license. Custom authority issues bond license to the importerfor selected types of imported goods and for the goods in respect of which facilities for deposit in a public warehouse are not available. For getting a bond license, one should apply to the commissioner of customs (Bond) in a prescribed form along with the following documents: 1. Guarantee by a respective bank of the importer in non-resident stamp, 2. Registration certificate of Board of Investment 3. Declaration of total production capacity, 4. Updated valid trade license, 5. Import and export registration certificate, 6. Tax and VAT registration certificate 7. List of machineries used in the factory, 8. Copy of insurance policy of the factory. Q. What type of information are generally req) return by an individual tax payer? d to be provided in IT-Il ie., in CMA Adapted ~ April 2009 Ans, As per ITO, 1984 an individual tax payer is generally required to provide the following basic information in IT-II ) Information about residence, whether: i) Resides is the house owned by the assessee ii) Resides in the rented house iii) Resides in a house provided by the employer iv) House furnished by the employer or self furnished ) Information regarding vehicle, whether: i) Vehicle is owned by the assessee or owned by the employer ii) Expense for maintenance or the vehicle borne by the assessee or by the employer ) Type of vehicle c) Annual expense on electricity 4d) Information regarding children (if any) studying in a school, college or university stating the same of the institute, number of children, and expenditure during the year. ¢) Information regarding foreign visit(s) during the year.BASICS OF TA Appellate Joint Commi ner of Taxes [Section 2(4)]: “Appellate Joint Commissioner of Taxes” means a person appointed to be an Appellate Joint ‘Commissioner of Taxes under section 3 Assessee [Section 2(7)]: “Assessee” means a person by whom minimum tax is payable under the Income Tax Ordinance, 1984 Assessment [Section 2(8)]: “Assessment” includes re-assessment and additional or further assessment. Assessment year [Section 2(9)]: “Assessment year” means the period of twelve months commencing on the first July every’ year Capital asset [Section 2(15)]: “Capital asset” means property of any kind held by an assesse, whether or not connected with, his business or profession, it does not include — a) any stock-in-trade (not being stock and shares), consumable stores or raw materials held for the purpose of his business or profession; and b) personal effects, that is to say, movable property (including wearing apparel, jewellery, furniture, fixture, equipment and vehicles) which are held for personal use. Company [Section 2(20)]: “Company” means a company as defined in the Companies Act, 1913 or the Companies Act, 1994 Deputy Commissioner of Taxes [Section 2(23)|: “Deputy Commissioner of Taxes” means a person appointed to be a Deputy Commissioner of ‘Taxes under section 3 Di jend [Section 2(26)]: “Dividend” includes — a) any distribution of accumulated profits by a company, whether capitalized or not;») any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether such accumulated profits have been capitalized or not; c) any payment by a private company of any sum by way of advance or loan to a shareholder Fair market value [Section 2(30)]: “Fair market value” means, in relation to capital asset, the price which such asset would ordinarily fetch on sale in the open market on the relevant day, and, where such price is not ascertainable, the price which the Deputy Commissioner of Taxes may, with the approval in writing of the Inspecting Joint Commissioner of Taxes, determine Fees for technical services [Section 2(31 “Fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient, or consideration which would be income of the recipient classified under the head “Salaries” Income [Section 2(34)]: “Income” includes a) any income, receipts, profits or gains, from whatever source derived, chargeable to tax under any provision of the Income Tax Ordinance, 1984; b) any amount which is subject to collection or deduction of tax at source under any provision of the Income Tax Ordinance, 1984; c) any loss of such income, profits or gains; d) any amount on which a tax is imposed: e) any amount which is treated as income under any provision of the Income Tax Ordinance, 1984, Income year [Section 2(35)]: “Income year” means a) in case of bank, insurance or financial institution or any subsidiary therefore the period of twelve months commencing from the first day of January of the relevant year; b) in any other case the period of twelve months commencing from the first day of July of the relevant year. Non-resident [Section 2(42)]: “Non-resident” means a person who is not a resident Profits in lieu of salary [Section 2(50)]: “Profits in lieu of salary” includes the amount of compensation received by an assesee from his employer at the termination of or the modification of any terms and conditions relating to his employmentResident [Section 2(55)|: “Resident”, in respect of income year, means an individual who has been in Bangladesh — i) for a period of 182 days or more in that year; ii) for a period of 90 days or more in that year having previously been in Bangladesh for a period of 365 days or more during four years preceding that year Salary [Section 2(58)]: “Salary” includes — a) any pay or wages; b) any annuity, pension or gratuity; ¢) any fees, commission, allowances, perquisites or profits in lieu of salary; 4) any advance of salary; ¢) any leave eneashment,INVESTMENT ALLOWANCE (In the assessment year 2018 — 2019) Specific tax rebate on investment allowance is applicable up to a maximum limit. Maximum limit will be 25% of total income excluding employer’s contribution to Recognized Provident Fund (RPF) and interest thereon or Tk.1,50,00,000; whichever is lower. Rate of tax rebate Total income amount Tax rate Up to Tk.10 lac 15% on allowable investment allowance More than Tk.10 lac butlessthan Tk 30 lac [On the first Tk25 lac of allowable investment allowance @ 15% On the balance amount @ 12% More than Tk.30 lac On the first Tk25 lac of allowable investment allowance @ 15% On the next Tk.S lac of allowable investment allowance @ 12% On the balance amount @ 10% Following expenses are included in investment allowance: 1. Both employees and employers contribution to RPF 2. Employees contribution to government or statutory provident fund 3. Employees contribution to benevolent fund or group insurance scheme 4, Purchase of share of a listed company 5. Purchase of primary or secondary share 6. Purchase of one computer up to Tk.50,000 or one laptop up to Tk.1,00,000 7. Contribution to Deposit Pension Scheme (DPS) up to Tk.60,000 8. Life insurance premium paid for assesse, spouse or minor child up to a maximum limit 10% of policy value 9. Life insurance premium paid by a Hindu Undivided Family 10. Purchase of debenture from primary market 11, Purchase of savings certificate 12. Contribution to President Relief Fund 13, Contribution to Government Zakat Fund 14, Contribution to Ahsania Mission Cancer Hospital 15, Purchase of share of a Public Limited Company 16, Employees contribution to superannuation fund 17. Contribution to Bangabondhu National Museum 18, Purchase of government treasury bond 19. Donation to recognized high school 20. Donation to recognized welfare fund 21. Donation to charitable hospital approved by National Board of Revenue (NBR) 22. Contribution to old age fund 23. Donation to blind schoo! 24. Purchase of Investment Corporation of Bangladesh (ICB) certificate25, Contribution to Aga Khan Development Foundation 26. Purchase of approved debenture 27. Donation to ICDDRB 28. Donation to socio-economic or cultural development institution established by Aga Khan Development Foundation 29, Donation to Asiatic Society of Bangladesh 30. Donation to Muktijudha JadugharCLASSIFICATION OF INCOME Under section 20 of the Income Tax Ordinance, 1984, income is classified and computed on the basis of following seven sources 1. Income from salaries (Section 21) 2. Income from interest on securities (Section 22 & 23) 3. Income from house property (Section 24 & 25) 4, Income from agriculture (Section 26 & 27) 5. Income from business or profession (Section 28, 29 & 30) 6. Capital gains (Section 31 & 32) 7. Income from other sources (Section 33)INCOME FROM SALARIES (SECTION 21) Elements of salary 1. Followings are fully added with salary: a) Basic salary b) Dearness allowance c) Bonus 4) Commission and fees e) Leave encashment ) Annuity g) Profit in lieu of salary h) Profit in addition to salary i) Educational allowance to children j) Employer’s contribution to Recognized Provident Fund (RPF) k) Employer’s contribution to superannuation fund 1) Employer's contribution to approved gratuity find m) Employer's contribution to life insurance policy n) Servant allowance 0) Compensation p) Overtime q) Residence telephone bills/ utility bills/ club bills reimbursed 2. Pension: Fully exempted. 3. Accrued salary: Full amount will be added with salary if not taxed in earlier. 4, Advance salary: It is added with salary in the income year when it is received and it is excluded from the salary in the income year when it is adjusted since tax has already paid on that amount. 5. Outstanding salary: Outstanding salary of a particular income year will be added with salary in that ineome year and it is excluded from the salary in the income year when it is received since tax has already paid on that amount. 6, Entertainment allowance: Full amount will be added with salary. But nothing will be added with salary for free cofve, tea, beverage or like that. 7. Gratuity (STRSTR): Excess of T.2.5 crore will be added with salary. 8 Medical allowance: When any amount is received or receivable as medical allowance, the amount exceeding 10% of basic salary or Tk.120,000 annually, whichever is lower shall be added with salary. itis fully exempted for government service holder 9, House rent allowance given in cash: When house rent allowance is given in cash, amount exceeding 50% of basic salary or £k,25,000 per month, whichever is lower shall be added with salary. Itis fully exempted for government service holder.10. Rent free accommodation: When furnished or unfurnished rent free accommodation is provided to the assesse, the rental value of the accommodation or 25% of basic salary, whichever is lower shall be added with salary 11. Accommodation at a concession rate: When accommodation is given at a concession rate, the rental value of the accommodation or 25% of basic salary, whichever is lower shall be added with salary after deducting the actual rent paid by the assesse. 12. Conveyance allowance given in cash with no car facility: When conveyance allowance is given with no car facility, amount exceeding Tk,30,000 annually will be added with salary. 13. Car facility with no conveyance allowance: When car facility is provided, partly or fully for personal use of the assesse, 5% of basic salary or Tk,60,000 whichever is higher will be added with salary. But if car facility is provided fully for official purpose, nothing will be added with salary. 14, Car facility with conveyance allowance: If conveyance allowance is given in cash along with car facility, both the 5% of basie salary and the amount of conveyance allowance given in cash will be added with salary. In this case no exemption is applicable 15. Contribution to RPF: Only employer's contribution to RPF will be added with salary, not the employee’s contribution 16, Interest on RPF: Amount of interest exceeding 14.50% of gross amount or bed of basic salary, whichever is lower will be added with salary. Here, salary means basic salary and dearness allowance 17. Contribution to Unrecognized PF: Nothing will be added with salary 18. Interest on Unrecognized PF: Nothing will be added with salary. 19. Contribution to Statutory PF: Nothing will be added with salary. 20. Interest on Statutory PF: Nothing will be added with salary 21. Contribution to Group Insurance Scheme: Nothing will be added with salary 22. Contribution to Deposit Pension Scheme: Nothing will be added with salary. 23, Accumulated balance from RPF: Fully exempted. 24, Income as house tutor: Full amount will be added with salary. 25. Traveling allowance to travel within Bangladesh or abroad: If the traveling allowance is provided by the employer to an employee (including the members of his household and dependent) in accordance with terms of employment, amount exceeding actual expenditure shall be included in the income of employee. But if it is not provided in accordance with terms of employment, the whole amount shall be included in the income of employee. It is fully exempted for government service holder.EXAMPLES Q-1: Mr. Karim is an Accountant of a private company in Bangladesh, Followings of the particulars of his income from salary for the year ended 30" June 2018 a) Basic salary Tk.30,000 per month; b) Dearness allowance 10% of basic salary: c) Two festival bonuses, each equal to one month's basie salary; 4) Conveyance allowance Tk.4,000 per month, ) Entertainment allowance Tk.200 per month (actual expense Tk.2,000); £) Medical allowance Tk.3,000 per month (actual expense Tk. 30,000); g) Personal mobile bill paid by the company Tk. 1,000 per month; h) Compensation received from previous employer Tk.60,000; i) Gratuity received Tk.40,000, {j) His contribution to an unrecognized provident fund is 10% of basic salary; k) He received interest on unrecognized provident fund Tk.2,500 @10%, ‘Compute his taxable income from salary. Solution: Assessee: Mr. Karim Income year: 2017 — 2018 Assessment year: 2018 -2019 Determination of total income Income from salary (Section 21): Taka Taka a) Basic salary (Tk 30,000 X 12) 360,000 'b) Dearness allowance (Tk.360,000 X 10%) 36,000 ) Festival bonus (Tk.30,000 X 2) 60,000 ‘d) Conveyance allowance (Tk4,000 X 12) 48,000 Less. Exempted 30,000 18,000 e) Entertainment allowance (Tk.200 X 12) 2.400 1) Medical allowance (Tk.3,000 X 12) 36,000 Less. 10% of basi salary Tk 36,000 or Tk.120.000 Whichever is lower 36,000 - [ g) Mobile bill paid by the company 12,000 h) Compensation received 60,000 i) Gratuity 40,0000 Less. Exempted (Full) 40.000 : ‘Total 548,400 Q-2: Mr. Azgor is a service holder. From the following particulars compute his taxable income from salary and investment allowance for the year ended 30” June 2018, a) Basic salary Tk-20,000 per month; b) Two bonuses, each equal to one month’s basic salary; c) He has been provided a rent free accommodation, the annual rental value of which is Tk.120,000; 4) He has been provided a car both for official and personal use;‘¢) Medical allowance Tk 4,000 per month; £) Company paid Tk.96,000 of various utility bills of his house during the year; g) His contribution to recognized provident fund (RPF) is 10% of basic salary. His employer also contributed the same to the fund; hy He received interest on RPF Tk.2,000 @10%; i) He contributes 2% of his basic salary to the Group Insurance Scheme; j) He has paid Tk.6,000 per month on a Deposit Pension Scheme Solution: Assessee: Mr. Azgor Income year: 2017 - 2018 Assessment year: 2018 - 2019 Determination of total income Income from salary (Section 21): Taka Taka a) Basic salary (Tk.20,000 X 12) 240,000 b) Bonus (Tk.20,000 X 2) 40,000 ) Rent free accommodation: Annual rental value 120,000, or, 25% of basic salary 60,000 Whichever is lower 60,000 @) Conveyance facility 5% of basic salary 12,000 or, 60,000 Whichever is higher 60,000 ) Medical allowance (Tk.4,000 X 12) 48,000 Less. 10% of basie salary Tk.24,000 or ‘Tk.120,000 Whichever is lower 24,000 24,000 1) Utility bills reimbursed 96,000, ) Employer's contribution to RPF 24,000 h) Interest on RPF @ 10% 2,000 Less. 14.5% of gross amount Tk.2,900 Tk.2,000 9 X45) or, 1/3" of basie salary Tk.80,000, Whichever is lower 2,900 : Total 524,400 Investment allowance Taka Employee's and employer's contribution to RPF(TK.24000X2) 38,000 Contribution to Group Insurance Scheme (Tk.240,000 X 2%) 4,800 Contribution to Deposit Pension Scheme (Tk.6,000 X 12) 72,000ASSESSMENT OF COMPANIES, RATE OF TAXES (In the assessment year 2018 — 2019) ‘Type of company ‘Tax rate 1. | a)Fornon-publicly traded co. (Unlisted to Stock Exchange) 33% b) For publicly traded co. (Listed to Stock Exchange) 25% (If any non-publicly traded co. transfers minimum 20% shares of its paid-up capital through IPO, it will get 10% tax rebate) 2. | a) For bank, insurance and financial institution (Except merchant bank) i) Ifnon-publicly traded 40% ii) If publicly traded 37.50% b) For merchant bank 37.50% 3___| Cigarette manufacturing co 45% 4. | Mobile phone operator co. a) If non-publicly traded 45% b) If becomes publicly traded by issuing minimum10% shares through Stock Exchange 40% (If any non-publicly traded mobile phone operator co. transfers minimum 20% shares of its paid-up capital through IPO, it will get 10% tax rebate) Admissible and inadmissible expenses: 1. Accounting depreciation is inadmissible and tax depreciation is admissible 2. Provision for bad debt or provision for doubtful account is inadmissible and actual bad debt is admissible 3. Perquisite or excess perquisite is inadmissible 4. Capital expenditures are inadmissible 5. Expenses from which Tax Deducted at Source (TDS) or Value Added Tax (VAT) at source is not deducted is inadmissible 6. Head office expense is inadmissible exceeding 10% of assessed business income or disclosed net profit 7. Any payment by way of royalty, technical fee, technical know-how fee is inadmissible exceeding 8% of assessed business income or disclosed net profit 8. Overseas traveling expense is inadmissible exceeding 1.25% of disclosed turnover (turnover means net sales) 9. Incentive bonus is inadmissible exceeding 10% of disclosed net profit 10, Non-business expenses are inadmissible 11, Reserves are inadmissible 12, Salary or allowance, if it is not paid by bank check or bank transfer or ift is paid by cash, it is inadmissible whose monthly salary or allowance is Tk. 15,000 or more 13, Charity is inadmissible 14, Income tax paid in advance is inadmissible and income tax refund is admissible 15, Reserve funds, welfare funds, sinking funds are inadmissible 16, Donation to unapproved institute is inadmissible 17. Interest expense on capital is inadmissible18, Fine, penalty and damages and expenses paid for infringement or violation of law is inadmissible 19, Fund embezzlement by an employee occur after office hour is inadmissible 20. Fund embezzlement by stranger occur during office hour is inadmissible 21. Personal expenses are inadmissible 22. Total gratuity is inadmissible and actual gratuity is admissible 23. Interest waived is admissible 24, Legal expense is admissible if itis for protecting business interest 25. Interest expense on overdraft to meet business expense is admissible 26. Expenses paid to partner, director, shareholder is inadmissible 27. Conporate Social Responsibility (CSR) expenditures are inadmissible 28. Underwriting commission is capital nature and hence inadmissible 29. Legal expenses are admissible up to income tax appeal 30, Legal expenses paid for income tax appeal is admissible 31. Unexplained expenses are inadmissible 32. Total free sample distribution is inadmissible and admissible up to the following rates: Pharmaceutical | Food, Cosmetics, | Other Company Company Toiletries Company Up to TKS crore of [2% oftumover | 1% of turnover 0.5% of turnover disclosed turnover ‘Above TK.S crore to Tk.10 | 1% 05% 025% crore Above Tk.10 crore 05% 0.25% 0.1% 33, Total entertainment expense is inadmissible and entertainment expense on assessed business income with the following rate is admissible On the first Tk.10 lac @ 4% On the balance @ 2%FORMAT OF COMPANY ACCOUNT Net profit Less. Income to be considered separately: Non-business income ‘Add: Expenses to be considered separately: Different expenses Add: Inadmissible expenses: Different expenses Less: Admissible expenses: Different expenses from to be considered separately Assessed business income Less: Allowable expenses Other different expenses from to be considered separately 5 “2 Rive wR BR SePROBLEMS P-1, HSB Lid,, a bank incorporated in Bangladesh, has submitted the following audited income statement showing profit before tax of Tk.558,000 for the income year 2017-2018 ‘when tax rate was 40%. You have been provided with the notes supporting the figures to ‘compute the tax liability of the bank for the respective assessment year: Particulars Taka| Taka Interest income ‘950,000 Interest paid on deposits and borrowings etc. 200,000 Net interest income 750,000 Income from investments 100,000 Commission, exchange and brokerage 60,000 Other operating income 81,000 Total Operating Income (A) 991,000 Less: Operating expenses Payment to employees (Including entertainment) | 215,000 Postage and telegrams 5,000 Rent, rates and insurance ete. 11,000 Legal charges 2,000 Directors’ fees 2,000 Auditors’ fees 1,000 Repairs to premises (Including depreciation) 60,000 Stationery, printing and advertisements 72,000 Stamps 3,000 Charges on loan losses 5,000 Other expenses of business 15,000 Total Operating Expenses (B) 391,000 Profit/(Loss) Before Provision (C) = (A-B) 600,000 Provisions: Specific provision 12,000 General provision 30,000 Total provision (D) 42,000 Total Profit(Loss) Before Taxes (C-D) 558,000 Supporting Information: a, Accounting depreciation charged was Tk. $0,000 whereas tax depreciation is Tk 80,000 b. Inadmissible expenses have been found as follows: Perquisites Tk. 50,000 Printing and Advertisement (capital nature) 40,000 Other expenses (tax is not deducted at sources) 10,000 ¢. Balance Sheet (extract) Paid-up Capital Tk. 2,000,000 Statutory Reserve 750,000 Retained Earnings 250,000 Dividend Equalization Fund 200,000d._ Classification of Loans and Advances: Unelassified Tk. 2,100,000 ‘Sub-standard 850,000 Doubtful 1,145,000 Bad/Loss 10,250,000 Income tax authority aecepted bad debts as loan losses to the extent of Tk. 5,000 ¢. Entertainment Expenses amounted to Tk.65,000 for the period. (CMA Adapted — December 2015 Solution: HSBC Limited Income year: 2017-2018 Assessment year: 2018 — 2019 ‘Computation of total taxable income and tax liability Particulars Taka Taka ‘Net profit as per audited accounts, 358,000 Less. Income to be considered separately 100,000 458,000 ‘Add, Expenses to be considered separately. ‘Accounting depreciation (a) 30,000 Provision for bad & doubtful debt 42,000 Entertainment expenses (e) 65,000 157,000 ‘Add. Inadmissible expenses Perquisites (b) 30,000 Printing and advertisement (6) 40,000 ‘Other expenses (b) 10,000 100,000 Total income 715,000 Less, Admissible expenses ‘Tax depreciation (a) 80,000 Provision for bad & doubtful debt 42,000 122,000 ‘Business income 593,000 Add. Income from investment 100,000 Net income 693,000 ‘Less, Entertainment (Note-I) 27.720 ‘Total taxable income 665.280 Calculation of tax liability: On Tk.665,280 @ 40% Tk.266,112 ‘Tax on excess profit @ 15% (Note-3) Nil Tk.266,112Notes: 1, Total loan outstanding irrespective of classifications amounted to Tk.14,345,000. Thus, 1% of the loan amounts to Tk.143,450. But, actual provision made amounts to Tk.42,000 which is less and therefore allowed. 2. The rate of allowable entertainment expenses is 4% on income of firs Tk.1,000,000 and 2% on rest, if any. Thus, in this case entertainment expense will be Tk.27,720 (Tk.693,000 X4%) 3. Calculation of excess profit under section 16C of the IT ordinance 1984: Core capital: aid up capital Tk.2,000,000 Statutory reserve 750,000 Retained earnings 50,000 Tk.3,000,000 Supplementary capital: General provision on unclassified loan (1%) Tk21,000 Dividend equalization fund 200,000 Tk 221.000 ‘Total capital (Tk.3,000,000 + Tk.221,000) = Tk.3,221,000 Profit: 50% therefore 1,610,550 Actual profit 665.280 Excess profit Nil P-2, From the following Profit and Loss Account for the year ended on 30th June 2018 of Ziska Pharmaceuticals Limited determine total income and tax liability, Ziska Pharmaceuticals Limited Profit and Loss Account For the year ended on June 30, 2018 Dr. Cr. Particulars Taka Particulars ‘Taka Director's Remuneration +2,30,000| Gross profit 18,75,000] Salaries & Wages 5,00,260) Dividend Income 150,000] Contribution to Provident Fund 44,000 Share Premium 1,50,000] Rent & Taxes 1,22,500) Sundry Income 65,000) Repairs and Operating Expenses 1,36,5 Loss on Sale of Supplies 87,5 Insurance 40,000 Legal Expenses 72,500 Audit Fees 29,04 Printing, Stationery and Postage 73,000 Compensation for Termination of a Staff) 50,0 Typewriter 29,74Advertisement Scientific Research Expense Provision for Bad Debt Depreciation Net Profit 240,000) Other Information: 1. During the year the company sold some of its supplies that remained unused for a long time in the storeroom. ‘The company sold the supplies for a loss of Tk.87,500 as the expiry period is very close and charged such loss against current years profit 2. The company has a trading liability with one overseas company to the tune of Tk.20,000 which has been totally waived by the overseas company under special agreement during the year 3. Rent and Taxes included VAT of Tk. 21,000 which was paid for importing a machine and it was not used during the relevant year. 4. Legal expenses included a sum of Tk. 50,000 spent for income tax appeal. 5. Provident fund is recognized by the income tax authority 6. The company recovered Tk 10,000 from bad debt that was written off earlier and was allowed, The amount so recovered was credited to sundry debtors account 7. Allowable depreciation Tk.2,92,000. 8. Repairs and operating expenses included Tk. 30,000 spent for installation of a second hand air conditioner in the flat of MD. 9. Sum of Tk.37,500 paid to an institution for the scientific research which is not approved NBR. CMA Adapted — August 2015 Solution: Ziska Pharmaceuticals Limited Income year: 2017 - 2018 Assessment year: 2018 - 2019 Computation of total taxable income Particulars ‘Taka ‘Taka Tacome from business or profession: Net profit as per audited accounts 461,500 ‘Add, Inadmissible expenses: Rent and taxes (to be extent of VAT) 21,000 Typewriter 29,740 Provision for bad debts 22,000 Repairs and operating expenses 30,000 ‘Amount paid for conducting scientific research 37,500 Depreciation 233,000 373,240, 834,740 Less. Expenses admissible but not shown. Depreciation 292,000 542,740 Add. Income not credited to P & L accountWaiver ofa trading liability 20,000 Bad debt recovered 10,000 30,000 572,740 ‘Less. Income received from non-business head, Dividend 150,000 Share premium 150,000, 300,000 Tncome from business 272,740 ‘Add, Non-business income: Dividend income 150,000 ‘Total income 422,740 Calculation of tax liability: Particulars Gross income | Tax | Amount of tax Tk rate Tk. Total income except dividend 272,740 | 35% 95,459 Dividend income 150,000 | 20% 30,000 Total tax liability 125,459 Notes: 1. Loss on sale of supplies is an allowable deduction as such supplies does not fall under capital asset as per the definition given in see. 2 (15). 2. As the company received waiver of a trading liability during the year, it should be shown as deemed income of the year [ws 19 (15) (aa)] 3. Sum of Tk.37,500 paid to an institution for scientific research which is not approved by NBR. P-3. M/S. Maple Leaf International is a multinational company doing business in Bangladesh. ‘The company filed return of income for the assessment year 2018-2019 showing net income of Tk.30.00,000. Examination of the audited statement of accounts filed with the return of income revealed the following (i) Salary includes Tk.3,30,000 paid to a Director working at the head office at California, He has never visited Bangladesh and no tax, as such, has been deducted at the time of making the payment, (ii) Head office expenses charged Tk.11,00,000. No evidence could be produced for this other than HO auditor's certificate. (iii) Fine Tk.11,000 paid for violation of customs law charged to P& L Account (iv) Two Nissan Petrol Jeeps purchased for Tk.45,00,000 during the year. Depreciation @) 20% charged on the full cost of the vehicles. (¥) To procure business Tk.10,00,000 has been paid as commission to a local agent. In making the payment, the provision of section 53E of IT. Ordinance, 1984 has not been complied with (vi) The company sold a motor vehicle for Tk.4,65,000. Original cost of the vehicle was ‘Tk.5,25,000 and the written down value was Tk.3,25,000. This has not been reflected in the accounts.(vii) Tk.15,000 donated to a non-recognized school (viii) Miscellaneous expenses include Tk.72,000 paid as salaries to three servants who are ‘working at the residence of the Managing Director. (ix) Conveyance expenses include Tk,2,20,000 paid for the plane fare of the wife and son of the Managing Director for the visit of the neighboring countries. (x) Interest expense claimed at Tk.33,50,000. ‘The company has outstanding bank loan of Tk.2.10 crores, The company advanced Tk.75,00,000 interest-free loan to a sister-coneern in Bangladesh. Required: From the above information compute total income of the company for tax purpose CMA Adapted — December 2014 Solution: M/s. Maple Leaf International Income year: 2017 — 2018 Assessment year: 2018 - 2019 Computation of total taxable income Particulars Taka Taka Net income 3,000,000 ‘Add. Inadmissible expenses Director's salary (i) (Note-1) 330,000 Head office expenses (ii) 1.100.000 Fine (iii) (Note-2) 11,000 Excess depreciation charged (iv) (Note-3) 100,000 Commission (v) (Note-4) - Revenue gain on sale of motor vehicle (vi) (Note-5) 140,000 Donation (vii) 15.000 ‘Miscellaneous expenses (viii) (Note-6) 172,000 Conveyance (ix) (Note=7) 55,000 Interest on bank loan (x) (Note-8) 1.196.429 3.119.429 Adjusted profit 6,119,429 Less. Admissible expenses: “Head office expenses (10% of disclosed net profit) 300,000 (Note- 9) ‘Total income 819.429 Notes: 1 Salary paid to a non-resident director without deduction of tax at source is inadmissible. 2. Fine or penalty for breach of law is not allowable expenditure. 3, Under the 3" schedule for depreciation purpose cost of each motor vehicle is restricted to Tk.20,00,000 and 20% depreciation on two vehicle therefore should be Tk.800,000 (Tk.20,00,000 X 2 vehicle X 20%) whereas on Tk.45,00,000 the company claimed Tk900,000 (Tk.45,00,000 X 20%). Excess of Tk.100,000 (Tk.900,000 — Tk.800,000) has been added back.4, Section 53E of ITO 1984 requires deduction at source on the payment of commission for distribution of assessee’s products, not for procurement of business for the company. 5. Revenue gain on sale of motor vehicle = Sale — Written down value = Tk.4,65,000 ~ Tk.3,25,000 =Tk.140,000 6. Miscellaneous expense added back with profit due to personal expenditure not related to business. 7. Assuming conveyance was provided on foreign travels for holidaying and recreation and as basic salary of the employee is not given in the question, so assuming that 3/4" of actual expenditure is lower. Here 3/4" of Tk.220,000 comes at ‘Tk.165,000. So, Tk55,000 (Tk.220,000 — Tk. 165,000) is disallowable as per rule 65. 8, Interest on borrowed capital is generally allowed when taken for business purposes. But borrowed fund given to the sister concern is not for the business and therefore, proportionate interest has been disallowed FA3350.000 74 75,00,000 = Tk 11,96.429 Tk 210,00,000 9, Head office expense is allowed up to 10% of disclosed net profit, ic., Tk.30,00,000 X 10% = Tk.3,00,000. P-4, Given below is the Profit & Loss A/c of Ananya Textiles Ltd., Savar, for the year ended June 30, 2018, Particulars Taka Particulars Taka Cotton’ 1,14,17,950 Sale of yarn 1,08,11,956 Stores 18,35,648 Sale of textile products 1,09.26,425 Mills salaries & wages 38,31,984 Export subsidy incentive 4,07,687 General expenses 29,010 Sale of waste 1,21,508 Replacement of plant Rent of bungalows 57,902 Machinery 20,39,000 Stamp duty registration legal Dividend 17,400 fees, ete 2,50,000 Interest on Savings Motor car overhauling expenses 15,000 Certificate 15,000 Purchase of two paintings for M_D's office 30,000 X-Mass gifts given to the foreign Contractor 10,000 Refreshment, food, drinks, etc. at once of its business meetings 25,400 Expenditure incurred on catering and refreshments for sharcholders and guests at general body meeting 50,600 Donation 10,000 Rates & insurance 40,376 Office expenses 2,40,694 Directors! Fees 9,000 Auditor's Fees 30,000Interest 211,850 Repairs to building & machinery 1,24,556 ‘Trade penalties, legal expenses & professional charges 1,20,000 Entertainment 249,700 Workmen's welfare expenditure 55,184 Contribution to staff provident fund 75,500 Provision for gratuity 1,50,000 Reserve for meeting contingent Liability 30,000 Loss for discarding ageing Machinery 205,397 Selling agent's commission 2,01,690 Net profit 10,6939 22357878 223.57878 ‘Compute the company’s total income and tax liability for the assessment year 2018-2019 taking into account: i) Sale of textile products includes Tk. 89,249 from export, ii) Payment of Mills salaries includes Tk. 75,000 for payment of tax for a foreign technician ‘engaged by the company’, iii) Expenses for stump duty, registration, legal fees, ete. amounting to Tk. 2,50,000 have incurred in raising loans, iv) Rates Tk. 1,800, Insurance Tk. 2,500 and Repairs to building Tk. 7,544 are in respect of bungalows, \) The break-up of trade penalties, legal expenses and professional charges for Tk. 1,20,000 is as follows: a) Trade penalties and law expenses constitute Tk. 20,000 bb) Assessee company has spent Tk. 50,000 for successfully defending all allegations of black-marketing ©) Professional charges include Tk. 20,000 paid to an income tax practitioner to represent the case to the Deputy Commissioner of Taxes and Tk. 30,000 to represent ‘an Income Tax Appeal before Appellate Tribunal vi) Donation includes Tk. 5,000 contribution to Zakat Fund; vii) The staff provident fund is a recognized one, viii) It is found that the amount of gratuity actually paid during the year was Tk. 1,00,000; ix) Dividend income is after TDS; x) The amount of depreciation allowable for assets used for the company's business is worked out at Tk. 5,51,710; xi) It is revealed that outstanding trading liabilities amount to Tk. 11,00,000. The date of origin of the trading liabilities are as follows: a) Assessment year 2009-2010, b) Assessment year 2010-2011 ) Assessment year 2011-2012 d) Assessment year 2012-2013 11,00,000 CMA Adapted — August 2014Solution: Mis Ananya Testiles Ltd Income Year: 2017 - 2018 Assessment Year: 2018 - 2019 Computation of taxable income Amount Amount Particulars (Tk) (Tk) Net profit 10,69,339 Less: Export subsidy/ Incentive for separate organization 407.687 Rent of bungalows (income from house property) $7,902 Dividend 17,400 Interest on PSP 15,000 497,989 571,350 Add. Inadmissible expenses: X-Mass gift given to foreign contractor 10,000 Donation (Adj.vi) 5,000 Rates, insurance & repairs (Adj.iv) (1800+2500+7544) 11,844 Trade penalties law expenses (Adj.v(a)) 20,000 Provision for gratuity 150,000 Reserve for meeting contingent liability 30,000 Entertainment expenses 2,49,000 Outstanding liabilities 330,000 Replacement of plant & machinery 2,039,000 2,865,544 3,436,894 Less: Gratuity paid (Adj.viii) 100,000 Depreciation (Adj.x) SS1710 651,710 2,785,184 Less: _ Entertainment expenses: First Tk. 10,00,000 @ 4% 40,000 Next Tk.17,85,194 @ 2% 35.205 75,704 27,09,480 Income from business: Income from export subsidy 143,047 (407,687 / 95) X (5 /0.15) Total business income 28,52,527 Income trom house property: Rental income that is annual value 57,902 Less: Repairs (57,902 X 25%) 14,475 Rates and insurance (Adj.ix) (1800+2500) 4.300 18,775Total income from house property 39,127 Income from other sources: Income from dividend 17,400 Interest on PSP 15,000 Less: Exemption 15,000 0 Total income from other sources 17,400 Total income 29,09,054 ‘Computation of tax liability ‘Tax on business income of Tk. 27,09,480 @ 15% being textile 406,422 Tax on cash subsidy of Tk. 143,047 @ 15% 21,457 Dividend @ 20% 3.480 Total tax 4.31359 Less. TDS on cash subsidy 21,457 ‘TDS on dividend 3.480 24.937 Net tax payable 406,422 ‘Test of minimum tax: 0.30% of Gross receipt of Tk. 2,23,57,878 67,074 Which is lower than tax at normal tax rate. So net tax playable will be 4,06,422 Notes: 1, Payment of employees tax for Tk. 75000 by the employer is exempted from tax on tax (Adjii) 2. Expense for stump duty, registration legal fees amounting Tk. 250,000 are allowable ‘expenses (Adj iii) 3. Professional and legal fees are allowable but fine and penalties for Tk. 20,000 are not considered (Adj.v( a,c) 4, Donation to zakat fund is not allowable expenses (Adj. vi) 5. Replacement of plant and machinery is capital nature 6. Purchase of two paintings for MD's office is a decoration expenses 7, Since the company is paying tax at reduced rate, tax rebate for export of Tk 89,13.249 could not be allowed (Adj.i) 8. Gift is an allowable expenditure, if given for business purpose. However, in absence of specific indication regarding purpose, one given to foreign contractor has been disallowed 9, The trading liability not cleared within 3 years of the expiration of income year is being considered as an incomeu/s 19 (15) ¢ of ITO 1984 (Adj.xi) 10. The amount of Tk. 50,000 being spent for defending the allegation of black marketing is not our allowable expenses (Adj. (b)) P-5, The following adjusted accounts appeared in the records of ABC Ltd. for the year ended December 31, 2017, Numbers in brackets refer to the items in Additional Information,Revenues and gains Tk.000 Net sales 126,000 Interest 1,000 (1) Gain on sale of shares 2.500 Q) 130,000 Cost and Expenses Cost of goods sold 65,300 Salaries and wages 26,000 (3) Security services 300 (4) ‘Audit and taxation services 500 Office rent 600 Donations 1800 (5) Board meeting attendance fee 300 (6) Other expenses 3,000 (7) Depreciation 8,000 (8) Corporate income tax 4500 (9) Total 110,300 Net profit 19,700 Dividends paid 9.000 (10) Additional Informati () Interest revenue comprises interest on government bonds issued in 2009 and purchased by ABC Ltd. in 2017. (2) Gain on sale of shares arose from the following purchase and sale of shares of a company listed with DSE and CSE: Bought in 2015 cost Tk.12,00,000 Sold in 2017 proceeds of sale ‘Tk.37,00,000 (3) Salaries and wages include inter alia salary of Finance Manager Tk.6,00,000 (consolidated) paid in cash (not by cheque or bank transfer), gratuity (unapproved) provision ‘of Tk.15,00,000 and gratuity payment of Tk. 10,00,000. (4) Security service include payments to a private security company. No VAT was deducted af source from such payments. (5) Donations were all paid in 2017 to ICMAB, specially designated for the purchase of library books, computers and training materials, (6) No income tax and VAT was deducted at source from Board meeting attendance fee paid to 10(ten) directors. (7) Other expenses include inter alia (a) Entertainment expenses of Tk.5,00,00 spent on MD’s birthday party; and (b) Four foreign travels of MD, each costing Tk 2,00,000. All foreign trips were for business purposes. (8) ABC Itd. has always used written down value depreciation and same depreciation rates for both accounts and tax purposes. (9) Corporate income tax is the amount estimated before preparation of the tax return, 60% of the estimated amount of tax has been paid as advance tax during the year 2017. (10) Dividends has been paid at the rate of 25%, ‘The company has a capital loss of Tk.10,00,000 carried forward from the assessment year 2015-2016. ABC Ltd. is a publicly traded company.Required: Compute the total income and the total income tax liability of ABC Ltd. while making the above computations, any no-compliances of the relevant provisions of the tax tax as well as VAT) by the company are to be considered strictly in accordance laws (income with the legal provisions for such non-compliances, If considered necessary, you may make assumptions in the light of the relevant tax provisions CMA Adapted ~ April 2014 Solution: ABC Ltd. Assessment year: 2018 - 19 For the year ended on December - 2017 ‘Computation of Total Income Net profit as per accounts Tk_1,97,00,000] Less: Income for consideration at separate head:~ (a) Interest ‘Tk.10,00,000/- (6) Capital gain on sale of shares Tk.25,00,000/- of listed companies Tk. 35,00,000/- Tk. 1,62,00,000/- ‘Add: Inadmissible Exp. (i) Salary and wages Tk_2,60,00,000/- (a) Salary of finance Manager Tk.6,00,000/- disallowed ‘as per provision of section 30()) being paid in each. not by crossed cheque of bank transfer ‘Tk. 6,00,000/- (© Gratuity provision Tk. 15,00,000 disallowed being ho Such provision is allowable w/s 29 of ITO 1984 ‘Tk. 15.00,000/- (© Gratuity payment Tk. 10,00,000disallowed being not ‘Approved by the NBR. Tk, 10,00,000/- ‘Tk. 31,00,000/- (2) Security service Tk 3,00,000 Disallowed fully under section 30(aa) being VAT was not deducted at source Tk. 3,00,000/-| (3) Donation...... Tk.18,00,000 Disallowed fully as it is not allowable business expenditure w/s 29. Moreover, Tk. 1,80,000/-| donation was made to ICMAB which is not approved Institution of NBR. So it will not be considered for CSR also. (4) Board Meeting Attendance fee Tk. 3,00,000 ‘TDS not applicable but VDS is applicable or Board meetings Attendance| fee. Tk. 3,00,000/-| AS VAT was not deducted at source from Board meeting attendance fee,| so disallowed such expense u/s 30(aa) (5) Other Exp. Tk. 30,00,000/- (a) Entertainment exp. of Tk. 5,00,000 Spent on MD’s birthday party which is personal expenditure and no such personal expenditure is allowable u/s 29 Tk. 5.00,000/-(b) Foreign travel for business purpose TK.8,00,000/- It is allowable u/s 30(k) up to 1% of the disclosed tumover which is Tk. 12,65,00,000 x 1% =k. 12,65,000/-, ‘As it is within limit, so nothing to add back from here. Tk. Nill (6) Corporate Income Tax Tk. 45,00,000 “Tax is not an expense and hence it is not allowable expenditure u/s 29, So disallowed corporate income tax fully Tk_45,00,0007- Tk, 88,80,000/- Tncome for Business or Profession’ Tk. 2,50,80,000/- Income from Interest on Securities (Sec. 22) Tk. 10,00,000/- Capital Gain (See. 31) ‘Capital Gain from sales of Shares of Listed Co. ‘Tk. 25,00,000/- Less: Capital loss of Tk. 10,00,000 for the A/Y 2015-2016 Carried forward for set off w/s-40 (Tk. 10,00,000 — Tk. 5,000) ‘Tk. 2,75.85,000/- Total Income ‘Tax Calculation: (1) Tax on income other than Capital Gain @ 25% (as dividend paid more ‘than 20%) Tk. 2,75,85,000 — 15,05,000 = 2,60,80,000 x 25% ‘Tk. 65,20,000/- (2) Tax on Capital Gain @ 15% as per SRO No. 269 of 2101 ‘Tk.15,05,000 x 15% Tk, 2.25,750/- Tk. 67.45,750/ ‘Add: Simple Interest for non-payment of adequate advance tax u/s 73 Tk. 67,45,750 x 75% = ‘Tk, 50,59,313/- Tess: Advance Tax paid = __Tk_27.00,000/- (45,00,000 x 60%) Tk 23,59,313 x 10% X 2 years Tk. 471,863 (Assuming it was not paid as per provision of section 64) for 2 years (From I April 2017 to 31™ March 2019) (Assuming date of assessment is 31.03.19) Tk. 72,17,613/- Less: Advanced Tax paid (60% of Tk. 45,00,000) 27.00.000/ Net Tax Payable Tk. 45,17,613/- Test of minimum tax: 0.30% of Gross receipt of Tk. 13,00,00,000= ‘Tk. 3,90,00,000/- Which is lower than tax at normal tax rate. So net tax playable will be Tk, 45.17,613/- Total income = Tk.2,75.85,000/- Net tax payable = Tk.45,17.613/-P-6, The profit and loss account of Care Pharmaceuticals for the year ended on June 30, 2018 reports net income of Tk, 20,00,000, A careful scrutiny of accounts and_ supporting documents revealed the following facts (a) During the year the company sold some of its pharmaceutical supplies that remained unused for a long time in the storeroom. The company sold the supplies for a loss of ‘Tk.150,000 as the expiry period is very close and charged such loss against current year’s profit. (b) The company recovered Tk. 20,000 from bad debt that was written off earlier and was allowed. The amount so recovered was credited to sundry debtors account. (©) The company had Tk. 80,000 interests due to Bangladesh Development Bank Ltd. in the income year 2013-14 and such interest was shown as allowable deduction in that year. Still, such interest remains unpaid. (d) The company has a trading liability with one overseas company to the tune of Tk.1,50,000 which has been totally waived by the overseas company under special agreement during this year. (©) During the year, the company sold one equipment for ‘Tk. 1,80,000 which was purchased at a total cost of Tk. 1,30,000 and had a written down value of Tk. 90,000 on the date of sale. The company reports Tk. 90,000 as gain on sale of equipment in the credit side of profit and loss account (©) Due to a sudden fire on the factory building, the extended portion of the building is totally destroyed and compensation received fiom the insurance company totaled Tk.2,50,000. In addition, the company realized an additional sum of taka 30,000 by selling the scrap. The extension was constructed at a total cost of Tk. 4,00,000 and depreciation charged to date amounts to Tk. 50,000 (g) The company sold a scientific apparatus used for scientific research for Tk. 80,000 which was originally purchased at Tk. 1,50,000 and fully depreciated. The sale proceed is not recorded at all (h) The company have had export quota for exporting garments to EU countries, As the company has recently changed the line of operation (switched from garments manufacturing to pharmaceuticals), it transferred the export quota to another garments manufacturer for an annual sum of Tk. 70,000. Such income is not reported at all (The company claimed investment allowance for new machinery installed during the year costing Tk. 10,00,000 which is entitled to accelerated depreciation. Bonus and commission to the field representatives at the rate of 4 months pay Tk 3,00,000 including 1 month’s pay as festival bonus, But the general practice of bonus and commission for the similar business is two months pay. (k) Sum of Tk. 1,20,000 paid to an institution for scientific research which is not approved by NBR. (Sum of Tk. 5,00,000 expended for establishing a hospital for the benefit of employees without any charge. The company has not claimed any other deduction or allowance (m) Salary of Tk. 5,00,000 and rent of Tk. 80,000 were paid without deducting tax at source (n) Payment of brokerage and commission of Tk. 60,000 made to a non-resident without deducting tax at source (0) Annual perquisites enjoyed by MD, Chairman and 5 members of Board of Director amounts to Tk. 22,00,000.©) @ o (s) oO (@) ) (w) Accounting depreciation charged to the account is Tk. 2,50,000 but tax depreciation amounts to taka 3,00,000 excluding the amount of accelerated depreciation on machinery. Value of the free sample distributed was Tk. 2,00,000. Annual tumover during the year was Tk. 80,00,000. Expenditure on foreign travels for holidaying and recreation of the employees and their dependents to the extent of the amount equivalent to three months basic salary of ‘Tk.3,60,000; actual expenditure being Tk. 4,00,000 and that the travel was not oftener than once in two years, Sum of Tk. 50,000 expended to train employees (Bangladeshi citizen) in connection with a scheme approved by the Board. ‘The company expensed a sum of Tk. 2,00,000 for visits abroad as a member of trade delegation sponsored by the government. Annual membership fee of Tk. 1,50,000 is paid to Bangladesh Pharmaceutical Society which is a professional institution recognized by the Board. Expenditure on publicity and advertisement, Tk. 3,00,000. Entertainment expenditure, Tk. 1,50,000. Required: Compute the total income of the company. (CMA Adapted - December 2013 Solution: Care Pharmaceuticals Status: Resident Company Income Year: 2017 - 18 Assessment Year: 2018 - 19. Particulars ‘Taka ‘Taka Income from Business or Profession: ‘Net Profit as per Profit and Loss Account 20,00,000) Add: —Inadmissible Expenses Excess Bonus paid to Field Representatives 1,20,000] Amount paid for scientific research not approved by ARR 120,000] Salary and Rent paid without TDS 5.80,000 Payment to Non-resident without TDS. 60,000] Excess amount of Perquisites 4,50,000 Accounting Depreciation 2,50,000 Excess cost of Free Sample 40,000] Excess amount in Holidaying and Reereation 60,000] _16,80,000] 36,80,000] Less: Expenses Admissible but not Shown ‘Accelerated Depreciation on Machinery (1 year) 5,00,000 ‘Tax Depreciation (Normal) 3,00,000| _ 8,00,000] 28.30,000 Add: Income not Credited to P/L Account Bad Debt Recovered 20,000 Interest due to BDBL 80,000 Waiver of a Trading Liability 1,50,000Sale proceed of Scientific Apparatus Receipt from transferring Export Quota Add: Revenue Profit on Sale of Equipment Less: Income received fiom Non-Business Heads Gain on Sale of Equipment Adjusted net profit before allowance for Entertainment Expenditure ‘Add: Entertainment allowance to be considered separately Less: Admissible Entertainment Allowance ‘Taxable income under the head business Non-Business Income: Capital Gain Total taxable income 80,000 70,000 4,00,000. 40,000 32,80,000) 40,000 90,000 33,20,000 90,000 32,30,000 1,50,000 33,80,000 87,600 32,92,400 Notes: 1. Loss on sale of supplies is an allowable deduction as such supplies does not fall under ‘capital asset as per the definition given in see 2(15) 2. Amount of bad debt recovered will be the current year profit and should be credited to the profit and loss account as such bad debt was allowed earlier 3. As the interest due to Bangladesh Shilpa Rin Sangstha is not paid within three years, such interest will be deemed to be current year's income 4, As the company received waiver of a trading liability during this year, it should be shown ‘as deemed income of the year 5. Computation of gain, capital gain and revenue gain from the sale of equipment: Particulars ony a 1, Sale proceeds 180,000 2 Initial costs 130,000 3. Capital gain (1-2) 50,000 4, Written Down Value 90,000 5. Revenue gain (2-4) 40,000 6. Gain on sale of equipment as shown in P/L account (1-4) 90,000 6. As the insurance compensation received (Tk. 250,000) is less than the amount of written down value of the building (Tk. 350,000), it is not taxable 7. Sale proceed of the asset used for scientific research shall be deemed income in the year of sale under section 19 (20)8, Calculation of the amount of excess bonus paid to field representatives Payment for 1 month, Tk. 60,000 (Tk. 300,000 + 5) So, allowable bonus will be Tk. 180,000 (2 months bonus and 1 month festival bonus, 60,000 X 3), Excess amount paid is Tk. 120,000 (Tk. 300,000 - Tk. 180,000) 9. The amount expensed for hospital is allowable deduction as it charges nothing against services from the employees and the company claims no deduction or allowance in this, regard 10, Calculation of excess amount of perquisites Allowable amount of perquisites to MD, Chairman and 5 Direetors will be Tk. 17,50,000 (Tk. 250,000 X 7) ‘Thus, excess amount of perquisites is Tk. 450,000 (Tk. 22,00,000 - Tk. 17,50,000) that is not allowed 11, Calculation of excess cost of free sample. ‘The allowable rate of free sample for a Pharmaceutical industry is 2% for annual turnover upto Tk. 5 crore, ‘The tumover of the company were Tk. 8,000,000 and free sample allowed is Tk. 160,000 (2% of Tk. 8,000,000) ‘Thus, excess cost of free sample was Tk. 40,000 (Tk. 200,000 - Tk. 160,000) that is not allowed 12, Calculation of excess amount in holidaying and recreation: ‘Three months basic salary Tk.360,000 3/4th of actual expenditure (3/4th of Tk. 400,000) ‘Tk.300,000 Excess amount paid that is not allowed Tk.60,000 13. Calculation of admissible entertainment allowance: On the first Tk. 100,000 @ 4% = Tk.40,000 On the balance Tk. 23,80,000 @ 2% = Tk.47,600 On the total Tk33,80,000 Tk.87,600 P-7. From the following Profit and Loss Account of PQ Ltd, for the year ended on 30 June 2018, determine total income and tax liability Profit and Loss Account Taka Taka Director's Remuneration 46,000 Gross profit 4,75,000] Salaries & Wages 1,00,052 Dividend Income 30,000] Contribution to Provident Fund 8,800 Share Premium 30,000] Rent & Taxes 24,500 Sundry Income 13,000] Repairs and Operating Expenses 27,300 Capital gain on sale of machine 40,000} Electricity 17,500 Insurance 8,000, Legal Expenses 14,500 Audit Fee 5,800 Printing, Stationery and Postage 14,600 Compensation for Termination of a Staff 10,000 Typewriter 3,948Advertisement 12,200 Entertainment 9,500, Pro yn for Bad Debt 4,400, Depreciation 46,600 Net Profit 232.300 5,88,000 5,38,000 a) Rent and Taxes included Value Added Tax (VAT) of Tk. 4,200/- which was paid for importing a machine and it was not used during the relevant year. ) Legal expenses included a sum of Tk. 10,000/- spent for income tax appeal. g} Brovlent Fund is recognized bythe Income Tax Authority 4) Bad debt written off previously was recovered during the year Tk. 2,000/- ¢) Allowable tax depreciation Tk. 58,400/- ) Repairs and operating expenses included Tk, 6,000/- spent for installation of a second hand air conditioner in the residence of Managing Director g) Entertainment expenses included Tk. 2,000/- for which no clear explanation was available and miscellaneous expenses of Tk. 5,276/- which proved to be personal expenses of a Manager. h) Company declared dividend @ 22% on paid up capital for the shareholders. i) The Company is a trading company and not listed in any stock Exchange. (CMA Adapted — August 2013 Solution: PQ Limited Income year: 2017 - 2018 Assessment year: 2018 = 2019 Computation of total taxable income Particulars Taka Taka Tncome from business or profession Net profit as per audited accounts 232,300 Tess. Non-business income included in P & 1 account for consideration at appropriate head of income Dividend income 30,000 Share premium 30,000 Sundry income 13,000 Capital gain from sale of machine 40,000 113,000 119,300 ‘Add Expenses to be considered separately Entertainment 9,500 Depreciation (Note=1) 46,600 36,100 175,400 ‘Add, Inadmissible expenses. ‘Rent and taxes (a) (Note-2) 4.200 Legal expenses (b) (Note-3) - Repairs and operating expenses (i) (Note-4) 6,000Provision for bad debt (Note-5) 4,400 ‘Compensation for termination of a staff (Note-6) 10,000 “Type writer (Note-7) 5,948 30.548 205,948 ‘Add. Deemed income: Bad debt recovered (d) (Note-8) 2.000 207,948 Less. Admissible expenses: ‘Tax depreciation (e) (Note-1) 58,400, ‘Assessed business income 149,548 ‘Less. Allowable expenses: Entertainment (g) (Note-9) 2204 Income from business 147,324 Income u/s 82¢: Share premium 30,000 Capital gain: Capital gain from sale of machineries 40,000 Income fiom other sources Dividend income 30,000 Sundry income 13,000 43,000 Total income: 260.324 Determination of tax liability On total income excluding share premium, capital gain and dividend income @ 35% Tk.56,113 (260,324-30,000-40,000-30,000) X 35% ‘On share premium @ 3% 900 On capital gain @ 15% 6,000 On dividend income @ 20% 6,000 69,013 Less. TDS on dividend income @ 20% (h) Tk.6,000 Tax credit on share premium @ 3% 900 6.900 Net tax liability Tk66,122 Notes: 1. Accounting depreciation is inadmissible and tax depreciation is admissible 2. As Tk-4,200 was paid for importing machine, so it is capital expenditure and charged to P & L account; therefore it is inadmissible. 3. Income tax related legal expenses are allowable up to appeal to the Taxes Appellate ‘Tribunal. As it is allowable expenditure, nothing to add back.4, Tk,6,000 is spent for installation of air conditioner in the resident of M.D. So, itis personal expenditure and charged to p & L account; therefore it is inadmissible 5. Provisions are inadmissible. 6. Assuming, compensation is paid for violation of job agreement by the employer. Amount paid for violation of law is inadmissible. 7. Amount paid for type writer is capital expenditure. So, itis inadmissible. 8. Bad debt recovered is treated as business income. 9. Admissible entertainment is restricted up to actual expenditure, Here the actual expenditure claimed k.9,500. Out of which Tk.2,000 is unexplained and Tk.5.276 is personal expenditure. After deducting these two, actual expenditure claims remains Tk.2.224 (Tk.9,500 ~ Tk.2,000 — Tk.5,276). As it is lower than the ceiling Tk.5,982 (Tk.149,548 X 4%), so it is allowed. P-8. M/S. ABC Ltd. is a Public Limited Industrial Company and its shares are regularly traded in Stock Exchanges in Bangladesh. Its total income has been assessed to Tk. 25,50,000 for the assessment year 2018-2019. The above total income includes Dividend Income of Tk 1,00,000 and Capital Gain of Tk. 1,50,000. The company declared and paid 25% cash dividend to its shareholders. Required: Calculate the tax liability of the company CMA Adapted — April 2013 Solution: M/s. ABC Limited Income year: 2017 - 2018 Assessment year: 2018 ~ 2019 Computation of total taxable income Particulars Taka Taka Total income 25,50,000 Less. Non-business income: Dividend income 100,000 Capital gain 150,000 250,000 Total business income 23.00.00 ‘Computation of tax liability Tax on total business income @ 25% (Note-1) 575,000 Tax on dividend income @ 20% 20,000 ‘Tax on capital gain @ 15% 22.500 617,500 Less. 10% tax rebate as dividend paid more than 20% (Note-2) 61.750 ‘Total tax liability 555,750,Notes: 1. As the company is public limited company and dividend declared and paid at the rate of more than 20%, so tax rate 25% is applicable 2. As the company is public limited company and dividend declared and paid at the rate of more than 20%, so it will enjoy 10% tax rebate on applicable tax. P-9, MPH Company’s following information is available with you. i. Donation for CSR activities Tk.10,000,000 (charged in income statement) 1i, Profit as per audited statement of accounts ‘Tk.100,000,000 ‘Compute the tax to be paid by the Company, which is an unlisted industrial company. CMA Adapted — December 2012 Solution: MPH Company Computation of total taxable income Particulars Taka Profit as per audited account (ii) 10,00,00,000 ‘Add. Inadmissible expenses: CSR expenditure (Note-1) 1100,00,000 Total income 11,00,00,000 Computation of tax to be paid: ‘Tax on total income @ 35% (Note-2) Tk.4,12,50,000 Less, Tax rebate on CSR expenditure @ 10% (Note-3) ‘Tk.10,00,000 Net tax payable ‘Tk.4,02,50,000 Notes: 1. Considering the CSR expenditure is approved CSR expenditure 2. As, the company is an unlisted company, so tax rate 35% is applicable 3. 10% tax rebate is applicable on approved CSR expenditure up to maximum limit ‘Computation of maximum limit of allowable CSR expenditure: 20% of total income (Tk.11,00,00,000 X 20%) Tk2,20,00,000 Or, Tk.12,00,00,000 Whichever is lower So, the required amount of CSR expenditure on which 10% tax rebate is applicable is “Tk.1,00,00,000. P-10. The following items, among others, are debited to profit and loss account of Rose Cement Ltd, for the year ended 30 June 2018:1 Commission (Brokerage) paid for placing the shares of the Company ‘Tk.1,00,000 2. Compensation to forcedly retired official Mr. A. Malek ‘Tk.2,00,000 (He fs found puity of improper conduct. He had five years appointment. The directors agreed to pay him on retirement so that he was got rid of) 3. Capital expenditure on Hospital for employees of the Company Tk,20,00,000 4 Trade penalties and law expenses (for infringement of the Customs Law) Tk.2:00,000 5. Anticipated loss written off (assuming that the loss might occur) Tk.5,00,000 ‘The Directors of the Company invite your opinion as to whieh items are deductible in computing the total income of the company for the assessment year 2018-2019. CMA Adapted ~ December 2012 Solu Rose Cement Limited Assessment year: 2018 — 2019 1, Commission (Brokerage) paid for placing the shares of the company Tk. 100,000: Not deductible as it is capital expenditure, 2. Compensation to forcedly retired official Mr. A. Malek Tk.200,000: Not deductible as it is non-recurring is nature and not is the nature of salary. 3. Capital expenditure on hospital for employees of the company Tk.20,00,000: It is deductible 4, Trade penal 's and law expenses (for infringement of the Customs law) Tk.200,000. Not deductible as it is spent for violation of law. 5, Anticipated loss written off Tk.500,000: Not deductible, because it is unrealized. P-11, ABC Bank Ltd., a bank incorporated in Bangladesh, has submitted the following aa ies income statement showing profit before tax of Tk.258,000 for the income year 2017+ You have been provided with the notes supporting the figures to compute the tax liability of the bank for the respective assessment year: Amount) ——Amou Particulars (Tk.)| (Tk. Interest income 650,000 Interest paid on deposits and borrowings et. 200,000 Net interest income 450,000 Income from investments 100,000 Commission, exchange and brokerage 60,000 Other operating income (20+61) 81,000Total Operating Income (A) 691,000 Less: Operating expenses Payment to employees 215,000) Postage and telegrams 5,000) Rent, rates and insurance etc. 11,000 Legal charges 2,000 Directors’ fees 2,000 Auditors’ fees. 1,000) Repairs to premises 60,000) Stationery, printing and advertisement 72,000} Stamps 3,000) Charges on loan losses Other expenses of business Total Operating Expenses (B) 391,000 Profit/(Loss) Before Provision (C=A-B) 300,000 Provisions: Specific provision 12,000 General provision 30,000] Total provision (D) 42,000 Total Profit/(Loss) Before Taxes (C-D) 258,000 Supporting Information: ‘a. Accounting depreciation charged was Tk. 50,000 whereas tax depreciation is Tk.80,000 b, Inadmissible expenses have been found as follows Perquisites ‘Tk. 50,000 Printing and Advertisement (capital nature) 40,000 Other expenses (tax is not deducted at sources) 10,000 c. Balance Sheet (extract) Paid-up Capital ‘Tk. 2,000,000 Statutory Reserve 750,000 Retained Earnings 250,000 Dividend Equalization Fund 200,000 d_ Classification of Loans and Advances: Unclassified Tk. 2,100,000 Sub-standard 850,000 Doubtful 1,145,000 Bad/Loss 10,250,000 Income tax authority accepted bad debts as loan losses to the extent of Tk. 5,000. ¢. Entertainment Expenses amounted to Tk.65,000 for the period. (CMA Adapted - December 2012 Solution: ABC Bank Limited Income year: 2017 - 2018 Assessment year: 2018 — 2019 Computation of total taxable income and tax liabilityParticulars Taka Taka ‘Net profit as per audited accounts 258,000 Less. Income to be considered separateh 100,000 158,000 ‘Add, Expenses to be considered separately ‘Accounting depreciation (a) 30,000 Provision for bad & doubtful debt 42,000 Entertainment expenses (e) 63,000 157,000 ‘Add_Tnadmissible expenses Perquisites (b) 30,000 Printing and advertisement (b) 40,000 ‘Other expenses (b) 10,000 100,000 Total income 413,000 Tess, Admissible expenses: “Tax depreciation (a) (Note-1) 80,000 Provision for bad & doubtful debt (Note-2) 5,000 85,000 Business income 330,000. Add. Income from investment 100,000 ‘Net income 430,000 Less, Entertainment (Note-3) 17,200 ‘Total taxable income 412.800 Calculation of tax liability. On Tk.412,800 @ 40% Tk.165,120 Tax on excess profit @ 15% (Note-3) Nil Tk.165.120 Notes: 1. Accounting depreciation is inadmissible and tax depreciation is admissible, 2. Provision for bad and doubtful debt is inadmissible and actual bad debt which is accepted by the Income Tax Authority is admissible 3. The rate of allowable entertainment expenses is 4% on income of firs Tk. 1,000,000 and 2% on rest, if any. Thus, in this case entertainment expense will be Tk.17,200 (Tk.430,000 X4%) 3, Calculation of excess profit under section 16C of the IT ordinance 1984 Capital and reserve: Paid up capital ‘Tk.2,000,000 Statutory reserve 750,000 Retained earnings 250,000 Dividend equalization fund 200,000 ‘Total capital 3,200,000 Profit: 50% therefore 1,600,000 Actual profit 412,800 Excess profitP-12. From the following Profit & Loss Account of Oman Bank, a non-resident bank, for the year ended on 31/12/2017, compute total income and tax liability Particulars Debit (Tk)| Particulars Credit (Tk) Salaries and allowances 20,00,000} Interest and Commission | 1,20,00,000] Interest on deposit 40,00,000] Gain from sale of old car | "10,00, 000} Car maintenance 5,00,000 Head office expenses as per allocation by head office) 3,00,000} Bad debt 600,000) Provision for bad debt 4,00,00 Audit fee 2,00,00 Depreciation 15,0004 ‘Technical fee 1.00.0 Scholarship to poor students 8,00,000 Special reserve 2,00,0 Advertisement 7,00,000 Entertainment 8,00,04 Traveling: (a) within the country 30,0 outside the country (ineluding he: office tour) 4,50,000 Net profit 4,00,000 1,30,00,000 1,30,00,000) Additional Information: (1) Salaries and allowances include incentive bonus to employees Tk. 3,00,000. (2) VAT at source was not deducted from car workshop bill of Tk. 2,00,000. (3) Provision for bad debt is within 1% of classified loan. (4) Tax depreciation as per tax law is Tk. 10,00,000, (5) Advertisement bill paid to advertisement agency for periodic advertisement to private TV channel. No tax at source was deducted from the bill because agent submitted their bill without any break-up of commission (6) The car sold was purchased 5 years ago at Tk,50,00,000 and its book value (assumed to be written down value as per tax law) was Tk.25,00,000 at the time of sale at Tk.35,00,000 CMA Adapted ~ August 2012 Solution: Oman Bank Assessment year: 2018 ~ 2019 Computation of total taxable income Particulars Taka Taka Income from business. 400,000 ‘Net profit as per profit & loss account ‘Less. Non-business income to be considered separately: Gain fiom sale of old car 10,00,000 (600,000) ‘Add. Expenses to be considered separately: Depreciation (Note-1) 15,00,000Entertainment 8,00,000 Head office expenses 3,00,000 Technical fee 1,00,000 Overseas travelling 4,50,000 Incentive bonus (1) 300,000 | 34,50,000 28,50,000 ‘Add, Inadmissible expenses Car workshop bill (2) (Note-2) 2,00,000 Provision for bad debt (3) (Note-3) 4,00,000 Scholarship to poor students (Note-4) 8,00,000 Special reserve (Note-5) 2,00,000 ‘Advertisement (5) (Note-6) =| 16,00,000 44,50,000 Less. Admissible expenses: Tax depreciation (4) (Note-1) 10,00,000 Incentive bonus (1) (Note-7) 40,000 ‘Overseas travelling (Note-8) 150,000 | _17,90,000 ‘Assessed business income 32,60,000 ‘Less. Allowable expenses: Entertainment 85,800 Head office expenses 3,00,000 Technical fee 1,00,000 | 4.85.80 Income from business 27.74.20 Capital gain: Gain fiom sale of old car 10,00,000 ‘Total income 37.74.20 Calculation of tax liability On total income excluding capital gain @ 40 (Tk.37,74,200 — Tk.10,00,000) X 40, On capital gain @ 15% Total tax liability Notes: ‘Tk.11,09,680 Tk.1,50,000 ‘Tk.12,59,680 1. Accounting depreciation is inadmissible and tax depreciation is admissible 2. The items from where VAT at source is to be deducted, car workshop bill payment is one ofthem. As, VAT at source was not deducted from car workshop bill, so it is inadmissible. 3. Provisions are inadmissible. 4. Scholarship to poor students is not business related expenditure, So, itis inadmissible. 10% tax rebate is applicable on approved CSR expenditure. As, there is no clear information to the question in this regard, so considering it is unapproved 5. Reserve is not an item of P & L account. So, it is inadmissible.6. Advertisement bill paid too advertisement agency is not direct advertisement, So, TDS is not applicable on this amount. As, TDS is not applicable on this amount, so it is not considered although no tax at source was deducted. 7. Incentive bonus is admissible up to 10% of disclosed net profit, ie., Tk.400,000 X 10% = ‘Tk.40,000. 8. Overseas travelling expense is admissible up to 1.25% of disclosed tumover, ie., Tk.120,00,000 X 1.25% = Tk. 150,000 P-13. The profit and loss account of Beacon Pharmaceuticals for the year ended on June 30, 2018 reports net income of Tk. 20,00,000. A careful scrutiny of accounts and supporting documents revealed the following facts: (a) During the year the company sold some of its pharmaceutical supplies that remained unused for a long time in the storeroom. The company sold the supplies for a loss of “Tk.1,50,000 as the expiry period is very close and charged such loss against current year’s profit (b) The company recovered Tk. 20,000 from bad debt that was written off earlier and was allowed as deduction. The amount so recovered was credited to sundry debtors account. (c)The company had Tk. 80,000 interests due to Bangladesh Development Bank in the year 2013-2014 and sueh interest was shown as allowable deduction in that year. Still such interest remains unpaid (d) The company has a trading liability with one overseas company to the tune of Tk.1,50,000 which has been totally waived by the overseas company under special agreement during the year, But the company is yet to show it in its accounts. (e) During the year, the company sold an equipment for Tk. 1,80,000 which was purchased at a total cost of Tk. 1,30,000 and had a written down value of Tk. 90,000 on the date of sale ‘The company reported Tk. 90,000 as gain on sale of equipment in the credit side of profit and Joss account. (1) Due to a sudden fire on the factory building, the extended portion of the building is totally destroyed and compensation received from the insurance company totaled Tk. 2,50,000. In addition, the company realized an additional sum of Tk. 30,000 by selling the scrap. The extension was constructed at a total cost of Tk. 4,00,000 and depreciation charge to date amounts to Tk. 80,000. The loss has been charged in the profit & loss account. (g) The company sold a scientific apparatus used for scientific research for Tk. 80,000 which was originally purchased at Tk. 1,50,000 and fully depreciated. The sale proceed is not recorded at all. (h) The company have had export quota for exporting garments to EU countries. As the company has recently changed the line of operation (switched from garments manufacturing to pharmaceuticals), it transferred the export quota to another garments manufacturer for an annual sum of Tk. 70,000. The export value of such quota is Tk. 25,00,000. Such income is not reported at al i) Bonus and commission to the field representatives amounted to Tk. 300,000 at the rate of 5 months’ pay including 1 month's pay as festival bonus. But the general practice of bonus and commission for the similar business is two months’ pay as commission plus | month’s pay as festival bonus G) Sum of Tk. 1,20,000 paid to an institution for scientific research, which is not approved by NBR. (k) Sum of Tk. 5,00,000 expended for establishing a hospital for the benefit of employees without any charge. ‘The company has charged it in the profit & loss account as hospital expenditure and not claimed any other deduetion or allowance. (1) Salary of Tk. 5,00,000 and rent of Tk. 80,000 were paid without deduction at source. (mn) Payment of brokerage and commission of Tk, 60,000 made to a non-resident withoutdeducting tax at source. (n) Annual perquisites enjoyed equally by the MD, the Chairman and 5 Members of Board of Directors amount to Tk 25,50,000 (0) Accounting depreciation charged to the amount is Tk. 2,50,000 but tax depreciation amounts to Tk. 3,00,000. (p) Value of the free sample distributed was Tk. 3,00,000. Annual turnover during the year was Tk. 1,30,00,000 (q) Expenditure on foreign travels for holidaying and recreation of the employees and their dependents to the extent of the amount equivalent to three months’ basic salary of Tk 3,60,000, actual expenditure being Tk. 4,00,000 and that the travel was not oftener than once in two years () Sum of Tk. 50,000 expended to train employees (Bangladeshi citizen) in connection with a scheme approved by the NBR and shown in profit & loss account. (s) The company charged a sum of Tk, 2,00,000 for visits abroad as a member of trade delegation sponsored by the government in the profit & loss account. (t) Annual membership fee of Tk. 1,50,000 is paid to Bangladesh Pharmaceutical Society, which is a professional institution, recognized by the NBR and charged in profit & loss account (u) Expenditure on publicity and advertisement amounting to Tk, 3,00,000 charged in profit & loss account was accepted by the NBR (v) Entertainment expenditure, Tk. 1,50,000. Required: Compute the taxable income of the company. CMA Adapted - April 2012 Solution: Beacon Pharmaceuticals Income Year: 2017 - 2018 Assessment Year: 2018 - 2019 Computation of taxable income Amount Amount Particulars (Tk) (Tk) Income from business or profession: Net profit as per profit and loss account 2,000,000 ‘Add: Inadmissible expenses Excess bonus paid to field representatives (Note-8) 150,000 Amount paid for conducting scientific research (Adj,j) 120,000 Salary and rent paid without TDS (Adj 1) 500,000 + 80,000 580,000 Payment to non-resident without TDS (Adj.m) 60,000 Excess amount of perquisites (Note-10) 1,150,000 Depreciation (Adj.o) 250,000 Excess cost of free sample (Note-11) 40,000 Excess amount in holidaying and recreation (Note-12) 60,000 | 2,410,000 4,410,000 Less: Expenses admissible but not shown Depreciation (Adj.o) 30,000 4,380,000 ‘Add: Income not credited to P/L account: Bad debt recovered (Adj.b) 20,000 Interest due to BDB (Adj.c) 80,000 Waiver of a trading liability (Adj.d) 150,000Sale proceed of scientific apparatus (Adj.g) 80,000 Receipt from transferring export quota (Adj.h) 70,000 | 400,000 4,780,000 40,000 ie Add: Revenue gain on sale of equipment (Note-5) 4,820,000 Less: Income received from non-business heads Gain on sale of equipment (Note-5) 90,000 Adjusted profit before allowance for entertainment expense 4,730,000 Add: Entertainment allowance to be considered separately (v) 150,000 4,880,000 Less: Admissible entertainment allowance (Note-13) 117,600 ‘Taxable income under the head business 4,762,400 Non-business income: Capital gain (Note-5) 30,000 Total taxable income 4,812,400 Notes: 1. Loss on sale of supplies is an allowable deduction as such supplies does not fall under capital asset as per the definition given in sec 2(15) (Adj.a) 2. Amount of bad debt recovered will be the current years profit and should be credited to the profit and loss account as such bad debt was allowed earlier (Adj.b) 3. As the income due to Bangladesh Development Bank is not paid within three years, such interest will be deemed to be current year's income (Adj.c) 4. As the company received waiver of a trading liability during this year, it should be shown as deemed income of the year (Adj d) 5. Computation of gain, capital gain and revenue gain from the sale of equipment (Adj.e) . Amount | Amount Particulars am ry I. Sale proceeds 180,000 2. Initial costs 130,000 3. Capital gain (1-2) 30,000 4, Written Down Value 90,000 5. Revenue gain (2-4) 40,000 6. Gain on sale of equipment as shown in P/L account (1-4) 90,000 6. As the insurance compensation received (Tk. 250,000) is less than the ampunt of written down value of the building (Tk. 350,000), it is not taxable (Adj) 7. Sale proceed of the asset used for scientific research shall be deemed income in the year of sale under section 19 (20) (Adj.g) 8. Calculation of the amount of excess bonus paid to field representatives (Adj i) Payment for | month, Tk. 50,000 (Tk. 300,000 + 6)So, allowable bonus will be Tk. 150,000 (2 months bonus and | month festival bonus; 50,000 X 3), Excess amount paid is Tk. 150,000 (Tk. 300,000 - Tk. 150,000) 9. The amount expensed for hospital is allowable deduction as it charges nothing against services from the employees and the company claims no deduction or allowance in this regard (Adj.k) 10, Calculation of excess amount of perquisites (Adj.n) Allowable amount of perquisites to MD, Chairman and 5 Directors will be Tk. 1400,000 (Tk.200,000 X 7). ‘Thus, excess amount of perquisites is Tk. 1150,000 (Tk. 2550,000 - Tk. 1400,000) that is not allowed 11, Calculation of excess cost of free sample (Adj.p) ‘The allowable rate of free sample for a Pharmaceutical industry is 2% for annual turnover upto Tk. 5 crore, ‘The turnover of the company were ‘Tk. 13,000,000 and free sample allowed is Tk. 260,000 (2% of Tk. 13,000,000). ‘Thus, excess cost of free sample was Tk. 40,000 (Tk. 300,000 - Tk. 260,000) that is not allowed 12, Calculation of excess amount in holidaying and recreation (Adj.q) ‘Three months basic salary Tk.360,000 3/4th of actual expenditure (3/4th of Tk. 400,000) ‘Tk.300,000 Excess amount paid that is not allowed Tk.60,000 13. Calculation of admissible entertainment allowance’ On the first Tk. 100,000 @ 4% = Tk.40,000 On the balance Tk. 3880,000 @ 2% = Tk.77,600 On the total Tk4880,000 Tk.117,600 P-14, You are given the following Profit and Loss Account of ABC Company for the year ‘ended 3 1st December, 2017. Dr. Cr. Particulars Taka Taka ‘To Cost of Goods Sold 35,0000 89,80,000] * Salaries and Allowances 42/50,00 16,000 ~ Rent and Electricity 190,000] ® Interest on Bank Deposit 14:400 ” Telephone and Postage 30,000] ” Profit on Sale on ” Interest on Loan 35,000] Machineries 30,000) ” Traveling Allowance 25,000] Interest on Government ” Legal Expenses 14,000] Securities 10,000) ” Advertisement 31,000] Sundry Incomes 5,000 ” Charity 10,000] * Refund of Income Tax 30,000] ” Audit Fees 25,000] Bad Debt Recovered 71,600 ” Income Tax paid in Advance 2,00,00 ” Fines 20,000) ” Contribution to Provident Fund 20,000) ~ Entertainment 54,000 ” Depreciation 1,80,00 ” Net Profit $,73,0001 | 91,57,000] | 91.57,000] Additional information: (1) Depreciation allowed by income tax authority was Tk. 1,15,000. (2) Salaries and Allowances included Tk. 10,50,000 from which taxes were not deducted at source. Moreover excess perquisites were given Tk. 3,70,000. Alll salaries were paid in cash. Salaries included incentive bonus Tk.6,00,000. An employee's minimum monthly salary was Tk.15,000. (3) Interest on loan was given to a sister concern, The loan amount was Tk. 3,50,000 though it was not received through bank transfer or crossed cheque but it was properly reflected in both the audited accounts, (4) Legal expenses included Tk. 10,000 paid for Income Tax Appeal. (3) Travelling allowance included Tk. 20,000 paid to the General Manager for overseas traveling in connection with business (6) The machine sold was purchased six years ago and its book value was Tk. 42,000 but its written down value as per Income Tax law was Tk.12,000. The cost price and the sales price of the machine were Tk. 62,000 and Tk. 72,000 respectively. Required: Determine the Tax Liability of the Company (applying tax rate first and then minimum tax on. gross receipt) assuming it to be a listed company CMA Adapted — August 2011 Solution: Assessee: ABC Company Income Year: 2017 - 2018 Assessment Year: 2018 - 2019 Determination of tax liabili 7 Amount Amount Particulars ra oD ‘Accounting profit belbre tax for the year ended 31 Dee 2010 373,000 Add Charity 10,000 Income tax paid in advance 200,000 ‘Accounting depreciation 180,000 Entertainment 54,000 Salaries on which tax was not deducted at source (Adj.2) 1,050,000 Excess perquisite (Adj 2) 370,000 Disallowable portion of incentive bonus (Note-1) 542,700 Salary paid in cash (2) (Tk. 15,000 X 12) 180,000 Amount paid for income tax appeal (Adj. 4) 10,000 Revenue income by sale of machine (Note-4) 50,000 Capital gain by sale of assets (Note-4) 10,000 2.656.700 Less 3,229,700 “Tax depreciation (adj. 1) 115,000 Refund of income tax 30,000 Gain on sale of machine (Note-4) 30,000 175.000 3,054,700 Less: Admissible entertainment allowances (Note-5) 81,094 Total income 2,973,606Less. Dividend income 16,000 Less: Capital gain by sale of assets (Note-4) 10,000 Total income excluding capital gain & dividend income 2.987.606 ‘Tax on total income excluding capital gain and dividend income @ 35%, (Tk.2947,606 X 35%) 1,031,662 Tax on income from capital gain @ 15%; (Tk. 10,000 X 15%) 1,500 Tax on dividend income @ 20%, (Tk.16,000 X 20%) 3.200 ‘Total tax liability as per normal tax rates 1,036.3 Determination of minimum tax on gross receipt Particulars Amount (Tk) Sales 8,980,000 Dividend 16,000 Bank interest 14,400 Interest on security 10,000 Sundry incomes 5,000 Bad debt recovered 71,600 Gross receipts Minimum tax @ 0.30%; (Tk.90,97,000 X 0.30%) 27.29) Which is lower than tax at normal tax rate. So the tax liability of the company will be 1k.27,291. Notes: 1. Calculation of disallowable portion of incentive bonus: ‘As per sec 30 (j), expenditure by way of incentive bonus exceeding 10% of disclosed net profit is not allowed Incentive bonus paid (Adj.2) 600,000 Less: Maximum allowable incentive bonus 57,300 (10% of disclosed gross profit, 10% of Tk. 573,000) 542.700 2. As per see 30 (aa), if tax is not deducted on payment of salary, it is not admissible as expense (Adj.2) 3. As per see 30 (m) (ii, payment of interest is disallowable, if exceeding Tk. 50,000 made otherwise by crossed chacque or bank transfer (3) 4. Computation of gain, capital gain and revenue gain from the sale of machine (Adj.6): Particulars; ‘Amount | Amount (Tk) (Tk) T Sale price 72,000 2. Cost price 62,000 3. Capital gain (1-2) 10,000 4. Book value 42,000 5. Written Down Value 12,000 6. Revenue income (2-5) 50,000 7. Gain on sale of machine as shown in P/L account 30,000 (4-5)5. Calculation of admissible entertainment allowances: On first Tk. 10,00,000 @ 4% = Tk.40,000 On balance Tk. 20,54,700 @ 2% = Tk.41,094 On total Tk. 30,54,700 Tk.81,094 P-15. M/S John Morris Inc. is a multinational company doing business in Bangladesh Branch. The company filed return of income for the assessment year 2018-2019 showing income at Tk. 30,00,000. Examination of the audited statement of accounts filed with the retum of income revealed the following:- (a) Salary includes Tk.3,30,000 paid to a Director working at the head office at California He has never visited Bangladesh and no tax, as such, has been deducted at the time of making the payment (b) Head office expenses charged Tk.11,00,000. No evidence could be produced for this other than HO auditor's certificate. (©) Fine Tk. 11,000 paid for violation of customs law charged to P& L Account (a) Two Nissan Petrol Jeeps purchased for Tk. 45,00,000 during the year. Depreciatio 20% charged on the full cost of the vehicles. (e) To procure business Tk. 10,00,000 has been paid as commission to a local agent. In making the payment, the provision of section 53E of. IT. Ordinance, 1984 has not been complied with. (© The company sold a motor vehicle for Tk. 4,65,000. Original cost of the vehicle was ‘Tk. 5,25,000 and the written down value was Tk,. 3,25,000. This has not been reflected in the accounts. (g) Tk. 15,000 donated to a non-recognized school. (h) Miscellaneous expenses include Tk. 72,000 paid as salaries to three servants who are working at the residence of the Managing Director. (i) Conveyance expenses include Tk, 2,20,000 paid for the plane fare of the wife and son of the Managing Director for the visit of the neighboring countries. (Interest expense claimed at Tk. 33,50,000. The company has outstanding bank loan of Tk. 2.10 crores. The company advanced Tk. 75,00,000 interest-free loan to a sister concern in Bangladesh. Required: From the above information compute the total income and tax liability of the company for tax purpose. CMA Adapted — December 2009 Solution: M§s, John Morris Incorporation Income year: 2017 — 2018 Assessment year: 2018 — 2019 Computation of total taxable income Particulars Taka Taka Net income 3,000,000 ‘Add, Inadmissible expenses Director's salary (a) (Note-1) 330,000 Head office expenses (b) 1,100,000Fine (¢) (Note-2) 11,000 Excess depreciation charged (d) (Note-3) 100.000 ‘Commission (e) (Note-4) ~ Revenue gain on sale of motor vehicle (D 140,000 (Note-5) Donation (g) 15,000 Miscellaneous expenses (h) (Note-6) 172.000 ‘Conveyance (i) (Note-7) 55,000 Interest on bank loan (j) (Note-8) 1,196,429 3.119.429 Adjusted profit 6,119,429 Less. Admissible expenses: Head office expenses (10% of disclosed net profit) 300,000 (Note- 9) Total income 5,819,429 Notes: 1, Salary paid to a non-resident director without deduction of tax at source is inadmissible. 2. Fine or penalty for breach of law is not allowable expenditure 3. Under the 3" schedule for depreciation purpose cost of each motor vehicle is restricted to ‘Tk.20,00,000 and 20% depreciation on two vehicle therefore should be Tk.800,000 (Tk.20,00,000 X 2 vehicle X 20%) whereas on Tk.45,00,000 the company claimed ‘Tk900,000 (Tk.45,00,000 X 20%). Excess of Tk. 100,000 (Tk.900,000 ~ 'Tk.800,000) has been added back. 4, Section 53E of ITO 1984 requires deduction at souree on the payment of commission for distribution of assessee"s products, not for procurement of business for the company. 5, Revenue gain on sale of motor vehicle = Sale ~ Written down value = Tk-4,65,000 - Tk.3,25,000 = Tk.140,000 6. Miscellaneous expense added back with profit due to personal expenditure not related to business. 7. Assuming conveyance was provided on foreign travels for holidaying and recreation and as basic salary of the employee is not given in the question, so assuming that 3/4" of actual expenditure is lower. Here 3/4" of Tk.220,000 comes at Tk.165,000. So, Tk.55,000 (Tk.220,000 — Tk. 165,000) is disallowable as per rule 65. 8, Interest on borrowed capital is generally allowed when taken for business purposes. But borrowed fund given to the sister concer is not for the business and therefore, proportionate interest has been disallowed FK3350.000 14. 75,00,000 = Tk.11,96,429 Tk.210,00,0009. Head office expense is allowed up to 10% of disclosed net profit, ie., Tk.30,00,000 X 10% = Tk.3,00,000. P-16. Given below is the Profit & Loss A/c of M/s APS Textile Mills Ltd., Savar, for the year ‘ended 30th June 2018 Particulars Cotton Stores Mills salaries & wages General expenses Replacement of plant Machinery Stamp duty registration legal fees, ete ‘Motor car overhauling expenses Purchase of two paintings for M_D's office X-Mass gifts given to the foreign Contractor Reffeshment, food, drinks, etc. at onee of its business meetings Expenditure incurred on catering and reffeshments for shareholders and guests, at general body meeting Donation Rates & insurance Office expenses Directors’ fees Auditor's Interest Repairs to building & machinery Trade penalties, legal expenses & professional charges Workmen's welfare expenditure Contribution to staff provident fund Provision for gratuity Reserve for meeting contingent Liability Loss for discarding ageing Machinery Selling agent's commission Net profit (subject to depreciation) Taka Particulars 1,14,17,950 Sale of yarn 18,35,648 Sale of textile products 38,31,984 Export subsidy/ incentive received in cash 29,010 Sale of waste Rent of bungalow 20,39,000 Dividend 2,50,000 15,000 Interest on PSP_ 30,000 10,000 25,400 50,600 10,000 40,376 2,40,694 30,000 9,000 2,11,850 1,24.556 1,20,000 59,184 75,500 1,50,000 30,000 2,05,397 2,01,690 13,19,039 2.23,57,878 Taka 1,08,11,956 1,09,26,425 4,07.687 1,21,508 57,902 17,400 15,000From the foregoing, compute the company's taxable income from business, the total income (computation should include necessary reasons) and tax liability for the assessment year 2018-2019 taking into account: (a) Sale of textile products includes Tk. 89,13,249 from export; (b) Payment of Mills salaries includes Tk. 75,000 for payment of tax for a foreign technician ‘engaged by the company; (c ) Expenses for stump duty, registration, legal fees, etc. amounting to Tk. 2,50,000 have incurred in raising loans, (d) Rates Tk. 1,800, Insurance Tk. 2,500 and Repairs to building Tk. 7,544 are in respect of bungalows, (e) The break-up of trade penalties, legal expenses and professional charges for Tk. 1,20,000 is as follows: i. Trade penalties and law expenses constitute Tk. 20,000 ii, Assessee company has spent Tk. 50,000 for successfully defending all allegations of black-marketing iii, Professional charges include Tk. 20,000 paid to an income tax practitioner to represent the case to the Deputy Commissioner of Taxes and Tk. 30,000 to represent an Income Tax Appeal before Appellate Tribunal (1) Donation ineludes Tk. 5,000 contribution to Zakat Fund; (g) The staff provident fund is a recognized one: (hy It is found that the amount of gratuity actually paid during the year was Tk. 1,00,000, () Dividend income has been subject to dividend distribution tax, () The amount of depreciation allowable for assets used for the company’s business is worked out at Tk. 5,51,710; (k) It is revealed that outstanding trading liabilities amount to Tk, 11,00,000. The date of origin of the trading liabilities are as follows: Taka i, Assessment year 2014-2015 3,50,000 ii, Assessment year 2015-2016 300,000 iii, Assessment year 2016-2017 1,50,000 iv, Assessment year 2017-2018 300,000, 11,00,000 (CMA Adapted - August 2009 Solution: Mis APS Textile Mills Lid Income Year: 2017 - 2018 Assessment Year: 2018 - 2019 Computation of taxable income Amount Amount Particulars (Thy (Tk) Net profit 13,19,039 Less: Export subsidy/ Incentive for separate organization 407,687 Rent of bungalows (income from house property) 57,902 Divident 17,400Interest on PSP 15,000 497,989 821,050 Add. Inadmissible expenses: X-Mass gifl given to foreign contractor 10,000 Donation (Adj.f) 5,000 Rates, insurance & repairs (Adj.d) (1800+2500+7544) 11,844 ‘Trade penalties law expenses (Adj.e(i)) 20,000 Provision for gratuity 150,000 Reserve for meeting contingent liability 30,000 Outstanding liabilities 350,000 Replacement of plant & machinery 2,039,000 2,615,844 3,436,894 Less: Gratuity paid (Adj.h) 100,000, Depreciation (Adj.j) $51,710 51,710 2,785,184 Income from business Income from export subsidy 143,04 (407687/95) * (5/0.15) Total business income 2.928.231. Income from house property: Rental income that is annual value $7,902 Less: Repairs (57,902 X 25%) 14,475 Rates and insurance (Adj.d) (1800+2500) 4.300 18,775 Total income from house property 39,127 Income from other sources: Income from dividend of Tk. 17.400 @ 20% 3.480 Interest on PSP 15,000 Less: Exemption 15,000 0 Total income from other sources 3.480 ‘Computation of tax liability: ‘Tax on business income of Tk. 27,85,184 @ 15% being textile 417,778 ‘Tax on cash subsidy of Tk. 143,047 @ 15% 21,457Notes: 1. Payment of employees tax for Tk. 75000 by the employer is exempted from tax on tax (Adjb) 2. Expense for stump duty, registration legal fees amounting Tk. 250,000 are allowable expenses (Adj.c) 3. Professional and legal fees are allowable but fine and penalties for Tk. 20,000 are not considered (Adj.et i, iii) 4, Donation to zakat fund is not allowable expenses (Adj.t) 5, Replacement of plant and machinery is capital nature 6, Purchase of two paintings for MD's office is a decoration expenses 7. Since the company is paying tax at reduced rate, tax rebate for export of Tk.89,13,249 could not be allowed (Adj.a) 8, Gift is an allowable expenditure, if given for business purpose. However, in absence of specific indication regarding purpose, one given to foreign contractor has been disallowed 9, The trading liability not cleared within 3 years of the expiration of income year is being considered as an incomeu/s 19(15)C of ITO 1984 (Adj.k) 10. The amount of Tk. 50,000 being spent for defending the allegation of black marketing is not our allowable expenses (Adj e(ii))ASSESSEMNT OF INDIVIDULS RATE OF TAXES. (In the assessment year 2018 — 2019) Income slab Tax rate ‘On the first TK2,50,000 of total income 0% ‘On the next Tk.4,00,000 of total income 10% ‘On the next Tk.5,00,000 of total income 15% On the next Tk.6,00,000 of total income 20% ‘On the next Tk.30,00,000 of total income 25% ‘On the balance of the total income 30% (a) The minimum non-assessable income limit for women and elderly citizens more than 65 years of age will be Tk.3,00,000. (b) For disable persons the minimum non-assesasable income limit will be Tk.4,00,000. (c) For gazette wounded freedom fighters the minimum non-assessable income limit will be Tk.4,25,000. (d) The minimum non-assessable income limit of the parents or legal guardians of disable person will be Tk.50,000 more, that is Tk.3,00,000 for men and Tk.3,50,000 for women. But if both father and mother are taxpayer, only one will get the benefit. (e) For non-resident foreigner, tax rate will be the maximum rate applicable in the country, that is @ 30%. Minimum Tax rate ‘Area Tax rate Dhaka North and South City Corporation area, Chittagong City Tk. 5,000 Corporation area (Other City Corporation area Tk.4,000 ‘Areas other than City Corporation TK3,000 Rate of surcharge Net wealth amount Rate Minimum Up to Tk2.25 crore 0% 0 More than Tk 2.25 crore but less than Tk 5 crore 10% Tk3,000 Or, Owner of more than one motor car (Or, Owner of house property situated in City Corporation above 8,000 square feet area More than Tk.5 crore but less than Tk.10 crore 15% Tk3,000 More than Tk.10 crore but less than Tk.15 crore 20% Tk.5,000 More than Tk.15 crore but less than Tk.20 crore 25% TkK5,000 More than Tk.20 crore 30% Tk5,000PROBLEMS P-1, Mr. Joynal Abedin works in Bangladesh as an officer in a Multinational Company, headquartered in the USA. His sources of income for the year ended on 30" June, 2018 were as follows: a, ame Income from Salary 1. Basic Salary ‘Tk. 15,000 per month, 2. Dearmess allowance 10% of the basic salary ‘Two bonuses equivalent to two months’ basic salary Medical allowance Tk. 1,000 per month (actual expense for the year Tk. 10,000) Entertainment allowance Tk. 200 per month He has been provided with a free car both for official and personal uses He has also been provided with a rent free quarter municipal value of which is Tk 80,000. Travel allowance as a part of his contract Tk. 1,00,000; from where he saved ‘Tk. 10,000. 9, He contributes 10% of his basic salary to a Recognized Provident Fund (RPF). His employer also contributed the same 10. During the year, he received interest of Tk. 1,800 @ 12% on RPF, 11. He has taken one month’s basic salary as advance in the month of June to meet up some of his financial difficulties. Interest on Securities: 1. Interest on tax-free government securities Tk, 3,000. 2. Interest on less-tax government securities Tk. 2,700 3. Interest on approved debentures Tk. 27,300. He has borrowed Tk. 20,000 @ 10% interest to purchase it, Bank also charged Tk. 400 to collect the interest. Income from House Properties He owns a two-storied house in Dhanmondi, He stays in one floor with his family and another floor is let out for residential purpose at a rate of Tk. 9,000 per month. The municipal value of the house is Tk. 2,00,000 per annum, During the year he spent the following expenses for the whole house: eZrsauew Repair expense Tk. 2,000 Insurance expense Tk. 4,000 Land development tax Tk. 1,500 ‘Sewerage and utilities expense Tk. 1,000 Payment of DBH Loan installment (including interest of Tk. 500) Tk. 5,000 During the year, the house has remained vacant for two months. Agricultural income Sale of erops Tk. 5,000 Income from barga Tk. 2,000 Share of profit from a partnership firm Tk. 10,000(firm paid no tax thereon) Income of spouse and minor child Tk 40,000 He won Prize Bond lottery of Tk. 3,00,000 [tax deducted at source (TDS) @ 20% - from it] During the year Mr. Abedin visited South Korea as a consultant and generated income of Tk. 5,00,000 and he paid income tax @ 25% in South Korea, He brought 2,50,000 to Bangladesh through bank. From another visit to Russia he generated income of Tk3,00,000 and paid income tax there @ 20%, Bangladesh has DTAA (Double Taxation Avoidance Agreement) with South Korea, but not with Russia. Income fiom business and profession Profit from sole-proprietorship business Tk. 4,000; last year’s loss carried forwarded Tk 1,000. Income fiom other sources: 1. Interest income from fixed deposit account Tk 4,500(net of TDS @ 10%) 2. Profit from Islami bank Tk 900 (net of TDS @ 10%) 3. Dividend from ICB Mutual Fund Tk 31,500(net of TDS @ 10%) 4, Dividend from a listed company share Tk 1,800(net of TDS @ 10%) 5. Sale of forest timber Tk 2,000 Investment claimed by Mr. Abedin 1, Payment of life insurance premium Tk. 8,000 (Policy value Tk. 100,000) 2. Purchase of a listed company’s primary share Tk. 5,000 3, Purchase of books and magazines Tk. 1,000 4, Purchase of a share of co-operative society Tk. 2,000 5. Contribution to Government Zakat Fund Tk. 2,500 6 Purchase of Furniture Tk. 15,000 Based on the above information, calculate Mr. Abedin’s total income and tax liability for the assessment year 2018 -19. CMA Adapted — December 2013 Solution: ‘Assessee: Mr. Joynal Abedin Income year: 2017 - 2018 Assessment year: 2018 — 2019 Calculation of total income Heads of income Taka | Taka Taka Income from salary (Sec. 21): Basic salary (15,000 X 12) 180,000 Dearness allowance (180,000 X 10%) 18,000 Bonus (15,000 X 2) 30,000 Medical allowance (1,000 X 12) 12,000 Less, Exemption: 10% of basic salary 18,000 Or, 120,000 Whichever is lower 18.000 Entertainment allowance (200 X 12) 2,400 Car facility (180,000 X 5%) 9,000 Rent free accommodation: Rental value 80,000 Or, 25% of basie salary 45,000 Whichever is lower 45,000 Travel allowance 100,000 Less, Exempted — actual expense 90,000 10,000 ‘Advance salary 15,000 Employer's contribution to RPF (10% of 180,000) 18,000Interest on RPF Less. Exemption. 1/3" of BS and DA 66,000 Or, interest @ 14.5% (1,800/12 X 14.5) 2175 Whichever is lower Income from interest on securities (See. 22): Interest on tax free government securities Less, Exempted — full Interest on less tax free government securities (2,700 X 100/90) Interest on approved debentures Less, Allowable expenses: Bank charge Interest on loan Income from house property (Sec. 24): Actual rental value (9,000 X 12) Municipal value (200,000 + 2) Annual value (whichever is higher) Less. Admissible expenses: Repair & maintenance (108,000 X 25%) Insurance (4,000 + 2) Land development tax (1,500 + 2) Interest on loan (500 + 2) Vacaney allowance (9,000 + 2) Agricultural income (Sec. 26): Sale of erops Income from barga Less. Allowable expenses: Production cost (5,000 X 60%) Income from business & profession (Sec. 28): Profit from sole-proprietorship business Less. Set-off losses Share of profit in a partners! Income of spouse or minor chi Income from other sources (Sec. 33): Interest from fixed deposit (4,500 X 100/90) Profit trom Islami Bank (900 X 100/90) Dividend from ICB Mutual Fund (31,500 X 100/90) Less. Exemption — up to firm (untaxed) 1,800 3,000 3,000 27,300 (400) (2,000) 108,000 100,000 27,000 2,000 750 250 18,000 5,000 2.000 35,000 3,000 24.900 108,000 3,000 4,000 1,000 5,000 1,000 327,400 27,900 60,000 4,000 3,000 10,000 40,000Dividend of listed Public Ltd. Co. 25, (1,800 X 100/90) 10,000 Eg Less. Exemption ~ up to 2,000 Sale of forest timber 28,000 Prize bond lottery (Section 82C) - 2,000 Foreign income: 300,000 Income from South Korea (As there is Double Taxation Avoidance Agreement between Korea and Bangladesh, foreign tax credit will | 500,000 be allowed as per Section 144(4). Less, Bought to Bangladesh through official channel (exempted as per SRO no. 204 of 2004.) Income from Russia (As there is no Double Taxation Avoidance Agreement 250,000 between Bangladesh and Russia, no foreign tax credit 250,000 will be allowed as per section 145) 300,000 Total income Calculation of allowable investment allowance ‘Taka Life insurance premium 8,000 Share purchase 5,000 Contribution to Zakat Fund 2,500 Contribution to RPF (18,000 X 2) 36,000 Actual investment 51.500 Maximum limit of allowable investment 25% of total income excluding employer's contribution to RPF and ineome under 82C. ic 25% of (1,340,300 — 18,000 — 300,000) Tk.255,575 Or, ‘Tk. 15,000,000 Whichever is lower ‘Therefore, allowable investment allowance for tax rebate is Tk.51,500 Computation of tax liability Tax rate Taka ‘On lottery income (See. 82C) Tk 300,000 20% 60,000 On balance of income Tk. 1,040,300 On first Tk.250,000 0% - ‘On next Tk 400,000 10% 40,000 On balance Tk. 390,300 15% 58,545 158,545 Less. Investment tax rebate (Tk.51,500 X15%) 725) 150,820No tax credit for profit on partnership firm (untaxed) z 150,820 Tax deducted at source (Note 1) (300 + 60,000 + 500 + 100 + 3,00 + 200) 00, Less. Double taxation relief (as per see. 144(4)) Note 4 Net tax liability Notes: 1. TDS includes Tk. 300 on interest on less-tax government securities, Tk. 500 on interest on fixed deposit, Tk. 100 on profit from Islami Bank, Tk, 3,500 on dividend from ICB mutual fund, Tk. 200 on dividend of listed company and Tk. 60,000 on winning of lottery. 2. Both contributions to RPF are investment allowance. 3. Purchase of books, shares of co-operative society and furniture is not considered as investment allowance as these are not items of 6" schedule (part-B) 4. Double taxation relief: Average tax rate in Bangladesh is (150,820 / 1340,300), ie, 11.25% Tax relief - On income from South Korea: 25% of (500,000 - 250,000) = Tk.62,500 Maximum relief for DTAA country is at an average rate of the country. i.e. (500,000 ~ 250000) X 11.25% = Tk.28,125 On income from Russia As there is no DTAA between Bangladesh and Russia, no foreign tax credit will be allowed as per section 145. P-2, From the following particulars compute the total income and tax liability of Mr. X for the income year ending 30 June, 2018:- (a) Salary Income : Basic salary: Tk. 20,000 p.m. Entertainment allowance: 20% of basic salary Bonus: equivalent to 2 months’ basic salary Free accommodation (out of which 1 room was sub-let by Mr. X for Tk.3, 000 p.m), rental value being Tk. 72,000 p.a. Medical allowance: Tk. 500 p.m. (actual expense Tk. 8,000) Conveyance allowance: Tk. 3,000 p.m. Subscription to RPF: 10% of basic salary (Employer also contributed the same). (b) Interest on Securities : Interest on SEC approved debenture Tk. 10,000/- Interest on Goverment securities. 70,000/- (TDS @ 10% Tk. 7000/- under upfront system 3 years ago) (©) Income from House Property Mr. X has one residential house — one half of which is let out at a monthly rent of Tk. 50,000/- and the other half is self-occupiedFollowing actual expenditures were incurred by Mr. X for the full house:- Taka Municipal tax 20,000 Repairs and maintenance 60,000 Insurance premium 12,000 Salary of caretaker 30,000 Interest on house building loan ( actually paid Tk. 50,000/-) 1,47,000 (d) Income from Partnership Business 50% share income from a partnership firm is Tk. 1,46,000 (after tax). Firm’s total income was Tk. 3,00,000/- (tax came at Tk. 8,000/-), but the firm did not pay any tax rather it preferred appeal and now it is pending at appeal stage. (€) Capital Gain : Gain from sale of shares of listed companies Tk. 5,27,335/-. () Income from Other Sources Cash dividend (net of tax) from a listed company Tk. 45,000/- Stock dividend of 100 shares (Face value TK. 10 but market price on that day Tk. 1500/-per share). Interest (net of tax) on savings bank account Tk. 5,400/-. (9) During the year Mr. X made the following investments:- (1) Life insurance premium at the name of his dependent old father Tk. 60,000 (Policy Value TK. 500,000); (2) Investment in secondary shares of listed companies Tk. 1,00,000; (3) Donation to Prime Minister's relief fund Tk. 10,000/-. (CMA Adapted — August 2013 Solution: Assessee: Mr. X Income year: 2017- 2018 Assessment year: 2018 — 2019 Calculation of total income Heads of income Taka | Taka [Taka Income from salary (Sec. 21): Basic salary (20,000 X 12) 240,000 Entertainment allowance (240,000 X 20%) 48,000 Bonus (20,000 X 2) 6,000} 40,000 Medical allowance (500 X 12) Less, Exemption 10% of basic salary 24,000 Or, 120,000 Whichever is lower 24. Rent free accommodation: Rental value 72,000 Or, 25% of basic salary 60,000 Whichever is lower 60,000 ‘Conveyance allowance (300 X 12) 36,000 Less, Exempted up to 30,000 6,000 Employer’s contribution to RPF (10% of 240,000) 24,000Income from interest on securities (Sec. 22): Interest on SEC approved securities 418,000 Interest on government securities (Note 1) 10,000 70.000 Income from house property (See. 24): 80,000 ‘Actual rental value (50,000 X 12) Municipal value 600,000 Annual value (whichever is higher) : Less. Admissible expenses: 600,000 Repair & maintenance (60,000 X 25%) - Municipal tax (20,000 = 2) 150,000 Insurance premium (12,000 = 2) 10,000 Interest on loan (147,000 = 2) 6,000 3.500 239.500 Income from partnership firm: 360,500 50% share of income from partnership firm (before tax) 150.000 Capital gain (Sec. 31): 150,000 Gain from sale of share of listed company Less. Fully exempted 527,335 Income from other sources (See. 33): 527,335 Cash dividend from listed company ~ (45,000 X 100/90) Less. Exemption — up to 50,000 Stock dividend (Note 2) 25,000 Interest on savings bank account 25,000 (5,400 X 100/90) - Income from sub-let (3,000 X 12) 6,000 36,000 Total income Calculation of allowable investment allowance Taka Employees & employer's contribution to RPF 48,000 (24,000 X 2) Investment in secondary share 100,000 Actual investment 148,000 Maximum limit of allowable investment 25% of total income excluding employer’s contribution to RPF. i.e. 25% of (1075,500 — 24,000) Tk.262,875 Or, Whichever is lower ‘Therefore, allowable investment allowance for tax rebate is Tk.148,000 Tk.15,000,000Computation of tax liability Particulars Tax rate Taka On first TK250,000 0% On next Tk 400,000 10% | 40,000 On balance Tk 425,500 15% | 63.825 On total Tk1075.500 103,825 Less. Investment tax rebate (Tk. 148,000 X15%) 22,200) 81,625 Less. Tax on taxed share income from partnership firm at 14.480, Tk.103,825, average rate (Tk.150,000 X 7k 1,075,500 67,145 Less. TDS on cash dividend @ 10% 5,000 ‘TDS on interest on savings bank a/e @ 10% 00 Net tax liability an Notes: 1. No tax credit is allowed on TDS Tk.7,000, as it was deducted 3 years ago which is not adjustable with this year’s assessment 2. Stock dividend is tax free. 3. Life insurance premium at the name of old father is not an investment allowance. P-3, Mr. Rahman, General Manager of ABC Co, Ltd.,a public Limited company, has earned the following income for the year ended June 30, 2018 A. Salary Income: (Basie salary p.m Tk. 35,000 (ii) Festival bonus Tk. 70,000 (itt) Incentive bonus equal to two months” basic salary (iv) Free furnished accommodation (v) Employer's contribution to recognized P.F @ 10% on basic salary. (vi) Provision of a car which is exclusively for his personal use (vii) Payment of Tk. 15,000 p.a. against his life insurance premium, B._ Property Income’ Mr. Rahman and his wife owned two house properties of which he resides in one, the annual value of which is Tk. 3,00,000 p.a, and another he rented to Mr. A on which he receives Tk, 3,50,000 p.a. Expenses incurred are as follows: (i) City Corporation tax ‘Tk, 50,000 p.a (Tk. 20,000 for self-occupied house and ‘Tk. 30,000 for other) (Tk. 5,000 for selftoccupied house (ii) Insurance premium 15,000 pa and Tk. 10,000 for other) (iii) Collection charges 24,000 pa (iv) Water bill (his own portion) 20,000 p.a Income from other source: (Mr. Rahman has received Tk. 55,000 as director’s fee from a company where he is part-time director on which the company paid Tk. 550 VAT. (ii) He has received Tk. 40,000 as dividend from a listed company on which tax has been deducted @ 10% (iii) He has received Tk. 30,000 as interest on Savings Bank A/C on which tax has been deducted @ 10%Mr. Rahman has invested Tk. 50,000 in purchasing Bangladesh Sanchayapatra during the year. Compute the total income and tax payable of Mr. Rahman mentioning the assessment year. Solution: Assessee: Mr. Rahman Income year: 2017 - 2018 (CMA Adapted — August 2012 Assessment year: 2018 - 2019 Calculation of total income Heads of income Taka Taka Taka Tncome from s: (See. 21): Basic salary (35,000 X 12) Festival bonus. Incentive bonus (35,000 X 2) Rent free accommodation: Rental value Or, 25% of basic salary Whichever is lower Employer's contribution to RPF (10% of 420,000) Car facility 5% of basic salary Or, Whichever is higher Director’s fee (Note 1) Income from house property (Sec. 24): Actual rental value Municipal value Annual value (whichever is higher) Less. Admissible expenses: Repair & maintenance (350,000 X 25%) City corporation tax Insurance premium Income from other sources (See. 33): Cash dividend from a listed company (assuming gross) Interest on savings bank account (assuming gross) Total income z, | Ia jae Es 350,000 87,500 30,000 10.000 420,000 70,000 70,000 103,000 42,000 60,000 55,000 350,000 822,000 222,500 90,000Calculation of allowable investment allowance Taka Employees & employer's contribution to RPF 84,000 (42,000 X 2) Payment of life insurance premium - own 15,000 Purchase of savings certificate 30,000 ‘Actual investment 149,000 Maximum limit of allowable investment 25% of total income excluding employer’s contribution to RPF. i.e, 25% of (134,500 — 42,000) 1k.273,125 Or, ‘Tk.15,000,000 Whichever is lower ‘Therefore, allowable investment allowance for tax rebate is Tk.149,000 Computation of tax liability Particulars Tax rate Taka On first Tk250,000 0% - On next Tk.400,000 10% | 40,000 On balance Tk 484,500 15%] 72.675 On total Tk1134,500 112,675 Less. Investment tax rebate (Tk.149,000 X15%) 22.350) 90,325 Less. TDS on cash dividend @ 10% 4,000 TDS on interest on savings bank ale @ 10% 5,000 Net tax liabilit 1,325 P-4, Mr. Kaiser, Managing Director of a multi national company gets the following remuneration, benefits and allowances during the year ended on 30.06.2018 (i) Salary at the rate of Tk.25,000/- per mensem, (ii) Rent free accommodation (unfurnished), company pays the rent @ Tk.30,000/- per mensem; (iii) T.A. & D.A. Tk.1,50,000, residence utility bills Tk.73,000, hospital bills Tk.45,000, club bills Tk.60,000 are all reimbursed by the company, (iv) Performance bonus equivalent to 3 months salary and festival bonus equivalent to 2 months salary are paid, (v) Mr. Kaiser contributes 10% of the basic salary to CPF (recognized) and the company also contributes the same amount, ‘Compute total income of M. Kaiser from the above information. CMA Adapted — April 2010 Solution: Assessee: Mr. Kaiser Income year: 2017- 2018 Assessment year: 2018 ~ 2019 Calculation of total incomeHeads of income ‘Taka Taka Income from salary (Sec. 21): Basic salary (25,000 X 12) 300,000 Rent free accommodation: Actual rent (30,000 X 12) 360,000 Or, 25% of basic salary 75,000 Whichever is lower 75,000 Residence utility bills reimbursed 75,000 Hospital bills reimbursed 45,000 Club bills reimbursed 60,000 Performance bonus (25,000 X 3) 75,000 Festival bonus (25,000 X 2) 50,000 Employer's contribution to RPF (10% of 300,000) 30,000 710.000 Note: Assumed that T/A and D/A reimbursed Tk.150,000 has expensed only for official purpose. P-5, Mr, Ujjal has been working as General Manager in Mazumder & Co. Ltd, During the income year ended June 30, 2008 he has the following income: (a) Basic salary Tk 50,000 p.m; (b) Festival bonus equal to 2 months basic salary, (c) He has been provided with a car for his official and private use with Driver. Driver's salary was Tk.7,000 p.m. All expenses of the car were borne by the company. (d) He has been provided with a rent-free accomodation which his employer rental for Tk.10,000 p.m; (e) As per terms of the service contract Mr. Ujjal is allowed yearly trip with family at the cost of the company. As per contract all return tickets were provided by the employer. Besides “Tk.250,000 was also given to him to meet the expenditure abroad which is also a part of service contract. The value of air tickets were Tk.100,000. He spent Tk.2220,000 out of Tk.250,000 given to him; (1) His entertainment allowance was Tk.3,000 p.m.; (g) Tk.130,000 was paid by the company being his hospitalization and medical expenses during the income year: (h) He has been provided with a Provident Fund facilities @10% on the basic pay; G) He has also income from agriculture as a bargadar to the tune of Tk.280,000 during this year, (G) He has earned income during the year of Tk. 150,000 by giving lecture in different “organizations, (k) He has purchased savings certificate during the year of Tk.250,000. ‘Compute his total income and tax liability for the assessment year 2008-2009 CMA Adapted ~ April 2009VALUE ADDED TAX Q-1. Sumon purchases 100 wall clocks (WC) @ Tk.70 per unit and he sold all these WC to Nikhil at Tk.9,300 where he earns profit of Tk 2,000. After adding value of Tk.30 per unit Nikhil sells these WC in the market. If VAT is same on all these clocks, calculate how much VAT Sumon to pay and what price Nikhil sells these WC in the market (CMA Adapted — December 2015 Solution: Computation of VAT Input value | Value addition | VAT@ 15% Stage Particulars (Ik) (te) (ik) 1_ | Purchase of WC by Sumon 7,000 7,000 1,050 2 | Sale of WC to Nikhil 9,300 2.300 345 3_| Sale of WC to market 12,300 3,000 450) VAT to pay by Sumon Tk.1,050 Nikhil sells WC at Tk.12,300 Q-2. Imperial Food Products imported Dry food in December, 2013 of Tk. 15,00,000 (C&F value determined by the Bangladesh Customs). The insurance charge is 1.5% of the C&F value, borne by the importer. Thereafter, 2% lending charge is applicable on these goods Customs duty and supplementary duty rates are 15% and 20% respectively. Calculate the amount of VAT of Imperial Food Products, if VAT rate is 15% CMA Adapted - August 2014 Solution: Imperial Food Products Calculation of VAT Particulars Rate Amount (Tk) ‘C&F value of the imported dry food 1,500,000 ‘Add, Insurance charge 13% ‘Total C&F value and insurance charge ‘Add, Landing charge 2% Assessable value 1,552,950 ‘Add. Customs duty 15% 232,943 Base value for SD 1,785,893 ‘Add, Supplementary duty 20% 357,179. Base value for VAT 2,143,071 VAT 15% 321,461 Q-3. Aramex Ltd imported raw materials of Toys for Tk. 5,00,000 and sold it to Matrix Enterprise Limited for Tk. 580,000. Using these materials Matrix Enterprise manufactured 500 pieces of Toys and sold it to Farhan and Sons Ltd, a wholesaler, for Tk. 620,000. Farhan and Sons sold the toys to a retail seller Tina holdings for Tk. 660,000. Tina Holdings sold allthe toys to various customers for Tk. 700,000. In each case and each stage 15% VAT is to be considered. Compute VAT in each case. CMA Adapted - August 2014 Solution: Computation of VAT Input value | Value addition [VAT@ 15% Stage Particulars (ik) (re) (ik) 1 | Import of raw materials by 500,000 500,000 75,000 Aramex Ltd. 2 _| Sale of raw materials to Matrix 380,000 80,000 12,000 Enterprise Lid 3 | Sale of Toys to Farhan and Sons 620,000 40,000 6,000 Lid. 4 | Sale of Toys to Tina Holdings 660,000 40,000 6,000 5_| Sale of Toys to customers 700,000 40,000 6,000 Total 700,000 105,000 Q-4. Regent Company produces different consumer products. To produce their products they import some ingredients from China and use some local ingredients. To produce 10000 pieces (pes) of AAA Makeup Box for November 2013 they procured and used following, ingredient as per standard practice Ingredient A 1200 kgs by Tk. 517,440 where VAT was Tk. 65,340, AIT (advance income tax) Tk. 16,500, Customs Duties (CD) Tk. 33,000 and Supplementary Duty (SD) Tk. 72,600; Ingredient B 600 kgs by Tk. 356,345 where VAT was Tk. 45,045, AIT Tk. 11,000, CD Tk. 66,000 and SD Tk. 14,300; Ingredient C 800 kgs by Tk. 1,50,000 (VAT- exempted); and Ingredient D 10,050 pes by Tk. 138,000 where VAT was Tk. 18,000. Ingredient A and B were imported items and Ingredient C and D were locally procured from wholesale market Standard Gas bill for such quantity of products was Tk. 1,20,000 and Eleetticity bill was Tk 55,000 excluding VAT. Per Unit costs were: Labor cost Tk. 80, factory overhead Tk. 90. Standard marketing ‘overhead cost in total was Tk. 50,000 and bank interest Tk, 45,000 for November 2013. Company profit markup policy is 30% after charging all costs ‘Company produced and sold 1000 pes AAA Makeup Box in November 2013. Asa Manager (Costing & VAT) of the company you are required to submit Form VAT-1 for Product AAA and Form VAT-19 for the month of November 2013 Required: (Find out per unit AAA Makeup Box cost for Form VAT-I and selling price, (ii) Determine the amount of input VAT will be allowed as rebate in Form VAT-19 and net VAT payable for November 2013, CMA Adapted — December 2013Solution: i) Regent Company Calculation of per unit AAA Makeup box cost and selling price Material cost excluding VAT & AIT. Ingredient A (517,440 — 65,340 - 16,500) Ingredient B (356,345 - 45,045 — 11,000) Ingredient C Ingredient D (138,000 — 18,000) Gas bill Electricity bill Total material cost Per unit material cost (Tk. 1,180,900 = 10,000 pes) Add. Per unit labor cost Per unit factory overhead Per unit marketing overhead (Tk.50,900 = 10,000 pes) Per unit bank interest (Tk.43,000 = 10,000 pes) Per unit AAA Makeup Box cost Add, Profit markup @ 30% Profit before VAT Add, VAT @ 15% Selling price per unit Regent Company Determination of input VAT Ingredient A Ingredient B Ingredient C Ingredient D Gas bill (Tk. 120,000 X 15% X 80%) Electricity bill (Tk.55,000 X 15% X 80%) Total input VAT Determination of net VAT payable for November 2013 ‘Total output VAT (Tk.58.03 X 10,000 pes) Less, Total input VAT Net VAT payable Amount (Tk.) 435,600 300,300 150,000 120,000 120,000 35,000 1,180,900 118,09 80, Amount (Tk) 65,340 45,045 18,000 14,300 6,600 149.385 Tk.580,300 Tk.149.385 Tk430,915Q-5. MS Asa Electronics has imported electronic parts which will be assembled and packed in Bangladesh. Due to increase in the last consignment price, the company needs to increase its product price, for which it has to submit VAT FORM-1 to the VAT authority. ‘The imported consignment consisted of 10,000 units at a C&F (cost & freight) value of USD 60 per unit, The exchange rate was Tk. 78 for | US dollar. Applicable duties and tax were Custom duty @ 12%, Supplementary duty @ 10%, Advance income tax @ 5%, VAT @ 15% and ATV @ 4%. Ci ms authority added 1% of C&F value as insurance cost and 1% of CIF value as landing charge to determine the assessable value. ‘After importation, the company’s carrying and other cost was Tk. 40 per unit, labour cost Tk. 200 per unit and overhead 50% of labour cost. For assembling and packing, the company used 2 articles locally, article A at a cost of Tk. 80 per unit without any VAT for exemption and article B at a cost of Tk. 200 per unit plus 15% VAT therefor. ‘As per management policy, the company’s mark-up profit is 20% of cost. Required Determine — (a) Assessable Value for Customs clearance. (b) Total duties and taxes, including VAT, AIT and ATV. (c) Per unit sales price for submission of VAT Form-1 (d) Output VAT per unit, Input VAT per unit and VAT liability per unit after input VAT credit. CMA Adapted - August 2013 Solution: a) M/s Asa Electronics Determination of assessable value Amount (Tk.) C.& F value (USD60 X Tk.78 X 10,000 units) 46,800,000 Add, Insurance cost @ 1% 468,000 CIF value 47,268,000 Add, Lending charge @ 1% 80 ‘Assessable value 47,740,680 b) M/s Asa Electronics Determination of total duties & taxes Amount (Tk.) Amount (Tk) Assessable value 46,800,000 Custom duty on assessable value @ 12% 5,728,882 Base value for supplementary duty 53,469,562 (47,740,680 + 5,728,882) Supplementary duty @ 10% 5,346,956 ‘Advance income tax on assessable value @ 5% 2,387,034 Base value for VAT 58,816,518 (47,740,680 + 5,728,882 + 5,346,956) VAT @ 15% 8,822,478 Base value for ATV 74,502,883 (58,816,518 + 26.67% of 58,816,518) ATV @4% 2,980,115 Total duties and taxesM/s Asa Electronics Determination of assessable value Amount (Tk.) Per unit material cost excluding VAT, ATV & AIT. Electronic parts (47:740,680 + 5,728,882 + 5,346,956 5,881.65 10,000units Article A 800 Article B 200 Carrying and other cost 40 Per unit material cost 6,201.65 ‘Add, Labour cost 200 Add, Overhead cost (200 X 50%) 100 ‘Total cost per unit 6,501.65 Add, Mark up profit @ 20% 1,300.65 Price before VAT 7,801.98 Add. VAT @ 15% 1,170.30 Per unit sales price for VAT Form-1 8,972.28 d) Output VAT per unit = Tk.7,801,98 X 15% =Tk.1,170.30 Input Vat per unit: Electronic parts (8822478 2.980.115 ‘Tk.1,180.26 10,000 units Article A : Article B 30 ‘Total input VAT per unit Tk1210.26 VAT liability per unit: ‘Total output VAT per unit Tk.1,170.30 Less, Total input VAT per unit 1,210.26 VAT liability per unit (Adjustable against fiture sale) (7k 39.96 Q-6. Mr. Anwar imported some processed mushrooms fom Thailand. C&F value of the goods were US$ 5,000 with an exchange rate of US$1 = Tk.82.50. Insurance cost was 1% of C&F value, Border taxes on this import were as follows: Customs duty @ 25%, Supplementary duty @ 20%, Value Added Tax (VAT) @ 15%, Advance income tax (AIT) @ 5%, Regulatory duty @ 3% and Advance trade VAT (ATV) @ 3%. Compute the amount ‘of Custom duty, Supplementary duty, VAT, AIT, Regulatory duty and ATV. Also compute the total tax incidence as a percent of assessable value. CMA Adapted - April 2012Solution: Mr. Anwar Particulars Input Value (Tk) | Rate | Amount (TK) (CRE value of imported product 412,500 (85,000 X Tk.82.50) ‘Add. Insurance cost @ 1% 4125 _ ‘Assessable value 416,625 Custom duty 25% 104,156 Base value for SD 520,781 Supplementary duty (SD) 20% 104,156 Regulatory duty on assessable value 5% 20,831 Base value for VAT 645,768 VAT 15% 96,865 Base value for ATV 710345 (645,768 + 10% of 645,768) ‘ATV 3% 21,310 AIT in assessable value 3% Total tax 168,149 Q-7. A manufacturing company has imported | million pieces of a product at C&F cost of US$75,000. Applicable exchange rate US$ | = BDT 70. Insurance cost is 1% of C&F. Taxes applicable at import stage are: Custom Duty (CD) @ 15%, Supplementary Duty (SD) @ 35%, Value Added Tax (VAT) and Advance Income Tax (AIT). Determine the amount of each tax and the total import cost including all taxes and non-tax costs, Mention the application of further tax liability, if the importer was a commercial importer. CMA Adapted — April 2011 Solution: Particulars Base Value (Tk) | Rate | Amount (TK) CRF value of imported product 5,250,000 (875,000 X Tk 70) ‘Add, Insurance cost [1% 52500 ‘Assessable value 5,302,500 Custom duty 15% 795375 Base value for SD 6097875 Supplementary duty (SD) 35% 2134256 Base value for VAT 8232131 VAT 15% 1234820 AIT in assessable value 3% 159075 ‘Total import cost 9,626,026Q-8. Mr. Karim import consumable item worth $ 5000, exchange rate @ 70 Tk. Calculate ‘Customs Duty (CD), Supplementary Duty (SD), Value Added Tax (VAT), Advance Income Tax (AIT), Please consider CD=25%, § 20%, VAT=15%, AIT=3%, 1% landing charge, 1% handling charge CMA Adapted — December 2010 Solution: Mr. Karim Particulars Input value (Tk) | Rate qk) C&F value of consumable tem 350,000 ($5,000 X Tk 70) Add. Landing charge @1% 3500 x CLF value 353500 _ Add. Handling charge @1% 3535 - Assessable value 357035 - ‘Custom duty 25% 89259 Base value for SD. 446294 Supplementary duty (SD) 20% 89259 Base value for VAT 335553 VAT 15% 80333, AIT in assessable value 3% 107i 269,562 Q-9. Givenchy Ltd imports Ad size paper from Singapore. Invoice value is $5000 (C&F), Assessable Value is $6000, Exchange rate is 18=70Tk, Customs Duty is 25%, Supplementary Duty is 35%, Regulatory Duty is 5%, VAT is 15%, AIT is 3%, 1% handling charge and 1% landing Charge. You have to calculate total tax and other charges liabilities at the import stage. Solution: (CMA Adapted — August 2010 Givenchy Limited Particulars Input value (Tk) Rate | Amount (TK) ‘C&F value of imported paper 420,000 ($6000 X Tk 70) ‘Add, Landing charge @1% 4200 _ CLF value 424200 - ‘Add. Handling charge @1% 4242 _ ‘Assessable value 428442 - Custom dut 23% 107110 Base value for SD 535552 Supplementary duty (SD) 35% 187443 Regulatory duty on assessable value 5% 21422 Base value for VAT 744417VAT 15% 111662 AIT in assessable value 3% 12853 Total tax liability 440.490, Q-10. XYZ Ltd imports Ad size paper from Singapore, Invoice value is $3000 (C&F), Exchange rate is 1$=70Tk, Customs Duty is 25%, Supplementary Duty is 35%, AIT is 3%, (Consider 1% Handling charge and 1% Insurance fees). Calculate Customs Duty, VAT, Supplementary Duty and Total Tax Liability of XYX Ltd at import stage CMA Adapted - April 2010 Solution: XYZ Limited Particulars Input value (Tk) Rate | Amount (TK) (C&F value of imported paper 210,000 ($3000 X Tk 70) Add. Insurance fees @1% 2100 2 CIF value 212100 x Add. Handling charge @1% 2121 - Assessable value 714221 - Custom duty 25% 53555 Base value for SD 267776 Supplementary duty (SD) 35% B72 Base value for VAT 361498 VAT 15% 34225 AIT in assessable value 3% 6427 Total tax liability 207,929PERQUISITE Perquisite is the benefit given in addition to salary or wages. It may be in the form of cash or other kinds, In case of perquisite, allowable deduction up to Tk.5.50,000. Perquisite includes: 1. Value of rent free accommodation 2. Value of accommodation provided at concession rate 3. Insurance premium born by the employer for the assesse or is spouse or any of his dependent child 4. Total entertainment allowance 5. Total conveyance allowance 6. Any obligation of employee (such as salary of house servant, gardener, ete) paid by the ‘employer 7. Leave passage Perquisite does not include: 1. Basic salary 2. Festival bonus and incentive bonus not exceeding 10% of disclosed profit of relevant income year 3. Arrear salary 4, Advance salary 5. Leave encashment 6. Leave fare assistant 7. Overtime 8. Contribution to RPF 9. Contribution to approved pension fund 10. Contribution to approved gratuity fund 11. Contribution to approved superannuation fundPROBLEMS P. Mr X an employee of a limited company, received the following salaries allowances during the income year ended 30 June, 2018, Particulars Taka 1. Basie salary 4,20,000/- 2. House rent allowance 2.00.000/- 3. Festival bonus equal to two months basic salary 70,000/- 4. Leave encashment salary 35,000/- 5. Conveyance allowance 24,000/- 6. Contribution to recognized provident fund @ 8% 33,600/- 7. Servant wages 24,000/- 8. Children education allowance 60,000/- 9. Leave fare assistance 50,000/- 10 Bungalow utilities 25,000/- ‘Compute excess perquisite as per section 30 (e) for the assessment year 2018-2019, CMA Adapted — April Solution: Assessee: Mr. X Income year: 2017 — 2018 Assessment year: 2018 — 2019 Computation of excess perquisite Perquisite: House rent allowance (2) Tk.200,000 Conveyance allowance (5) 24,000 Servants wages (7) 24,000 Children education allowance (8) 60,000 Bungalow utilities (10) 25,000 Total perquisites 333,000 Less. Allowable perquisite (550,000) Excess perquisite ‘NIL and P-2, Mr. X, an employee of a limited company, received the following salaries and allowances during the income year ended 30 June 2018 a Q) @) @) @) ©) oO (8) Basic salary Tk. 444,000 House rent allowance 2,00,000 Festival bonus equal to two months” basic salary Leave encashment 37,000 Conveyance allowance 24,000 Contribution to recognized provident fund @ 8% 33,600 Servants’ wages 24,000 Children education allowance 60,000(9) Leave fare assistance 50,000 (10) Bungalow utilities 25,000 Compute the excess perquisite w/s 30(e) for the assessment year 2018-2019, (CMA Adapted - August 2012 Solution: Assessee: Mr. X Income year: 2017 ~ 2018 Assessment year: 2018 - 2019 ‘Computation of excess perquisite Perquisite House rent allowance (2) Tk.200,000 ‘Conveyance allowance (5) 24,000 Servants wages (7) 24,000 Children education allowance (8) 60,000 Bungalow utilities (10) 25,000 Total perquisites 333,000 Less. Allowable perquisite (550,000) Excess perquisite NIL,INCOME FROM HOUSE PROPERTY Income from house property is calculated by deducting admissible expenses from the annual value. ‘Annual value is the higher of actual rental value and municipal value of the house property. In determining the actual rental value ~ if the tenant bears any owner expense, it will be added to the actual rental value ~ if the owner bears any tenant expense, it will be deducted from actual rental value - if any TDS is deducted from income from house property, it will be added to actual rental value Rental status of house property can be three types: 1, Fully let out: For fully let out house property, actual rental value, municipal value, annual value and admissible expenses should be considered the whole amount, 2. Partly let out: For partly let out house property, actual rental value, municipal value, annual value and admissible expenses should be proportionately considered for let out part 3. Fully occupied by the owner: For fully occupied house property by the owner, annual value needs not to be computed. Notes: a) 5% TDS is applicable on rental value if the building is let out to government authority or ‘commercial bank b) Receipts of advance may be added fully with annual value or allocated among 5 years, at the option of assesse Admissible expenses: 1, Repair and maintenance: = 25% of annual value of the house property is admissible if it is let out for residential urpose PO% of annual value of the house property is admissible if itis let out for commercial purpose 2. Ground rend 3. Vacancy allowance: If the house property was vacant during a part of the year, such portion of the annual value is admissible 4, Uneollectible rent: If the owner fails to collect rent after taking necessary action, such portion of the annual value is admissible 5. Insurance premium, land development tax, land revenue paid, annual tax is admissible 6. Municipal tax 7. Refuund of advance 8. Interest on mortgage 9. Interest on loan during construction period is admissible in three equal proportionate installments for subsequent first three years with regular interest on loan 10, Capital expenditures and legal expenditures are not admissiblePROBLEMS P-1. Mr. Azim owns a house the municipal value of which is Tk.2,20,000. Half of the house has been let out at Tk. 25,000 per month, The rest of the house is used by his son-in-law who pays nothing for the use. Following were the expenses of the house: 4) White wash and repair Tk. 6,000 (ii) Municipal tax Tk 5,000 iit) Insuranee premium Tk 4,000 (iv) Service charge Tk. 6,000 (v)__ Interest on mortgage Tk 4/000 (vi) Water and sewerage charge Tk 7,000 (vi) Land revenue Tk 2,000 (viii) Cost ofalteration Tk. 15,000 He has another residential house situated at Uttara, Dhaka. The City Corporation, for municipal tax purpose, valued its annual value at Tk200,000. He spent Tk. 6,000 for its, repair and paid City Corporation tax at Tk. 5,000. He also paid interest on a loan taken from Agrani Bank for alteration and expansion of the house for which interest payable was Tk 20,000 per year. ‘Compute “Income from house property” for the assessment year 2018-19. (CMA Adapted — August 2012 Solution: ‘Assessee: Mr. Azim Income year: 2017-2018 Assessment year: 2018 — 2019 Income from house property (Sec. 24) Tk Tk Actual rental value (Tk.25,000 X 12) 300,000 Municipal value (Tk.220,000 ~ 2) 110.000 Annual value (Higher one) 300,000 Less. Admissible expenses: Repair & maintenance (Note-1) (300,000 X 25%) 75,000 Municipal tax (5000 + 2) 2,500 Insurance premium (4000 = 2) 2,000 Interest on mortgage (4000 = 2) 2,000 Land revenue (2000 +2) 1000 $2,500 Income from house property 217.500 Notes: 1. Since the house is let out for residential purpose, repair & maintenance expense is considered as 25% of annual value. 2. White wash and repair, service charge, water and sewerage charge all are fall within repair & maintenance expenses, so separate consideration is not needed 3. Cost of alteration is capital expenditure, so it is not admissible 4, Since the house at Uttara is fully self-occupied, so it is not considered. 5. Interest on loan of Tk.20,000 for alteration and expansion of self-oecupied house is not considered as it was instructed in the question only to complete income fiom house property‘APITAL GAL Capital gain is caleulated by deducting admissible expenses and reinvestment gain to claim rollover relief (if any) from the disposal value of asset. Disposal value of asses is the higher of sale value and fair market value of the asset. If full amount or part of capital gain is used to purchase a new capital asset within 1 year before or after the date of transfer and if the assesse express his intention to get rollover relief in writing to Deputy Commissioner of Taxes (DTC), he will get reinvested gain to claim rollover relief Capital gain = Sale value of the asset — Cost of the asset, Gain on sale of the asset ~ Sale value of the asset - Written Down Value (WDV) of the asset Revenue gain = Gain on sale of asset - Capital gain Note: No capital gain is considered in case of personal property. Admissible expenses of capital gain: 1. Cost of acquisition the asset 2. Cost of transforming the asset 3. Cost of improvement the asset ‘Tax rate 1. In case of a person: a) Ifcapital asset is disposed of within 5 years of acquisition, capital gain is included with the total income and taxed at regular rate b) If capital asset is disposed of afler 5 years of acquisition, tax rate will be the average tax rate computed on tax on total income including capital gain and 15% flat rate, whichever is lower. 2. In case of company: Tax rate of capital gain will be 15% whether capital asset is disposed of within or after 5 years of acquisitionPROBLEMS P-1. Mr Azam (age 66 years) purchased a machine for his workshop (a proprietorship entity) ‘on I® August 2015 at Tk. 1,80,000. On 31* March 2018 it was sold. Till that date Tk 1,20,000 was charged as accounting depreciation but as per Third Schedule tax depreciation ‘was Tk. 50,000, The Company has not purchased or has not any plan to purchase a similar machine during two years ending 31 March, 2019. Find out the capital gain if the sales proceed is (i) Tk. 1,50,000 (ii) Tk. 2,10,000 Gi) Tk. 2,60,000. Mr. Azam had income of Tk. 1,50,000 from other heads of income except “Capital Gains”. Find out tax liability of Mr. Azam in each of the three cases, (CMA Adapted - December 2012 Solution: Here, Written down value = Cost - Tax depreciation 80,000 - 50,000 30,000 Assessee: Mr. Azam Assessment year: 2018 - 2019 Computation of taxable income @ Gi) Gi) Sale price of machine 150,000 210,000 260,000 Less. Written down value 130,000 130,000 130,000 Capital gain 20,000 80,000 130,000 ‘Add, Income from other sourees 150,000 150,000 150,000 Total income (Note-1) 170.000 230,000 280,000 ‘Computation of tax liability (i) (i (iii) On first Tk.300,000 @ 0% Nil Nil Nil Total tax liability Nil Nil Nil Notes: 1. As, capital asset is disposed of within 5 years of acquisition, so capital gain is included ‘with the total income and taxed at regular rate 2. Since, age of Mr, Azam is more than 65 years, his tax free income will be Tk.300,000, 2. As, the assesse is more than 65 years of age, so minimum non-assessable income limit will be Tk.3,00,000,P-2, Saint Zavier Ltd. sold on 15 July, 2017 a piece of old equipment used in the business for Tk.20 million. In relation to the sale, it incurred advertisement cost of Tk. 80,000 and paid Tk.300,000 brokerage commission. It bought the equipment 6 years back at a cost of ‘Tk.3,490,000. On 30 November, 2017 it has bought another new equipment at a cost of Tk 25 million inclusive of incidental costs, The Company has duly informed the DCT about its intention to roll over the capital gain to new equipment purchased. Required: ‘Compute the amount of capital gain and comment on the implication of income tax thereon. CMA Adapted ~ December 2011 Solution: Assessee: Saint Zavier Ltd. Income year: 2017-2018 Assessment year: 2018 — 2019 Income under capital gain (See. 31) Sale proceeds of capital asset Tk.20,000,000 r, Fair market value at the time of transfer Whichever is higher is considered as disposal value of capital asset 20,000,000 Less. Allowable deductions: Cost of transferring the asset 380,000 (80,000 + 300,000) Cost of acquisition 3,490,000 (G.870,000 Capital gain 16,130,000 Less. Reinvested gain to claim rollover relief (Note-1) (16,130,000) ‘Taxable capital gain : Note: 1. If full amount or part of capital gain is used to purchase a new capital asset within a period of I year before or after the date of transfer, the assessee will get reinvested gain to claim rollover reliefADVANCE INCOME TAX Q-1. Mr. Jalil computed his advance tax for the income year 2009-2010 based on latest regular assessment of Tk. 12,00,000 total income including Tk. 50,000 capital gain and Tk 150,000 agricultural income. He has paid advance tax accordingly @ 25%, Regular assessment for assessment year 2010-11 was completed on August 31, 2012 and total income assessed was Tk. 10,00,000 where the amount of capital gain and agricultural income were ‘Tk. 75,000 and Tk. 1,25,000 respectively. Tax rate applicable is 25%. Show the relevant calculations related to advance tax. CMA Adapted — August 2012 Solution: Assessee: Mr. Jal Latest assessed income excluding capital gain and agricultural income for income year 2009- 2010 = Tk. 12,00,000 — $0,000 - 150,000 = Tk.10,00,000 Advance tax paid according to latest assessed income @ 25% = Tk.10,00,000 X 25% = Tk.250,000 Estimated actual income exeluding capital gain and agricultural income for income year 2009-2010 = Tk. 10,00,000 - 75,000 - 125,000 = Tk.800,000 Actual advance tax payable @ 24% ‘This excess amount of tax may either be adjusted with the tax liability of Mr. Jalil of the next assessment year or be refunded to him as his opinion in writing including 10% interest on this, excess tax. Calculation of time duration and interest amount for this excess tax: Given, regular assessment for the assessment year 2010-2011 was completed on August 31, 2012 So, the required time duration = July 1, 2010 to August 31, 2012 2 years 2 months As per rule, 10% interest will be allowed on the excess amount of tax paid for maximum 2 years. So, the amount of interest = Tk.50,000 X 10% X 2 years =Tk.10,000SET-OFF AND CARRY FORWARD OF LOSSES Loss under the head ‘Income from salaries’: Generally loss is not generated under the head “Income from salaries’, so there is no question for set-off and carry forward of loss from income from salaries. Loss under the head ‘Income from interest on securities’ Such loss can be set-off against income from any other sources and if such loss has not been fully set-off, it can be carried forwarded for the next assessment year. Loss under the head ‘Income from house property’: Such loss can be set-off against income from any other sources and if such loss has not been fully set-off, it can not be carried forwarded for the next assessment year Loss under the head ‘Income from agriculture’: Such loss can be set-off against income from any other sources (except income from capital gain) and if such loss has not been fully set-off, it can be carried forwarded for the next six assessment year Loss under the head ‘Income from business or profession’: Loss under the head ‘Income from business or profession” (except loss from speculation business) can be set-off against income from any other sources (except income from house property and capital gain) and if such loss has not been fully set-off, it can be carried forwarded for the next six assessment year. Loss from speculation business: Loss from speculation business can not be set-off against income from any other sources, it can only be set off against income from any other speculation business and if such loss has not been fully set-off, it can be carried forwarded for the next six assessment year. Loss under the head ‘Capital gain’: Loss under the head ‘Capital gain’ can only be set-off against income from any other capital gain and it can be carried forwarded for the next six assessment year by exceeding Tk. 5,000. Unabsorbed depreciation: Unabsorbed depreciation can be set-off against income from any other sources until the result is not a loss and it can be carried forwarded for unlimited time periodPROBLEMS P-1. Mr. Jamshed Sowdagor reports the following income for the income year ended on June 30, 2018 Income from Business and Profession Tk. $00,000 Income from House Property 100,000 Capital Gain 50,000 Income from Speculative Business 80,000 However, he has some losses to be carried forward from earlier years (income years) with the following details Heads Amount of Losses | Year of Origination ‘Loss from Business and Profession Tk. 80,000, 2014-15 Capital Loss 50.000 2009-10 Loss from Speculative Business 40,000 2011-12, Unabsorbed depreciation 30,000 2008-09 (CMA Adapted - December 2013 Solution: Assessee: Mr. Jamshed Sowdagor Income year: 2017— 2018 Assessment year: 2018 — 2019 ‘Sources of income Tk. Tk. Income from house property 700,000 Income from business and profession 500,000 Set off loss from business and profession from 2009-10 (Note-1) 80,000 420,000. Set off unabsorbed depreciation from 2003-04 (Note-2) 50,000 370,000 Income fom speculative business 80,000 Set off loss from speculative business from 2006-07(Note-3) 40,000 0,000 Capital gain 50,000 Set off capital loss from 2004-05 (Note-4) 2 30,000 Total taxable income 560.000 Notes: 1. Loss under the head ‘Income from business or profession’ (except loss fiom speculative business) can be set off against income fiom any other sources (except income from house property and capital gain) and it can be carried forwarded for next six assessment years. 2. Unabsorbed depreciation can be charged against income from any other sources until the result is not a loss and it can be carried forwarded for unlimited time period, 3. Loss from speculative business can only be set off against income from any other speculative business and it can be carried forwarded for next six assessment years. 4, Loss under the head “capital gain’ can only be set off against income from any other capital ‘gain and it ean be carried forwarded for next six assessment years by exceeding Tk.5000.P-2. The following particulars of Mr. Ali Ahmed are available for the assessment year 2018- 2019:- (Income from house property ‘Tk.10,00,000/. (ii) Business income (after allowing current year’s Depreciation of the Tk.2,00,000/-) Tk.7,00,000/- ‘The following losses have been brought forward from the preceding year: (i) Unabsorbed depreciation Tk.8,00,000/- (ii) Business loss Tk.5,00,000/- ‘The DCT is proposing to assess him on a total income of Tk.10,00,000/- by setting off only of the business loss of Tk.5,00,000/- and part of the unabsorbed depreciation of ‘Tk.2,00,000/- against the business income of Tk.7,00,000/-. Is he right in his action? CMA Adapted - April 2013 Solution: ‘The DCT is not right in his action. ‘The assessment should be done in the following manner: Business income (ii) Tk.700,000 Less. Business loss (ii) (500,000) 200,000 Less. Unabsorbed depreciation (Note-1) (i) (200,000) 0 Add, Income from house property (i) 10,00,000 Less. Unabsorbed depreciation (Note-1) (i) (600,000) (800,000 — 200,000) Total taxable income 400.000 Mr. Ali Ahmed should not accept the DCT’s proposal. He shout assess on the basis of law. If the DCT still remain in his decision and assessed in his (DCT’s) own view, Mr. Ali Ahmed ‘can appeal to the appellate tribunal Note: 1. Unabsorbed depreciation can be charged against income from any other sources until the result is not a loss.GIFT TAX Gift tax is not applicable on the following gift 1. Gift to a body corporate established under any law 2. Gift to any institution or fund, whose income is exempted from income tax Rates of gift tax Value of taxable gift Tax rate (On first Tk.5,00,000 of the value of all taxable gift 5% On the next Tk. 10,00,000 of the value of all taxable gift 10% ‘On the next Tk.20,00,000 of the value ofall taxable gift 15% (On balance: 20% ‘There exist general exemption of Tk.20,000 on the total amount of taxable gif. Following gifts are exempted from tax: 1. Gift to property situated outside Bangladesh 2. Gift to any recognized institution 3. Gift to any institution runs by the government 4. Gift to any institution recognized by the university or educational board established under the law in force in Bangladesh 5. Gift to any flood disaster fund approved by the government 6. Cash gift to any dependent relative on the occasion of his/her marriage up to Tk.20,000 is exempted 7. Gift under a will 8. Gift in contemplation of death 9. Gift to sons, daughter, father, mother, spouse, own brothers and sisters 10, Gift by way of payment of insurance policy or annuity to any person (except his wife) who is dependent on him up to Tk 20,000 is exemptable 11. Gift to any institution establishment in Bangladesh and approved by the government or established and registered for religious or charitable purpose up to 20% of his assessed income in the relevant assessment year or Tk, 1,00,000 whichever is lower.PROBLEMS P-1. Compute taxable gifts and the amount of gift tax payable for the assessment year 2018 - 2019 from the following information of Mr. Ali Ahmed:~ (i) Gift made to his son-in-law a house in Dhaka valued at Tk.15,00,000 with the condition that he will get return of Tk.50,000 every year up to five years from his son-in-law (ii) Mr. Ali Ahmed opened a bank account on 01-07-2017 jointly with his son for ‘Tk.2,00,000 out of his own money. An amount of Tk.1,25,000 was withdrawn on 01-01-2018 from the above bank account for the marriage ceremony of his son, (iii) Cash gift to niece on the occasion of her marriage Tk.60,000. (iv) He transferred an amount of Tk.50,000 from his bank account in U.K. to his daughter's account, (v) Gift to widowed daughter in the expectation of death Tk.1,00,000. (vi) Cash donation to brother-in-law on the occasion of his marriage Tk.35,000. (vii) Charity to a local mosque Tk.25,000. (viii) Gift of Tk.1,00,000 was made for the business of his eldest son. CMA Adapted - December 2010 Solution: Mr. Ali Ahmed Income year: 2017 - 2018 Assessment year: 2018 - 2019 Computation of taxable gifts Particulars Amount | Amount (tk) | rk) i) Tneome from gift made 1o his son-in-law (Note-1) 50,000 it) Opening of bank account (Note-2) 2 iii) Cash gift to niece (Note-3) 60,000 Less. Exemption 20,000| 40,000 iv) Transfer of TK.50,000 to daughter's aecount (Note-4) = ) Gift to widowed daughter (Note-5) 00,000 Less. Exemption 100,000 2 vi) Cash donation to brother-in-law (Note-6) 35,000 Less. Exemption 20,000| 15,000 Vii) Charity to a local mosque (Note-7) 25,000 Vili) Gift to his son (Note-8) 100,000 Less. Exemption 100,000 7 130,000, Less. General exemption 20,000 Total taxable gift 110.000, Computation of the amount of gift tax payable Value of taxable gift Rate or Up to Tk500,000 5% 5.500 Total gift tax payable 5.500Notes: 1. It is assumed that the gift made to his son-in-law is made under a will and hence return from this gift is considered as taxable gift 2. Opening of bank account with son has no relation with gift 3. It is assumed that his niece is dependent to him and hence Tk.20,000 is allowable exemption 4, Transfer of Tk.50,000 to daughter account has no relation with gift 5. Gifl to widowed daughter is allowable exemption 6. It is assumed that his brother-in-law is his dependent relative and hence Tk.20,000 is allowable exemption 7. Local mosque is not approved by government and hence is a taxable gift 8. Gift to son for any particular purpose is exempted from gift tax 9. General exemption is Tk.20,000OUR PUBLICATIONS Business Level GEOI - Fundamentals of Financial Accounting, GE02 - Fundamentals of Management Accounting GEO3 - Fundamentals of Business Mathematics GE04 - Fundamentals of Business Economies GEOS - Fundamentals of Ethies, Corporate Governance and Business Law Operational Level ROI - Legal Environment of Business E01 ~ Enterprise Operations POI - Performance Operations FO! - Financial Operations Management Level R02 - Taxation