TAX PLANNING AND COMPLIANCE
March-April 2021
Time allowed – 3:30 hours
Total marks – 100
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account
of the quality of language and of the way in which the answers are presented. Different parts, if any, of the same question
must be answered in one place in order of sequence.]
Marks
1(a). You are a partner of a reputed firm of Chartered Accountants and working as a tax advisor to XYZ
Bank Ltd. (“Bank”). The taxation department of the Bank sent you a letter seeking your opinion on
the following issue:
N Ltd., a customer of the Bank, is a private limited company incorporated in Bangladesh under the
Companies Act, 1994. One of the shareholders of N Ltd. is a resident of Singapore and is going to
transfer his shares to a resident of the USA. Despite the proceeds from sale of shares will not be
remitted from Bangladesh, N Ltd. management visited the Manager concerned of the Bank to know
the legal aspects of the transaction. Against this backdrop, the Bank requests your opinion whether
transfer of shares held by non-resident in a Bangladeshi company to another non-resident will attract
capital gain tax in Bangladesh. The Bank is also desirous to know about the role of the Board of
Directors of N Ltd. with regard to capital gain tax on the said transfer of shares.
Requirement:
Advise the Bank, giving references to the relevant section of the ITO, 1984.
1(b). Specify the following acts whether can be considered as (a) Tax planning; or (b) Tax management;
or (c) Tax evasion, explaining the ethical consideration if any.
2.
i)
X Ltd pays 50% of salary to its employees in cash, which it shows as business expenses to
reduce tax burden for its employees and to avoid excess perquisite tax for the company.
ii)
Y Ltd designed salary structure for its employees in a manner, so that the perquisite amount is
within the threshold determined under the ITO 1984.
iii)
Z being an individual taxpayer invested Tk. 10,00,000 being 25% of his total taxable income in
5-year Shanchaya Patra to reduce his tax liability as allowed u/s 44(2)(b) of the ITO 1984.
iv)
ABC Ltd. is planning to setup a new factory under Bangladesh Economic Zones Authority
(BEZA) to get tax incentives as announced by BEZA.
v)
DEA Ltd. obtains information regarding filing of return by employees for submission of return
u/s 108A of the ITO 1984.
5
5
Mr. Bawani aged 55 years, has been employed in Dhaka by a reputed FMCG company and currently
drawing the following as salary and allowances for the income year 2019-20:
Particulars
Basic Salary
House Rent Allowances (HRA)
Conveyance: Car Allowances
Gross Salary
Employer’s contribution to PF % of basic salary
Company’s contribution to funded Gratuity scheme
Incentive bonus % of gross salary
Per month
Amount (Tk.)
3,00,000
1,20,000
50,000
4,70,000
10%
1 monthly
basic/12
20%
Page 1 of 6
Recently, Mr. Bawani received an offer from a leading Telco company, which Mr. Bawani is
seriously evaluating from an overall take-home and other aspects. In connection with this, following
two alternative proposals have been shared with Mr. Bawani (he has to choose one):
Particulars
Basic Salary
House Rent Allowances (HRA)
Conveyance: Car Allowances
Employer’s contribution to PF % of basic
salary
Company’s contribution to funded Gratuity
scheme
Incentive bonus % of basic salary
Option-1
Per month
Amount (Tk.)
3,65,000
1,20,000
50,000
Option-2
Per month
Amount (Tk.)
3,65,000
Company House
Company Car
15%
2 monthly basic/12
20%
Additional information:
1) For the Fiscal period starting from 1st July 2020, Mr. Bawnai is expecting an increment of
12% on basic salary. Currently Mr Bawani contributes similar % as contributed by the
Company as subscription to Provident Fund (PF), which will be same in the new company.
2) In existing and in new company, the retirement age is 59. For entitlement of company
contributed PF, it requires two full years and for gratuity it requires 5 full years employment
in the company as per the company policy of both existing and new company.
3) Under option-2 in the new company, Mr. Bawani will be provided with:
i) Rent-free accommodation. Actual Rent of the house would be Tk. 1,20,000/month
(currently also he spends the same amount).
ii) Company car, with all expenses including fuel cost to be borne by the company, which
the monthly cost will be around Tk. 50,000/month.
4) If Mr Bawani accepts the offer of the new company, he will have to join from 1st July 2020.
5) Assume Mr Bawani will make the required amount eligible for investment allowances under
existing or proposed options.
6) Consider tax rates applicable based on Finance Act 2020.
Requirement:
Advise Mr. Bawani which option (existing or option 1 or option 2) he should consider taking into
account overall circumstances, showing following comparative computation for the projected
income for the period of one year starting from 1st July 2020:
i) Effective salary & benefits per month
ii) Taxable income per month
iii) Take-home salary per month after deduction of income taxes and PF contribution for both
employer and employee
3.
10
You are tax partner of a reputed CA firm. One of your individual clients, Mr. Karim, settled in
Australia, is currently visiting Bangladesh. He has not been submitting his income tax return since
AY 2014-2015. He is a non-resident in Bangladesh and has no fixed base here except his father’s
dwelling. Mr Karim works in a law firm based in Melbourne as a senior counsel. Now he is willing
to resume the submission of income tax return and seeks your assistance and advice to regularize his
income tax return. He also wants to know the tax implication of the following issues:

Mr. Rahim, brother of Mr. Karim, held 15% equity shares in XYZ Ltd., a private limited
company and sold all the shares held by him in XYZ Ltd., to Mr. Karim on 05 June 2020. Mr.
Karim stayed in his father’s house during his visit in Bangladesh and Taka 80,000 was paid by
XYZ Ltd. on 20 June 2020 on behalf of him against the utility bills of his father’s house. As
on 30 June 2020, the company had an accumulated profit of Taka 5,00,000. Is there any tax
implication on such transaction as per the Income Tax Ordinance, 1984?
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
A German company, which did not have a permanent establishment in Bangladesh, entered
into an agreement with XYZ Ltd. for execution of electrical work in Bangladesh. Separate
payments were made to the said non-resident company by XYZ Ltd. for drawings & designs,
which were described as "Engineering Fee". What is the tax implication in Bangladesh on such
payment according to the Income Tax Ordinance, 1984, and DTAA?

A law firm of Bangladesh engaged Mr. Karim for dealing with an assignment and attending a
meeting with a company having its registered office in Dhaka. A payment of Taka 5,00,000
will be made to his firm based in Melbourne as per terms of professional engagement. What is
the tax implication in Bangladesh on such payment according to the Income Tax Ordinance,
1984, and DTAA?
Requirement:
Advise Mr. Karim on the above matters with section references.
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4.
Sonali Ltd (“Sonali” or “the company”) is a local conglomerate renowned for its famous consumer
goods across the Country and has been in operation since 2001. Sonali is a public limited company
listed with two stock exchanges in Bangladesh and has been engaged in manufacturing and
marketing of consumer goods for the last 20 years. Sonali operates its own manufactured goods
under its manufacturing unit and Imported Finished goods under trading unit.
For the fiscal period ended on 30 June 2020, following information were disclosed in the financial
statement of the company, which are relevant for computing income tax for Sonali for the income
year 2019-2020 (A/Y 2020-2021):
Particulars
Turnover
Profit before tax
Amount in Crores Taka
2,000
456
In addition to the above, following information were also made available relevant for its tax
assessment:
1) During the fiscal period 2019-20, the company out of its own manufactured goods, made
exports to Nepal, Bhutan and India.
2) Profit before tax includes Tk. 2 crore as gain on sale of fixed asset. The asset was sold at Tk.
3 crore, whose original cost was Tk. 2 crore and written down value was Tk. 1 crore as per
book, while the value was Tk. 50 lacs as per tax.
3) The company maintains a funded gratuity scheme for its permanent employees and for the
year 2019-20 it created a provision for Tk. 6 crore based on actuarial valuation, out of which
it paid Tk. 5 crore to the fund, while Tk. 75 lacs were paid to 2 outgoing employees.
4) Interest on foreign loan was Tk. 5 crore. The rate of interest charged by the offshore bank
is 4% per annum. The arm’s length rate in this regard is to be considered as LIBOR+2.5%
(assume the LIBOR rate will be 0.75% throughout the period).
5) Excess perquisite was Tk. 5 crores and Royalty expenses charged was Tk. 75 crores.
6) Depreciation charged as per book was Tk. 60 crore, which included Tk. 10 lacs on account
of fixed assets sold during the year, whereas tax depreciation was Tk. 70 crores.
7) The Gross Profit ratios between manufacturing, Trading unit and Export unit were 66% :
22% : 12% which was allowed by tax authority to allocate common business profit between
these units.
8) For the fiscal period 2019-20, Customs authority collected Tk. 30 crores as advance tax u/s
53 of the ITO 1984 on account of goods traded under Trading unit.
Requirements:
You’re required to determine the following for Sonali Ltd for the income year ended on 30 June
2020:
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Page 3 of 6
i)
ii)
5.
Total Income
Gross Tax liability
Zian Ltd. is a reputed conglomerate listed with the stock exchanges of Bangladesh. Currently it is
contemplating to an expansion of its production facilities and following options are available:
Option-1
(Tk.)
Option-2
(Tk.)
Option-3
(Tk.)
Share capital
75,00,000
1,00,00,000
2,50,00,000
12% Debentures
60,00,000
1,00,00,000
0
1,15,00,000
50,00,000
0
Particulars
9% Loan from Bank
Expected rate of return before tax is 25%. Zian Ltd has been paying a dividend not less than 25%
since 2015, which it declares on 30th September every year. Corporate tax rate is 25%.
Requirement:
From a tax planning aspect which option Zian Ltd should choose?
6(a).
6
ASRM Ltd, a Bangladeshi Company supplied Iron rods to Construction Ltd. a Singapore based
company which holds 30% of the shares of ASRM Ltd., during the previous year 2019-20. ASRM
Ltd. also supplied the same product to another Singapore based company, Build Ltd., an unrelated
entity. The transactions with Construction Ltd. were priced at USD 600 per ton (FOB), whereas the
transactions with Build Ltd. were priced at USD 850 per ton (CIF). Insurance and Freight combinedly
was USD 150 per ton.
Requirement:
Compute the arm's length price for the transaction with Construction Limited, determining the
method as well.
4
6(b). MNC Ltd. (“Company”) is a Turkey-Bangladesh joint venture, engaged in manufacturing electronic
products. Factory of the Company is located at Gazipur. ZIAN Inc., a Turkey based company, has
25% shareholding and voting power in MNC Ltd. The management of these two companies is going
to enter into an agreement on the following transactions:
a) MNC Ltd. will sell 100,000 pieces of TV @ $500 per unit to ZIAN Inc. This type of product
is generally sold to unrelated parties locally @ $550 per unit including 5% provision for 1year warranty.
b) MNC Ltd. will borrow $150,000 from a foreign lender based on the guarantee of ZIAN Inc.
For this, MNC Ltd. will pay $5,000 as guarantee fee to ZIAN Inc. To an unrelated party for
the same amount of loan, ZIAN Inc. collects $3,000 as guarantee fee.
c) ZIAN Inc. will provide technical know-how support to MNC Ltd. and will raise invoice of
$15,000 per year. If the same service is procured locally, the maximum cost will be BDT
1,000,000.
d) MNC Ltd. will pay $5,500 to ZIAN Inc. for getting various potential customers details to
improve its business. ZIAN Inc. provides the same services to unrelated parties for $4,500.
e) MNC Ltd. will procure used machineries from ZIAN Inc. at a price of $250,000 which will
be paid in four installments.
Furthermore, in the current year, MNC Ltd. will need to write off receivable amount from ZIAN Inc.
amounting to BDT 500,000.
Page 4 of 6
ABC & Co, Chartered Accountants, acts as tax consultant of MNC Ltd. You are a Chartered
Accountant and currently working as Director of Transfer Pricing (TP) Department of ABC & Co.
The CFO of MNC Ltd. requested you to provide your opinion in the report form on the above matters,
which will assist MNC Ltd. to get an extensive idea on tax exposure according to income tax laws
for the time being in force in Bangladesh. On the basis of your report, MNC Ltd. will take decision
and make their tax planning. [Consider exchange rate 1$= BDT 85].
Requirements:
Your report should cover the following issues:
(i)
(ii)
(iii)
7(a).
Brief discussion on relevant TP regulations;
Elaborating TP aspects on the above issues with tax impact;
Suggestion on minimizing tax exposure.
4
5
1
What do you mean by Economic Activity under VAT and SD Act 2012? A revenue officer, while
auditing your organization, raised question that the services rendered by the employees of the
company to its employer are economic activities, hence VAT should be applicable on such services.
Subsequently, following other processes, the revenue officer issued an order with demand.
Requirements:
Do you think, the position taken by the revenue officer is correct? If you are aggrieved by such
decision, explain the remedies you have including the procedures to be followed. Would your answer
be different, if the order of such demand was passed by the commissioner?
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7(b). You are the VAT consultant of a power generation company which will commence commercial
production form 01 July 2022. After entering the VAT & SD Act, 2012, into force on 01 July 2019,
the management of the company has been facing the following complications:
(i)
The onshore contractor of the company has not been accepting the deduction of VAT from the
payments made on or after 01 July 2019 applying current rate as the contract was executed on
30 April 2018. In the said contract, rate of VAT deduction at source was stipulated at 5% which
was in force on the date of execution of the contract.
(ii)
A supplier makes supplies of stationery products to the company. In the contract executed on
01 July 2020 with the supplier, there was no provision relating to VAT. Presently, there is a
dispute between the supplier and the company with regard to whether the agreed price is
inclusive of VAT and who is required to bear the burden of VAT.
Requirement:
You are requested to provide your opinion on the aforementioned issues making reference to the
provisions of VAT laws.
8.
6+4=10
Following information are relevant for the month of March 2021 for Adore Ltd, who has been
operating in FMCG sector since 2015:
1)
2)
3)
4)
Value of goods supplied at standard rate Tk. 57,50,000.
Value of services supplied at standard rate Tk. 3,00,000.
Value of goods supplied at “0” rate for export to Sri Lanka Tk. 3,45,000.
Materials imported from Indonesia, for which VAT paid at customs port Tk 3,00,000 and
Advance tax (VAT) Tk. 76,800.
5) Raw materials purchased from local supplier Tk. 11,50,000, out of which 50% of the outstanding
was paid in March 2021 and rest will be paid in June 2021.
6) Transport charges for delivering goods to the customers Tk. 1,10,000 (VAT rate 10%)
Page 5 of 6
7) VAT deducted against suppliers’ payment was Tk. 46,000, out of which Tk. 30,000 was
deposited within March 2021.
8) VAT deducted by service recipient Tk. 30,000 against which Mushak 6.6 was issued for Tk.
25,000 by the supplier.
9) Credit note issued against market return of Tk. 2,30,000.
10) Royalty paid to parent company Tk. 12,00,000 for which 15% VAT was deposited by Adore Ltd,
being the service recipient (to be treated as import of service and VAT liability would be
discharged following reverse charge method).
Requirement:
Compute the net VAT amount payable for the month of March 2021. Standard rate VAT is 15%. For
the purpose of identifying the VAT amount, use VAT factor where applicable.
9.
10
Zen Ltd has been operating in FMCG sector as a manufacturer of consumer goods only. Considering
a new trend in other countries, Zen Ltd is contemplating to introduce a new product. For this Zen
has following two options:
a) It can import the bulk material from Sri Lanka and repack it in its own factory; or
b) It can get it manufactured by a company in Sri Lanka, and import the product to Bangladesh
in finished form
In relation to the above, you have been given following information applicable for 1 unit of pack size
1 Kg:
Imported in Finished
Imported in Bulk
Description
form
(per 1 kg cost) Tk.
(per 1 kg cost) Tk.
C&F Value (paid to bank)
7,000
7,500
Basic duty
25%
25%
Regulatory duty
3%
3%
Supplementary duty
0%
10%
VAT
15%
15%
Advance Income Tax
5%
5%
Advance Tax (as per VAT law)
4%
5%
Conversion cost without VAT
2,600
0
Marketing and other overhead cost plus
1,150
1,150
VAT
Transport cost for carrying the goods plus
220
220
10% VAT
Additional information:
i) For the material imported in bulk, customs authority determined the assessable value as Tk. 8,000
per kg. On the other hand, for imported finished goods there is a minimum value of Tk. 8,000/kg
ii) Being part of SAFTA treaty, there is an FTA benefit available for the materials if imported in
Bulk, accordingly the basic duty will be reduced by 80% for import in bulk
iii) There is a 5% supplementary duty applicable at production stage for the products to be produced
at its own factory
iv) For products imported in finished form, Zen Ltd decides to follow trade VAT method, resulting
in it will not be able to avail any input tax credit for imported finished goods.
Requirement:
If the targeted selling price per unit (1 kg) is Tk. 16,000, advise the company as to which option
they should go for from a profitability point of view.
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