Doulot Akter Mala

The government is likely to impose income tax on the businesses having no permanent establishments in Bangladesh.

The imposition of tax may come into force from the next fiscal year (FY), according to people familiar with the development.

The National Board of Revenue (NBR) is set to incorporate the provision into the Income Tax Ordinance-1984 in the budget for FY 2018-19.

With the new provision, the activities of the digital economy can be taxed if any income is generated in Bangladesh, the people said.

The income of non-resident companies including Google, Facebook, You Tube and other social media will come under the income tax net, they said.

They said a new provision 'in connection with businesses in Bangladesh' might be incorporated into the income tax law to ensure income-sharing of the virtually-operated establishments with Bangladesh.

Currently, the income tax authorities have no right to deduct tax from the income of virtually-operated foreign companies for not having their permanent set-up in Bangladesh.

Due to the non-existence of the provision in the income tax law, the country is feared to lose a significant amount of revenue every year.

The people said the definition of 'permanent establishments' will be broadened in the law so that it can cover both virtual and physical economic activities.

The ordinance does not define permanent establishment apart from 'transfer pricing' provision and double taxation avoidance (DTA) treaties.

The provision will open up a new untapped area of income tax collection from virtual businesses, the people said.

Officials said that the taxmen discover a considerable amount of income by overseas companies.

But they cannot not claim the tax or deduct it from the different income-generating activities of the foreign companies.

The payments to non-resident foreign companies are made through the Bangladesh Bank (BB), the officials said.

Tax may be deducted at a certain rate during payment to the non-resident companies if taxmen find the income is generated in Bangladesh, officials said.

In the next budget, the revenue board will define the process of tax collection from such foreign companies.

However, officials declined to explain the process for maintaining secrecy of the national budget.

Finance Minister AMA Muhith is expected to unveil the new tax provision on June 07 while placing the budget before parliament.

Currently, advance income tax (AIT) is imposed at a rate of 10 to 12 per cent on the advertisement bills or 'digital marketing' that Bangladeshi companies pay to the digital social media like Google, Facebook, You Tube, etc.

In case of acquisition of shares of a Bangladeshi company by any non-resident company, Bangladesh will be able to claim tax on the capital gain of the non-resident company under the new provision, they said.

This provision will help generate a significant amount of income tax from cross-border transaction, the officials said.

In case of imposing tax on the non-resident companies, no 'fixed place or fixed place of business' will be required from the next fiscal, they said.

Tax will be imposed in case of import of services, purchase of virtual product, including apps or satellite from the non-resident companies.

This will be applicable even if the companies have no fixed places of business in Bangladesh.

Internationally, many countries have changed permanent set-up definition to ensure their share from the non-resident companies.

Only income generation through delivery of services will be required for taxing non-resident companies.

Officials said the provision has been incorporated into the income tax law in line with the changing global economy.