TAX PLANNING AND COMPLIANCE

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 manner 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. You are a Chartered Accountant recently employed in the tax department of X Bangladesh Ltd (“the
Company”) who are engaged in non-essential goods sector. Your line manager is a non-professional,
responsible for overall tax matters of the Company shared you the following information:
1) Finance Bill 2020 for the fiscal period 2020-2021 was announced on 11 June 2020, which was
subsequently passed in the Parliament as Finance Act 2020 on 30 June 2020. Based on primary
review of the Finance Act, you noticed the following changes:
i) Promotional expense exceeding 0.5% of disclosed business turnover will be considered
inadmissible. As per PARIPATRA issued by NBR, this has been made applicable for 2020-21
tax year (i.e. from the income period started from 1 July 2019). For the income year 2019-20,
the Company incurred Tk.16 crore as promotional expense, while disclosed turnover of the
Company was Tk. 1,610 crore.
ii) Corporate tax rate applicable for the Company has been reduced from 35% to 32.5% (applicable
for the assessment year starting from 1 July 2020)
2) For the 2018-19 assessment year, the Company submitted its income Tax return on 15 January 2019
under Universal Self-Assessment (u/s 82BB) and assessed tax showed was Tk. 140 crore, which
was subsequently assessed as Tk.145 crore based on tax audit. Accordingly revised assessment
order was issued on 24 March 2020, against which company was contemplating to file appeal as
per the law. For the assessment year 2020-2021, the Company deposited its advance tax payable up
to 3rd quarter and on the other hand due to Covid-19 the Company is expecting a decrease of taxable
income @ 30% compared to the taxable income of 2019-2020 assessment year, which was 15%
above the taxable income of 2018-19 as declared by the Company in its tax return.
3) For finalizing the tax computation for the 2020-21 assessment year (i.e., 2019-20 income year) your
line manager advised you the following:
i) consider the changes in respect of corporate tax rate only; and
ii) promotional expenses only to the extent of 0.5% of the turnover and rest to other marketing
expenses so that there is no inadmissible expense in respect of promotion expenses as to him
it is unreasonable to apply retrospectively.
Company follows the fiscal period (i.e., July to June) are the income year for the purpose of income tax.
Requirements:
a) Analyze your position being a member of Institute of Chartered Accountants of Bangladesh, if you
follow the advice of your line manager from tax law and ethical aspects 4
th
b) What was the amount that the Company should have deposited as 4 Quarter advance tax due on
15 June 2020, explaining the reason as per tax law? 4
c) Was there any option to challenge the position of NBR as clarified in the PARIPATRA for applying
the new provision of promotional expenses retrospectively from 1st July 2019? 2

2. Mr X passed away leaving wife and 2 adult sons. All of them have tax files in Bangladesh. A real estate
company has offered to buy the land with two-storied building owned by the deceased, which was acquired
by him at Tk. 2,200,000/=. According to the said offer, the real estate company is willing to pay Tk.
100,000,000/= and transfer a land worth Tk. 75,000,000/= to Mrs X and her two sons. As per location of
the property, 4% tax would be collected at source by the sub-registrar. The cash consideration will be paid
to the bank account of Mrs X, as her sons are domiciled in the UK. The total purchase consideration of
the property left by the deceased will be distributed as per Muslim law. The registration cost of the property
to be transferred by the real estate company is estimated at Tk. 8,250,103/= and would be borne by the
legal heirs of Mr X.

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 Receiving the aforesaid proposal for sale of the property, Mrs X appointed you as a tax consultant to
see the final tax implications if the offer is accepted. She is 67 years old and unable to manage her tax
matters on her own. Mrs X has also provided you with the following information for preparing a draft
tax return and statement of assets and liabilities:
Opening balance of assets Tk.
Shares in private limited company 100,000
Non-agricultural property 306,500
Agricultural property 15,000
Jewellery 45,000
Furniture 20,000
Electronic equipment 30,000
Cash and cash equivalent outside business 10,346,284
Particulars of income and expenditure Tk.
Compensation received from tenant for house damage (including share of 2 sons) 4,100,000
Pension received as nominated beneficiary 82,287
Bank interest 3,989,360
House rent (used for commercial purpose) 540,000
Land tax 18,768
Family expenditure (excluding tax) 378,543
Particulars of payment of tax Tk.
TDS from consultancy fee 398,936
TDS from house rent 27,000
Tax refund for previous year 20,407

While preparing the requested return and statement, you are advised to apply the tax rates applicable
for AY 2020-2021.
Requirements: Provide Mrs X with the following draft computations and statement:
a) Income tax liability (including surcharge, if applicable) 5
b) Net wealth statement 10
c) Sources of fund 5
3. Ideal Bangladesh Ltd (“Ideal BD” or “the Company”) is a 100% owned subsidiary of Ideal World
Limited, a German conglomerate renowned for its famous consumer goods across the world. Ideal BD
is a public limited company but not listed with any stock exchanges in Bangladesh and has been engaged
in manufacturing and marketing of consumer goods under the global brands of Ideal World Limited for
the last 10 years. Accordingly, Ideal BD manufactures certain products in Bangladesh (“manufacturing
unit”) and imports some other finished products from its sister concerns (associated of Ideal BD) across
the world, which it markets without doing any further modification (“Trading unit”).

For the year ended on 31 December 2019, following extracts were relevant for computing income tax
for Ideal BD 2019 (A/Y 2020-2021):

Particulars Amount in Crore Taka

Turnover 4,100
Profit before tax 700
Depreciation as per book 60
Royalty expenses 90
Excess perquisite 10
Profit on sale of motor vehicles used by the Chairman and
2
the Managing Director for business purpose
Profit on sale of land property of the Company 5

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 In addition to the above, following information were also made available relevant for its tax assessment:
1) Turnover of Tk. 4,100 crore comprises of Tk. 3,500 crore on account of manufacturing unit and
Tk. 600 crore on account of Trading unit.
2) Net profit after tax as per statement of accounts was Tk. 502.95 crore, out of which Tk. 9.75
crore represent net profit of Trading unit.
3) Profit before tax posted by Ideal BD comprises Tk. 645 crore from Manufacturing unit and Tk.
55 crore from Trading unit.
4) The Company maintains an unfunded gratuity scheme for its permanent employees and for the
2019 it created a provision of Tk. 8 crore, while Tk. 2 crore were paid to 3 outgoing employees
5) The motor vehicles were sedan car, having antique value, acquired two years back at a price of
Tk. 2.5 crore, which were sold at Tk. 3.5 crore, although the written down value was much
lower. The Company follows a straight-line method and depreciates its motor vehicle @ 20%
rate.
6) All the capital gains were reinvested in new plant & machineries of the Company in 2019 itself
and the Company complied with other formalities to be able to claim the tax benefits to the
extent possible that is allowed u/s 32(5) of the ITO 1984
7) For Fiscal depreciation following information are available:
i) Total depreciation (excluding the depreciation of new plant and machinery) as allowed under
law was Tk. 78 crore. Addition to plant & machinery was Tk. 7 crore. As per 3rd Schedule
of the ITO 1984 there are normal depreciation allowance @ 20% and initial depreciation
allowance @ 25% on plant and machinery cost
ii) During 2019, for the purpose of depreciation allowances, maximum Tk. 25 lac as cost was
allowed for motor vehicle not plying for hire.
8) The latest assessed tax (A/Y 2018-19) of the Company was Tk. 189 crore (Manufacturing unit
Tk. 175 crore and Trading Unit Tk. 14 crore). Because of fulfilling certain conditions of an
exemption SRO, the Company was eligible for a rebate of 20% on profit of the Manufacturing
unit, which will continue this year as well. The standard tax rate applicable for the Company in
the latest assessed tax was 35%, which is now 32.5% based on a revision made in the last
Finance Act 2020. The Company paid due advance tax u/s 64 following its last assessed income.
9) The Gross Profit ratio between Manufacturing and Trading unit was 92%:8%, which was
allowed by tax authority to allocate common business profit between these two units.
10) At port point the Company deposited Tk. 100 crore under Manufacturing unit and Tk. 20 crore
under Trading unit as advance tax, which were considered while depositing the advance tax for
the Company u/s 64.
11) From a data set acceptable by the Bangladesh taxing authority if the lowest value of comparable
operating profit at 30th percentile is 10%, highest value of comparable operating profit at 70th
percentile is 15% and median value comparable operating profit is 13%, state whether any
adjustment is required to determine the arm’s length profit for Trading unit. The operating profit
% of trading unit was 9.17% of turnover (consider TNMM will provide the most reliable
measure of an arm’s length result)
Requirements:
a) Compute the total income after determining adjustment if any required under transfer pricing
regulations for the Trading unit; and 8
b) Net tax liability considering the advance tax already deposited by the Company for the relevant
assessment year, the income year being the year ended on 31st December 2019 4
4. Expo Ltd. is a foreign subsidiary company of BGD Ltd. The Company sells air conditioners to Expo
Ltd. at a price of Tk. 40,000 each for sale to its dealers in Vietnam. In other States, BGD Ltd. is directly
selling to their dealers at Tk. 45,000 with a warranty of two year (Tk. 3,500 for each air conditioner).
Expo Ltd. does not offer such warranty. Quantity sold to Expo Ltd. is 10,000 units and to dealers of
BGD Ltd. is 5,000 units. Discuss the method to be applied to arrive at the Arm’s Length Price (ALP)
and compute the ALP. How is the assessment of BGD Ltd. going to be affected? 8

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5. You are a practicing chartered accountant and focused on taxation areas. Before finalizing business plan
for the year ended 31 December 2020, ABC Ltd. (“Company”) wants to know the effect of section 30B
on computation of minimum tax and carry forward of unabsorbed depreciation. In this regard, the
Company has requested you to help them based on the following situations:
Particulars AY 2021-2022
Situation-1 Situation-2 Situation-3 Situation-4
Tk. (‘000) Tk. (‘000) Tk. (‘000) Tk. (‘000)
Net income before tax as per audited financial 125 (30) (20) 175
statements
Expenditures would be disallowed due to non- 50 50 50 50
availability of appropriate evidences
Trade liability created and deducted in AY 2017- 25 25 25 25
2018, but would remain unpaid in the income
year corresponding to AY 2021-2022
Depreciation allowances as per the audited FS 10 10 10 10
Depreciation allowances as per the 3rd schedule 30 30 30 30
Unabsorbed depreciation allowances (opening balance) - 25 50 50
Excess perquisites and cash payment of rent 80 80 80 80
Loan taken without banking channel 25 25 25 25
TDS from sources mentioned in section 82C (2) (b) 50 50 50 50
Other information:
1) Income of the Company falls under the sources mentioned in section 82C (2) (b);
2) The Company plans to make a partial of adjustment of Tk. 45,000/= out of total depreciation
allowance available in situation-4;
3) Apply 45% corporate tax rate and minimum tax at the rate of 2%.
Requirement: You are requested to compute tax liability for each of the illustrations provided in the above
table along with opinion on the issues in question from the standpoint of the ITO, 1984. 10

6. XYZ Ltd. is a service provider and renders services that fall under the scope of service code S099.20.
The following information has been extracted from the monthly VAT returns and VAT registers of
XYZ Ltd.:
Amount in Tk.
Particulars April May June July August September October November
Total VAT
8,000,000 6,000,000 9,500,000 9,000,000 8,500,000 9,500,000 7,500,000 8,500,000
Payable
Total Input
5,000,000 4,000,000 5,500,000 7,500,000 3,000,000 7,500,000 3,500,000 5,500,000
Tax Credit
Total
Increasing
2,500,000 1,500,000 2,500,000 3,000,000 4,500,000 4,000,000 2,000,000 1,000,000
Adjustment
(VDS)
Total
Decreasing
Adjustment 7,500,000 6,000,000 6,000,000 8,000,000 9,000,000 7,500,000 8,000,000 6,500,000
(VDS
Certificate)

VAT return for the month of November 2020 is yet to prepare.

Requirements: As the VAT consultant, XYZ Ltd. has asked you to provide them with the following:
a) Provisions of section 68 of the VAT & SD Act, 2012, as regards carry forward and refund of
negative net amount; 5
b) Computation of the amount eligible for claiming refund in the VAT return for the month of
November 2020; 8
c) Computation of the amount to be deposited in the government treasury for the month of November
2020 and justification thereof; 2

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7. Fair Ltd manufactures consumable goods at its factory located as Rupgonj, which has been registered
under new VAT Act under the VAT Commissionerate of same location. Fair Ltd sales its goods to its
Distributors at a price of Tk. 200 per unit (excluding VAT) through a distribution agreement. However,
considering the actual value addition is very high, it manages to submit input output co-efficient with a
value addition much lower than the actual and accordingly it issues Mushak 6.3 at price of Tk. 140 per
unit (excluding VAT). Later on, during assessment stage upon market survey by the VAT Authority, it
was identified that similar goods under same circumstances were sold to independent third party at Tk.
210 per unit (excluding VAT).
Requirements:
a) What would be the fair market value of the product sold by Fair Ltd? Why? 2
b) Mention the circumstances when fair market value is used under the VAT Act? 2
c) What are the legal consequences for issuing Mushak 6.3 at Tk. 140 per unit? 2
8. After qualifying as a chartered accountant, you have been practicing in an accounting firm known as an
expert in VAT advisories. In the month of July 2020, your manager asked you to review the following issues:
i) Walt Ltd. entered into a supply arrangement with Hope Hospital for supply of 10 Air Conditioner @
Tk. 100,000 each. As per the contract, Hope Hospital will be required to pay Tk. 200,000 to Walt Ltd.
if the contract is cancelled. Due to COVID 19, Hope Hospital was closed for two months and they
decided to cancel the contract. They had to pay Tk. 200,000 to Walt Ltd. as per the contract. Does Walt
Ltd. need to pay any VAT on Tk. 200,000, although there has not been any supply that took place? 3
ii) Walt Ltd. has been registered under VAT and SD Act 2012. It has a licensing agreement with world-
renowned Air Conditioner manufacturer Gree for using their technical know-how to manufacture
Air Conditioner under its own brand name Walt. For using the technical know-how of Gree, Walt
Ltd. remitted Tk. 3,000,000 as royalty in the month of July 2020. Indicate the VAT amount that has
to be paid on this royalty amount, who should pay this and how this will be reflected in the return,
explaining the reasons. 4
9. Gloria Ltd. is a public limited company engaged in import, manufacture and marketing of consumer goods
in Bangladesh territory. It has its factory located at Mohakhali, where it packs goods imported in bulk and
it has a separate warehouse at Tejgaon registered for marketing of imported finished goods. Under an
innovation project, Gloria is contemplating to launch a new product effective from 1st July 2020, which
the semi-finished goods it can import in bulk form an repack in its factory at Mohakhali or it can import
the product in finished from and supply the same from Tejgaon warehouse complying with all other VAT
formalities under the law. In connection with this, following information are also available:
If imported in If imported in
Particulars
Bulk Finished form
C&F value per Kg in BDT (to be paid to Bank) 600 750
Minimum assessable value per Kg in BDT Not applicable 700
Basic duty 25% 25%
Regulatory duty 3% 3%
Supplementary duty 0% 20%
Value Added Tax (VAT) 15% 15%
Advance Tax (VAT) 4% 5%
Advance Income Tax 5% 5%
Additional information:
1) Gloria Ltd has two separate BINs, one for Mohakhali Factory and other one for Tejgaon
premises. For supply of products from Mohakhali Factory, it follows standard rate (15%), while
for other premises it follows Trade VAT and follow a fixed VAT rate of 5%.
2) For arriving at assessable value, additional 2.01% needs to be added with the C&F value or
minimum assessable value mentioned above.
3) Conversion cost from bulk to finished goods is Tk. 230 per kg inclusive of 15% VAT.
4) Marketing and media expenses is Tk. 230 per kg inclusive of 15% VAT
5) There is 10% supplementary duty applicable for products sold from Mohakhali factory.
6) Distribution cost is Tk. 50 per kg excluding VAT. VAT rate is 10%.
7) The unit size of the selling unit is 1 kg, and selling price is Tk. 2,000 inclusive of VAT whether
it is packed in Mohakhali Factory or marketed from Tejgaon warehouse
Requirement: Considering the overall financials, advise which one Gloria Ltd should consider. 12
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