Icab Professional Level Taxation - II Suggested Answer May June 2011 To Nov Dec 2018

CA Professional Level
Taxation- II
ICAB Application Level Suggested Answer
May June 2011 to Nov Dec 2018
Collected by:
Saiful Islam Mozumder
simbd@outlook.com
ShirazkhanBasak& Co.
Cell: +8801400000490
TAXATION _ II
Suggested Answer
Nov-Dec 2017
Ouestion No. I
Silkway Group has two companies, Silkway Toiletries Ltd. (STL), an unlisted public limited company in
toiletriis manufacturing business and Silkway Chemicals Ltd. (SCL) (subsidiary of STL with 80%
equity). The subsidiary operates a factory in old Dhaka, closed due to order of the Directorate of
Environment not to run chemical factory in city area.
(a) Silkway Toiletries Ltd. filed its tax return showing total revenue of taka five crore; profit taka
5,000,000 for the year ended on 30.06.2017 after debits and credits of the items revealed from the
examination of accounts of the company as follows:
DEBITS
1) Depreciation on revaluation of assets Taka 100,000/:
2) COGS includes (a) taka 1,000,000 for direct materials bought from supplier on which tax was not
deducted ils 52 and Rule 16, (b) taka 500,000 paid to an enlisted tailor for supply of uniforms for
production floor workers on which tax was not deducted rtls 52 and Rule 16'
3) Insurance premium paid to BGIC taka 250,00 0l on 02.02.201 7 without tds.

4) paid taka 200,000 to Grameen phone Ltd. for supply of mobile phone sets without tds.
5) Provision for loss in subsidiary - Taka 500,000/:

6) Written off taka 50,000 representing the value of machinery missing from physical verification.
7) Exchange loss linked to the income from foreign agent due to delay in remitting the income.
8) Interest taka 100,000/: on overdraft to pay interest for failure to pay advance tax.
9) Written off taka 200,000/: long due from a missing party who was advanced this sum for raw
material.
10) Commission paid taka 250,000/: to a bank for forward contract (dated 25.06.17) to hedge each risk
involving settlement of import L/C dues due after a quarter'
11) Taka 500,000/: on alc of free samples of finished goods given to distributors (limited 1o/o of
turnover)
12) Trade discounts to customers taka i,000,000/: and distributors commission paid taka 500,000/:.
CREDITS
1) Dividend taka 100,000/: from investment in an approved Alternative Investment Fund

2) Capitalgain on sale of fixed assets taka 100,000/: I
3) Interest earned on security deposit at bank in Kenya, taka eqrt 100,000/:.
Page I 63
!
OTHER INFORMATION
1
i
1) Unabsorbed depreciation brought forward from assessment
year 2016-2017 taka two lacs. 1
2) Return filed for the income yle 30.06.17 on 30.09.2017;

assessment completed on 30. lr.l7.
i
company's assessed income in the previous income year was taka J
6,000,000/:.
3) For the reported income year, the opening stock of toiletries
was valued at taka35 lacs and closing
stock of toiletries raw materials attaka.lilacs. These opening
stock and.to.ing stock were wrongly
overvalued and undervalued respectively by 5% and,10%. 1
4) Tax was duly deducted from office rent payment of taka 500,000/:
but did not deposit to treasury for
about six months.
5) A chinese supplier breached L/c terms to supply toiletries machineries

on order. company received a
liquidated damage for this eqlt taka 1,500,0007: which has
not been credited to p&L. This machinery
L/c was done under 50%o margin (taka 7 5lacs) with a bank, funded by
a separate short term loan for
same amount at l0%o p.a. Company paid interest on such
loan taka fivclacs and charged to revenue.
6) Company acquired a delivery van under lease finance from
a NBFI. Registration was done
name of the Company. Depreciation charged taka 400,000/:.
in the
7) Company made exports of selected item of toiletries to Africa through an agent in Kenya.
permission from Bangladesh Bank, company made Under
an interest bearing security deposit with the
agent's bank in Kenya to cover product waffanty in which interest
earied was taka 100,000/:(tax
paid thereon in Kenya, taka eqvt 15,000/: at tiur1. Customers
total tds including tds by bank on
exp orts realization taka 7 00 ,000 l: .
8) Company paid advance tax taka 500,000/: during the income year.
(b) Silkway Toiletries Ltd. (STL) and its Managing Director own Silkway
Chemical Ltd. for g1oh and
20-o/o eqtity respectively' In the attempt to consolidate
the business ln the face of closure of the
chemical subsidiary, the shareholders of Silkway chemical Ltd. resolved
to wind up the subsidiary-
voluntarily vide EGM dated 31.08 -2017. srl- and its MD acquired
shares of SCL four years ago at
10% premium over the par value. Factory land was registered
to the shareholders at market value.
Liquidator closed his account on 30.1 1.17 having paid oIr ail
liabilities as they are and disposed of all
assets' Expenses incurred during winding up process taka 100,000/:
Net ur..t. o., EGM date prior to
the distribution to shareholders were as follows:
ASSBTS
Machineries net taka 500,000 (original cost taka 4,500,000, Sold

by Liquidator taka 300,000). Factory
land taka 5,000'000 (market value taka 8,500,000/:). cash and
Bank balance taka 1,500,000. Due from
Silkway Toiletries Ltd. taka r,000,000 against chemical sale(r/m for
toiletries)
LIABILITIES
Share capital is taka 5,000,000 (takal00 per share). General p&L Appropriation
Reserve is taka 500,000.
is taka 1,500,000. Payables to employeesiaka 500,000/:.
vAT payable is taka 500.000.
Requirements:
i) Compute total income and tax liability of Silkway Toiletries Ltd

separately,showing computation of
excess or shortfall of advance tax andexplanation for consequence.
ii) Show distribution upon liquidation, tax implication on SCL and [Marks: 20]
shareholders. l0l
tMarks:
Page | 64
Answer to the Ouestion No. la.
Silkway Toiletries Ltd.

Income y/e 30.06.2017. [AY 2017-18]
Computation of Total Income, Tax Liability and Others
TAKA
Income from Business:
Shown Net profit 5,ooo,oo0
Less: Non-business income for separate consideration
(1)Capital gain 100,000
(2)Dividend from Alternative Investment Fund 100,000
(3)Interest from foreign bank deposit in Kenya 100,000
(300,000)
Add: Inadmissible expenses

(1)Dep. not allowable on revaluated assets 100,000
(2)Paid to enlisted contractual tailor u/s 30(aa) 500,000
(3)Paid to GP for mobile sets supply u/s 30(aa) 200,000
(4)Provision for loss is not allowable exp. trls 29 500,000
(5)Machinery physically not found is not allowableluls 29 50,000
(6)Commission for hedging as it is not allowable exp. uls29 250,000
(7)Office rent u/s 30(aa) as tds not deposited 500,000
(S)Adjustment for overvaluation of stocks:
Opening stock overvafuedby 5%o 166,667
Closing stock undervafu,edby l0o/o 136,364
2,403,030
Add: Compensation received from a Chinese company not credited 1,500,000

Less: Unabsorbed depreciation - carried forward for set off (200,00o)
Business Income 8,403,030
Capital Gain 100,000
fncome from Other Sources:

Dividend from AIF fnote-l1]
Interest on foreign bank deposit [note-12]
200,000
TOTAL INCOME 9,703,030
Tax calculation:
i) Tax on Business Income and interest income @35%
35%o on8,503,030 2,976,061
ii) Tax on Capital Gan(15% on 100,000) 15,000
iii) Tax on dividend 20%o on 100,000 20,000
GROSS TAX LIABILTTY 3,001,061
Page | 65
Less:
i) ArT
ii) Tds
total tax paid
NET TAX LIABILITY
_J,qq{gl_
Computation of simple interest for short payment of AIT:
Gross Tax 3,001,061
75o/o of tax comes at 2,250,796
Total AIT ___1200,999_
Shortfall ___us0l2s_
43,793
10%o interest on shortfall for 5 months
__ 43183
TOTAL TAX PLUS SIMPLE INT. DUE __ l,ul,g44_

Computation of Minimum Tax on gross receipts: i
Gross revenue ;
Capital gain
Other source income
i
1
Gross Receipts
Minimum tax @ 0.60% on gross receipts
Notes:
[1]507o income rebate is applicable on export as per 6th schedule but as the export figure is not given in
the question so it is not possible to workout.
[2]Direct raw material purchase is not subject to tds and that's why not disallowed u/s 30(aa)
[3]Insurance nremium paid to Insurance company is not subject to tds and that's why not disallowed
u/s 30(aa)
[4]Exchange loss is allowable business loss as per section 29, sonot disallowed.
[5]Bad debt Tk 2"00.000/( dues from missing supplier)is in connection with business, so allowed.
[6]Depreciation on leasehold vehicles is allowable as per Third Schedule as it is finance lease. The
indication is that it was registered in the name of the company.
[7]tr'ree sample exp. is within the limit prescribed at Rule-65, so nothing is disallowed from here.
[S]Interest on overdraft is allowable expenditure as pff section 29 as business expenditure

[9]Trade discount Tk10.00.000 and distribution commission Tk5.00.000/ is allowable expenditure
assuming that source tax was deducted properly from distributorship commission.
[10]Office rent fully disallowed assuming that source tax was not deposited before assessment.
It] from A tment is taxable @ 20%.It should be noted here
that income of the fund itself is tax-free as per 6rt Schedule (PartA) pari-54, not dividend income in the
hand ofshareholder.
t
[2] About interest income from Kenya: As there is no DTAA between Bangladesh and Kenya so no
foreign tax credit wi11be allowed as per section 145 as NBR not yet prescribed any rules in this behalf.
Page | 66
AnQwer to the Ouestion No. lb.
Silkway Chemical Limited
Distribution of assets to Shareholders upon Liquidation
Amount in
TAKA
INFLOW:
Machinery sold 300,000
Received from Silkway Toiletries 1,000,000
Cash and Bank Balance 1,500,000
2,goo,o0o
OUTFLOW:
Expense 100,000
VAT paid 500,000
Payable settled 500,000
1,1oo,o0o
NET cash Available for Distiibution 1,700,000
Distribution to Shareholders:
Silkway
MD of
Total Toiletries
STL
Ltd.
Ownership 80% 20%
Net Fund 1,700,000 1,360,000 340,000
Factory land 8,500,000 6,800,000 1,700,000
[0,200,000 8,160,000 2,040,000
NOTE:
Machinery sold for 300,000/ against WDV 500,000/. Therefore, revenue loss taka 200,000/(3'd Sch
(para-l0) Factory land transferred at market value of Tk. 85,00,000/: against COA 50,00,000/ :
35,00,000/ is capital gains on Silkway Chemical Limited upon distribution of assets upon liquidation.
Silkway MD of
Total ToiletriesLtd. STL
Amount of share capital in the company 5,000,000 4,000,000 1,000,000
No. of shares attaka 100 each 50,000 40,000 1o,ooo
Cost of share to the shareholders at l0% premium 4,400,000 1,100,000
Deemed Dividend uls 2(26) on the distribution:

Total assets value distributed to the shareholders 10,200,000 8,160,000 2,040,000
Less: Dimmed DIV upto the accumulated profits 2,000,000 1,600,000 400,000
Balance after deemed dividend 8,200,000 6,560,0001,640,000
Less: Share investment value(COA tls 32(2)(i) 4,400,0001,100,000
Balance -- Capital Gain r.r/s 31,32 inthe hands SAI 2,160,000 540,000
SUMMARY OF DISTRIBUTION TO SHAREHOLDERS:
Distribution to the extent of DEEMED DIVIDEND / 1,600,0001,640,000
400,000
Balance Distribution 6,560,000
Of which, Capital Gain 2,160,000 540,00
Page | 67
TDS on Dividend distribution by Sikway Chemical Ltd.
Rate of tds on company and individual 20% t0%
TDS amount on deemed dividend 320,000 40,000
Net dividend to shareholders 1,280,000 360,000
Ouestion No. 2
ABC & Co. ("Firrn'), Chartered Accountants, acts as tax consultant of XYZ I-td. ("Compzty"), a private
limited company incorporated in Bangladesh. The Company is engaged in the business of yarn dyeing.
You are a Chartered Accountant and working as Tax Partner of the Firm. Assessment and appeal
proceedings of the Company for the assessment year 2013-2014 are complete. There were cross appeals
before the taxes appellate tribunal for AY 2013-2014 relating to addition of current liabilities to taxable
income and application of 35% tax rate on business income from sale of fixed assets.
The assessment order analyzed the components of current liabilities that consist of working capital loan,
term loan, lease finance, trade creditors and liabilities for expenses and are disclosed under separate notes
to the audited financial statements. The sale of fixed assets was also recorded in detail.
The Deputy Commissioner of Taxes ("DCT") added back taka 20,000,000/: out of current liabilities and !
.
the Commissioner of Taxes (Appeals) reducedthe same to Taka 15,000,000/:. Inthe cross appeal, the 1
Taxes Appellate Tribunal further reduced the addition under current liabilities to Taka 5,00,000/:. 1
Subsequently the Director General of Inspection (Taxes) called for the file and reviewed the same where
I
he did not find supporting documents as regards the appealed issues. Being advised by the office of the
Director General of Inspection (Taxes), the DCT reopened the case and issued notice under Section 93 of
the ITO, 1984, on the ground that tax was evaded by non-submission of evidences.
Requirement:
Prepare a reply to the notice of the DCT considering the grounds for reopening the case and applicability
of Section 93 of the ITO, 1 984, for XYZ Ltd. [Marks: 10]
Answer to the Question No. 2:
The Deputy Commissioner of Taxes

Taxes Circle -Taxes Zone -
Dhaka, Bangladesh
05 December 2017
Dear Sir:
Request to Cancel the Proceedings of Income Tax Cases Reopened under section 93 of the Income
Tax Ordinance, 1984, ((ITO, 1984"\ for the Assessment Year 2013-2014
Assessee: XYZLtd..
Please refer to the subject mentioned above. As regards income tax case reopened under section 93 of the
ITO,1984,for the assessment year 2013-2014 we would like to offer following
exp lanati ons/statement s/do cuments/ information
Business Income from Sale of Fixed Assets:
The DCT recorded the detailed information on sale of assets upon examination of all the documents and
information submitted in support of the said transactions and computed income/(loss) from sale of assets.
He also confirmed that the assessee submitted information on purchase price, sbles prices, accumulated '1
depreciation, and computation of income and minutes of the meeting of the board of directors relating to
sale ofassets. :
Page | 68
Section 93 is not applicable in the instant case as non-submission of evidences relating to sale of assets is
fabrication of information and the DCT acted on suspect, surmise and conjecture and he is just on a
fishing expedition.
Where the decisions of the appellate authorities are there and if the DCT is aggrieved by the decisions of
the appellate authorities, he had the option to file appeal to the higher appellate authority or reference
application to the High Court Division, as the case may be, in accordanc. *ith the provisions of the ITO,
1984. Reopening of the case on the appealed grounds without going to higher appellate authority or
reference application to the High Court Division is violation of income tax Lw and against the natural
justice.
Current Liabilities:
The DCT examined the documents submitted in support of current liabilities of Tk.
disclosed under separate notes to the audited financial statements and he recorded the same in the
assessment order. Upon examination of submitted documents and information, he added back Tk.
20,00,000/:.
Section 93 is not applicable in the instant case as the audited financial statements clearly disclosed
information on current liabilities and the assessee submitted all supporting documents relating to current
liabilities. In reopening the cases on this ground, the DCT acted on suspect, surmise and conjecture and he
is just on a fishing expedition. Non-submission of evidences relating to heads under current liabilities as
reasoning for reopening the cases is completely vague, fallacious and distortion of information.
Where the decisions of the appellate authorities are there and if the DCT is aggrieved by the decisions of
the appellate authorities, he had the option to file appeal to the higher appeliate authority or reference
application to the High Court Division, as the case may be, in accordance with the provisions of the ITO,
1984. Reopening of the case on the appealed grounds without going to higher appellate authority or
reference application to the High Court Division is violation of income tax iaw and against the natural
justice.
It is notable that once the DCT examined and decided on current liabilities as mentioned in the "
assessment orders along with notes, he verified all the heads under current liabilities such as Trade
Creditors, Working Capital, Accounts Payable, Liabilities for Expenses, Term Loans, etc. The orders
from the appellate authorities provided their decisions in the like manner.
Applicabilitv of section 93 of the ITO. 1984:

The following conditions should be studied for which any sum payable by an assessee under the ITO,
1984, shall be deemed to have escaped payment as referred to in section 93 of the ITO, 1984:
sl# Conditions
The income or a part thereof has escaped assessment
The income has been understated
Excessive loss, deduction, allowance or relief in the return has been clairned
lv. The liability of tax or any other amount payable un
computed lower by concealment or misreporting of any income or by concealment or
misreporting of any assets, expenditure or any other particulars in a statement submitted under
section 80
v. Incomechargeab1etotaxhasbeenunder-assessed,orincome
due tax rate
vl. lncome that is subject to tax has been made the subject of tax exemptionl
vll. Income has been made the subject of excessive relief, or excessive loss or Aep.eciation atto*rrrc
or any other allowance under the ITQ,1984, has been computed
Page | 69
viii. I A tax or an amount, payable under the ITO, 1984, has been computed or paid l,ower than due
amount by reason of lower base
In light of the above, we would earnestly request you to withdraw the proceedings of income tax case
ITO, 1984, for the sake of upholding the rule of law and natural justice.
reopened under section 93 of the
Yours faithfully,
Ouestion No.3
Tax heavens or Offshore Financial Centers (OFC) are financial jurisdictions outside the regulations of
one's own nation used by companies and individuals to lower their taxes on profits and assets. They are
often small islands, such as, Cayman Island, mostly in the Caribbean. After opanama paper leaks in2016,
now hit the headlines are 'Paradise Papers' which contain millions of documents reportedly from offshore
legal and corporate service providers. Names are up in the media in reference to Paradise papers including
name of an accounting firm which allegedly worked for dodging assessee. You, a CA, involve in cross-
country tax practice
One of your clients, 'Cell BD Ltd', a Bangladeshi public limited JV company, is a mobile operator in I
Bangladesh. Cell BD Ltd. is owned 75%by'Cell CI Ltd.', a Cayman Island (tax heaven) company which
is 100% owned by Cell UK Ltd. As BTRC stopped issuing new license, Mobile LIK Ltd., which wants to
enter into Bangladesh market hammered out a strategic investment deal with Cell UK Ltd. to take control
in Cell BD Ltd. through 'CellCI Ltd'
Pre-Transfer Structure and Post-Transfer Structure
Cell UKLtd.
owns 100% Mobile UK Ltd.
Cell CI Ltd.
owns 75o/o
Cell BD Ltd. Mobile BD Ltd.
Share capital of 'Cell CI Ltd.' is US$1.0 million. 'Mobile UK Ltd.' bought the entire share of Cell CI Ltd.
for US$2.0 million from CellUK Ltd. Mobile UK Ltd. made full payment to Cell UK Ltd. in UK for the
transfer and then changed the name of Cell CI Ltd. to 'Mobile CI Ltd.' in Cayman Island and from Cell
BD Ltd. to Mobile BD Ltd. in Bangladesh. Cell UK Ltd. made a huge gain on the transfer which is in
public through media.
You have filed tax return for your client (Cell BD Ltd.) with the audited accounts for the relevant income
year which depicts information about the ownership change and subseqpent name change. Tax
Department issued a show-cause notice to Mobile UK Ltd and to your client t<i explain why tax was not
withheld u/s 56 on payments made by Mobile UK Ltd. to Cell UK Ltd. in relation to the share transfer in
Page | 70
Cell CI Ltd. Tax department contended that the share transfer in Cell CI Ltd. derived its value from assets
in Cell BD Ltd. and thus it implicated a connection u/s 18(2). Tax Department argued, the controlling
shareholding obtained by Mobile UK Ltd. in Cell BD Ltd.(75%) has its situs in Bangladesh and,
therefore, the capital gain arising on this share transfer outside Bangladesh is liable to tax in Bangladesh
as an 'indirect transfer'. Mobile UK Ltd. is considering a HC writ in Bangladesh challenging tax
department's demand and approached you, as tax lawyer of their Bangladesh subsidiary, for technical tax
views.
Requirements:
a. Brief your views about the legality of investment in tax heavens by Bangladesh resident assessee
having overseas operations in reference to IT Ordinance. What are the ethical implications of a
Professional Accountant in practice and your position if approached by such a client? [Marks: 5]
b. Consider share transfer case of Cell CI Ltd. Write technical inputs in reference to applicable tax
provisions, tax treaty and case decision, if any, giving your views on the validity of tax demand on such
share transfer. IMarks: 5]
Answer to the Ouestion No. 3a:
An OFC (Offshore Financial Centre) or tax heaven is a country or also just a part of a country that offers
low tax rates or even no taxes at all for foreign investors. Disclosure and information exchange with other
countries are limited. If Bangladeshi resident assessee, having foreign income, duly taxed in source
country and disclosed the same fully under the concept of scope of world income uls 17 in Bangladesh
and invests part of his such taxed income in tax heaven country, it may not be termed as an illegal
conduct.
As Bangladesh Foreign Exchange regulations generally prohibit transfer of fund out of Bangladesh,
investment in OFCs or tax heavens from Bangladesh shall be generally illegal. If any resident assessee
uses OFCs to hide untaxed income, it's an utter illegal conduct. Leaks through Panama papers and now
Paradise papers generated extreme heat globally naming corporations and individuals of high profile.
These leaks reveal that so-called tax heavens, though may not be illegal, are being used for illegal purpose.
and they tend to offer laws and measures that can be used for tax evasion.
Ethical implication for a professional accountant in practice is huge and specific when dealing with a
client having stake or intention to invest in tax heavens. As the activities involving OFCs are increasingly
being proved illegal, accountant must take special care to stay off those sensitive'clients. Dealing with
such clients brings threats to major fundamental ethical principles like Integrity, confidentiality and
professional behavior.
We cannot do anything that discredit our professional and contravene laws and regulations (like tax law,
foreign exchange law). Self-interest threat, familiarity threat and intimidation threats are prominent in this
kind of client relationship and strong safeguards to mitigate these threats are not much there. Therefore, I
shall resign from the service to such client if my consultations to stay legal seem to be failing.
Answer to the Ouestion No. 3b:

Tax Department issued notice to my assessee and its grandfather holding company to explain why tax was
not withheld u/s 56 on payments made by Mobile LIK Ltd. to Cell UK Ltd. for transfer of 100% shares in
Cell CI Ltd. which holds 75Yo of Mobile BD Ltd. Tax Dept contended that the share transfer in Cell CI
Ltd. derived its value from assets in Cell BD Ltd. and thus it implicated a connection u/s 18(2).
In my view, tax department's notice stems from a misunderstanding to diffErentiate between 'sale of
company shares' and 'sale of company assets' of the company. Ownership of share of a company does
not mean ownership of assets of that company. The transfer of shares of one non-resident company (Cell
Page I
7l
UK Ltd.) to another non-resident company (Mobile UK Ltd.) did not result in the transfer of any assets of
Cell BD Ltd. in Bangladesh. 'Share sale' is one of the many different restructuring strategies adopted by
corporate managements. It cannot be argued that sale of shares in IIK resulted in capital gain in
Bangladesh which binds Mobile UK Ltd. to deduct tax at source under Bangladesh tax law.
Section 18(2) provides for 'income accruing or arising directly or indirectly through or from transfer of
capital assets in Bangladesh' but Cell UK Ltd. did not make any'indirect transfer' of any capital assets in
Bangladesh. By the transfer of Cell UK Share to Mobile I-IK, there has not been any transfer of the assets
of Cell BD Ltd. As 18(2) does not invoke, application of section 56 does not arise at all. These sections
shall not atlract and, therefore, gains arising to a foreign company from transfer of shares of a foreign
holding company, which indirectly held equity interest in an Indian operating company would not be
taxable (Vodafone International Holdings BV vs. (Jnion of India, Supreme Court)
Question No. 4
Mr. PQ used to compute his income tax and prepare tax return on his own. While computing income tax
for the assessment year 2017-18, he was confused about the computation and presentation of the tax
collected at source on transfer of inherited property and at the time of import of goods. Therefore, he
appointed XYZ & Co. ("Firm"), Chartered Accountants, for assisting him in computation of taxable
income, tax liability and preparation of tax return. You are a Chartered Accountant and working as a tax
consultant of the Firm. Mr. PQ sent you an email furnishing the following information on transfer of
inherited property:
Particulars Tk.
Tax Collected/Deducted at Source on transfer of property 10,000,000
Sale proceeds received in cash and by bank transfer 250,000,000
In addition, Mr. PQ also provided you with the following information on income and tax deducted at
source relating to the assessment year 2017 -18:
Particulars Tk.
Remuneration as a member of the Board of Directors of a private limited company 6,000,000
lnterest on fxed deposits 3,000,000
Income from dividend of a publicly listed company 1,000,000
Interest on savings instruments 1,500,000
Income from a mutual fund 500,000
lncome from lease of vacant land 1,200,000
Taxes were deducted at source from remuneration, interest, dividend and lease money as per applicable
rates. Mr. PQ imported goods of Tk.10,000,000/: during the income year 2016-17 and advance tax was
collected at source amounting to Tk.500,000/: at import stage applying @5%. He made profit of
Tk.3,000,000/: from import business in the same period.
Net wealth of Mr. PQ was computed at Tk.30,050,000/: as of 30 June 2017 which you should consider
for computation of wealth surcharge. During the income year 2016-17, Tk.10,000,000/: was invested by
him in acquisition of shares of companies listed on Dhaka Stock Exchange. He also invested
Tk.1,000,000/: in DPS at a scheduled bank. He was 67 years old on 30 J:urrre 2017 and has been
submitting return of income for last 20 years.
Requirements:
write a reply to the email of Mr. PQ along with computations of the following:
(i) Minimum tax on income from import business. I
[Marks:5]
(ii) Total taxable income from all sources and total tax liabilities. [Marks:3]
Page | 72
I (iii) Investment Tax Rebate. [Marks: 6]
(iv) Wealth surcharge and Net Tax Payable. IMarks: 4l
Answer to the Ouestion No. 4:
' Email
To: PQ
I From:XYZ& Co.
, Date:20 December 2017
I Re: Assistance in computation of your taxable income and tax liability for the assessment year
t 2017-18
I Oear Mr pe,
t Thank you very much for the email dated 15 November 2017 .Iwent through the information provided by
I you. We are providing you with the draft computations, as requested, below:
I Name of Assessee: PQ
L Taxpayer's Identification Number :
r Income Year: 2016-17
p Assessment Year: 2017-18
I lncome Tax Computation
Sources fall under section for which resular computation is not reouired):
Particulars Tax deducted/collected Income (Tk)
at source (Tk)
Transfer oforooertv 10,000,000 2s0.000.000
Interest on savings instruments 75,000 1.500.000
10.075.000 251.500.000
Sources tall under section 2 tbr which computation in ar manner N uired):

Particulars Tax Income (Tk)
deducted/
collected at
source (Tk)
Imoort Business s00.000 3,000,000
500,000 3.000.000
ular sources of income:

Particulars Tax deducted/ Gross Taxable
collected at Income lncome (Taka)
source (Tk) (Taka)
Income from Salary
Remuneration from the orivate limited comDanv 1,345.000 6.000.000 6.000.000
Sub-total: (i) 1,345,000 6,000,000 6,000,000
Other Income
Interest on fxed deposits 300,000 3,000,000 3,000,000
Income from dividend of oubliclv listed comDanv 100,000 1,000,000 975,000
Page 173
-{
l
i
Income from mufual fund 500,000 475,000

Income from lease of land 60,000 1,200,000 l,200,ooo
Sub total: (ii) 460,000 5.700.000 5.650.000
Total: 1i1 + ii) 1.80s.000 11.700.000 11.6s0.000
Tax on taxable Income from ula sources:

Slabs Taxable Income (Tk.) Rate Tax (Tk.)
First 300.000 0%
Next 400.000 t0% 40.000
Next 500,000 ts% 75,000
Next 600.000 20% 120,000
Next 3,000,000 2s% 750,000
Balance 6.850.000 30% 2,055,000
Total 11.6s0.000 3,040,000
(a) Computation of minimum tax liability for import business:
Taxable income from regular sources 11,650,000 \

Income from import business computed in regular ffranner 3,000,000
14,650,000
Computation of applicable tax on sum of income from regular sources and income from import
business:
Slabs Taxable Income (Tk.) Rate Tax (Tk.)
First 300,000 0%
Next 400.000 t0% 40.000

Next 500,000 t5% 75.000
Next 600,000 20% 120,000
Next 3,000,000 25% 750,000
Balance 9,850,000 30% 2,955,000
Total 14.650.000 3,940,000
Applicable tax on sum of income from regular sources and income 3,940,000
from import business
Less: Tax applicable to income from regular sources 3.040.000

Tax liability for import business computed in regular manner and 900,000
applying regular tax rate
Tax collected at source at import stage
Since, regular tax liability from import business is higher than tax collected/deducted at source, so Tk.
900,000/: willbe minimum tax on income from import business
(b) Computation of total taxable income from all sources and total tax liabili,ties:
Taxable fncome I Tax Liabilities
Page 174
(Tk) (rk)
Taxable income from regulars sources of income A 11,650,000 3,040,000
Income from sources fall under section 82C (for which 3,000,000 900,000
computation in regular rurnner is required)
Income from sources fall under section 82C (for which 251,500,000 10,075,000
computation in regular rnnner is not required)
Total 266.150.000 14.01s.000
(iii) Investment Allowance & Tax Rebate: Tk. Tk.

(a) Actual Investment made during the income year:
Shares of companies listed on Dhaka Stock Exchange 10.000.000
DPS (Maximum Tk. 60,000) 60,000 10,060,000
(b) 25% of (Total Taxable Income-Income u/s S2C-Exempted 29,12,500
Income-Income subject to reduced tax rate)
(c) Maximum Limit 15,000,000
(d) Eligible Amount for Tax Rebate: the lowest of (a), (b) and (c) 29.12.s00
Investment Tax Rebate:

TK 250,000 rs%
TK 500,000 t2%
TK 21 t0%
29.12.500 B 3,13,750
Total Income Tax Payable (from C:A-B

regular sources) 27,26,250
Income Tax (from section 82C sources) D ___4e99r

Surcharge @30% B:(C+D) X30yo 41,101375 "
Total Income Tax & Surcharge F:C+D*E 1,50,85,375
Tax collected/deducted at source

Tax deducted/collected from sources fall under section 82C (for which computation in 500,000
regular manner is required):
Tax deducted/collected from sources fall under section 82C (for which computation in 10,075,000
regular lnanner is not required):
Tax deducted/collected from regular sources 1,805,000
Total Tax deducted/collected from all G 12,380,000
sources
Balance Tax Pavable lI:F-G 4r5o2r45o
Surcharge has been computed on the basis of information provided by you on net wealth as of 30 June
2017 . We could not compute closing net wealth for the assessment year 2017 -18 due to lack of necessary
information.
Should you have any queries in this regard, please feel free to contact us.
t
Best wishes and regards,
Page | 75
Ouestion No. 5
ABC Ltd. is a Bangladeshi RMG company, having its factory in Jessore, in which XYZInc.; a UK based
company has 28Yo shareholding and voting power. The management of these two companies is going to
enter into an agreement on the following transactions:
a) ABC Ltd. will sell 1,000,000 pieces of T-shirts @ $2 per T-shirt to XYZ Inc. This type of T-shirts is
generally sold to unrelated parties @ $3 per T-shirt.
b) ABC Ltd. will borrow $200,000 from a foreign lender based on the guarantee of XYZ Inc. For this,
ABC Ltd. will pay $10,000 as guarantee fee toXYZ Inc. To an unrelated party for the same amount
of loan, XYZInc. collects $7000 as guarantee fee.
c) ABC Ltd. will pay $15,000 toXYZ Inc. for getting various potential customers details to improve its
business. XYZlnc. provides the same services to unrelated parties for $10,000.
d) ABC Ltd. will procure used machineries from XYZInc. costing $150,000 which will be paid in four
installments.
Furthermore, in the current year, ABC Ltd. will need to write-off receivable amount from XYZ Ltd.
amounting to Tk. 1,000,000.
MAT & Co, Chartered Accountants, acts as tax consultant of ABC Ltd. You are a Chartered Accountant
and currently working as Director of Transfer Pricing Department of MAT & Co. The CFO of ABC Ltd.
requested you to provide your opinion in the report form on the above matters, which will assist ABC
Ltd. to get an extensive idea on tax exposure according to Bangladesh Tax Law. On the basis of your
report, ABC Ltd. will make their tax planning and determine their decision. fConsider 1$: BDT 78]
Requirements:
Your report should cover the following issues:
a. Brief discussion on area of implication of TP regulations. [Marks: 6]
l
b. of TP aspects on the above issues, demonstrating
Elaboration financial impact of tax l
exposure [Marks: 6]
Answer to the Ouestion No. 5:
The Managing Director

ABC Ltd.
l8 December 2017
Dear Sir:
Report on the queries based on Transfer Pricing Provisions

Please refer to the subject mentioned above and your request providing professional opinion(s) on the
various issue(s) raised therein. As requested, we are providing below our professional opinion
Requirement # i
Provisions relating to TP as mentioned in Chapter XIA, Section 107,4. to 107J of the ITO, 1984, are
applicable from the income year 2014-15. The provisions relating to TP has been summarized below:
TP refers to the pricing of international transactions between two associateA enterprises, Due to the
special relationship between related parties, the transfer price may be different than the price that would
Page 176
parties is known as the "arm's
have been agreed between unrelated parties. A price between unrelated
length" price. The provisions of TP are applicable only if:
. There are two or more enterPrises
o The enterprises are Associated enterprises
o The enterprises enter into an international transaction
Method of TP: There are five methods for TP:

o comparable uncontrolled price method;
. resale price method;
o cost Plus method;
o profit split method;
o transactional net margin method;
107EE. The Dcr may
A statement of international transactions is required to be submitted as per section
Accountant' There is also
require a report singed by a Chartered Accountant or a Cost and Management
penal provisions for non-compliance regarding TP provisions'
Requirement # ii
are deemed to be associated
ABC Ltd., the Bangladeshi company and xYZ1nc.,the uK based company
less than.25o/o of the voting
enterprises as per section tOZe(Z;,as XYZ Inc. holds shares carrying
not.
these two companies
p;;; of ABi Ltd. As per section 107A(5), the transactio_ns entered into betweenwithin the meaning of
for sale of product, lending or guarantee and provisions of services are included
intemational transactions.
income arising from such
Accordingly, provisions of transfer pricing would be attracted and the
length price' In this case from the
international transactions have to be compuied having regard to arm's
uncontrolled price
information given, the arm's length price has to be determined taking the comparable
method to be the most appropriate method'
d on account of adjustment in the
value of international transactions :
00 Pieces sold to XYZ Inc' ($

1X1.000,000x78
XYZ Inc' for loan borrowed
from foreisn lender ( $ 3000 X 78
Difference for e"cess palrrnent for services toXYZ Inc' ( $ 50!qX 78)
dmissible expenditures only when proper
supporting is presented, such as, supporting related legal action taken for
fecovery,
board resolution, etc. No irnpact under TP regulations'
Amount of rk. 7g,624,000 will be added back to the taxable income under section 107c(5) of the ITo,
1984.
Should you have any query in this regard, feel free to contact us.
Yours faithfully,
MAT & Co. t

Chartered Accountants
PagelTT
Ouestion No. 6
(a)You are a VAT adviser to PQ Ltd. ("Company'). A taxable service provider is unwilling to issue a
valid VAT invoice (Mushak-l1) and has asked the Company to deduct VAT at source from the amount
payable thereto. The Chief Financial Officer ("CFO") of the Company has requested you to discuss the
issue in more detail at the next meeting.
Requirements:
Prepare a note for discussion at the meeting with the CFO of the Company, addressing the consequence
of
entering into a transaction with a registered person who/which does not issue a valid VAT invoice
(Mushak-11). [Marks:51
(b) Electric bike is a bicycle powered by lightweight lithium-ion battery which has gained popularity in
many countries. A motor cycle importer imported 100 pieces of electric bicycle to try first time in
Bangladesh market. Cost per piece including VAT at import point 100 US dollar. He incurred 15%
import VAT. The importer incurred C&F charges taka 50,000 to clear the consignment. He sold 90 units
to wholesaler at lUYo profit. Wholesaler incurred indirect fixed overhead of taka 15,000 in a tax period in I
which he sold 90 units of electric bike.
:
As a pricing policy, he aims to recover the fixed overhead from margin charged to retail. Wholesale
margin is 10% on his sale to retailer. Retailer sold his entire stock of 90 units in one tax period. He
engaged a technician at monthly salary of taka 5,000/: (direct cost) to service the new electric bike,
Retailer's direct cost including technician salary amount to taka 50,000/:. Retailer margin is l5o/o.
Exchange rate Taka 80 to a US dollar.
The wholesaler maintains full statutory VAT records and operates on full VAT system. Wholesaler has 10
units unsold stock of electric bike purchase. In one later evening, his shop got flre fully damaging
(consider nothing recoverable) the entire stock of electric bike. Wholesaler approached you for legal
advice what to do under the circumstances.
Wholesaler's indirect fixed overhead taka 15,000/: include estd taka 20001: insurance cover (including
l5o YAT), taka 3000/: for electricity (including VAT 5%) and taka 10000/: (including VAT 1 5%) paid
to part timer CA application level student to provide bookkeeping support. This wholesaler can take
rebate of input VAT in the product cost but he is not sure if he can claim rebate of VAT he paid on the
indirect expenses of taka 15,000/:.
Requirements:
i. Compute VAT to be borne by consumer for the stock of electric bike actually sold by
retailer [Marks:10]
ii. VAT included in damaged stock? Describe procedure in ref
Can wholesaler claim rebate of the input
to the applicable provisions of the VAT law to deal with electric bike stock is damaged by
fire. [Marks:5]
Answer to the Ouestion No. 6(a):
Notes for discussion at the meeting with the CFO of PQ Ltd.

Consequence of entering into a transaction with a registered person who doeb not issue a valid VAT
invoice (Mushak-l l)
Page | 78
According to Section 37 (2) of the VAT Act, 1991, the following activities, inter alia, will be treated as
offence, ifany person:
o fails to issue a VAT invoice or renders a fallacious VAT invoice from the perspective of material
information;
r receives goods or services without VAT invoice despite the recipient is a VAT registered person;
. engages himself in receiving or acquiring possession of goods or entering into transactions
though he knows or he has reason to believe that VAT or, where applicable, VAT and SD
payable on such goods has been evaded; or
o evades or attempts to evade VAT or SD by any other means;
. does or abates in doing anything specified in clauses from (ka) to (to) of Section 37 (2) of the
VAT Act, 1991.
In the event that the aforementioned offences result in evasion of VAT, the said person shall be liable to a
monetary penalty which shall be not less than 50%o and not more than 100% of the amount of VAT so
evaded. For the offences set forth in Section 37 (2) of the VAT Act, 1991, which are considered as
irregularities other than evasion of revenue, the said person shall be liable to a monetary penalty of not
less than Tk. 20,000/: and not more than Tk. 50,000/:.
Section 31 (6) of the VAT Act, 1991 , provides that any person who is convicted in the Court of Special
Judge forthe offences set forth in Section 37 (2) of the VAT Act, 1991, shallbe liableto imprisonment
for a term which shall be not less than 3 months and not more than 2 years or a pecuniary penalty which
shall be not less than 50o/o and not more than 100% of the amount of VAT payable or both.
In accordance with Rule 35 of the VAT Rules, 1991, any registered person who contravenes any
provision of the VAT rules shall be liable to a pecuniary penalty which shall be not less than 50%o and not
more than 100% of the amount of VAT payable on relevant supply of goods or rendering of services and
the said goods or seryices (where applicable) related to such contravention shall be confiscated in favor of
the government.
Furthermore, VAT authority may impose a penalty of not more than Tk. 10,000/: and not less than Tk
5,000/: under Rule 35 of the VAT Rules, 1991, for violation of the VAT Rules, 1991, if the infringement
does not result in evasion of VAT.
In light of the above, it is obvious that there is no scope in VAT laws to do transaction with a person
who/which does not provide a valid VAT invoice (Mushak-ll). Deduction of VAT at source will not
discharge the service recipient from the obligation to enter into transaction with a VAT compliant
counterpart.
Answer to the Ouestion No. 6(bXi):

Importer Stage - Computation of VAT
Check Amount(Taka)
Price including VAT 100x80x100 800,000.00
IVAT on import included in the price] t04,347.83 t04,347.83
Price Excluding VAT - 100 units 695,652.17
ADD: C&F Charges 50,000.00
[promotional cost 1000 tk per unit is not product cost]

Total cost excluding VAT - 100 units 145,652.17
ADD: Margin 10% 74,565.277
Value Addition 124,565.22 I
820,217.39
VAT on Value Addition 18,684.78
Page 179
VAT on import 104,347.83 15% 123,032.61 Output VAT
Price to Wholesale including VAT 943,250.00
Wholesaler Stage - Computation of VAT
Cost of purchase -- 100 units 943,250.00
Less: Input VAT for 100 units (Cost)*(3/23) 123,032.61 123,032.61
Net cost of goods available(l00 pcs) 820,217.39
Total cost for 100 units excluding input VAT 820,217.39

ADD: Margin at l0o/o on 90 units 73,819.57
Selling price excluding VAT -- 90 units 872,015.22
[Total value addition at wholesaler]
VAT on value addition

Input VAT -- prop on 90 units 110,729.35 14% 110,:729.35 Output YAT
PRICE TO RETA]LER 922,744.57
Retailer Stage - Computation of VAT

Cost of purchase - 90 units 922,744.57
Less: Input VAT for 90 units (Cost)*(3/23) 120,357.99 t20,357.99
Net cost of goods available (90 pcs) 802,386.58
ADD: Direct cost for 90 units 50,000.00
ADD:Margin atl5o/o t27,857.99

Selling price excluding VAT of 90units 980,244.57
Total value addition at Retailer 177,857.99
VAT on Value Addition 26,679.70

Input VAT 120,357.99 15% 147,036.68 OutputVAT
PRICE TO CONST]MER _1J2128t21_
Consumer cost per unit 12,525
lmporter Wholesaler Retailer Consumer

100 90 90 90
Output VAT t23,032.6t tt0,729.35 t47,036.68
Less: Input VAT - 110,729.3s t20,357.99
NET VAT 123,032.61 - 26,678.70
NET VAT for 90 units 110,729.35 26,678.70 137,408.05
Total VAT amount consumers pay for 90 units 137,408.05

Consumer Price per unit 12,525
VAT in consumer price per unit t 1,633.74
90
Total amount of VAT for 90 units sale __147_,035.68
t
Page | 80
Answef to the Ouestion No. 6(bXii):
VAT Rule 41 applies to deal with the manner how to dispose damaged goods in possession of the
assessee. The assessee should do police station record of the flre incident. The procedures under VAT law
are as follows:
o Wholesaler shall apply to local VAT circle using the Form YAT-27 within 24 hours of the
incident of fire duly detailing the damages resulted from the fire.
He will coordinate with local VAT circle to visit the shop premises within three days to assess the
probable output VAT connected with the damaged stock and, at the same time, the VAT officer
shall forward the application to Division Office for approval with his recommendation as to how
to dispose the damaged stock.
Division office shall make his decision within 30 days on how to dispose the damaged goods. He
will order for cancelling the input rebate on the purchase of the damaged stock and make the
adjustment of the same in the assessee's current account and in the next period monthly return.
Wholesaler shall act according to the order of Division Office.
Page | 81
Suggested Answers
Tax Planning & Compliance
Nov-Dec 2018
euestion No. r:
Being a newly qualified Chartered Accountan! recently you joined in the tax depaftment of a reputed
FMCG company. You report to the Head of tax, a non-professional, who reports to the CFO. As paft
of your new assignment, your tax head has assigned you to look into the ongoing tax assessment
by Tax depaftment for the income year ended on 31sDecember2Ol5. On 13s March'18 upon review,
you have identified the following:
a) The due date for.completion of the assessment was 31't December 2077, accordingly the
assessment order along with demand notice was supposed to be served by 31'tJanua ry'20L8.
b) If it is considered that the assessment order along with demand notice was served on the due
date, there are only few days available for filing the appeal should the company be aggrieved by
the assessment order.
c) Your colleague (a non-professional, who was handling the matter prior to your joining) informed
that the assessment order is ready for collection on 20th March ohly but you have to provide a
antedated acknowledgement, which is 3lsJanuary2O18.
O On this, yourJal head has strongly advised you not to offend the tax department but collect the
Assessment Order satisfying them by whatever means and it will not be disclosed to anyone.
Requirements:
D loq will.you deal the matter in respect of antedated acknowledgement and the advice of your
Tax head? tMark3:51
i) What would be the best possible way to handle the matter with tax authority maintaining
the ethics? [Marks:S]
Being a member of ICAB, I will not agree to sign in a document, which will be considered as an
antedated acknowledgement on behalf of the company mainly for the following reasons:
a) It.is ag-ainst the fundamental principles that a member of ICAB must follow as per the code of
ethics (the codes) qdopled by ICAB. The codes require a member to comply with the following
five fundamental principles:
o Integrity
o Objectivity
o Professional competence and due care
o Confidentiality
o Professionalbehavior
b) It will also. be against the code of ethics of the company being reputed for maintaining a high
quality ethical standards
c) Also it will. expose the company, which I'm not authorized to do even if it has got sanction from
my immediate supervisor
Hence, I will try to convince my supervisor on the ethical aspects of the matter and in case he is not
convinced, I will refrain from this activity but will look for window through which this can be brought
to the notice of the management (e.g. whistle blower system, integrity reporting system etc.)
Page | 45
From the question, it appears that if the assessment order along with demand notice was sved rrifrin
the due date of 31'tJanuary 2018, the company would require to file its first appeal on or beftre I7u
of March 2018 subject to the company is aggrieved by the assessment order, i.e., hardly fu1.; days wil
be available for filing the appeal, which is quite difficult considering the circumffic. Henc
alternatively I will propose for following actions:
1) fu aerffied opy
Submit an application to the tax authority under section L77 of the ITO L984,
of the orders and other relevant documents, stating that for the income year ended on 31n
December'15, the tax authority was supposed to serve the assessment order along uriltr demand
notice by 31"January 20L8, which we have not received yet.
2) Days taken for the ceftified copies from the application date to getting the ceftified opy uitt be
excluded from the stipulated time for filing the appeal, which can be utilized for preparirq the appeal
documents by collecting"the copy of the orders from the documents
3) This will help me as well as the company to maintain the ethical standards and the orparry will
not be exposed to any'risk for failing to file the appeal within the stipulated time, if no order
receives and stipulated time for filling appeal is over.
Question No.2:
You are the tax manager of SARAL Bangladesh Ltd (the company), a subsidiary of SAML
A.G. In connection with the assessment made by the DCT for the income tax refilm filed for the
company for the income year ended on 3lsDecember, 2015 you have identified the fullowing:
D PCf disallowed Tk. 15 million claimed as Technical know-how fees payable to SARAL AG. as on 31$
December, 2015 on the ground that no tax was deducted at the time bf creating th's prwisinn on or
before 31 Decembef 291I, While expressing opinion on this, DCT mentioned that by oeating provision
for payment of Technical know-how fees, credit to the payee's acmunt was made, hen6'tax was
supposed to be deducted at the time of making such pr6viiion. The company achraity paid Technical
know-how fees in November'16 upon due deduction of tax at source after getting appriilal from Board
of Investment (a requirement under Foreign Exchange Regulations)
iD DCT disallowed Tk. 25 million claimed as profit pafticipation and welfare funds papHe b, or for the
welfare of, the employees and national Labour Welfure Fund, being 5o/o of profit before tax for the
company for the year ended on 31 Deemfu,20L5, as per the provision of Bangladestr Labour Act on
the ground that this is merely an appropriation of profi! hence should not be allowed as oeenss.
Requirement:
Write the grounds of appeal against the above assessment order given by the
DCT. [Marks:lO]
Page | 46
'1,il|
2(i)&(ii) Answer to the Question No. 2:
G Star Ltd
' Grounds ofAppeal
Assessment year 2Ot,6-L7
Income Year Ending 3l December 2015
1. For that the learned Deputy Commissioner of taxes erred in law and upon facts
in failing to
appreciate that showing technical know-how fees by making a provision under payable
in
the books of accounts and balance sheet of the asseisee is iot tantamount to being '.credit
of such fee to the account of the payee" or "payment thereof ... by any other modeT for
the
purpose of section S2A(2) of the ITO 1984
2. For that the learned. Deputy Commissioner of taxes erred in law and upon facts
in failing to
appreciate that the obligation upon an assessee to deduct tax at source under
seqtion SZA2)
arises only at the time of credit of such technical know-how fees to the account
6f tn"-puy".
or at the time of payment thereof in cash or by issue of a cheque or draft or by any
other
mo!e, whichever is earlier and in this case neither had the technical know-how fees
been
credited to the account of the payee nor it had it been paid in cash, by cheque
or draft or by
any other mode on or before 31't December 2015
For that the learned Deputy Commissioner of taxes erred in law and upon facts in
failing to
appreciate that credit to the payees account occurs only when payee oblains title, possession
and control over the technical know-how fees (fees) and in'this instance, the fees being
uncredited/unpaid the payee did not obtain any title, possession and controiover
the fees at
the material time i.e. on or before 31 December 2015
For that the learned Deputy Commissioner of taxes erred in law and upon
facts in failing to
appreciate that the applicant was not in a position to credit the fees to the
account of the
payee due to not having necessary approvals and permissions
from Board Of Investment
(BoI), which application only be filed upon filing the tax return at a later that from
the
material date i.e. after 31 December 2015
5' For that the learned Deputy Commissioner of taxes erred in law and upon
facts in failing to
appreciate that profit participation under Bangladesh Labour Act (profit participation)
is alax
deductible expenses and is being paid to the aligible employees oithe.orpunyand
National
Welfare Fund.
6. For that the learned Deputy Commissioner of taxes erred in law and upon
facts in failing to
understand the difference between dividend which is paid to the shareholders
and profit
participation which is paid to the eligible employees of the company
and the National Welfare
Fund.
7- For that the learned Deputy Commissioner of taxes erred in law and upon facts in failing
to
undershnd that while Bangladesh Labour law, passed by the parliament has already
sanctioned profit participation amount to be paid to, or welfare of, the eligible
emftoyee, as
tax deductible expenses, then there should not be any question raised on this
by merely
refening to it is appropriation of profit
8. For the appellant reserves the right to take further grounds of appeal
at the time hearing.
AuUtorised Signatory
SARAL Bangladesh Ltd
Page | 47
Question No.3:
G-Star Ltd is a publicly listed Company, whose 75o/o share is owned by iB rnmesident Parent
Company N-star Ltd registered in Germany. G-star manufactures and markeB bisorits under the
N-star's world-wide brand name PANDA. N-star registered PANDA as a tradernark in Bangladesh
market. Because of very high quality and taste PANDA biscuit is a hqrcehold name in Bangladesh
and also market leader in terms of market share
As part of a global restructure, recently N-star Ltd declared that it will gro fur a restructuring
worldwide and consequent to this, it will sell out its entire biscuits business globally, although it
may continue its operation in other areas.
Globe Bangladesh Ltd., a newly incorporated multinational company in Bangladeh also listed in
the stock exchanges of Bangladesh, is engaged in the business of manulacilrring and marketing
of biscuits and allied products. Being a new joiner in this sector in Bangladesh, the parent
company, Globe World Ltd (75o/o holder) considers this announement by N-star Ltd. as an
opportunity to establish themselves in a ready market and therefore is seriorply contemplating
as to how they can go for the acquisition so that PANDA biscuit becomes a part of their products
portfolio.
Accordingly, Globe Group is considering evaluation of the acquisition under the following aspects:
a) Acquisition of N-star's shares in G-star Ltd by Globe World Ltdonly
b) Acquisition of N-star's shares in G-star Ltd by Globe Bangladesh Ltd only
c) Purchase of N-star's brand PANDA by Globe World Ltd
d) Under acquisition of sharg brand rights will also be automatially tansfened to the
purchaser
In view of this, Globe Bangladesh Ltd has appointed you and requested you to provide a
detailed evaluation repoft in terms of income tax implications on the proposed acquisition
considering all the options mentioned above.
Requirements:
i) Provide a detailed evaluation repoft considering the implications of direct tax, both from
buyer's and seller's point of view. IMarks:5]
iD If acquisition of shares is finalized, recommend which option would be better from Globe
World Ltd.'s dividend earnings point of view. [Marks: ]
Answer to the Question No. 3(a) (i):
Acquisition of N-Star's share by Globe Bangladesh Ltd (resident company)
Direct tax impact

Impact
On share sale On transfer of Brand rights
Purchaser No tax applicable No tax applicable
Non-resident Seller Capital gain tax @ 10olo Considering the value is
applicable (Note-1) attributable to the value of
(N-Star Ltd) shares acquired and capital
gain tax paid accordingly, no
separate tax will be required to
be paid
Page | 48
3 (a) (i). Acquisition of N-Star's share by Globe world Ltd (non-resident company)
Direct tax impact

Impact
On share sale On transfer of Brand rights
Purchaser No "tax applicable No tax applicable
Non-resident Seller Capital gain tax @ 10olo Considering the value is
(N-Star Ltd) applicable (Note-1) attributable to the value of shares
acquired and capital gain tax paid
accordingly, no separate tax will
be required to be paid
Purchase of N-Star's asset brand rights by Globe world Ltd (non-resident company)
Direct tax impact

Impact
On transfer of Brand rights
Purchaser (non-resident) No tax applicable
Non-Resident Seller Tax will be payable on the value to be attributed to

Bangladesh (Note-2)
(N-Star Ltd)
Note(1): Capital gain tax for transaction on listed securities in stock exchange,is 10o/o oSp€r
SRO 196-law/income tax/2015 dated lsJuly 2015
Note(2): As per revision made in Finance Act 2018 in section 18 of ITO 1984, any income
accruing or arising, whether directly or indirectly, through any intangible propefi
used in Bangladesh has been brought under the scope of income
From dividend earnings point of view, it will be more beneficial for the Globe World Ltd if they
directly acquire the shares. The reasons are explained below:
If acquired by If acquired by
Pafticulars
Globe Bangladesh Ltd Globe World Ltd
Dividend income 100 100
Withholding tax/For Globe world DTM rate (20) (10)
Available for Dividend to Globe world 80
Withholding tax based on DTM rate (8)
Net Dividend earning Globe World 72 90
Anwer to the Question No. 3(a) (ii):

3(a) (ii) Note: Subject to compliance of section 56(2) of the ITO 1984, GIobe World will be
eligible for DTAA benefit, accordingly withholding tax rate will be 10o/o as Globe
world holds more than 20olo shares in Globe Bangladesh Ltd.
Page | +d
Question No.4:
Xen Bangladesh Ltd ('Xen BD" or \he company) is a 100o/o owned subsirtlary of Xen S.A., a
French conglomerate renowned for its famous consumer goods acrcss fte world. Xen BD is
a public company but not listed in stock exchange and has been engaged in manufacturing
and marketing of consumer goods under the global brands Xen S.A.
For the year ended on 31 December 20L7, following extracts relevant fu omputing
income tax for Xen BD 2018-19 are available (amount expressed in 000's Taka):
Turnover 5,900,290
Profit before tax 1,160,300
Depreciation as per book 180,350
Royalty expenses 231,590
Excess perquisite 44,990
Profit on sale of fixed asset 933
Entertainment expenses 76,456
On the above, further following information were provided:
1) Under total tax, deferred tax was charged as Taka 188,900,000 and current tax based on the
nominal marginal tax rate.
2) For Fiscaldepreciation following information are available (in 000'sTaka):
Fiscal depreciation based on asset as on 31 December 2016 95,290

WDV of asset sold 5t7
Addition: Plant &Machinery L7O,1}O
One new car for MD 19,000
3) The fixed.asset was sold at T:ka 1131,000, which was acquired at Tk.990,000 four years ago.
WDV of the said asset was Taka 198,000 as per book
Consider today is 31$ May, 2018 and you are approaching for preparation of tax return for
submission with the tax authority
You're rcquircd to provide the fullowing:

a) Computation of total income and tax liability for the relevant assessment year for income
year ended on 31st December 2017. [Marks:12]
2) What would be tax rate to be considered for the tax computation and what is the basis of
such tax rate? Can this tax rate be changed before filing the tax return on the scheduled
date? Explain. [Marks:2]
Page | 50
Answer to the Queobn flo. 4:
, Xcn Bangladesh ttd

&6pu'ta$on of Total Incom€ and Tax
Payable
Ac$cryn€nt y€Er 2018-2O19 (hcome year ended 31 December 2Ot7)
NoE Taka
(0o0r)
A. Inome ftiom B0#clre tr Prof,aeion:
Profit before tax as per s!ftement of profit and loss and comprehensive income 1,150,300
Less: Ac@unting gain on sale of fixed assets for separate consideration 933
t,L59,367
Md: Fiscal gain on sale of fixed assets 473
Md: Inadmtssltile upenses as per prcvision of law: -ri59t640-

Aaountng depreciaton and impairment loss for separate consideration
Eres perquisiEs
Entertainment expense for separate consideration
Royaltes el<penses for separate consideraton
L,693,126 .-
Admbelile exF€Nrses as per povlsion of law:
Hsca! depledatim 3
Rqalties.openses'u/s 30(h) 4
EnEtalilment as per Rule 55 5
Total Inonrc thQih &rdircss c Profiession r/o+se2
Page I 51
B. Inome frcm Capita! gain: L4t
Total Income 1,fis,733
(A+B)
Tax payable:
Tax payable on business income @35% on Taka t,4}s,733thousand 491,957
Tax payable on capital gain @15Yo on Taka 141 thousand. 2t
Total 491,978
Profit after tax considered as disclosed profit in die financial statement n/s 30(h) d IIO
1984
Profit before tax 1,160,300
Carent tax @ 3506 (406,105)
Defened tax (188,900)
Profit after tax to be considered as disclosed profit 565,295
Note 2: Capital gain
Sell vaine of die machinery in 000's Taka
Cost
Revenue gain
Crst
WDV as per tax book
Total Gain
Note 3: Fiscal depreciation
Depreciation based on asset as on 31 December 2016
WDV of fixed asset sold
Depreciation on addition to Plant & Machinery
- normal depreciation @ 20olo on L7O,29O
- inital depreciation @ 25o/o on L70,290
Depreciation on addition one motor car for MD
CostTaka 19000 thousands, maximum allowed Taka 2500 X 2@/o
Total Fiscal depreciaton L7L,304
Note 4: Admissible royalty expenses
Disclosed profitas persection 30(h) ofdie ITO 1984 565,395
Admissible royalty openses @ 8olo as per section 30(h) of the ITO 1984 45,323.60
Note 5: Allowable entertainment expenses:
Pafticularc 000's Taka
Profit before tax 1r1601300
Accounting gain on sale of flxed assets 933
1,159,367
Add: Total inadmisiible expenses as per provision of law 533,386
11392,353
Total admissible o<penses (o<cept for royalty & enteftainment exp) 171,390
Profit before considering entertainment expensc 11521r364
Allowable Limit for entertainment qpenses:
On the first Tk. 1,000,000 @ 4olo
On die rest of amount @ 2olo
70,407
Actual entertainment expenses 76,456
Allowable entertainment o(penses, the lower one 70,4O7
Page | 52
Qrcstion No. 5:
(a) X Ltd is a Bangladeshi subsidiaryof Y Ltd, based in UK. X Ltd. has entered enter alla into the
following transactions during the year 2017:
f) Taka 95 million eqi.rivalent US dollar was paid to Y Ltd for Royalty and Technical know-
how fees.
4 Taka 58 million equivalent US dollar paid to ZLtd, a subsidiary of Y Ltd. based in Australia
for getting quality testing services.
O fa|12 OS million equivalent US dollar paid to W Ltd, an independent third party based in
China for which price was determined under a Global Contract between Y Ltd and W Ltd
for procurement of raw materials.
q Taka 89 million paid to R Ltd, an associated company in Dhaka for insuranee Service,
under a global contract negotiated by Y Ltd.
Requircment:
Indicate whether the above transactions for the year 20t7 will form paft of the staEment of
intemationattransactionstobesubmitted underseition lOTEEoftheITO 1984?Dlscuss[Marks:8]
(b) The CFO of X Ltd. seeks your professional opinion on the followings:
Y Ltd. sells some computer monitors to X Ltd. for resale in Bangladesh. Y Ltd. also sells
computer monitors to another computer reseller. It sells 5,000 computer monitors to X
Ltd. at Tk.50,000 per unit. The price fixed for another independent repeller is Tk.35,000
per unit. The warranty in case of sale of monitors by X Ltd, is handled by X Ltd, However,
for sale of monitorc b), another reseller, Y Ltd. is responsible for the warranty for 3
months. Both Y Ltd. and X Ltd. offer extended warranty at a standard rate of Tk, 15,000
per annum.
Requirement:
On thgse facts, determine the ALP, suggest the most appropriate method and the effect on the
net profit/income of the assessee comp-any. [Marks:8!.-
Ansrer to the Que$ion t{o. 5(a):
1) X Ltd and Y Ltd has an Associated Enterprise relationship under the definition given u/s L07A(2)
oi ttre ITO 1984. Hence transaction between X Ltd and Y Ltd shall fall under the definition of
International Transaction as defined u/s 107A(5)(a) of the ITO 1984. Therefore the transaction
for payment of Royalty to Y Ltd shall form part of the statement of international transactions to
be submitted under section 107EE of the ITO 1984
2) X Ltd and Z Ltd have an Associated Enterprise relationship under the definition given u/s
107A(2) of the ITO 1984. Also transaction between X Ltd and Z Ltd shall fall under the definition
of International Transaction as defined u/s 107A(5Xa) of the ITO 1984 as both X Ltd. and Z Ltd
under the common control of Y Ltd. Therefore the transaction for payment of Taka 58 million
equivalent US dollar to Z Ltd shall form part of the statement of international transactions to be
submitted under section 107EE of the ITO 1984
pug"l ss
3) W Ltd is an independent third paty. x Ltd and W Ltd does not have any Associated Enterprise
relationship under the definition given u/s LOTA(2) of the ITO 1984. Howbver, the transaction is
between a resident company and a non-resident company. Also there is a prioi contract executed
between Y Ltd (associated enterprise of X Ltd) and W Ltd, which determines the terms of the
contract for providing raw materials to X Ltd. This falls under the definition of international
transaction as defined u/s 107A(5)(b) ofthe ITO 1984. Therefore the transaction for payment of
Taka 63 million equivalent US dollar to W Ltd shall form part of the statement of international
transactions to be submitted under section L07EE of the ITO 1984 as deemed international
transaction.
4) R Ltd. is an associated enterprise of X Ltd and it falls under the definition given u/s 1074(2) of
the ITO 1984. However, it does not qualiff the criteria to be qualified as international transaction
u/s 107A(5)(b) of the ITO 1984 for the following reason even though there is global contract
executed by the associated enterprise:
The transaction has to be between associated enterprise either of whom or both should be non-
resident. In this parrticular case both the parties are resident in Bangladeslrl Therefore, the
transaction for payment of Taka 89 million to R Ltd shall not form part of the statement of
international transactions to be submitted under section 107EE of the ifO fgg+.
Answer to the Question No. 5(b):
Computer USA Ltd CCULI, the foreign company, and Computer BD Ltd
CCtsD') the Bangladeshi
company, are associated enterprises since CUL is the holding company of CBD. CUL sells computer
monitors to CBD for resale in Bangladesh. CUL also sells identical computer monitors toanother
independent reseller, which is not an associated enterprise. The price charged by CUL for a similar
product transferred in comparable uncontrolled transaction is, therefore,-identifiable.Therefore,
Comparable Uncontrolled Price (CUP) method for determining arm's length price can be applied.
For sale of monitors by the independent reseller, CUL is responsible foiwarranty for 3 months.
The price charged by CUL from the independent reseller includes the charge foi warranty for 3
months. Hence arm's length price for computer monitors being sold by CUL to CBD would be: -
:.!ttr..'blitia,,.,,,
Sale price charged by CUL from CBD 35,000

Less: Cost of warranty included in the price charged to the indepen-
dent reseller ( 15,000 x 3lL2)
3750
Arm's length price 31,250
Actual price paid by CBD to CUL 50,000
Difference per unit 18,750
No. of units supplied by CUL to CBD = 500
Addition required to be made in the computation of total
income of CBD (18,750 x 93,75,000
500)
Page | 54
QueCitn llo.6:
Mrs. t(han, an individual assessee, files her tax returns regularly. For the income year to be sbfted on
lst July 2018 Mrs. Khan is contemplating following income from'salary based on the salary letter issued
to her:
Bat'c Salary per month 30o,oo0
Horse rent allowances per month 125,000
Employe/s ontibution to RPF per month 10o/o of basic salary 30,000
tftiliEes allowances per month 30,000
Speciill albrrane for three months for the period from lst July 2018 to 30th .
SepHnber20lSto meetexpensesforconducting a specialpQect in Cox's Bazar 45,000

Hvd bonrc br the year 400,000
Mrs. Khan is abo ogecting to the following for the income year stafted from 1st July 2018:
1) Learre Fae Asistance Taka 200,000, which she planned to use in December'l8 for buying airtjckets
for lrer and family for travelling to Australia. Mrs. Khan also travelled to Singapore last year, which she
shorued in lrer tar refurn as well.
2) As part d management incentives, on lst July 2018 Mrs. Khan was granted with 500 shares the of
@Bpony, having current market price of Taka 500,000, which will be vested in 2021 subJect to
fulfillrnert of ertain employment conditions.
3) Mrs. lGan will also pay similar amount to the provident fund as employee subscription
4) Proft bonr.s of Taka 300,000 under the Bangladesh Labour law on which tax will be deducted asper
cunent prodsion of law !
5) An invesfinent in secondary shares of Taka 800,000 is planned to be invested in January 2019.
Mrs. Khan booked a flat having 1,400 square feet area in Bashundhara R/A on lst July 2015, which has
been registered in her name on lst July 2018 after completion of construction on 30th June 2018, In
relation b ftrs, fullowing information are available:
1) Cost of the flat is 75,00,000
2) For buying tfie flat, Mrs. Khan obtained a loan of Taka 40,00,000 from a non-banking financial
instih.rtion, which has been planned to settle in 5 years (i.e., by 30th June 2020. In connection with -
this payment schedule for the loan is as follows:
Payment pedod Principal Amount Interest Remarks
(Taka) (Taka)
lst July't5 b 30th June'16 621,160 446,571 Already paid
lst July'16 to 30th June'17 699,940 367,794 Already paid
lst July'l7 to 30th June'l8 788,7L0 279,024 Already paid
lst July'l8 b 30th June'19 888,738 L78,996 Expected
1st July'l9 to 30th June20 1,001,452 66,282 Expected
Total 4OTOOTOOO 13,38,667
3) If Mrs. Khan rents out this flat, she expects to get Taka 16,000 pef month and expenses in relation
to repairs, collection of rent, water, sewerage etc. equivalent to U4th of the rental value. In such
a case, Mrs. Khan will have to stay in a rented house with similar standards, which she may
consider provided it is financially viable at least for the next two years stafted from 1st July 2018.
P.g. I SS
1-) Mrs. Khan has two 1500 CC car registered in her name, for which she will require to pay advance
tax as per existing provision of law.
You are required to compute:
1) Total income and monthly tax liability of Mrs. Khan for the income year stafting from 1st July 2018,
if Mrs. Khan rents out her new flat or she does not rent out her newflat.
2) Which one you will recommend, from a financial point of view only? [Marks-201
- Mrs. Khan
Projected lncome Year from 1st July 2018 to 30th June 2019
. Assessment Year: 2019-20
Computation of total income
Note Grcss Exempted Net taxable
Heads of Inome income income . income
(Taka) (Taka) (Taka)
1. IRcome from salaries (section 21):

Basic salary 3,600,ooo 3,600,ooo
House rent allowances 1 1,5oo,ooo 300,000 1,200,000
Utilities allowances 360,000 360,000
Special allowance for three months special project 2 45,000 45,000
Festival bonus 400,000 400,000
Leave fare assistance 3 200,000 200,000
Share option 4
Employer's contribution to RPF @10o/o of basic salary 360,000 360,000
Profit bonus under Labour law 5 300,000 50,000 250,000
Total Income from Salary 5,755,000 395,000 6,370,ooo
2. Income frcm House Property (section 25):

(If rented out)
Annual value 192,000
Less : Ad missible deduitions for repai rs/col lection

(48,000)
charges etc. (U4th of annual value)
Interest on borrcwed capital:

- U3rd interest paid during construction period 6 (364,463)
- Interest to be paid during the income perioQ (178,966) (543,429)
Total Income from House Property (399,429)
Total income 5,970,571
Page | 56
Calculation of allowable investment allowance as per sixth Schedule of paft B of ITO 19g4
Only salary Salary +

income House rent
Pafticularc Amount income
(rk.) Amount
(rk.)
Investsment made in allowable sector:
Contribution to RPF (employer + self) 720,000 720,000
1. Invesilrnent in secondary shares 800,000 800,000
2. Actual investment (a) 1,520,000 1,520,000
Maximum limit of allowable investment (b)
25olo of total ncome = (63, 70,00 0 X
i 25o/o) | (59,7 0,57 t X 25o/o) 1,592,500 L,492,643
Or 15,000,000 15,000,000
Or actualwhichever is less 1,520,000 1,520,000
Allowable investment al lowance:
Lower of (a) Actual investment and (b) Maximum allowable investment 1,520,000 1,492,643
Computation of Tax: Salary Income only
Tax Slab Rate Amount

on 1st 300,000 0o/o
next 400,000 L0o/o 40,000
next 500,000 t5o/o 75,000
next 600,000 20o/o 120,000
next 3,ooo,ooo 25o/o 750,000
Balance 1,570,000 30o/o 47L,000
Total 6,370,000 1r456rO00
Rebate: (l5o/o on 25Q000 t l2olo on 500,000 +-1,Oo/o on7,7O,OOO) (174,500)
Net of rebah 112g115O0
Surcharge @l0o/ofor holding twocars (assuming networth is lessthan BDT 22.5 million) 12&1s0
Tax payable for the year 1,4091650
Advance tax on profit bonus @ 5olo on 3001000 as per section 52DD of rro 1984 (15,000)
Advance tax paid for hro owned car as per section 688(2) of rro l9g4 (37,50O)
Net Tax for the year LF57,ts0
Net projected Tax per month 113,096
Page | 57
Computation of Tax: Salary + House property Income
Tax Slab Rate Amount

on 1* 300,ooo 0o/o
next 400,000 l0o/o 40,00;

next 500,000 L5o/o 75,000
next 600,000 20o/o 120,000
next 3,ooo,ooo 25o/o 750,000
Balance L,L70,571 30o/o 35L,L7t
Total 5,970,577 1,336,L7L
Rebate: ( 5olo olr 250,OOO t 2o/o on 5OQ0O0 tl.Oo;ro on742,463) (171146)
Net of rebaE ,-t164,425
Surcharge @10o/oforholdingtwocarc(assuming netwofth islessthan BDT 22.5 million) Ll.6,M3
Tax payable for the year 1,2g0,g6g
TDS on profit bonus @ 5olo on 3OO,O0O as per section 52DD of ITO 1984 (15,000)
Advance tax paid for two owned ciar as per section 688(2) of ITO 1984 (37,500)
Net Tax for the year L,228F68
Net projected Tax per month '
1o2,364
1. House rent allowances

Monthly allowances 1,500,000
50o/o of basic salary or
1,800,000
Tk. 25,000 per month 300,000 300,000
l,2oo,oo0
Special allowance for three months special project exempted as per Parc 5 of the 6th Schedule
(Paft-A) ofthe ITO 1984
Leave fare assistance (LFA) for foreign travel is exempted only once in 2 years. Since Mrs. Khan,
availed this benefit for foreign travel last 1ear, this year entire amount will be added with income
Share option has been granted and will be vested in 202L only subject to fulfillment of certain
condition. Hence, at this stage, this should not be treated as income.
Profit bonus (WPPF) under Labour law considered as part of salary income, as this has been earned
only in connection with the employment
Page | 58
Quesfion No.7:
(a) !f LH. C'Company') was incorporated in Bangladesh on 01 July 2018 under the Companies Act,
1994. No^r, the Company planning
is to_establish a factory for expoft of readymade garments in
Europe. As per decision of the Board of Directors of the'Company, commerciil operition of the
ConparV will be started upon obtaining bonded warehouse licehse. you have joineb tfre Company
r€Grt y as Manager. (Taxation). While preparing business plan for the financial year 201g-2019,
Manager (Business Plan) have come across the following issues relating to VAT:
0 Payment to suppliers through local letter of credit;

o commission on letter of credit opened for import of office furniture;
o Commission for establishing back to back letter of credit;
Rcquitement:
ilanager (Business Plan) has requested you to brief him in writing about the implications of
VAT on the said transactions.
O Beiry rc$oru;ible for VAT.operations, you are requested to review price computation fbr the purpose
d sfiniling-a price declarations with VAT authority. In relation to this, f&bwing information are
ad*le fur Ete relevant consignment of 120,000 pcs of semi-finished X-coffee paZrc'
a) C&F value of the consignment Tk.g,35O,O0O
b-) Assessable value as per bill of entry Tk.B,400,OO0
c) Basic duties, regulatory duties and supplementary duty paid rk.4,soz,4oo
O AIT paid Tk.420,000
e) VATpaid Tk.1,935,360
0 Charing other charges are 10olo of C&F value
g) H.rrther processing and packing cost 10o/o of C&F value
h) Overhead costs 20olo of C&F value
D Marine insurance cost for the consignment is Tk.100,000 and VAT paid on insurance
premium is Tk.15,000
D Mvertisement cost is 10o/o of C&F value on which 15olo VAT was paid
D Profit is 100/o of the selling price
Rqt-emcnts:
D Cofpule.tgtal. input VAT eligible for input tax credit and output VAT one 2009 Jar of X-
offee finished goods.
0 Whatisthe relation of inputtaxcreditand Price declaration? Underwhatcircumstancesinput
tax credit for ceftain item can be cancelled, even if there is a price declaration?
-) Under what circumstances a revised price declaration will be required?
U A person pays VAT under truncated method, as such his truncated VAT rate is 4.5o/o.
What is his assumed fixed value addition? Can he claim input tax credi! which he pays
fur his input purchase?
P.g. t 5g
Answer to the Question No. 7(a):
0 Payment to suppliers through local letter of credit;
Standard VAT rate has been determined in section 3 of the VAT Act, 1991. Section 3 provides that
VAT shall be imposed and payable at the rate of 15olo on the base values mentioned in section 5,
on all goods impofted into Bangladesh, except the goods listed in the First Schedule of the said
Act, and on the supply of all goods not listed in the said Schedule and on all seruices rendered in
or imported into Bangladesh except those services specified in the Second Schedule of the said
Act. Banking and Non-banking Seruice Provider (Seruice Code 5056.00) has not been included in
SRO No-182-Aainl20L2l640-Mushak dated 07 June 2012, which deals with the services having
truncated VAT rate. Hence, applicable VAT rate for Banking and Non-banking Service Provider
(Seruice Code 5056.00) is 15olo.
As per General Order No. 06/MushaV2018 dated 07 June 2018, if any bank, on behalf of a
purchaser, pays the value of any seruice, which falls under the scope of VAT deduction at source,
through local VC or in any other manner, the said bank is obligated to deduct VAT at source and
deposit the same into the government treasury.
(ii) Commission on letter of credit opened for impoft of office furniture;
As VAT chargeable on commission received for impoft L/C is not exempted, applicable VAT will
be realized by bank as per provisions of VAT laws.
(iiD Commission for establishing back to back letter of credit;
As provided in SRO No. 188-Ain 120121@6-Mushak dated 07 June 2012, commission, charge or
fee realized by Banking and Non-banking Service Provider (Seruice Code 5056.00) for rendering
export or export related seruices is exempted from VAT. Accordingly, VAT chargeable on
commission, fee or charge for establishing back to back l"/C, local back to back UC and cash VC
against master UC including any other expoft related L/Cs has been granted exemption.
Answer to the Question No. 7(b):

Requirement i) Taka
Eligible for input Input tax Credit for pc of X-Coffee (Note -4) L7.27
Output VAT for 1 pc of X-Coffee (Note -1) 23.86
Note -1: Target price for 1 pc Finished X-Coffee and out put VAT
Pafticulars Taka
Cost of raw materials based on bl of
70.00
entry: Assessable value (Note - 2)
37.52
Dutyies paid considered as cost (Note -2) 35.65
Total other cost (Note -3) 15.91
Target profit 10o/o on seing price

Target seing price 1s9.08
Output Tax per pc of finished goqds @ 15o/o 23.86
Page I 60
Note - 2: Consignment cost
For the
FOr I pC O.f
Compone SGllll-
Consignment finished X-
nts coffee Deck
(10,000ctnxl2x 200g) -
120,000 pcs
C&F Value 8,350,000.00 69.s8
Assessable value in Tk 8,400,ooo.00 70.00
Customs duty, Supp.duW & requlatorv dutv Taka 4.502.400.00 37.52
Value Added Tax Taka 1,935.360.00 16.13
Advance income Tax Taka 420.000.00 3.50
Total duities and taxes in Tk 6,857,760.00 57.15
Total Assessable values + duities and taxes in 151257,760.00 127.15
TK
Note 3: Other cost per pack
Pafticularc Basi e&

s a
Clearing charges 10olo of G&F, 6.96
value
Fufther processing &packing cost 10o/o 10olo of C&F 6.96
value
Overhead cost 2oolo of C&F 13.92
value
Adveftisement cost loolo of C&F 6.96
value
Marine insurance:
Total Premium for 120,000 pack 100.000.00
Non-recoverable VAT 20o/o of Tk. 15000 3.OO0.OO
r03.oo0.oo o.86
Total Other cost per pack 35.65
Note 4. Input tax per I pc X-Coffee Total Per Pc

Vat paid at poft point 1,935,360 16.13
VAT on adveftisement L25,250 1.04
Recoverable VAT on Ins. Premium 15000 X 80o/o 0.10
Tota! eligible input VATfor I pc X-Coffee 17.27
Page | 61
iiD Input tax credit is not possible without price declaration. If the items are not included in thepurchase
book [Mushak-16] then input tax qedit can be cancelled even there is pricedeclaration.
iv) Under the following circumstances a revised price declaration will be required:
1. In case of change of pioduct name and unit
2. In case of change of sales price and product
3. In case of input output co-efficient change of the product
4. In case of input raw materials change of the product
5. In case the raw material price increased more than 7.5olo
v) In the instant case the fixed value addition is 30o/o [30x15o/o=4.5]. No, he cannot claim inputtax
credit in this case.
The End
Page | 62

Icab Professional Level Taxation - II Suggested Answer May June 2011 To Nov Dec 2018

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Icab Professional Level Taxation - II Suggested Answer May June 2011 To Nov Dec 2018

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1) Depreciation on revaluation of assets Taka 100,000/:

3) Insurance premium paid to BGIC taka 250,00 0l on 02.02.201 7 without tds.

5) Provision for loss in subsidiary - Taka 500,000/:

1) Dividend taka 100,000/: from investment in an approved Alternative Investment Fund

3) Interest earned on security deposit at bank in Kenya, taka eqrt 100,000/:.

2) Return filed for the income yle 30.06.17 on 30.09.2017;

5) A chinese supplier breached L/c terms to supply toiletries machineries

Machineries net taka 500,000 (original cost taka 4,500,000, Sold

i) Compute total income and tax liability of Silkway Toiletries Ltd

Silkway Toiletries Ltd.

Add: Inadmissible expenses

Add: Compensation received from a Chinese company not credited 1,500,000

Business Income 8,403,030

Capital Gain 100,000

fncome from Other Sources:

TOTAL INCOME 9,703,030

GROSS TAX LIABILTTY 3,001,061

TOTAL TAX PLUS SIMPLE INT. DUE __ l,ul,g44_

[S]Interest on overdraft is allowable expenditure as pff section 29 as business expenditure

NET cash Available for Distiibution 1,700,000

Deemed Dividend uls 2(26) on the distribution:

The Deputy Commissioner of Taxes

Applicabilitv of section 93 of the ITO. 1984:

Pre-Transfer Structure and Post-Transfer Structure

Cell BD Ltd. Mobile BD Ltd.

Answer to the Ouestion No. 3b:

I lncome Tax Computation

Sources tall under section 2 tbr which computation in ar manner N uired):

ular sources of income:

Income from mufual fund 500,000 475,000

Tax on taxable Income from ula sources:

(a) Computation of minimum tax liability for import business:

Taxable income from regular sources 11,650,000 \

Next 400.000 t0% 40.000

Less: Tax applicable to income from regular sources 3.040.000

Tax collected at source at import stage

Taxable fncome I Tax Liabilities

(iii) Investment Allowance & Tax Rebate: Tk. Tk.

Investment Tax Rebate:

Total Income Tax Payable (from C:A-B

Income Tax (from section 82C sources) D ___4e99r

Total Income Tax & Surcharge F:C+D*E 1,50,85,375

Tax collected/deducted at source

The Managing Director

Report on the queries based on Transfer Pricing Provisions

Method of TP: There are five methods for TP:

00 Pieces sold to XYZ Inc' ($

MAT & Co. t

Exchange rate Taka 80 to a US dollar.

Notes for discussion at the meeting with the CFO of PQ Ltd.

Answer to the Ouestion No. 6(bXi):

[promotional cost 1000 tk per unit is not product cost]

Total cost for 100 units excluding input VAT 820,217.39

[Total value addition at wholesaler]

VAT on value addition

Retailer Stage - Computation of VAT

ADD:Margin atl5o/o t27,857.99

Total value addition at Retailer 177,857.99

VAT on Value Addition 26,679.70

lmporter Wholesaler Retailer Consumer

Total VAT amount consumers pay for 90 units 137,408.05