CHAPTER-4

EXEMPTION AND ALLOWANCES (TAX

HOLIDAY / EXEMPTION)
 BACKGROUND

■ Tax holiday i.e. fully exemption from paying tax, either for some periods or paying
tax at reduced rate for some period is allowed for newly set up enterprises to
accelerate industrial development.
■ From time to time provisions and exemption period found to have changed over the
period.
■ However, till 2019, an industrial enterprise setup within 30-6-2019 fulfilling some
conditions for the prescribed area were exempted from tax for period i.e., 4 to 12
years as specified by law.
■ For the purpose of tax exemption the country was been into few areas based on
which tax holiday period will be different.
Classified area Tax holiday
period
Special economic zone prescribed by NBR 12 years
Under developed area prescribed by NBR 9 years
Areas in Rajshahi, Khulna, Sylhet, Barisal, Rangamati, 5 years
Khagrachari and Bandarban
Dhaka and Chittagong (excluding Chittagong Hill 4 years
Tracks)

However, through Finance Act 2019, the provisions of tax holiday

have been changed significantly from flat exemption to differential
rate of exemption for the tax holiday period.
The country has been divided into two area & rate of exemption
pattern has been changed for exemption period regressively as under
and it is now called Reduced Tax System Holiday.
TAX HOLIDAY SCHEME FOR NEWLY ESTABLISHED
INDUSTRIAL UNDERTAKINGS, TOURIST INDUSTRY
AND INFRASTRUCTURE FACILITY: SEC 46A

■ Profits and gains of an industrial undertaking, tourist industry or physical infrastructure

facility (hereinafter referred to as the said undertaking) set-up in Bangladesh between 1
July 2011 and 30
■ June 2019 (both days inclusive) shall be exempt from the tax payable under section 46A
(1) of the
■ Ordinance for the period specified below-
– (a) if the said undertaking is set-up in, Dhaka, Mymenshing and Chittagong
divisions excluding Dhaka, Mymenshing, Chittagong, Narayangonj, Gazipur
districts and the hill districts of Rangamati, Bandarban and Khagrachari, for a
period of 5 years beginning with the month of commencement of commercial
production or operation of the said undertaking as per following rates;
Period of Rate of exemption
exemption
For 1st two year 100% of income
For 3rd year 60% of income
For 4th years 40% of income
For 5th years 20% of income
– (b) if the said undertaking is set-up in Rajshahi, Khulna, Sylhet and Barisal
divisions and the hill districts of Rangamati, Bandarban and Khagrachari, for a
period of 7 years beginning with the month of commencement of commercial
production or operation of the said undertaking.

Period of exemption Rate of exemption

For 1st two years 100% of income
For 3rd year 70% of income
For 4th years 55% of income
For 5th years 40% of income
For 6th years 25% of income
For 7th years 10% of income
■ Provided that industries engaged in infrastructural facilities will get
exemption all over the country for 10 years as per prescribed rate.
■ To encourage tourism tax holiday alike new industrial enterprises is
allowed varying from 4-12 years fulfilling certain conditions.
■ Industrial undertaking, tourist industry, or physical infrastructure facility
does not include expansion of an existing undertaking for the purpose of
this section -
■ (i) "industrial undertaking" means an industry engaged in the production
of textile, textile machinery, high value garments, pharmaceuticals,
melamine, plastic products, ceramics, sanitary ware, steel from iron ore,
fertilizer, insecticide & pesticide, computer hardware, petro-chemicals,
basic raw materials of drugs, chemicals, pharmaceuticals, agricultural
machine, ship building, boilers, compressors and any other category of
industrial undertaking as the Government may by notification in the
official Gazette specify.
■ Explanation: 'high value garments' mean overcoats, jackets and suits.
■ (ii) "physical infrastructure facility" means sea or river port,
container terminals, internal container depot, container freight
station, LNG terminal and transmission line, CNG terminal and
transmission line, gas pipe line, flyover, large water treatment plant
& supply through pipe line, waste treatment plant, solar energy
plant, export processing zone and any other category of physical
infrastructure facility as the Government may by notification in the
official Gazette specify;
■ (iii) "tourist industry" means residential hotel having facility of
three star or more and any other category of tourist industry
facility as the Government may by notification in the official
Gazette specify.
 CONDITIONS FOR TAX HOLIDAY

■ The exemption under section 46A(1) shall apply to the said undertaking if it
fulfills the following conditions under section 46A(2), namely:-
■ (a) That the said undertaking is owned and managed by-
– (i) a body corporate established by or under an Act of Parliament with its
head office in Bangladesh; or
– (ii) a company as defined in the Companies Act, 1913/1994 with its
registered office in Bangladesh and having a subscribed and paid up
capital of not less than Tk 1,00,000 on the date of commencement of
commercial production or operation.
CONDITIONS FOR TAX HOLIDAY……continued
■ (b) That thirty per cent of the income exempted under sub-section (1) is
invested in the said undertaking or in any new industrial undertakings
during the period of exemption or within one year from the end of the
period to which the exemption under that sub-section relates and in
addition to that another ten percent of the income exempted under sub-
section (1) is invested in each year before the expiry of three months
from the end of the income year in the purchase of shares of a company
listed with any stock exchange, failing which the income so exempted
shall, notwithstanding the provisions of the Ordinance, be subject to tax
in the assessment year for which the exemption was allowed.
 CONDITIONS FOR TAX HOLIDAY……continued
■ Provided that the quantum of investment referred to in this clause shall be
reduced by the amount of dividend, if any, declared by the company
enjoying tax exemption under this section;
■ Provided further that, the provision for purchase of shares of a company
listed with any stock exchange referred to in this clause shall not be
applicable in case of readymade garments industry, if it invests forty per
cent of the income exempted under sub-section (1) in the said
undertaking or in any new industrial undertaking during the period of
exemption or within one year from the end of the period to which the
exemption under that subsection relates.
CONDITIONS FOR TAX HOLIDAY……continued
■ It is to be noted that income to be invested mentioned as above means total income for
tax purpose and not net profit as per profit and loss account.
■ Illustration
Total income as per Computation of Income for tax purpose Tk. 1,000,000
Less: dividend declared 100,000
Balance 900,000
■ (i) to be invested in the said undertaking or in any new industrial undertaking @ 30%,
i.e., Tk. 270,000
■ (ii) to be invested in the purchase of stock listed shares @ 10%, i.e., Tk. 90,000
CONDITIONS FOR TAX HOLIDAY……continued
■ (c) that the said undertaking is not formed by splitting up or by
reconstruction or reconstitution of business already in existence or by
transfer to a new business of any machinery or plant used in business
which was being carried on in Bangladesh at any time before the
commencement of the new business;
■ (d) that the said undertaking is approved, and during the relevant income
year, stands approved by the Board for the purposes of section 46A; and
■ (e) that the application in the prescribed form for approval for the
purposes of section 46A, as verified in the prescribed manner, is made to
the Board within 6 months from the end of the month of commencement
or commercial production or operation.
(I) INDUSTRIAL UNDERTAKING ELIGIBLE FOR
TAX-HOLIDAY : (SECTION 46B)

■ (a) active pharmaceuticals ingredient industry and radio pharmaceuticals industry;

■ (aa) automobile manufacturing industry;
■ (b) barrier contraceptive and rubber latex;
■ (c) basic chemicals or dyes and chemicals;
■ (d) basic ingredients of electronic industry (e.g resistance, capacitor, transistor,
integrator circuit);
■ (dd) bi-cycle manufacturing industry;
■ (e) bio-fertilizer; (will get tax holiday even it is set up in distict of Dhaka, Narayanganj,
Gazipur, Chittagong, introduced in FA 2012)
■ (f) biotechnology;
■ (g) boilers;
■ (gg) brick made of automatic hybrid Hoffmann kiln or Tunnel
Kiln technology;
■ (h) compressors;
■ (i) computer hardware;
■ (j) energy efficient appliances;
■ (k) insecticide or pesticide;
■ (l) petro-chemicals;
■ (m) pharmaceuticals;
■ (n) processing of locally produced fruits and vegetables;
■ (o) radio-active (diffusion) application industry (e.g.
developing quality or decaying polymer or preservation of
food or disinfecting medicinal equipment);
■ (p) textile machinery;
■ (q) tissue grafting;
■ (qq) tyre manufacturing industry; or
■ (r) any other category of industrial undertaking as the
Government may, by notification in the official Gazette,
specify
 (II) PHYSICAL INFRASTRUCTURE ELIGIBLE
FOR TAX HOLIDAY: (SECTION 46C)

■ (a) deep sea port;

■ (b) elevated expressway;
■ (c) export processing zone;
■ (d) flyover;
■ (e) gas pipe line,
■ (f) Hi-tech park;
■ (g) Information and Communication Technology (ICT) village or software technology zone;
■ (h) Information Technology (IT) park;
■ (i) large water treatment plant and supply through pipe line;
■ (j) Liquefied Natural Gas (LNG) terminal and transmission line;
■ (k) mono-rail;
■ (l) rapid transit;
■ (m) renewable energy (e.g energy saving bulb, solar energy plant,
windmill);
■ (n) sea or river port;
■ (o) toll road or bridge;
■ (p) underground rail;
■ (q) waste treatment plant; or
■ (r) any other category of physical infrastructure facility as the
Government may, by notification in the official Gazette, specify
COMPUTATION OF TAX HOLIDAY
INCOME
■ (a) The profits and gains of the undertaking to which
section 46A applies shall be computed in the same
manner as is applicable to income chargeable under
the head ‘Income from business or profession [Section
46A(5)]. However, in respect of depreciation, only the
allowances
■ (b) The profits and gains of the said undertaking shall be
computed separately from other income, profits and gains of
the assessee, if any, and where the assessee sustains a loss from
such undertaking, it shall be carried forward and set off against
the profits and gains of the said undertaking for the following
year and where it cannot be wholly set off, the amount of the
loss not so set off, shall be carried forward for the next year
and so on, but no loss shall be carried forward beyond the
period specified by the Board in the order issued under section
46A(3) or (4) [Section 46A(6)].
■ (c) Unless otherwise specified by the Government, nothing
contained in section 46A shall be so construed as to exempt the
following from tax chargeable under section 46A–
– (i) any dividend paid, credited or distributed or deemed to
have been paid, credited or distributed by a company to its
share-holders out of the profits gains; and
– (ii) any income of the said undertaking classifiable as
‘Capital gains’ chargeable under the provisions of section
31;
– (iii) any income of the said undertaking resulting from
disallowance made under section 30.
■ NOTE
■ A tax holiday company is liable to pay tax resulting from
disallowance made u/s 30 in respect of the following.
– (a) Any payment of salaries chargeable to income tax, if tax
at source has not been deducted and paid to the
Government Treasury.
– (b) Any payment paid by an assessee to any person if
deductible tax at source has not been made and paid to the
Government Treasury under Chapter VII (Section 49).
– (c) Any excess perquisites u/s 30(e) has been paid to the
employees.
 WORKED EXAMPLE

■ A tax holiday company’s Income was determined at

Tk. 1,000,000 without considering disallowances u/s
30 [under (a), (b) & (c) above] of Tk. 400,000.
■ Solution
■ The tax holiday company is liable to pay tax on Tk.
400,000.
 WITHDRAWAL AND CANCELLATION OF TAX
HOLIDAY
■ (1) Where any exemption is allowed under section 46A and in the course
of making assessment, the Deputy Commissioner of Taxes is satisfied
that any one or more of the conditions specified in section 46A are not
fulfilled, the exemption will stand withdrawn for the relevant assessment
year and the Deputy Commissioner of Taxes shall determine the tax
payable for such year. [Section 46A(8)].
■ (2) Notwithstanding anything contained in this section-
– (a) where the said undertaking enjoying exemption of tax under
section 46A is engaged in any commercial transaction with another
undertaking or company having one or more common sponsor
directors, and
 – (b) during the course of making an assessment of the said undertaking if the
Deputy Commissioner of Taxes is satisfied that the said undertaking has
purchased or sold goods at higher or lower price in comparison to the
market price with intent to reduce the income of another undertaking or
company.
– The exemption of tax of that said undertaking shall be deemed to have been
withdrawn for that assessment year in which such transaction is made.
[Section 46A(2A)].
■ (3) Any such undertaking approved under section 46A may, not later than one
year from the date of approval, apply in writing to the Board for the cancellation
of such approval, and the Board may pass such orders thereon as it may deem fit.
[Section 46A(9)].
■ (4) Notwithstanding anything contained in section 46A, the Board may, in the
public interest, cancel or suspend fully or partially any exemption allowed under
section 46A.[Section 46A(10)].
 TAX HOLIDAY NOT ELIGIBLE IN CERTAIN
CASES

■ A new industry, wherein investment of any sum by any person during the
period between the first day of January, 1997 and the thirty first day of
December, 1999 is exempt from tax without any question as to the source
of the invested sum under section 19A shall not be eligible for tax -
holiday.
■ Such industry may however be considered for tax holiday if the assessee
pays tax at the rate of seven and a half per cent on the invested amount
before the filing of return for the relevant income year (Sec 19A).
 PROCEDURES OF TAX HOLIDAY

■ An application under section 46A(2)(f) of the

Ordinance for approval for the purposes of that section
in respect of an industrial undertaking, tourist industry
or physical infrastructure facility shall be made in the
prescribed form (Rule 59A (I), in duplicate, duly
signed and verified by the Managing Director or
Director of the company.
 TAX HOLIDAY FOR HOSPITAL: S.R.O. NO. 204-
AIN/IT -2005 DATED 6 JULY 2005

■ A newly established private hospital will be eligible for exemption from income tax for five
years subject to the following conditions:
■ (1) The hospital is owned by a company registered under the Companies Act, 1913/1994.
■ (2) The hospital is established between the period from 1 July 2005 to 30 June 2008.
■ (3) The hospital is housed in a building constructed on the company’s own land.
■ (4) The hospital has number of beds as mentioned below:
– (a) 200 beds in the case of general hospital.
– (b) 50 beds in the case of specialized hospital for heart, kidney and cancer patients.
■ (5) 10% of the beds must be kept reserved for treatment of poor patients
free of charge.
■ The owner of the hospital enjoying exemption from tax shall file return
of income to the concerned Deputy Commissioner of Taxes along with
statement of accounts and relevant documents & evidences in respect of
the concerned year of exemption and the Deputy Commissioner of Taxes
will determine the income under sections 28 and 29 along with the
owner’s income from other sources, if any, and make the income tax
assessment accordingly.
 CONCESSION TO INDUSTRIES SET UP IN ANY EXPORT
PROCESSING ZONE

■ Based on compliance of some conditions, the concessions have been granted to the
industries set up in any Export Processing Zone, as follows:-
– (1) Exemption of pioneering industries: S.R.O. No.266-L/86 dated 1 July 1986:
– (2) Exemption of 50% of tax on export sales of industries: S.R.O. No. 267-L/86 dated
1 July 1986
– (3) Dividend income of non-resident shareholders of companies having industries set
up in any Export Processing Zone: S.R.O. No. 268-L/86 dated 1 July 1986:
– (4) Accelerated depreciation up to 100% for plant or machinery used in specified
hitch electronic industry: S.R.O. No. 269-L/86 dated 1 July 1986:
– (5) Exemption of income of any industry set up in any Export Processing Zone [SRO
No 289/Law/89 dated 17 August 1989]:.
SPECIAL TAX EXEMPTIONS / CONCESSIONS
IN RESPECT OF CERTAIN BUSINESS

■ (a) As per SRO No. 36 / Law/97 dated 3rd February 1997 provides for 15 years tax
exemption from commencement of commercial production in case of income of a
Private Power Generation Company.
■ (b) As per SRO No. 214/I.T/2003 dated 19th July, 2003 provisions have been made for
exemption of any person’s income from agro-processing industry from 1st July, 2002 to
30th June, 2006.
■ c) As per SRO no. 216/AIN/IT/2005 dated 16th July, 2005, provision has been made for
exemption of Bangladeshi resident’s income attributable to software business up to 30th
June, 2008. The person enjoying the exemption will have to furnish income tax return
for every year of the exemption period.
■ (d) As per SRO No. 177/I.T/2002 dated 3rd July, 2002 provision has been
made for taxing the income of new industrial undertaking established
during the period from 1st July, 2002 to 30th June, 2005 at the rate 20%
on fulfillment of some conditions.
■ (e) SRO no. 216-AIN/IT/2004 dated 13th July, 2004: By this notification
the Government has exempted from income tax any income accrued
outside Bangladesh to any person irrespective of his status as resident or
non-resident if such income is brought into Bangladesh under existing
laws.
■ (f) SRO no. 217-AIN/IT/2004 dated 13th July, 2004: By this notification
the Government has exempted from income tax any income accrued
outside Bangladesh to any person who is resident in Bangladesh, but not
a Bangladeshi citizen if such income is brought into Bangladesh under
existing laws.
■ (g) SRO no. 200/-AIN/IT/2005 dated 06.07.2005 – Any person having not
previously declared any income can declare the same undisclosed income from
other sources during the period from 01.07.2005 to 30.06.2006 on payment of
7.5% tax thereon and no question as to the source of money shall be raised. The
declared income shall not be added with any income from other sources
previously shown in the return and tax thereon have been paid at normal rates in
determination of total income declaring under the Ordinance and the opportunity
under this notification shall not constitute immunity from action if any taken
previously under section 93 of the I.T. Ordinance. The declaration has to be made
in prescribed form.
■ h) Exemption on Income from Fish Farming, Poultry Farming, Duckery, Cattle
Farming, Dairy Farming, Frog Farming, Horticulture, Cultivation of Mulberry,
Cocoon, Mushroom and from Floriculture: S.R.O. 309-/91 Dated 9 October
1991; S.R.O. No. 207-l/93 Dated 18 October 1993; S.R.O. 127-l/2000 Dated 11
May 2000; and S.R.O. 215/IT/2003 Dated 20 July 2003, SRO 206/Ain/It Dated
6th July 2005
 END
OF
CHAPTER-04