How should businesses in Bangladesh face their Minimum Tax obligations?

By Ishtiaque Shaan, Ahmed Zaker & Co.

One of the most important Sections of Bangladesh’s income tax legislation, The Income Tax Ordinance, 1984 (ITO, 1984) is Section 82C, which covers the area of Minimum Tax for both unincorporated and incorporated businesses. As the name suggests, Minimum Tax, is the minimum amount of corporation tax that businesses will have to pay the National Board of Revenue (NBR) regardless of their profits/losses in any financial year.

Although this has been a part of the legislation for many years now, we have observed numerous instances where businesses seemed confused by the way this is applied in practice. Unsurprisingly, these businesses also had significant differences between their actual corporation tax obligations and the forecasted figure they had incorporated within their internal management accounts.

We admit that Section 82C can be a slightly complex piece of the legislation to navigate but considering the uncertain financial climate that we all find ourselves in due to the COVID-19 outbreak, it is of key importance for small and medium-sized businesses to avoid any missteps when preparing their financial budgets and forecasts.

Therefore, with the use of illustrative examples, we have created a brief guide on the key points made by Section 82C, the way they might affect businesses in Bangladesh and the recommended best practices that can be adopted in response.

A feature of the Bangladeshi corporation tax legislation, central to understanding Section 82C is covered by Chapter VII of ITO, 1984, called Payment of Tax before Assessment. In brief, this chapter makes it mandatory for businesses in most cases to deduct withholding taxes at the respective rates on their counterparties’ behalf when making payments.

Furthermore, businesses deducting the taxes must also bear the responsibility of submitting the taxes deducted to the NBR on behalf of their counterparties or risk incurring fines. Following submission of these taxes through selected state-owned banks, businesses obtain a proof of payment (in the form of an invoice) which can then be used by the counterparties to reduce their gross corporation tax liabilities (explained further below).

Throughout the course of this article, we have referenced other Sections of the legislation, where appropriate, to encourage further reading.

The key points made by Section 82C

The following are the key points made by Section 82C that we have found to be applicable for businesses in general:

  1. Withholding taxes deducted from businesses (at their respective rates) will be eligible as business’ Minimum Tax in at least 31 different scenarios (described in detail within different Sections). However, certain exceptions apply, especially for businesses operating in oil/gas production and cement manufacturing.

  2. A business becomes liable to pay Minimum Tax on their gross receipts regardless of their actual taxable profits/losses if they exceed the threshold of BDT 5,000,000.

    In this case, the definition of gross receipts is broader than traditional revenue and consist of the following:

    » All receipts derived from the sale of goods (although the wording might suggest otherwise, this includes both credit and cash sales);
    » All fees or charges received in exchange of rendering services or providing benefits including commissions or discounts; and
    » All receipts derived from any other heads of income including but not limited to interest income.

    The income tax officials will then calculate the Minimum Tax on the gross receipts using the following rates (varying according to industry type):


  3. Generally a business’ income sources (or streams) is analysed and separated into the various heads of income stated within Section 20 of ITO, 1984 and then in accordance with Section 82C, it will be further split into the following at the corporation tax assessment stage:

    » Income sources eligible for Minimum Tax;
    » Income sources eligible for regular tax rate; and
    » Income sources eligible for reduced tax rate.

  4. Once a business’ income sources have been analysed from both the perspective of regular tax rates and minimum taxes and subsequent calculations are made, a test needs to be performed whereby the higher of the two corporation taxes calculated will ultimately be payable by businesses.

  5. The Minimum Tax calculated under Section 82C is not refundable or adjustable against corporation tax refunds from the same or previous years.

Illustrative Examples – Gross Income Tax Calculation

To elaborate the aforementioned points further, we have shared the following illustrative examples. Depending on the nature of the income sources involved, it is possible for businesses to face both scenarios in practice.

Example 1 – 100% of Income Sources eligible for Minimum Tax

  • Company ABC is a private limited company exclusively engaged in promoting and distributing pharmaceuticals manufactured by other companies.
  • In exchange for their services, they receive a distributorship commission which wholly forms the company’s revenue. The company generated total revenues of BDT 500,000,000 during the financial year.
    It is key to note here that customers have withheld taxes amounting to BDT 50,000,000 in accordance with Section 52AA of ITO, 1984, which is covered within the 31 Sections of withholding taxes eligible for Minimum Tax considerations under Section 82C.
  • It does not have other sources of income, including interest income on any fixed deposits. Therefore, Company ABC’s gross proceeds equals their revenue of BDT 500,000,000.
  • The company’s taxable trading profits (following the reconciliation of accounting and taxable profits) were BDT 140,000,000. The taxable profits calculated have been deemed to be correct and not disputed by the corporation tax authorities.
  • The applicable corporation tax rate as per Finance Act 2019 for Company ABC is 35%. Therefore, as per the regular tax rate, the corporation tax payable will be BDT 49,000,000 (140,000,000 X 35%).

However, under Section 82C, this will be subject to a higher-of-the-two test and therefore the Minimum Tax of BDT 50,000,000 calculated above will be the final corporation tax obligation for Company ABC.

As Company ABC’s gross proceeds (which equals revenue in this case) exceed BDT 5,000,000, the gross proceeds calculation would also need to be brought into consideration. However, the Minimum Tax calculated under that method arrives at BDT 3,000,000 (500,000,000 X 0.6%) and therefore dismissed. If it had been greater than BDT 50,000,000, that would have been ABC’s final corporation tax obligation instead.

Alternatively, if Company ABC had incurred a taxable trading loss with the same gross proceeds (thereby leaving the Minimum Tax calculated under this method unchanged), they would have to pay the same amount of BDT 50,000,000 as Minimum Tax.

Illustrative Example 2 – 60% of Income Sources eligible for Minimum Tax

The following example involves a larger business with multiple income sources.

  • Company DEF is a private limited company primarily engaged in selling medical diagnostic equipment and relevant accessories both to the wholesale market and directly to customers through its outlets across the country. All sales are local with no exports.
  • The company imports 60% of its supplies from overseas and purchases the remaining 40% of its supplies locally. The company’s total purchases amounted to BDT 600,000,000 during the financial year.
    It is key to note here that the company has had to pay 5% taxes at the point of import on all its imported supplies in accordance with Section 53 and its underlying Rule 17A (on the value of the imported goods).
    Although at first glance it might seem counterintuitive, the 5% of taxes paid on imports is perceived as a form of advance corporation tax under ITO, 1984 and is also one of the 31 Sections of withholding taxes eligible for Minimum Tax considerations under Section 82C. The taxes paid on imports by Company DEF amount to BDT 18,000,000 (600,000,000 X 60% x 5%).
  • The company generated revenues of BDT 1,000,000,000 during the financial year.
    In accordance with Section 52 and its underlying Rule 16, Company DEF’s customers would calculate and deduct withholding taxes at varying rates from 3% to 5% depending on the value of the transactions undertaken, i.e. a slab rate approach prior to paying Company DEF for their products. This is also one of the 31 Sections of withholding taxes eligible for Minimum Tax considerations under Section 82C.
    However, Section 52 also states that in cases of imported goods, the tax to be withheld at source by Company DEF’s customers should effectively be netted off against the tax that has been paid at import.
    Following the netting off process, the withholding taxes that their customers have deducted throughout the year amount to BDT 26,000,000 (this is naturally higher than taxes paid by Company DEF at import as their customers would be applying withholding tax rates on DEF’s sales prices which have been marked up from the cost prices incurred on imported supplies).
  • The company’s profit before tax (PBT) as per their financial statements for the financial year were BDT 150,000,000. The net disallowable expenses, i.e. the expenses that are not tax-deductible amount to BDT 65,000,000 (reconciliation of the accounting and taxable profit has been performed below).
  • The applicable corporation tax rate as per Finance Act 2019 for Company DEF is 35%.
  • Throughout the financial year, Company DEF has earned interest income of BDT 10,000,000 from its auto-renewing fixed deposits (or medium-term investments) placed with numerous commercial banks, which is included within the PBT figure mentioned above.
    As per Section 53F of ITO, 1984, the banks have deducted 10% of the interest income as withholding taxes at the stage of disbursement. However, it is not eligible for Minimum Tax considerations under Section 82C and is treated differently (as can be seen below).

Step 1: Determination of the split of income eligible and ineligible for Minimum Tax under Section 82C

Section 20 of ITO, 1984 lists seven different heads of income and requires the income types to be separately classified for the calculation of corporation taxes.

Subsequently, Company DEF’s primary business operation would be classified as Income from Business or Profession and their interest income from investments would be classified as Income from Other Sources.

The income sources are then split further to assess their eligibility for minimum taxes and regular corporation tax rates. Tax officials generally prefer calculating this split using the imported and local purchases data. As stated above, the company has imported 60% of its supplies from overseas (with Company DEF paying withholding taxes/advance corporation taxes on all its imported supplies at Customs) and has purchased the remaining 40% of its supplies locally.

Therefore, the split will be as follows:


Step 2: Reconciliation of accounting and taxable trading profit in accordance with ITO, 1984

Afterwards, the reconciliation of accounting profit and taxable profit will need to be performed in accordance with ITO, 1984.

Reconciliation of accounting and taxable trading profit:

As is the norm with most reconciliations of this manner, net disallowable expenses are added to the PBT as recorded within Company DEF’s financial statements.

Due to the Section 20 requirements above, Company DEF’s interest income from investments has been deducted from its PBT to be assessed separately.

Step 3: Accumulation of the business’ income and subsequent computation of corporation taxes


This is usually the part where it gets tricky for businesses as income tax officials apply an approach in determining the business’ income and corporation taxes which can initially be deemed as inconsistent.

In accordance with the legislation, they will accumulate all the different sources of income and calculate corporation taxes using the regular corporation tax rates (35% in Company DEF’s case).

Profits from Company DEF’s trading business is initially classified into Income from Business or Profession in accordance with Section 20 and then further split into 82C eligible and ineligible income sources. As can be seen from the calculation above, the profit is split using the respective rates initially determined.

However, for the 82C eligible income, the PBT as per the company’s financial statements is used and not the taxable trading profits.

The interest income from investments is classified into Income from Other Sources in accordance with Section 20 and the corporation tax rate of 35% is applied.

In accordance with Section 82C, the following two computations will need to be performed to establish the gross corporation tax liability for Company DEF. The final gross corporation tax liability will then be the higher of the two.

Computation 1:

Income taxes calculated under Minimum Tax and regular corporation tax rates


In Computation 1 above, the corporation taxes resulting from the income portion ineligible for Minimum Tax and interest income are accumulated.

Afterwards, a higher-of-the-two test needs to be performed between the accumulated figure of the withholding taxes (that have been deducted and submitted by customers and the Bangladeshi customs authorities) and the taxes calculated after applying regular corporation tax rates upon the Minimum Tax eligible income portion. For Company DEF, the withholding taxes are higher and therefore they are selected.

The three components are then added to arrive at a gross income tax liability of BDT 76,200,000.

Computation 2:


In Computation 2, the Gross Proceeds test is performed in accordance with Section 82C to establish the minimum taxes that would be arrived at under this method. Company DEF’s Gross Proceeds comprise of bother their revenue as well as their interest income from investments amounting to BDT 1,010,000,000. Once the eligible rate of 0.6% is applied, the tax calculated is BDT 50,060,000. However, this will then need to be added to the results of the higher-of-the-two test in Computation 1 subsequently creating a gross corporation tax liability of BDT 50,060,000.

All in all, we can see that Computation 1 yields the higher figure of BDT 76,200,000 and therefore this shall be Company DEF’s final gross corporation tax liability.

Determination of net corporation tax liability

Once the gross corporation tax liability has been calculated, any advance taxes/taxes that had been withheld and submitted to NBR earlier need to be subtracted to arrive at the net corporation tax liability owed by businesses.

Illustrative Example 1 – Company ABC

As seen in Example 1 above, the final corporation tax obligation for Company ABC was determined to be BDT 50,000,000. However, the full amount had already been withheld and deposited to NBR by Company ABC’s customers.

Subsequently, Company ABC’s net corporation tax liability is zero and they will not have to make any further payments to settle their corporation tax obligation for the financial year.

Illustrative Example 2 – Company DEF


In Company DEF’s case, the total withholding taxes deducted and submitted to NBR in advance amounted to BDT 45,000,000. Therefore, the amount that they will need to pay to settle their obligation is the net figure of BDT 31,200,000.

Recommended best practices

In our opinion, the calculations above can be slightly complex and navigating the legislation, time-consuming. However, having the following set of best practices in place should help businesses to stay well-prepared even in these uncertain times:

  • Senior management should develop a mindset of performing and incorporating this calculation into their quarterly/half-yearly financial reviews, covering both internal management accounts as well as financial budgets and forecasts. This should help in ensuring the timely completion of accounting entries relevant in recording the appropriate net income tax obligations that businesses will need to settle after the year-end;
  • Income streams should be routinely analysed by the finance team and senior management from the perspective of Section 82C. Newer streams could have a significant impact on the split and therefore should be promptly incorporated into the financial reviews;
  • Regularly communicate the details of taxes paid at import under Section 53 and Rule 17A to customers (preferably with copies of the relevant documents) to ensure that customers deduct withholding taxes at the appropriate rates under Section 52.
    The legislation states that their customers risk incurring fines and disallowances of tax benefits for failing to deduct withholding taxes appropriately and therefore timely, beneficial communication could help improve relationships with customers as well;
  • Subtracting taxes withheld or deducted in advance from the gross corporation tax liability is only granted by tax officials if businesses sufficiently provide the proof of payment with their tax return filings. Therefore, having a robust process in place to retrieve them from their customers in a timely manner is vital to aid their cashflow. Any delays should be regularly followed up and accounted for;
  • Perform thorough reviews of the written Assessment Orders (i.e. written account of the judgements on the tax return filings) issued by the income tax office and follow up over any disputed areas in a timely and appropriate manner; and
  • Regularly review amendments announced within ITO, 1984 and relevant clarifications and consult appropriately qualified professionals regarding any areas that seem uncertain.

Ishtiaque Shaan

Ishtiaque Shaan

GGI member firm
Ahmed Zaker & Co. Chartered Accountants
Advisory, Auditing and Accounting, Corporate Finance, Tax
Chittagong, Dhaka, Uttata, Bangladesh
T: +88 02 8300504-8, +88 02 8300503 (Dir)
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Ahmed Zaker & Co. is a leading firm of Chartered Accountants in Bangladesh providing audit, tax and advisory services to businesses both locally and overseas across a wide range of sectors since 1979.

Ishtiaque Shaan is a Manager working within Ahmed Zaker & Co.’s tax and advisory departments with experience of working with a portfolio of clients both locally and in the United Kingdom and is an Associate Member of The Institute of Chartered Accountants in England and Wales (ICAEW) and The Institute of Chartered Accountants of Bangladesh (ICAB).

Published: May 2020 l Photo: milosk50 -

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