The government is going to bring an amendment to the income tax law in the upcoming national budget for fiscal year 2018-2019 to establish the taxing rights of the country on income of the foreign entities which are operating business activities virtually, without permanent establishment in Bangladesh.
National Board of Revenue will be able to impose tax on income derived in Bangladesh by foreign companies, mainly technology giants and digital media platforms, even if the companies have no permanent establishments in the country.
Currently, according to the Income Tax Ordinance-1984, NBR cannot impose tax on income of foreign entities if they do not have permanent establishments.
NBR has already decided in principle to incorporate a provision titled ‘business in connection with Bangladesh’ in the ordinance so that they can impose tax on such companies, which mainly run their business online, if the income is generated in the country, with or without having permanent establishments.
Under the move, the definition of the permanent establishment will be broadened to cover business activities run both virtually and through physical establishment.
Officials said that tax officials, through the amended law, would be able to realise tax from income derived by Google, Facebook, You Tube and other digital media here in the country.
The companies generate income in Bangladesh through advertisements and other commercial activities.
Service receivers make the payments to non-resident companies through Bangladesh Bank and credit cards of commercial banks.
But tax official cannot ask the banks to deduct tax at source while clearing the payment in absence of enabling provision in the tax law, they said, adding that the government was losing a big amount of revenue due to the weakness in the law.
Incorporation of the provision would open a new window of revenue mobilisation, they added.
An NBR official said that they might impose income tax at a certain rate which the banks would deduct at the time of payment.
The rate and the process of collection would be finalised later in line with the tax rate for other companies, he said.
Currently, advance income tax at a rate of 10 to 12 per cent is applicable on the advertisement bills or digital marketing that Bangladeshi companies pay to the digital social media like Google, Facebook, You Tube and other similar companies.
Under the provision, the government will also be able to realise tax on the capital gain of non-resident foreign companies through acquisition of shares of a Bangladeshi company.
Many of the developed countries have already changed the definition of permanent establishment to bring such companies under tax net while many other countries are working on the issues.
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