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REPORT ON

TAXATION LAWS AND PRACTICE IN BANGLADESH

PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY


Tax Assessment on Renata Limited

Prepared For
M. Takibur Rahman
Lecturer
Department of Accounting & Information System
Faculty of Business Administration and Management

Prepared by
Group: 01(Warrior)
Level-II, Semester-II
Faculty of Business Administration and Management

Sl. No. Name of the students Position Roll No. Reg. No.

01 Md. Kamruzzaman Group Leader 01 00660


02 Shuvradeb Barai Asst. Group leader 09 00668
03 Abu Zafour Member 21 00680
04 Sahana Parveen Member 07 00666
05 Nazmul Alam Siddiqui Member 25 00565

Taxation Laws and Practice in Bangladesh


Course code: AIS 223
Date of submission: 23 August 2007

PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY


Date: 23 August 2007

To

M. Takibur Rahman
Lecturer
Department of Accounting & Information System
Faculty of Business Administration and Management

Subject: Letter of Transmittal

Dear Sir,

Here is the report on “Tax Assessment on Renata Limited” you asked us to


prepare this report as a course requirement of Taxation Laws and Practice in
Bangladesh

This report focuses on the tax assessment of Renata Limited. We are proud of
making this report. We have tried our level best to make the report informative
and fruitful. For any classification we will be available and looking for such
term paper in coming days. We will be happy to get such type of report further.

Sincerely Yours

Md. Kamruzzaman
(Group Leader)
Group: 01(Warrior)
Level-II, Semester-II
Faculty of Business Administration and Management

I
A cknowledgement

It is with affection and appreciation that we acknowledge our indebtedness to


the persons, without whose continuous support the completion of the report
cannot be possible. First of all, the credit goes to our honorable course teacher
M. Takibur Rahman, Lecturer, Department of Accounting and Information
Systems, faculty of Business Administration and Management, Patuakhali
Science & Technology University who assigned us to prepare this term paper
and helped us with his support, encouragement and expertise knowledge.

Next we would like to give our thanks and respect to other course teacher and
the officials of the faculty. Without their great contribution we don’t able to
find out our right way.

We also give thanks especially to our friends & many individuals, for their
enthusiastic encouragements and helps during the preparation of this report and
for their assistance in typing and proofreading this manuscript.

Finally, we believe that it will help us to face the challenge of 21st century.

III
E xecutive Summary

This report is an assigned job as a partial fulfillment of course


requirement by honor Course teacher M. Takibur Rahman Lecturer,
Department of Accounting & Information System, Faculty of Business
Administration and Management. Patuakhali Science and Technology
University Dumki, Patuakhali. It is the optimum aggregated outcome of 5
pupils’ about “Tax Assessment on Renata Limited”.

Renata Limited is a public company limited by shares, incorporated in


Bangladesh in the year 1995 under companies Act 1994. Now its make a
great position in the market of Bangladesh. No government can run its
administration and perform development works without collecting as a
source of revenue. It also helps to push money to the economy, develop
certain source of economy and control some other financial activities.

IV
Contents

Section–1
ge

1. Introduction…………………………………………………………….……….….01
►1.1OriginoftheReport………………………………………….……………02
►1.2 Purpose of the Report……………………………………….…………..03
►1.3 Limitation and Scope of the report. ……………………….……...….…04
►1.4 Mythology of the Study….……………………………….…………......05

Section – 2

2. Description
►2.01 Overview of Tax Assessment …..……………………….…...………..06
►2.02 Assessment of Company and Corporation………..………..………….07

►2.03 Rate of Tax and Rebate ……………………...……………...…………10


►2.04 Procedure of assessment ………………………………...………….... 12
►2.05 Company Chronology ………………………………………….……...13
►2.06 Renata Limited – Profit and loss account...………...………...…….….14
►2.07 Assessment of Tax ………………………………..…………………...16

Section – 3

3.01 Notes ………………………………………………………….…..…….………..18


3.02 Conclusion…………………………………………….…………...……………..19

Section – 4

4. Bibliography ……………………………………………………………….…..…....20

V
i ntroduction

Tax is the consideration paid to the Government for living in a society with the
benefit of civilian citizen. There are four factors of productions. Those are land,
labor, capital, and organizations. Among them tax system can also be so
designed as to cause remarkable effect on labor and capital to a significant way.
Tax system may provide incentive for better work condition and intensive use
of capital. Further, as per macro objectives, Government can prefer
development of certain sectors and discourage others. Through tax incentives
of various nature of the preferred sectors can be encouraged and vice-versa.
Through tax system, saving and investment can also be encouraged. All these
can contribute towards desired rate of economic growth and economic
development of a country.

1
O rigin of the report

We are lucky to say that our honorable course teacher M. Takibur


Rahman Lecturer, Department of Accounting & Information System, of
Faculty of Business Administration and Management. Assigned us a
report on “Tax Assessment on Renata Limited” This report is prepared
on the basis of surveying the Renata Limited.

2
P urpose of the Report

As a business expectative of future, we should have to gather experience


beside our survey. We should not concern our lesion only in classroom
but to implement it in practical life that will help us in our future life .A
clear objective help in preparation of well decorated report in which other
take the right type of decision .So, we identifying objectives is very much
important. Our purpose of preparing the report is:

• To identifying the tax assessment of a company.


• To know about the Taxation practice in Bangladesh in respect of
corporation and company.

3
L imitation & Scope of the Report

As a student of faculty of Business Administration and Management, 4th


semester, this is our first initiative for making a report on “Tax Assessment on
Renata Limited” by meeting a survey. Beside this we have faced the following
hindrances in preparing this report:

► Lack of knowledge and experience


► Short of time
► Lack of computer facilities
► Lack of sufficient privileges
►Lack of communication facilities

The survey report focuses on Tax Assessment on Renata Limited. The survey
may not be more comparable or more valid. Moreover, the report is emphasized
on the primary data such as interview of the manager of Renata Limited. Here
we consider only the information that we collect from our survey.

4
M ethodology of the Study

This report is based on both primary and secondary data. Initially, the work is
started with data those were available at Company’s Annual Report and
company’s news letter. Moreover, it becomes helpful to gather some more
information from the website of the company.

Later on, we have collected the data of balance sheet and income statement
from a faithful executive person of accounting department of Renata Limited.
According his providing data we the Group - 01 made our Tax Assessment
report on Renata Limited. So, all the liability of accuracy of this assessment is
gone over his providing data.

Then we analyze those data from many angles, in different aspect and present
the information in different segment according to their category, in compact
way. We highlight different important things, which we found during our
survey. After doing all of those we submit the report to the proper authority.

Overview of Tax Assessment


Company has its own separate entity from its shareholder. This entity is
recognized by the law. It is recognized by the income tax ordinance (ITO), by
its own name, pays tax. So it has separate taxable entity. ITO, 1984 defines
company in a more extensive then what is generally understood in Companies
Act 1994. Section 2(20) if ITO, 1984 gives the definition of a company as
follows:

Any companies established or constitute and registered by or under section 2(d)


of Companies Act, 1994. The registered companies are divided in to two
groups.

► Public Ltd. Company and


► Private Ltd. Company

According to the Section 2(j) of Companies Act, 1994 Public Ltd. Company
means the company which is registered under said Act and which is not a
Private Ltd. Company, that is:

a) Restricted on the transfer of rights of the share.

b) Limit the number of members openly excluding those the employed in the
company.

c) Restricted the selling of shares and debentures to the public.

So Public Limited Company can easily transfer the shares and their will be no
restriction of selling shares and debentures in the market and there will be no
limitation of maximum shareholders. According to this Act Renata Limited is a
Public Limited company. Its total number of shareholders is 1245.

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Assessment of Corporation and Company
Some Important Issues Relevant to the Determining Tax of the
Corporation and the Company

Determination of Tax Liabilities of the Corporation and the Company is


different to some extent from other assesses in the following ways:

a) There is no maximum taxable income limit for the Corporation and the
Company i.e. they are to pay tax on their total income whether maybe the
amount.
b) Proportionate tax rate is applicable on total income of the Corporation and
the company. Such proportionate tax rate is 30% to 45% applicable on the
basis of nature of the Company. According to the Finance Act, 2004 tax
rate is as follows:

i) 30% tax rate for Publicly Traded Company.


ii) 37.5% tax rate for not Publicly Traded Company and
iii) 45% tax rate for Banking and Financing Company, Local
Authority and other such companies.

c) The tax rate on the capital gains of the company is 15%.

d) There is no directly deductible non-taxable income from the total income of


the company.

e) According to the sections 45 and 46 of ITO, 1984, Dividend from the


company or the corporation under Tax Holiday Scheme is exempted in full.

f) The account audited by the Chartered Accountants are to be submitted with


the Income Tax Return of the company assesses.

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Tax Free Income Incase of the Company and the Corporation
The Company and the Corporation are entitled to enjoy the tax rebate at an
average rate on the following tax-free income:

Dividend Received from the Company under Tax Holiday Scheme.


In addition to the above tax-free income, no tax is imposed on the following
income as per ITO, 1984:

Issues of bonus shares: original value or amount of bonus issued by the


Company and the Corporation among the shareholders to increase the amount
of paid up capital.

Admissible Expenses

i) Contribution to Recognized Provident fund of employees.

ii) Loss of stock due to fire.

iii) Retirement benefit or gratuity paid to employees.

iv) License renewal fees.

v) Sale tax/value added tax, water & road tax, excise duty etc.

vi) Legal expenses against users of trade mark illegally, partnership agreement
preparation, violator agreement.

vii) Compensation to employees for accident in the course of service.


Perquisites to any employee can give up to TK. 1,50,000. Any amount
exceeding this celing will be taxable.

viii) Revenue expenditure for advertisement.

ix) Royalty and patent right fees.

x) Cost of accounting and audit.


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xi) Commission and brokerage for sale of product


xii) Reward to employees for increased efficiency.

xiii) All revenue expenditure treated as admissible expenses.

Non allowable expenses

i) Past losses, if business are changed.

ii) Salary, commission, and remuneration paid to partners.

iii) Interest on capital to partner.

iv) Income-tax and supper tax.

v) Legal expenses incurred for income tax and dissolution of enterprise.

vi) Bad debt reserve or reserve for discount.

vii) Contribution to Un-recognized Provident Fund.

viii) Contingency liability.

ix) Preliminary expenses, under-writing commission, writing off share discount

x) Loss of speculative business.

xi) Loss for investment in securities.

xii) Capital expenditure for advertisement.

xiii) Legal expenses related with compensation for sale knowing it defective by
seller.

xiv) Brokerage for capital.

xv) Expenses for protecting against competition.

xvi) New years day presentation to employee.

xvii) Fund embezzlement by employees after office hour.

xviii) All capital expenditure treated as inadmissible expenses.

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Rate of Tax and Rebate

Types of companies Tax rate 2004-’05 Tax rate


and 2005-’06 2006-’07 and
2007-’08
On total income excluding dividend
income receipt from the company the
registered office of which is situated
in Bangladesh:
1.In case of publicly traded company 30% 30%
2. In case of industrial company
which is not a publicly traded 37.5% 40%
company.
3. In case of a bank, financial
institutions, local authorities and 45% 45%
other companies.
4. In case of a person not being a
company who is not resident in 25% 25%
Bangladesh.
5.On dividend income 15%
6. On capital gain 15%

A rebate @ 10% of the tax shall be allowed to a company registered in


Bangladesh under the Companies Act, 1994 on so much of its profits, income
and gains accruing, arising outside Bangladesh as are brought by it in to
Bangladesh.

It is also be noted that here that according to Finance Act, 1993 if any assesses
in Bangladesh brings his income earned outside Bangladesh through official
channel and invest directly to the new industries or any auctioned industry of
the Government or purchases stock, shares , Government bond and securities
then such income will be fully exempted from tax.

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A further rebate to a company incorporate under the Company Act, 1994 if
engaged in the productions of goods, shall be allowed at the following rate:

Particulars Rebate Amount


1.
i Where the productions in volume of the relevant 2.5% of the Income Tax
year exceeds 15% but does not exceeds 25% of attributable to such
the productions volume of the preceding year. income.

5% of the Income Tax


ii Where the production in volume of the relevant
attributable to such
year exceeds 25% of that of the preceding year. income.
12.5% would be
iii Where the total income includes income received
reduced from such
from Life Assurance Business. income
2. On the amount of Dividend received from a
company registered in Bangladesh under the 15%
Company Act or a body corporate formed in
pursuance of an Act of Jatio Sangsad.

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Procedure of Assessment
Generally the followings steps are followed in case of Assessment of the
Company and the Corporation:

Computation of Business Income


Step-1

Computation of Total Income


Step-2

Determination of Total Tax Liabilities


Step-3

Determination of Net Tax Liabilities


Step-4

According to Sections 28, 29 and 30 of ITO, 1984 Income from business is to


be calculated after considering admissible and inadmissible expenses to this
end.

Total Income of the Company is to be calculated by adding other income with


income from business.

Total Tax liabilities are to be determining by applying prescribed tax rate.

Net Tax liability is to be ascertained by deducting the following tax rebate from
Total Tax liabilities:

►10% Tax rebate on foreign income


►Tax rebate on increased production in case of industrial company, if
applicable.
►Tax rebate on export income (at rate applicable)
►Tax rebate and average rate on tax free income.

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Company Chronology
Renata Limited has created a new vista in manufacturing Pharmaceutical,
Animal Health Medicine, Nutritional and Vaccines. Its year of Incorporation is
19972: as Pfizer laboratories (Bangladesh) Limited, subsidiary of Pfizer
corporations, USA. In 1993 it renamed as “Renata Limited” after divestment of
shareholders by Pfizer corporations, USA. Renata’s 10 products have been
licensed to M/s Deurali-Janta pharmaceutical Ptv. Ltd., Nepal for manufacture,
marketing and distribution in Nepal. Renata Limited is giving technical
assistances for upgrading their manufacturing plant to WHO GMP standards.

Renata Limited is dedicated to serving its valued customers with products of


excellent quality through continuous improvement in process and technology;
complain with the guidelines of good manufacturing process (GMP) and the
requirements of ISO 9110:1999 quality management system. Its top
management is committed to ensure that quality policy is adopted and practice
in all phases of company activities and urge all concerned to perform their
duties by following the principles.

A sound system of internal and financial control has been established by Renata
Limited, which involves periodical reporting, continuous audit of different
segments of the business and budgetary control to ensure optimum utilization
of the company’s resources. Renata Limited is a highly professionally managed
organization. A team of skilled professionals has been dedicating their efforts in
order to achieve the corporate objectives.

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RENATA LIMITED
Profit and loss account for the year ended 31Deceember 2006

Particulars Amount

Expenses
Cost of good sold 969,853,000
Salaries, wages, allowances 221,543,000
Remuneration to Directors 435,000
Contribution to provident fund 3,626,000
Charity 9,114,000
Fuel and power 9,009,000
Rent, rates, and taxes 17,967,000
Insurance 3,950,000
Convenience allowance 85,000
Repairs and maintenance 6,200,000
Legal and professional expenses 450,000
Audit fee 200,000
Advertising and sales promotion 58,228,000
Field expenses 35,667,000
Depreciation 4,178,000
Traveling expenses 91,194,000
Printing and stationary 8,617,000
Postage, telex, fax, and telephone 14,005,000
Distribution freight 52,295,000
Interest on loan 62,250,000
Provision for income tax 98,240,000
Provision for deferred tax 6,858,000
Canteen expenses 13,560,000
Other expenses 2,652,000
Contribution to WPPF 16,657,000
Purchase of machinery 700,000
Miscellaneous expenses 11,958,000
Net profit 242,358,000
Total 1,961,849,000

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Particulars Amount
Revenue
Sales 1,927,732,000
Dividend income 12,598,000
Third party manufacturing charges
received from SK+F 10,269,000
Gain on disposal of property, plant,
and equipment 1,928,000
Interest on tax free Government
Security 3,554,000
Interest from investment outside
Bangladesh. 5,768,000
Total 1,961,849,000

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Assessee: Renata Limited
Status: Resident
Income Year: 2006 - 2007
Assessment Year: 2007- 2008
Determination of Total Income and Tax Liability

Particulars Amount (Tk) Amount (Tk)

1. Business Income:
Net Profit as per profit and loss account 242,358,000

Add: Inadmissible expenses


a) Remuneration to Directors 435,000
b) Contribution to provident fund 3,626,000
c) Charity 9,114,000
d) Income tax 98,240,000
e) Provision deferred tax 6,858,000
f) Other expenses 500,000
g) Purchase of machinery 700,000
h) Miscellaneous expenses 11,958,000 131,431,000
373,789,000
Less: Non Business Income
a) Dividend income 12,598,000
b) Third party manufacturing charges
received from SK+F 10,269,000
c) Gain on disposal of property, plant, and
equipment 1,928,000
d) Interest on tax free Government Security 3,554,000
e) Interest from investment outside Bangladesh 5,768,000 (34,117,000)
Business Income 339,672,000
Less: Admissible expenses
a) Miscellaneous expenses as per Income Tax
Rule 9,578,790
b) Tax holiday income 1,472,000 (11,050,790)
Total Business Income 328,621,210
2. Non Business Income:
a) Dividend income 12,598,000
b) Third party manufacturing charges
received from SK+F 10,269,000
c) Gain on disposal of property, plant, and
equipment 1,928,000
d) Interest from investment outside Bangladesh 5,768,000 30,563,000
Total Taxable income 359,184,210

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Particulars Amount Amount

3. Determination of Tax Liability

a) On total Income excluding capital gains and


dividend income
( 359,184,210 – 12,598,000 – 1,928,000 ) × 30% 103,397,463
b) On capital gain 1,928,000 × 15% 289,200
c) On Dividend income 12,598,000 × 15% 1,889,700
105,576,363
Total tax liability

4. Determination of net tax liability


(98,240,000)
Income tax 7,336,363
Net tax payable

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Notes
1. Any payment by way of interest, salary, commission or remuneration made
by a firm or association of persons to any partner of the firm or any member
of the association would be non allowable expense. So, the Directors
remuneration also non allowable expense.

2. Contribution to provident fund assumed to be un-recognized so it is


inadmissible expenses.

3. Charity has been considered inadmissible since 1992.

4. Income tax is an inadmissible expense.

5. Provision for deferred tax also is an inadmissible expense.

6. Other expenses included Taka 500,000 paid for the traveling expenses of
manager who traveled Japan for training on new machineries. So it is an
inadmissible expense.

7. Contribution to WPPF is allowable expense.

8. Purchase of machinery is capital expenditure, so it is an inadmissible


expense.

9. Miscellaneous expenses are allowable 1% of total revenue. So allowable


miscellaneous expense is (957,879,000 × 1%) = 9,578,790.

10. Dividend income is not business income so it is deducted from business


income and adds to the total income.

11. Third party manufacturing charges received from SK+F is also allowable
deduction from business income and adds to the total income.

12. Gain on disposal of property, plant and equipment is not business income.
These are capital gain so, it is add to the total income not business income.

13. Tax rate on business income is 30%.

14. Tax rate on capital gain is 15%.

15. On dividend income tax rate is 15%.

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C onclusion

Tax is the most important in the hand of the government to control the
economy as well as the inflection. It also helps in push money to the
economy, develop certain source of the economy and control some other
activities of the economy. No Government can run it’s and perform
administration works without collecting tax as a source of revenue. So,
the Government imposes tax over the company and the corporations. On
the other hand Government can also intensive to the infant and certain
basic industry for protection through its tax policy.

19
Bibliography

01. Mahmud Dr. Monjur Morshed, Purohit Dr. Kanchan Kumar &
Bhattacharjee Dr. Milal Kumar “ Income Tax,” 4th edition, Padma
Prokashani, 50, Jame Mosque Super Market, Chittagong, January,
2007, p. 329 - 364.

02. “Annual Report,” Renata Limited., Financial year 2005-2006, p. Al.

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