Taxpayer’s Status: Under the Income Tax Ordinance, 1984, a taxpayer has two types of status: personal status and residential status. A sole-proprietorship has no separate tax paying identity 本文来自辣.文,论-文·网原文请找腾讯752018766 and individual owner running the sole-proprietorship will have “Individual” status of the owner and not of the business entity, but both partnership firm and company have distinct personal status – “Firm” and “Company” respectively. Residential status may be resident [defined u/s 2(55), ITO] or non- resident [defined u/s 2(42), ITO]. Under section 17, resident assessee (taxpayer) has to pay income tax on total global income including foreign income, but non-resident taxpayer has to pay income tax only on his total domestic (Bangladeshi) income as determined u/s 18 (income deemed to accrue or arise in Bangladesh). Under section 2(55), an individual is to be a resident if his period of stay in Bangladesh is at least 182 days in the concerned income year, or at least 90 days in the concerned income year, and at least 365 days in the preceding 4 income years. A partnership firm is considered as resident, if the control and management of its affairs situated wholly or partly in Bangladesh in the concerned income year. A company will be a resident, if control and management of its affairs situated wholly in Bangladesh in the concerned income year. Otherwise, a taxpayer will be treated as non-resident [u/s 2(42)].
Levels of Taxation: Question regarding whether the entity itself and/or the owner(s) of the entity is(are) taxable is explained on the basis of two concepts: pass-through entity (or flow-through entity) and non-pass-through entity:
• Pass-Through Entity: This entity is not taxable itself. The income of the entity will pass through the owners and is taxable after its accumulation with the owner’s other income. Sole- proprietorship is a pass-through entity. The owner of the entity is taxable for the entire income of the business entity (whether withdrawn or not) along with his/her other income.
* Under section 2(1)(d) of the Companies Act 1994, “company” means a company formed and registered under this Act or an existing company.
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• Non-Pass-Through Entities: This entity is taxable itself. The income of the entity may be distributed to the owners and is usually again taxable in the hands of owners after its accumulation with his/her other income. Partnership firm and company are non-pass-through entities.
A partnership firm is taxable for its income in first instance as a non-pass-through entity. The partners of the firm shall include the share of total income of the firm in the income year [to be computed u/s
43(3)] and but to avoid double taxation, the share of income will be treated as tax-free income subject to “tax rebate at average tax rate (ATR)” if the firm has already paid tax on its income [paragraph
16, Part-B, Sixth Schedule]. But where any tax payable by any partner of a firm in respect of his share of income cannot be recovered from him, then DCT (Deputy Commissioner of Taxes) shall collect it from the firm [sec. 98]. In case of discontinued business of a firm or if the firm is dissolved, the partners are jointly and severally liable to pay due tax, if any [sec. 99]. See few other statutory issues regarding partnership firm and partners in Appendix-I.
A company is taxable for its total income always as a non-pass-through entity. The shareholders of the company are taxable for the income of the entity, only if distributed to them as dividend, which is subject to a source-tax (@ 10% (u/s 54). At the time of sale/transfer of shares, the shareholder may require to pay tax on capital gain arising from the sale or transfer. Thus, shareholder-level of tax (ts) usually includes tax on dividend distributed and tax on capital gain on sale/transfer of shares. However, capital gain on transfer of shares of a company established under the Companies Act 1994 is subject to a reduced rate of 10% [S.R.O. No. 220-Ain/Aykar/2004 dated 13.07.2004], but the capital gain on transfer of stocks and shares of public companies listed with a stock exchange in Bangladesh is fully exempted [sec. 32(7)].
In case of a non-pass-through entity, there is at least double-level taxation. First, a tax is paid by the entity and then a second tax is paid by the owners of the entity (partners of a firm or shareholders of company). In case of firm which has duly paid its tax, double taxation is avoided by considering the share of firm’s income as tax-free and allowing a tax rebate thereon to the partners. But in case of a company, the company has to pay tax on its income at 30%, 40% or 45% and then the individual shareholders have to pay source-tax at 10%, which will be treated as advance income tax (AIT) and then considering the marginal tax rate of the concerned shareholders, tax rate on dividend may be up to 25% for high-income taxpayers. In case of a company investing in shares of another company, there will be triple taxation. The company of which shares have been purchased has to pay first-level tax on its income at 30%, 40% or 45%. Then the investing company has to pay second-level tax on distributed dividend at 15% and when it will distribute its income as dividend, its individual shareholder has to pay third-level tax (source-tax and possible extra tax).
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