ADVICE

Time allowed – 3:30 hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of
the quality of language and of the way in which the answers are presented. Different parts, if any, of the same
question must be answered in one place in order of sequence.]

Marks
1. You are a Chartered Accountant recently employed in the tax department of X company Ltd (“the
company”). The company has been engaged in the readymade garment business having export and
import business. Your line manager is a non-professional, responsible for overall tax matters of the
company. Upon reviewing the recent activities and business plan of the company, you have noticed the
following:
a) The company is planning to open an offshore bank account in Hong Kong to facilitate its foreign
operations. Considering the corporate tax rate in Hong Kong is very low (5%), the company is
also planning to setup a readymade garment factory in Hong Kong. Hong Kong is considered as
one of the top listed tax haven countries in the world. The management of your company is
concerned about the legality of the above plans and therefore sought advice from the tax
department of the company.
b) The company has a practice of paying 50% of the salary in cash and rest 50% through account
payee cheque. The amount paid as cash are shown as business expenses. Tax certificate to the
employees are issued based on the amount paid through account payee cheque only. Your line
manager advised you that since tax authority has cleared all assessments without raising any
question on this, you should not be bothered about this and there is no need to highlight this to the
senior management.
Required:
i) Do you think, having offshore bank account or setting up factory in tax havens is legal?
Explain? 4
ii) Explain the legal position of the company on salary payment practice, highlighting the non-
compliances if any. Are you under any obligation to follow your line manger’s advice? How
do you handle this? 4
iii) Explain the benefits of a compliant businessman who does not evade tax. 2

2. You are a practicing Chartered Accountant. Below is the details of a tax assessment order of your
client Export International Ltd. by Deputy Commissioner of Taxes (DCT) for year 2016. The
assessment order has been passed on 1 June 2019.
Amount shown in Disallowed
Heads of
Profit & Loss Account by the DCT Reason
Item/expense
(Taka) (Taka)
Employees benefit 3,061,824 3,061,824 Non deduction of Tax at source
Phone, fax and mobile 440,867 100,000 Lump sum disallowance
IT software 8,418,494 8,418,494 Lack of documents
Repair and maintenance 2,931,855 2,781,230 Non deduction of Tax at source
Sales revenue 6,626,750 626,750 Estimated

Required:
i) Write down the process, timeline and documentation of appeal against the DCT order. 5
ii) What will be required documents from client on the above scenario to defend the appeal
grounds during the appeal hearing? 5

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3. (a) You work for a big global conglomerate M Bangladesh Ltd (listed in Dhaka Stock Exchange), who
are seriously considering acquisition of X Bangladesh Limited, a public limited company also
listed in Dhaka stock exchange, have been doing business in the same sector but struggling due to
huge losses. Accordingly following projected financials of X Bangladesh Ltd were made available
to you for three years (starting from 2019) for your review:

Description 2019 2020 2021

Turnover in Crores Taka 600 900 1,250
Gross profit 50 % 50 % 50 %
Salary & welfare expenses 15 % 10 % 10 %
Product fixed marketing expenses 10 % 10 % 10 %
Book depreciation 10 % 6% 5%
Fixed distribution expenses 1% 1% 1%
Other general expenses 12 % 8% 8%
Royalty payment to be made to the Licensor 3% 3% 3%
Tax depreciation 11 % 7% 6%
Excess perquisite 0.2 % 0.2 % 0.2 %
Note: All % mentioned above are % of Turnover

Business loss carried forward as per tax record (actual) in Crores Taka: 100
BDT
Year
(crore)
2015 31
2016 26
2017 23
2018 20

Other information:
1) Admissible Royalty expense to be considered as per section 30(h) of the
IT Ordinance, 1984
2) For acquisition, M Bangladesh Ltd has following two acquisition options:
a) To let X Bangladesh Ltd as a separate entity at as is condition.
b) Merge with M Bangladesh Ltd by creating a new entity MX
Bangladesh Ltd.

Required: Considering the acquisition will take place effective from 1st January 2019: 24
i) Compute total net profit after tax for the projected periods (2019-2021) considering the
prevailing laws under the IT Ordinance 1984 for both the acquisition options.
ii) Recommend the best possible option and method to consider for the proposed acquisition,
taking into account availing the maximum tax benefit (ignore present value).

(b) A Bangladeshi entity X Ltd, purchases certain finished goods from an associated enterprise in
Singapore Y Pte Ltd, which it sold to an independent enterprise in Bangladesh XY Ltd at Tk.
575,000 (inclusive of 15% VAT). Another entity BB Ltd in Bangladesh around same time
procured similar goods from an independent enterprise in Singapore SS Pte Ltd at Tk. 440,000
(inclusive recoverable VAT of Tk. 40,000), which was sold to another Independent party ZA Ltd
at Tk. 690,000 (inclusive of 15% VAT) with an associated freight cost Tk. 35,000 and insurance
cost of Tk. 15,000.
Required:
i) Determine the most appropriate method for determining the Arm’s length price and explain
why this should be applied. 2
ii) Compute the Arm’s length purchase price of X Ltd. 4

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4. (a) Mr. Chowdhury, a dual citizen (Bangladeshi by birth and Canadian nationality through
immigration) is a differently abled (disabled) person, was working as a consultant in a reputed
company in Sri Lanka during 1st July 2012 to 31st October 2018. After spending consultancy stint
and vacation in India, Mr. Chowdhury returned to Bangladesh on 31st December 2018. Mr.
Chowdhury started consultancy and supply business in Bangladesh effective from 1st February
2019. For the purpose of consultancy business, Mr. Chowdhury has to travel abroad. Accordingly,
Mr Chowdhury has sought your advice as to how he should file his tax returns in compliance with
the prevailing tax laws. In relation to this, Mr. Chowdhury shared you the following information:

Income from abroad:

Amount
Description
(Taka)
Ex-employer in Sri-Lanka remitted performance bonus:
Accrued for the year 2017 760,000
Accrued for the year 2018 (December) 1,140,000
The amount was net-off tax @ 24%, credited to his bank account in Canada on
1st March’19 (Bangladesh and Sri Lanka have a double tax avoidance treaty)

Consultancy fees remitted net-off tax @ 10% by an Indian Company on 28th 2,700,000
February 2019 for services provided in India in November-December'18
credited to his bank account in Canada (Bangladesh and India have a double
tax avoidance treaty)

Consultancy services provided in Bangladesh:

Amount
Description
(Taka)
For consultancy services to be provided from 1st April 2019 to 30th June’19 3,000,000
fees expected to earn from a public limited company on which, the company
mentioned they will deduct tax at source @ 12% u/s 52AA of the IT
Ordinance 1984
Supply of computer hardware and accessories to Company Y expected to be 6,000,000
on 15th May 2019, amount expected to receive during same period on which
Tk. 200,000 being 5% was already deducted as tax u/s 53 of the IT
Ordinance by customs authorities at port point on 1st March 2019 and
Company Y mentioned they will deduct tax @ 7% on the total supply value
u/s 52 of the IT Ordinance 1984

Note: This Supply business will be assessed u/s 82C of the IT Ordinance 1984

Expenses made/to be made by Mr. Chowdhury during 2018-19 income year

Amount
Description
(Taka)
Expenses relevant for supply business including material cost 5,000,000
Expenses relevant for non-supply business 2,000,000
Bank interest for working capital for non-supply business 500,000
Bank interest for a home loan of Tk. 50 lacs 450,000
On account of purchase of Bangladesh Shanchaya Patra 3,000,000

Required: Taking into account the withholding taxes provisions as per IT Ordinance, 1984 compute:
i) Total income for the income year 2018-2019 based on the actual and projected income. 7
ii) Projected tax liability for the income year 2018-2019 considering the withholding taxes
deducted or to be deducted. 7
iii) Specify the penalties involved in non-compliance with Section 108A of IT Ordinance, 1984. 2

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 (b) Asia limited, Singapore has opened a liaison office in Bangladesh. Initially, they have hired 3
employees and expect to hire more people in future. The entity has finalised the total benefits per
employee. The GM of the entity has heard that, proper structuring of salary components (e.g.
basic, house rent, etc.) in Bangladesh can bring in tax benefits to the employee. One of the newly
joined employees is asking for salary payment in cash. S/he said, cash payments are not subject to
withholding tax in Bangladesh.

The GM wants to be fair in tax practice. He also wants to avail the maximum tax benefits for
himself and the other employees. The entity does not have any fixed payroll structure ratio. Below
is the salary pay structure plan.
Pay structure
Asia Ltd. - Bangladesh Liaison Office
Monthly
Name Position Gender Nationality Remark
Gross salary
General Joining date
Mr. Kei - San Male Japanese Tk. 500,000/-
Manager 1st July 2018
Required:
Calculate the most tax efficient salary structure ratio for Mr. Kei - San that will result in lowest
withholding tax per month. The comparison is shown below: 6
Particulars Ratio 1 Ratio 2 Ratio 3
Basic Salary 50% 40% 50%
House rent allowance 30% 30% 30%
Medical Expenses 10% 20% 10%
Conveyance Allowance 10% 10% 10%
100% 100% 100%

(c) Mr. Z an individual, working for a large food company having compliant tax practices, has come
to you to seek your advice on the following:

For the Assessment Year 2018-2019, Mr. Z received Taka 190,000 from the Workers’
Participation Fund established under Bangladesh Labour Act, 2006 after deduction of 5% tax as
per section 52DD of the IT Ordinance.

In connection with the above, while discussing about this withholding tax (which was not
applicable earlier) with one of his colleagues, he was told that although there is taxes applicable on
income from Workers’ Participation Fund but it is in fact exempted from income taxes as per the
Bangladesh Labour Act, 2006 for the workers. For the Assessment Year 2018-2019, while
assessed Mr. Z’s total income is already at the highest slab of tax rate without this income from
Workers’ Participation Fund.

Mr. Z is requiring following advice from you:

i) What would be his legal position based on the tax laws and labour laws? 4
ii) If he has to pay taxes on income from Workers’ Participation Fund, what would be his net tax
liability considering the withholding taxes and exemption if any as per the tax laws (ignore
investment allowances) 4
5. (a) You are a Chartered Accountant, recently appointed by a manufacturing company (the company)
in place of another Chartered Accountant, who left the company three months earlier on 31st
October’18 along with another employee, who used to handle day to day VAT operations,
reconciliation etc. The company has two factories (one is in Rupgonj, Narayangonj and the other
one is in Gazipur, Dhaka) and one Sales center in Purbachal, Dhaka. The company do not have
central registration. Finished products manufactured in both the factories are transferred to Sales
center only, from where it is sold to third parties across the country and sales revenue are

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 recognized at this point only. For the interim period, a non-professional having no experience in
VAT operation was given the responsibilities to look after all VAT related matters for the
company. Upon your joining, you identified the company was struggling to close the books as
reconciliation for the year 2018 has not yet done. Upon review you identified the following:
i) As per VAT return total supply value for 2018:
a) From Purbachal Sales center to third parties was Taka 95,000,000
b) From Rupgonj factory to Purbachal Sales center was Taka 25,000,000
c) From Gazipur factory to Purbachal Sales center was Taka 45,000,000
ii) Market returns to Purbachal Sales center :
a) Market Return of goods for wrong shipment Taka 2,300,000, resold within 15 days
b) Market Return of goods worth Taka 700,000, rejected by customers for quality reason,
which was subsequently destroyed
iii) Free samples to trade/Free goods to consumer charged to product marketing expenses was
Taka 4,500,000 recorded as cost as per accounting record, while VAT approved transfer value
was Taka 5,500,000
iv) Goods consumed in Head office, transferred from Sales Center was booked under
entertainment expenses in the accounting record at cost plus unrecoverable VAT Taka
550,000. The value of the goods as per VAT record was Taka 600,000
v) During the two Eid festivals in 2018, the company run two trade promotions. Accordingly, the
company offered goods to customer at 25% lesser than the VAT declared price. The value of
the goods sold to the customers at discount were Taka 7,500,000 as per accounting record,
which if discount was not allowed, would have been Taka 10,000,000. VAT authority allowed
15% trade discount. Company charges all the discounts under trade promotion expenses
vi) From the Sales center, company sold Taka 1,100,000 worth of scrap materials, recorded as
other income as per accounting record.
vii) Taka 6,500,000 worth of goods invoiced on 31st December 2018, hence recorded as sales in
2018 in the accounting record however the goods were physically transferred from the Sales
Center on 1st January 2019 only.
Required:
i) Reconcile the sales revenue between VAT Return accounting record upon determining the
sales revenue to be shown in the financial statement 8
ii) Explain the circumstances, when credit note are not allowed under VAT Laws 2

(b) LD Manufacturing Ltd is a manufacturer of popular biscuits brand AGRO. Currently it is selling a
bundle of 4x50g biscuit pack to its distributors (dealer) at a price of Taka 69.00 inclusive of VAT.
For this pack distributor’s margin including VAT was Taka 6.00, retailer’s margin including VAT
was Taka 10.00 and MRP was fixed at Taka 85.00. On 13th June, 2019 during the budget
announcement in the Parliament, the Finance Minister declared that there will be a supplementary
duty @ 2% imposed on all sorts of biscuit products at production stage (not at sales stage), which has
been reflected in the Finance Bill 2019. Considering the market competitiveness, your company
decided that it will not change its MRP, which means it will absorb the incidence of newly
introduced supplementary duty (SD) by adjusting its selling price to distributor. The existing value
addition of the product is 40%. There is no change in input cost after introduction of this new SD.
Required:
i) Compute the revised selling price to distributor without VAT and revised value addition%
showing the full price structure up to MRP considering before and after scenario of total
input cost, value addition, SD and VAT 4
ii) Will there be a revised price declaration required? What would be the trigger point for price
declaration here, is it the imposition of SD or reduction in value addition since the company
has decided to absorb the SD incidence? 2
iii) What would be the effective date for levying such SD as declared in the Finance Bill? 2
iv) What would be the value of goods for levying SD in case of imported goods and services
rendered in Bangladesh? 2

-The end-

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