Welcome to the latest edition of our Middle East and South Asia (MESA) Tax Update, bringing you the latest news in tax from the MESA region. As countries in the region look to reform their tax systems to attract foreign investment and become more globally competitive, keeping up with trends and developments is more important than ever.
Inside, you'll find briefings on key news, events and thought leadership contributed by tax professionals in KPMG member firms across the region.
In this issue:
Bangladesh - Summary of Finance Act, 2019 (Direct Tax)
A. Personal Tax
Basic tax rate
Basic income-tax rates or tax exemption thresholds remain unchanged
Dividend received is exempted up to Tk. 50,000, earlier it was Tk. 25,000.
As before, non-residents other than Bangladeshi non-residents shall pay tax on the total income at the maximum rate of 30%.
Minimum tax payable
As before, minimum tax payable depending on location remain unchanged.
Charge of surcharge
Surcharge for Individual assesse having net wealth of Tk. 500 million or above to be higher of 0.1% of net wealth or 30% of income-tax payable.
Investment tax rebate
Allowable limit of investment tax rebate is as follows:
|Total income||Investment tax rebate|
|Total income up to Tk. 1.5 million||15% of the eligible amount|
|Total income above Tk. 1.5 million||10% of the eligible amount|
Eligible amount for investment tax rebate rule remain unchanged.
Purchase of desktop or laptop
Purchase of desktop or laptop will not be considered for investment tax rebate calculation.
Statement of assets, liabilities and lifestyle
As before, an individual assessee must submit the statement of assets, liabilities and lifestyle. In this regard, kindly note that conditions remain unchanged.
B. Corporate Income tax and others
Tax rates for corporate
Applicable tax rates for companies remain unchanged.
For mobile phone operators, minimum tax is 2% of gross receipts. Earlier it was 0.75%.
Inclusion in the definition under section 2 of the Income Tax Ordinance
Definition of Perquisite to include leave fare assistance. Any payment as incentive bonus is excluded from perquisite.
Definition of Resident
The definition of resident now includes trust, fund, entity and local authority. The control and management of affairs is to be situated wholly in Bangladesh.
Definition of Royalty
An explanation is provided for royalty. The following will also be treated as royalty:
Possession or control of such right, property or information is with the payer;
Such right, property or information is used directly by the payer; and
The location of such right, property or information is in Bangladesh.
It is also clarified that, “process” part of the definition includes transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal) cable, optical fibre or by any other similar technology, whether or not such process is secret.
Charge of tax on stock dividend
If stock dividend declared or distributed by a listed company exceeds the cash dividend in any income year, 10% tax on the whole amount of stock dividend will be applicable. Such tax cannot be adjusted with any other tax liability of the company. The provision is also applicable if any cash dividend is not declared or distributed in the income year.
Tax on retained earnings
A company (listed in stock exchange) shall pay tax at the rate of 10% on the total amount transferred to retained earnings or any fund, reserve or surplus, if such amount exceeds 70% of the net profit/income after tax in the income year. Such tax cannot be adjusted with any other tax liability of the company.
Inclusion made in the section 19 “Unexplained investments etc., deemed to be income”
Any advance received without bank transfer by any house property owner exceeding Tk. 0.2 million will be considered as deemed income. Moreover, any advance rent unadjusted within the earlier of 5 years or agreement period will be considered as deemed income.
Any payment made for acquiring any asset without withholding tax compliance will be considered as deemed income.
Special tax treatment in section 19BBBBB
The invested amount in the construction or purchase of residential building, apartment, or land will be deemed to have been explained if specified amount of tax was paid before the assessment for the relevant assessment year.
Special tax treatment in respect of investment in “Economic Zones or Hi-Tech Parks”
No question shall be raised to the source of any sum invested in any economic zone or any hi-tech park, if 10% of invested amount is paid as tax before filing of the tax return.
Inclusion of Treatment of disallowances
Any amount of disallowances made under section 30 shall be treated separately as “Income from business or profession” and the tax shall be payable thereon at the regular rate. It is applicable irrespective of 82C business and any loss or profit computed under regular “Income from business or profession”
Exemption to industrial undertaking extended from June 2019 to June 2024, with the inclusion of additional sectors such as agricultural machineries, toy manufacturing, mobile phone etc. tax of newly established industrial undertakings set up between the period from July 2019 to June 2024.
Exemption to physical infrastructure facility extended from June 2019 to June 2024, with the inclusion of additional sectors of mobile phone tower or tower sharing infrastructure.
Amendment of deduction from payment to contractors (Section 52, Rule 16)
The rate of tax is amended as follows:
|Sl.||Base value||Rates of deduction|
|(1)||Up to Tk. 1.5 million||2%|
|(2)||Above Tk. 1.5 million but below Tk. 5 million||3%|
|(3)||Above Tk. 5 million but below 10 million||4%|
|(4)||Above 10 million||5%|
Inclusion of certain service in section 52AA
|Service||Base amount does not exceed Tk. 2.5m||Base amount does not exceed Tk. 2.5m|
|Courier service||On commission||10%||12%|
|On gross bill||1.5%||2%|
|Packing and Shifting service||On commission||10%||12%|
|On gross bill||1.5%||2%|
|Wheeling charge for electricity transmission||4%||5%|
If media buying agency invoice shows both the commission and gross bill, then 10% will be deemed commission and 2.5% withholding tax will be applicable.
Change in tax rate on interest income on saving instrument
The withholding tax rate on interest income on saving instrument is 10% instead of 5%.
Inclusion of hotel accommodation
Hotel accommodation is included under house property and tax to be withheld under section 53A.
Change in withholding tax rate on export cash subsidy
The withholding tax rate on export cash subsidy is 10% instead of 3%.
Collection of tax from export value
Collection of tax from export of certain items is 0.25% instead of 1%.
Inclusion of non-resident companies being beneficiary of taxed dividend
Non-resident companies also enjoy the benefit of taxed dividend. “Taxed dividend” means the dividend income on which tax has been paid by the recipient under this Ordinance”.
Inclusion in section 56 (deduction from income of non-residents)
The following types of services have been added in the list
|Description of services or payments||Withholding tax rate|
|Survey for coal, oil or gas exploration||5.25%|
|Fees, etc. of surveyors of general insurance company||20%|
Time limit has been specified for issuing exemption or reduced rate certificate by NBR to 30 days after submission of all required documents.
Relevant authority will ask for applicable tax on capital gain arising from the transfer of any share of a company.
Applicability of advance tax
Threshold of latest assessed income increased from Tk. 0.4 million to Tk.0.6 million for applicability of advance tax.
Return to be submitted
The following are required to submit income tax return in Bangladesh under section 75:
Non-resident having permanent establishment in Bangladesh
Micro Credit Organisation having licence with Micro Credit Regulatory Authority
Submission of withholding tax return
Micro Credit Organisation having licence with Micro Credit Regulatory Authority, private university, private hospital, clinic, diagnostic centre, firm and association of persons will be required to submit withholding tax return.
Issuance of notice under section 93
The Deputy Commissioner of Taxes can issue notice any time within 6 years from the end of relevant assessment year.
Saudi Arabia - Excise tax on sweetened drinks in KSA
According to the Circular, the excise tax on sugar sweetened beverages will come into effect from 1 December 2019. So far, there are no signs that this deadline will be further postponed, so there are only a handful of days left to finalize the preparation for the tax going live.
Read the alert here - PDF (81.1 MB)
Oman - International tax reforms
Two Royal Decrees (RD) establishing a new structure for the tax authority of Oman were passed effective from 14 October 2019. Oman also signed the Multilateral Convention (MLI) to implement tax treaty related measures to prevent Base Erosion and Profit Shifting (BEPS), making the total signatories 92 jurisdictions globally.
1. New structure of Tax Authority of Oman
Two Royal Decrees (RD) establishing a new structure for the tax authority of Oman were passed effective from 14 October 2019. RD 70/2019 appointed H.E. Sultan bin Salim bin Said Al Habsi (Deputy Chairman of the Board of Governors of the Central Bank of Oman) Head of the Tax Authority. RD 66/2019, relating to the Tax Authority, provides for the following:
- The Tax Authority will have its own legal identity and shall enjoy financial and administrative autonomy
- It will report to the Council of Ministries
- All allocations, assets and employees of the Secretariat General for Taxation at the Ministry of Finance will be transferred to the Tax Authority
- The Head of the Tax Authority shall be a member of the Financial Affairs and Energy Resources Council
- The phrases “Secretariat General for Taxation” and “Secretary General for Taxation”, wherever they recur in current laws and Royal Decrees, shall be replaced by the phrases “Tax Authority” and “Head of Tax Authority”
- Another Royal Decree, detailing the Tax Authority’s organizational structure, is expected
All communications with the Oman tax authorities shall now be addressed to the Tax Authority. This reform provides autonomy to the Tax Authority and may enable timely tax policy changes.
2. Oman implements international tax reforms
On 26 November 2019, Oman signed the Multilateral Convention (MLI) to implement tax treaty related measures to prevent Base Erosion and Profit Shifting (BEPS), making the total signatories 92 jurisdictions globally. This step marks an important milestone in Oman’s commitment to tackle tax treaty abuse, improve the coherence of international tax rules and ensure a more transparent tax environment.
To date, Oman has tax treaty with 35 jurisdictions. Oman submitted a list of 34 treaties to be designated as CTAs (the tax treaty with India is currently excluded). Oman has also provided its draft list of reservations and notifications (MLI positions) with respect to the MLI provisions. These positions may be subject to change and the definitive outcome will be provided upon the ratification of the MLI by Oman through a local legislation. The specific change in Oman’s tax treaty with a particular jurisdiction is also dependent on the counterparty jurisdiction signing the MLI and their status on the MLI positions.
Oman had committed to implement Common Reporting Standard (“CRS”) regulation to enable automatic exchange of financial information with other jurisdictions. Earlier this year, banks and other financial institutions had been mandated by the Central Bank of Oman to ensure collection of CRS-related information for new account holders effective from 1 July 2019. Consequent to this, Oman, has now signed up to the international framework being the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”) and Multilateral Competent Authority Agreement on Automatic Exchange of Information Agreement (“CRS MCCA”) to enable automatic exchange of financial information on a reciprocal basis with other jurisdictions.
It is expected that the first set of exchange by Oman will be done by September 2020. We further expect that Oman’s local legislation allowing specified institutions to undertake the CRS compliances with designated authority will be available soon. The signing of the Convention and the MCCA should assist Oman to be excluded from the current European Union blacklist.
Sri Lanka - New tax proposals
On 27 November 2019, the Cabinet of Ministers approved the following direct and indirect tax proposals with a view to creating a simple, transparent and efficient tax system that will promote self-compliance and easy tax administration as well as promote economic activity within Sri Lanka The new tax proposals will be implemented subject to formal amendments to relevant legislation.
1. Corporate Income tax
The following sources of income will be exempted from income tax:-
- Income generated from agriculture, fisheries and livestock for the Year of Assessment 2019/20
- Income earned from the supply of professional services for the receipt of foreign currency with effect from 01 December 2019
- Income from the provision of information technology (IT) services and other enabling services
- Taxes imposed on religious institutions with effect from 01 December 2019
In addition to the above, a rate reduction has been proposed for the construction industry – where the existing income tax rate of 28% will be reduced to 14% with effect from Year of Assessment 2019/2020.
2. Nation Building Tax (NBT)
The current NBT of 2% imposed on liable turnover will be removed in respect of goods and services supplied, with effect from 1 December 2019.
The Nation Building Tax levied at Customs will be combined with the Ports and Airport Development Levy (PAL) and the relevant ratio will be revised to 10%.
3. Value Added Tax (VAT)
As per the Extraordinary Gazette Notification No. 2151/52 dated November 29, 2019, published under Section 2A of the Value Added Tax Act No. 14 of 2002, the VAT rates have been reduced to 8% from 15% with effect from 1 December 2019. However supply of Financial Services will be liable at 15%.
Further the supply of services by a hotel, guest house, restaurant or other similar businesses providing similar services, registered with the Sri Lanka Tourism Development Authority, provided that 60% of the turnover is sourced from local supplies i.e., local agriculture and locally manufactured goods will be liable to VAT at zero per centum (0%).
With the implementation of this amendment, the Extraordinary Gazette No. 2125/69 dated 1 June 2019 which depicts that the VAT rate was applicable to the tourism industry was at 7% has been rescinded.
Also it should be noted that the reduced rate applicable on the supply of condominium housing units and supply or import of wood (sawn) will be revised to 8%.
The VAT registration threshold is to be revised from Rs. 3 million per quarter (Rs. 12 million per annum) to Rs. 75 million per quarter (Rs. 300 million per annum) with effective from 01 January 2020.
4. Pay as you earn (PAYE)/Personal Income Tax
The maximum rate was reduced from 24% to 18% and the tax free threshold of the employment income of all public and private sector employees for the purpose of the Pay-As-You-Earn (PAYE) shall be increased from Rs. 100,000 to Rs. 250,000 per month.
Accordingly employment income will be liable for PAYE with effect from 1 January 2020 as follows:
|Income (annual threshold)||Income tax rate|
|Rs. 3 Mn (i.e. Rs.250,000 per month)||Tax free threshold|
5. Withholding tax (WHT) on interest income
Interest income up to Rs.250, 000 per month has been exempted from WHT effective from 1 January 2020. The Government has proposed many other taxes proposals, which needs further clarity from the Officials in relation to the implementation of such proposals.
UAE - MoF has released CbCR Notification Portal, Treaty between Egypt and the UAE, VAT and Excise Tax updates
The UAE’s MoF has released a CbCR Notification Portal in recent days. The CbCR notification needs to be submitted before 31 December 2019 for multinational enterprises (MNE) with a fiscal year ending 31 December 2019. It is applicable for:
- UAE tax resident entity that is
- Part of a Multinational Group (headquartered either in the UAE or outside of the UAE) with a
- Consolidated group turnover of AED 3.15 billion or more during the preceding financial year.
Treaty between Egypt and the UAE signed
On 14 November 2019, Egypt and the UAE signed an income tax treaty in Abu Dhabi. Once in force and effective, the new treaty will replace the Egypt - United Arab Emirates Income Tax Treaty (1994). Further developments will be reported as they occur.
Cautionary email from the FTA to apply for a special method of recovering input tax
Taxpayers engaged in providing exempt supplies (for example: banks, financial institutions, insurance companies, real estate companies, passenger transport providers) have the option either to follow the standard input method, or apply to the FTA for permission to use a special method (prescribed in the input tax apportionment guide). This method apportions input on common expenses that relate to both taxable and exempt supplies. If the special method is not applied for, the taxpayer can continue using the standard method. However, at the end of financial year, he or she will be required to compare the recovery as per the standard method with the special method, and adjust the excess/deficit if the difference is more than AED 250,000. The FTA issued a cautionary email to taxpayers who have not yet applied for special method approval, stating that if they foresee the amount of adjustment due to annual wash up to be substantial, they should apply for special method permission by 31 December 2019. If a taxpayer chooses not to apply for special method by this date, the FTA will prioritize such taxpayers for a tax audit in 2020.
The Appellate Authority waived penalties levied by the FTA on the filing of voluntary disclosures by the taxpayer
The Tax Dispute Resolution Panel (TDRC) delivered a judgment waiving penalties levied by the FTA on a taxpayer who filed voluntary disclosures to disclose errors and pay additional tax. The primary grounds of appeal were that the taxpayer had made a bona fide mistake for which the voluntary disclosure was filed within the statutory timeframe of 20 business days from the date of discovery of error. A formal clarification is expected from the FTA on the above judgment.
Excise tax on certain tobacco products and sweetened drinks
The FTA announced 1 December 2019 as the effective date for implementing excise taxes on certain tobacco products and sweetened drinks. All affected producers, importers and business owners of newly-introduced excise goods are required to comply with registration for the excise tax systems without delay to avoid penalties.