A Comparative Review of Fiscal and Tariff Regimes in SAFA Countries

Transcription

1 A Comparative Review of Fiscal and Tariff Regimes in SAFA Countries 2018

2 TABLE OF CONTENTS S.No Subjects Page No 1. Types of Taxable Income 1 2. Types of Taxes 2 3. Types of Taxation Procedures 2 4. Mode of Payment of Tax 3 5. Filing of Income Tax Return/ Statement 4 6. Types & Timing of Tax Year 5 7. Tax Rates for Companies 5 8. Resident and Non Resident Company 7

3 9. Tax Rates on Non-Residents Withholding Tax Sales Tax/ VAT / GST Federal Excise Duty Customs Duty Social Security Taxes Capital Value Tax (CVT) Professional Tax/ Local Tax on profession Property Tax Stamp Duty Other Taxes Double Taxation Agreements/ International Tax Treaties Foreign Ownership/ Setting Up Business by a Foreign Company 23

4 Comparative Review of Fiscal and Tariff Regimes in SAFA Countries A Consolidated Format Country Pakistan India Bangladesh Nepal Sri Lanka Afghanistan Updated April 2017 July 2017 July 2017 July September 2017 S.No. Subject Pakistan India Bangladesh Nepal Sri Lanka Afghanistan 1. Types of Taxable Income Depending on residential status of a person following types of income are aggregated to determine total taxable income for a tax year: Salary Income from business Capital gains Income from property Income from other sources Income Tax is charged under the following heads of income: Salary Income from house property Profit and gains of business or profession Capital gains Income from Other Sources Depending on residential status of a person the following types of income are aggregated to determine total taxable income for a tax year: Salaries Interest on securities Income from house property Agricultural income Income from business or profession Capital gains Income from other sources Income Tax is charged on the following income heads: Business Employment Investment Windfall gain Income Tax is charged on the following heads of income: Profit from any trade, business, profession or vocation Profit from any employment Net annual value of land and improvements thereon Dividends, interest/discount Charges or annuities Rents, royalties/ premiums Winnings from a lottery, betting or gambling In the case of a nongovernmental organization, any sum received by such organization by way of Depending on the residential status of the person, following types of income are subject to tax: salaries, wages, fees and commissions, all receipts derived from business, industry, construction and other economic activities, receipts from sale of movable and immovable property, interest, dividends, rents, royalties, rewards, prizes, winning from lotteries, bakhshishis (gratuities, bonus payments etc.), distributive shares of 1

5 grant, donation or contribution or any other manner Income from any other source (other than casual and nonrecurring nature income) partnership income, any other income from labor, capital, or economic activity. 2. Types of Taxes Direct Taxes (a) Income Tax Indirect Taxes (a) Sales tax (b) Federal Excise Duty (c) Custom Duty Other Taxes (a) Capital Value Tax (b) Stamp Duty (c) (a) Property Tax Professional Tax Direct Taxes (a) Income Tax Indirect Taxes (b) GST (c) Custom Duty (d) Professional Tax (e) Entertainment Tax levied by Local Authorities (f) Stamp duty (g) Sales Tax, VAT, Excise for goods not covered under GST such as petroleum, alcohol etc Direct Tax (a) Income Tax (b) Gift Tax Indirect and Other Taxes (a) Value Added Tax (VAT) (b) Custom duty (c) Excise duty (d) Stamp duty Direct Tax (a) Income Tax Indirect and Other Taxes (a) Value Added Tax (VAT) (b) Custom duty (c) Excise duty (d) Vehicle tax (e) Property Tax (f) Capital gain Tax (g) Stamp duty (h) Local Tax on Profession Direct Tax (a) Income Tax Indirect and Other Taxes (a) Value Added Tax (VAT) (b) Import duty (c) Stamp Duty (d) Withholding Tax (e) Nation Building Tax (f) Share Transaction Levy (g) Betting and Gaming Levy. Direct Tax (a) Income tax (b) Business Receipt Tax (BRT) Indirect and other taxes (a) Withholding taxes (b) Custom duty (c) Fixed Taxes (d) Value Added Taxes (VAT) 3. Types of Taxation Procedures Pakistan tax laws contain two taxation procedures, i.e. Normal Tax Regime (NTR) & Final Tax Regime (FTR). Normal Tax Regime Under the NTR, the net income is As per the Income-tax Act, 1961, the taxability depends on the residential status of the tax payer: i) Residents are taxed on worldwide income; ii) Non-residents are taxed only on income which is received or deemed to be received in India or which accrues or arise or Bangladesh tax laws contain two types of taxation procedures for all types of taxpayers; The taxability of an individual or a company depends upon its residential status. Normal Tax Regime The net income is Taxes are imposed at two levels in Nepal. The Government of Nepal levies direct and indirect taxes nationwide whereas the local authorities levy locally in different forms. Tax rates are fixed by the Finance Bill. The Finance Bill is published in the Gazette of Nepal. Imposition of Income Tax: Residents:- on worldwide income Non-Residents:- on the income arising in or derived from Sri Lanka The types of taxation procedures depend upon the residential status of the person. The Afghan resident is taxable on their worldwide income and Non-resident is taxable on Afghan sources only. Below are the main 2

6 determined after allowing admissible expenses / deductions against the gross receipts from a source of income. Tax is charged on net income at applicable rates. deemed to accrue or arise in India. determined after allowing admissible expenses / deductions against gross receipts from source of income. Tax is then charged on net income at the applicable rates. sources of income which are using for tax application purposes: Afghan Sources Non-Afghan sources Internal Sources Final Tax Regime Final Tax Regime Under the FTR, tax deducted at source from the gross amount of the specified sources of income is deemed to be the final discharge of tax liability Tax is deducted at source from gross amount of the specified sources of income and is deemed to be final discharge of tax liability. Any remaining tax liability can be discharged on final settlement. 4. Mode of Payment of Tax The Income Tax Ordinance 2001 defines the following modes of payment of Tax: 1. Deduction at Source (Salary, dividends, profit on debt, payments to non- residents, payments for goods, services The Income-tax Act 1961 provides for the following modes of payment and recovery of Tax: 1. Tax Deducted at Source (TDS) (Salary, Interest, Commission, Contract fees, Rent, Professional fees etc). 2. Tax Collected at Source (TCS) 3. Advance Tax 4. Self Assessment tax The Income Tax Ordinance 1984 defines the following modes of payment of tax: 1. Deduction at source 2. Advance Tax paid by Taxpayer 3. Tax paid at the time of filing tax return 4. Tax paid on final The Income -tax Act 2002 defines the following modes of payment of tax: 1. Deduction at source 2. Installment Tax paid by the Taxpayer. 3. Differential tax deposited By the Taxpayer. The Inland Revenue Act no.10 of 2006 provides for following modes of payment of Tax: 1. Self - Assessment system 2. Deduction at Source (on Salary, dividends, Interests, other withholding taxes etc.) According to income tax law of 2010, it provides the following modes of tax payments: 1. Self-Assessment mechanism 2. Deduction at source (withholding taxes) 3. Advance tax 3

7 & contracts, exports, property income etc) 2. Advance Tax 3. Tax paid with the Return settlement. 5. Filing of Income Tax Return/ Statement 1. A company with a tax year ending between January 1 and June 30 is required to file its income tax return on or before December 31 of the following the end of the tax year. In other cases on or before September 30 next following the end of the tax year. Return of income relating to a financial year (previous year) is furnished in the immediately succeeding financial year ( assessment year). 1. Companies are required to submit their income tax return by 30 th September of the Assessment year (30 th November for companies who are required to submit a report pertaining to international transactions) 2. Returns for non-corporate tax payers that are required by law to have their accounts audited also are due on 30 th September. 3. All other taxpayers are required to submit their return of income by 31 st July of the assessment year. 1. In the case of a company, the fifteenth day of the seventh month following the end of the income year or the fifteenth day of September following the end of the income year where the said fifteenth day falls before the fifteenth day of September 2. In all other cases, by 30 day of November next, following the income year. Annual tax return is generally filed in Nepal within 3 months from the end of an income year. i.e. (Mid October). However, a taxpayer may have this due date extended for a maximum period of 3 months i.e. up to (mid January) in case he files an application in the IRD with bonafide reasons for such extension. Every person chargeable with income tax for any year of assessment is required to furnish a return of income on or before 30 th November following the end of that year of assessment. The return should be in the prescribed form and should contain the particulars specified by the Commissioner Gen. of Inland Revenue. The taxpayers are required to file annual income tax returns within the following 3 months after the end of the tax year. Where a taxpayer with reasonable grounds cannot file their tax return by due date, they may apply for the extension of three months to the taxation authority. The extended period is for filing of tax return only; the due date of tax payment cannot be extended. Taxpayers claiming tax holidays or carrying forward tax losses must file their returns on 4

8 or before due date. 6. Types & Timing of Tax Year Normal Tax Year A tax year is a period of 12 months ending on June 30 Special Tax Year In special cases, the FBR / Commissioner may specify/allow the period of 12 months other than the normal tax year. Transitional Tax Year Where the tax year changed as a result of Special Tax Year, the period between the end of the last tax year prior to change and the date on which the changed tax year commences The income earned during the previous year is taxed in the assessment year. Assessment year Assessment year" means the period of twelve months commencing on the 1st day of April every year Previous year Previous Year means the financial year immediately preceding the Assessment Year. In the following cases, income of the previous year is assessed in the same previous year: a) Person(s) having shipping business b) Person(s) leaving India with no intention of returning c) AOP/BOI/Artificial juridical person formed for a particular event or purpose and likely to be dissolved in the same year or next year. d) Person(s) likely to transfer property to avoid tax Assessment Year: Assessment year means the period of 12 months commencing on the first day of July every year, and includes any such period which is deemed, under the provisions of this Ordinance, to be assessment year in respect of any income for any period; Normal Tax Year A tax year is a period of 12 months ending on June 30 (referred to as a normal tax year) and is denoted by calendar year in which closing date falls. Special Tax Year In special cases, the NBR/ Commissioner may specify the period of 12 months other than the Financial year and is referred to as a special tax year. In such case, the tax year is denoted by the same calendar year as the normal tax year in which closing date of the special tax year falls. Normal Tax Year A tax year (referred to as Income Year) is a period of 12 months in accordance with Nepalese Fiscal Year which is based on BikramSambat from Shrawan 1 to Ashad end i.e. mid July to mid july and denoted by the calendar year in which the closing date falls. Year of assessments : The period of 12 months commencing from 1 st April of an year to 31 st March of following year The tax year is a normal assessment year of 12 months in accordance of solar calendar. It starts on the 1 st Jeddi (21 st December) and ends on the following 30 th of Qows (20 th December). According to the tax law a taxpayer is allowed to apply for alternative period to the taxation authority. 7. Tax Rates Normal rate of tax Normal rate of tax (a) Publicly Traded Taxable income of entities is Companies, including According to the income 5

9 for Companies (a) The rate of tax imposed on taxable income of company is 31% (b) Where the tax payer is a small company the tax rate is 25% (c) For banking company the tax rate is 34%. Super tax (a) For companies other than banks is 3% (b) In case of a bank 4% (a) In the case of a domestic company, (i) where its total turnover or the gross receipt in the previous year does not exceed fifty crore rupees; (ii) other than that referred to in item (i) 25 per cent. of the total income.; 30 per cent. of the total income.; (b) Foreign companies pay 40% tax. Surcharge a) i)in the case of every domestic company, at the rate of 7% of tax paid, where the total income exceeds one crore rupees but does not exceed ten crore rupees; ii) at the rate of 12% of tax paid, where the total income exceeds ten crore rupees; Company 25% (b) Non-publicly Traded Company 35% (c) Bank, Insurance Traded 40% and Non traded 42.50% (d) Financial Institutions 42.50% (e) Merchant Bank 37.5% (f) Cigarette Manufacturing Company and noncompany 45% (g) Mobile phone operator Traded 40% non- traded 45% 6 normally taxed at rate of 25% Entities engaged in business of cigarette, bidi, cigar, beer, tobacco, alcohol, bank, financial institutions, insurance and petroleum products are levied tax at 30% of their taxable income. Following businesses with income having source from Nepal is levied tax at 20% of taxable income: Special Industries Construction &operation of road, bridges, tunnel, ropeway or sky bridges. Income from exports Building of public infrastructure, own, operate and transfer it to Government Power generation, transmission/ distribution Additional concession is available for certain cooperatives, industries promoting more and local employment, industries operating in rural/special areas,, power generating companies and export earnings. Special industry having investment of more than Rs, 1 Billion and providing more than 500 direct employment through the year is entiltled to banks, are subject to a flat rate of tax. Unit trusts, Mutual funds and Corporations are taxed on same basis as companies. Concessionary Income Tax rates of 10%, 12% and 16% are applicable on profits & income of companies engaged in agriculture, exports, and other sectors identified as necessary for economic progress of the country. Liquor and tobacco sector companies are taxed at 40%. All other companies are taxable at the rate of 28%. tax law, The tax rate for companies is 20% of the taxable income. If the companies fall under one of the bilateral agreements, then it is exempt from 20% corporation tax.

10 b) Foreign companies to pay 2% surcharge applied on the tax paid by companies with net income over one crore but up to 10 crores. If the net income exceeds Rs. 10 crores the rate of surcharge becomes 5%. Education cess An educationcess of 3%(on both tax and surcharge) is payable full income tax exemption for the first 5 years and 50 % expemtion for the next 3 years. The following special concession/tax exemption is given in case of a hydro power generating and distributing company, No income tax on the first 10 year in case production and distribution is made by Mid April Further 50% exemption for the next 5 year. 8. Resident and Non Resident Company Resident Company A company is a resident in Pakistan for a tax year if (1) It is incorporated or formed under any Pakistani law, (2) the control and management of the affairs of the company is situated wholly in Pakistan at any time in the year; or (3) It is a Provincial Government or local Government in Pakistan. A A company is said to be resident in India in any previous year if a) it is an Indian Company or b) its place of effective management, in that year, is in India. This change has been made effective from This change requires attention of companies which have operations in different countries with POEM in India A company which is not a resident company is a nonresident /foreign Company. To be resident, a company is required to be incorporated in Bangladesh. A company is a resident in Bangladesh for a tax year if the control and management of whose affairs is situated wholly in Bangladesh at any time in that year A company, is resident in Nepal for the income year if: (A) It is incorporated or formed under the laws of Nepal; or (B) It has its effective management in Nepal during an income year. Further, there is no concept of dual resident status A company is deemed to be a resident company in Sri Lanka, (1) if its registered or principal office is in Sri Lanka; or (2) the control and management of its business is exercised in Sri Lanka To be resident the company is required to be established under of law of Afghanistan during the tax year or its administrative management is in Afghanistan. The center of administrative management is determined based on the facts and circumstances such as: Whether the managers of the entity are physically present in Afghanistan when making decisions on behalf of the legal entity. 7

11 company not meeting any of these conditions is considered to be a Non-Resident. Non-Resident Company A Company not falling under the definition of Resident Company are considered to be a Non-Resident Company The number of decisions made by the managers while physically present in Afghanistan compared to the number of decisions made by the managers while physically present outside of Afghanistan. Whether the managers of the entity are residents of Afghanistan. if the person (legal) do not fall under one of the above category, it is nonresident. 9. Tax Rates on Non- Residents A non-resident person is only liable to tax to the extent of his Pakistan-sourced income. The source of income is determined in accordance with rules provided in the Ordinance. The rate of tax imposed on payments to non- Non-residents are taxed only on income which is received or deemed to be received in India or which accrues or arise or deemed to accrue or arise in India. There are special rates of taxes for non-residents in respect of certain income eg. royalty and fees for technical services received from an Indian concern is chargeable to A non-resident person is only liable to tax to extent of his Bangladeshsourced income. The source of income is determined in accordance with rules provided in Ordinance. The tax rate on Nonresident individual other than Non-resident Bangladeshi is 30%. A non-resident tax payer (Individual or entity) is taxed only on his income earned in Nepal. The Tax rate on income from employment of non-resident individual is 25 percent A non-resident person is liable to tax to the extent of his Sri Lanka-sourced income. The source of income is determined in accordance with the rules provided in the Act. 28% tax rate generally applicable to resident companies is applicable Non-resident natural and legal persons engaged in economic, service or business activities in Afghanistan shall be subject to tax on their income from sources within Afghanistan. If legal person, the tax rate is 20% on the payments which have been made from Afghan source. 8

12 residents is 15% of the gross amount of the royalty or fee for technical services. In case of non-resident carrying on the business of operating ships or aircraft as the owner or charterer tax rate are 8% and 3% respectively of the gross amount. to non-resident companies (subject to the application of nondiscrimination clause of DTAA) 10. Withholding Tax Withholding is an act of deduction or collection at source, which is an advance tax payment. Important withholding provisions relate to: Salary Imports Exports Dividends Commission and brokerage Goods, Services and Contracts Profit on debt Utilities Vehicle tax Stock Exchange transactions Withholding tax is applicable in India in the following forms: a) Tax deducted at source The provisions of tax deduction at source are applicable in respect of variety of payments including: Salary Interest Dividends Winning from lottery Commission Payments to contractors Rent Fees for professional and technical services etc b) Tax Collection at source The provisions of tax collection The withholding tax regime covers almost all types of payments made to both resident & nonresidents from which tax is required to be withheld at source. Some significant payments subject to withholding tax include: Salary Discount of the real value of Bangladesh Bank Bills Remuneration to Member of Parliament Interest on securities Payment to contractors Payment of Royalties Act Payment of certain services Clearing & forwarding The withholding tax in the form of tax deducted at source ( TDS) is applicable on almost all payments including Salary Interest Rent Dividend Payment to contractors Capital Gain Windfall Gain Professional/Service fees Payment to non resident company provided services in Nepal TDS ranges from 1.5 to 25 %. Incase of payment to suppliers and to VAT registered person/company TDS is charged at 1.5%.. Maximum of TDS is 25 % incase of windfall gain which is also final withholding. Withholding Tax is applicable on: Salary Dividends (at 10%) Interest rewards, share of fines, lottery prizes or winnings from betting and gambling If interest is paid by financial & banking organizations: withholding tax applicable (a) to any company is 10%. (b) to a partnership or a charitable institution is 8%. (c) to an individual varies from 0% to 8%. Withholding tax Withholding taxes are applicable on the following line items: Wages and salaries Rental payments Dividends payments Vendors payments Commission and Fee Prizes, lottery, rewards, gratuities, Bonuses, royalties payments Interest payments Insurance payments 9

13 Non-residents Income from property at source are applicable in respect of profit and gains from the business of trading in alcoholic liquor, forest produce, scrap etc. agents Cigarette manufactures Acquisition of Property Payment to beneficiary of WPPF Interest on Savings Instruments Brick manufacturers Commission of Letter of Credit Renewal of trade license Fright forward agency commission Rental power Indenting Commission Income from House Property Export of Manpower Insurance Commission Capital gains Business of Real Estate and Land Developer Rent is taxed at 10%. Final withholding tax: Dividend distributed by company to its shareholders is taxed as final withholding tax at a rate of 5%. Interest on bank deposits paid to natural person is taxed at 5% as final withholding tax. Capital Gain Tax at 5 % is deducted as final withholding tax in case of a natural person. However on the gains from the sale of non listed shares is taxed at 10%. Payment of rent is taxed as 10% as final withholding in case of a natural person. Incase of an entity the TDS will be advance tax. The remuneration received by foreign investor in the form of interest, rent royalty, and commission because of transfer of technology to Nepalese industry is subject to withholding tax at 15% of total payment. Where recipient holds the status of non-resident, such withholding tax will be treated as final withholding tax. deductible from interest, rent, ground rent, royalty, annuity paid to any nonresident person will be 20% or any other rate that will be determined by the Commissioner General of Inland revenue. 10

14 11. Sales Tax/ VAT / GST Sales Exemption Tax Sales tax is not applicable on supply of goods by the cottage industry and retailers if annual turnover is less than Rs. 5 million. Sales tax on services Rendering or provision of the following services is chargeable to sales tax at 16 percent under the Provincial legislations: Telecommunicatio n services Services provided by banking companies, insurance companies, cooperative financing societies, modarabas, musharikas, leasing companies, foreign exchange dealers, non-banking GST Exemptions Central Government videnotification No s. 02/2017- Central Tax (Rate),& 12/2017- Central Tax (Rate) both dt has specified the supply of goods or services which are exempt under GST Regime. Further, Exporter can claim Refund of duty paid on inputs procured for export of goods. The minimum threshold limit for GST registration is Rs. 20 lacs (Rs. 10 lacs for Special Category States) which means a person having aggregate turnover above Rs. 20/10 lacs is required to get himself registered. Goods and services tax: GST is tax levied on the supply of goods or services or both. It is a destination based consumption tax. Under GST regime majorly four tier rate structure has been prescribed i.e. 5%, 12%, 18% and 28% depends upon the nature and utility of goods and services. The exports and essential items also kept either zero rated or exempted. Precious metal have been covered under lower rate of 3% Sales Tax Exemption Sales tax is covered by Value Added Tax. Value added tax (VAT) VAT is presently levied in Bangladesh on the following sectors: (1) Manufacturing (2) Services (3) Imports Sales Tax Exemption Sales Tax is replaced by Value Added Tax Value Added Tax (VAT) VAT is levied in Nepal on the following transactions: (a) Goods and services supplied (b) Goods and services imported (c) Goods and services exported VAT is levied on the taxable value of every transactions at the rate of 13 %. Threshold limit of VAT is NRs. 2.0 Million for service providers and NRs. 5.0 million for others entities. There is exemption on certain type of products and transactions such as basic agriculture products,agriculture Equipment,Education, Health Services, Pharmaceuticals Products, Livestock products, Electricity, Passenger Air services, Transport and Cargo banking & financial services, Land & Value Added Tax Exemption VAT is not charged on certain imports and on retail and wholesale supply of goods where the total supply for a quarter is less than Rs.100 million. Value Added Tax (VAT) Value Added Tax (VAT) is levied in Sri Lanka on following transactions: (a) The goods imported into Sri Lanka (b) Goods and services supplied in Sri Lanka. Goods exported and Services supplied outside Sri Lanka (considering foreign currency incoming) are considered as zero rate supplies and such suppliers are eligible to claim refund on VAT input. VAT Rate: From % Law making on VAT has been concluded and issued through an official gazette of Ministry of Justice, however, the implementation has been postponed till

15 financial institutions Advertisements Franchise services Construction services Services provided by professionals and consultants Courier services Services rendered/provided by hotels, clubs and caterers Further for ease of doing business composition scheme has also been provided with lower rate of 1%, 2% etc. of turnover with least compliances. Building etc. VAT is also exempted ( 0% VAT ) in case of goods and services exported out of Nepal. VAT is also exempted incase of import of machinery and equipment by a hydropower company. There is 5% health service tax on health services provided by private health institutions. There is 1 % Education Service Tax on fees charged by private educational institutions. 12. Federal Excise Duty The Federal Excise Duty is levied and collected on goods produced or manufactured and imported in Pakistan. Services provided in Pakistan including the services originated outside but rendered in Pakistan are also subject to FED. Charging Federal Duty of Excise FED is charged on the value or Post implementation of GST w.e.f , Excise duty leviable on goods produced or manufactured in India is subsumed into GST except on the following products (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel; and (f) tobacco and tobacco products. The General rate of Excise duty on the commodities was 12.5%. However for aforesaid goods covered under excise its varies from 20% to 115%. At present, excise duty in Bangladesh is applied on only two items. (a) Bank deposit (b) Domestic air tickets (TK 250 per journey) (Source: National Board od Revenue (NBR) Bangladesh at Excise Duty is levied on specified goods imported or manufactured, and specified services rendered in Nepal at varied rates as prescribed in the Finance Bill. Generally, excise duty is charged on the value, weight/ quantity and price percentage basis. The goods which are subject to levy of excise include beer, alcohol, fruit juices, tobacco and cigarettes, cement, paints, television, vehicles The Act is yet to define the services liable to levy excise duty. The rates are expressed in terms of percentage as well as monetary value. The act has also allowed waiver of excise duty in Excise Duty :is levied on certain articles produced or manufactured in Sri Lanka or imported to the country, at the rates specified by the Minister by order published in the Gazette. Excise Duty is mainly on liquor and tobacco products. There is no Federal Excise Duty applicable in the country. 12

16 retail price 15% but on some items it is charged on basis of weight or quantity at varying rates. Zero percent FED rate is applicable for exported goods or specified goods. Products/Services on which FED is charged (a) Excisable Goods Varied rates of excise duty is levied on goods such as edible oils, aerated waters and concentrates, tobacco & cigarettes, cement, lubricants and fuel oils, liquefied gases, perfumes and toiletries, greases, viscose staple fiber, transportation vehicles Sales Tax/ VAT will also be applicable on goods not covered under GST. the case of exports and sales through duty free shops. 13

17 (b) Excisable Services Varied rates of excise duty is levied on services such as advertisements, air travel, air cargo, telecommunication, shipping agents, insurance, stock brokers, franchise services etc. 13 Customs Duty (a) (b) Imported goods are liable to custom duty at prescribed rates Zero-rating and concessionary rates of customs duty are generally applicable for industrial raw materials, semi-finished goods and capital goods, particularly if not being manufactured in Pakistan. (a) (b) (c) (d) The Custom duties are levied on goods at the rate specified in the schedules to the Custom Tariff Act, 1975 on import into or export from India. Import duty consists of following type of duties: Basic custom duty (BCD), IGST, special CVD, NCCD, Anti dumping duty/ Safeguard duty etc. The rates of basic custom duties vary from 0% to 30%. Low rate Import duties vary from 0-3% is levied under Export Promotion Capital Goods (EPCG) Scheme on fulfilling certain condition mentioned under the (a) Imported goods are liable to custom duty at prescribed rates (b) Zero-rating and concessionary rates of customs duty are generally applicable for industrial raw materials, semifinished goods and capital goods, particularly if not being manufactured in Bangladesh. (c) Custom duty is based on cascading principle whereby customs duty is applicable at higher rate on luxury items (a) (b) Goods imported into and exported from Nepal are liable to custom duties at prescribed rates. However, 0%, 1%, 5% and concessionary rates of customs duty are generally applicable for importing plant, machinery and equipment required for direct production process. Custom duty is based on cascading principle whereby customs duty is applicable at higher rate on luxury items /finished goods & at lower rate on industrial raw material/ semi finished/ essential goods B Ports and Airport Development Levy : is charged on CIF value of liable articles imported. General rate at present is 5%. Special Commodity Levy also is charged on certain commodities instead of imposition of multiple taxes and levies. Rates of such levy are varied in accordance with the specifications made in time to time. The customs duty levied on goods according to the prescribed rates of customs law of Afghanistan. In addition to the customs duty (Tariff) following taxes shall be payable too. 4% Advance BRT 2% Fixed tax (Legal Person) 3% Fixed tax (Natural Person) 2% Red Crescent tax The 4% advance BRT is reconcilable against the quarterly payment of BRT to the relevant tax offices. The 2% fixed tax is allowable in the tax return 14

18 (c) Custom duty is based on cascading principle whereby customs duty is applicable at higher rate on luxury items /finished goods & at lower rate on industrial raw material/semifinished/ essential goods. No export duty is levied on the goods exported from Pakistan Foreign Trade Policy. (e) Export made from India may avail concessions in form of duty drawback, duty entitlement pass book scheme and advance license etc. (f) Several industries such as 100% EOU and units in free trade zone (FTZ) are eligible to procure raw material at concessional rate / zero rate of duties. /finished goods & at lower rate on industrial raw material/semi finished/ essential goods against the 20% corporation tax and quarterly payment of BRT. Persons who import goods without having a business license shall be subject to three percent fixed tax on the total cost, including customs duties, of the goods imported in lieu of income tax. Persons who import goods and have an interim business license but do not file their returns of income to the Ministry of Finance shall be subject to three percent fixed tax on the total cost, including customs duties, of goods imported in lieu of income tax. The 2% Red Crescent payment is not allowed against any kind of future tax liability but allowed as allowable expenses. No export duty is levied on the goods exported from Afghanistan. 15

19 14. Social Security Taxes Social Security Contribution and Employee s Old Age Contribution are payable by the employers against the salary income of insurable employees. Such taxes are computed in accordance with provisions of relevant statute. The employer generally contributes 12% of eligible wages per month to provident Fund. From the employer s contribution, 8.33% of the wages (up to INR 6500) are applied to the pension fund, with balance paid to the Provident Fund. The employer also must pay a gratuity to workers who have rendered continuous services for at least 5 years at the time of retirement, resignation, superannuation, etc., at the rate of 15 days wages for every completed year of services (up to a maximum of INR 1 million) Generally Provident Fund, Gratuity and Pension Fund are available in Bangladesh. In case of Provident Fund, both Employer and Employee contributed equally in every month. In case of Gratuity and Pension Fund, only Employers contribute to these funds. The government of Nepal has imposed a 1% for social security for both government and private sector employees on the first slab of income (i.e., NRs. 350,000 for individual and NRs. 400,000 for couples). Those having proprietary firm, however, have to pay this tax if their annual income is more than NRs or NRs.400,000as the case may be.. In Sri Lanka, from year 2009, in view of rebuilding the communities and infrastructure facilities affected by war, Nation Building Tax is imposed on the turnover of liable goods and services. General threshold is Rs. 500,000/ per quarter Normal rate is 2%. (Threshold and rate differs for several sectors) Not applicable. 15. Capital Value Tax (CVT) CVT is a tax on the capital value of the specified assets and is payable on the acquisition of an asset by every individual, association of persons, firm or company. Capital Value Tax (CVT) is charged on the following transactions: (a) Purchase of shares of listed Capital Value Tax not applicable in India. Real estate transactions attracts stamp duties that are levied under Indian Stamp Act and rates varies from one state to another Capital Gain tax imposed in Gains on Sales of property, shares, fixed asset, etc. Capital gains in respect of any profit & gains arising from the transfer of a capital asset & such profits & gains shall be deemed to be the income of the income year in which the transfer took place Capital gains under Income Tax Act is taxed as per below: 1. In the case of non business chargeable assets; securities or an interest in an entity, land and buildings except with some savings. The gains are taxed on basis of net incomings (difference between disposal value and cost). Such gain is treated as investment income in the case of natural person. 2. In the case of depreciable Capital Gains Tax was repealed in Sri Lanka in 1980ies. Real estate transactions attractsstamp duty that is levied under the Provincial Stamp Duty Acts at rates equally applicable to each Province of the country. The gain from the sale or exchange of capital assets or investment in trade or business shall be subject to income tax. The capital gain tax will be calculated as follow: The gain of the corporation will be added directly to the taxable income and taxed at the 20% of the corporation tax rate. The gain of the natural person will be taxed in the special 16

20 companies and Modaraba certificate or any instrument of redeemable capital is subject to 0.01% and 0.02 % respectively. b) Residential immoveable property measuring five hundred square yards or more, commercial property and residential flats of any size at the rate of 2 % of the recorded value. c) Motor vehicles imported and local manufactured,not plying for hire assets: The gains are taxed on the surplus upon disposal of the entire pool of the depreciable assets. Treated as business income. 3. In the case of business assets: The gains are taxed on basis of net incomings from the disposal. Treated as business income rate, if the asset is owned for more than 18 months. If the asset is owned for less than 18 months, then no special or concession rate is available. In addition to the capital gain tax, there is 1% tax on the sale or transfer of moveable or immovable property. 16. Professional Tax/ Local Tax on profession This is a provincial levy on Trade, professions, Callings and Employment generally payable on the basis of paid up capital. The rates differ from one province to another. In the province of Sindh, on companies the rates range from PKR 10,000 to PKR Professional Tax in India is a state-level tax which is imposedon business owners, working individuals, merchants and people of various occupations. This tax is levied by municipal corporations / States and maximum amount payable per year is INR 2,500 which is subtracted by the employer every month from employee s salaries and deposit to the municipal corporation / States There is no professional tax in Bangladesh. Municipalities are empowered to levy local tax on profession specified industry, trade, profession or occupation. Minimum and maximum rates for each category of profession are fixed and the municipalities can fix rates according to their local conditions with in these limits. In Sri Lanka no such tax other than the Income Tax on professionals. There is no Professional tax but instead in tax law of Afghanistan applying fixed tax on all small business which came under this category. 17

21 100,000 depending on the slab applicable in relation to the paid up capital. In case of establishments other than limited companies, there are different rates ranging from Rs.500 to Rs based on their turnover. treasury. Under income tax, professional tax paid is allowable deduction while computing income from salary. 17. Property Tax This is a provincial tax levied on the value of property. The rates of property tax vary from one province of Pakistan to another. It is generally charged, levied and collected on the basis of annual rental value of land and building. The property tax in India is levied by the local municipal authority on the following real states such as office building, factories, godowns, shops, flats and residential houses (self occupied or let out). It is calculated on the basis of annual value of the property. Tax is imposed on any sale of land, registration of property, etc., Municipalities levy house and land tax on each house and land with in their jurisdiction on the basis of the size, type, design, construction and structure of the house and area covered by the house, as approved by the Municipal Council. Municipality councils and Town Councils levy a house and land levy on an annual basis, on each house and land within their jurisdiction on the basis of the size, and location as approved by the respective Council The property tax is levied in Afghanistan by the local municipality. There are two types of tax: 1. The first type is levied by the local municipality during sale or transfer of the house or land. The rate differs based upon size, type, location and design of the property. 2.The second type is a fixed amount of Afghanis which is payable annually by the resident of house or owner of the land to the local municipality. 18

22 18. Stamp Duty The Stamp Duty Act, 1899, provides for imposition of stamp duty on instruments and documents and for matters connected and incidental thereto. Stamp duty is provincial levy, which inter-alia is payable on the following: (a) Every instrument executed, drawn or presented in Pakistan (b) Every document presented or filed in the various courts Financial instruments, real property and other specified transactions in India attract stamp duties that are levied under the Indian stamp Act and the stamp acts of the various states (with rates varying significantly by state) Stamp Duty is applicable based on the value of Deeds /legal documents Nepal does not have a specific law governing stamp duty. However, the stamp tickets are used in various transactions such as: In property deals; In insurance contracts; In customs and excise transactions; In various applications to Government; etc. The stamp is issued by Government Post Office under Postal Act Registration of land, building, mortgage, deeds, etc. is also subject to registration duties, as per the rates prescribed in Finance Act. Stamp duty is charged at specified rates at the time of execution of the specified instruments namely, Affidavit Notary license Lease / hire of any property On credit card claims excluding the transactions where the merchant country is Sri Lanka Policy of Insurance Trade license Bonds/ mortgages Promissory notes Receipt over Rs.25,000/ Stamp duty is levied on legal documents based on the types and place of verification. (c. Cheque or promissory note drawn outside Pakistan but negotiated in Pakistan in any manner whatsoever (d) Every instrument executed outside Pakistan and received in Pakistan that relates to property situated or any matter done or 19

23 to be done in Pakistan. 19. Other Taxes Payroll tax Not applicable. Other than income tax payable by the employees and social security taxes payable by the employer there are no other payroll related taxes Payroll tax Payroll tax is not applicable in India. Payroll tax Not applicable other than income tax payable by the employees Payroll tax Not applicable. Other than income tax payable by the employees and social security taxes payable by the employer there are no other payroll related taxes, which is computed annually withheld by the employer on monthly basis Payroll tax Not applicable. Other than income tax payable by the employees and social security taxes payable by the employer there are no other payroll related taxes Payroll Tax: Not applicable. Other than income tax payable by the employees, there is no other payroll related tax. Inheritance tax There is no inheritance tax in Pakistan. Inheritance tax India does not include inheritance tax within its taxation system. Inheritance tax There is no inheritance tax in Bangladesh Inheritance tax There is no inheritance tax in Nepal Inheritance tax There is no inheritance tax in Pakistan. Inheritance Tax: There is no inheritance tax in Afghanistan. Gift tax There is no gift tax in Pakistan. Gift tax The levy of gift tax was done away in 1998 but in 2004 the Gift Tax Act 1958 was revived partially by inserting certain provisions in section 56 of the Income tax Act, 1961 wherein the sum of money or property received with inadequate consideration or without consideration is brought under the tax net. Service Tax Gift tax Gift tax is levied on gifts made in any financial year on and from the 1 st day of July, 1990 at the rates prescribed in the range of 5% to 20% based on the value of all taxable gifts. No gift tax shall be applicable under this Act for any gift made by any person in a tax year not exceeding the value of Gift tax There is no gift tax in Nepal. However, windfall gain is taxed under Income-tax Act applying at the rate of 25% Gift tax There is no gift tax in Pakistan. Gift Tax: There is no gift tax in Afghanistan. Furthermore, the value of an asset acquired by gift, bequest or inheritance is excluded from income tax, but the income from such asset is taxable income. The gain on the inherited asset during sale or transfer of moveable or immovable property is 20

24 Service Tax was introduced for the first time in the year 1994 on 3 Services. Ever since, different Finance Ministers have added new services under its ambit. Another major shift has happened in the year , wherein, all services have been brought into the service tax net, barring a few that have been specifically mentioned in the negative list/ exempted list of services. Service Tax is levied at the rate of 12%. Wealth Tax Wealth tax is abolished from the Assessment Year taka 50,000 exempt from capital gain tax. 20. Double Taxation Agreements/ International Tax Treaties Pakistan has Double Taxation Agreements (DTAs) with more than 50 countries, including those where conventions are restricted to taxation of income from international air / shipping traffic. These DTAs have an overriding effect over provisions of Ordinance in respect of taxability of income, relief and allowances, and provide for special India has entered into DTAAs with almost 100 countries including U.S.A., U.K., Japan, France, Germany, etc. These agreements provides for relief from the double taxation in respect of incomes by providing exemption and also by providing credits for taxes paid in one of the countries. These treaties are based on the general principles laid down in the model draft of the OECD with suitable modifications as agreed to by the other contracting countries. In case of countries with which India has double taxation avoidance Bangladesh has entered into Double Taxation Agreements (DTAs) with 32 countries, including those where conventions are restricted to taxation of income from international air/ shipping traffic. These DTAs have an overriding effect over the provisions of Ordinance in respect of taxability of income, relief and allowances, and provide for special treatment of income from different sources. Nepal has Double Taxation Avoidance Agreement (DTAA) with 10 countries. The purpose of the treaty is to relieve double taxation and to prevent fiscal evasion and to ensure reciprocal administrative assistance in the enforcement of tax liabilities. In case, existing income tax law contradicts the treaty, the provisions of the treaty prevail. Sri Lanka has entered into 43 tax treaties, whereas 16 treaties are waiting for entry in to force or for the completion of formalities. Most tax treaties are bilateral and based on either OECD model or UN model. There is one multilateral tax treaty with SAARC. Afghanistan is in negotiation with Pakistan, Iran and Turkey 21

25 treatment of income from different sources. Most of DTAs are on OECD model and provide for exemption of business profits where same are not attributable to a PE in Pakistan. Exemptions / reduced tax rates are also available under some treaties for capital gains, dividend, interest, royalty and fee for technical services. The Ordinance contains the rules for computation of tax relief by way of credit in respect of foreign taxes paid. Any excess tax credit may be carried forward or refunded. However, in practice it is usually carried forward and adjusted against a Future tax liability. agreements, the tax rates are determined by such agreements. Most of the DTAs are on OECD model and provide for exemption of business profits where the same are not attributable to a PE in Bangladesh. Bangladesh generally follows UN model of avoidance of double taxation agreement. Exemptions / reduced tax rates are also available under some treaties for capital gains, dividend, interest, royalty and fee for technical services. The Ordinance contains the rules for computation of tax relief by way of credit in respect of foreign taxes paid. Any excess tax credit may be carried forward or refunded. However, in practice it is usually carried forward and adjusted against a future tax liability. 22

26 21. Foreign Ownership/ Setting Up Business by a Foreign Company (a) With the exception of certain specified industries, 100 percent foreign ownership is permitted in the manufacturing sector without requiring any permission from the Government. (b) Specified industries include arms and ammunitions, high explosives, radioactive substances, security printing, currency, mint (c) New units for the manufacture of alcohol are not allowed except for industrial alcohol. (d) For nonmanufacturing sector (comprising of three subsectors namely Agriculture, Infrastructure Foreign investors can have presence in India in the following ways: (a) (b) As an office of the foreign entity in the form of liaison or representative office, a project office and a branch office. As an incorporated entity in the form of a Joint Venture and wholly owned subsidiary or Limited Liability Partnerships. FDI up to 100% is allowed in India under the automatic route in majority of sectors. FDI in activities not covered under the automatic route require prior Government approval. There are certain sectors where FDI is prohibited both under the Government as well as the Automatic Route (for eg. Chit funds, real estate business, manufacture of tobacco products etc.) For starting a new project, depending on the nature of activities, approvals/clearances may be required from different authorities such as Pollution Foreign investors can start business in Bangladesh in following ways: (a) Setting up a 100% foreign-owned company in Bangladesh (b) Setting up a Joint Venture with Bangladeshi company / investor (c) Establishing the Company s Place of Business in Bangladesh (d) Setting up a Branch or a Subsidiary of a foreign company (e) Setting up a Bangladeshi Company or join a Bangladeshi Company already formed. Foreign investors are free to make investments in Bangladesh in the The Nepalese government allows 100% ownership to foreign investors in the following types of industries: (a) Small-scale industry with a fixed asset up to NRs. 100 (b) million. Medium-scale industry with fixed asset between NRs. 100 million and NRs. 250 million. (c) Large-scale industry with fixed assets of more than NRs.250 million. Foreign Investors requires approval from Department of Industry for Industries; from Nepal Rastra Bank for banks and financial institutions and Insurance Board for Insurance Company. Foreign Investment for industries exceeding NRs. 500 Million should be approved Industrial Promotion Board and investment exceeding Nrs 10 Billion should be approved by Investment Board. Foreign investors are not allowed to invest in several industries, which are included in the Negative List. Some of these industries are: 1. Cottage Industries 2. Personal Service Business 3. Arms and Ammunition 4. Explosives, Gunpowder Foreign investors can start business in following ways: (a) Setting up a Branch Office by registering with the Registrar of companies. (b) Setting up a Liaison Office or Representative Office. (Trading and investment are not allowed). (c ) Setting up a Local Subsidiary company that has to comply with all statutory requirements imposed on domestic companies. (d) Setting up a joint Venture with a Sri Lankan company to be carried as a partnership business. Under the investment policy of BOI of Sri Lanka, 100% foreign ownership allowed; no restrictions on repatriation of earnings: strong Intellectual Protection Laws in line with WIPO regulations. So far it can be 100% ownership 23