The government of Bangladesh has proposed extending the coverage of advance income tax (AIT) on domestic letters of credit (L/Cs) or any financing agreement for purchasing goods

The proposal effectively imposes AIT on small-scale businesses that are currently exempt from this tax.

Exemption scrapped

Banks and financial institutions must deduct AIT when they make payments on L/Cs to sellers of goods.

Bangladesh's June budget proposals, if passed into law, would scrap the existing exemption of L/Cs of below the equivalent of US$1,200.

Rate cut

The budget does however also contemplate bringing down the rate of AIT to one per cent from the current three per cent of a sales invoice value.

The tax will not be applicable on payments against L/Cs used to purchase goods used to execute export orders.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.