Universal Income Year for Companies in Bangladesh

With the 2015 budget, enacted through the Finance Act 2015, the Government of Bangladesh introduced a requirement that the accounting period of companies — other than banks, insurance companies and financial institutions — must follow a July–June basis. The measure took effect from 1 July 2016. The decision has since been the subject of considerable debate among entities questioning whether such a requirement is workable.

The rationale

Although the Finance Minister did not give a definitive answer in his budget speech, the rationale has been linked to the way the national budget is formulated. Notable financial advisers and tax consultants have pointed out that aligning the accounting year for these companies helps maintain homogeneity in government revenue. Because these companies are required to submit tax returns by December each year, the government has more time to predict its income accurately when preparing the following year’s budget. This is intended to reduce the likelihood of a deficit budget, as well as the revised budgets that have become common in the country.

The criticisms

The measure has not been without objection. Some question why the accounting year and the tax year must be the same. There are companies that would prefer to maintain an accounting year according to management’s wishes while still complying with the December taxation deadline if the government requires it. This concern has been raised in particular by foreign investors, who would like to keep their accounting period aligned with that of their parent company abroad. A further argument in favour of a uniform period is that it preserves the comparability of financial statements for public investors in the country’s volatile share market. Even so, such a requirement may not be well suited to privately owned companies.

Entrepreneurs have also criticised the way the measure has been implemented, arguing that it has not been applied uniformly. Government bodies have not been clearly informed about how to close accounts in a given accounting year — for instance, whether the transition should be handled on an 18-month or a 6-month basis. In addition, companies are required to report to the company house — the Registrar of Joint Stock Companies and Firms, or the Securities and Exchange Commission — that they are changing their accounting year, even though this is a policy enforced by the government rather than a decision of management.