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Bangladesh has moved to amend the double taxation avoidance treaty with Pakistan to boost bilateral trade and investment in the wake of the recent diplomatic correspondence between the two countries.
The initiative to amend the treaty, signed with Pakistan in 1981, came following both governments' efforts to strengthen business ties after a pause of one and a half decades.
Officials said the treaty's amendment was needed to include digital business, gig economy, and changes in patterns of bilateral trade.
The tax authorities have sent a draft of the amendments to the protocols to the Pakistan government to update the "Convention for avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (ADTA)".
Officials said the Pakistan tax authorities had also sent amendments from their side.
A senior Bangladeshi tax official says the decades-old treaty lacks digital economy and changes in business patterns, which may discourage bilateral investments between the two countries.
The amendments to the protocols would enhance cross-border transactions between the two nations and open up avenues of e-commerce, the official said.
In the treaty, the permanent establishment provisions apply only to immovable assets.
It says permanent establishment shall include especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a warehouse; (g) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (h) a building site or construction or assembly project or the like which exists for more than 183 days.
However, the permanent establishment's definition was changed in the Income Tax Act 2023 in Bangladesh and included virtual businesses, digital platforms, etc., the tax official said.
Article 6 of the treaty says, "Income from immovable property (1) Income derived by a resident of a contracting state from immovable property situated in the other contracting state may be taxed in that other state."
The interim government recently decided to reactivate the joint economic commission with Pakistan after a decade and a half.
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