Common Bookkeeping Mistakes That Trigger Expense Disallowances in Bangladesh
Even profitable companies face unexpected corporate tax bills when legitimate business expenses are disallowed under the Income Tax Act 2023 due to preventable bookkeeping and payment errors.
Informational Guidance Only: This briefing is prepared for general educational reference and does not constitute formal tax, audit, or legal advice. Always verify current rates, exemptions, and deadlines with official NBR/RJSC notifications.
Executive Summary & Key Takeaways
- Paying rent, salaries, or large purchases in cash instead of crossed cheque/bank transfer can lead to 100% disallowance of the expense.
- Failing to deduct or deposit TDS/VDS on supplier and service bills renders the underlying expense inadmissible for tax purposes.
- Monthly three-way reconciliation between Books of Account, Bank Statements, and Mushak 9.1 returns prevents year-end surprises.
1. Violating Statutory Banking-Channel Payment Rules
Under the Income Tax Act 2023, specific categories of expenditure must be paid through banking channels (crossed cheque, bank transfer, or approved electronic means) to be treated as allowable business deductions. Paying employee salaries, office/factory rent, or raw material/general purchases in physical cash above the statutory threshold allows the Deputy Commissioner of Taxes (DCT) to disallow the expense entirely—meaning the business pays corporate tax on money it actually spent.
2. Overlooking Withholding Tax (TDS) & VAT at Source (VDS)
Whenever a company or designated withholding entity pays a supplier, contractor, landlord, professional consultant, or advertising agency, it must check whether Tax Deducted at Source (TDS) and VAT Deducted at Source (VDS) apply. If an accountant records and pays the full invoice without deducting required source taxes, the expense risks disallowance and penal interest.
3. Unreconciled Turnover Between VAT Returns and Financial Statements
Many businesses treat monthly VAT filing (Mushak 9.1) as a separate administrative task disconnected from their accounting software. At year-end, when total sales or purchases in the audited Profit & Loss statement differ from the sum of 12 monthly VAT returns—for instance due to credit notes, advances, or unrecorded invoices—both VAT and Income Tax authorities raise queries. Implementing a monthly close checklist resolves these variances in real time.
Let’s talk about what comes next.
Schedule a confidential initial consultation with Mohammad Sirajus Salekin, FCA (Fellow Chartered Accountant (FCA), Member of ICAB) to discuss your organisation’s statutory requirements or personal tax filing.