Tax Structure in Bangladesh

Submitted to:

Submitted by: Md. Tunvir Islam ID: 07204047 Sec: 001

Date of submission: 1st April, 2011

The followings are the various definitions of tax given by different economists: According to P.E. Taylor, Taxes are compulsory payment to government without expectation of direct return in benefit to the tax payer. According to Dalton, A tax is a compulsory contribution imposed by a public authority irrespective of the exact amount of service rendered to the tax payer in return and not imposed as penalty for any legal offense. According to Seligman, A tax is a compulsory contribution from the person to the government to defray the expenses in the common interest of all without references to special benefits. The above definitions make it clear that taxes are compulsory contribution by the taxpayer to the government.

Tax implications in each country are an important consideration for an investor. ere is an overview of taxation in !angladesh.

Tax structure for individual tax payers "f an individual has been in !angladesh for a period#period totalling $%& days or more in the income year, he#she is considered a resident. "n case an individual has been in the country for '( days in the income year and )*+ days in four years proceeding this year, he#she will also be considered a resident. Percentage of corporate tax levied Any income collected or gained by a company doing business in !angladesh, whether resident or not is taxable. ,orporate tax rates for industrial companies

whose shares are publicly traded is )+- and the rate of those whose shares are not publicly traded is .(-. Tax rates on income of all other companies including banks, financial institutions, insurance companies and local authorities is .+-. ,ompanies en/oying tax holiday are re0uired to invest only &+- to )(- of their income in other activities as per rules of the 1ational board of 2evenue 31!24. How the period for assessment determined "ncome tax is levied on all companies and individuals for the previous year and payable for the year of assessment of fiscal year 35uly to 5une4. "f a company adopts an accounting period different from the fiscal year, the business period is a $& month accounting period preceding the year of assessment. Taxable income is calculated after ad/usting for incurred expenses in the production of income. 2eturns filed received by or due to foreign technician under contract if it is accompanied by audited accounts and certified by a chartered accountant as to the correctness of the total income of the assessee. 6alary income received by or due to a foreign technician under contract of service approved by the 1!2 is fully exempted from paying tax 3sub/ect to prescribed conditions and limitations4 for a period of three years from the date of his arrival in !angladesh. 7xpenditure incurred by an employer in respect of remuneration of a foreign technician is also fully exempted from income tax 3sub/ect to stipulated conditions4. 7xpenditure incurred as a remuneration payable to a foreign technician by a !angladeshi firm carrying on the business of consultant and engineers in

!angladesh is fully exempted from tax 3sub/ect to prescribed conditions and limitations4.

Banglades !n"ome Ta# $ates

!angladesh personal income tax rates for assessment year &($( 8 &($$ is progressive up to &+-. !angladesh "ncome Tax 2ates for individuals other than female taxpayers, senior taxpayers of *+ years and above and retarded taxpayers 9 !ased on income :ear &($( 9 &($$

;irst 1ext 1ext 1ext

!<T $,*+,((( !<T &,=+,((( !<T ),&+,((( !<T ),=+,(((

1il $($+&(-

;or 2est Amount &+-

!angladesh "ncome Tax 2ates for female taxpayers, senior taxpayers of age *+ years and above 9 !ased on year &($( 8 &($$

;irst 1ext 1ext

!<T $,%(,((( !<T &,=+,((( !<T ),&+,(((

1il $($+-

1ext

!<T ),=+,(((

&(-

;or rest Amount &+-

!angladesh "ncome Tax 2ates for retarded taxpayers 9 !ased on :ear &($( 8 &($$

;irst 1ext 1ext 1ext

!<T &,((,((( !<T &,=+,((( !<T ),&+,((( !<T ),=+,(((

1il $($+&(-

2est Amount &+-

>inimum tax for any individual assessee is Tk. &,((( 1on8resident "ndividual: &+- 3other than non8resident !angladeshi4 ?n <ividend income: &("ncome tax is one of the main sources of revenue in !angladesh. "t is a progressive tax system. !angladesh "ncome tax is imposed on the basis of ability to pay. The more a taxpayer earns the more tax he should pay. This is the basic principle of charging income tax in !angladesh. The tax system aims at ensuring e0uity and social /ustice. Tax rates in !angladesh also differs between male and female individuals. Time to submit income tax return: @nless the date is extended, by the )(th day of 6eptember next following the income year.

!n"ome Ta# $eturn s ould be submitted by %& om': 8 "f total income of any individual 3other than female taxpayers, senior taxpayers of *+ years and above and retarded taxpayers4 during the income year exceeds Tk $,*+,(((#8. 8 "f total income of any female taxpayer, senior taxpayer of *+ years during the income year exceeds Tk $,%(,(((#8 8 "f total income of any retarded taxpayer during the income year exceeds Tk &,((,(((#8. 8 "f any person was assessed for tax during any of the ) years immediately preceding the income year. 8 A person who lives in any city corporation#paurashava#divisional A#district

A and owns a building of more than one storied and having plinth area exceeding $,*(( s0. feet#owns motor car#owns membership of a club registered under BAT Caw. 8 "f any person subscribes a telephone. 8 "f any person runs a business or profession having trade license and operates a bank account. 8 Any professional registered as doctor, lawyer, income tax practitioner, ,hartered Accountant, ,ost D >anagement Accountant, 7ngineer, Architect and 6urveyor etc. 8 >ember of a ,hamber of ,ommerce and "ndustries or a trade Association.

8 Any person who participates in a tender. 8 A person who has a TaxpayerEs "dentification 1umber 3T"14. 8 ,andidate for @nion Farishad, Faurashava, ,ity ,orporation or Farliament elections. 8 Any company registered under ,ompanies Act, $')( or $''.

Bangladesh Corporate Tax Rates

The standard rate of corporate tax in !angladesh is &=.+- in &($( 8 &($$ tax year. This is the standard corporate tax rate applicable to publicly traded companies in !angladesh, a list including tax rates for other corporations are as follows:

Fublicly Traded ,ompany 1on8publicly Traded ,ompany !ank, "nsurance D ;inancial ,ompany >obile Fhone ?perator ,ompany Fublicly Traded >obile ?perator ,ompany

&=.+)=.+.&.+.+)+-

"f any publicly traded company 3excluding >obile ?perator ,ompany4 declares more than &(- dividend, $(- rebate on total tax allowed.

Income Tax Authorities in Bangladesh

"ncome Tax Authorities in !angladesh are:

8 1ational !oard of 2evenue, 8 <irector General of "nspection 3Tax4, 8 ,ommissioner of Taxes 3Appeals4, 8 ,ommissioner of Taxes 3CT@4 8 <irector General 3Training4, 8 <irector General ,entral "ntelligence ,ell 3,",4, 8 ,ommissioner of Taxes, 8 Additional ,ommissioner of Taxes 3Appeal#"nspecting4, 8 5oint ,ommissioner of Taxes3Appeal#"nspecting 4, 8 <eputy ,ommissioner of Taxes, 8 Assistant ,ommissioner of Taxes, 8 7xtra Assistant ,ommissioner of Taxes, 8 "nspectors of Taxes.

Major Areas for Final Settlement of Tax Liabilit in Bangladesh

Tax deducted at source for the following cases is treated as final discharge of tax liabilities. 1o additional tax is charged or refund is allowed in the following cases: 8 6upply or contract work

8 !and rolls of hand made cigarettes 8 "mport of goods 8 Transfer of properties 8 7xport of manpower 8 2eal 7state !usiness 8 7xport value of garments 8 Cocal shipping business 8 2oyalty, technical know8how fee 8 "nsurance agent commission. 8 Auction purchase 8 Fayment on account of survey by surveyor of a general insurance company 8 ,learing D forwarding agency commission. 8 Transaction by a member of a 6tock 7xchange. 8 ,ourier business 8 7xport cash subsidy

Tax !olida
Tax holiday is allowed for certain industrial undertaking, tourist industry and physical infrastructure facility established between $st 5uly &((% to )(th 5une &($$ in fulfilment of certain conditions.

Banglades (alue Added Ta# %(AT' $ates The general rate of Balue Added Tax 3BAT4 in !angladesh is $+-. 8 Balue Added Tax 3BAT4 is imposed on goods and services at import stage, manufacturing, wholesale and retails levelsH 8 A uniform BAT rate of $+- is applicable for both goods and servicesH 8 $+- Balue Added Tax 3BAT4 is applicable for all business or industrial units with an annual turnover of Taka & million and aboveH 8 Turnover tax at the rate of .- is leviable where annual turnover is less than !<T & millionH 8 Balue Added Tax is applicable to all domestic products and services with some exemptionsH 8 Balue Added Tax 3BAT4 is payable at the time of supply of goods and servicesH 8 Tax paid on inputs is creditable # ad/ustable against output taxH 8 7xport is BAT exemptH 8 ,ottage industries 3defined as a unit with an annual turnover of less than !<T & million and with a capital machinery valued up to !<T )((,(((4 are exempt from Balue Added TaxH 8 Tax returns are to be submitted on monthly or 0uarterly or half yearly basis as notified by the Government.

Gift Tax: Amount ?n the first ?n the next ?n the next Tk. +,((,((( of the value of all taxable gifts Tk. $(,((,((( of the value of all taxable gifts Tk. &(,((,((( of the value of all taxable gifts 2ate +$($+&(-

?n the balance of the value of all taxable gifts

Classification of Tax"
)n t e basis of ta# rate Frogressive Tax Froportional Tax 2egressive Tax <igressive Tax )n t e basis of impa"t and in"iden"e <irect Tax "ndirect Tax )n t e basis of base

 6ingle Tax >ultiple Tax

TA# S$ST%M &F BA'(LA)%S!

>a/or heads of tax8revenues of !angladesh are as follows: A. Ta#es on !n"ome and Profit $. "ncome tax8,ompanies &. "ncome tax8?ther than ,ompanies B. Ta#es on Property * +apital Transfer $. 7state <uty and Gift Tax &. Iealth Tax ). 1arcotics <uty .. Cand 2evenue +. 6tamp duty8non8/udicial *. 2egistration +. Ta#es on goods and ser,i"es $. ,ustoms <uties &. 7xcise <uties ). Balue Added Tax 3BAT4 .. 6upplementary <uty 3?n luxury items and in addition to BAT4 +. Taxes on Behicles

*. 7lectricity <uties =. ?ther Taxes and <uties 3travel tax, turn over tax, etc.4

>a/or heads of non8tax revenues are as follows: D. !nterest, Di,idend and Profit E. -eneral Administration and Ser,i"es .. So"ial and +ommunity Ser,i"e -. E"onomi" Ser,i"es /. Agri"ulture and Allied Ser,i"es !. Transport and +ommuni"ation 0. )t er non1ta# re,enue 2. +apital $e,enue

Canons of taxes"
The four canons of taxation as prescribed by Adam smith are the following: 1. +anon of e3uality: The sub/ects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilitiesH that is, in proportion to the revenue which they respectively en/oy under the protection of the 6tate. This cannon tries to observe the ob/ective of economic /ustice. "t dictates that in absolute terms the richer should pay more taxes

because without the protection of the 6tate they could not have earned and en/oyed that extra income. "f we interpret this principle in terms of disutility which the tax8 payers suffer by paying taxes, it follows that the tax should impose e0ual marginal disutility upon every tax8payer. Two possibilities emerge in this case. "f incomes are sub/ect to constant marginal utility, then both the rich and the poor should be sub/ected to proportional taxationJeach person paying a given percentage of his income as tax. ?n the other hand, if we agree with the more realistic proposition that income is sub/ect to diminishing marginal utility, then the richer should pay a larger proportion of their income as taxes 3that is, the taxes should be progressive4. 2. +anon of "on,enien"e: The mode and timings of tax payment should be, so far as possible, convenient to the tax8payer. This canon recommends that unnecessary trouble to the tax8 payer should be avoidedH otherwise various ill8effects may result. 4. +anon of e"onomy: This canon recommends that cost of collection of taxes should be the minimum possible. "t is useless to impose taxes which are too widespread and difficult to administer. These taxes entail an unnecessary burden upon the society in the form of additional administrative expense. The productive efforts of the people suffer due to this wastage. 2ealiKing that the tax collections are being wasted, the tax8payers also tend to evade them. These canons of taxation have a sound philosophy behind them and exhibit an insight into the practical aspects of tax administration and its effect. also suggested by latter writers. owever, in view of developments in economic philosophy and problems of a modern state, a few additional principles were

5. +anon of "ertainty: This canon is meant to protect the tax8payers from unnecessary harassment by the Ltax officialsM. The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the 0uantity to be paid, ought all to be clear and plain to the contributor, and to every other person. The tax8payers should not be sub/ect to arbitrariness and discretion of the tax officials, since that breeds a corrupt tax administration. Iith a scope for arbitrariness even honest tax machinery will become unpopular. 6mith is so emphatic about this principle as to claim that a very considerable degree of ine0ualityN is not near so great an evil as a very small degree of uncertainty.

Ie have learnt the canon of taxation, the various tax systems in !angladesh and the implementation of canon in the tax system of !angladesh. As taxes are the most important source of revenue of the Government so it is clear that attaining an optimal tax structure is one of the most important issues for the government to increase the revenue generation from taxes for accelerating growth and to improve the 0uality of life of the citiKens. A long8term sustainable solution to enhance transparency, promote growth, improve tax compliance and thus to increase tax to G<F ratio is a much desirable issue in the context of !angladesh.

References:
1.

Banglades !n"ome Ta# %T eory and Pra"ti"e'1 4rd edition.

3"ncome tax, Balue added tax, Gift tax4
1ikhil ,handra 6hil, >ohammad Oakaria >asud, >ohammad ;aridul Alam

2.

6ationan Board of $e,enue %6B$' &ebsite

http: !!!.nbr"bd.or#

$. 4.

http"**+++,financialinfobd,com* http"**+++,taxrates,cc

7. 8T ree ta#es of Banglades 9.

>. A. Akkas, >. com. >!A 3A"T4. 3&(()4, 3"ncome tax, value added tax, gift Tax4, pp, *8'.