Principles of Taxation



Table of Content

Page

Abstract ----------------------------- 01

Objectives ----------------------------- 02

Methodology ----------------------------- 03

Limitations ----------------------------- 04

1. What is tax? ----------------------------- 05

2. Derived from ----------------------------- 05

3. Taxonomy ----------------------------- 05

1. Functions ----------------------------- 06

2. Types of tax ----------------------------- 06-07

A: Ethical Aspects

1. Canon of equality ------------------ 08-09

B: Administrative Aspects

2. Canon of certainty ------------------ 09

3. Canon of Convenience ---------------- 09

4. Canon of Economy ------------------ 10

5. Canon of Productivity----------------- 10

6. Canon of Buoyancy ------------------ 10

7. Canon of Flexibility ------------------ 10

8. Canon of Simplicity ------------------ 11

9. Canon of Diversity ------------------ 11

1. The tax structure for ------------------ 11-12

individual tax payers

2. The percentage of ------------------ 12

corporate tax levied

3. The period for ------------------ 12-13

assessment determined

4. Tax Administration in ------------------ 13-14

Bangladesh

1. Impartiality of imposing ------------------ 15-16

tax (Canon of Equality)

2. Assurance of paying tax ------------------ 16-19

(Canon certainty)

1. Time of payment---------------- 17

2. Quantity of Payment------------ 17

3. Manner of payment------------- 18-19

3. Canon of Convenience ------------------ 19

4. Cost – Cutting Measure ------------------ 19-20

(Canon of Economy)

5. Tax revenue not at Efficient------------------ 20-21

Level (Canon of Productivity)

6. Elastic Tax Structure ------------------ 21-23

(Canon of Elasticity)

7. Tax to be imposed on Multi ----------------- 23-24

Sources (Canon of Diversity)

1. Conclusion ------------------ 25

2. Recommendations ------------------ 25-26

List of table

|Particulars |Page No. |

|Table 1: For the assessment year 2006/07 |12 |

|Table 2: Revenue Yield in Bangladesh (1990/91 - 2000/01) |13 |

|Table 3: Types of Taxpayers in Bangladesh |15 |

|Table 4: Types of Taxpayers on the basis of Individual Income Taxes |16 |

|Table 5: Tax rate |17 |

|Table 6: Revenue Earned v/s Cost Of Collection |20 |

|Table 7: Measure of Efficiency |20 |

|Table 8: Quantum of different taxes vis – a – vis total tax revenue |23 |

April 2, 2007

Rehana Fowzia

Lecturer

Department Business Administration

Stamford University Bangladesh

Subject: Submission of the report on “Ascertain the Position of     Canons of Taxation in Tax System of Bangladesh”

Dear Madam:

Our report is on “Ascertain the Position of Canons of Taxation in Tax System of Bangladesh” that you have assigned us as part of the Business Taxation. We have tried to follow the instructions and suggestions that you have given in every aspects of our study.

We would like to request you that if you have any question about the report, please don’t be indecisive to contact with us. We will always be available at your convenience to make further detail of the study.

Sincerely yours,

Group – Chowkosh

1.

2.

3.

4.

5.

6.

Sec – I

27th batch

Report

on

“Ascertain the Position of Canons of Taxation in Tax System of Bangladesh”

Submitted

to

Rehana Fowzia

Lecturer

Course Title – Business Taxation

Submitted

by

Group Name – Chawkash

Section – I

Batch – 27th

Trimester – spring’07

Department of Business Administration

STAMFORD UNIVERSITY BANGLADESH

April 2, 2007

“Ascertain The Position of Canons of Taxation in Tax System of Bangladesh”

Group Name – Chawkash

Workforce Behind This Report

Name ID

1. MD. Faiz-ur-Rahman 02707021

2. MD. Mahbub Hossain 02707093

3. Sunayan Kanti Paul 02707063

4. MD. Wahidur Rahman 02707092

5. MD. Mehedi Mustafa 027070107

6. MD. Modassar Hossain 02707198

[pic]

Acknowledgement

[pic]

We are truly thankful to our course teacher, Rehana Fowzia, Department of Business Administration, Stamford University Bangladesh. Without whose heartfelt supervision and suggestions it was extremely difficult for us to prepare the assignment.

We want to thank and convey our heartiest gratitude to executives of the BD income tax department, who gave us the obvious information and noteworthy documents and helped us to understand the several that entailed to the assignment.

Especially, thank to all of our class mates who encourage us and co-ordinate us in many troublesome tasks.

[pic]

ABSTRACT

[pic]

As a requirement of our course curriculum of Business Taxation we are assigned a report on Ascertain the position of canons of taxation in tax system of Bangladesh. The main purpose of this report is to analyze and determine the existing situation of tax system of Bangladesh and to know what revenue comes from which sectors as tax. Revenue from taxation has been used by states and their functional equivalents throughout history to carry out many functions. And we should abide by some principles of taxation if it is subjected to earn revenue from tax properly for our country. The principles are such – canon of equality, economy, certainty, productivity, convenience, and many more. Estimates for the period between 2003-2004 showed that on average, the NBR is responsible for collection of about 95% of total tax revenue and about 81% of the total revenue of the government in a year. By analyzing the canon of taxation and existing situation of taxation system of Bangladesh there are some recommendations, which could act as remedies for a better income tax system in Bangladesh and would relevant to other developing countries as well.

[pic]

OBJECTIVES

[pic]

The objectives are divided into two parts:

1. Broad Objective:

Get an idea about the existing situation of tax system in Bangladesh and determining the tenet of taxation of Bangladesh

2. Specific Objectives:

• To know the canon of taxation.

• To know about the tax system of Bangladesh.

• To know the tax revenue in a year

• To know classification of tax payers

Finally recommend some strategies that should be taken.

[pic]

Methodology

[pic]

Two types of data sources are used for the study:

( Primary source

( Secondary source

Primary Data:

The study has been developed by taking some exclusive interviews with several persons of National Board of Revenue and Ministry of Finance, Govt. of Bangladesh. We are very thankful to the respective authority of National Board of Revenue for helping us by giving their important time and support. We have used both structured and unstructured interviews to collect data. We tried to gather the following types of data to construct the report:

• What is the canon of taxation?

• What are the sources of tax?

• What are the methods to impose tax?

• What are the tax rates for different category of tax for different years?

• What are the income sources of tax payers?

• What is national revenue or total revenue from tax?

• How much earn from particular sectors?

Secondary Data:

To construct our report, we have also taken help of various secondary sources like annual report published by NBR, journal, book and also searched through the intranet & internet for various pertinent information which have definitely enriched the research findings.

[pic]

Limitations

[pic]

Firstly, there was lack of sufficient data.

Secondly, we have not got enough time, which hampered the related processes to some extent. The time was not enough to prepare a formal and long business report.

Thirdly, financial bindings were another drawback in preparing the report.

Fourthly, there were some technological problems.

We think the report could be organized more extensively if there was sufficient time and proper response of the reference groups’ to cover all particulars regarding report format, structure, investigation.

Introduction

1. What is Tax?

Taxation one of the major sources of public revenue to meet a country's revenue and development expenditures with a view to accomplishing some economic and social objectives, such as redistribution of income, price stabilization and discouraging harmful consumption. It supplements other sources of public finance such as issuance of currency notes and coins, charging for public goods and services and borrowings.

2. Derived From:

The term 'tax' has been derived from the French word taxe and etymologically, the Latin word taxare is related to the term 'tax', which means 'to charge'. Tax is 'a contribution exacted by the state'. It is a nonpenal but compulsory and unrequited transfer of resources from the private to the public sector, levied on the basis of predetermined criteria.

3. Taxonomy of Tax:

Tax can be categorized in different types based on different angels, such-

a. On The Basis of Incidence

i) Direct tax

ii) Indirect tax

b. On The Basis of Progression

i) Progressive Tax

ii) Proportionate Tax

iii) Regressive Tax

c. On The Basis of Base

i) Single Tax

ii) Multiple Tax

Functions of Tax for a Country

1. Functions:

Funds provided by taxation have been used by states and their functional equivalents throughout history to carry out many functions. Some of these include –

• expenditures on war

• the enforcement of law and public order

• protection of property

• economic infrastructure (roads, legal tender, enforcement of contracts, etc.)

• public works

• social engineering

• the operation of government itself

Most modern governments also use taxes to fund welfare and public services. These services can include –

• education systems

• health care systems

• pensions for the elderly

• unemployment benefits

• public transportation

Energy, water and waste management systems are also common public utilities. Colonial and moderning states have also used cash taxes to draw or force reluctant subsistence producers into cash economies.

2. Types of tax:

The Organisation for Economic Co-operation and Development (OECD) publishes perhaps the most comprehensive analysis of worldwide tax systems. In order to do this it has created a comprehensive categorisation of all taxes in all regimes which it covers:

i) Income tax

ii) Capital gains tax

iii) Corporation tax

iv) Excises duty

v) Import and export duty

vi) VAT (value added tax)

vii) Suplimentary duty

viii) Motor vehical tax

ix) Land revenue

x) Non judicial stam

xi) Inherent tax

xii) Pool tax

xiii) Property tax

xiv) Retirement tax

xv) Sales tax

xvi) Tarrifs

xvii) Transfer tax

xviii) Wealth (not worth) tax

Principle of Taxation

A tax system for achieving certain objectives, choose and adheres to certain principles which are termed its characteristics. A good tax system, therefore, is one which is designed on the basis of an appropriate set of principles, such as equality and certainty. Mostly, however, objectives of taxation conflict with each other and a compromise is needed. Therefore usually equally economists select some important objectives and work out the corresponding principles which the tax system should adhere to. A summarized version of these is given below:

Adam Smith's canons of taxation

Adam Smith's contribution to economic theory is regarded as classic. His statement of canons of taxation has hardly been surpassed in clarity and simplicity. Four canons of taxation are as under:

1. Canon of equality.

This is based on the following concept

“The subjects of every State ought to contribute towards the support of the govt., as nearly as possible, in proportion to there respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State.”

This canon tries to observe the objective of economic justice. It dictates that in absolute terms the richer should pay more taxes because without the protection of the State they could not have earned and enjoyed that extra income. If we interpret this principles in terms of this disutility which the tax payers suffer by paying taxes, it follows that the tax should impose equal marginal disutility upon every tax – payer. Tow possibilities emerge in this case. If incomes are subject to constant marginal utility, then both the rich and the poor should be subjected proportional taxation – each person paying a given percentage office income as tax. On the other hand, if we agree with the more realistic proposition that income is subject to diminishing marginal utility, than the richer should pay a larger proportion of their income as taxes.

2. Canon of Certainty:

This canon is meant to protect the taxpayers from unnecessary harassment by the ‘tax officials’. The tax which each individual is bound to pay ought to be certain, and not arbitrary. Some fact should be clear and plain to the contributor and every other person, such –

• The time of payment

• The quantity of payment

• The manner of payment

The tax – payers should not be subject to arbitrariness and discretion of tax officials, since that breeds a corrupt tax administration. Smith is so emphatic about this principle as to claim “that a very considerable degree of inequality….is not near so great an evil as a very small degree of uncertainty.”

Certainty is needed not only from the point of view of the tax-payer but also from that of state.

3. Canon of Convenience:

This canon takes into consideration the interest of the tax payer from the view of payment of tax. It emphasizes that the mode and timings of tax payment should be, so far as possible, convenient to the tax payers. This canon recommends that unnecessary trouble to the tax payer should be avoided, other vicarious ill – effects may result.

4. Canon of Economy:

Every tax has a cost of collection. This canon recommends that cost of collection of taxes should be as minimized as possible. It will be unless to impose taxes which are too widespread and difficult to administer. Productivity of taxes has been given importance in this canon. These taxes entail an unnecessary burden upon the society in the form of additional administrative expense. The productive effort of the people suffers due to this wastage. Realizing that the tax collections are being wasted, the tax – payers also tend to evade them.

These canons of taxation of a sound philosophy behind them and exhibit an insight into the practical aspect of tax administration and its effects. However, in view of development in economic philosophy and problems of a modern state, a few additional principles were also suggested by later writer. A brief description of these is as follows:

5. Canon of Productivity:

It is also called the canon of fiscal adequacy. According to this principle,

the tax system should be able to yield enough revenue for the treasury and the govt. should have no need to resort to deficit financing. The canon is thus also called canon of adequacy.

6. Canon of Buoyancy:

The tax revenue should have an inherent tendency to increase along with an increase in national income, even if the rates and coverage of taxes are not revised.

7. Canon of Flexibility:

It should be possible for the authorities without undue delay, to revise the tax structure, both with respect to its coverage and rates, to suit the changing requirements of the economy and of the treasury.

8. Canon of Simplicity:

The tax system should not be too complicated. That makes it difficult to administer and understand and breeds problems of difference in interpretation and legal disputes.

9. Canon of Diversity:

It is risky for the state to depend upon too few a source of public revenue. Such a system is bound to breed a lot of uncertainty for then treasury. It is also likely to be inequitable as between different sections of the society. On the other hand, if the tax revenue comes from diversified sources, then any reduction in the tax revenue on account of one cause is bound to be very small. However, too much multiplicity of taxes is also to be avoided. That leads to unnecessary cost of collection and violates the canon of economy.

An Overview of Tax System in Bangladesh

1. The tax structure for individual tax payers:  

If an individual has been in Bangladesh for a period/period totaling 182 days or more in the income year, he/she is considered a resident. In case an individual has been in the country for 90 days in the income year and 365 days in four years preceding this year, he/she will also be considered a resident.  

Each individual is entitled to an investment tax credit of 15 percent of the total income or Tk. 100,000 whichever is less. Incomes from small and cottage industries are entitled to a 5 to 10 per cent tax rebate depending on the production volume. Tax liability of an assessee is determined at the rate or rates applicable on the total income of the assessee. The tax rate is not uniformed for all types of assessee and for any level income. This is varied from assessment year to assessment year.

Table 1: For the assessment year 2006/07

| |Rate |

|on taka tk. 1,20,000 |Nil |

|on next taka tk. 2,50,000 |10% |

|on next taka tk. 3,00,000 |15% |

|on next taka tk. 3,50,000 |20% |

|on the rest |25% |

2. The percentage of corporate tax levied:

Any income collected or gained by a company doing business in Bangladesh, whether resident or not is taxable. Corporate tax rates for industrial companies whose shares are publicly traded is 35% and the rate of those whose shares are not publicly traded is 40%.  

Tax rates on income of all other companies including banks, financial institutions, insurance companies and local authorities are 45%. Companies enjoying tax holiday are required to invest only 25% to 30% of their income in other activities as per rules of the National board of Revenue (NBR).

3. The period for assessment determined:  

Income tax is levied on all companies and individuals for the previous year and payable for the year of assessment of fiscal year (July to June). If a company adopts an accounting period different from the fiscal year, the business period is a 12 month accounting period preceding the year of assessment. Taxable income is calculated after adjusting for incurred expenses in the production of income.

Returns 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 assesses.  

Salary income received by or due to a foreign technician under contract of service approved by the NBR is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of his arrival in Bangladesh.  

Expenditure incurred by an employer in respect of remuneration of a foreign technician is also fully exempted from income tax (subject to stipulated conditions).  

Expenditure incurred as a remuneration payable to a foreign technician by a Bangladeshi firm carrying on the business of consultant and engineers in Bangladesh is fully exempted from tax (subject to prescribed conditions and limitations).

4. Tax Administration in Bangladesh:

National Board of Revenue (NBR) is the central authority for tax administration in Bangladesh and collects almost 78 percent of total revenue for the country (NBR annual report, 2000). Table 1 show that the total internal resource generation due to revenue earnings has been accounted for less than 10 percent of the gross domestic product (GDP) of Bangladesh in recent years. Tax revenue in general contributed more than eighty percent towards the total revenue earning of the economy.

Table 2: Revenue Yield in Bangladesh (1990/91 - 2000/01)

|Year | | |Non-tax2 revenue |

| |Total1 revenue |Tax2 revenue |(%) |

| |(%) |(%) | |

|1992-1993 |9.13 |7.26 |1.87 |

|1993-1994 |9.22 |7.07 |2.15 |

|1994-1995 |9.84 |7.90 |1.94 |

|1995-1996 |9.22 |7.29 |1.93 |

|1996-1997 |9.62 |7.89 |1.73 |

|1997-1998 |9.50 |7.69 |1.81 |

|1998-1999 |9.00 |7.36 |1.64 |

|1999-2000 |8.47 |6.78 |1.69 |

|2000-2001 |9.28 |7.80 |1.47 |

|2001-2002 |9.83 |8.09 |1.74 |

|Periodic Average |9.41 |7.48 |1.93 |

|1992/93-1996/97 |9.22 |7.54 |1.67 |

|1997/98-2001/02 | | | |

|Periodic Average3 |8.8 |5.5 |1.3 |

|1975/76 – 1979/80 |9.2 |7.7 |1.5 |

|1980/81-1984/85 | | | |

Note: 1. Total Revenue as Percentage of GDP

2. Tax and non-tax revenue as a percentage of total revenue

3. Adopted from previous Study by Ghafur, A. and Chowdhury, O.H. (1987)

Determining the Existing Position of the     Canon of Tax in Bangladesh:

1. Impartiality of imposing tax (Canon of Equality):

In Bangladesh majority of people are lower earning people. According to canon of equality both the richer and poorer should pay a certain amount of their income as tax. National Board of Revenue (NBR) is the central authority for tax administration in Bangladesh formed a tax structure for the tax payers. This is subject to pay tax according to individual’s ability to pay.

Taxpayers in Bangladesh can be categorized into three main groups. Table 3 shows the scenario in detail. The elite group consists of corporate taxpayers those are about 3.02 percent of the total taxpayers. The next group consists of wage earners or salaried taxpayers and shares about 18.81 percent. The largest and the last group consists taxpayers of remaining all others and mainly those who have income from business and profession and shares about 78.17 percent.

Table 3: Types of Taxpayers in Bangladesh

(as of FY 2005-2006)

|Types |No. of Tax payers |% |

|Corporate tax payers |24,770 |3.02 |

|Salaried tax payers |154,245 |18.81 |

|Other tax payers |640,795 |78.17 |

|Total |819,810 |100.00 |

In reality a major portion of taxes is paid by a small group of people with higher marginal rates. As stated the question arises whether the agriculture sector in Bangladesh will remain untaxed or not. Simply, in a country having its sixty percent population engaged in this sector, if kept untaxed for eternity will be undoubtedly impede broadening of the much desired tax base. Since the land distribution is widely unequal, one way might be to bring the top landowners under the tax net with major tax exemptions under some presumptive tax rates. Other way could be to reconsider their income as per their statement or estimating their income based on landownership and market rates. Table 4 shows the result of an analysis of personal income tax scenario in Bangladesh based on income classification

Table 4: Types of Taxpayers on the basis of Individual Income Taxes

|Income |Number of |% of total |Collection of |Payment of |

|Classification |Individual |taxpayers in |Tax Revenue |Taxes by |

|(in Taka) |Taxpayers |each category |(Million |each group |

| | | |Taka) |in % |

|0-100,000 |371,172 |53.42 |4.10 |0.08 |

|100,001-200,000 |233,910 |30.67 |1,403.30 |7.01 |

|200,001-250,000 |60,463 |8.71 |1,606.60 |21.27 |

|250,001-350,000 |29,177 |4.20 |2,124.60 |31.34 |

|Above 350,000 |15,516 |3.00 |2,815.30 |40.30 |

|Total |794,722 |100.00 |6,512.60 |100.00 |

2. Assurance of paying tax (Canon certainty):

This is about canon of certainty. The factor such –

• Time of payment (When to pay)

• Quantity of payment (How much to be paid)

• Manner of Payment (How to pay)

should be apparent and plain to all the contributors who pay tax so that the tax paid easily. In Bangladesh all of the factors that stated above are determined by the NBR (National Board of Revenue). Certainty is needed not only from the point of view of the tax-payer but also from that of state.

2.1. Time of payment – The assessment year and income should be apparent to the entire tax payer. In Bangladesh this is clear to all. The income year is the fiscal year or the year commencing on 1st July every year immediately preceding the assessment year or where the accounts of the assesses have been made upto a date within the said financial year and the assessee so opts. The twelve months ending on such day. And the assessment year means the period of twelve months commencing on first day of July every year. For example –

|Income Year |Assessment Year |

|2000/2001 |2001/2002 |

2.2. Quantity of Payment – NBR (National Board of Revenue) sets the quantity of payment known as ‘Tax rate’ in every year. Tax liability of an assessee is determined at the rate or rates applicable on the total income of the assessee. The tax rate is not uniformed for all types of assessee and for any level income. This is varied from assessment year to assessment year.

Table 5: Tax rate

|To be paid |Rate |

|on taka tk. 1,20,000 |Nil |

|on next taka tk. 2,50,000 |10% |

|on next taka tk. 3,00,000 |15% |

|on next taka tk. 3,50,000 |20% |

|on the rest |25% |

2.3. Manner of payment – This is subject to method of payment.

The reports considers a time series tax data on both personal and corporation income taxes from FY2004-FY20051 for calculating the revenue trend and marginal and average tax rates over the years and a cross section data of last available fiscal year 2005/06 to determine the sector wise tax burden. First of all, taxpayer’s information of different category and revenue yield in each sector is needed. National Board of Revenue (NBR) annual reports are considered as main indirect source in that aspect. Year-wise revenue collection and statistics is important to forecast the revenue trend, also based on such reports. To analyze the tax incidence in each major fields of taxation, it is important to measure the progressivity of taxes and hence to calculate the marginal and average tax rates in different income year. Sector-wise tax collection data has been collated to analyze the revenue trend and their respective contribution over the years.

2.3. Manner of Payment – The average and marginal tax rates for different income groups show the degree of progressiveness of any tax system. Many reasonable alternatives have been proposed to find out the ratios. Formby, Smith and Skye’s (1986) two methods are used here for the calculation of the vital ratios for Bangladesh tax structure. The first method says that the greater the increase in average tax rates as income increases, the more progressive the system. Algebraically, let T0 and T1 be the tax liability of income levels I0 and I1, respectively (assumption, I1 is greater than I0). The measurement of progressiveness, V1, is

V1 = (T1/I1 – T0/ I0) / (I1 – I0)

Once the analyst has found the economic incidence of the tax as embodied in T1 and T0, the tax system with the higher value of v1 is said to be more progressive. The second possibility is to say that one tax system is more progressive than another if its elasticity of tax revenues with respect to income (i.e., the percentage change in tax revenues divided by percentage change in income) is higher. Here the expression to be evaluated is V2, defined as

V2 = (T1 – T0)/ T0 ÷ (I1 – I0)/ I0

1Fiscal Year (FY): July to June

4. Canon of Convenience:

Every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it. This ought to be specified to every contributor that –

• Whom to pay

• How much pay

• Whether the given amount is used for common purpose or not.

Everything has to be convenient to every tax payer otherwise they try to evade the tax and various ill – effects may result. In Bangladesh the report of revenue from tax the expenditure plan is published every year. But Bangladesh is unable to raise enough resources in taxes. The tax-GDP ratio was only 3.4% in 1972-73 and it remained below 9% until the introduction of VAT in the country in 1991. The ratio was 9.8% in 1992-93 and although it was more than 9% in the successive years, it never reached 10%. The revised budgets of 1999-2000 and 2000-01 estimated the ratio at 8.6%. The budgeted expenditure of 2001-02 was Tk. 447.65 billion against projected total revenues of Tk. 272.39 billion i.e., the overall deficit was Tk. 175.26 billion. The revenue receipts included tax revenue of Tk. 220.23 billion (13% higher than that in the preceding year) and non-tax revenue of Tk. 52.16 billion (11% higher than that in the preceding year). The tax revenues covered only 40% of total expenditures.

4. Cost – Cutting Measure (Canon of Economy):

Every tax ought to be so contrived as both to take out and to keep out of the pocket of the people as little as possible, over and above what it brings into the public treasury of the State. The canon of economy urges that the cost of collection should be as minimum as possible. In Bangladesh since 1972 when the NBR was established try to minimize the cost of collection of tax. As the administration is expert and experienced and the system is more sophisticated day by day the cost is minimized to some extent.

Table 6: Revenue Earned v/s Cost Of Collection

|Fiscal Year |Revenue Earned |Cost of Collection |

| |(in crore Taka) |(in crore Taka) |

|1996/97 |14074 |1072 |

|1997/98 |15001 |1236 |

|1998/99 |15855 |970 |

|1999/2000 |17096 |339 |

|2001/2002 |19278 |313 |

|2002/2003 |29071 |389.56 |

5. Tax revenue not at Efficient Level (Canon of Productivity):

Though every tax has a cost of collection, the cost should not be yielded at exceeding level of total expenditure. Otherwise it would not be efficient for any country. After the liberation war Bangladesh can not reach at perfect efficient level till now.

Table 7: Measure of Efficiency

|Fiscal Year |Revenue Earned |Cost of Collection |Productivity |

| |(in crore Taka) |(in crore Taka) |% |

|1996/97 |14074 |1072 |13.12% |

|1997/98 |15001 |1236 |12.13% |

|1998/99 |15855 |970 |16.34% |

|1999/2000 |17096 |339 |50.43% |

|2001/2002 |19278 |313 |61.59% |

|2002/2003 |29071 |389.56 |74.62% |

According to this table shows in 2001/02 productivity was measured by 61.59% and in 2002/03 it was measured by 74.62% which is not desirable .This is a bottleneck in the process of progress of the economy of Bangladesh.

6. Elastic Tax Structure (Canon of Elasticity):

Tax liability of an tax payer is determined at the rate or rates applicable on the total income of the contributors. So it is important to know the rate or rates applicable for both different types of assessee and the tax authorities for different assessment year.

For The Assessment Year of 2005-2006 and 2006-2007

For the Assessment Year 2005/06

| |Rate |

|on the first tk. 1,00,000 |00% |

|on the next tk. 2,00,000 |10% |

|on the next tk. 2,50,000 |15% |

|on the next tk. 3,50,000 |20% |

|on the rest income |25% |

For the Assessment Year 2006/07

| |Rate |

|on tk. 1,20,000 |Nil |

|on the next tk. 2,50,000 |10% |

|on the next tk. 3,00,000 |15% |

|on the next tk. 3,50,000 |20% |

|on the rest income |25% |

It is to be mentioned that the minimum tax liability of an assessee from the assessment year 2005/06 it is tk. 1,500 and for 2006/07 it is tk. 1,800.

It is to be noted that for small & cottage industry situated in less developed or least developed areas tax rate rebate will be allowed as follows:

|Particulars of Condition |Tax Rebate |

|( Production increased by 15-25% over last ear |5% rebate on tax rate |

|( Production increased over 25% than last year |10% rebate on tax rate |

Tax rate of a company for the assessment year 2005/06 and 2006/07

In the Finance Act, 2005, the tax rates for the companies have been changed as follows:

|Description of the company |Tax rate |Tax rate |

| |2005/06 |2006/07 |

|1) All publicly traded company (except banks, | | |

|insurances, leasing and other investing co.) | | |

| | | |

|2) Not Publicly Traded Company (except banks, | | |

|insurances, leasing and other investing co.) | | |

| | | |

|3) Banks, insurances, leasing and other investing | | |

|co. | | |

| | | |

| |30% of total income |30% |

| | | |

| |37.5% of total income |40% |

| | | |

| |45% of total income |45% |

Here is to be noted that if a publicly traded company declares dividend more than 20% then it will get tax rate rebate @ 10%. Further, if a publicly traded company declares dividend less than 10% it will be taxed @ 37.5%. For 2006/07 instead of 37.5%, it will be 40%.

7. Tax to be imposed on Multi Sources (Canon of Diversity):

It is risky for the state to depend upon too few a source of public revenue. Such a system is bound to breed a lot of uncertainty for then treasury. Tax system of Bangladesh is based on multiple tax system. A good number of taxes are in existence. Among these taxes, contribution of indirect taxes to the exchequer is quite significant.

Direct taxes consist mainly of income tax and land tax, etc. Whereas indirect taxes consist of import – export duty, value added tax, motor vehicle tax, excise duty, etc. The following table shows the contribution of different taxes to total tax revenue:

Table 8: Quantum of different taxes vis – a – vis total tax revenue

(in crore Tk.)

|Types of Tax |1998/99 |1999/2000 |2000/01 |2003/04 |

|Income Tax |2,335 |2,980 |3,800 |5,270 |

|Import – export duty |4,755 |4,536 |4,790 |7,300 |

|Excise duty |205 |240 |275 |170 |

|VAT |4,800 |5,405 |5,940 |8,575 |

|Supplementary Duty |2,540 |2,664 |3,035 |5,430 |

|Motor vehicle tax |125 |111 |120 |241 |

|Land Revenue |215 |266 |301 |259 |

|Non judicial Stamp |625 |692 |807 |710 |

|Others |255 |208 |200 |1,116 |

|Total |15,855 |17,096 |19,278 |29,071 |

From this table it is evident that value added tax and export-import duty contributed lion’s share to the total tax revenue followed by income tax and Supplementary tax. It has earlier been pointed out that the tax system of Bangladesh is based on multiple taxes. And also has been pointed out that the tax revenue comes from diversified sources, and then any reduction in the tax revenue on account of one cause is bound to be very small.

Considering the existence tax structure and the previous structure it is noticed that the cost of collecting of tax from multi sources is not higher than the cost of collecting tax from single source such income, land tax. Rather tax from multi sources plays a vital role in budget.

Conclusion & Recommendations

This is the recent scenario of taxation system of Bangladesh. Attaining an optimal tax system is a difficult and unenviable task, but nevertheless critical for revenue generation required for accelerating growth and to improve the quality of life of the citizens. Economist Adam Smith introduces the core canon of taxation which are effective for any country to develop its economic growth. The rests are also play an important role to cover common expenditure of a country and essential for economical development. If we abide by this canon of taxation perfectly we do not need the help of foreign aids. These are the weapon to take Bangladesh ahead in globalization war. Govt. should take some step so that tax payers and tax authorities are bound to abide by these canons. This report unveils the present scenario of tax incidence among different income groups, in case of personal and corporation income taxes in Bangladesh tax system.

1. There is a need to educate people in Bangladesh for developing tax culture.

2. Tax Evasion should be given as priority number one monster and a strategy to be worked out to effectively tackle it.

3. Income Tax rates should be substantially reduced with quantum jump in the number of income tax assesses.

4. Tax structure is to be simplified to encourage potential assessees to deposit the income tax into the coffers of me sate.

5. National movement must be launched with the slogan: “Let us all pay income tax”.

6. The tax dodgers ought to be caught.

7. Aware the people about payment of tax.

Bibliography

|Books and Web Address |Author |

|1. Income Tax |Dr.Munir Morshed Mahmud |

|[Revised according to financial act, 2005] |Dr. Kanchan Kumar Purohit |

| |Dr. Milan Kumar Bhattacharjee |

|2. |Not Applicable |

|bangladesh/tax.asp | |

|3. |Not Applicable |

|/Tax system | |

|4. Financial reports (2002/03, 2003/04, 2004/05, 2005/06) |National Board Of Revenue (NBR) |

|5. |Not Applicable |

|6. Revenue Reforms Commission Report |The Daily Star, January 14, 2004 |

|7. Income Tax Manual, Part – I, The Income Tax Ordinance, 1984 |Bangladesh Government Press, Dhaka, 1999 |

|(XXXVI of 1984) Government of the People’s Republic of | |

|Bangladesh | |

-----------------------

Functions of tax for country 06-07

Introduction 05

A: Ethical Aspects

B: Administrative Aspects

Source: NBR financial Report 2006

Source: Finance Division, NBR and BBS (Note: Periodic data compiled by author)

Source: NBR annual report 2005/06

Source: NBR annual report 2004/05

Source: NBR Annual Reports (FY2006 – FY2007) and Ministry of Finance,

Government of Bangladesh

Source: NBR Annual Reports (FY2002 – FY2003)

[Source: NBR annual reports 2005/06 and 2006/07]

Source: A journal published by NBR

2. Recommended Strategy:

1. Conclusion:

Principle of Taxation 08-11

An overview of tax system in Bangladesh 11-14

Deterring the existing position of 15-24

The canon of tax in Bangladesh

Conclusion and Recommendations 25-26

Bibliography 27

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download