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Income Tax Reforms In Bangladesh
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Income Tax Reforms In Bangladesh

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  • 1. An Overview of the Reforms of the Bangladesh Taxation Prepared for Dr. Md Sajjad Hossain Bhuiyan Course Instructor: Taxation Prepared by Jahin Masnun Roll 07 BBA 15th batch Institute of Business Administration University of Dhaka November 09, 2010
  • 2. AcknowledgementI am very grateful to our course instructor Dr. Md Sajjad Hossain Bhuiyan for giving the opportunity towork on the taxation reformation.
  • 3. EXECUTIVE SUMMARYSince inception, taxation policies have faced reforms time and again to meet the demand of thechanging world. This report focuses on those reforms made in the previous years. It also makesan effort to recommend some positive changes that can be made to make the taxation policy ofBangladesh more effective.Among the direct tax reforms, introduction of TIN, widening of withholding tax, simplification ofself-assessment procedure, establishment of Large Taxpayers’ Unit (LTU) were introduced.Introduction of VAT, widening of VAT net, strengthening VAT administration, establishment ofLarge Taxpayers’ Unit (LTU) were among the indirect tax rules reforms. For the customs, therewas amendment of Customs Act, simplification of procedures, introducing mandatory PSI,improvement in information system, establishing Central Intelligence Cell (CIC).Expansion of the taxation net, reformation in the capital market related tax rules, reformationof Tax Appellate Tribunal, prevention of tax evasion and tax imposition at a reduced rate areother major alteration that has been done over the years.The amendment made to the Third Schedule are Bridge, road or flyover have been included inthis Schedule for admitting accelerated depreciation claim along with plant and machinery usedin an industrial undertaking between 01 July 1977 and June 30, 2012The amendment made to the Sixth Schedule is Para 34, from the list of exemption from incometax on fulfillment certain conditions, production of pelleted poultry feed has been excluded. Anew proviso has been included in this Schedule excluding the income of a company as definedin clause (20) of Sec (2).Overall, it appears that the amendments are tax-collection driven. But in so doing, some basicprinciple of income and taxation thereon has been disregarded when premium realized on theissue of shares has been subjected to 3.0% income tax. Plainly, it is not an income rather part ofthe capital which is illegally taxed now.No amendment to simplify tax assessment and collectionor to reduce the discretionary power of the tax officials has been made, though NBR repeatedlyassured the representatives of various trade and other groups to do so. It appears that pre-budget consultation is an annual ritual, signifying nothing other than spending huge money,time etc.Recommendations have been made in this report regarding progressivity of Tax Rates, narrow Tax Base,inequality of Taxing Urban and Rural Sectors, inequality in taxing Wages between Private and PublicSector, leaning up of Income Tax Exemptions and tax Amnesty.
  • 4. CHAPTER 1: INTRODUCTIONTax helps the state in implementing development plans. So the tax laws guides the tax payers to helpthe state in performing such a duty. Time and again, taxation rules are amended. This assignment dealswith those reformations which came in place with change in time.1.1 Origin of the report:This report is the result of an individual work assigned by the Taxation course instructor Dr. Md SajjadHossain Bhuiyan. The topic of the report is “An Overview of the Reforms of the BangladeshTaxation”.1.2 Purpose:The primary purpose of this report is a partial fulfillment of Taxation course requirement. The secondarypurpose is to find out the reformations of Taxation of Bangladesh.1.3 Scope:The scope of the study is tax manual of Bangladesh1.4 Methodology:Information was gathered from the following sources while preparing this report:Primary data: Income tax manual was used as primary source of dataSecondary data: Internet resources as secondary source.1.5 Limitations:Since there is not enough research on the taxation system in Bangladesh, it was tough to collect thenecessary latest secondary data.
  • 5. CHAPTER 2: TAXATION SYSTEM IN BANGLADESH2.1 OverviewAs Governments throughout the world have assumed more responsibility for the management of theeconomy, their financial transactions have increased in size and complexity. The developing countries(where needs are greatest and resources scarcest), have found their fiscal systems severely tested. Thescarcity of means is indicated by low per capita national income and by conditions that result in lowproductivity and market imperfections. Other forms of scarcity that complicate fiscal policy in majorityof the developing countries are shortage of well trained and experienced civil servants in economic andfinancial matters and a lack of system to provide needed information (transparency). The cyclicalinstability to which primary-producing nations are subjected is a hazard to revenue forecasting. If thegovernment attempts to use fiscal policy to mitigate such fluctuations or instability, heavy demands areplaced on the budget process. It goes without saying that SAl has a great role to play in ensuringaccountability of those who are engaged in collection of revenue which is the life blood of the economy.2.2 Revenue receipt of a governmentThe revenue receipts of government consist of 2 parts:  tax-revenue, and  non-tax revenueTwo basic differences between tax-revenue and non-tax revenue are (i) while the former is imposed bylaw, the latters mandate is derived from rule, tariff or other agreement, (ii) while the former does notrepresent a direct benefit to the tax payer, the latter generally involves the rendering by government ofa service or supply. Non-tax receipts are characterised by three criteria :- i. Large volume but small money value (hospital, police receipts, etc.) ii. Contractual (but outside the parameters of statutes e.g. forest receipts) and iii. Contractual, but within the parameters of statutes (e.g. mining royalties, mineral cases etc.).2.3 Major heads of tax-revenues of Bangladesh:A. Taxes on Income and Profit 1. Income tax-Companies 2. Income tax-Other than Companies
  • 6. B. Taxes on Property & Capital TransferEstate Duty and Gift Tax, Wealth Tax, Narcotics Duty, Land Revenue, Stamp duty-non-judicial,RegistrationC. Taxes on goods and services 1. Customs Duties 2. Excise Duties 3. Value Added Tax (VAT) 4. Supplementary Duty (On luxury items and in addition to VAT) 5. Taxes on Vehicles 6. Electricity Duties 7. Other Taxes and Duties (travel tax, turn over tax, etc.)
  • 7. CHAPTER 3: DESCRIPTIONFollowing are the sections and their descriptions that are amended time and again:Sec-11. Establishment of Appellate Tribunal.— The Government shall appoint one of the members of the Appellate Tribunal to be the president thereof. Explanation.--For the purpose of this section, period of practice as chartered accountant shall include any period of practice as chartered accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of 1961) 2[or Bangladesh Chartered Accountants Order, 1973 (P.O. No. 2 of 1973)] or as registered accountant enrolled on the register of accountants under the Auditors Certificate Rules, 1950Sec-16E: Charge of tax on sale of share at a premium over face value-Notwithstanding anything contained in any other provisions or any other law, where a company raisesits share capital through book building or public offering or rights offering or placement or preference orin any other way at a value in excess of face value, the company shall be charged , in addition to taxpayable under this ordinance, tax at the rate of 3% on the difference between the value at which theshare is sold and its face valueSec 19(24): Unexplained achievement deemed to be income-Where an assessee, being a private limited company or a public limited company not listed with a stockexchange, discloses investments in its equity received from any shareholder or director during anyincome year, the amount so received as equity not being received by crossed cheque or bank transfer,shall be deemed to be the income of such assessee for that income year classifiable under the head"Income from other sources”Sec-19C: Special tax treatment in respect of investment in the purchase of Bond under BangladeshInfrastructure Finance Fund-Notwithstanding anything contained in any other provision of thisordinance, No question as to the source of any sum invested by any person in the purchase of bondissued or caused to be issued under Bangladesh Infrastructure Finance Fund during the period betweenthe first day of July, 2010 and thirteenth day of June, 2012 (both days inclusive), shall be raised if theassessee pays, before the filing of the return of income for the relevant income year, tax at the rate of10% on such sum invested.
  • 8. Sec-46B. Exemption from tax newly established industrial undertakings set-up between the period of July, 2008 to June, 2011, etc. in certain cases.- (1) Subject to the provisions of this Ordinance, income, profits and gains under section 28 from an industrial undertaking, tourism industry or physical infrastructure facility (hereinafter referred to as the said undertaking) set-up in Bangladesh between the first day of July, 2008 and the thirtieth day of June, 2011 (both days inclusive) shall be exempted from the tax payable under this Ordinance for the period, and at the rate, specified below: (a) if the said undertaking is set-up in Dhaka and Chittagong divisions, excluding the hill districts of Rangamati, Bandarban and Khagrachari, for a period of five years beginning with the month of commencement of commercial production or operation of the said undertaking: Period of Exemption Rate of Exemption For the first two years (first and second year) 100% of income For the next two years (third and fourth year) 50% of income For the last one year (fifth year) 25% of income (b) if the said undertaking is set-up in Rajshahi, Khulna, Sylhet and Barisal divisions and the hill districts of Rangamati, Bandarban and Khagrachari, for a period of seven years beginning with the month of commencement of commercial production or operation of the said undertaking: Period of Exemption Rate of Exemption For the first three years (first, second and third year) 100% of income For the next three years (fourth, fifth and sixth year) 50% of income For the last one year (seventh year) 25% of income________________1 Ins. 46B by F.O. 2008 (2) For the purpose of the section,-
  • 9. (a) “industrial undertaking” means: (i) an industry engaged in the production of textile, textile machinery, jute goods, high value garments, pharmaceuticals, melamine, plastic products, ceramics, sanitary were, steel from iron ore, MS Rod, CI Sheet, fertilizer, insecticide and pesticide, computer hardware, petro-chemicals, agriculture machinery, boilers, compressors, basic raw materials of drugs, chemicals and pharmaceuticals and any other category of industrial undertaking as the Government may be notification in the official Gazette specify; Explanation: ‘high value garments’ means overcoats, jackets and suits. (ii) an industry engaged in agro-processing, ship building, diamond cutting and any other category of industrial undertaking as the Government may be notification in the official Gazette specify; (b) “physical infrastructure facility” means sea or river port, container terminals, internal container depot, container freight station Liquefied Natural Gas (LNG) terminal and transmission line, Compressed Natural Gas (CNG) terminal and transmission line, gas pipe line, flyover, mono-rail, underground rail, telecommunication other than mobile phone, large water treatment plant and supply through pipe line, waste treatment plant, solar energy plant, export processing zone and any other category of physical infrastructure facility as the Government may by notification in the official Gazette specify; (c) “tourism industry” means residential hotel having facility or three star or more and any other category of tourist industry facility as the Government may by notification in the official Gazette specify;(3) Notwithstanding anything contained in sub-section (2), for the purpose of this section industrial undertaking, tourism industry or physical infrastructure facility shall not include expansion of an existing undertaking.(4) The exemption under sub-section (1) shall apply to the said undertaking if it fulfils the following conditions, namely:- (a) that the said undertaking is owned and managed by- (i) a body corporate established by or under any law for the time being in force with its head office in Bangladesh; or (ii) a company as defined in the Companies Act, 1913 (VII of 1913) or Companies Act, 1994 (Act No. 18 of 1994) with its registered office in Bangladesh and having a subscribed
  • 10. and paid up capital of not less than ten lakh taka on the date of commencement of commercial production or operation; (b) that thirty percent of the exempted income under sub-section (1) is invested in the said undertaking or in any new industrial undertaking during the period of exemption or within one year from the end of the period to which the exemption under that sub-section relates and in addition to that, another ten percent of the exempted income under sub-section (1) is invested in each year before the expiry of three months from the end of the income year in the purchase of shares of a company listed with any stock exchange, failing which the income so exempted shall, notwithstanding the provisions of this Ordinance, be subject to tax in the assessment year for which the exemption was allowed: Provided that the quantum of investment referred to in this clause shall be reduced by the amount of dividend, if any, declared by the company enjoying tax exemption under this section. (c) that the said undertaking is not formed by splitting up or by reconstruction or reconstitution of business already in existence or by transfer to a new business of any machinery or plant used in business which was being carried on in Bangladesh at any time before the commencement of the new business; (d) that the said undertaking is approved, and during the relevant income year, stands approved by the Board for the purposes of this section; (e) that application in the prescribed form approval for the purposes of this section, as verified in the prescribed manner, is made to the Board within six months from the end of the month of commencement of commercial production or operation.(5) Notwithstanding anything contained in this section, where an undertaking enjoying exemption of tax under this section is engaged in any commercial transaction with another undertaking or company having one or more common sponsor directors, and during the course of making an assessment of the said undertaking if the Deputy Commissioner of Taxes is satisfied that the said undertaking has purchased or sold goods at higher or lower price in comparison to the market price with intent to reduce the income of another undertaking or company, the exemption of tax of that undertaking shall be deemed to have been withdrawn that assessment year in which such transaction is made.(6) The Board shall give its decision on an application made under clause (e) of sub-section (4) within forty five days from the date of receipt of the application
  • 11. by the Board, failing which the undertaking shall be deemed to have been approved by the Board for the purposes of this section: Provided that the Board shall not reject any application made under this section unless the applicant is given a reasonable opportunity of being heard.(7) The Board may, on an application of any person aggrieved by any decision or order passed under sub-section (6), if the application is made within four months of the receipt or such decision or order, review the previous decision, order or orders and pass such order in relation thereto as it thinks fit.(8) The income, profits and gains of the undertaking to which this section applies shall be computed in the same manner as is applicable to income chargeable under the head “Income from business or profession”. Provided that in respect of depreciation, only the allowances for normal depreciation specified in paragraph 3 of the Third Schedule shall be allowed.(9) The income, profits and gains of the undertaking to which this section applies shall be computed separately from other income, profits and gains of the assessee, if any, and where the assessee sustains a loss from such undertaking it shall be carried forward and set off against the profits and gains of the said undertaking for the next year and where it cannot be wholly set off, the amount of the loss not so set off, shall be carried forward for the following year and so on, but no loss shall be carried forward beyond the period specified by the Board in the order issued under sub-section (6) or (7).(10) Unless otherwise specified by the Government, nothing contained in this section shall be so construed as to exempt the following from tax chargeable under this section:- (a) any dividend paid, credited or distributed or deemed to have been paid, credited or distributed by a company to its share-holders out of the profits and gains; (b) any income of the said undertaking classifiable as “Capital gains” chargeable under the provisions of section 31; (c) any income of the said undertaking resulting from disallowance made under section 30.(11) Where any exemption is allowed under this section and in the course of making assessment, the Deputy Commissioner of Taxes is satisfied that any one or more of the conditions specified in this section are not fulfilled, the exemption shall stand withdrawn for the relevant assessment year and the Deputy Commissioner of Taxes shall determine the tax payable for such year.
  • 12. (12) Any such undertaking approved under this section may, not later than one year from the date of approval, apply in writing to the Board for the cancellation of such approval, and the Board may pass such order or orders thereon as it may deem fit. (13) Notwithstanding anything contained in this section, the Board may, in the public interest, cancel or suspend fully or partially any exemption allowed under this section. (14) The Board may make rules regulating the procedure for the grant of approval under sub-section (6), review under sub-section (7), furnish information regarding payment of other taxes by the said undertaking, and take such other measures connected therewith or incidental to the operation of this section as it may deem fit.Sec-49. Income subject to deduction at source.— (zn) income derived on account of trustee fees; (zo) income derived on account of freight forward agency commission;] 5 [(zp) income derived on account of rental power; (zq) income derived on account of interest of Post Office Savings Bank Account; (zr) income derived on account of rental value of vacant land or plant or machinery; (zs) income derived on account of advertisement. (zu) on account of issue of share at a premium (zv) income derived from transfer of securities or mutual fund units by sponsor shareholders of a company.Sec-52C. Deduction at source from compensation against acquisition of property.-Any person responsible for paying any amount of compensation against acquisition by the Governmentof any immovable property shall, at the time of paying such compensation deduct advance tax at therate of: a. 2% of the amount of such compensation where the immovable property is situated within the jurisdiction of any city corporation, paurasava or cantonment board b. 1% of the amount shall, at the time of paying such compensation, deduct advance tax at the rate of six per cent. of the amount of such compensation where the immovable property is situated outside the jurisdiction of any city corporation, paurasava or cantonment board.Sec -52F. Collection of tax from brick manufacturers.- Any person responsible for issuing anypermission or renewal of permission for the manufacture of bricks shall, at the time of issuing such
  • 13. permission or renewal of permission, collect tax from such manufacturer at the time of issuance of suchpermission or renewal at the following rates: (a) 3[taka thirty thousand] for one section brick field; (b) 4[taka forty five thousand] for two section brick field; (c) 5[taka sixty thousand] for three section brick field:Explanation:- For the purpose of this section, the word "section" shall have the same meaning asdefined in Mousumi Itvata Mullo Songjojon Kor Bidhimala, 2004Sec -53FF. Collection of tax from persons engaged in real estate or land development business.- Any person responsible for registering any document for transfer of any land or building or apartment, under the provision of Registration Act 1908 (XVI of 1908), shall not register the document unless tax is paid at the following rate by the transferor who is engaged in real estate or land development business,- (a) in case of building or apartment situated i. at Gulshan Model Town, Banani, Baridhara, Defence Officers’ Housing Society, Dhanmondi residential area, Lalmatia Housing Housing Society, Uttara model town, Bosundhara Residential area, Dhaka Cantonment area, Motijheel Commercial area, Dilkusha Commercial area, Karwan Bazar Commercial area, and Khulsi Residential area, Panchlaish Residential area and Agrabad of Chittagong at the rate of taka two hundred per square metre; ii. in areas other than areas mentioned in sub-clause (i), taka eight hundred per square meter (b) (i)in case of land situated in any City Corporation, Pourosova or Cantonment Board to which the document relates and on which the stamp duty is chargeable under stamp Act, 1899 at the rate of 5[five per cent] upto August 2009 and 2% from September 1, 2009 of the deed value of the property. (ii) in case of non-agricultural land valued at a sum exceeding 1Lakh taka situated outside the jurisdiction of any city corporation, Pourosova or Cantonment Board to which the document relates on which the stamp duty is chargeable under stamp Act, 1899 at the rate of 5[five per cent] upto August 2009 and 1% from September 1, 2009 of the deed value of the property.Sec 82C. Tax on income of certain persons. – (4) Income referred to under sub-section (1) in respect of which tax has been deducted or collected on account of supply of goods or execution of contract under section 52, manufacture of cigarettes under section 52B, import of goods under section 53, value of property for the
  • 14. purpose of collection of tax under section 53H, interest on savings instruments under section 52D 3[4{**} winnings under section 55, export of manpower under section 53B, remuneration or reward under section 53G, auction purchase under section 53C, payment on account of survey under section 53GG] 5[, payment on account of royalty or technical know-how fee under section 52A(2),commission from 6[clearing and forwarding under section 52AAA,freight earning from shipping business of a resident under section 53AA, transfer of property by real estate or land developer under section 53FF, transaction by a member of any stock exchange under section 53BBB]], 7[courier business of non-resident under section 53 CC, export cash subsidy under section 53 DD] shall be deemed to be the final discharge of tax liability under this Ordinance. Sec -124. Penalty for using fake Tax-payers Identification Number: Where a person has, without reasonable cause, used tax-payer’s Identification Number of another person or used a fake TIN on a return of income or any other documents where TIN Is required under this Ordinance, the Deputy Commissioner of Taxes may impose a penalty not exceeding taka twent thousand on that person. Sec-165A: Punishment for improper use of tax payer’s Identification Number (TIN)- A person is guilty of an offence punishable with imprisonment for a term which may extend to three years or fine upto taka fifty thousand, or with both if he deliberately uses or used a fake TIN of another person. Sec 184A. Requirement of certificate in certain cases.— Notwithstanding anything contained in this Ordinance, a certificate from the concerned Deputy Commissioner of Taxes or from any other person authorised by the Board in this behalf, containing the 2*tax payer’s identification number+ shall be required to be submitted to the concerned authority, by any person at the time of– q) Applying for connection of gas for commercial purpose in a city corporation, pourosova or cantonment board r)applying for connection of electricity for commercial purpose in a city corporation, pourosova or cantonment board s) registration, charge of ownership or renewal of fitness of a bus, truck, prime mover, lorry etc., plying for hireSec-184D. Reward for collection and detection of evasion of taxes.-- Notwithstanding anything contained in this Ordinance or any other law for the time being in force, the Board may, in such manner and in such circumstances and to such extent as may be prescribed, grant reward to the following persons :-
  • 15. (a) an officer or employee of taxes department for outstanding performance in collection of taxes and detection of tax evasion; (c) any other person for furnishing information leading to detection of tax evasion(2) THE Board may, in addition to the reward mentioned in the sub-section (1), grasnt rewards toofficers and employees of the board and the subordinate tax offices for a financial year for collecting ofrevenue in excess of the revenue target as mey be prescribed.Sec-184E Assistance to income tax authorities:All offices and staff of government and semi-government organizations, law enforcement agencies,autonomous bodies, statutory bodies, financial institutions, educational institutions, privateorganizations, local government and non-government organizations shall assist the income taxauthorities in the discharge of their function under this Ordinance.Expanding the taxation net1. Spot assessment:i.Those who are engaged in business with low return: those whose initial startup capital is not more than8Lac without considering the areas, they will have to pay taka 2000 as tax and those whose initialstartup capital is more than 8Lac without considering the areas, they will have to pay taka 4000 as taxii.only applicable for low earning doctors and lawyers- those occupants who are engaged in theoccupation irrespective of area not more than 5years, they will have to pay tk 2000 as tax and thoseoccupants who are engaged in the occupation irrespective of area more than 5years but less than10years, they will have to pay tk 4000 as taxiii. tax under this procedure will remain same for the next two tax year.iv.under this system, submission of TIN form for TIN issuance for the new taxpayers and paying tax oftaka 1000 have been loosened.v. new 2page return form has been introduced under this process.2. TIN certificate submission mandatory:i. In the area of City corporation, Pourosova, and cantonment board for taking connection of gas andelectricity for commercial purpose.ii.truck, prime mover, lorry etc transport for rental purpose
  • 16. Capital marketIn order to calculated the tax imposed on earnings derived from the share, debenture, bond or mutualfund transactions of any listed company three sections and a rule have been introduced into the incometax law. 10% tax has be imposed on the income of a company or firm, earned from trading shares oflisted companies in any stock exchangeNotwithstanding anything contained in any other provisions of this Ordinance or any other law, where acompany raises its share capital through book building or public offering or rights offering or placementor preference or in any other way at a value in excess of face value, the company shall be charged, inaddition to tax payable under this Ordinance, tax at the rate of three per cent on the difference betweenthe value at which the share is sold and its face value.Private medical, dental, engineering and information technology training institutions(college/universities) have to pay tax at a concessional rate of 15%, like private colleges and universitiesof other disciplines. Other produces like pelletted poultry feed as well as those in the fisheries businesswill have to pay tax at a concessional rate of 5% where they did not have to pay before.Reform of Tax Appellate TribunalA law has been made that allows appointing a district judge or a retired officer as a member of TaxAppellate Tribunal.Laws regarding establishing industries and infrastructure development  Industries that are involved in the production of solar panels, energy saving bulbs and barrier contraceptive or rubber latex will be provided tax holiday  Physical infrastructure like bridge, road, flyover, or any infrastructure to be built under Private Public Partnership (PPP) initiative has gained an infrastructure depreciation allowance of 1%.Rationalizing the Rate for Collecting Income Tax at Source and increasing its boundary 1. Type of vehicle Proposed tax rate For motor car upto 1500cc 8,000/- For motor car upto 2000cc 10,000/ For motor car above 2000cc 16,000/- For jeep upto 2800cc 14,000/- For jeep above 2800cc 18,000/
  • 17. For microbus 8000/- 2.Type of vehicle Revised rate Registration validity upto 10 Registration validity more than 10 years yearsAir-conditioned luxury bus 20,000/- 10,000/-Air-conditioned 10,000/- 6,000/-minibus/coasterAir-conditioned taxicab 7,000/- 3,000/-Prevention of tax evationFake TIN users will be fined as much as Tk. 20,000 and will face imprisonment and will be penalizedthrough the application of income tax prosecution case.Income subject to deduction at source – Tax payable under this ordinance shall be deducted orcollected at source in respect of the following income, namely on account of issue of share at a premiumand income derived from transfer of securities or mutual fund units by sponsor shareholders of acompany etc. 3. The following schedule will replace the Rule 16th Schedule:-The Schedule Amount of Rate of deduction of taxSl. at the time of makingNo. payments payments.1. Where the payment does not exceed taka 2,00,000 (two lakh) Nil Where the payment exceeds taka 2,00,000/- (two lakh) but does not2. 1% exceed taka 5,00,000 (five lakh) Where the payment exceeds taka 5,00,000 (five lakh) but does not3. 2.5% exceed taka 15,00,000 (fifteen lakh)
  • 18. Where the payment exceeds taka 15,00,000 (fifteen lakh) but does4. 3.5% not exceed taka 25,00,000 (twenty five lakh) Where the payment exceeds taka 25,00,000 (twenty five lakh) but5. 4% does not exceed taka 3,00,00,000 (three crore)6 Where the payment exceeds taka 3,00,00,000 (three crore) 5% In case of oil supplied by oil marketing companies- (a) Where the payment does not exceed taka 2,00,000 (two lakh) ---------- Nil (b)7 Where the payment exceeds taka 2,00,000 (two lakh) -------------------- 0.75%(2) rule 17 sub-rule (1), the term "three and a half per cent” will be replaced by "seven and a half percent "(3) i. rule 17A term "at the rate of 3%" will be replaced by "at the rate of 5%"ii. Following proviso will be used instead of the previous proviso:Provided that this rule shall not apply in the case of import of goods specified below(1) Live pure-bred breeding bovine animals (H.S. Code 0102.10.00); (2) Live bovine animals, other thanpure-bred breeding (H.S. Code 0102.90.00); (3) Fowls of the species Gallus domesticus (parent stock oneday chick) (H.S. Code 0105.11.10); (4) Live turkeys weighing <=185g, (parent stock of one day chick) (H.S.Code 0105.12.10); (5) Live ducks, geese, guinea fowls <=185g (parent stock of one day chick) (H.S. Code0105.19.10); (6) Live trout (Sa1mo trutta, Oncorhynchus mykiss, clarki, aguabonita, gilae, apache.) fry(H.S. Code 0301. 91.10); (7) Live eels fry (H.S. Code 0301.92.10); (8) Live carp fry (H.S. Code 0301.93.10);(9) Other live fish (exc1. trout, eels & carps) fry (H.S. Code 0301.99.10); (10) Live fry of rock lobster andother sea craw fish (H.S. Code 0306.21.10); (11) Live fry of lobster (H.S. Code 0306.22.10); (12) Live fry ofshrimps and prawns (H.S. Code 0306.23.10); (13) Live fry of crabs (H.S. Code 0306.24.10); (14) Live fry ofcrustaceans cons., nes (H.S. Code 0306.29.10); (15) Glands including pituitary glands (H.S. Code0510.00.10); (16) Bovine semen (H.S. Code 0511.10.00); (17) Products of fish, crus., molluscs, otheraquatic, invertebrates, dead animals of chapter 3 (H.S. Code 0511.91.00); (18) Animal products, nes;dead animals of chapter 1, unfit for human consum. (H.S. Codes 0511.99.10, 0511.99.90); (19) Dormant
  • 19. bulbs, tubers... rhizomes (H.S. Code 0601.10.00); (20) Bulbs, tubers... rhizomes in growth or flower;chicory plants and roots (H.S. Code 0601.20.00); (21) Unrooted cuttings and slips of plants (H.S. Code0602.10.00); (22) Trees, shrubs, bushes, grafted or not, of kind bearing edible fruit or nuts (H.S. Code0602.20.00); (23) Rhododendrons and azaleas, grafted or not (H.S. Code: 0602.30.00); (24) Roses,grafted or not (H.S. Code 0602.40.00); (25) Seed potatoes, wrapped/canned upto 2.5kg (H.S. Code0701.10.10); (26) Seed potatoes, others (H.S. Code 0701.10.90); (27) Onions (Excl. wrapped/canned upto2.5 kg) other (H.S Code 0703.10.19); (28) Garlic (Excl. wrapped/canned upto 2.5 kg) other (H.S Code0703.20.90); (29) Peas (Pisum sativum) (Excl. wrapped/canned up to 2.5 kg) other (H.S Code0713.10.90); (30) Chickpeas (garbanzos) (Excl. wrapped/canned up to 2.5 kg) other (H.S Code0713.20.90); (31) Lentils: Other (H.S. Code 0713.40.90); (32) Dried chilies (H.S. Code 0904.20.10); (33)Ginger (Excl. wrapped/canned up to 2.5 kg) other (H.S. Code 0910.10.90); (34) Turmeric (curcuma) (Excl.wrapped/canned up to 2.5 kg) other (H.S. Code 0910.30.90); (35) Durum wheat; wrapped/canned upto2.5kg (H.S. Code 1001.10.10); (36) Durum wheat; other (H.S. Code 1001.10.90); (37) Wheat:wrapped/canned upto 2.5kg (H.S. Code 1001.90.11); (38) Wheat: other (H.S. Code 1001.90.19); (39)Maize seeds (H.S. Code 1005.10.00); (40) Rice (H.S. Code 1006.20.00, 1006.30.00 and 1006.40.00); (41)Soya beans, whether or not broken (Excluding wrapped/canned upto 2.5 kg)(H.S Heading Code1201.00.90); (42) Linseed, whether or not broken (Excluding wrapped/Canned up to 2.5 kg) (H.S HeadingCode 1204.00.90); (43) Other oil seeds and oleaginous fruits, whether or not broken (Excludingwrapped/canned up to 2.5kg) (H.S Heading Code 1207.40.90); (44) Sugar beet seed (H.S. Code1209.10.00); (45) Lucerne (alfalfa) seed, of a kind used for sowing (H.S. Code 1209.21.00); (46) Fescueseed, of a kind used for sowing (H.S. Code 1209.23.00); (47) Kentucky blue grass seed, of a kind used forsowing (H.S. Code 1209.24.00); (48) Rye grass seed, of a kind used for sowing (H.S. Code 1209.25.00);(49) Other seeds of forage plants, of a kind used for sowing nes (H.S. Code 1209.29.00); (50) Seeds ofherbaceous plants cultivated principally for their flowers (H.S. Code 1209.30.00); (51) Vegetable seed ofa kind used for sowing (H.S. Code 1209.91.00); (52) Other seeds, fruit and spores, of a kind used fcsowing, nes (H.S. Code 1209.99.00); (53) Crude soyabean oil (H.S. Code 1507.10.00); (54) Refinedsoyabean oil (H.S. Code 1507.90.10 and H.S. Code 1507.90.90); (55) Crude palm oil (H.S. Code1511.10.00); (56) Other including refined palm oil (H.S. Code 1511.90.90) ; (57) Refined sunflower oil(H.S. Code 1512.19.00); (58) Refined corn oil (H.S. Code 1515.29.00); (59) Sugar (H.S code 1701.11.00);(60) Sugar (H.S code 1701.12.00); (61) Sugar (H.S code 1701.91.00); (62) Sugar (H.S code 1701.99.00);(63) Flours, meals & pellets, of meat unfit for human consumption; greaves wrapped/canned upto 2.5kg(H.S. Code 2301.10.10); (64) Flours, meals & pellets, of meat unfit for human consumption: greaves;other (H.S. Code 2301.10.90); (65) Flours, meals and pellets of fish, etc, unfit for human consumption(H.S. Code 2301.20.00); (66) Brans, sharps and other residues of maize (com) (H.S. Code: 2302.10.00);(67) Brans, sharps and other residues of wheat (H.S. Code: 2302.30.00); (68) Brans, sharps & oth.residues of oth. cereals except maize and wheat (H.S. Code: 2302.40.00); (69) Brans, sharps and otherresidues of leguminous plants (H.S. Code: 2302.50.00); (70) Residues of starch manufacture and similarresidues (H.S. Code: 2303.10.00); (71) Beet (pulp, bagasse and other waste of sugar manufacture (H.S.Code: 2303.20.00); (72) Brewing or distilling dregs and waste (H.S. Code: 2303.30.00); (73) Oil-cake andother solid residues, of soyabean oil (H.S. Code: 2304.00.00); (74) Oil-cake and other solid residues, ofground-nut oil (H.S. Code: 2305.00.00); (75) Oil-cake and other solid residues of cotton seeds (H.S.Code2306.10.00); (76) Oil-cake and other solid residues of linseed (H.S. Code: 2306.20.00); (77) Oil-cake and
  • 20. other solid residues of sunflower seeds (H.S. Code: 2306.30.00); (78) Oil-cake and other solid residues ofrape or colza seeds of low erucic acid R/C (H.S. Code: 2306.41.00); (79) Oil-cake and other solid residuesof rape or colza seeds, other (H.S. Code: 2306.49.00); (80) Oil-cake and other solid residues of coconutor copra (H.S. Code: 2306.50.00); (81) Oil-cake and other solid residues of palm nuts or kernels (H.S.Code: 2306.60.00); (82) Oil-cake and other solid residues, of other vegetable fats and oils (H.S. Code:2306.90.00); (83) Vegetable materials & veg. waste, veg. residues & by- products, animal feeding. (H.S.Code: 2308.00.00); (84) Other preparations of a kind used in animal feeding, nes (H.S. Code: 2309.90.10and 2309.90.90); (85) Iron ore (H.S Code: 2601.11.00); (86) Iron ore (H.S code 2601.12.00); (87) Iron ore(H.S code 2601.20.00); (88) Petroleum oils and oils obtained from bituminous minerals, crude (H.S Code:2709.00.00); (89) Motor spirit of H.B.O.C Type (H.S Code 2710.11.11); (90) Other motor spirits, includingaviation spirit (H.S Code 2710.11.19); (91) Spirit type jet fuel (H.S code 2710.11.20); (92) White spirit (H.SCode 2710.11.31); (93) Naphtha (H.S Code: 2710.11.32); (94) Other (H.S Code 2710.11.39); (95) J.P. 1kerosene type jet fuels (H.S code 2710.11.41); (96) J.P. 4 kerosene type jet fuels (H.S code 2710.11.42);(97) Other kerosene type jet fuels (H.S code 2710.11.43); (98) Other kerosene (H.S code 2710.11.49);.(99) Other medium oils and preparations (H.S code 2710.11.50); (100) Light diesel oils (H.S code2710.11.61); (101) High-speed diesel oils (H.S code 2710.11.62); (102) Other (H.S code 2710.11.69);(103) Furnace oil (H.S code 2710.19.11); (104) Other (H.S code 2710.19.12); (105) Petroleum bitumen inDrum (H.S Code 2713.20.10); (106) Petroleum bitumen in Bulk (H.S Code 2713.20.90); (107) Iron oxidesand hydroxides (H.S Code 2821.10.00) (108) Magnesium Sulphates (H.S Code 2833.21.00); (109) ZincSulphates (H.S Code 2833.29.10); (110) Disodium Tetraborate (H.S Code 2840.19.00); (111) Chemicalcontraceptive preparation based on hormones on other products of heading 29.37 or on spermicides(H.S. Code 3006.60.00); (112) Animal or vegetable fertilizers (H.S. Code 3101.00.00); (113) Urea,whether or not in aqueous solution (H.S. Code 3102.10.00); (114) Double salts and mixtures ofammonium sulphate and ammonium nitrate (H.S. Code 3102.29.00); (115) Ammonium nitrate, whetheror not in aqueous solution (H.S. Code 3102.30.00); (116) Mixtures of ammonium nitrate with inorganicnon fertilizing substances (H.S. Code 3102.40.00); (117) Sodium nitrate (H.S. Code 3102.50.00); (118)Double salts and mixtures of calcium nitrate and ammonium nitrate (H.S. Code 3102.60.00); (119)Mixtures of urea and ammonium nitrate in aqueous or ammoniacal solution (H.S. Code 3102.80.00);(120) Mineral or chemical fertilizers, nitrogenous including mixtures, nes (H.S. Code 3102.90.00); (121)Triple superphosphates (H.S. Code 3103.10.20); (122) Other mineral or chemical fertilizers, phosphatic,nes (H.S. Code 3103.90.00); (123) Potassium chloride (H.S. Code 3104.20.00); (124) Fertilizers... inpackages of a gross weight =<10kg (H.S. Code 3105.10.00); (125) Mineral or chemical fertilizers withnitrogen, phosphorus and potassium (H.S. Code 3105.20.00); (126) Other mineral or chemical fertilizerswith nitrogen and phosphorus, nes (H.S. Code 3105.59.00); (127) Mineral or chemical fertilizers withphosphorus and potassium, nes (H.S. Code 3105.60.00); (128) Other fertilizers, nes (H.S. Code3105.90.00); (129) Polyethylene terephthalate (pet chips) in primary forms (H.S. Heading Codes3907.60.10 and 3907.60.90); (130) Raw skins of sheep or lambs, with wool on (H.S. Code 4102.10.00);(131) Raw pickled skins of sheep or lambs, without wool, not tanned (H.S. Code 4102.21.00); (132) Rawskins of sheep or lambs, without wool, not pickled, not tanned (H.S. Code 4102.29.00); (133) Raw hidesand skins of reptiles, fresh or preserved, not tanned (H.S. code 4103.20.00); (134) Other raw hides andskins, fresh or preserved, not tanned, nes (H.S. Code 4103.90.00); (135) Pulp of wood or of other fibrouscellulosic materials; recovered (waste & scrap) paper or paperboard (Chapter 47, All H.S codes); (136)
  • 21. Newspaper, journals and periodicals, whether or not illustrated or containing advertising material(Heading 49.02 of FIRST SCHEDULE of customs Act, 1969); (137) Cotton, not carded or combed andcotton, carded or combed; (H.S. Heading 52.01, 52.03); (138) Cotton Waste (H.S code 5202.99.00) (139)Synthetic filament tow (acrylic or mod acrylic) imported by (VAT registered Synthetic staple fibremanufacturer (H.S code 5501.30.10); (140) Synthetic staple fibres, of nylon or oth. polyamides, notcarded, combed/processed (H.S. Codes 5503.11.00 & 5503.19.00); (141) Synthetic staple fibres, ofpolyesters, not carded, combed or processed (H.S. Code 5503.20.00); (142) Acrylic or modacry1ic synth.staple fibres, not carded, combed or processed (H.S. Code 5503.30.00); (143) Synthetic staple fibres, ofpolypropylene, not carded, combed or processed (H.S. Code 5503.40.00); (144) Synthetic stap1e fibres,not carded, combed or processed (exl.nyl/po1est./acry/pp) (H.S. Code 5503.90.00); (145) Artificial staplefibres, of viscose rayon, not carded, combed or processed (H.S. Code 5504.10.00); (146) Artificial staplefibres, (exc1. viscose), not carded, combed or processed (H.S. Code 5504.90.00); (147) Waste ofsynthetic fibre, (incl. noi1s, yam waste and garnetted stock) (H.S. Code 5505.10.00); (148) Waste ofartificial fibre, (incl. noils, yam waste and garnetted stock) (H.S. Code 5505.20.00); (149) Synthetic staplefibres, of nylon or other po1yamides, carded, combed or processed (H.S. Code 5506.10.00); (150)Synthetic staple fibres, of polyesters, carded, combed or processed (H.S. Code 5506.20.00); (151) Acrylicor modacrylic synthetic staple fibres, carded, combed or processed (H.S. Code 5506.30.00);. (152)Synthetic staple fibres, nes, carded, combed or processed (ex1. nyl./po1ester/acry) (H.S. Code5506.90.00); (153) Artificial staple fibres, carded, combed or processed for spinning (H.S. Code5507.00.00); (154) Unworked or simply sawn, cleaved or bruted (H.S code 7102.21.00); (155) Silverbullion (H. S. Codes 7106.91.00, 7106.92.00); (156) Gold bullion (H. S. Code 7108.12.00, 7108.13.00);(157) Ferrous products obtained by direct reduction of iron ore and ... or similar forms (Heading No.7203); (158) Ferrous waste and scrap of stainless steel (H. S. Codes 7204.10.00, 7204.21.00, 7204.29.00,7204.30.00, 7204.41.00, 7204.49.00); (159) Billet (H.S. Heading code 72.07); (160) Granules andpowders, of pig iron, spiegeleisen, iron or steel (Heading No. 72.05); (161) Iron and non-alloy steel iningots or other primary forms (excluding iron of heading 72.03) (Heading No. 72.06); (162) M. S. Rod(H.S. Headings 72.13, 72.14, 72.15); (163) Angles shapes and sections of iron or non-alloy steel (HeadingNo. 72.16); (164) Aircraft Engine (H.S code 8407.10.00); (165) G-Drive engine (H.S. Codes 8407.90.90,8408.90.90); (166) Computer printer (H.S. Code 8443.32.10); (167) Toner cartridge/Inkjet cartridge forcomputer printer (H.S. Code 8443.99.10); (168) Other parts for computer printer (H.S.Code 8443.99.20);(169) Electronic cash register (H.S Code 8470.50.00); (170) Computer and Computer accessories (AllH.S.Code of Heading No. 84.71); (171) Parts and accessories of Computer (H.S. Code 8473.30.00); (172)Cellular (Mobile/Fixed wireless) Telephone set (H.S. Code 8517.12.10); (173) Modem; Ethernet interfacecard; computer network switch, hub and router (H.S.Code 8517.62.30); (174) Recorded magnetic mediafor computer software (H.S.Code 8523.29.12); (175) Other magnetic media for computers (H.S.Code8523.29.90); (176) Recorded optical media for computer software (8523. 40.12); (177) Optical media forcomputers (H.S.Code 8523.40.90); (178) Flash memory card or similar media to be used with computer(H.S.Code 8523.51.10); (179) Proximity cards and tags (H.S.Code 8523.59.10); (180) Machineries fortelecom sector (H.S. Codes 8517.61.00, 8517.62.10, 8517.62.20, 8525.50.90, and 8525.60.90); (181)Computer monitor of a kind solely or principally used in an automatic data processing system of heading84.71 (H.S. Code 8528.41.00); (182) Computer monitor size not exceeding 22 inch" (H.S. Code8528.51.10); (183) Optical fibre cables (H.S.Code 8544.70.00); (184) Double decker bus run by
  • 22. compressed natural gas (CNG) or any bus having a capacity of forty or more seats run by compressednatural gas (CNG) (H.S. Code 87.02); (185) Built-up double decker bus, using cng as fuel (H.S. Code8702.90.11); (186) Invalid chair (H.S. Code 8713.10.00)]; (187) Aircraft (H.S code 8802.20.00); (188)Aircraft (H.S code 8802.30.00); (189) Aircraft (H.S code 8802.40.00); (190) Aircraft Parts (Heading 88.03)(All H.S codes); (191) Vessels and other floating structure for breaking up (H.S. Heading Code8908.00.00); (192) Kidney dialysis machine/Haemodialyser (Artificial Kidney); Baby incubator (H.S code9018.90.20); (193) Other instruments and appliances: angiographic. cathetere wire, guidy catheterewire, sheath, baloons, stents. (H.S. Code 9018.90.30); (194) Other (H.S. Code 9021.29.00); (195) Artificialjoints (H.S. Code 9021.31.00); (196) Other (H.S. Code 9021.39.00); (197) Hearing aids, excluding partsand accessories (H.S. Code 9021.40.00); (198) Specially designed for the use of the blind (H.S. Code9101.19.10); (199) Specially designed for the use of the blind (H.S. Code 9101.29.10); (200) Speciallydesigned for the use of the blind (H.S. Code 9101.91.10); (201) Specially designed for the use of the blind(H.S. Code 9101.99.10); (202) Specially designed for the use of the blind (H.S. Code 9102.11.10); (203)Specially designed for the use of the blind (H.S. Code 9102.19.10); (204) Specially designed for the use ofthe blind (H.S. Code 9102.21.10); (205) Specially designed for the use of the blind (H.S. Code9102.29.10); (206) Specially designed for the use of the blind (H.S. Code 9102.91.10); (207) Speciallydesigned for the use of the blind (H.S. Code 9102.99.10); (208) Computer printers ribbons (H.S. Code9612.10.10); (209) Capital machinery enjoying concessionary rate of import duty; (210) Triple superphosphates, DAP fertilizer, MOP fertilizer and NPK fertilizer, ammonium sulfate, potassium sulfate,magnesium sulfate and solubor (boron); (211) Spares & equipments mentioned in poultry S.R.O""Provided further that this rule shall not apply in the case of import of the following goods from Bhutan:-(1) Cabbages, Cauliflowers, kohlrabi, kele and similar edible brassicas, fresh or chilled (All H. S. Codeunder Heading No. 07.04); (2) Leguminous vegetables, shelled or unshelled, fresh or chilled (All H. S.Code under Heading No. 07.08); (3) Other vegetables fresh or chilled (All H. S. Code under Heading No.07.09); (4) Orange (H.S code 0805.10.10, 0805.10.90); (5) Apples, pears and quinces, fresh (All H. S. Codeunder Heading No. 08.08); (6) Dried Chillies (H.S code 0904.20.10); (7) Cardamoms (H.S code0908.30.10, 0908.30. 90); (8) Ginger (H.S code 0910.10.10, 0910.10.90); (9) Gum Resin (H.S code1301.90.00); (10) Fruit juice (tinned or bottled) except pineapple juice, grapefruit (All H. S. Code underHeading No. 20.09); (11) Boulders (H.S code 2517.10.00); (12) Dolomite (H.S codes 2518.10.00,2518.20.00, 2518.30.00); (13) Gypsum (H.S code 2520.10.00); (14) Limestone (H.S code 2521.00.00); (15)Calcium carbonate (H. S. Code 2836. 50.00); (16) Wood and Timber (All H.S codes under Heading No.44.03, 44.04, 44.05); (17) Ferro-silicon: containing by weight more than 55% of silicon (H. S. Code 7202.21.00); (18) Billetes/semi-finished products of iron or non-alloy steel, NES (H. S. Code 7207. 19.00); 4. 3000 taka for one section of a brick field, 45000taka for two sections and 6000taka for three sections has been re-scheduled 5. Brokerage fee for transacting share/debenture by the member of stock exchange has been set as source tax at the rate of .05%
  • 23. 6. All exporters are subject to source tax at a rate of .50% instead of ..25% 7. Source tax from indenting buyers and foreign buyers agent commission has been set at 7.5% 8. Source tax from insurance commission has been increased to 5% 9. Source tax from stevedoring, private security service, clearing-forwarding service has een set at 10% 10. Source tax from freight forwarding service, courier business of Non-resident and general Insurance business’ surveyer fees are set at 15% 11. Exemptions of taka 150000taka from income from Sanchaypata and Post office savings fund has been revoked. Now 10% source tax will be cut as source taz while providing the income of any amount from this instruments. But it is not applicable family sanchayapatra or pensioner sanchayapatra will not fall under this rule. Tax imposition at a reduced rate: 1. Exemption from any income from fisheries by the company class taxpayers has been revoked and set at a rate of 5%. 10% investment from the income from this sector has been revoked. 2. Exemption from any income from pelleted poultry feed has been revoked and set at a rate of 5%. 10% investment from the income from this sector has been revoked. 3. Institutions like Non-government medical, dental, engineering, IT engaged in imparting college/university are now not subject to exemption. Rather, they are subject to tax payment of 15%Amendment to the Third Schedule: Bridge, road or flyover have been included in this Schedulefor admitting accelerated depreciation claim along with plant and machinery used in anindustrial undertaking between 01 July 1977 and June 30, 2012Amendment to the Sixth Schedule: Para 34, from the list of exemption from income tax onfulfillment certain conditions, production of pelleted poultry feed has been excluded.A new proviso has been included in this Schedule excluding the income of a company asdefined in clause (20) of Sec (2).Further Para 41 exempting income received by an assessee as interest or profit frompensioners savings certificate has been withdrawn.
  • 24. Amendment to the Eight Schedule: The amended Schedule has been appropriately amended toeffect all changes regarding tax collection and deduction at source.SRO No 269-Law/Income tax/2010, date July 01, 2010: This has been issued to tax incomefrom transactions of securities other than Govt. securities and the rates of income tax havebeen specified as:Ten per cent on all companies as defined under clause (20) of section 2 and all firms includedunder clause (32).Five per cent on sponsor shareholders or directors of banks, financial institutions, merchantbanks, insurance companies, leasing companies, stock dealers or stock broker company
  • 25. CHAPTER 4: RECOMMENDATIONS Future Reform Process: The Strategic Development Plan of NBRRecently, with financial assistance from the World Bank, NBR has prepared a Strategic DevelopmentPlan to describe its vision, goals and strategies to be implemented over the next few years in order tomodernize and strengthen tax policy and tax administration in Bangladesh. The core goals have beenidentified by the NBR as follows:· increase revenue collection targets through modernization of tax administration and procedures;· develop a sound and transparent legal and regulatory system;· identify areas where revenue is at risk and to deal firmly and fairly with noncompliance;· facilitate trade flows leading to speedy clearance of import/export cargo;· develop and manage an effective revenue administration staffed with a well trained and motivatedworkforce Recommended ReformsPersonal Income taxesProgressivity of Tax RatesThis study has analyzed the tax liability and degree of progressiveness of different levels of incomefor personal income taxes since FY 1992 – FY 2002. It seems that both the rates are decreasing overthe years for the lower and middle-income earners but remain static for the higher income groups.The results of periodic average of the two indicators also resemble the same. The sudden shifting ofincome exemption limit for FY 2000 and FY 2001 were very unusual that entirely escaped the lowerincome people that might lead them to be out of the purview of taxation. Both the rates found zeroat the initial level of income, which will be thought to be far above the average tax exempted leveleven in neighboring south Asian countries. The effect in the context of Bangladesh is twofold. First,it will obviously work against broadening the much-desired income tax net. Second, it might lead toshift the tax liability only to a limited number of taxpayers of middle and higher-income groups.Since FY 1992 toFY 1999 it seems there were always a common effort to reduce the average tax rates for especiallythe lower income people but for the middle and high-income earners it affected too slowly.However for marginal rate of taxes it remains very proportional for the middle and high-incomeearners. An effort has only been made in FY 2002 to 21 reconsider the tax-exempted limit as earlier
  • 26. that might help the government to keep those taxpayers within the ambit of taxation. It is thusrecommended to soften the tax burden among all the taxpayers in such a manner that might reducethe average tax rates of middle and higher income people.Narrow Tax BaseThe tax-to-GDP ratio in Bangladesh is the lowest among the developing countries. An improvementin this ratio turns out to be a crucial condition for achieving an accelerated economic development.The low per capita income and the existing structure of GDP in Bangladesh impose serious limitationof raising tax revenue. In fact the present income-tax base is one of the lowest even among thedeveloping countries. In terms of population only 0.54 percent of the population were within the taxnet in 1999 and the ratio was only 0.25 percent in 1977. In the year 2002 the ratio has only raisedinto 0.94 percent (Budget Speech, 2002). It denotes how slowly the tax net is widening. Introductionof spot assessment system and simplification of self-assessment system played pivotal role in theprocess. Use of modern computer technology in tax system and taxpayer services seems veryimportant in endeavoring better income tax administration. As stated earlier, the tax base isadmittedly very low measured in terms of the number of taxpayers. Apart from the administrativedeficiencies responsible for the low base, there is also a legal and conceptual limitation of the term‘income’ which contributes to the diminution of the tax base (Taxation Enquiry Commission Report1979, p. 79). Survey of potential taxpayers is one of the most effective tools in the developingcountries to expand the tax base which could be relevant for countries like Bangladesh (Sarker andKitamura, 2002). To be successful 22 in such task a coordinated action plan is needed includingdifferent sectors of government, banks and financial institutions and local government.Inequality of Taxing Urban and Rural SectorsThere is a common belief that the tax structure in Bangladesh is biased against the poorer class,especially in the rural areas. On the other hand, there is also the view often expressed by a sectionof the community, particularly in the urban sector, that the present tax structure weighs heavilyagainst the business and entrepreneur class. It is due to the fact that the effective tax rate is higherin the urban sector than in the rural sector because of the difference in the nature of tax and theintensity at which such tax is imposed on the two sectors, and the structure of consumption andincome between urban and rural sectors. The commission’s report presented the relative tax burdenof the two sectors from direct taxes. The average burden of direct taxes on urban sector was 0.31percent as against 0.14 percent in the rural sector. It shows that the effective tax rate in the urbansector was 2.21 times higher than that of the rural sector in 1979. Over the years the situationremains the same and in fact still the extreme majority of taxpayers are urban people. This happensbecause the urban sector is more monetized and the government has more control over the urbansector. Such an inequality should be resolved and taken into account in future tax reforms.Inequality in taxing Wages between Private and Public Sector
  • 27. In Bangladesh, income tax for government employees is deemed paid by their employer that isgovernment. However, if a private employer pays income tax for its employees, such payments areconsidered income, which creates additional tax burden for the employee of the private firm. Thisseems discriminatory, that encourages employees of private firms to avoid or evade taxes. Suchdiscriminations create social inequality and distortion in the tax system of the country with negative23 impact on her tax-GDP ratio and hindering the expansion of tax base as well. Since governmentsof the developing countries solely run the development activities, the bureaucrats hold extra powerthat enhance abuse of power and lead them to corruption. The recent corruption index published bythe UNDP (2002) resembles the same for Bangladesh. When such public servants are kept outsidethe purview of taxation it works as some sort of incentive for them to become corrupted. Theproblem obviously lies unresolved due to the existing poor salary structure of the governmentemployees that usually not frequently adjusted with the current higher inflation rate. Improvingexisting salary structure as a means to protect corruption has been adopted by many otherdeveloping countries as China and India (The Economist, May 2002). Government of Bangladeshmight have to coincide with the standard as to expect good governance and transparency amongcivil servants. In that case rightsizing the government with maximizing salary level is much desired.Cleaning up of all Income Tax ExemptionsExemptions, deductions, and allowances play an important role in the tax system in providingincentives for saving and capital formation in the private sector. They also meet other socio-economic needs of the community. Nevertheless, they erode the tax base, which often necessitatesthe application of high marginal rates of tax. This in turn dampens the spirit of work and enterpriseamong the people, and also encourages evasion of tax and thereby undermines public morality. Inview of this, the study recommends a broad-based tax system with lower rate schedule but havingonly fewer exemptions and deductions, rather than a system having a narrow base with steepmarginal rates.Tax AmnestyTax amnesties usually raise funds that revenue collectors would otherwise have found difficult orimpossible to capture. It is presumed that there is significant amount of ‘untaxed income’ inBangladesh (Budget Speech, 2002). Thus one of the goals of the tax policy is always to directinvestment to socially and economically desirable sectors. In the context of Bangladesh repeatedopportunities have been provided for tax amnesty on ‘untaxed income’ but failed to generatedesired response from the public due to absence of proper direction of tax policy. The recentfinance act again proposed to accept any amount of undeclared income or black moneyunconditionally until June 2005. It might have some positive effect by enhancing private investmentand through resolving unemployment to little extent. But such practice when goes perpetually couldhave detrimental impact on the society as a whole. By definition, the underground economy existsbecause of government’s so many taxes and regulation. Therefore, it seems to make sense that themore the taxes and regulation, other things being equal, the larger the underground economy is
  • 28. likely to be (Brooks, 2001). Lying with the principle government might be so cautious not to provide such scope for longer time rather should simplifying laws and regulations as to do away with such provisions. Reference:Auerbach, A. J., J. Gokhale, and L. J. Kotlikoff (1991) “Generational Accounts: AMeaningful Alternative to Deficit Accounting”, Tax Policy and the Economy5: pp55-110Bangladesh, The Two-Year Plan of Bangladesh, 1978-1980, Planning Commission,Government of Bangladesh.Bangladesh, Final Report of the Taxation Inquiry Commission, April 1979, Part One,Ministry of Finance, Internal Resources Division, Government of the People’sRepublic of Bangladesh.Bangladesh, Revenue Reforms Commission Report, The Daily Star, January 14, 2004Bangladesh, Annual Reports, National Board of Revenue (NBR), 1999-2000,Bangladesh, Income Tax Manual, Part – I, The Income Tax Ordinance, 1984 (XXXVIof 1984) Government of the People’s Republic of Bangladesh, Published byBangladesh Government Press, Dhaka, 1999 Bangladesh, Economic Review 2002, Published by Economic Advisors Wing,