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Tax justice from 100 years old income tax law
M S Siddiqui
https://businesspostbd.com/editorial/2022-11-30/tax-justice-from-100-years-old-
income-tax-law
30 Nov 2022 00:02:30 | Update: 30 Nov 2022 00:02:30
The income tax law introduced in 1922 and it attains 100 years by this year.
Time has come to assess what we achieved from this law. Taxes are levied to
attain certain economic and social objectives, such as redistribution of income,
elimination of economic discrimination, price stabilization, preventing public
profligacy and bringing about social cohesion. Over the years, fiscal policy has
been used to distribute tax burden among individuals or entities involved in
taxable activities, encourage private savings, reduce disparities of income and
wealth and promote investment in specific priority areas and sectors.
The tax department is a quasi-judicial body and have the responsibility of fair and
judicious assessment of tax. It is often criticized that income tax laws of
Bangladesh are opaque, convoluted and full of exemptions and allowances. Non-
compliance and non-enforcement of taxation rules by both the taxpayers and the
tax department have very tantalizing effects on the steady collection of income tax.
The Income Tax Ordinance provides excessive discretion to the tax authorities for
determining tax liabilities. Allegedly, the assessing officers in most cases want the
assesses to show higher income than that of previous years. The national board of
revenue has imposed a target of increasing the collection of tax upon individual
official for subsequent years. The tax officials have no alternative to assess higher
tax without considering the market situation and market situation.
Financial Transparency Coalition defined Tax policy as a good taxation policies
should be characterized by the following (1) Raise revenue; (2) Reprice goods and
services considered to be incorrectly priced by the market such as tobacco, alcohol,
carbon emissions etc. and by providing tax reliefs e.g. for childcare; (3)
Redistribute income and wealth; (4) Raise representation within the democratic
process because it has been found that only when an electorate and a government

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are bound by the common interest of tax does democratic accountability really
work; and finally to facilitate to Reorganization of the economy through fiscal
policy. For a healthy and rational taxation system, it is essential to determine some
core issues, such as, the distribution of tax burden—who will pay taxes and how
much they will pay—and how the taxes collected will be spent. While taxes are
presumably collected for the sake of the welfare of taxpayers as a whole, the
liability of the individual taxpayer is independent of any benefit received. The
trends and issues of taxes is a fundamental question in determining fiscal policies
of a country.
The corporate tax rate is very high in Bangladesh causing disincentives for the
investors. On the other hand, informal sector is out of preview of the tax net. An
excessive tax exemptions and incentives for certain sectors of business, poor tax
base, inequality in taxing urban and rural sectors, special privileges to the public
sectors and chronic tax holiday etc. Unsteadiness of income tax rates is another
incidence of loophole in the taxation system. It is evident that tax liability and the
extent of progressivity of income tax rates in Bangladesh have been swinging over
the years for lower and middle-income individuals and have remained static for the
higher income groups. The effects are twofold: first, it impacts negatively on
expanding the income tax net, and secondly, it leads to shifting the tax liability
only to a limited number of taxpayers.
According to the Income Tax Ordinance 1984, a corporate assesses must submit,
along with the return, books of accounts and true audit reports. Interestingly,
assessing officers, who are mostly graduated with non-accounting background,
cannot understand the books of accounts. They tend to complete the assessment
without considering the nature of business, volume of business, books of accounts,
audit reports etc. submitted by the assesses. In an income tax case, the tribunal
rightly observed, “an income tax officer is to act judicially in a particular
assessment proceeding solely guided by the provisions of law.” Therefore, it is
expected that income tax officers should lay efforts to ensure tax justice whilst
dispensing their duties.
The assessing officers with their discretionary authority directly dismiss the
taxpayers’ statements of accounts and it is immaterial how genuine those
documents may be. As a result, assesses seem to adopt different means to avoid
taxes or pay lower taxes than that they are liable to pay. Tax practitioners and
taxpayers complain that the assessing officers do not act judicially and there is
sheer absence of justice, equity and good conscience in their decisions. According

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to them, if the taxing officers act in a judicious manner in assessing the tax files,
the people will be more tax compliant.
The tax law allows all the different forms of tax incentives such as tax holidays.
Tax holiday is a kind of tax amnesty scheme granted by a government to newly set
up industries in order to promote long-term industrialization and generate capital
investments in the country. The opportunity cost of the incentive has been high
compared to the objective for which it was introduced. The existing tax law of
Bangladesh permits industrial undertakings, tourist industries or any physical
infrastructural facility (including ‘expansion unit’ thereof to enjoy ‘tax holiday’ for
5 to 10 years subject to fulfillment of certain conditions. Alternatively, they can be
allowed ‘accelerated depreciation’. There are various shortcomings of tax holiday
arrangements. It is alleged that the current facility of granting tax holiday has been
grossly abused. An extensive use of tax exemptions, incentives and special
provisions also limited revenue collection, narrowed the tax base, eroded tax equity
and created distortions in the economy. The extensive use of the so-called ‘infant-
industry theory’ also made many entrepreneurs in this country lazy to stay away
from global competition.
Another unethical and illegal black money whitening scheme encourage corruption
and evasion of tax since persons having illegally earned money make the money
white only paying tax of 10 while corporate tax rate is minimum 27.5 percent. It is
also distorting the moral of the society.
The urban community often criticize that the present income tax structure weighs
heavily against the business and entrepreneur classes in the municipal area. The
lion share of tax collected from urban area although now the growth centers are
around Upozila level. This is due to the fact that the effective tax rate is higher in
the urban sector than in the rural sector and poor tax net trough out the country. A
Tax Inquiry Commission’s report presented the relative tax burden of the two
sectors from direct sources. The average burden of direct taxes on urban sector was
0.31 percent as against 0.14 percent in the rural sector. This happens because the
urban sector is more monetized and the government has better control over this
sector.
During the 100 years of journey of the law, it has drastically changed the definition
of the Income ignoring the accounting principles gross receipt, gross profit or net
profit etc. such as:
1. Any amount may be treated as income under any head.

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2. Any sum received on which tax deduct as source (TDS) will be applicable.
3. Any amount the tax is imposed.
4. Any amount of TDS is mean for final settlement of the tax.
5. Minimum tax Gross receipts irrespective of loss and profit.
And roughly 94 per cent of income-tax revenue comes from tax deducted at
source. The Tax deduct as source (TDS) has been imposed at border during release
of imported goods and services, supply of goods and services to government and
corporates entities. This deduction is on gross sales value but not on net profit. The
advances taxes are non-refundable and considered as tax on income. In many cases
the tax burden are more than 100 percent of the net income of the business
enterprises.
The MSMEs are primitive stage of industrialization and industrial and taxation
policy of many other countries encourage and promote the MSMEs. MSMEs in
Bangladesh are subject to TDS causing the payment of very high AITs and TDS.
In contrast the big conglomerates are forced to set up backward linkage business
units to get inputs at competitive rates. The tax should be totally overhauled to
establish tax justice in order to gain optimum benefit of our tax system.
The writer is Non-Government Adviser, Bangladesh Competition Commission
and CEO, Bangla Chemical. He can be contacted at shah@banglachemical.com