Tax Structure in Bangladesh

Submitted to:

Submitted by:

Md. Tunvir Islam

ID: 07204047

Sec: 001

Date of submission: 1st April, 2011

The followings are the various definitions of tax given by different economists:

According to P.E. Taylor, “Taxes are compulsory payment to government

without expectation of direct return in benefit to the tax payer.”

According to Dalton, “A tax is a compulsory contribution imposed by a public

authority irrespective of the exact amount of service rendered to the tax payer in

return and not imposed as penalty for any legal offense.”

According to Seligman, “A tax is a compulsory contribution from the person to

the government to defray the expenses in the common interest of all without

references to special benefits.”

The above definitions make it clear that taxes are compulsory contribution by

the taxpayer to the government.

Tax implications in each country are an important consideration for an investor.

Here is an overview of taxation in Bangladesh.

Tax structure for individual tax payers

If an individual has been in Bangladesh for a period/period totalling 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 proceeding this year, he/she will also be considered a resident.

Percentage of corporate tax levied

Any income collected or gained by a company doing business in 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 is 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).

How 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 assessee.

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).

Bangladesh Income Tax Rates

Bangladesh personal income tax rates for assessment year 2010 - 2011 is

progressive up to 25%. Bangladesh Income Tax Rates for individuals other than

female taxpayers, senior taxpayers of 65 years and above and retarded taxpayers

– Based on income Year 2010 – 2011

First BDT 1,65,000 Nil

Next BDT 2,75,000 10%

Next BDT 3,25,000 15%

Next BDT 3,75,000 20%

For Rest Amount 25%

Bangladesh Income Tax Rates for female taxpayers, senior taxpayers of age 65

years and above – Based on year 2010 - 2011

First BDT 1,80,000 Nil

Next BDT 2,75,000 10%

Next BDT 3,25,000 15%

Next BDT 3,75,000 20%

For rest Amount 25%

Bangladesh Income Tax Rates for retarded taxpayers – Based on Year 2010 -

2011

First BDT 2,00,000 Nil

Next BDT 2,75,000 10%

Next BDT 3,25,000 15%

Next BDT 3,75,000 20%

Rest Amount 25%

Minimum tax for any individual assessee is Tk. 2,000

Non-resident Individual: 25% (other than non-resident Bangladeshi)

On Dividend income: 20%

Income tax is one of the main sources of revenue in Bangladesh. It is a

progressive tax system. Bangladesh Income tax is imposed on the basis of

ability to pay. The more a taxpayer earns the more tax he should pay. This is the

basic principle of charging income tax in Bangladesh. The tax system aims at

ensuring equity and social justice. Tax rates in Bangladesh also differs between

male and female individuals.

Time to submit income tax return: Unless the date is extended, by the 30th day

of September next following the income year.

Income Tax Return should be submitted by (whom):

- If total income of any individual (other than female taxpayers, senior

taxpayers of 65 years and above and retarded taxpayers) during the income year

exceeds Tk 1,65,000/-.

- If total income of any female taxpayer, senior taxpayer of 65 years during the

income year exceeds Tk 1,80,000/-

- If total income of any retarded taxpayer during the income year exceeds Tk

2,00,000/-.

- If any person was assessed for tax during any of the 3 years immediately

preceding the income year.

- A person who lives in any city corporation/paurashava/divisional HQ/district

HQ and owns a building of more than one storied and having plinth area

exceeding 1,600 sq. feet/owns motor car/owns membership of a club registered

under VAT Law.

- If any person subscribes a telephone.

- If any person runs a business or profession having trade license and operates a

bank account.

- Any professional registered as doctor, lawyer, income tax practitioner,

Chartered Accountant, Cost & Management Accountant, Engineer, Architect

and Surveyor etc.

- Member of a Chamber of Commerce and Industries or a trade Association.

- Any person who participates in a tender.

- A person who has a Taxpayer's Identification Number (TIN).

- Candidate for Union Parishad, Paurashava, City Corporation or Parliament

elections.

- Any company registered under Companies Act, 1930 or 1994

Bangladesh Corporate Tax RatesThe standard rate of corporate tax in Bangladesh is 27.5% in 2010 - 2011 tax

year. This is the standard corporate tax rate applicable to publicly traded

companies in Bangladesh, a list including tax rates for other corporations are as

follows:

Publicly Traded Company 27.5%

Non-publicly Traded Company 37.5%

Bank, Insurance & Financial Company 42.5%

Mobile Phone Operator Company 45%

Publicly Traded Mobile Operator Company 35%

If any publicly traded company (excluding Mobile Operator Company) declares

more than 20% dividend, 10% rebate on total tax allowed.

Income Tax Authorities in Bangladesh

Income Tax Authorities in Bangladesh are:

- National Board of Revenue,

- Director General of Inspection (Tax),

- Commissioner of Taxes (Appeals),

- Commissioner of Taxes (LTU)

- Director General (Training),

- Director General Central Intelligence Cell (CIC),

- Commissioner of Taxes,

- Additional Commissioner of Taxes (Appeal/Inspecting),

- Joint Commissioner of Taxes(Appeal/Inspecting ),

- Deputy Commissioner of Taxes,

- Assistant Commissioner of Taxes,

- Extra Assistant Commissioner of Taxes,

- Inspectors of Taxes.

Major Areas for Final Settlement of Tax Liability in Bangladesh

Tax deducted at source for the following cases is treated as final discharge of

tax liabilities. No additional tax is charged or refund is allowed in the following

cases:

- Supply or contract work

- Band rolls of hand made cigarettes

- Import of goods

- Transfer of properties

- Export of manpower

- Real Estate Business

- Export value of garments

- Local shipping business

- Royalty, technical know-how fee

- Insurance agent commission.

- Auction purchase

- Payment on account of survey by surveyor of a general insurance company

- Clearing & forwarding agency commission.

- Transaction by a member of a Stock Exchange.

- Courier business

- Export cash subsidy

Tax Holiday

Tax holiday is allowed for certain industrial undertaking, tourist industry and

physical infrastructure facility established between 1st July 2008 to 30th June

2011 in fulfilment of certain conditions.

Bangladesh Value Added Tax (VAT) Rates

The general rate of Value Added Tax (VAT) in Bangladesh is 15%.

- Value Added Tax (VAT) is imposed on goods and services at import stage,

manufacturing, wholesale and retails levels;

- A uniform VAT rate of 15% is applicable for both goods and services;

- 15% Value Added Tax (VAT) is applicable for all business or industrial units

with an annual turnover of Taka 2 million and above;

- Turnover tax at the rate of 4% is leviable where annual turnover is less than

BDT 2 million;

- Value Added Tax is applicable to all domestic products and services with

some exemptions;

- Value Added Tax (VAT) is payable at the time of supply of goods and

services;

- Tax paid on inputs is creditable / adjustable against output tax;

- Export is VAT exempt;

- Cottage industries (defined as a unit with an annual turnover of less than BDT

2 million and with a capital machinery valued up to BDT 300,000) are exempt

from Value Added Tax;

- Tax returns are to be submitted on monthly or quarterly or half yearly basis as

notified by the Government.

Gift Tax:

Amount Rate

On the first Tk. 5,00,000 of the value of all taxable gifts 5%

On the next Tk. 10,00,000 of the value of all taxable gifts 10%

On the next Tk. 20,00,000 of the value of all taxable gifts 15%

On the balance of the value of all taxable gifts 20%

Classification of Tax: On the basis of tax rate

Progressive Tax

Proportional Tax

Regressive Tax

Digressive Tax

On the basis of impact and incidence

Direct Tax

Indirect Tax

On the basis of base

Single Tax

Multiple Tax

TAX SYSTEM OF BANGLADESH Major heads of tax-revenues of Bangladesh are as follows:

A. Taxes on Income and Profit

1. Income tax-Companies

2. Income tax-Other than Companies

B. Taxes on Property & Capital Transfer

1. Estate Duty and Gift Tax

2. Wealth Tax

3. Narcotics Duty

4. Land Revenue

5. Stamp duty-non-judicial

6. Registration

C. 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.)

Major heads of non-tax revenues are as follows:

D. Interest, Dividend and Profit

E. General Administration and Services

F. Social and Community Service

G. Economic Services

H. Agriculture and Allied Services

I. Transport and Communication

J. Other non-tax revenue

K. Capital Revenue

Canons of taxes:The four canons of taxation as prescribed by Adam smith are the following:

1. Canon of equality:

“The subjects of every state ought to contribute towards the support of the

government, as nearly as possible, in proportion to their respective abilities; that

is, in proportion to the revenue which they respectively enjoy under the

protection of the State.” This cannon 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 principle in terms of disutility

which the tax- payers suffer by paying taxes, it follows that the tax should

impose equal marginal disutility upon every tax-payer. Two possibilities emerge

in this case. If incomes are subject to constant marginal utility, then both the

rich and the poor should be subjected to proportional taxation—each person

paying a given percentage of his income as tax. On the other hand, if we agree

with the more realistic proposition that income is subject to diminishing

marginal utility, then the richer should pay a larger proportion of their income

as taxes (that is, the taxes should be progressive).

2. Canon of convenience:

The mode and timings of tax payment should be, so far as possible, convenient

to the tax-payer. This canon recommends that unnecessary trouble to the tax-

payer should be avoided; otherwise various ill-effects may result.

3. Canon of economy:

This canon recommends that cost of collection of taxes should be the minimum

possible. It is useless to impose taxes which are too widespread and difficult to

administer. These taxes entail an unnecessary burden upon the society in the

form of additional administrative expense. The productive efforts of the people

suffer due to this wastage. Realizing that the tax collections are being wasted,

the tax-payers also tend to evade them. These canons of taxation have a sound

philosophy behind them and exhibit an insight into the practical aspects of tax

administration and its effect. However, in view of developments in economic

philosophy and problems of a modern state, a few additional principles were

also suggested by latter writers.

4. Canon of certainty:

This canon is meant to protect the tax-payers from unnecessary harassment by

the ‘tax officials’. “The tax which each individual is bound to pay ought to be

certain, and not arbitrary. The time of payment, the manner of payment, the

quantity to be paid, ought all to be clear and plain to the contributor, and to

every other person.” The tax-payers should not be subject to arbitrariness and

discretion of the tax officials, since that breeds a corrupt tax administration.

With a scope for arbitrariness even honest tax machinery will become

unpopular. 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.”

We have learnt the canon of taxation, the various tax systems in Bangladesh and

the implementation of canon in the tax system of Bangladesh. As taxes are the

most important source of revenue of the Government so it is clear that attaining

an optimal tax structure is one of the most important issues for the government

to increase the revenue generation from taxes for accelerating growth and to

improve the quality of life of the citizens. A long-term sustainable solution to

enhance transparency, promote growth, improve tax compliance and thus to

increase tax to GDP ratio is a much desirable issue in the context of

Bangladesh.

References:

1. Bangladesh Income Tax (Theory and Practice)- 3rd edition.

(Income tax, Value added tax, Gift tax)

Nikhil Chandra Shil, Mohammad Zakaria Masud, Mohammad Faridul Alam

2. Nationan Board of Revenue (NBR) website

http://www.nbr-bd.org

3. http://www.financialinfobd.com/

4. http://www.taxrates.cc

5. “Three taxes of Bangladesh”.

M. A. Akkas, M. com. MBA (AIT). (2003),

(Income tax, value added tax, gift Tax), pp, 6-9.