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 Rates The 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
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
20%
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)- 3
rd
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.
