‘Ascertain the position of cannons of taxation in tax system of Bangladesh’.

7/31/2019 Ascertain the position of cannons of taxation in tax system of Bangladesh.

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EXECUTIVESUMMARY

This dissertation report highlights on our practical experience in different types and

categories Tax System especially Tax System Of Bangladesh. During our short working

period, we tried to gather information from News Paper, web sites. But the NBR does not

provide information in the web site directly and even it does not publish tax structure

implement in Bangladesh. So, we take much information about tax in our personal concept

and view of Tax System of Bangladesh.

To complete this report, we have gained practical knowledge about various type of Tax

System. For example, Tax System Of Bangladesh, canon of taxation and implementation the

canon of Bangladesh in Tax System Of Bangladesh.

In this way, we are getting knowledge not only the tax system but also the implementation of

canon on tax system of Bangladesh.

As, tax is an important part of our country development. so, day by day, people are getting

more conscious and informed about tax.


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OBJECTIVEOFTHISSTUDY

We can gain knowledge about the tax system of Bangladesh by studying this topic. As

following aspects of tax we can learn from this study:

1. To get the idea about the collection of revenue, as context of Bangladesh.2. How distribute the income of people in Bangladesh is allocated.3. How economic control to achieve their micro economic control.4. Effect of the tax system of Bangladesh to economic development.5. How national income is raised in desired level.

LIMITATIONOFTHISSTUDY

There are some limitations of this study. Therefore the assignment may lack some crucial

data.

1. Necessary data and information an neither adequate nor well finished.2.

The duration that is for assignment program is not enough to learn about the taxsystem of Bangladesh.

3. This assignment does not analyze the critical analysis of different sectors in the taxsystem of Bangladesh in details.

The assignment has encountered these limitations that may have hinder progress. But with

constant effort, our goal was to minimize the negative efforts of these limitations.


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METHODOLOGYOFTHIS STUDY

Basically there are two types of methodology. One is Primary sources and another is

secondary sources.

Primary source:

Primary source are those type of source that we collect information or survey directly from

the organization.

Secondary source:

Secondary source are those type of source that we collect information from online or any

reference books.

To make this overall assignment we followed the secondary sources like, online, reference

book, and journal.


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ABOUTTAX

Tax is a compulsory levy imposed by the Government. People pay taxes to the Government

on the basis of what they earn, what they own and what they purchase.

A tax is a compulsory payment levied on the persons or companies to meet the expenditure

incurred on conferring common benefits upon the people of a country.

Two aspects of taxes follow from this definition:

A tax is a compulsory payment and no one can refuse to pay it.

Proceed from taxes are used for common benefits or general purposes of the state.

Classification Of Tax:

On the basis of tax rate

Progressive Tax

Proportional Tax

Regressive Tax

On the basis of impact and incidence

Direct Tax

Indirect Tax

On the basis of base

Single Tax

Multiple Tax


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TAXSYSTEMOFBANGLADESH

Major heads of tax-revenues of Bangladesh are as follows:

A. Taxes on Income and Profit

1. Income tax-Companies2. Income tax-Other than Companies

B. Taxes on Property & Capital Transfer

1. Estate Duty and Gift Tax2. Wealth Tax3. Narcotics Duty4. Land Revenue5. Stamp duty-non-judicial6. Registration

C. Taxes on goods and services

1. Customs Duties2. Excise Duties3. Value Added Tax (VAT)4. Supplementary Duty (On luxury items and in addition to VAT)5. Taxes on Vehicles6. Electricity Duties7. 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


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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

The characteristic of Bangladesh Tax System comprised of the

following factors:

(a) Revenue GDP Ratio:

A key component of fiscal policy of the government is to strengthen the effort to mobilize

domestic resources to generate a larger share of resources for investment. The strategy

involves both revamping tax management and providing the right incentives to stimulate

domestic savings. Domestic resource mobilization through the tax effort is not outstanding,

but is a significant improvement over the past. The following table gives the ratio of tax

revenue, non-tax revenue and revenue to GDP over the years.

Ratio of GDP

Year 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002

Tax Revenue 7.69 7.36 6.78 7.80 8.09

Non-tax

Revenue

1.81 1.64 1.69 1.47 1.74

Total

Revenue

9.50 9.00 8.47 9.28 9.83


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Figure: Ratio of GDP

(b) Realization of taxes vis--vis budget:

The apex organization which controls the bulk of revenue receipts and taxes in Bangladesh is

the National Board of Revenue (NBR), which was established in 1972. In Bangladesh, it has

been observed that over the years, realization of revenue (NBR portion) exceeds or comes

closer to budget target. The actual realization of revenue (NBR portion) was 2.16% higher

than the target. This may be seen clearly from the following table (1990-91 to 1994-95).

Actual Realization of tax revenue vis--vis target

Financial Year Realization of Target

1990-91 102.35%.

1991 -92 101.21%.

1992-93 101.04%

1993 - 94 97.78%

1994-95 102.16%

0

1

2

3

4

5

67

8

9

10

Rate

1997-981998-99 1999-

2000

2000-012001-02

Year

Tax revenue

Non-Tax revenue

Total Revenue


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(c) NBR Tax Vis-a-vis Total Revenue:

(d) Trend of Revenue Receipts:

(e) Domination of Indirect Tax Over Direct Tax:

Despite the progress for ensuring self-reliant development in a global climate of free

economy, a major thrust of fiscal policy in Bangladesh has to be on raising the revenue-GDP

ratio. Further, there is an urgent need for shift in the composition of revenues away from tax

on international trade, goods and services towards direct taxes on income and profit, whose

share in total revenue in Bangladesh is appallingly low, even compared to other developing

countries in Asia. This can be seen from the following table

Heads of Taxation Total Amount

(Crore Taka)

Percentage

(Rounded Off)

Customs duties (Export / import) 3,676.94 34%

VAT (Import) 2,215.23 21%

VAT (local production) 1.248.34 12%

Supplementary Duty (Luxury Items) 187.61 15%

Supplementary Duty (Luxury goods of local origin) 1,344.12

95

96

97

98

99

100

101102

103

Realization of

Target(%)

1990-

91

1991-

92

1992-

93

1993-

94

1994-

95

Year

Realization of Target

Realization of Target


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means of taxation by economists and policy makers alike, its introduction in many countries

is held up due to political reasons. Thus Bangladesh can take credit of introduction of VAT

within so short a period of time. Due to computerization in progress at NBR, it is now

possible to predict revenues and their composition with much more precision than in the past.

Tax revenues have recently shown unusual buoyancy and responsiveness to tax reforms and

rate adjustments. Imports responded vigorously in 1994-95 to the sharp reductions in tariffs

yielding significantly higher revenues from import taxation with tariffs rates at an all time

low. As most revenue targets except those of direct taxes were exceeded in 1994/95, it

warranted upward revision of targets for the following year. This optimistic trend is expectedto continue into the year 2000 with tax revenues posing a higher trajectory, than would have

been the case without tax-reforms.

TAXSTRUCTUREOFBANGLADESH

Below is a table of tax revenue collection of Bangladesh government for the financial year

2005-06 and budget estimate for the financial year of 2006-07.

Description Budget

(2006-07)

Budget

2005-06

(Revised)

Increase/

(Decrease) in

2006-07 over

2005-06 (Tk)

Increase /

(Decrease) in

2006-07 over

2005-06 (%)

Tax revenue:

National Board

of revenue(NBR

Portion)

Taxes on income

and profit

8500 6960 1540 22%

Value added

Tax(VAT)

14729 12398 2331 19%

Import duty 9485 8235 1250 15%


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Excise duty 185 163 22 13%

Supplementary

Duty

7701 6394 1307 20%

Other taxes andduty

455 306 149 49%

Sub total: NBR

portion

41055 34456 6599 19%

Non- NBR

Portion

1860 1719 141 8%

Total tax revenue 42915 36175 6740 19%

Total Non-tax

revenue

9625 8693 932 11%

Total revenue 52540 44868 7672 17%

(Source: Finance Ministers Budget Speech for FY 2006-07)

1. DIRECT TAX CONTRIBUTES ONLY SMALL PORTION OFTOTAL TAX REVENUE:

Tax revenue structure of Bangladesh can be divided into direct and indirect taxes. A direct

tax is paid by a person to the revenue authority. Direct tax is borne by the tax payer and can

not be passed on to any person, whereas indirect tax is passed on by the tax payer so that the

burden of the tax is ultimately borne by another, for example Value Added Tax(VAT) which,

although paid by the businessmen, is passed on to the customers. That is, indirect tax is

charged on consumption in one way or another. Indirect tax is regressive because it takes a

higher portion of a poor persons income than of a reach persons. VAT is the same for all

people. Indirect taxes do not develop any civil consciousness in the minds of tax payers

because no body feels that he is paying a tax as it is concealed in price, whereas direct tax

create a civic consciousness among the tax payer; they feel that they are contributing towards

the state expenditure. In the case of direct taxes, the relation between the tax payer and the

revenue authorities is direct personal. But there is an indirect relation between the tax payer

and tax authorities in the case of indirect taxes, for the taxes are collected unofficially through

the agency of merchants.


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2. PREDOMINENCE OF INCOME TAX AMON THE DIRECTTAXES:

According to the income tax Ordinance, 1984, income may generate from different sources,

namely, salary, business & profession, house property, interest on security, agriculture,

capital gains, and other sources.

3. NEGLIGIBLE DIRECT CONTRIBUTION OF THEAGRICULTURAL SECTOR TO TAX REVENUE:

Direct taxation on agricultural sector normally takes two forms; land revenue tax and tax on

agricultural income. This sector accounted for more than 50% of total direct tax revenue in

the early sixties, but now agricultural income tax is very negligible. It accounts for only

0.01% of the GDP, although the average contribution of agriculture to the GDP is 35%.

Agriculture, more specifically, non-farm activity, still remains an untapped source of revenue

to the government. In most cases, income from agriculture does not exceed the ceiling of

non-taxable limit primarily due to subdivision and fragmentation of holdings for which

income is distributed to different hands. Furthermore, tax administration is not expanded

down to village, and therefore, current information on this source of income cannot be easily

collected for making assessment. Placing more emphasis on the collection of income tax from

agriculture may augment the price of our main food and may create socio-political unrest.

Government does not like others to do politics with food. High cost of collection of

agricultural tax may be another consideration. All these factors may contribute to the poor tax

performance of agriculture sector.

4. HEAVY RELIANCE ON DIRECT TAX BASED:Bangladesh relies too much on indirect taxes, which accounts for nearly 80% of the total tax

revenue. On the other hand, the developed countries rely less on indirect taxes and more on


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direct taxes. For example, indirect taxes account for 45% of total tax revenue of UK (Stain,

1997). Our dependence on indirect taxes is increasing gradually. Indirect tax is comprised of

mainly three types: Value Added Tax (VAT), Customs Duty, and Excise duty. The

government of Bangladesh introduced the VAT system in 1991-92. It was imposed at the

import cum manufacturing stage and replaced the prevailing excise duty on domestic

production at the production stage and sales tax on imports at the import stage. It is also

imposed on domestic services and its coverage of domestic goods has gradually increased in

the recent times. Value added is defined as the difference between the value of a firms sale

(outputs) and purchases of inputs.

5.

IMPORT DEPENDENCY OF INDIRECT TAX BASE:

Our tax structure is heavily dependent on imports. It is, however, obvious that the indirect

taxes on international trade composed almost entirely of taxes on imports, account for the

lions share of our tax yield. That is, the system of indirect taxation in Bangladesh is heavily

dependent upon import trade. Total import-based indirect tax is around 50% of total tax

revenue.

6. POOR TAX- GDP RATIO:The ratio of tax revenue to GDP is an indicator of the governments performance in

generating resources at its disposal through the taxation machinery. The higher this ratio, the

higher the effectiveness of the taxation system in terms of revenue yields. The contribution of

tax revenue to the GDP of Bangladesh was less than 4% in FY 1972-73 against 9.35% in

1995-1996. As per Periodic Economic Update of the World Bank of June 2002, tax revenue

GDP ratio of Bangladesh is 9.7% in FY 2001-02. The Government claims that the current tax

revenue- GDP ratio is 10.40% and is expected to increase to 12% within the FY 2004-05.


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CANNONOF TAXATION

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

taxationeach person paying a given percentage of his income as tax. On the other hand, ifwe 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 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.


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3. 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.

4. 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. A brief description of these is as follows:

5. Canon of productivity:

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

should be able to yield enough revenue for the treasury and the government should have no

need to resort to deficit financing.

6. Canon of Buoyancy:

The tax revenue should have an inherent tendency to increase along with an increase in

national income, even it the rates and coverage of taxes is not revised.

7. Canon of Flexibility:

It should be possible for the authorities, without undue delay, to revise the tax structure, both

with respect to its coverage and rates, to suit the changing requirements of the economy and

of the treasury.


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8. Canon of Simplicity:

The tax system should not be too complicated. That makes it difficult to understand and

administer and breeds problems of interpretation and legal disputes.

9. Canon of Diversity:It is risky for the State to depend upon too few a source of public revenue. Such a system is

bound to breed a lot of uncertainty for the treasury. It is also likely to be inequitable as

between different sections of the society. On the other hand, if the tax revenue comes form

diversified sources, and then any reduction in tax revenue on account of any one cause is

bound to be very small. However, too much multiplicity to taxes is also to be avoided. That

leads to unnecessary cost of collection and violates the canon of economy.

In general, we must remember that the tax structure is a part of the economic organization of

a society and should, therefore, fit in its overall economic philosophy. No tax system that

does not satisfy this basic condition can be termed a good one. Over time, therefore, ideas

regarding what should form a good tax system have undergone an evolution. In the following

section we would briefly discuss the characteristics of a good tax system in the light of

modern economic philosophy.


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APPLICATIONOFCANNONINTHE TAXSYSTEMOF

BANGLADEH

There are so many tax system remains in Bangladesh. Among this tax system some cannons

are followed, some are not.

1. Canon of equality:In these cannon it imposes of tax according to ability to pay. So under these circumstances

this is usually followed in the tax system of Bangladesh.

2. Canon of certainty:This canon describe that the tax which each individual is bound to pay or to be certain and

not arbitrary. The time of payment, the manner of payment, the quantity to be paid, all ought

to be clear and playing to the contributor and to every other person. This canon is not to be

followed in the tax system of Bangladesh. So many corruptions are seen here.

3. Canon of convenience:

It should be convenient to pay tax. A person who starts to get earning money he or she has to

give tax on that moment. This step is not followed in tax system of Bangladesh properly.

3. Canon of economy:Every tax has a tax of collection. It is important that the cost of collection should be as small

as possible. It will be useless to imposed tax which is too widespread and difficult to

administer.

4. Canon of productivity:

According to this principle, the tax system should be able to yield enough revenue for the

treasury and the Government should not be forced to resort to deficit financing.

5. Canon of elasticity:


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As the need of the country increases, the revenue should also increase. To meet emergency,

the govt. should be in a position to augment its financial revenue through increasing tax rate.

6. Canon of simplicity:

The tax system should be simple and plain so that every one can easily understand it. The

assessment of tax must be simplified. To avoid corruption taxation should be simple.

8. Canon of diversity:

In line of productivity, canon of diversity also gives importance to adequate collection of tax

through diversification. Such a system breeds a lot of uncertainty for the treasury. On the

other hand, if the tax revenue comes from diversified sources, then any reduction in tax

revenue on account of any one is likely to be very small on total tax revenue. However, too

much multiplicity of taxes is also to be avoided.


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CONCLUSION

After finishing this assignment successfully, we have learnt the canon of taxation, the

various tax systems in Bangladesh and the implementation of canon in the tax system of

Bangladesh. There are many problems in tax system of Bangladesh which is created by us.So under these circumstances we all should reach on amalgamate decision with a view to

solving the problem immediately for the sake of the welfare of the whole nation.


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BIBLIOGRAPHY

To complete this group assignment successfully, we have to collect information from

Various sources, such as newspapers, bulletin and web sites. So, as a reference website and

reference books

We can mention-

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

Three taxes of Bangladesh,(Income tax, Value Added Tax, Gift Tax),

pp, 6-9.

Dr. Kanchan Kumar Purohit, (2006),

Income Tax

(Including Gift tax & Value Added Tax),

pp, 1-3, 10-12.

http://www.AssiaTradeHub.com\Tax System of Bangladesh\BANGLADESH Tax Structure

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‘Ascertain the position of cannons of taxation in tax system of Bangladesh’.

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