Introduction

One of the major sources of public revenue to meet a country's revenue and development

expenditures with a view to accomplishing some economic and social objectives, such as

redistribution of income, price stabilization and discouraging harmful consumption. It

supplements other sources of public finance such as issuance of currency notes and coins,

charging for public goods and services and borrowings. The term 'tax' has been derived

from the French word taxe and etymologically, the Latin word taxare is related to the

term 'tax', which means 'to charge'. Tax is 'a contribution exacted by the state'. It is a no

penal but compulsory and unrequited transfer of resources from the private to the public

sector, levied on the basis of predetermined criteria.

According to Article 152(1) of the Constitution of Bangladesh, taxation includes the

imposition of any tax, rate, duty or impost, whether general, local or special, and tax shall

be construed accordingly. Rate is a local tax imposed by local government on its

residents or the property owners of the locality, a duty is a tax levied on a commodity,

and an impost is a tax imposed for an entry into a country. Under the provision of article

83 of the Constitution, "no tax shall be levied or collected except by or under the

authority of an Act of Parliament". The imposition, regulation, alteration, remission or

repeal of any tax is dealt with by the 'Money Bill', but except in case of reduction or

abolition of any tax, the 'Money Bill' cannot be introduced in the Parliament without the

President's recommendation.

Taxation:

Taxation means imposition of a non-penal yet compulsory levy for transfer of resources

from private to public sector, imposed by the public representative based on pre-

determined criteria and without reference to any specific commitment, in order to

accomplish some nation’s economic and social objective. These are dues that we pay for

the privileges of membership in an organized civil society. Tax is imposed in the

assessment year based on income year.

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Assessment year: The assessment is a period of 12 months just following the income

year means computation of total income and tax payable there on.

Income year: Income year is the year when the income is earned.

Income: Income means anything received in cash or in kind unless exempted by laws.

1) Assessable Income: Assessable Incomes are those incomes, which are included in

the determination of total income of a taxpayer.

A. Taxable Income: Taxable Incomes are those incomes that the tax is to be paid on

those incomes.

B. Non- Taxable Income: Non – taxable income is taken into total income for

taxation rate purpose but no tax is to be paid on this part of income.

2) Non- Assessable Income: Non- assessable incomes are those incomes which are

not included in the determination of total income of a taxpayer.

INCOME-TAX AUTHORITIES

In Bangladesh, under the Ministry of Finance, there are three separate divisions viz.a) Finance Division (FD)b) Internal Resource Division (IRD)c) External Relations Division (ERD)

National Board of Revenue is working under Internal Resource Division and it is the

apex body of tax administration. Under National Board of Revenue, there are two wings

viz.

i) Taxes Wingii) Customs & VAT Wing

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Comprehensive example of calculation of total income

Heads of income:

According to sec 20, there are seven heads of income

Income from salary (sec-21)

Income from securities (sec-22)

Income from house property (sec-24)

Income from agriculture (sec-26)

Income from business and profession (sec-28)

Income from capital gain (sec-32)

Income from other sources (sec-23)

1. Income from salary (sec-21):

Salary ordinary means a fixed periodical payment received from employer by an

employee for service regarded. According to sec-2 (58), salary includes any wages,

annuity, pension or gratuity, fees, commissions, allowance, perquisites and any leave

encashment. If the employee has other investment he is entitled to enjoy investment tax

rebate.

In calculating salary income certain exemption from allowances are –

House rent allowance: 50%of the basic or 15000 per month; whichever is less. If

the employer provides employee a resident, in that case 25% of the basic will be

taken as a notional income for the residential accommodation.

Conveyance allowance: 7.5% of the basic will be added to the total income as a

notional income for full time transport. In case of half time transport, 5% of the

basic will be added.

Medical allowance: expenses are subject to verified.

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“Computation of Total Taxable Income” ofMr. Golam Kibria

Income Year 2010-2011Assessment Year 2011-2012

Calculation of salary income:

Details Amount(TK) Amount(TK)

Basic salary (45000 pm * 12) 540000

House rent (60% of basic salary)

Less: exemption 50% of the basic (270000)

Or, TK 15000 pm; (180000)

whichever is less

324000

180000

144000

Conveyance ( 3500 pm * 12)

Less: Maximum allowance exemptions

42000

24000

18000

Medical allowance (25% of the basic)

Less: actual expenses.

135000

110000

25000

Dearness allowance (25% of basis) 135000

Special allowance for overtime 25000

Bonus 50000

Examination of scripts 15000

Employer’s contribution to RPF 50000

Entertainment 20000

Income from salary 1022000

Note: He got pension from earlier employment of tk. 6,000/month which is totally a non-

assessable income. That’s why we did not take his pension income in calculation of total

income from salary.

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2. Income from Interest on securities

Security is a promissory note, which bear interest issued by government to meet money

demands. It means acknowledgement of indebtedness by the government towards the

members of the public who buy the security certificate issued by government.

If the security certificate is issued by government then it is called ‘security’. Otherwise, it

is called ‘debenture’, when it is issued by any entity except government through Security

and Exchange Commission (SEC)

Mr. Golam Kibria invested in earlier year TK 500,000 in approved securities out of bank

loan for which he paid bank interest of TK 30,000. He received interest on securities and

debenture: TK 50,000 for the year:

Calculation of income from interest on securities

details Amount(TK)

Interest on securities 15000

Interest on debentures 35000

Total income from securities 50000

Less: Interest on bank loans 30000

Assessable income from interest 20000

3. Income from house property

Income from house property will be as certained on the basis of annual value of the house

concerned. The said property is applicable in both commercial and residential purpose.

Only the house owner will be assessed to tax. If the owner occupies a portion of the

property, he would not fall under the charge of income tax for his residential portion.

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Annual value:

It is the reasonable ret at which the house owner is expected to get from time to time or

the actual rent.

Statutory allowance:

This refers to the allowances, which are to be allowed in determining total income

irrespective of its expense or not. For example: 25% of annual value for residential house

and 30% of annual value for commercial house.

Mr. Golam Kibria had a three storied house at Gulshan. The first & second floor was let

out from 1st July at Tk 30,000 & Tk 20,000 per month respectively and the ground floor

was occupied as his residence.

Annual letting value:

(30,000 pm × 12) (20,000 pm × 12)

360000

240000 600000

Deductions from the letting value:

statutory allowance of 1/4 for repair,maintenance etc

150000

City corporation tax 40000

Insurance premium 50000

HBFC loan interest 30000

Since he occupied 1/3rd as his residence,

Proportional expenses are disallowed

(40000)

The 2nd floor of the house Remained vacant for

one month So, vacancy allowance

20000

Total deductions 250000

Net income from house property 350000

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4. Income from agriculture

According to sec-2 (1), agriculture income means

Any income derived from any land in Bangladesh and used for agriculture

purpose by means of agriculture or by performance of any process by employing

cultivator or by the sale of the agriculture product or by granting a right to any

person to use the land.

Any income derived from building, which is occupied by the cultivator of such

land or is required by cultivator as dwelling house, storehouse or other outhouse

because of his connection with such land.

Allowance in income from agriculture

Agriculture income will be determined after allowing a reduction of 60% from the

amount of receipts, where no acceptable evidence can be produced for cost

production.

If the assesse does not have any other income except agriculture, he will get an

additional exemption of TK50000 in additional to normal tax exemption, which is

185000.them his exempted will be (185000+50000) =235000.

Mr. Golam Kibria owns 03 acres of land of double crop. Yield per acre 20 tons of paddy.

Per ton earnings is 300Tk. Production cost was TK 70,000.

Calculation of income from agriculture:

Income from Agriculture

details Amount (TK)

Sale of agricultural product

Total production 20 × 3 × 2= 120 tons × 300 per ton 36000

Less:60% for expense 21600

Income from agriculture 14400

Note: Production cost was shown TK 70,000 by the assessee however allowable expense

should not exceed 60% of the sales proceeds. Also as the individual assessee has other

source of income other than agricultural income, he won’t get the special exemption of

additional 50,000 taka.

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5. Income from capital gain

Capital gain arises as a result of disposal of capital assets except personal effects like

wearing apparel, jewelries, furniture, vehicles and equipments. It also does not include as

a capital gain by the sale of agricultural land, which is situated beyond 5 miles of the

radius of the municipality or city corporation area.

Laws regarding capital gain:

Tax realized at the time of registration @ 3% no the deed value will be deemed to

be final discharge of the tax liability under the head of capital gain arising out of

disposal of land property.

If the difference between deed value and the fair market value is more than 15%,

the Deputy Commissioner of Tax (DCT) may with prior approval of his joint

commissioner, estimate the fair market value.

However, if the difference goes further to more than 25%, the government may

opt to buy it as per the provision of Income Tax Ordinance, 1984.

Capital gain earned by both corporate and non-corporate taxpayer is liable to be

taxed, but the rate of tax is different. For corporate the rate is 15%. On the other

hand, individuals pay tax at normal rate along with income if the gain occurs

within 5 years of acquisition of the capital asset.

If the gain is accrue after 5 years then the individual will pay tax at normal rate

along with other income or normal rate on the other income, if there is any, plus

15% on the portion of capital gains; whichever is beneficial for the tax payer.

The excess of the salvage value over the book value subject to deduction of

maximum depreciation amount allowed so far will be taken as a capital gain and

deducted amount of depreciation shall be deemed to be business income.

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Mr. Golam Kibria had sold a machinery of his personal printing press, at TK 900000

more than 03 years ago at TK 800000 and so far depreciation was charged of TK 400000.

Also disposed a land property in the Dhaka city and from there earned a capital gain of

Tk1000000. And taxes @ 2% of deed value were realized during registration.

In the instant case , capital gain of TK 10,00,000 shall not be taxed again because tax

deducted at the time of land registration is deemed to be final discharge of tax and it will

be treated U/S 82 c(4) as aforesaid. Capital gain arising out of the sale of machinery shall

be treated as follows:

Calculation of capital gain:

Sale of machinery

Details Amount(TK)

Salvage value 900000

Less: book value 400000

Surplus 500000

Less: depreciation so far allowed Is taken

as revenue income

400000

Balance capital gain 100000

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6. Income from Business and Profession (sec-28)

Among all the heads of income, income from business and profession is considered to be

the most important one, as maximum amount of tax is collected from this income head.

This term business has defined under section 2 (14) to include any trade, commerce or

manufacture of any adventure of concern in the nature of trade, commerce or

manufacture in economic sense, business means the work concerning with buying,

producing and selling of goods for profit.

The characteristics of business include:

Production or acquisition of goods

Sales or transfer of title

Dealings an goods and services

Mr. Golam Kibria had income from a export business of TK1000000.

Income from business and profession

Details Amount(TK)

Export income 1000000

Less: Exempted (1000000*50%) 500000

Income from business & profession 500000

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7. Income from Other Sources (sec-33)

The last and the residuary head of income is income from other sources. Under this

income head, not only certain specific income is discussed but also many of income is

discussed which can’t be classified under any sort of income.

The following incomes are charged under this income head:

Dividend and interest

Royalties and fees for technical services

Income from letting of machinery, plants or furniture belonging to the assessee

and also of buildings belonging to him/her if the building is inseparable from the

letting of the machinery, plant or furniture

Any income to which section 19 (1) , (2) , (3) , (4) , (5) , (8) , (9) , (10) , (11) ,

(12) , (13) , (21) , (21A) , (24) applies. (according to the Finance Ordinance 2008)

Interest on fixed deposits, term deposits or any other bank account, no exemption like the

past up to 30.06.02 this means that bank interest henceforth, shall be shown in the return

and tax deducted at source at the rate of 10% shall be given credit from payable.

Mr. Golam Kibria invested TK 300,000 in approved share of a public co. out of bank

loan for which he paid bank interest of TK 30000. He received dividend: TK 50,000 for

the year.

Calculation of Income from other sources:

Details Amount(TK)

Income from dividend from public company 50000

Less: Interest on bank loan for investment 30000

Net income from other sources 20000

Income from other sources will also include any other incomes which are deemed to be

any other income under different subsections of sections 19 of the IT ordinance 1984.

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Calculation of total income of Mr. Golam Kibria for the assessment year of 2011-

2012 and the income year 2010-2011

Details Amount(TK)

1) Income from salary 1022000

2) Income from interest on securities 20000

3) Income from house property 350000

4) Income from agriculture 14400

5) Income from business & profession 500000

6) Income from capital gain 100000

7) Income from other sources 20000

Total Income of Mr. Golam Kibria for the

assessment year of 2011-2012

2026400

Rates of Taxes as per Finance Act,2011.

Details Rate Tax

On First TK180000 @ 0% Nil

Next TK 300000 @ 10% 30000

Next TK 400000 @ 15% 60000

Next TK 300000 @ 20% 60000

On balanceTK846400 @ 25% 211600

Total tax payable 361600

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He invested TK 130,000 in IPO (share) of public limited company and contributed at

Zakat Fund TK50, 000.

Actual Investment

Details Amount(TK)

Contributory recognized provident fund

(both self + employers)

100000

Invest in IPO 130000

Savings certificate 50000

Total investment claimed 280000

Investment allowance comes to 20% of total income excluding employer’s contribution to

R.P.F = (2026400-50000)*20%=395280) or

Actual investment 280,000 or maximum 10000000 whichever is less.

So allowable investment allowance is Tk. 280,000

Investment Tax Rebate

Here actual investment is less and here invest tax rebate will be 280000*10%=28000 and

tax deducted at source TK 5000 per month from his salary.

Details Amount(TK)

Total tax payable 361600

Less: Investment tax rebate 28000

333600

Less: Tax deducted at source (5,000*12) 60000

Net tax payable 273600

Mr. Golam Kibria will pay this tax by a pay order of any scheduled bank.

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