Bangladesh Taxation System

Taxationin

Bangladesh

Bangladesh?

Where did

it start???

Taxation?

BANGLADESHPre-19th Century:

About 1200 A.D., Muslim invaders under Sufi

influence, supplanted Hindu and Buddhist dynasties,

and converted most of the population of the eastern

areas of Bengal to Islam. Since then, Islam has

played a crucial role in the region‟s history and

politics. In the 16th century, Bengal was absorbed into

the Mughul Empire.

19th Century:

In the late 19th and early 20th centuries, Muslim and

Hindu leaders began to press for a greater degree of

independence. At the movement‟s forefront was the

largely Hindu Indian National Congress. Growing

concern about Hindu domination of the movement led

Muslim leaders to form the All-India Muslim League in

1906.

BANGLADESH20th Century:

The idea of a separate Muslim state emerged in the

1930s. It gained popularity among Indian Muslims after

1936, when the Muslim League suffered a decisive

electoral defeat in the first elections under the 1935

constitution. On March 23, 1940, Muhammad Ali Jinnah,

leader of the Muslim League, publicly endorsed the

“Pakistan Resolution” that called for the creation of an

independent state in regions where Muslims were a

majority.

Post Independence Era

Mujibur Rahman came to office with immense personal

popularity but had difficulty quickly transforming this

support into political legitimacy. The 1972 constitution

created a strong prime ministership, an independent

judiciary, and a unicameral legislature on a modified

British model. More importantly, it enunciated as state

policy the Awami League‟s four basic principles–

nationalism, secularism, socialism, and democracy.

TAXATION•The process whereby charges are imposed on individuals

or property by the legislative branch of the federal govern

ment and by many state

governments to raise funds for public purposes.

(thefreedictionary.com)

•A means by which governments finance

their expenditure by

imposing charges on citizens and corporate entities.

(businessdictionary.com)

•A compulsory levy that the government of a country or its

appropriate agency imposes on taxable persons,

individuals, businesses and other bodies to allow the

government provide money needed for the running of

government and to achieve other macro economic

objectives and fiscal policies of the government.

(taxationlawyer.com)

Do you know how

taxation starts in

Bangladesh?

Here’s how!

•The history of income tax in

Bangladesh dates back to 1860 when

it was introduced in this country by the

British ruler under the title Income Tax

Act, 1860. Till today there are various

changes and developments that have

been taken the place. These changes

and developments are pointed in

period wise.

Taxation History in Bangladesh

1860-1916

Under British rule, the General Income

Tax in line with the English Act first

introduced in the year 1860. It continued

up to 1867 when it was withdrawn and

suspended. In that year, however, it was

reintroduced as the License Tax Act, 1867.

In 1868 its name was changed as the

Certificate Act, 1868.On 1st April, 1873 the

income tax was withdrawn but reimposed

in1877 under the title License Tax Act,

1877. Latter on the Income Tax Act, 1886

came into force with some amendment in

the former Act.


1916-1922

In 1916 the Income Tax Act, 1886

was amended further by the Income Tax

(Amendment) Act, 1916 and a graduated

scale of income tax was introduced for

the first time. In 1918 the said Act

was superseded by Income Tax Act of

1918 and distinction was made between

'Total' and 'Taxable Income.'


1922-1947

In 1921 an All India Committee was

formed and on the basis of

its recontamination Income Tax Act 1922

was enacted. In 1935 the British

Government appointed an Expert

Committee and on

the recommendation of the committee

some amendments were made. In 1944

the provisions were made for 'Pay As

You Earn' Scheme and in 1945

distinction was made between 'Earned'

and 'Unearned Income'.


1947-1971

In 1947 the then Pakistan (of which

Bangladesh was its eastern wing) after

its independence adopted the Income

Tax Act 1922. In June, 1958

Taxation Inquiry Committee was set up

which submitted its report

recommending simplification of the Act.



Bangladesh revenue structure has been

burdened by taxes from indirect sources

for long time and usually characterized by

heavy import and excise duties. To cope

with the challenge due to globalization,

government of many such countries has to

cut down such duties and levies. It seems

that government might have to collect

more money either through VAT (Value

Added Tax) or from direct taxes. In

Bangladesh VAT introduced in 1991 by

replacing the sales taxes is still known as

the vital reform in Bangladesh revenue

structure. The remaining potential sector is

the income taxes sharing almost all taxes

coming through direct sources.

In Bangladesh, income tax for government

employees is deemed paid by the employer

that is by the government, considering the

fact that they are underpaid. However, in

case of private sectors, such payments are

considered income, which creates

additional tax burden for the employee of

the private firms. This is discriminatory and

obviously encourages employees of private

firms to avoid or evade taxes.

So, in reality very few people share the

burden of income taxes in Bangladesh and

thus it is a real problem for the government

to distribute the tax incidence in a fair

manner.


Now, what’s the

current tax structure in

Bangladesh?

Current Tax Structure in Bangladesh

In Bangladesh we have taxes

divided on two broad aspects

which are as following,

I. Direct Tax

II. Indirect Tax

Before going to the discussion of

tax structure of Bangladesh it is

necessary to know about the taxes

which follow these above written

types mostly.


Direct Tax

In the general sense, a direct tax is

paid directly at one shot to the

government by the persons (juristic or

natural) on whom it is imposed.

• Income taxes

• Corporate taxes

• Transfer taxes

• Wealth taxes

• Narcotics duties

• Land revenue

• Stamp duty-non-judicial

• Registration


Income Tax

Among direct taxes, income tax is one

of the main sources of revenue. In

Bangladesh Income tax is imposed on

the basis of ability to pay. The more a

taxpayer earns the more he should pay

- is the basic principle of charging

income tax. It aims at ensuring equity

and social justice. All individuals and

companies in the country need to pay

income tax if their annual income

excess certain limit determined by the

Government. There are some

conditions for paying Income Tax which

are controlled by Tax Laws and

Amendments in Bangladesh.


EXISTING TAX RATE(in taka) 2010-11 PROPOSED TAX RATE(in taka) 2011-12

Income slabs(in taka) Tax rate Income slabs (in taka) Tax rate

Up to 165000 0% Up to 180000 0%

165001 – 440000 10% 180001 – 480000 10%

440001 – 765000 15% 480001 – 880000 15%

765001 – 1140000 20% 880001 – 1180000 20%

Above 1140000 25% Above 1180000 25%


Corporate Tax

There is no significant change in corporate tax

rates. But considering the public health the tax rate

for the companies, producing cigarettes, raised

from 37.5% to 42.5 %. Along with this, these

companies have to pay .5% tax on their total

receives as the mandatory tax rates. Tax holiday

facility is allowed to newly setup industrial

undertakings, tourist industry and physical

infrastructure facilities subject to certain specified

conditions in order to promote industrialization,

encourage tourism and for employment generation.

Exemptions and deductions are applicable to

incomes from firms in Export Processing Zone

(EPZ), 50% of income for export earnings, power

generation companies, computer software

business, agriculture related industry, micro credit

for Non-government organizations (NGOs), Local

government, welfare activities, etc.


Company Tax rate

Publicly Traded Companies (other than Banks, Insurance &

Financial Institutions)

27.50%

Normal Tax Rate (paying Dividend 10% or more) 37.50%

Additional Tax if the declared dividend/bonus share is not declared

or distributed at least 15% within 6 months of the following income

year

10.00%

Companies declaring dividend less than 10% 40.00%

Rebate @ 10% on applicable tax in case where dividend is more

than 20%

10.00%

Banks, Insurances and Financial Institutions: 45.00%

Excess Profit Tax (additional)-for banks only 20.00%

Companies Not Publicly Traded 40.00%


Indirect Tax

The term indirect tax has more than one

meaning. An indirect tax is a tax collected

by an intermediary (such as a retail store)

from the person who bears the ultimate

economic burden of the tax.

• Value added taxes (VAT)

• Customs duties

• Excise duties

• Supplementary duty

• Taxes of vehicle

• Electricity duty

• Travel tax

• Turn over tax etc.


Value Added Taxes (VAT):

To facilitate some industries and services VAT

has been exempted in some selected areas.

Goods exempted from VAT include food and

agricultural products, animal products poultry

sector, agriculture imputes, cloths made of

cotton and synthetics, malaria. TB/ cancer

preventive medicine, homoeopathic medicine,

family planning items, books and periodicals,

etc. Services exempted from VAT include

fundamental services for livelihood, social

welfare services, services relating to culture,

services relating to money and finance,

transport services, personal services and other

services other than the above.

The general rate of Value Added Tax (VAT) in

Bangladesh is 15%.


Customs and Supplementary Duty

Exemptions from customs duty are granted to

capital machinery, raw materials of medicine,

poultry medicine, feed & machinery, defense

stores, chemicals of leather and leather goods,

private power generation unit, textile raw materials

and machinery, solar power equipment, relief

goods, goods for blind and physically retarded

people and import by embassy and UN.

Concessionary rates are applicable to agro-

processing, textile and leather industry, educational

institutions, hospitals, privileged persons, etc. 15%

supplementary duty is applicable to sugar and

kerosene. Tariff rate on any mobile is Tk. 1,500.

7.5% import duty is applicable to chemical color for

textile industries. Incentives are also given to these

sectors, which are complying with the international

and bilateral agreements and conventions.


Value Added Taxes (VAT):

To facilitate some industries and services VAT

has been exempted in some selected areas.

Goods exempted from VAT include food and

agricultural products, animal products poultry

sector, agriculture imputes, cloths made of

cotton and synthetics, malaria. TB/ cancer

preventive medicine, homoeopathic medicine,

family planning items, books and periodicals,

etc. Services exempted from VAT include

fundamental services for livelihood, social

welfare services, services relating to culture,

services relating to money and finance,

transport services, personal services and other

services other than the above.

The general rate of Value Added Tax (VAT) in

Bangladesh is 15%.

In case of Bangladesh as it is

export led country, so the tax on

exported goods is zero and tax on

imported goods in general is

high. Till to the November of FY

2010- 2011, the total collected

import tax had amounted to

10,326.59 Taka which was 17.41%

higher than that of previous FY

2009- 2010.

Here are some

Policy Suggestions

in Bangladesh’s

taxation

1. One of the most burning questions of

Bangladesh now a day is to meet up the

highly increasing demand of electricity. For

having such solution present government

is looking for setting up nuclear or coal

based electricity production unit

Policy Suggestions

2. Collection process of these „Nuclear

Electricity Production Tax‟ & „Coal Tax‟

should must be made via online. Cause, if

it is not done through the online process

then collection cost will amount to high

which means actual revenue may

decrease.

Policy Suggestions

3. Value added tax on Tobacco

related products & Cigarettes

should be much higher than that of

now.

Policy Suggestions

4. If the subsidy on overall oil is not

withdrawn in general, then a kind of new

tax namely „Private Vehicle Holding Tax‟

should be introduced to the private vehicle

holders. It should be levied on per unit of

all kind of petroleum products bought by

private vehicle holders as to reduce the

overall subsidy on petroleum products to

zero Taka.

Policy Suggestions

5. „Pigou Tax‟ should be imposed to

the industries which are highly

polluting the environment.

Policy Suggestions

6. „Transit Tax‟, „Transshipment Tax‟ &

„Corridor Tax‟ should be imposed on

respective cases as natural environment,

transport infrastructure & agro land of the

country will go under an adverse situation.

These kinds of taxes may help to cover

that accumulated adverse situation.

Policy Suggestions

References

The Free Dictionary by Farlex

http://legal-dictionary.thefreedictionary.com/taxation

Tax Attorney: Simplifying Taxation Laws

http://www.taxationtaxlawyer.com/meaning-of-tax-and-

taxation-an-introduction

Business Dictionary

http://www.businessdictionary.com/definition/taxation.html

Taxation Breaking Down: Historical Background of Income

Tax Law in Bangladesh

http://taxationbd.blogspot.com/2012/01/historical-

background-of-income-tax-law.html




http://www.taxationtaxlawyer.com/meaning-of-tax-and-taxation-an-introduction













http://www.businessdictionary.com/definition/taxation.html

http://taxationbd.blogspot.com/2012/01/historical-background-of-income-tax-law.html











References

Bangladesh History: An Overview

http://www.virtualbangladesh.com/the-basics/history-of-

bangladesh/a-historical-overview-of-bangladesh/

Taxation in Bangladesh (Project for NSU students) ACT-322

NSU

http://saadislam.wordpress.com/2012/10/27/taxation-in-

bangladesh-projeact-for-nsu-students-act-322-nsu/

Tax Structure & Policy Suggestions: Bangladesh Case

http://ehlatifee.blogspot.com/2011/11/tax-structure-policy-

suggestions.html

http://www.virtualbangladesh.com/the-basics/history-of-bangladesh/a-historical-overview-of-bangladesh/















http://saadislam.wordpress.com/2012/10/27/taxation-in-bangladesh-projeact-for-nsu-students-act-322-nsu/



















http://ehlatifee.blogspot.com/2011/11/tax-structure-policy-suggestions.html







I hope I shared all

the information you

need. Hope you

learned something.

Till next time.

Bye!

Documents

Bangladesh Taxation System