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7/29/2019 Basic of Income Tax
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Md. Ziaul Haque
Department of businessAdministration
East West University.
TaxationCourse Code-ACT 311
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Meaning of Public Finance
Public finance is a science that deals with the income
and expenditure of public bodied and the government of a
nation. The government of a nation has to perform two
types of functions (a) obligatory function ( Defense,
maintenance of law and order situation (b) Optionalfunction ( providing various facilities to its citizens such
as infrastructure, health, environment. To meet this
expenditure govt. raise fund from public in the form of
taxes, fees, penalties, sale of goods and servicesAccording to H.L Lutz. Public deals with the provisions,
custody and disbursement of resources needed for the
conduct of public or governmental functions
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Definition of Tax
Tax is a contribution exated by the state.
It is a compulsory levy, to be paid by the citizens who are liable to
pay it, imposed by the government
According to P.E Taylor, Taxes are compulsury payment to
government without expectation of direct return in benefit to the
tax payers.
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 section2(62) of ITO 1984, " Tax means the incometax payable under this Ordinance and includes any additional tax,
excess profit tax, penalty, interest, fee or other charges leviable or
payable under this Ordinance;
So we can say taxes are compulsory contribution by the taxpayers
to the government.
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Reason for paying tax
Get medical facilities at lesser cost in public hospital
Our children get education at nominal cost in public schools and
universities
Enjoy the benefit of roads & bridges
Police, fire brigade and many government agencies ensure oursafety and security
Benefit of state run museums, public libraries and academics
Benefit of afforestation program, family planning, relief and
rehabilitation for poor, women and old
Govt. manage natural calamities like flood, river-erosion &earthquake
Provides an opportunity for rich to contribute to the wellbeing of
poor
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Characteristics of tax
Tax is payment to government by people as itlevied by the government
Payment of tax is non-penal and compulsory
To ensure public interest To finance the govt. expenditure
Tax is not cost of benefit conferred by the govt.
on the public
It is the prime of source of govt. revenue
Tax is not any fine or penalty
Tax can only be imposed by govt.
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Purpose/objective of taxation
Taxation is a major source of revenue for thegovernment. It is a way of transferring the resources from
private/non government to government sectors
Revenue Collection: In Bd 80% of total govt revenue
Reduction of Inequalities income and wealth:
Accelerating economic growth: Raises the rates ofinvestment and savings. Savings must be invested in productive sector
Control of consumption.: such as toxic material, more tax on
luxury goods
Protection of local industries: Govt. provide tax incentive forlocal industries
Economic development: construction of infrastructure, poverty
alleviation programs, social security program etc.
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Canon of Taxation
Canon of taxation of taxation refers to the administrative aspect
of tax. They relate to the rate, amount and method of levy and
collection of a tax.Adam smith has given four canon
Canon of equality: Burden of taxation must be shared equally.
means rich bear more tax and poor will less tax Canon of certainty: Tax should be certain and not arbitrary
Canon economy: take out and to keep out of pockets of thepeople as little as possible, over and above what brings into
the public treasury.
Canon of convenience: that must be convenient fro thecontributor to pay
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Canon of Taxation Canon of productivity: must adequately cover
govt.expenditure
Canon of simplicity: tax rate, tax system ought tosimple, plain and intelligibele to the common
understanding Cannon of elasticity: tax system should be flexible
so that the autority can change the system
conveinently
Canon of diversity: should not be based on singletax or few tax. should be mixture of direct and indirect
tax
Canon of Functional efficiency: so that it cangenerate sufficient revenue an be able to to reduce
harassment and tax avoidance
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Classification of tax
Classification on the basis of number of taxes: a.Single taxb.Multiple tax
Classification on the basis of impact and incidence oftaxes: a. Direct tax e.g incometax.land revenue taxb.Indirect tax e.g VAT,Customs duty
Classification on the basis of structure of taxe rate:
a.Propotional tax: whatever the size of income the rates of
taxation remains constant.
b.progrsive tax: the rate or taxation increases as the taxable
income increases.It is more equitable
.c.Regressive tax : burden falls more on poor than rich.
d.DegressiveTaxes ; which is midly progressive so that high
income does not sacrifice more
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Classification of tax Classification on the basis of subject matter of taxes:
a.Personal tax e.g Income tax b.In Rem tax: levied on some
activities or objects e.g sales tax,wealth tax
Classification on the basis of elasticcity of taxes:
a.Elastic tax (rate changes more than tax base changes)b.inelastic tax (rate changes less than tax base changes)
Classification on the basis of taxe base:
a.Income tax b.Wealth tax c.Value added tax c.Expenditure tax
Classification according to changes of government revenue:
a.Positive tax b.Negative tax Classification according to taxing authority:
a.Central tax e.g Income tax,wealth tax b.Local tax e.g. Union
parshad tax,city corporation tax,municipal tax
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Difference between Direct tax and Indirect tax
Burden cannot be shifted but burden can be
shifted
D.T imposed on income but I.T imposed on
goods and personal services D.T generally in progressive nature but IT
can not be made progressive.
D.T generally elastic but I.T is inelastic
Since the burden is not shifted so It has
adverse effect on taxpayers willingness to
work and save but I.T has no adverse effect
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Characteristics of a good Tax System
should be levied on the basis of fundamental principles of
taxation
Should be equitable, convenient to pay, economical, certain,
productive and elastic
should be balanced containing both direct and indirect nature of
taxes
tax authority should be supported by sufficient simple laws and
rules
should have positive effect on both production and distribution
without any adverse effect Productive resources of the economy are optimally allocated and
utilized.
A good tax system has least collection cost
No scope for the evasion of tax by the tax payer
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Tax Structure of Bangladesh
Multiple tax system: a. taxes on income and profit: i. Income tax-company ii Income tax
other than company
b. Taxes on property & capital transfer: 1.Estate duty 2.Gift tax
3.Narcotics duty 4.Land revenue 5.Stamp duty-non judicial
6.Registration
c. Taxes on good and services: 1.Custom duties 2.Excise duties
3.VAT 4.Supplementary duty on luxury item 5.Taxes on vehicle
6.electricity duty 7. other tax( travel tax, turnover tax)
Inadequate and stagnant revenue yield relative to GDP:
High ratio of indirect to direct tax revenue
Dominance of VAT and import duty;
Tax avoidance behavior
Narrow tax base
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Definition of Income tax
Income tax is the tax which is levied on the taxable
income of a person or entity as per provision of the income
tax ordinance 1984
Where an Act of Parliament provides that income tax shallbe charged for any assessment year at any rate or rates,
income tax at that rate or those rates shall, subject to the
provisions of that Act, be charged, levied, paid and
collected in accordance with the provisions of this
Ordinance in respect of the total income of the income year
or income years, as the case may be, of every person
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Role of income tax in economicdevelopment of Bangladesh
Tax holiday Scheme: Investment allowance:
Accelerated depreciation allowance:
Tax incentives or small & cottage industry: Tax incentives for encouraging savings:
Tax exemption on certain expenditure:
Tax incentives for foreign investors
Allowance for Scientific research
Tax incentive for remittance in Bangladesh
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Scope of Bangladesh income Tax Law
The income tax ordinance,1984 Income tax rule,1984
Finance Act SRO(Statutory regulatory order) Judicial Decision
Other general and special ordersmade or explanations given orcircular issued by the NBR
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Determination of Income year
"income year", in respect of any separate source of income, means- (a) the financial year immediately preceding the assessment year; or
(b) where the accounts of the assesses have been made up to a date withinthe said financial year and the assesses so opts, the 12 months ending on
such date.e.g Assesse accounting year ends 31st march 2011 then income
year will be 1st April 2010 to march 2011 ( IY 2010 -2011 & 2011-2012)
(c) in the case of a business or profession newly set up in the said financialyear, the period beginning with the date of the setting up of the business orprofession and -
(i) ending with the said financial year; if the business set up is 1st October2010 then income year will be 1st October to June 2011 ( IY 2010 -2011 &Fy 2011-2012).or
(ii) where the accounts of the assesses have been made up to a date withinthe said financial year and the assesses so opts, ending on that date If the
assesse set up business 1st october 2010 and end 31st march then income
year 1st october 2010 to 31st march 2011 (IY 2010-2011& 2011-2012) or
(d) in the case of a business or profession newly set up in the 12 monthsimmediately preceding the said financial year
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i) if the accounts of the assessee have been made up to a date within the said financialyear and the period from the date of the setting up of the business or profession to the
first-mentioned date does not exceed twelve months, then, at the option of the assesses,
such period, e.g if the assesse setup business 1st November 2009 and end ups 31st
march 2010 but assessment year is 2011-2012 ,So income year will be 1st November
2009 to 31st march 2010 or
(ii) if any period has been determined under sub-clause (e), then the period beginning
with the date of the setting up of the business or profession and ending with the last dayof that period, as the case may be; or
(e) in the case of any person or class of persons or any business or profession or class ofbusiness or profession such period as may be determined by the Board or by such
authority as the Board may authorise in this behalf;
(f) in respect of the assessee's share in the income of a firm of which the assessee is apartner and the firm has been assessed as such, the period determined as the income
year for the assessment of income of the firm;
g) where in respect of a particular source of income an assessee has once beenassessed or where in respect of a business or profession newly set up, an assessee has
once exercised the option under sub-clause (b) or sub-clause (c) (ii) or sub-clause (d) (i)
then, he shall not, in respect of that source, or, as the case may be, business or
profession, be entitled to vary the meaning of the expression "income year" as then
applicable to him, except with the consent of the Deputy Commissioner of Taxes upon
such conditions as the Deputy Commissioner of Taxes may think fit to impo
Determination of Income year
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Determination of Income year
Income year is financial year which is used to determine thetax base of income tax
It may be any year(not exceeding 12 months) as desired by
assessee
If the financial year of assess ends within 30th June ,the said
financial year will be his income year and the subsequentyear will be assessment year.
If the financial year ends after 30th June his income year will
be the next financial year and assessment year will be
subsequent year of the income year.
In case of a newly setup business duration of first year maybe less than 12 months.
For share of income from partnership firm, firms income year
is applicable
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Determination of Income year
Firm Incomeyear ended on
Financial year inwhich last dateof income yearfalls
Income year forTax purpose
Assessmentyear
30-06-2004 2003-2004 2003-2004 2004-2005
31-12-2004 2004-2005 2004-2005 2005-2006
13-04-2004 2003-2004 2003-2004 2004-2005
31-11-2004 2004-2005 2004-2005 2005-2006
26-04-2002 2001-2002 2001-2002 2002-2003
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Importance of Income Year Computation of total Income:Assesse has to
pay only on income earned in come year not in
previous year or subsequent year.
Investment Allowance: Investment Allowanceis allowed only on amount invested in incomeyear
Residential Status: It is determined on the
basis of his staying in income year notassessment year
Submisssion of Accounts:Account submittedon the basis of income year
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Assessment year
assessment year" means the periodof 12 months commencing on the first
day of July every year; and includesany such period which is deemed,
under the provisions of this Ordinance,
to be assessment year in respect ofany income for any period;
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Assesse & Person "Assessee", means a person by whom any tax or other sum of
money is payable under this Ordinance, and includes
(a) every person in respect of whom any proceeding under thisOrdinance has been taken for the assessment of his income or the
income of any other person in respect of which he is assessable, or
of the amount of refund due to him or to such other person; (b) every person who is required to file a return under section 75,
section 89 or section 91;
(c) every person who desires to be assessed and submits his returnof income under this Ordinance; and
(d) every person who is deemed to be an assessee, or an assesseein default, under any provision of this Ordinance;
person" includes an individual, a firm, an association of persons, a Hinduundivided family, a local authority, a company and every other
artificial juridical person;
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Classification of Assesse
On the basis of Person:
# Individual # Company #Firm #Local
Authority e.g Municipal Corporation,
Cantonment board # Hindu Undividedfamily # Artificial Judicial Person e.g
Dhaka university, BRTC # Association
of PersonOn the basis of Residential Status
# Resident #Non Resident
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Residential Status determinationCategory Rules to be Resident Rules to be non Resident
Individual He is in Bangladesh for 182 days
or more year in a income year
Or
For 90days or more income year
and 365 days or more during
4years immediately preceding theIY
None of the condition
fulfilled
HUF,AOP& Firm Control and Management is
situated wholly or partly in
Bangladesh in IY
Control and Management
is situated wholly or partly
outside Bangladesh in IY
Company Control and Management is
situated wholly in Bangladesh in IY
Control and Management
is situated wholly or partly
outside Bangladesh in IY
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Residential Status of IndividualDid Assesse reside incountry 180 days in IY
Resident
Did Assesse reside
in country 90 days
or more in IY Did Assesse reside in
country 365 days or
more in during 4years
immediate preceding IY
Non
Resident Is assesseBangladeshi Citizen
Non resident
Foreigner
Non resident
Bangladeshi
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Effects of Residential Status in Assessing income
Particulars ofincome
Status of Income Resident Non Resident
Income received
or deemed to be
received in BD
BD income Taxable Taxable
Income earned or
deemed to be
earned in BD
BD income Taxable Taxable
Income accrued
arouse outside inBD
Foreign income Taxable Non-Taxable
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Tax Rate (Assessment Year- 2012-13) :
Other than Company : For individuals other than female taxpayers, senior
taxpayers of 65 years and above and retarded taxpayers,tax payable for the
First 2,00,000/- Nil Next 3,00,000/- 10% Next 4,00,000/- 15%
Next 3,00,000/- 20% Rest Amount 25%
For female taxpayers, senior taxpayers of age 65 yearsand above and , tax payable for the
First 2,25,000/- Nil Next 3,00,000/- 10% Next 4,00,000/- 15%
Next 3,00,000/- 20% Rest Amount 25%
For retarded taxpayers threshold limit is TK.2,75,000
Minimum tax for any individual assessee is Tk. 3,000
Non-resident Individual 25% (other than non-resident
Bangladeshi)
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Tax Rate (Assessment Year-2012-13) : For Companies Publicly Traded Company 27.5%
Non-publicly Traded Company 37.5%
Bank, Insurance & Financial Company (Except merchant bank)
42.5%
Merchant bank 37.5%
Cigarette manufacturing company 42.5%
Publicly traded cigarette company 35%
Mobile Phone Operator Company 45%
Publicly traded mobile company 35%
If any publicly traded company declares more than 20% dividend, tax
rate would be 24.75% and if declares less than 10% dividend tax rate
would be 37.5%.
If any non publicly traded company transfers minimum of 20% shares
of its paid-up capital through IPO(Initial Public Offering) it would get
10% rebate on total tax in the year of transfer.
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Income Tax Authorities: National Board of Revenue, Chief commissioner of taxes
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,
Tax recovery officer,
Assistant Commissioner of Taxes,
Extra Assistant Commissioner of Taxes,
Inspectors of Taxes.
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(a) any income, profits or gains, from whateversource derived, chargeable to tax under any
provision of this Ordinance under any head
specified in section 20;
(b) any loss of such income, profits or gains; (c) the profits and gains of any business of
insurance carried on by a mutual insurance
association computed in accordance with
paragraph 8 of the Fourth Schedule; (d) any sum deemed to be income, or any income
accruing or arising or received, or deemed to
accrue or arise or be received in Bangladesh under
any provision of this Ordinance:
Definition of Income In ITO
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Sources of Income
For the purpose of computation of total income and chargingtax thereon, sources of income can be classified into 7
categories, which are as follows :
Salaries U/S 21
Interest on securities U/S 22 Income from house property U/S 24
Income from agriculture U/S 26
Income from business or profession U/S 28
Capital gains U/S 31 Income from other sources. U/S 33
Income from spouse or minor child as applicable U/S43(4)
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Classification of Income On the basis of Locality:
Domestic Income
Foreign Income
On the basis of Assessment
Non Assessable income
Assessable income ; a.Tax free income e.g
income from partnership firm and incomefrom Association of person if tax paid b. Tax
credit income c. Tax payable income
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List of Investment on which
Allowance allowed Life insurance premium up to 10% of the face value.
Contribution to Provident Fund to which Provident Fund Act, 1925
applies.
Self contribution and employer's contribution to Recognized Provident
Fund.
Contribution to Supper Annuation Fund. Contribution up to TK 60,000 to deposit pension scheme sponsored by
any scheduled bank or a financial institution.
Investment in approved debenture or debenture stock, Stocks or Shares
Contribution to Benevolent Fund and Group Insurance premium
Contribution to Zakat Fund Donation to charitable hospital approved by National Board of Revenue
Donation to philanthropic or educational institution approved by the
Government
Donation to socioeconomic or cultural development institution
established in Bangladesh by Aga Khan Development Network
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List of Investment on which
Allowance allowed Donation to ICDDRB, Donation to philanthropic institution-CRP, Savar, Dhaka
Donation up to five lac to (1) Shishu Swasthya Foundation Hospital
Mirpur, Shishu Hospital, Jessore and Hospital for Sick Children,
Sathkhira run by shishu swasthya Foundation, Dhaka. (2) Diganta
Memorial cancer Hospital, Dhaka, (3) The ENT and Head-Neck
cancer Foundation of Bangladesh, Dhaka and (4) Jatiya Prtibandhi
Unnayan Foundation, Mirpur, Dhaka;
Donation to Asiatic society of Bangladesh
Donation to Muktijudha Jadughar
Donation to National level institution set up in memory of liberation
war;
Donation to National level institution set up in memory of Father of
the Nation
Any investment by an individual in Bangladesh Government Treasury
Bond;
Investment in purchase of one computer or one laptop by an