Taxation
Cp1
Introduction
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Public Finance: Public finance is the study of principles underlying the spending and raising of
funds by public authorities.
Public finance deals with the provisions, custody and disbursement of resources needed for the
conduct of public or governmental functions.
Public finance relates to the income and expenditure of a government.
Sources of public revenue:
• Tax revenue: Collection of government revenue as tax through the various names & forms. It will be
discussed in details later on.
• Non tax revenue: Fees, Fines or penalty, surplus from public enterprises, grants and gifts, deficit
financing and special assessment of betterment levy.
Definition of Tax
• Tax means to charge. 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. Taxes are
generally compulsory contributions of wealth levied upon persons, organization, to defray the expenses
incurred in conferring common benefits upon the residents of the state.
• According to Justice Holmes, "the price paid to the Government for living in a civilized society is the
tax."
• According to Taylor, "Taxes are the compulsory payments to Government without expectation of
direct return in benefit to the tax payer."
• Finally, tax is a compulsory payment by the tax payer to the government as a cost of living in a civilized
society without expecting any direct benefit from the government. It is not a fine or penalty and refusal
of tax is a punishable offence
Government fund mobilization
Sales
govt expedeture
revenue collection
Characteristics of tax
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The main characteristics of tax are:
Tax is a payment to the Govt. by the people.
Refusal of it is punishable offence.
Tax is not fine or penalty.
It is imposed without any certain purpose. It is paid without any expectation of direct benefit.
As it is compulsory, people are bound to pay tax.
It is an important fiscal mechanism of transferring
private property to state property.
It is the prime source of revenue for the government.
Tax is the cost of living in a civilized society.
Tax can only be imposed by the govt. of the country
Objectives of Tax
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Government needs revenue for defense, administrative and development activities. The main
source of this revenue is tax. In such a context, the importance of tax for a country can be
identified as follows:
Collection of Revenue: No Government can run its administrative and perform development
works without collecting tax as a source of revenue. Thus, the main importance of tax is the
collection of revenue. In the context of Bangladesh, the source of revenue is also found to be
tax.
Redistribution of income: Concentration of money and income in few hands can create socio
economic and political problem. Through taxation and various techniques under it, Govt.
endeavors to the redistribution of income. This has yielded positive result.
Economic Control: To guide the economic in desired direction, Govt. needs to inflation, push
money to the economy develop certain sectors of the money and control some activities.
Taxation can be an important tool to achieve this macroeconomic objective.
Protection of Local Industry: For the greater interest of the country Govt. may provide incentive
to infant and certain basic industries. For this tax incentive for setting up and protecting such
industry, export of products and import activities can be directed in favor such industries
through tax policy.
Economic Development: For development of a country Govt. needs to create infrastructure and
invest in certain sectors. For this activities Govt. needs funds and tax revenue can provide fund
for the purpose.
Full Employment: Every state creates employment opportunities to its citizen. According to FE.
Taylor, besides collecting revenue and economic control, one of the important objectives of tax
is lead the economy to full employment stage. He emphasizes that through efficient tax and
expender policy, Govt. can achieve this objective
Raising National Income in Desired Level: For economic development of a country, national
income to be increased is necessary. For increasing national income in adequate level, tax
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system should be taken as the important tool and it can be effectively used if the policy is
framed taking such objectives as the important objective of taxation too.
Control of Consumption
Accelerating Economic Growth: Thus, a country should take tax not only the collection of
revenue, its other objectives relevant to economic control and economic development is not
less important.
Tax System of Bangladesh
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Tax system of Bangladesh is based on multiple tax system. A good number of taxes are in
existence. Taxation system of Bangladesh mainly comprises by direct tax and indirect tax.
Among these, contribution of indirect taxes to the exchequer is quite significant. Direct taxes
consist mainly of income tax and land tax, gift tax etc. whereas indirect taxes consist of importexport duty, value added tax, motor vehicle tax, excise duty, etc.
Multiple tax system: income tax on individual and company, taxes on property & capital gain
and taxes on goods & services.
Inadequate & stagnated revenue yield relative to GDP, higher-ratio of indirect to direct tax
revenue, dominance of indirect taxes, tax avoidance behavior of the taxpayers, narrow tax base
and central authority is NBR.
Income tax: It is the tax which is imposed to the person on their income. It is a tax on the income
a person based on Income Tax ordinance, 1984. It is direct tax and the tax rate is progressive in
BD.
Wealth Tax: It is a direct tax based on the wealth of an assessed and charged under Wealth tax
Act, 1963. Person whose wealth exceeds Tk. 25 lakh was subject to tax under this Act. As the
revenue from this Act was negligible, it has been suspended from the year 1999.
Gift tax: If a person making gift to another over Tk. 20,000 is considered assessed under Gift tax
Act, 1990 and changeable for gift tax. It is also a direct tax.
Estate Duty: If a deceased at the time of his death leaves property on 2 lakh, his inheritants are
subject to pay this estate duty, in the some countries also called death tax. It was introduced in
the then Pakistan in 1951 and continued till 1982 in Bangladesh. Thereafter Govt. has
suspended this Act which, however, is now considering reintroducing it again
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Import-Export Duty: It is a commercial duty charged on the import and export of commodities. It
is an indirect tax, the ultimate burden of which is shifted to consumer. Govt. of Bangladesh
earns a significant portion of its tax revenue from this.
Value Added Tax: It is imposed on the added value of product at different stages in the
marketing chain.
Land Revenue: This is a direct tax imposed on the land property of the assessee. Though the
earning from it is not significant yet it is considered an important source of tax.
Motor Vehicle Tax: This tax is imposed on the capacity of motor vehicle and permission for ply in
the country road.
Classification of Tax
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Class of Tax according to Progression
Progressive Tax: A tax is said to be progressive when, the Increasing income, the liability not
only increases in absolute form but also in a progressive way. Here the tax rate progressively
increases. For example, tax on total Income of taka 1,00,000 is 10% but on 5,00,000 is 15%.
Proportionate Tax: A tax is said to be proportionate when tax liability increases in same
proportion as income increases. For example, tax on taka 1,00,000 is 10% and on 5,00,000 is
also 10%. In the former case tax be come taka 10,000 and in the latter taka 50,000. Here in
absolute form tax has increased in proportion to rate of increase of Income. But the rate not
progressively increased as was seen in case of progressive tax.
Regressive Tax: A regressive tax is one where rate of tax decreases as the income, properly
expenditure increases. Degressive tax: Taxes which are mildly progressive. A tax may be slowly
progressive up to a certain limit, after that it may be charged at a flat rate.
Tax can be classified into two on the basis of base
Single Tax: When in a country the tax system comprises only one tax, then it is called single tax.
For example, poll tax or head tax, which in ancient time would be imposed on a person because
he lived in that society and not because his trade, wealth, etc.
Multiple Tax: When in country different types of tax are imposed considering different bases
then it is called multiple tax. At present this system is prevalent worldwide and single tax system
is found absent.
Tax can classify on the basis of incidence
• Direct taxes: When the burden of tax cannot be shifted to others it is called direct tax. Examples of this
tax are income tax, land revenue tax etc.
• Indirect taxes: When the burden of tax can be shifted to others, it is called indirect tax. Examples of
this tax are: VAT, sales tax, custom duty etc.
Feature of Good Taxation System
(a) Imposition of taxes according to ability to pay.
(b) Introduction of progressive taxation system.
(c) Taxation system should be productive.
(d) Taxation system should be certain.
(e) Collection of tax should be minimum.
(f) It should be convenient to pay tax.
(g) A good taxation system should consist of both direct and indirect taxes.
(h) Tax system should be diversified.
Canons of taxation
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Canon of Equality: The tax payers will have to pay tax as per their ability. It means the equality
of sacrifice. This is clearly points out progressive taxation.
Canon of certainty: The tax which persons are bound to pay to be certain and not arbitrary. The
time of payment and the amount to be paid ought to be clear and simple. Uncertainty in
taxation encourages corruption.
Canon of convenience: Every tax ought to be levied at the time or in the manner in which it is
most likely to be convenient for the contributor to pay. A tax on consumption is very
convenient. The customers pay tax while they buy goods.
Canon of economy: The tax is economical if the cost of collection is small. If the salaries of the
officers who are engaged in the collection of tax take away a big portion of the tax revenue, the
tax is certainly uneconomical.
Canon of productivity: Tax must be productive. It should not hamper the normal productivity of
the economy. Tax should not cripple the productive capacity of the country.
Canon of elasticity: As the need of the country increases, the revenue should also increase.
Income tax is a good example of elastic tax. To meet emergency, the government should be in a
position to augment its financial revenue through increasing tax rate.
Canon of flexibility or expediency: There should be no rigidity the tax system so that it can be
quickly adjusted to new condition.
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Canon of simplicity: 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.
First 4 by Adam Smith and last 4 by Bastable
Income Tax
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Income tax is the tax which is levied on the taxable income of a person or entity as per the
provisions of the income tax ordinance, 1984. No specific definition of income tax in the ITO but
it has been said that Income tax for any assessment year at any rate or rates shall be charged,
levied, paid and collected in respect of the total income of the income year or income years. of
every person.
Income tax is a tax on income-(peter merchant Itd vs Stedeford)
Income tax is a direct tax which is imposed on total income of a person for a relevant income in
which income is earned and assessment year where tax is paid.
Characteristics of income tax
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It is a direct tax.
It is regulated by ITO, 1984.
Tax imposed on items other than income is not tax.
It is charged on the total income of an income year of a person in an assessment year.
The income tax rate is determined by the BD govt.
It is one tax not a collection of taxes essentially
distinct. Income tax is levied on income by the govt. annually.
Objectives and importance of Income tax
Taxation is one of the major sources of public revenue to meet expenditure and development with a
view to accomplishing some economic, social and environmental objectives. Some important objectives
are as follows:
• Revenue collection
• Re-distribution of income
• Increase in savings
• Increase in capital investment
• Economic development
Role of income tax in economic development of Bangladesh
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Tax holiday scheme
Investment allowance
Accelerated depreciation allowance
Tax incentives for small & cottage industries
Tax incentives for encouraging savings
Tax exemptions in certain expenditures
Tax incentives for foreign investors
Allowance for scientific research
Tax incentives for remittance to Bangladesh
Chapter 2: basic of income tax
2.2 Income Year and Assessment Year
2.3 Assessee and Person
2.4 Determining Residential Status
2.7 Charge of Surcharge
2.9 Income Tax Rates
2.10 Charge of Minimum Tax
2.13 Charge of Tax on Retained Earnings, Reserves, Surplus Etc
2.14 Charge of Tax on Stock Dividend
2.21 Taxpayer's Registration(TIN)
2.2 Income Year and Assessment Year
income year as the period for which the total income of an assessee (for bank, insurance financial
institution or any subsidiary thereof January to December; and for other assessee's July to June) is
calculated. The income tax amount is paid in the next fiscal year of the income year and is known as
assessment year. Thus, if the income year is 2022-23, assessment year will be 2023-24.
Calendar year Jan 01 to Dec 31
Fiscal year :any 365 days like Jul 01 to Jun 31(it takes 2 calendar year to make 1 fiscal year.
2.3 Assessee and Person
an assessee is a person who is liable to pay any sum under the Income Tax Act, 2023
Person
The term "person" includes an individual, a firm, an association of persons, a Hindu undivided family, a
trust, a fund, and a company. [Section 2(69)]
Classification of Assessee
According to the provisions of the ITA, 2023, an assessee can be classified under two dimensions:
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on the basis of person [Section 2(69)],
On the basis of residential status [Section 2(4) & 2(45)]
on the basis of person
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Individual
Firm
Association of Persons
Hindu Undivided Family
Trust
Fund
Company
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Individual: Refers to a single person, such as a salaried employee or a self-employed professional. They file income
tax returns individually.
Firm: A partnership firm where two or more individuals come together to carry out a business. The firm files its tax
return as a separate entity.
Association of Persons (AOP): A group of people (not necessarily in partnership) who join together for a common
purpose, such as a club or society. AOPs file tax returns collectively.
Hindu Undivided Family (HUF): A joint family structure recognized under Hindu law. HUFs have a common
ancestor and share income and assets. They file separate tax returns.
Trust: A legal entity created to manage assets for the benefit of specific beneficiaries. Trusts file tax returns
independently.
Fund: Refers to mutual funds, venture capital funds, or other investment funds. These entities also file tax returns.
Company: A separate legal entity distinct from its shareholders. Companies file tax returns based on their corporate
structure (private limited, public limited, etc.)
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On the basis of residential status(Residential status refers to an individual’s status with reference to
how long they have stayed in a particular country during a specified period)
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Resident: An assessee will be a resident in any income year if he fulfills any of the conditions.
Such as, an individual who stays in Bangladesh for a period of 183 days or more in the income
year;
• Non-resident; An assessee will be a non-resident if he fulfills the condition of staying in
Bangladesh for a period of 183 days. a non-resident individual can also be divided into following
two categories:
(a) Non-resident Bangladeshi,
(b) Non-resident foreigner.
Rule of determining residential status
Residential Status of an Individual: An individual will be a resident in any income year if he fulfills
any of the following two conditions
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If someone stays in Bangladesh for a total of 183 days or more during a specific year, they are
considered a resident.
Alternatively, if an individual stays in Bangladesh for 90 days or more during the year and has
previously been in Bangladesh for a total of 365 days or more over the preceding four years, they
also qualify as a resident.
2.7 Charge of Surcharge
A surcharge is an additional charge or tax that is added to the tax. It can be called Tax on Tax.
On Individual assessee for showing higher total net worth [Section 167]An 'Individual' asseessee is liable
to pay surcharge as a percentage of net tax payable amount on his total income
Net Wealth Amount
Up to Tk. 4 crore
More than Tk. 4 crore to Tk. 10 crore or, having multiple motor cars under one
name or, having more than 8000 sq. ft house in city corporation area
More than Tk. 10 crore to Tk. 20 crore
More than Tk. 20 crore to Tk. 50 crore
More than Tk. 50 crore
Rate
Nil
10%
20%
30%
35%
2.9 Income Tax Rates
For every individual including Bangladeshi Non-residents, HUF, and Firms
income
On the first Tk. 350,000 of total income
On the next Tk. 100,000 of total income
On the next Tk. 300,000 of total income
On the next Tk. 400,000 of total income
On the next Tk. 500,000 of total income
On the balance of Total income
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Rate
Nill
5%
10%
15%
20%
25%
The minimum non-assessable income limit will be Tk. 400,000 for women, and elderly citizens
being more than 65 years of age. For transgender and disable persons Tk. 475,000, and for
gazetted wounded freedom fighters (whose name is included in the gazette of Ministry of
Liberation War Affairs) Tk. 500,000. The minimum non- assessable income limit of the parents
or legal guardian of disable child/dependent will be Tk. 50,000 more for each child/dependent
Minimum tax would be Tk. 5.000 (Dhaka North, Dhaka South & Chittagong City corporation
area (CCA)); Tk. 4,000 (Other CCA) and Tk. 3,000 (Other than CCA).
2.13 Charge of Tax on Retained Earnings, Reserves, Surplus Etc
if in an income year, the total amount transferred to retained earnings or any fund, reserve or surplus, , by
a company registered under the Companies Act, 1994 and listed to any stock exchange surpasses 70% of
the net income after tax, tax shall be payable at the rate of 10% on the total amount so transferred in that
income year.
2.14 Charge of Tax on Stock Dividend
if in an income year, the amount of stock dividend declared or distributed surpasses the amount of cash
dividend declared or distributed or without declaration or distribution of any cash divided by a company
registered under the Companies Act, 1994 and registered to any stock exchange, tax shall be payable @
10% on the whole amount of stock dividend declared or distributed in that income year.
2.21 Taxpayer's Registration(TIN)
Who can register as an assessee? [Section 261]
A person will register as an assessee, if he•
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is a taxpayer;
is liable to submit income tax return under section 166;
is required to furnish a proof of submission of return under section 264;
is willing to pay income tax or submit income tax return.
Board will provide the registered assessee with a Taxpayer's Identification Number(TIN)