squre pharmaceuticals
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Faculty of Business amp Economics
BBA Program
Sec ldquoBrdquo
Assignment on Impact of Direct and Indirect tax of
Bangladesh
Submitted to Farzana HudaLecturer
DIU
Submitted by
Student Name Student IDMdReazul Islam 073-11-2109Abu Bakar Siddiquez 09152-11-771Soyeb Mahmud 09152-11-746Sahadat Hossian 073-11-2112Md Mustafijur Rahman 073-11-2116
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2
Submission Date 13th
April 2010
Farzana HudaLecturer
Faculty of business and economicsDaffodil International University
Dear Madam
Subject Letter of Transmittal
We are going to submit the report what we prepared on
Impact of Direct and Indirect tax of Bangladesh to you for further clarification The authority of this report is beingtransmitted to you as well Therefore we fervently hope that you would kindenough to let us inform the feedback regarding our report However if yourequire more information we will be very happy to provide that in future
Thank youSincerely yours
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3
Executive summary
The term direct tax generally means a tax paid directly to the government by the persons
on whom it is imposed
A tax levied on goods or services rather than on persons or organizations is indirect tax
Income tax wealth tax is the direct tax and customs excise vat etc is the indirect tax
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Introduction
Direct Tax
a tax paid directly by the person or organization on which it is leviedA tax demanded from the very persons who it is intended or desired should
pay it
The term direct tax generally means a tax paid directly to the government by the persons
on whom it is imposed
In the general sense a direct tax is one paid directly to the government by the persons(juristic or natural) on whom it is imposed (often accompanied by a tax return filed by thetaxpayer) Examples include some income taxes some corporate taxes and transfer taxessuch as estate (inheritance) tax and gift tax In this sense a direct tax is contrasted with anindirect tax or collected tax (such as sales tax or value added tax (VAT)) a collectedtax is one which is collected by intermediaries who turn over the proceeds to thegovernment and file the related tax return Some commentators have argued that a direct
tax is one that cannot be shifted by the taxpayer to someone else whereas an indirect taxcan be
The power of direct taxation applies to every individual as congress under thisgovernment is expressly vested with the authority of laying a capitation or poll-tax uponevery person to any amount This is a tax that however oppressive in its nature andunequal in its operation is certain as to its produce and simple in it collection it cannot be evaded like the objects of imposts or excise and will be paid because all that a manhath will he give for his head This tax is so congenial to the nature of despotism that it
has ever been a favorite under such governments Some of those who were in the lategeneral convention from this state have long labored to introduce a poll-tax among us
The power of direct taxation will further apply to every individual as congress may tax
land cattle trades occupations ampc to any amount and every object of internal taxation
is of that nature that however oppressive the people will have but this alternative either
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Indirect Tax
a tax levied on goods or services rather than on persons or organizations
Tax - definition of tax - A fee charged (levied) by a government on a product on the price of a good or service then it is called an indirect tax
Charge levied by the State on consumption expenditure privilege or right but not on
income or property Customs duties levied on imports excise duties on production sales
tax or value added tax (VAT) at some stage in production-distribution process are
examples of indirect taxes because they are not levied directly on the income of the
consumer or earner Since they are less obvious than income tax (because they dont show
up on the wage slip) politicians are tempted to increase them to generate more state
revenue Also called consumption taxes they are regressive measures because they are
not based on the ability to pay principle
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Type of Direct tax
Income Tax
The levy of Income tax is regulated by Income Tax Ordinance XXXVI of 1984 Finance
Act is published every year after passing of national budget in the Parliament It contains
the amendments to the income tax if any and prescribed tax rates Besides rulesorders
are issued by the National Board of Revenue from time to time Decisions are also
arrived at based on previous income tax cases Income Tax is calculated on salaries
interest on securities income of residential property income from business or profession
capital gains income from other sources profit of any mutual insurance association any
income that accrued arose or is received in Bangladesh
In the income tax law tax-payers are divided into two classes resident and non-
resident depending on the period of stay in Bangladesh The tax rate is relatively higher
for a non-resident The tax payers may be individual firm association of persons
undivided Hindu family local authority company etc Usually income tax-returns are to
be submitted by 15th September each year after the close of the financial year If the
income exceeds 200000 taka the return is to be accompanied with statement of assets
liabilities and expenses Income tax officer determines taxable income on the basis of the
following factors
Income tax returns submitted by the assessee and the facts gathered by the income taxofficer through accounts statements documents files or audit report of charteredaccountants relating to assessment
Income Tax Act
Income Tax Law
Discretion of the Deputy Commissioner of Tax
Since the year 1996-1997 income tax is determined in the following way
(a) In case of individual firm association of persons partnership firms
Level of Income Rate
(i) Income up to 60000 taka Nil
(ii) Income up to next 75000 taka or 120000 taka whichever is higher 15
(iii) Income up to next 160000 taka 20
(iv) The rest amount of income 25
(b) In case of company or local authority
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All income except dividend income of the Company that is registered in Bangladesh istaxable The rate is as follows-
Category Rate
(i) Income of Publicly Traded Company 35
(ii) Income of non-Publicly Traded Company 40
(iii) Bank Insurance or Investment Companies nonresident Companies 45
The rate of income tax will be 15 on the amount representing income from dividends
declared and paid by a company formed and registered in Bangladesh under companies
Act 1913 or a body corporate formed in pursuance of an Act of Parliament in respect of
the share capital issued subscribed and paid after 14th August 1947
In the case of a person not being a Company (non-resident) the rate of income tax will be
25 of income
Wealth Tax
Wealth tax is regulated by the provisions of Wealth Tax Act 1963 (Act No XV)
Wealth is assessed as per the prevailing market price in respect of the wealth of Hindu
undivided family or individual
Value of Wealth Rate
(i) First 25000000 taka net wealth Nil
(ii) Next 50000000 taka net wealth 12
(iii) Next 50000000 taka net wealth 34
(iv) For the balance amount of Value 1
If any tax payer pays income and wealth taxes in any year wealth tax plus income tax
must not exceed 30 of income
The number of wealth tax payers stood at 18350 in 1994-1995 943 Gift Tax
Gift tax Act 1963 was repealed in 1985 but came into force again in 1990 As per the
quoted Act gift means any transfer of ownership of movable or immovable property by
one person to another willingly and without any profit Property is evaluated at thecurrent market price
The following rates are applicable now
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Value of property Rate
(i) 5000000 taka beyond exempted limit 5
(ii) On next 10000000 taka value 10
(iii) On next 10000000 taka value 15
(iv) On the balance amount of value 20
Indirect Taxes
The following are the main indirect taxes
Customs
Wester defines customs as duties tolls or imposts imposed by sovereign laws of a
country on imports and exports This duty is imposed as per Bangladesh Customs Act
1969 and as per the Customs Tariff As per the Customs Act banned and illegal items aresold on auction and sale-proceeds are deposited into government treasury Smuggled gold
seized at airsea ports are deposited into Central Bank
In order to hasten customs clearance and thereby encourage investment in the country
government has introduced Per-shipment Inspection (PSI) Scheme under which approved
internationally reputed inspection firms issue certificate regarding quality quantity price
classification of the imported items On the basis of that certificate (known as Clean
Report on Finding) goods are cleared without delay at sea or air ports But Revenue
Audit authorities have detected cases of under-invoicing and wrong classification by the
PSI agencies which deprive the government of large revenues
Moreover bonded ware houses get special duty privileges for imports There are 2956
bonded warehouses (private and special) in the country There are also privileges for
import under baggage rules
Excise
Excise duty is imposed on some items that are produced within Bangladesh Being an
indirect tax it is paid by the manufacturer who can pass its incidence to consumers This
is guided by Excises and Salt Act 1944 and Statutory Rules amp Order of 1984 At present
excise duty is charged on bidi (local cigarette) 25 taka per thousand on cotton Tk
150 per kilogram and cotton cloth Tk 150 per metre Excise duty is also imposed onBanking services
VAT
Value Added Tax is imposed on production wholesaling and retailing when value is
added This was introduced in 1991 Maximum limit of VAT is 15 on import and
home-made goods and services The number of registered firmscompanies under VAT
net is 100000 (approx)
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Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
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Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
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Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
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Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
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Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
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Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
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Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
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NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
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Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
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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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
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Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
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(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
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CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
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2
Submission Date 13th
April 2010
Farzana HudaLecturer
Faculty of business and economicsDaffodil International University
Dear Madam
Subject Letter of Transmittal
We are going to submit the report what we prepared on
Impact of Direct and Indirect tax of Bangladesh to you for further clarification The authority of this report is beingtransmitted to you as well Therefore we fervently hope that you would kindenough to let us inform the feedback regarding our report However if yourequire more information we will be very happy to provide that in future
Thank youSincerely yours
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 321
3
Executive summary
The term direct tax generally means a tax paid directly to the government by the persons
on whom it is imposed
A tax levied on goods or services rather than on persons or organizations is indirect tax
Income tax wealth tax is the direct tax and customs excise vat etc is the indirect tax
8132019 Squre Pharmaceuticals
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4
Introduction
Direct Tax
a tax paid directly by the person or organization on which it is leviedA tax demanded from the very persons who it is intended or desired should
pay it
The term direct tax generally means a tax paid directly to the government by the persons
on whom it is imposed
In the general sense a direct tax is one paid directly to the government by the persons(juristic or natural) on whom it is imposed (often accompanied by a tax return filed by thetaxpayer) Examples include some income taxes some corporate taxes and transfer taxessuch as estate (inheritance) tax and gift tax In this sense a direct tax is contrasted with anindirect tax or collected tax (such as sales tax or value added tax (VAT)) a collectedtax is one which is collected by intermediaries who turn over the proceeds to thegovernment and file the related tax return Some commentators have argued that a direct
tax is one that cannot be shifted by the taxpayer to someone else whereas an indirect taxcan be
The power of direct taxation applies to every individual as congress under thisgovernment is expressly vested with the authority of laying a capitation or poll-tax uponevery person to any amount This is a tax that however oppressive in its nature andunequal in its operation is certain as to its produce and simple in it collection it cannot be evaded like the objects of imposts or excise and will be paid because all that a manhath will he give for his head This tax is so congenial to the nature of despotism that it
has ever been a favorite under such governments Some of those who were in the lategeneral convention from this state have long labored to introduce a poll-tax among us
The power of direct taxation will further apply to every individual as congress may tax
land cattle trades occupations ampc to any amount and every object of internal taxation
is of that nature that however oppressive the people will have but this alternative either
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5
Indirect Tax
a tax levied on goods or services rather than on persons or organizations
Tax - definition of tax - A fee charged (levied) by a government on a product on the price of a good or service then it is called an indirect tax
Charge levied by the State on consumption expenditure privilege or right but not on
income or property Customs duties levied on imports excise duties on production sales
tax or value added tax (VAT) at some stage in production-distribution process are
examples of indirect taxes because they are not levied directly on the income of the
consumer or earner Since they are less obvious than income tax (because they dont show
up on the wage slip) politicians are tempted to increase them to generate more state
revenue Also called consumption taxes they are regressive measures because they are
not based on the ability to pay principle
8132019 Squre Pharmaceuticals
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6
Type of Direct tax
Income Tax
The levy of Income tax is regulated by Income Tax Ordinance XXXVI of 1984 Finance
Act is published every year after passing of national budget in the Parliament It contains
the amendments to the income tax if any and prescribed tax rates Besides rulesorders
are issued by the National Board of Revenue from time to time Decisions are also
arrived at based on previous income tax cases Income Tax is calculated on salaries
interest on securities income of residential property income from business or profession
capital gains income from other sources profit of any mutual insurance association any
income that accrued arose or is received in Bangladesh
In the income tax law tax-payers are divided into two classes resident and non-
resident depending on the period of stay in Bangladesh The tax rate is relatively higher
for a non-resident The tax payers may be individual firm association of persons
undivided Hindu family local authority company etc Usually income tax-returns are to
be submitted by 15th September each year after the close of the financial year If the
income exceeds 200000 taka the return is to be accompanied with statement of assets
liabilities and expenses Income tax officer determines taxable income on the basis of the
following factors
Income tax returns submitted by the assessee and the facts gathered by the income taxofficer through accounts statements documents files or audit report of charteredaccountants relating to assessment
Income Tax Act
Income Tax Law
Discretion of the Deputy Commissioner of Tax
Since the year 1996-1997 income tax is determined in the following way
(a) In case of individual firm association of persons partnership firms
Level of Income Rate
(i) Income up to 60000 taka Nil
(ii) Income up to next 75000 taka or 120000 taka whichever is higher 15
(iii) Income up to next 160000 taka 20
(iv) The rest amount of income 25
(b) In case of company or local authority
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All income except dividend income of the Company that is registered in Bangladesh istaxable The rate is as follows-
Category Rate
(i) Income of Publicly Traded Company 35
(ii) Income of non-Publicly Traded Company 40
(iii) Bank Insurance or Investment Companies nonresident Companies 45
The rate of income tax will be 15 on the amount representing income from dividends
declared and paid by a company formed and registered in Bangladesh under companies
Act 1913 or a body corporate formed in pursuance of an Act of Parliament in respect of
the share capital issued subscribed and paid after 14th August 1947
In the case of a person not being a Company (non-resident) the rate of income tax will be
25 of income
Wealth Tax
Wealth tax is regulated by the provisions of Wealth Tax Act 1963 (Act No XV)
Wealth is assessed as per the prevailing market price in respect of the wealth of Hindu
undivided family or individual
Value of Wealth Rate
(i) First 25000000 taka net wealth Nil
(ii) Next 50000000 taka net wealth 12
(iii) Next 50000000 taka net wealth 34
(iv) For the balance amount of Value 1
If any tax payer pays income and wealth taxes in any year wealth tax plus income tax
must not exceed 30 of income
The number of wealth tax payers stood at 18350 in 1994-1995 943 Gift Tax
Gift tax Act 1963 was repealed in 1985 but came into force again in 1990 As per the
quoted Act gift means any transfer of ownership of movable or immovable property by
one person to another willingly and without any profit Property is evaluated at thecurrent market price
The following rates are applicable now
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Value of property Rate
(i) 5000000 taka beyond exempted limit 5
(ii) On next 10000000 taka value 10
(iii) On next 10000000 taka value 15
(iv) On the balance amount of value 20
Indirect Taxes
The following are the main indirect taxes
Customs
Wester defines customs as duties tolls or imposts imposed by sovereign laws of a
country on imports and exports This duty is imposed as per Bangladesh Customs Act
1969 and as per the Customs Tariff As per the Customs Act banned and illegal items aresold on auction and sale-proceeds are deposited into government treasury Smuggled gold
seized at airsea ports are deposited into Central Bank
In order to hasten customs clearance and thereby encourage investment in the country
government has introduced Per-shipment Inspection (PSI) Scheme under which approved
internationally reputed inspection firms issue certificate regarding quality quantity price
classification of the imported items On the basis of that certificate (known as Clean
Report on Finding) goods are cleared without delay at sea or air ports But Revenue
Audit authorities have detected cases of under-invoicing and wrong classification by the
PSI agencies which deprive the government of large revenues
Moreover bonded ware houses get special duty privileges for imports There are 2956
bonded warehouses (private and special) in the country There are also privileges for
import under baggage rules
Excise
Excise duty is imposed on some items that are produced within Bangladesh Being an
indirect tax it is paid by the manufacturer who can pass its incidence to consumers This
is guided by Excises and Salt Act 1944 and Statutory Rules amp Order of 1984 At present
excise duty is charged on bidi (local cigarette) 25 taka per thousand on cotton Tk
150 per kilogram and cotton cloth Tk 150 per metre Excise duty is also imposed onBanking services
VAT
Value Added Tax is imposed on production wholesaling and retailing when value is
added This was introduced in 1991 Maximum limit of VAT is 15 on import and
home-made goods and services The number of registered firmscompanies under VAT
net is 100000 (approx)
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Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
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Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
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Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
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Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
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Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
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Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
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Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
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NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
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Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
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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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
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Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
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(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
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CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
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Executive summary
The term direct tax generally means a tax paid directly to the government by the persons
on whom it is imposed
A tax levied on goods or services rather than on persons or organizations is indirect tax
Income tax wealth tax is the direct tax and customs excise vat etc is the indirect tax
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Introduction
Direct Tax
a tax paid directly by the person or organization on which it is leviedA tax demanded from the very persons who it is intended or desired should
pay it
The term direct tax generally means a tax paid directly to the government by the persons
on whom it is imposed
In the general sense a direct tax is one paid directly to the government by the persons(juristic or natural) on whom it is imposed (often accompanied by a tax return filed by thetaxpayer) Examples include some income taxes some corporate taxes and transfer taxessuch as estate (inheritance) tax and gift tax In this sense a direct tax is contrasted with anindirect tax or collected tax (such as sales tax or value added tax (VAT)) a collectedtax is one which is collected by intermediaries who turn over the proceeds to thegovernment and file the related tax return Some commentators have argued that a direct
tax is one that cannot be shifted by the taxpayer to someone else whereas an indirect taxcan be
The power of direct taxation applies to every individual as congress under thisgovernment is expressly vested with the authority of laying a capitation or poll-tax uponevery person to any amount This is a tax that however oppressive in its nature andunequal in its operation is certain as to its produce and simple in it collection it cannot be evaded like the objects of imposts or excise and will be paid because all that a manhath will he give for his head This tax is so congenial to the nature of despotism that it
has ever been a favorite under such governments Some of those who were in the lategeneral convention from this state have long labored to introduce a poll-tax among us
The power of direct taxation will further apply to every individual as congress may tax
land cattle trades occupations ampc to any amount and every object of internal taxation
is of that nature that however oppressive the people will have but this alternative either
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Indirect Tax
a tax levied on goods or services rather than on persons or organizations
Tax - definition of tax - A fee charged (levied) by a government on a product on the price of a good or service then it is called an indirect tax
Charge levied by the State on consumption expenditure privilege or right but not on
income or property Customs duties levied on imports excise duties on production sales
tax or value added tax (VAT) at some stage in production-distribution process are
examples of indirect taxes because they are not levied directly on the income of the
consumer or earner Since they are less obvious than income tax (because they dont show
up on the wage slip) politicians are tempted to increase them to generate more state
revenue Also called consumption taxes they are regressive measures because they are
not based on the ability to pay principle
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Type of Direct tax
Income Tax
The levy of Income tax is regulated by Income Tax Ordinance XXXVI of 1984 Finance
Act is published every year after passing of national budget in the Parliament It contains
the amendments to the income tax if any and prescribed tax rates Besides rulesorders
are issued by the National Board of Revenue from time to time Decisions are also
arrived at based on previous income tax cases Income Tax is calculated on salaries
interest on securities income of residential property income from business or profession
capital gains income from other sources profit of any mutual insurance association any
income that accrued arose or is received in Bangladesh
In the income tax law tax-payers are divided into two classes resident and non-
resident depending on the period of stay in Bangladesh The tax rate is relatively higher
for a non-resident The tax payers may be individual firm association of persons
undivided Hindu family local authority company etc Usually income tax-returns are to
be submitted by 15th September each year after the close of the financial year If the
income exceeds 200000 taka the return is to be accompanied with statement of assets
liabilities and expenses Income tax officer determines taxable income on the basis of the
following factors
Income tax returns submitted by the assessee and the facts gathered by the income taxofficer through accounts statements documents files or audit report of charteredaccountants relating to assessment
Income Tax Act
Income Tax Law
Discretion of the Deputy Commissioner of Tax
Since the year 1996-1997 income tax is determined in the following way
(a) In case of individual firm association of persons partnership firms
Level of Income Rate
(i) Income up to 60000 taka Nil
(ii) Income up to next 75000 taka or 120000 taka whichever is higher 15
(iii) Income up to next 160000 taka 20
(iv) The rest amount of income 25
(b) In case of company or local authority
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All income except dividend income of the Company that is registered in Bangladesh istaxable The rate is as follows-
Category Rate
(i) Income of Publicly Traded Company 35
(ii) Income of non-Publicly Traded Company 40
(iii) Bank Insurance or Investment Companies nonresident Companies 45
The rate of income tax will be 15 on the amount representing income from dividends
declared and paid by a company formed and registered in Bangladesh under companies
Act 1913 or a body corporate formed in pursuance of an Act of Parliament in respect of
the share capital issued subscribed and paid after 14th August 1947
In the case of a person not being a Company (non-resident) the rate of income tax will be
25 of income
Wealth Tax
Wealth tax is regulated by the provisions of Wealth Tax Act 1963 (Act No XV)
Wealth is assessed as per the prevailing market price in respect of the wealth of Hindu
undivided family or individual
Value of Wealth Rate
(i) First 25000000 taka net wealth Nil
(ii) Next 50000000 taka net wealth 12
(iii) Next 50000000 taka net wealth 34
(iv) For the balance amount of Value 1
If any tax payer pays income and wealth taxes in any year wealth tax plus income tax
must not exceed 30 of income
The number of wealth tax payers stood at 18350 in 1994-1995 943 Gift Tax
Gift tax Act 1963 was repealed in 1985 but came into force again in 1990 As per the
quoted Act gift means any transfer of ownership of movable or immovable property by
one person to another willingly and without any profit Property is evaluated at thecurrent market price
The following rates are applicable now
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Value of property Rate
(i) 5000000 taka beyond exempted limit 5
(ii) On next 10000000 taka value 10
(iii) On next 10000000 taka value 15
(iv) On the balance amount of value 20
Indirect Taxes
The following are the main indirect taxes
Customs
Wester defines customs as duties tolls or imposts imposed by sovereign laws of a
country on imports and exports This duty is imposed as per Bangladesh Customs Act
1969 and as per the Customs Tariff As per the Customs Act banned and illegal items aresold on auction and sale-proceeds are deposited into government treasury Smuggled gold
seized at airsea ports are deposited into Central Bank
In order to hasten customs clearance and thereby encourage investment in the country
government has introduced Per-shipment Inspection (PSI) Scheme under which approved
internationally reputed inspection firms issue certificate regarding quality quantity price
classification of the imported items On the basis of that certificate (known as Clean
Report on Finding) goods are cleared without delay at sea or air ports But Revenue
Audit authorities have detected cases of under-invoicing and wrong classification by the
PSI agencies which deprive the government of large revenues
Moreover bonded ware houses get special duty privileges for imports There are 2956
bonded warehouses (private and special) in the country There are also privileges for
import under baggage rules
Excise
Excise duty is imposed on some items that are produced within Bangladesh Being an
indirect tax it is paid by the manufacturer who can pass its incidence to consumers This
is guided by Excises and Salt Act 1944 and Statutory Rules amp Order of 1984 At present
excise duty is charged on bidi (local cigarette) 25 taka per thousand on cotton Tk
150 per kilogram and cotton cloth Tk 150 per metre Excise duty is also imposed onBanking services
VAT
Value Added Tax is imposed on production wholesaling and retailing when value is
added This was introduced in 1991 Maximum limit of VAT is 15 on import and
home-made goods and services The number of registered firmscompanies under VAT
net is 100000 (approx)
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Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
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10
Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
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Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
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12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
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13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
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Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
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Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
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16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
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Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
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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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
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Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
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(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
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CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
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4
Introduction
Direct Tax
a tax paid directly by the person or organization on which it is leviedA tax demanded from the very persons who it is intended or desired should
pay it
The term direct tax generally means a tax paid directly to the government by the persons
on whom it is imposed
In the general sense a direct tax is one paid directly to the government by the persons(juristic or natural) on whom it is imposed (often accompanied by a tax return filed by thetaxpayer) Examples include some income taxes some corporate taxes and transfer taxessuch as estate (inheritance) tax and gift tax In this sense a direct tax is contrasted with anindirect tax or collected tax (such as sales tax or value added tax (VAT)) a collectedtax is one which is collected by intermediaries who turn over the proceeds to thegovernment and file the related tax return Some commentators have argued that a direct
tax is one that cannot be shifted by the taxpayer to someone else whereas an indirect taxcan be
The power of direct taxation applies to every individual as congress under thisgovernment is expressly vested with the authority of laying a capitation or poll-tax uponevery person to any amount This is a tax that however oppressive in its nature andunequal in its operation is certain as to its produce and simple in it collection it cannot be evaded like the objects of imposts or excise and will be paid because all that a manhath will he give for his head This tax is so congenial to the nature of despotism that it
has ever been a favorite under such governments Some of those who were in the lategeneral convention from this state have long labored to introduce a poll-tax among us
The power of direct taxation will further apply to every individual as congress may tax
land cattle trades occupations ampc to any amount and every object of internal taxation
is of that nature that however oppressive the people will have but this alternative either
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5
Indirect Tax
a tax levied on goods or services rather than on persons or organizations
Tax - definition of tax - A fee charged (levied) by a government on a product on the price of a good or service then it is called an indirect tax
Charge levied by the State on consumption expenditure privilege or right but not on
income or property Customs duties levied on imports excise duties on production sales
tax or value added tax (VAT) at some stage in production-distribution process are
examples of indirect taxes because they are not levied directly on the income of the
consumer or earner Since they are less obvious than income tax (because they dont show
up on the wage slip) politicians are tempted to increase them to generate more state
revenue Also called consumption taxes they are regressive measures because they are
not based on the ability to pay principle
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6
Type of Direct tax
Income Tax
The levy of Income tax is regulated by Income Tax Ordinance XXXVI of 1984 Finance
Act is published every year after passing of national budget in the Parliament It contains
the amendments to the income tax if any and prescribed tax rates Besides rulesorders
are issued by the National Board of Revenue from time to time Decisions are also
arrived at based on previous income tax cases Income Tax is calculated on salaries
interest on securities income of residential property income from business or profession
capital gains income from other sources profit of any mutual insurance association any
income that accrued arose or is received in Bangladesh
In the income tax law tax-payers are divided into two classes resident and non-
resident depending on the period of stay in Bangladesh The tax rate is relatively higher
for a non-resident The tax payers may be individual firm association of persons
undivided Hindu family local authority company etc Usually income tax-returns are to
be submitted by 15th September each year after the close of the financial year If the
income exceeds 200000 taka the return is to be accompanied with statement of assets
liabilities and expenses Income tax officer determines taxable income on the basis of the
following factors
Income tax returns submitted by the assessee and the facts gathered by the income taxofficer through accounts statements documents files or audit report of charteredaccountants relating to assessment
Income Tax Act
Income Tax Law
Discretion of the Deputy Commissioner of Tax
Since the year 1996-1997 income tax is determined in the following way
(a) In case of individual firm association of persons partnership firms
Level of Income Rate
(i) Income up to 60000 taka Nil
(ii) Income up to next 75000 taka or 120000 taka whichever is higher 15
(iii) Income up to next 160000 taka 20
(iv) The rest amount of income 25
(b) In case of company or local authority
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All income except dividend income of the Company that is registered in Bangladesh istaxable The rate is as follows-
Category Rate
(i) Income of Publicly Traded Company 35
(ii) Income of non-Publicly Traded Company 40
(iii) Bank Insurance or Investment Companies nonresident Companies 45
The rate of income tax will be 15 on the amount representing income from dividends
declared and paid by a company formed and registered in Bangladesh under companies
Act 1913 or a body corporate formed in pursuance of an Act of Parliament in respect of
the share capital issued subscribed and paid after 14th August 1947
In the case of a person not being a Company (non-resident) the rate of income tax will be
25 of income
Wealth Tax
Wealth tax is regulated by the provisions of Wealth Tax Act 1963 (Act No XV)
Wealth is assessed as per the prevailing market price in respect of the wealth of Hindu
undivided family or individual
Value of Wealth Rate
(i) First 25000000 taka net wealth Nil
(ii) Next 50000000 taka net wealth 12
(iii) Next 50000000 taka net wealth 34
(iv) For the balance amount of Value 1
If any tax payer pays income and wealth taxes in any year wealth tax plus income tax
must not exceed 30 of income
The number of wealth tax payers stood at 18350 in 1994-1995 943 Gift Tax
Gift tax Act 1963 was repealed in 1985 but came into force again in 1990 As per the
quoted Act gift means any transfer of ownership of movable or immovable property by
one person to another willingly and without any profit Property is evaluated at thecurrent market price
The following rates are applicable now
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Value of property Rate
(i) 5000000 taka beyond exempted limit 5
(ii) On next 10000000 taka value 10
(iii) On next 10000000 taka value 15
(iv) On the balance amount of value 20
Indirect Taxes
The following are the main indirect taxes
Customs
Wester defines customs as duties tolls or imposts imposed by sovereign laws of a
country on imports and exports This duty is imposed as per Bangladesh Customs Act
1969 and as per the Customs Tariff As per the Customs Act banned and illegal items aresold on auction and sale-proceeds are deposited into government treasury Smuggled gold
seized at airsea ports are deposited into Central Bank
In order to hasten customs clearance and thereby encourage investment in the country
government has introduced Per-shipment Inspection (PSI) Scheme under which approved
internationally reputed inspection firms issue certificate regarding quality quantity price
classification of the imported items On the basis of that certificate (known as Clean
Report on Finding) goods are cleared without delay at sea or air ports But Revenue
Audit authorities have detected cases of under-invoicing and wrong classification by the
PSI agencies which deprive the government of large revenues
Moreover bonded ware houses get special duty privileges for imports There are 2956
bonded warehouses (private and special) in the country There are also privileges for
import under baggage rules
Excise
Excise duty is imposed on some items that are produced within Bangladesh Being an
indirect tax it is paid by the manufacturer who can pass its incidence to consumers This
is guided by Excises and Salt Act 1944 and Statutory Rules amp Order of 1984 At present
excise duty is charged on bidi (local cigarette) 25 taka per thousand on cotton Tk
150 per kilogram and cotton cloth Tk 150 per metre Excise duty is also imposed onBanking services
VAT
Value Added Tax is imposed on production wholesaling and retailing when value is
added This was introduced in 1991 Maximum limit of VAT is 15 on import and
home-made goods and services The number of registered firmscompanies under VAT
net is 100000 (approx)
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Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
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Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
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Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
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12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
8132019 Squre Pharmaceuticals
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13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
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14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
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15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
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16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
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17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
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18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
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19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
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20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
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CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
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5
Indirect Tax
a tax levied on goods or services rather than on persons or organizations
Tax - definition of tax - A fee charged (levied) by a government on a product on the price of a good or service then it is called an indirect tax
Charge levied by the State on consumption expenditure privilege or right but not on
income or property Customs duties levied on imports excise duties on production sales
tax or value added tax (VAT) at some stage in production-distribution process are
examples of indirect taxes because they are not levied directly on the income of the
consumer or earner Since they are less obvious than income tax (because they dont show
up on the wage slip) politicians are tempted to increase them to generate more state
revenue Also called consumption taxes they are regressive measures because they are
not based on the ability to pay principle
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6
Type of Direct tax
Income Tax
The levy of Income tax is regulated by Income Tax Ordinance XXXVI of 1984 Finance
Act is published every year after passing of national budget in the Parliament It contains
the amendments to the income tax if any and prescribed tax rates Besides rulesorders
are issued by the National Board of Revenue from time to time Decisions are also
arrived at based on previous income tax cases Income Tax is calculated on salaries
interest on securities income of residential property income from business or profession
capital gains income from other sources profit of any mutual insurance association any
income that accrued arose or is received in Bangladesh
In the income tax law tax-payers are divided into two classes resident and non-
resident depending on the period of stay in Bangladesh The tax rate is relatively higher
for a non-resident The tax payers may be individual firm association of persons
undivided Hindu family local authority company etc Usually income tax-returns are to
be submitted by 15th September each year after the close of the financial year If the
income exceeds 200000 taka the return is to be accompanied with statement of assets
liabilities and expenses Income tax officer determines taxable income on the basis of the
following factors
Income tax returns submitted by the assessee and the facts gathered by the income taxofficer through accounts statements documents files or audit report of charteredaccountants relating to assessment
Income Tax Act
Income Tax Law
Discretion of the Deputy Commissioner of Tax
Since the year 1996-1997 income tax is determined in the following way
(a) In case of individual firm association of persons partnership firms
Level of Income Rate
(i) Income up to 60000 taka Nil
(ii) Income up to next 75000 taka or 120000 taka whichever is higher 15
(iii) Income up to next 160000 taka 20
(iv) The rest amount of income 25
(b) In case of company or local authority
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7
All income except dividend income of the Company that is registered in Bangladesh istaxable The rate is as follows-
Category Rate
(i) Income of Publicly Traded Company 35
(ii) Income of non-Publicly Traded Company 40
(iii) Bank Insurance or Investment Companies nonresident Companies 45
The rate of income tax will be 15 on the amount representing income from dividends
declared and paid by a company formed and registered in Bangladesh under companies
Act 1913 or a body corporate formed in pursuance of an Act of Parliament in respect of
the share capital issued subscribed and paid after 14th August 1947
In the case of a person not being a Company (non-resident) the rate of income tax will be
25 of income
Wealth Tax
Wealth tax is regulated by the provisions of Wealth Tax Act 1963 (Act No XV)
Wealth is assessed as per the prevailing market price in respect of the wealth of Hindu
undivided family or individual
Value of Wealth Rate
(i) First 25000000 taka net wealth Nil
(ii) Next 50000000 taka net wealth 12
(iii) Next 50000000 taka net wealth 34
(iv) For the balance amount of Value 1
If any tax payer pays income and wealth taxes in any year wealth tax plus income tax
must not exceed 30 of income
The number of wealth tax payers stood at 18350 in 1994-1995 943 Gift Tax
Gift tax Act 1963 was repealed in 1985 but came into force again in 1990 As per the
quoted Act gift means any transfer of ownership of movable or immovable property by
one person to another willingly and without any profit Property is evaluated at thecurrent market price
The following rates are applicable now
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8
Value of property Rate
(i) 5000000 taka beyond exempted limit 5
(ii) On next 10000000 taka value 10
(iii) On next 10000000 taka value 15
(iv) On the balance amount of value 20
Indirect Taxes
The following are the main indirect taxes
Customs
Wester defines customs as duties tolls or imposts imposed by sovereign laws of a
country on imports and exports This duty is imposed as per Bangladesh Customs Act
1969 and as per the Customs Tariff As per the Customs Act banned and illegal items aresold on auction and sale-proceeds are deposited into government treasury Smuggled gold
seized at airsea ports are deposited into Central Bank
In order to hasten customs clearance and thereby encourage investment in the country
government has introduced Per-shipment Inspection (PSI) Scheme under which approved
internationally reputed inspection firms issue certificate regarding quality quantity price
classification of the imported items On the basis of that certificate (known as Clean
Report on Finding) goods are cleared without delay at sea or air ports But Revenue
Audit authorities have detected cases of under-invoicing and wrong classification by the
PSI agencies which deprive the government of large revenues
Moreover bonded ware houses get special duty privileges for imports There are 2956
bonded warehouses (private and special) in the country There are also privileges for
import under baggage rules
Excise
Excise duty is imposed on some items that are produced within Bangladesh Being an
indirect tax it is paid by the manufacturer who can pass its incidence to consumers This
is guided by Excises and Salt Act 1944 and Statutory Rules amp Order of 1984 At present
excise duty is charged on bidi (local cigarette) 25 taka per thousand on cotton Tk
150 per kilogram and cotton cloth Tk 150 per metre Excise duty is also imposed onBanking services
VAT
Value Added Tax is imposed on production wholesaling and retailing when value is
added This was introduced in 1991 Maximum limit of VAT is 15 on import and
home-made goods and services The number of registered firmscompanies under VAT
net is 100000 (approx)
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Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
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Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
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Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
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12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
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13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
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14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
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15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
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16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
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17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
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18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
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19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
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20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
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CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
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6
Type of Direct tax
Income Tax
The levy of Income tax is regulated by Income Tax Ordinance XXXVI of 1984 Finance
Act is published every year after passing of national budget in the Parliament It contains
the amendments to the income tax if any and prescribed tax rates Besides rulesorders
are issued by the National Board of Revenue from time to time Decisions are also
arrived at based on previous income tax cases Income Tax is calculated on salaries
interest on securities income of residential property income from business or profession
capital gains income from other sources profit of any mutual insurance association any
income that accrued arose or is received in Bangladesh
In the income tax law tax-payers are divided into two classes resident and non-
resident depending on the period of stay in Bangladesh The tax rate is relatively higher
for a non-resident The tax payers may be individual firm association of persons
undivided Hindu family local authority company etc Usually income tax-returns are to
be submitted by 15th September each year after the close of the financial year If the
income exceeds 200000 taka the return is to be accompanied with statement of assets
liabilities and expenses Income tax officer determines taxable income on the basis of the
following factors
Income tax returns submitted by the assessee and the facts gathered by the income taxofficer through accounts statements documents files or audit report of charteredaccountants relating to assessment
Income Tax Act
Income Tax Law
Discretion of the Deputy Commissioner of Tax
Since the year 1996-1997 income tax is determined in the following way
(a) In case of individual firm association of persons partnership firms
Level of Income Rate
(i) Income up to 60000 taka Nil
(ii) Income up to next 75000 taka or 120000 taka whichever is higher 15
(iii) Income up to next 160000 taka 20
(iv) The rest amount of income 25
(b) In case of company or local authority
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All income except dividend income of the Company that is registered in Bangladesh istaxable The rate is as follows-
Category Rate
(i) Income of Publicly Traded Company 35
(ii) Income of non-Publicly Traded Company 40
(iii) Bank Insurance or Investment Companies nonresident Companies 45
The rate of income tax will be 15 on the amount representing income from dividends
declared and paid by a company formed and registered in Bangladesh under companies
Act 1913 or a body corporate formed in pursuance of an Act of Parliament in respect of
the share capital issued subscribed and paid after 14th August 1947
In the case of a person not being a Company (non-resident) the rate of income tax will be
25 of income
Wealth Tax
Wealth tax is regulated by the provisions of Wealth Tax Act 1963 (Act No XV)
Wealth is assessed as per the prevailing market price in respect of the wealth of Hindu
undivided family or individual
Value of Wealth Rate
(i) First 25000000 taka net wealth Nil
(ii) Next 50000000 taka net wealth 12
(iii) Next 50000000 taka net wealth 34
(iv) For the balance amount of Value 1
If any tax payer pays income and wealth taxes in any year wealth tax plus income tax
must not exceed 30 of income
The number of wealth tax payers stood at 18350 in 1994-1995 943 Gift Tax
Gift tax Act 1963 was repealed in 1985 but came into force again in 1990 As per the
quoted Act gift means any transfer of ownership of movable or immovable property by
one person to another willingly and without any profit Property is evaluated at thecurrent market price
The following rates are applicable now
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Value of property Rate
(i) 5000000 taka beyond exempted limit 5
(ii) On next 10000000 taka value 10
(iii) On next 10000000 taka value 15
(iv) On the balance amount of value 20
Indirect Taxes
The following are the main indirect taxes
Customs
Wester defines customs as duties tolls or imposts imposed by sovereign laws of a
country on imports and exports This duty is imposed as per Bangladesh Customs Act
1969 and as per the Customs Tariff As per the Customs Act banned and illegal items aresold on auction and sale-proceeds are deposited into government treasury Smuggled gold
seized at airsea ports are deposited into Central Bank
In order to hasten customs clearance and thereby encourage investment in the country
government has introduced Per-shipment Inspection (PSI) Scheme under which approved
internationally reputed inspection firms issue certificate regarding quality quantity price
classification of the imported items On the basis of that certificate (known as Clean
Report on Finding) goods are cleared without delay at sea or air ports But Revenue
Audit authorities have detected cases of under-invoicing and wrong classification by the
PSI agencies which deprive the government of large revenues
Moreover bonded ware houses get special duty privileges for imports There are 2956
bonded warehouses (private and special) in the country There are also privileges for
import under baggage rules
Excise
Excise duty is imposed on some items that are produced within Bangladesh Being an
indirect tax it is paid by the manufacturer who can pass its incidence to consumers This
is guided by Excises and Salt Act 1944 and Statutory Rules amp Order of 1984 At present
excise duty is charged on bidi (local cigarette) 25 taka per thousand on cotton Tk
150 per kilogram and cotton cloth Tk 150 per metre Excise duty is also imposed onBanking services
VAT
Value Added Tax is imposed on production wholesaling and retailing when value is
added This was introduced in 1991 Maximum limit of VAT is 15 on import and
home-made goods and services The number of registered firmscompanies under VAT
net is 100000 (approx)
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Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
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10
Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
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Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
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Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
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Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
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Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
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Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
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NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
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Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
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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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
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Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
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20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
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CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
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7
All income except dividend income of the Company that is registered in Bangladesh istaxable The rate is as follows-
Category Rate
(i) Income of Publicly Traded Company 35
(ii) Income of non-Publicly Traded Company 40
(iii) Bank Insurance or Investment Companies nonresident Companies 45
The rate of income tax will be 15 on the amount representing income from dividends
declared and paid by a company formed and registered in Bangladesh under companies
Act 1913 or a body corporate formed in pursuance of an Act of Parliament in respect of
the share capital issued subscribed and paid after 14th August 1947
In the case of a person not being a Company (non-resident) the rate of income tax will be
25 of income
Wealth Tax
Wealth tax is regulated by the provisions of Wealth Tax Act 1963 (Act No XV)
Wealth is assessed as per the prevailing market price in respect of the wealth of Hindu
undivided family or individual
Value of Wealth Rate
(i) First 25000000 taka net wealth Nil
(ii) Next 50000000 taka net wealth 12
(iii) Next 50000000 taka net wealth 34
(iv) For the balance amount of Value 1
If any tax payer pays income and wealth taxes in any year wealth tax plus income tax
must not exceed 30 of income
The number of wealth tax payers stood at 18350 in 1994-1995 943 Gift Tax
Gift tax Act 1963 was repealed in 1985 but came into force again in 1990 As per the
quoted Act gift means any transfer of ownership of movable or immovable property by
one person to another willingly and without any profit Property is evaluated at thecurrent market price
The following rates are applicable now
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Value of property Rate
(i) 5000000 taka beyond exempted limit 5
(ii) On next 10000000 taka value 10
(iii) On next 10000000 taka value 15
(iv) On the balance amount of value 20
Indirect Taxes
The following are the main indirect taxes
Customs
Wester defines customs as duties tolls or imposts imposed by sovereign laws of a
country on imports and exports This duty is imposed as per Bangladesh Customs Act
1969 and as per the Customs Tariff As per the Customs Act banned and illegal items aresold on auction and sale-proceeds are deposited into government treasury Smuggled gold
seized at airsea ports are deposited into Central Bank
In order to hasten customs clearance and thereby encourage investment in the country
government has introduced Per-shipment Inspection (PSI) Scheme under which approved
internationally reputed inspection firms issue certificate regarding quality quantity price
classification of the imported items On the basis of that certificate (known as Clean
Report on Finding) goods are cleared without delay at sea or air ports But Revenue
Audit authorities have detected cases of under-invoicing and wrong classification by the
PSI agencies which deprive the government of large revenues
Moreover bonded ware houses get special duty privileges for imports There are 2956
bonded warehouses (private and special) in the country There are also privileges for
import under baggage rules
Excise
Excise duty is imposed on some items that are produced within Bangladesh Being an
indirect tax it is paid by the manufacturer who can pass its incidence to consumers This
is guided by Excises and Salt Act 1944 and Statutory Rules amp Order of 1984 At present
excise duty is charged on bidi (local cigarette) 25 taka per thousand on cotton Tk
150 per kilogram and cotton cloth Tk 150 per metre Excise duty is also imposed onBanking services
VAT
Value Added Tax is imposed on production wholesaling and retailing when value is
added This was introduced in 1991 Maximum limit of VAT is 15 on import and
home-made goods and services The number of registered firmscompanies under VAT
net is 100000 (approx)
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9
Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
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10
Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
8132019 Squre Pharmaceuticals
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11
Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
8132019 Squre Pharmaceuticals
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12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
8132019 Squre Pharmaceuticals
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13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
8132019 Squre Pharmaceuticals
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14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
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15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
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16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
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17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
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18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
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19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
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20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
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CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
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8
Value of property Rate
(i) 5000000 taka beyond exempted limit 5
(ii) On next 10000000 taka value 10
(iii) On next 10000000 taka value 15
(iv) On the balance amount of value 20
Indirect Taxes
The following are the main indirect taxes
Customs
Wester defines customs as duties tolls or imposts imposed by sovereign laws of a
country on imports and exports This duty is imposed as per Bangladesh Customs Act
1969 and as per the Customs Tariff As per the Customs Act banned and illegal items aresold on auction and sale-proceeds are deposited into government treasury Smuggled gold
seized at airsea ports are deposited into Central Bank
In order to hasten customs clearance and thereby encourage investment in the country
government has introduced Per-shipment Inspection (PSI) Scheme under which approved
internationally reputed inspection firms issue certificate regarding quality quantity price
classification of the imported items On the basis of that certificate (known as Clean
Report on Finding) goods are cleared without delay at sea or air ports But Revenue
Audit authorities have detected cases of under-invoicing and wrong classification by the
PSI agencies which deprive the government of large revenues
Moreover bonded ware houses get special duty privileges for imports There are 2956
bonded warehouses (private and special) in the country There are also privileges for
import under baggage rules
Excise
Excise duty is imposed on some items that are produced within Bangladesh Being an
indirect tax it is paid by the manufacturer who can pass its incidence to consumers This
is guided by Excises and Salt Act 1944 and Statutory Rules amp Order of 1984 At present
excise duty is charged on bidi (local cigarette) 25 taka per thousand on cotton Tk
150 per kilogram and cotton cloth Tk 150 per metre Excise duty is also imposed onBanking services
VAT
Value Added Tax is imposed on production wholesaling and retailing when value is
added This was introduced in 1991 Maximum limit of VAT is 15 on import and
home-made goods and services The number of registered firmscompanies under VAT
net is 100000 (approx)
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9
Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
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10
Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
8132019 Squre Pharmaceuticals
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11
Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
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12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
8132019 Squre Pharmaceuticals
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13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
8132019 Squre Pharmaceuticals
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14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
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15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
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16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
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17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
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18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 921
9
Supplementary Duty This is imposed on luxury items and services like cigarette cinema alcohol etc in
addition to VAT The rate varies from 5 to 350
Turnover Tax
Those organisations whose annual sale is less than Taka 150000000 are to pay
turnover tax
Bangladesh Tax Information
I n Bangladesh the principal direct taxes are personal income taxes and corporateincome taxes and a value-added tax (VAT) of 15 levied on all important consumer
goods The top income tax rate for individuals is 25 For the 200405 tax year (July 1
2004 ndash June 30 2005) the top corporate rate was 45 However publicly tradedcompanies registered in Bangladesh are charged a lower rate of 30 Banks financial
institutions and insurance companies are charged the 45 rate All other companies are
taxed at the 375 rate Effective 1 July 2002 the VAT rate on computer hardware and
software was reduced to 75 and certain agricultural equipment and electricity supplied to the agricultural sector was exempted from VAT altogether VAT on the
transfer of land is also to be abolished Essential agricultural implements and irrigation pumps had previously been excluded from certain taxes
Corporate tax Corporate tax rates for industrial companies whose shares are publicly traded is 35 andthe rate of those whose shares are not publicly traded is 40
Tax rates on other companies Tax rates on income of all other companies including banks financial institutionsinsurance companies and local authorities is 45
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1021
10
Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1121
11
Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1221
12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1321
13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1421
14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1521
15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1621
16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1021
10
Investment requirement by companies enjoying tax holiday Companies enjoying tax
holidays are required to invest only 25 to 30 of their income in other activities as perrule of NBR
Accepted of returns of public limited companies Returns filed by the public limited companies shall be accepted as correct if it isaccompanied by audited accounts and certified by a chartered accountant as to thecorrectness of the total income of the assessee
Salary of foreign technicians Salary income received by or due to a foreign technician under contract of serviceapproved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of hisarrival in Bangladesh
Tax payable by employer on remuneration of foreign technician Expenditure incurred by an employer in respect of remuneration of a foreign technician isalso fully exempted from income tax (subject to the stipulated conditions)
the price of a good or service then it is called an indirect tax
Remuneration of foreign technicians employed by the firms of consultancy and
engineers
Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshifirm carrying on the business of consultant and engineers in Bangladesh is fullyexempted from tax (subject to prescribed conditions and limitations
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1121
11
Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1221
12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1321
13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1421
14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1521
15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1621
16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1121
11
Amount of TaxIf an individual has been in Bangladesh for a periodperiod totaling 182 days or more in
the income year heshe is considered a resident In case an individual has been in the
country for 90 days in the income year and 365 days in four years preceding this yearheshe will also be considered a resident
Each individual is entitled to an investment tax credit of 15 percent of the total income or
Tk 100000 whichever is less Incomes from small and cottage industries are entitled to a
5 to 10 per cent tax rebate depending on the production volume
On the first Tk 6000000 of total income - no tax obligation
On the next Tk 4000000 of total income - 10
On the next Tk 5000000 of total income - 15
On the next Tk 15000000 of total income - 20
On the balance of total income - 25
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1221
12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1321
13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1421
14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1521
15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1621
16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1221
12
Effect of direct tax
The total effect on households of such taxes is assessed using input-output analysis Thus
both the direct effect of taxes through increased fuel prices and the indirect effect
through increased prices of other goods can be assessed simultaneously This input-
output approach allows the generation of direct plus indirect pollution intensities for all
household consumption categories for in principle a number of pollutants (CO2 SO2
NOx particulates) These intensities could then be used to assess the impact on
households of pollution taxes This paper concentrates on CO2 and energy performing a
static analysis of the effect of a tax on the carbon or energy content of goods using the
known consumption patterns for the various countries both in aggregate and for different
income groups This allows a first assessment of the regressiveprogressive effects of
such taxes and an indication of consumer welfare loss
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes For example some transfers to the
public sector are comparable to prices Examples include tuition at public universities and
fees for utilities provided by local governments Governments also obtain resources by
creating money (eg printing bills and minting coins) through voluntary gifts (eg
contributions to public universities and museums)by imposing penalties (eg trafficfines) by borrowing and by confiscating wealth From the view of economists a tax is a
non-penal yet compulsory transfer of resources from the private to the public sector
levied on a basis of predetermined criteria and without reference to specific benefit
received
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1321
13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1421
14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1521
15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1621
16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1321
13
Purposes and ef fects
Funds provided by taxation have been used by states and their functional equivalents
throughout history to carry out many functions Some of these include expenditures on
war the enforcement of law and public order protection of property economic
infrastructure (roads legal tender enforcement of contracts etc) public works social
engineering and the operation of government itself Governments also use taxes to fund
welfare and public services These services can include education systems health care
systems pensions for the elderly unemployment benefits and public transportation
Energy water and waste management systems are also common public utilities Colonial
and modernizing states have also used cash taxes to draw or force reluctant subsistence
producers into cash economies
Governments use different kinds of taxes and vary the tax rates This is done to distribute
the tax burden among individuals or classes of the population involved in taxable
activities such as business or to redistribute resources between individuals or classes in
the population Historically the nobility were supported by taxes on the poor modern
social security systems are intended to support the poor the disabled or the retired by
taxes on those who are still working In addition taxes are applied to fund foreign and
military aid to influence the macroeconomic performance of the economy (the
governments strategy for doing this is called its fiscal policy - see also tax exemption) or
to modify patterns of consumption or employment within an economy by making some
classes of transaction more or less attractive
A nations tax system is often a reflection of its communal values or the values of those in
power To create a system of taxation a nation must make choices regarding the
distribution of the tax burden mdash who will pay taxes and how much they will pay mdash and
how the taxes collected will be spent In democratic nations where the public elects those
in charge of establishing the tax system these choices reflect the type of community that
the public wishes to create In countries where the public does not have a significant
amount of influence over the system of taxation that system may be more of a reflection
on the values of those in power
The resource collected from the public through taxation is always greater than the amount
which can be used by the government The difference is called compliance cost and
includes for example the labour cost and other expenses incurred in complying with tax
laws and rules The collection of a tax in order to spend it on a specified purpose for
example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres
is called hypothecation This practice is often disliked by finance ministers since it
reduces their freedom of action Some economic theorists consider the concept to be
intellectually dishonest since (in reality) money is fungible
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1421
14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1521
15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1621
16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1421
14
Effects of income taxation on division of labor
If a tax is paid on outsourced services that is not also charged on services performed foroneself then it may be cheaper to perform the services oneself than to pay someone
else mdash even considering losses in economic efficiency [37][38]
For example suppose jobs A and B are both valued at $1 on the market And suppose
that because of your unique abilities you can do job A twice over (100 extra output) in
the same effort as it would take you to do job B But job B is the one that you need done
right now Under perfect division of labor you would do job A and somebody else would
do job B Your unique abilities would always be rewarded
Income taxation has the worst effect on division of labor in the form of barter Suppose
that the person doing job B is actually interested in having job A done for him Now
suppose you could amazingly do job A four times over selling half your work on themarket for cash just to pay your tax bill The other half of the work you do for somebody
who does job B twice over but he has to sell off half to pay his tax bill Youre left with
one unit of job B but only if you were 400 as productive doing job A In this case of
50 tax on barter income anything less than 400 productivity will cause the division
of labor to fail
In summary depending on the situation a 50 tax rate can cause the division of labor to
fail even where productivity gains of up to 300 would have resulted Even a mere 30
tax rate can negate the advantage of a 100 productivity gain
Direct versus Indirect Taxation
o Direct taxes ndash are paid directly to the Exchequer by the individualtaxpayer ndash usually through ldquopay as you earnrdquo The same is true ofcorporation tax Tax liability cannot be passed onto someone else
o Indirect taxes ndash include VAT and a range of excise duties on oiltobacco alcohol The burden of an indirect tax can be passed on by thesupplier to the final consumer ndash depending on the price elasticity ofdemand and supply for the product
In the last twenty years there has been a shift towards indirect taxation ndash economists differ in their views about what is the optimum mix of taxationbetween indirect and direct taxes
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1521
15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1621
16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1521
15
Arguments For Using Indirect Taxation Arguments Against Using Indirect Taxation
Changes in indirect taxes are moreeffective in changing the overall pattern ofdemand for particular goods and servicesie in changing relative prices and therebyaffecting consumer demand (eg anincrease in the real duty on petrol)
Many indirect taxes make the distributionof income more unequal (less equitable)because indirect taxes are more regressive than direct taxes
They are a useful instrument in controllingand correcting for externalities ndash allgovernments have moved towards a morefrequent use of indirect taxes as a means ofmaking the polluter pay and ldquointernalizingthe external costsrdquo of production andconsumption
Higher indirect taxes can cause cost-pushinflation which can lead to a rise ininflation expectations
Indirect taxes are less likely to distort thechoices that people have to betweenwork and leisure and therefore have less ofa negative effect on work incentives
Higher indirect taxes allow a reduction indirect tax rates (eg lower starting rates ofincome tax)
There is no hard evidence that cuttingdirect tax rates has much of an incentiveeffect on peoplersquos decisions about whetheror not to work If indirect taxes are too high
ndash this creates an incentive to avoid taxesthrough ldquoboot-leggingrdquo ndash a good example ofthis would be attempts to evade the highlevels of duty on cigarettes
Indirect taxes can be changed more easilythan direct taxes ndash this gives economicpolicy-makers more flexibility when settingfiscal policy Direct taxes can only bechanged once a year at Budget time
Revenue from indirect taxes can beuncertain particularly when inflation is lowor there is a recession causing a fall inconsume spending
Indirect taxes are less easy to avoid by thefinal tax-payer who might be unaware ofhow much indirect tax they are paying
There is a potential loss of economicwelfare (taxes can create a deadweightloss of consumer and producers surplus)
Indirect taxes provide an incentive to save (and thereby avoid the tax)- a higher levelof savings might be used by the economy tofinance a higher level of capital investment
Higher indirect taxes affect households onlower incomes who are least able to save inthe first place
Indirect taxes leave people free to make achoice whereas direct taxes leave peoplewith less of their gross income in theirpockets
Many people are unaware of how much theyare paying in indirect taxes ndash this goesagainst one of the basic principles of a goodtax system ndash namely that taxes should betransparent
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1621
16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1621
16
NBR Tax Revenue
In FY 2006-07 2007-08 and 2008-09 the growth of NBR Tax Revenue receipts stood at95 275 and 107 respectively
In FY 2009-10 the target for NBR Tax Revenue is TK 61000 cr (89 of GDP)whichis 119 higher than previous yearrsquos original estimate
During July-September quarter of the current fiscal year TK12 408 cr has beencollected which is 91 higher than previous years collection
In the current quarter growth of Import Duty and Value Added Tax (VAT) at import
levelhas declined by 23 and 87 respectively At the same time VAT at local levelSupplementary Duty at import level and Income Tax showed positive growth of 168203 and 259 respectively (Table 3)
ObservationsTaxGDP ratio (around 85) in Bangladesh is the lowest among the countries of Asian
region It is 4-percentage point lower than the regional average of 125 The ratio needto be increased to reduce our dependence on foreign aid as well as lessen the burden of loanon the future generation and to enhance the absorptive capacity of loan
Owing to increased import of high priced commodities like vehicles the 1st Quarter
Supplementary Duties at import level recorded growth of 203 This rate may declinetowards the end of the year
Achieving budget revenue target may be difficult
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1721
17
Actual Realisation of tax revenue vis-a-vis target
Financial Year Realisation of Target
1980-81 10179
1981 -82 9915
1982-83 9878
1983 -84 9748
1984-85 10292
1985-86 10197
1986-87 10101
1987-88 10101
1988-89 9854
1989-90 9887
1990-91 10235
1991 -92 10121
1992-93 10104
1993 - 94 9778
1994-95 10216
Source National Board of Revenue
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1821
18
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
Position of Different Taxes in their share to total revenue () 1992
(Some Asian Examples)
Taxes On Income ampProfit
Taxes On Goodsamp Services
Taxes FromInternational Trade
Non-TaxRevenue
Singapore 270 228 22 335
Indonesia 580 263 51 78
Malaysia 342 200 149 269
Philippines 293 262 287 126
Thailand 275 416 167 99
Bangladesh 86 258 273 230
Bhutan 75 166 04 750
India 170 340 255 228
Myanmar 114 326 165 396
Nepal 99 367 308 171
Pakistan 100 322 302 272
Sri Lanka 112 478 276 98
Source IMF Government Finance Statistics Year Book (Various Issues)
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 1921
19
Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95)
Heads of Taxation Total Amount(Crore Taka)
Percentage(Rounded Off)
Customs duties (Export import) 367694 34
VAT (Import) 221523 21
VAT (local production) 124834 12
Supplementary Duty (Luxury Items) 18761 15
Supplementary Duty (Luxury goods of local origin) 134412
Excise Duty 17782 2
Income Tax 149156 14
Other Taxes 18094 2
Total 1052256 100
Source National Board of Revenue
Exchange rate for different currencies vis-a-vis the US $ as on 31st March 1997 are
indicated in Appendix 1 (Pg 475)
This is depicted in the following pie diagram
It will be seen that major share of tax revenue is attributed to indirect taxes Out of the
indirect taxes share of import-based taxes was the highest Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2021
20
(f) Forecast of Tax-Revenue
The introduction of VAT in 1991 was a bold move It now covers manufacturing at the
wholesale and retail stage and some selected services Efforts are on to make VAT as
comprehensive as possible Though VAT is now recognised as an efficient and non-
distorting 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
199495 it warranted upward revision of targets for the following year This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory than would have been the case without tax-reforms
Problems at the time of collecting tax
Lack o f information
Lack of equity
Lack of willingness of the taxpayers
High value added tax
Several imposition of taxes
Different
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector
8132019 Squre Pharmaceuticals
httpslidepdfcomreaderfullsqure-pharmaceuticals 2121
CONCLUSION
Attaining an optimal tax system is a difficult and unenviable
task but nevertheless critical for revenue generation required
for accelerating growth and to improve the quality of life of thecitizens A long-term sustainable solution to enhance
transparency promote growth improve tax compliance and
thus to increase tax to GDP ratio is a much desirable issue in
the context of Bangladesh
To remove the distortions in the tax system and reduced the
base for tax Collection the treatment of tax exemption should
go to a desirable level
Agriculture is a largest sector in Bangladesh so for taxationneed to follow effective Agriculture Income Standard (AIS)
and need to expend in Agriculture sector