Taxation Assignment | Taxes | Agriculture

Assignment topic

:
Bangladesh is an agriculture based country but small amount of income tax is collected from this source. What are the reasons and probable solution?

Submiitted to:
Johir muhammad Course teacher School of business studies Southeast university.

Submitted by:

Acknowledgement:

At first we would like to thanks Almighty ALLAH. We are very much thankful to our Honorable Course Teacher Johir Muhammad sir to patronize us to bring out such a educative educational material to submit as the assignment. To complete this assignment we faces some obstacles such as lack of information, proper data and presentation material is very much unavailable in different we pages regarding the Tax income in Bangladesh. Although we are very much proud to submit this valuable assignment regarding Bangladesh Income Tax from agriculture sector and problems and perspectives. A different web site helps us to accumulate the information to prepare the assignment. At least we should thank our university authority to choose this important course and participate this course under such a enormous teacher.

Objectives of the assignment:

The objectives of the assignment are to evaluate the condition and the situation of the agriculture income in Bangladesh and income tax that comes from this agricultural sector. The assignment contains the details about the Bangladesh tax ordinance, tax income, tax income from agricultural sector and the problems which drives the low tax income from agricultural sectors. We also try to show the reasons why the tax from agricultural sector is much lower than the other heads of the income tax. The reader of the assignment can learn the matter about the tax income in Bangladesh and problems and probable solution to this regard.

Methodology of the assignment:

Methodology is a system of broad principle or rule from which specific methods or procedures may be derived to interpret or solve different problems within the scope of a particular discipline. Methodology is not a formula but set of practices. The study was conducted to identify the problems and prospects of income tax earning in Bangladesh perspectives. We try to find the

income from agricultural sector and the income tax earning in Bangladesh tax revenue organization (NBR) and evaluate the problems and probable solution regarding this matter. As the prerequisite to complete the assignment we are taken help from different web pages and reference pages which contains the different discussion and information about tax income in Bangladesh.

Introduction
A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state. Taxes consist of direct taxes and indirect taxes. “Pecuniary burden laid upon individuals or property to support the government a payment exacted by legislative authority”. Tax is not a voluntary payment or donation but an enforced contribution, exacted pursuant to legislative authority and is any contribution imposed by government whether under the name of VAT, Custom, Excise, or other name. Taxation means imposition of a nonpenal yet compulsory levy for transfer of resources from private to public sector, imposed by the public representative based on pre-determined criteria and without reference to any specific commitment, in order to accomplish some nation‟s economic and social objective. These are dues that we pay for the privileges of membership in an organized civil society. Tax is imposed in the assessment year based on income year. Total taxes in Bangladesh are divided into direct and indirect taxes. Direct taxes in Bangladesh consist of taxes on income (income tax, corporation tax, agricultural income tax) and taxes on property (wealth tax, gift tax, estate duty, capital gains tax, urban property tax, house rent, land revenue, registration and non-judicial stamp). According to section 20 of the income tax ordinance 1984, agricultural income is the fourth head among the seven heads of income. It is the most important sector in the economy of Bangladesh, whereas the contribution of tax from this sector is very insignificant. In Bangladesh, agricultural income was non-assessable up to 1976. It has brought under the tax net through the finance act 1976.

Income from Agriculture :
Generally the term of agriculture refers to the production of goods through the growing of plants, animals and other life forms. It also refers to field cultivation or cultivation of the ground, which involves a combination of both basic and subsequent operation. Any receipts out of cultivation of land and the use of buildings, premises, and land appurtenant thereto shall be considered as the income from agriculture after some considerations. The allowable deductions under agriculture are given below.  Agricultural income shall be determined after allowing a deduction of 60% from receipt from agriculture as agricultural expenses to avoid the no acceptable evidences of the production cost of cultivation. If the agriculturist does not have any other income source other than the agriculture then he or she will get exemption of more taka 50000 after the deduction of 60% of the receipts as the agricultural expense.

There are some agricultural incomes which are also considered as the business income. As for example- income from tea garden is bifurcated between agricultural income and business income at the ratio of 60% and 40% consecutively. Income from rubber cultivation is also bifurcated at the same ratio.

Scope of agricultural income :
According to Section 2(1) of the income tax ordinance, 1984, „agricultural income‟ means 1. Any income derived from any land in Bangladesh and used for agricultural purposesa. By means of agriculture b. By the performance of any processes ordinarily employed by a cultivator to render marketable the produce of such land c. By the sale of the produce of the land raised by the cultivator in respect of which no process, other than that to render the produce marketable, has been performed d. By granting a right to any person to use the land for any period

2. Any income from any building whicha. Is occupied by the cultivator of any such land as is referred to in sub-clause i. In which any process is carried on to render marketable any such produce aforesaid b. Is on, or in the immediate vicinity of such land c. Is required by the cultivator as the dwelling house or store-house or other outhouse by the reason of his connection with such land. From the above discussion it can be said that any income derived from any land or building in Bangladesh that is used for agricultural purposes will be considered under the head “Agricultural Income”. There are some other scopes of agricultural income under the considerations of income process. These are:     Gain from the sale of the machinery or plant exclusively used for agricultural purposes (Capital Gain) Compensation money received against demolished machinery or plant exclusively used for agricultural purposes (Equipment insurance) Income from sale of partly agricultural goods ( Tea, Sugarcane, Jute) Other agricultural income by notifications

Characteristics of Agricultural Income :
From the various provisions of the ITO, 1984, various definitions mentioned in dictionaries and case decisions, the following characteristics are relevant to agricultural income: i. ii. It must derive from any agricultural land situated in Bangladesh. Land is located outside the country, it will be considered as foreign income. It must come from fundamental agricultural work like field cultivation or cultivation of the ground, in the sense of tilling of the land, sowing seeds, planting and similar basic and subsequent operation on the field. Marketing of the agricultural goods should be through the ordinary process. Income may come from any building situated in the agricultural land or adjacent vacant agricultural land Income may come from gain or sale or discarded value of the of machinery or plant used for agricultural purpose Some income may partially be considered as agricultural income such as sale of tea, jute, rubber tobacco etc.

iii. iv. v. vi.

Classification of Agricultural income :
Considering the provisions of the ITO, 1984, agricultural income can be classified into following categories:

1. Fully Agricultural income 2. Partially Agricultural income 3. Other Agricultural income

Fully Agricultural income
According to the provisions under Section 2(1), 26(1), 19(17), & 19(19) of the ITO, 1984, the following incomes Fully Taxable: i. ii. iii. Any income derived from any land or building situated in Bangladesh and used for agricultural purposes Gain from the sale of the machinery or plant exclusively used for agricultural purposes (Capital Gain) Compensation money received against demolished machinery or plant exclusively used for agricultural purposes (Equipment insurance)

Partly Agricultural Income According the Provision under Section 26(2) & 26(3) of ITO, 1984, the following incomes are partly considered as agricultural income with the standard proportionate rate:
Nature of auricular income partly to be considered as to be considered as Reference agricultural income from business or income profession Income from tea Garden 60% 40% Sec 26(2)

rule 31 income from rubber 60% 40% Sec 26(3) garden rule 32 Income from Tobacco/ 60% (if further 40% if further process is Sec 26(3) sugarcane/ processing is done by done or, rule 32 other similar products the assesses) nothing or, 100% is sold directly after production Other Agricultural income

In addition to above sources of incomes, the following incomes are also considered under the head of agricultural income:       Income from cattle rearing Income from sale of palm or date juice Income from sale of seeds of grass Income from agro-co-operative society Income from land leased for agro work Income from sale of herbal or medical plants

There are also some non-agricultural incomes:        Income from ferry ghat Income from sale of produce that has no agricultural work like forest trees, wild grass, fruit and flowers Income from salt production on flooded land Income from sale of water for irrigation Income from poultry firm (till 2011) Income from butter and cheese making Income from salary working in agro firm and a lot more indirect agricultural income.

Admissible Expenses :
As per Sec 27 ITO, 1984, in computing the taxable income under the head „agricultural income‟ , some expenses are allowed to be deducted from the revenues under this head. Those allowable allowances and deductions are as follows:    Land Development Tax Local Tax (for agricultural operations) Production Cost o Cultivating land or raising livestock o Processing cost of operation to produce o Transportation of the produce o Maintenance of machineries used for production

Up to 60% of the production cost is admissible.        Insurance premium Maintenance cost for irrigation plant Depreciation Interest on mortgage Interest on borrowed capital Losses for the sale of demolished machineries Losses on sale or exchange of machineries

Other expenses

Non- Assessable Agricultural Income :
According to the various provision of the ITO, 1984, the following agricultural incomes are nonassessable subject to some conditions: 1. Agricultural is not exceeding Tk. 50,000 is non-assessable for an individual assessee, where only source of his income is agriculture. 2. Any income thus including indigenous Hillman from agriculture of any district of Khagrachari, Bandarban, Rangamati hilltracks, which have been solely derived from economic activities undertaken within the above hill tracks. 3. Subject to the condition made hereunder any income from fisheries, poultry, cattle farming, floriculture, sericulture for the period from the first day of July, 2008, to the 30th day of June, 2011i. Exempted income level is Tk. 150,000 and 10% shall be invested in government bond ii. The person should file return the income iii. No such income shall be transferred within five years from the end of the income year.

Reasons of Low tax income from agricultural sector:
BACKGROUND
 

Almost 80 percent of Bangladesh‟s population lives in the rural areas, with 54 percent of them employed in agriculture and the remainder in the rural non-farm (RNF) sector. The rural economy constitutes a significant component of the national GDP, with agriculture (including crops, livestock, fisheries and forestry) accounting for 21 percent and the non-farm sector, which is also driven primarily by agriculture, for another 33 percent.

ISSUES AND CHALLENGES 01. High levels of rural poverty:

Poverty in Bangladesh is primarily a ‟rural phenomenon‟, with 53 percent of its rural population classified as poor, comprising about 85 percent of the country‟s poor. Achieving the Millennium Development Goal (MDG) of halving poverty to 26.5 percent by 2015 will require a growth rate of at least 4.0 percent in agriculture and 7.0 percent in the non-farm sector. However, economic and institutional realities, the country‟s geographical and demographic characteristics, and its vulnerability to natural disasters, make this a very challenging task. 02. Low agricultural productivity: Another challenge is rapidly shrinking land base. While the country‟s population is growing at the rate of 1.6 percent per year, demographic pressures and increased urbanization have caused cultivated area to decline at a rate of 1 percent per year. As cropping intensity has approached its limit (about 175 percent now), growth will need to come from intensification of cereal production, diversification into high-value crop and non-crop activities, and value addition in the agro-processing sector, including storage, processing and marketing. This will require reforming the agricultural research and extension systems, and financial and other regulations. Land administration and security issues also need to be addressed. 03. Poorly functioning input and output markets: The lack of easily accessible markets and collusion by the traders pose significant constraints in both agricultural input and output markets. Marketing margins are high relative to services provided. Lack of market information and infrastructure, the poor law and order situation, the existence of syndicates, and collection of illegal tolls further aggravate the situation. 04. Lack of enabling rural investment climate: For nearly 45 percent of the rural population, who are already landless or functionally landless (owning less than 0.05 acre of land), and a majority of the new labor force every year, a declining land base and a small urban employment means that employment in the rural non-farm sector presents the best chance to escape poverty. The growth of the rural non-farm sector, however, is constrained by lack of or poor quality of rural infrastructure and services, highly centralized government framework, weak rural financial systems, and a poor law and order situation. 05. Weak rural institutions: While the NGO sector in Bangladesh is well developed and the quality of informal institutions is improving, formal rural institutions remain very weak. Government agencies at all levels face overlapping functions, lack of coordination, low skill levels and incentives, and lack of responsiveness, exacerbated by an urban bias. Elite capture is also quite common in rural areas. 06. Vulnerability to natural disasters:

Bangladesh is the terminal floodplain delta of three large rivers - Ganges, Brahmaputra and Meghna. Every year about 20 to 30 percent, and every few years about 40 percent, of the country is flooded, causing serious damage to infrastructure, crops and the overall economy. Projected climatic changes and rise in the sea level are likely to worsen the situation. Since independence in 1971, the Government has made large investments to protect against floods and cyclones. However, issues such as public and private roles and community participation in disaster management, environmental protection, and institutional reforms of Bangladesh Water Development Board (BWDB), need to be addressed.

The probable solution:
According to the findings and research we can indentify several probable solution regarding to how to overcome from the problem of earnig low income tax in agricultural sector. In following points contains the probable solution of the earning handsome income tax from agricultural sectors. 1. Increasing agricultural productivity, diversification, and value addition (A) Agricultural research and extension: Both public and private investments in a dynamic and responsive agricultural research and extension system is essential to accelerate the transition from subsistence to commercial farming through diversification, export promotion, and bridging yield gaps. (B)Enabling rural business environment: To stimulate RNF growth, the country needs to provide an enabling rural business environment by investing in rural infrastructure, reforming its rural finance mechanism, regulatory framework, land policy and administration, and public expenditures, creating an incentive for rural SMEs and agro-business, improving the law and order situation, and ensuring decentralized and accountable rural service delivery. 2. Improving Factor Markets, Access to Assets and Natural Management (A)Agricultural land: Resource

Land is becoming a scarce commodity in Bangladesh and land grab (particularly of public land) by the powerful is quite common. There is thus a need to review land administration, ownership distribution, rights and titles, and land use policy, followed by enforcement of laws and policies. (B)Agricultural inputs: Use of quality agricultural inputs such as seeds, fertilizers, pesticides, farm equipment, and irrigation is critical to promote diversification, and increase productivity. However, despite major improvements, agricultural inputs continue to experience problems such as lack of timely availability, poor quality, and high price, that are even more marked in remote rural areas. There is therefore a need to examine the impact of input price policy and subsidies on profitability and competitiveness, and explore options for their reform.

(C)Rural finance: There is a need to understand the constraints to access to rural finance, particularly by the "missing middle" farmers as well as SMEs. There is also a need to reform ‟agricultural banks‟, to improve their recovery rate, reduce defaults, and increase the number of commercial bank branches in the rural areas. (D) Water resources management: There is a need to institutionalize participatory water management through water management organizations, improve operations and maintenance of flood control infrastructures, and strengthen water sector institutions, particularly BWDB and the Water Resources Planning Organization (WARPO). There is also a need to promote information sharing to reduce downstream flood damage.(E) Natural resource management: In view of the growing threat to the longer term sustainability of natural resources, there is a need to design and enforce a policy and institutional framework for natural resources management and conservation, including user participation. This will be critical to sustaining high agricultural growth in a country like Bangladesh with poor natural resource and high population density

3. Strengthening Rural Institutions and Livelihood Support

(A) Rural Service Delivery: Improving physical and social infrastructure - roads, electricity, communication, water and sanitation, health and education – in rural areas is fundamental both for promoting employment opportunities and welfare. While Bangladesh has done well on

developing rural roads, it has a long way to go to meet other infrastructure needs, such as electricity, which is only available to 15 percent of villages. Because of the inefficiency of the government in public service delivery, the non-governmental sector has de facto become one of the main actors in development efforts. While decentralization efforts remain incipient, the efficiency and sustainability of public service delivery remains in question. (B) Livelihood Support: Creating and strengthening local organizations such as water management organizations, farmer associations, women‟s groups and village development committees is also essential to improving service delivery and accountability. Empowering rural communities, especially women, to create livelihood opportunities, such as through micro-credit programs is particularly important in this regard. Increasing the capacity for collective action has effectively enhanced the communities‟ bargaining power, their access to assets and confidence in micro-enterprise development.

Conclusion:
In the end the assignment gives us the overall clear idea about why Bangladesh economy does not earn better sum of income tax from the agricultural sector. The main and the foremost reason are the undeveloped infrastructure in agricultural sector and the proper allocation of the land. Our most of the farmer are not very much solvent to run his own family by his income also the landlord are so much un eager the paid the tax from their earning. They are also very much unaware about the tax and the tax payment method the

main steps should be taken by the government of Bangladesh to ensure the proper nourishment of tax payment system across the rural area.

References:

1. Income Tax Manual Part 1&2 by MD. Shafiqual Islam. ( including Finance act 2011) 2. www.scribd.com 3. www.worldbank.com 4. www.governmentbd.com 5. Web site of National Board of Revenue.

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