Table of Contents

Topic Page no
Abstract 5
Horizontal equity
Objective of the study

Horizontal equity in Bangladesh 8
Horizontal equity in India 9
Horizontal equity in Thailand 10
Horizontal equity in United Kingdom 11
Cross country comparison 12
Observation & Recommendation 13
Conclusion 14
Reference 15



Money given by taxation has been used by countries throughout the history to do many state
functions. Some of these include the enforcement of law and public order, safeguard of property,
economic infrastructure (roads, legal tender, enforcement of contracts, etc.), subsidies, and the
function of government itself. A segment of taxes also go to pay off the state's debt and the
interest this debt accumulates. Governments also use taxes to finance welfare and public
services. These services can include education systems, health care systems and etc.
While collecting the taxes, countries follow different principles one of which is equity. Equity
principle says People should pay according to their ability and to the benefits they receive from
the state. And there are two concepts of equity. One is horizontal equity and another is vertical
equity. This paper will mostly focus on horizontal equity which states that individuals with
similar income and assets should pay the same amount in taxes. Also the paper will try to show
the aspects of horizontal equity in the tax system of Bangladesh and provide a cross country



What is Horizontal equity?
An economic theory, that says that persons with same earnings and property should pay the same
amount in taxes. Horizontal equity should apply to persons considered equal regardless of the tax
system in place. The more neutral a tax system is the more horizontally equitable it is considered
to be.
According to the concept of horizontal equity people in the same income group have different
economic situations and financial commitments due to their age, social class, marital or parental
status etc. Equity is maintained by giving deserving tax benefits to different groups. For
example: different threshold for different age groups.

Objective of the study

The objective behind this report is to grasp a deeper understanding of the importance of the
horizontal equity in Taxation. And to get the scenario of horizontal equity in Bangladesh and
some foreign country tax system.
The specific objectives are:

1. To deliver an overview of horizontal equity in Bangladesh as well as its importance.
2. To deliver an overview of horizontal equity in India, Thailand and United Kingdom.
3. A cross country comparison.



The research is based on secondary information. The data are taken from Internet mostly the
websites of respective tax department of different country. Information is also collected from the
journals available in the internet.

Limitations of the Study:

Very Limited time and the short nature of this paper prevent this report from being a
comprehensive quantitative study. Moreover the rationale of this report requires it to be a
detailed one and also the fact that it is conducted based on secondary data only.


Horizontal equity in Bangladesh:
The tax system of Bangladesh is based on “The Income Tax Ordinance, 1984” and “The Income
Tax Rules, 1984”. Among direct taxes, income tax is one of the main sources of revenue. It is a
progressive tax system. Income tax is imposed on the basis of ability to pay. The more a taxpayer
earns the more he should pay''- is the basic principle of charging income tax. It aims at ensuring
equity and social justice. National Board of Revenue (NBR) is main tax authority in
For the purpose of computing the income chargeable under the head "salary", the value if
perquisites, allowances and benefits includable in the said income shall be determined in
accordance with the provision of the rule 33A to rule 33J, whichever is applicable. The tax
allowances enjoyed by the tax payer of Bangladesh are:
1. House rent allowances receivable in cash
2. Rent free accommodation
3. Conveyance allowance receivable in cash with no conveyance facility
4. Conveyance provided for personal or private use
5. Additional conveyance allowance
6. Free or concessional passage for travel abroad or within Bangladesh
7. Entertainment allowance
8. Other benefits



The tax system of India is based on “Income-Tax Act, 1961”. Income Tax Department under
department of revenue, Ministry of Finance is main tax authority in India. The tax allowances
enjoyed by the tax payer of India are:
1. House Rent Allowance
2. Dearness Allowance
3. Leave Travel Allowance
4. Certain allowances given by the employer to the employee are exempt u/s 10(14). All
these exempt allowance are detailed in Rule 2BB of Income-tax Rules and are briefly
given below:

I. Allowance granted to meet cost of travel on tour or on transfer.
II. Allowance granted on tour or journey in connection with transfer to meet the
daily charges incurred by the employee.
III. Allowance granted to meet conveyance expenses incurred in performance of duty,
provided no free conveyance is provided.
IV. Allowance granted to meet expenses incurred on a helper engaged for
performance of official duty.
V. Academic, research or training allowance granted in educational or research
VI. Allowance granted to meet expenditure on purchase/ maintenance of uniform for
performance of official duty.


The tax system of Thailand is based on “Revenue code”. The Revenue Department is main tax
authority in Thailand. Allowances (Exemptions) allowed for the calculation of Personal Income
Tax (PIT):

1. Personal allowance
2. Spouse allowance
3. Child allowance
4. Education allowance
5. Parents allowance
6. Life insurance premium
7. Approved provident fund contributions
8. Long term equity fund
9. Home mortgage interest
10. Social insurance contributions
11. Charitable contributions


United Kingdom

Her Majesty's Revenue and Customs (HMRC) is a non-ministerial department of the UK
Government responsible for the collection of taxes, the payment of some forms of state support,
and the administration of other regulatory regimes including the national minimum wage.

HMRC was formed by the merger of the Inland Revenue and Her Majesty's Customs and
Excise which took effect on 18 April 2005. The department's logo is the St Edward's
Crown enclosed within a circle.

There are a number of 'tax-free' and 'tax-deductible' allowances and reliefs citizens of UK are
entitled to get to reduce their tax bill - and in some cases mean they have no tax to pay.. The
allowances are given below:
1. Personal Allowance
2. Blind Person's Allowance
3. Married Couple's Allowance
4. Giving to charity


Cross country comparison:

Bangladesh India Thailand United Kingdom
House rent allowances
House Rent Allowance Personal allowance
Personal Allowance
Rent free accommodation Dearness Allowance Spouse allowance
Blind Person's
Conveyance in cash
Conveyance Allowance Child allowance
Married Couple's
Conveyance provided
Travelling Allowance Education allowance
Giving to charity

Travel allowances
Helper Allowance Parents allowance

Entertainment allowance
Conveyance Allowance
Life insurance

Other benefits
Uniform Allowance.
Approved provident
fund contributions

Academic Allowance


Observation and Recommendation

By analyzing the tax allowances of Bangladesh, India, Thailand and United Kingdom, it is pretty
clear that these exemptions or allowances are based on the present social condition of respective
countries. It is also seen that all the countries offer a similar type of allowances to the taxpayers.
This study would like to suggest some point which the National Board of Revenue (NBR) may
follow for the welfare of the tax payers of Bangladesh.

 Bangladesh is developing rapidly. And education can fasten this development process to
a great extent. So NBR should provide education allowances to the taxpayers. It may
cover the Higher education cost of the tax payer or the cost of education for his children.
 NBR can offer tax allowance to the handicapped people e.g. Blind tax in UK. This will
help to improve the life of those handicapped people tremendously.
 NBR can conduct survey of the taxpayers for providing them with necessary allowances
not hampering the revenue collection of the country.



The principle of horizontal equity is a essential measure used to measure whether tax burdens are
reasonably distributed. On the one hand, the idea that tax policy should struggle for horizontal
equity is uncontroversial (Musgrave 1990). It protects taxpayers against random discrimination,
and also seems constant with basic principles of equal worth.

Some tax scholars uphold that the property of horizontal equity is not really an independent
principle of tax equality, but instead is subordinate to the concept of vertical equity, which holds
that people with different incomes should pay different amounts of tax (Kaplow 1989). As a
matter of logic, a tax system that assigned different tax burdens to people with different incomes
should allocate the same tax burden to people with the same income. Viewed in this way, equal
treatment of equals in taxation is not an end in itself, but rather a means to ensuring that tax
burdens are distributed in a way that is vertically equitable.



1. Rashid Kazi, Income Tax Manual, 3

Web resources:
1. [Unattributed], citing source: [http://www.taxmatebd.com], May3, 2014
2. National Board of Revenue, citing source: [http://www.nbr-bd.org/incometax.html], May
4, 2014
3. Horizontal equity, citing source:
[http://www.investopedia.com/terms/h/horizontalequity.asp] May 1, 2014
4. [Unattributed], citing source:
allowancesexempt_622827.html], May 6, 2014
5. HMRC, citing source:
[http://www.hmrc.gov.uk/incometax/personal-allow.html], May 6, 2014.
6. Revenue code, Thailand law online, citing source:
provisions], May 6, 2014.