Course Name: Principles and Practices of Taxation

Course Code: FB-306

Assignment on: Bangladesh Income Tax process.

Submitted To
Shohel Rana
Associate professor
Department of Finance & Banking
Jatiya Kabi Kazi Nazrul Islam University
Submitted By
S.M Mohaiminul Islam (17132641)
Md.Saiful Islam (17132642)
Taslima Akter (17132643)
Md.Mohi-Uddin Bhuiyan (17132644)
Tanjil Ahmed (17132649)
Roman Hasan (17132662)
Department of Finance & Banking
Jatiya Kabi Kazi Nazrul Islam University

Date on Submission: - 01-12-2019

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 Letter of Transmittal

1th December 2019

Shone Rana
Associate professor
Department of Finance & Banking
Jatiya Kabi Kazi Nazrul Islam University
Subject: Report on Bangladesh Income Tax process.
Dear Sir,
We have the pleasure to submit the report on “Bangladesh Income Tax process”. We thank you
for allowing us to do such activities. To prepare this report, we have tried to devote our best
effort and conducted extensive literature review to find out the study relevant materials. We
sincerely hope and believe that our report will secure your approval and serve its purpose.
During the process of preparation due to various constraints there may be some mistakes.
However, we apologize for all those and beg your kind consideration in this regard.
Finally, we hope that you would be kind enough to receive this report and bless us heartily.
Yours sincerely,
S.M Mohaiminul Islam (17132641)
Md.Saiful Islam (17132642)
Taslima Akter (17132643)
Md.Mohi-Uddin Bhuiyan (17132644)
Tanjil Ahmed (17132649)
Roman Hasan (17132662)

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 Executive summary

Bangladesh, as developing country, is committed to increasing tax revenues and achieving fiscal
discipline with a view to increasing self-reliance. The external environment influencing the tax
performance of Bangladesh has changed remarkably as the country more and more integrated
with the global economy during the 1990s. In recent years, the Government of Bangladesh has
initiated some administrative and policy reforms in the tax system. An improved tax
administration in association with some pragmatic policy initiatives has of late resulted in a
modest improvement in the tax to GDP ratio. However, the performance is still unsatisfactory as
compared to other countries at a similar stage of economic development.
The narrow tax base, widespread exemptions, and administrative inefficiencies are the main
factors behind the low tax to GDP ratio in Bangladesh compared to the neighboring or
comparative countries. This also implies why tax reforms over the last decades have not brought
about significant changes in Bangladesh’s tax efficiency and productivity. The most basic
challenge has been the overall weakness of the policy framework, which is characterized by an
enormous range of exemptions, incentives and special regimes. These range from simplified
regimes associated with VAT to significant scope within the law for tax officials and political
elites to grant discretionary benefits. This directly undermines revenue collection, but equally
complicates administration, undermines equity in the system and introduces significant scope for
officials to exercise discretion in both policy and administration.
Hence, attaining an optimal income tax system becomes critical for revenue generation, required
for accelerating growth and improving the quality of life of citizens. 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.
The findings and policy recommendations presented in this study are important for a better
design and execution of future tax reforms and for making Bangladesh’s tax structure more
equitable.

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 Table of contents

Sl No Contents Page

01 Introduction 5

02 Tax 6

03 Types of Tax 7-8

04 Goal and Objectives 9

05 Tax Expenditure Measures under Direct Tax 10

06 Tax Expenditure Measures under In-Direct Tax 11

07 Tax System Transparency 12-13

08 The National Board Revenue 13

09 Tax Fair 14-15

10 Our Experience 16

11 Recommendation 16

12 Conclusion 17

13 Reference 17

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 Introduction

In Bangladesh, the principal direct taxes are personal income taxes and corporate income taxes,
and a value-added tax (VAT) of 15% levied on all important consumer goods. The top income
tax rate for individuals is 30%. For the 2018/19 tax year (July 1 2018–June 30 2019) the top
corporate rate was 45%. However, publicly traded companies registered in Bangladesh are
charged a lower rate of 25%. Banks, financial institutions and insurance companies are charged
the 40% rate. All other companies are taxed at the 37.5% rate. Bangladesh is increasingly
focusing on internal resources mobilization in order to enhance socioeconomic development and
to cover budgetary expenditures. Like many other developing countries, Bangladesh struggles to
meet its potential in mobilizing domestic resources, due to poor tax administration, outdated tax
and fiscal policies and weak tax collection practices. Therefore, from the perspective of a
campaigning and advocacy organization, our strategy is to mobilize grassroots activism in order
to raise the collective voice and influence policy-makers and duty-bearers to introduce a fair
taxation system that prevents tax evasion and reduces tax avoidance at the individual and
corporate levels. Essential agricultural implements and irrigation pumps had previously been
excluded from certain taxes.

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 Tax

To tax is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity)
by a state or the functional equivalent of a state such that failure to pay is punishable by law.

Direct tax:

A direct tax is a form of tax is collected directly by the government from the persons who bear
the tax burden. Taxable individuals file tax returns directly to the government. Examples of
direct taxes are corporate taxes, income taxes, and transfer taxes.

Indirect tax:

An indirect tax is a form of tax collected by mediators who transfer the taxes to the government,
and also perform functions associated with filing tax returns. The customers bear the final tax
burden. Examples of indirect taxes are sales tax and value added tax (VAT).

There are other types of taxes, which may either be direct tax or indirect taxes, including capital
gains tax, corporation tax, consumption tax, inheritance tax, property tax, excise duty, retirement
tax, tariffs, wealth tax or net worth tax, toll tax, and poll tax.

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 Types of Taxes

Paying Taxes

Taxes are monies paid by citizens and residents to federal, state, and local governments. The
money collected from these taxes help fund for services provided by the government. It is the
one of the main sources of government revenue. Types of taxes include income tax, sales tax,
and property tax.

Income Tax

“Taxable income” is essentially money obtained through wages, self-employment, and tips and
from things like sale of property. The large majority of people pay their income taxes by having
the money withheld from their paychecks. Income tax rates are generally lower for those who
make less money.

Sales Taxes

Sales taxes are more or less state or local taxes and usually added to the buying cost of certain
things. These taxes will be based on the cost of items and help fund for services provided by
state and local government, such as roads, police, and firefighters.

Property taxes

These are also state and local taxes that are charged on your home and land. In most situations,
these property taxes contribute to funding of local public schools and other services in the area
person.

Bangladesh Income Tax Rates

Bangladesh personal income tax rates for assessment year 2018 – 2019 is progressive up to 30%.

Trade Tax

Bangladesh’s revenue structure has been burdened by taxes from indirect sources for a long time
and is characterized by heavy import and export duties. Bangladesh, like many other countries,
has to reduce such duties and levies to face the challenge of globalization and market
liberalization.

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Consumption tax

A consumption tax is a tax on spending on goods and services. The tax base of such a tax is the
money spent on consumption. Consumption taxes are usually indirect, such as a value added tax.

Value-added tax (VAT)

Value Added Tax or VAT is such an indirect tax which is paid by the consumer through a
registered person. Value Added Tax or VAT on a particular goods or services is determined on
the basis of adding actual level of the said goods and services adjusting input tax payable against
the supplied goods and services.

Bangladesh Income Tax Rates for individuals other than female taxpayers, senior
taxpayers of 65 years and above and retarded taxpayers – Assessment Year 2018 – 2019

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 Goals and Objectives

The broader strategic goal of this study is to contribute to a better understanding of, and insight
in tax issues in Bangladesh, providing a firm basis for both civic education and advocacy
campaigns to promote a fairer tax system. Aligning with the broader aspiration, the study defines
its very specific and target oriented objectives.

 To identify main bottlenecks in the tax systems of focus countries.

 To provide strong evidence-based support for country-level advocacy work.
 To create a framework for comparing the tax systems of selected countries over time.
 To contribute to global-level advocacy on taxation through an evidence-based tool
showcasing the relative fairness of selected tax systems.

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 Tax Expenditure Measures under Direct Taxes

Various tax expenditure measures exist for corporate and personal income taxpayers under the
existing income tax law. These are summarized below.

Corporate Income Tax

Tax holiday facility is allowed to newly set-up industrial undertakings, physical infrastructure
facilities and tourism industry subject to certain specified conditions in order to promote
industrialization and employment generation. Exemptions and deductions are applicable to
incomes from firms in Export Processing Zone (EPZ), 50 per cent of income for export earnings,
power generation companies, computer software businesses, agriculture-related industry, micro
credit for NGOs, local government, welfare activities, etc. In particular, concessionary rate is
allowed at the rate 20 per cent for those who do not enjoy tax holiday or accelerated
depreciation, 15 per cent for textile and jute industries and 25 per cent for local authority, etc.
Accelerated depreciation is allowed at the rate 100 per cent for new firms.

Personal Income Tax

Exemptions and deductions are admissible to individual incomes from agriculture-

related activities, income of foreign technicians in EPZs, remuneration of diplomats and
foreign employees of an embassy, income of an indigenous person of Hill Tracts region as
individuals, income from specified savings instruments, etc. In addition, 15 per cent tax rebate is
allowed on investment in provident fund, Deposit Pension Scheme (DPS), insurance, shares,
bonds, etc.

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 Tax Expenditure Measures under Indirect Taxes

Under the various acts of indirect taxes, exemptions and deductions are given in the area of
customs duty, supplementary duty and Value-Added Tax (VAT).

Customs and Supplementary Duty

Exemptions are granted to local industrial units of a few specific sectors, viz. EPZ enterprises,
power generation companies, poultry and dairy farms, etc. Concessionary rates are applicable
taro-processing, textile and leather industry, educational institutions, hospitals, privileged
persons, etc. Incentives are also given to those sectors, which are complying with the
international and bilateral agreements and conventions.

Value–Added Tax

Goods and services exempted from VAT include food and agricultural products, animal
products, poultry sector, agriculture inputs, basic services for living, social welfare services,
culture related services, finance and financial activities related services, transport services,
personal services, etc.

Taxpayers

Income taxes, both personal and corporate, are considered the major potential sources of the
country’s revenue. The number of individual taxpayers has been increasing over the last few
years.

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 Tax System Transparency

In terms of accountability and transparency, the tax administration does not appear accountable
to taxpayers, because the tax departments always try to generate income unilaterally and without
any discussion and dialogue with taxpayers. The NBR does not have any policy that ensures the
publication of information on the tax system and tax collection rates. However, tax rates (direct
and indirect) are available in the budget document.
The information on non-tax revenue collection targets is available with the budget proposal.
However, the management is not adequately transparent. The targets set for these heads of
revenue collection are often set in an arbitrary manner.

Information Availability on Companies

Certain information (e.g. company’s direct shareholders) is publicly available, but only when a
company is registered with the stock exchange. The information on companies’ ownership or
financial statements is available for all companies; however, it is not possible to find the
information about companies’ ultimate owners.

As a transparency measure, the NBR commissions an external body to carry out audits. The
office of the Controller and Auditor General of the government of Bangladesh carries out regular
audits, but not annually. The audit results are not debated in parliament and are not available
publicly.

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Budget Documentation
The executive budget proposal includes information on different sources of tax revenue (such as
income tax or VAT), different sources of non-tax revenue (such as grants, property income, and
sales of government-produced goods and services), and extra-budgetary funds for the budget
year. The aforesaid information is available only three to four weeks before the end of fiscal
year. As a result these figures are often not scrutinized in an adequate manner. The year-end
report for the preceding year is also published in the budget proposals. However, the differences
between the enacted levels and the actual outcome for revenues are not explained.
Citizens’ Engagement
The Ministry of Finance meets the CSOs, think-tank organizations, business associations and
professional bodies to seek their opinions on revenue generation and spending. However the
views of CSOs and others are merely considered in budget decision. While there is an
established process to facilitate CSOs in annual budget discussions, there is no opportunity for
the CSOs to influence revenue policies at the national and local levels.

The National Board of Revenue

The National Board of Revenue (NBR) is the central authority for tax administration in

Bangladesh. Administratively, it is the attached department to the Internal Resources Division
(IRD) of the Ministry of Finance (MoF). MoF has 4 Divisions, namely, the Finance Division the
Internal Resources Division (IRD), the Banking Division and the Economic Relations Division
(ERD). Each division is headed by a Secretary to the Government. Secretary, IRD is the ex-
office Chairman of NBR. NBR is responsible for the formulation and continuous re-appraisal of
tax-policies and tax-laws in Bangladesh.
Negotiating tax treaties with foreign governments and participating in inter-ministerial
deliberations on economic issues having a bearing on fiscal policies and tax administration are
also NBR's responsibilities. The main responsibility of NBR is to mobilize domestic resources
through the collection of import duties and taxes, VAT and income tax for the government. Side
by side with collection of taxes, facilitation of international trade through quick clearance of
import and export cargoes has also emerged as a key role of NBR. Other responsibilities include
administration of matters related to taxes, duties and other revenue related fees/charges and
prevention of smuggling. Under the overall control of IRD, NBR administers the excise, VAT,
customs and income-tax services consisting of 3434 officers of various grades and 10195
supporting staff positions.

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 Tax Fair

The National Board of Revenue (NBR) is organizing the fair will be held in divisional
headquarters till November 20, in all the district towns for four days while for two days
in 45 upazilas. At the upazila level, the fair will held at 57 growth centers for one day.
The NBR organized the tax fair in 32 upazilas for previous years, taxpayers will be able
to file tax returns and do other related tasks at the fair. Tax officials will extend necessary
support in this regard, tax officials said. New taxpayers can collect electronic Tax
Identification Number (e-TIN) at the fair while other taxpayers can collect e-TIN through
re-registration. Tax officials said there would be dedicated booths at the fairs for e-
payment as well as for freedom fighters, women, people with disabilities and senior
citizens. Since its inception, the income tax fair is gaining popularity as it gives an
opportunity to people to submit income tax returns at the quickest possible time without
the hassle of visiting tax offices, said an NBR   senior official.

"The growing number of taxpayers and income tax-related service-takers show that
people are always interested in paying taxes, given a conducive atmosphere," he said. He
said the chance to extend the time to submit the income tax returns through any executive
order has been restricted through the national budget. 

"So, we request all to submit their income tax returns within the timeframe to avoid fine,”
the officials said. To remove hassles in paying taxes, the NBR has simplified the income-
tax return form, aiming to get a better response from taxpayers as well as to bag more
revenues.

Instead of the old eight-page form, the taxpayers from this year will fill up a three-page
form. Of the three pages, the first page contains personal information, while the second
page will be used for the source of income and the third page gives the scope for scrutiny.

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According to sources at the NBR, interest will be imposed on the income tax returns that
will be submitted after November 30.

“The taxpayers who seek extra time will have to give the interest as per 73A rules of the
Income Tax Ordinance,” the NBR official said adding as per the rules, the taxpayers have
to give 2% interest on his income tax per month.

Currently, the tax -GDP ratio in Bangladesh is just over 10%, which is more than 15% in
neighboring countries.
"NBR   is now a self-reliant organization and steps have been taken to make it a pro-
taxpayer one," the NBR official said.

The total revenue collection for the current 2019-20 fiscal has been estimated to be
Tk377, 810 crore where the NBR will contribute Tk325, 660 crore. Tax revenue from the
non-NBR sources have been estimated at Tk14, 500 crore. Besides, non-tax revenue is
estimated at Tk37710 crore, he added.

Of the grand amount for the NBR, Tk113, 912 crore will come from income, profit and
capital tax, while Tk123, 067 crore will be contributed by VAT.

Besides, Tk48153 crore will come supplementary tax while Tk36, 498 crore from import
duty, Tk54 crore from export duty, Tk2, 239 crore from the excise duty and Tk1, 677
crore from other taxes.

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 Our Experience
It was a pleasant experience to visit the Income Tax Fair 2019 at Mymensingh and to deposit my
tax return without any hassle and wastage of time. The National Board of Revenue (NBR)
deserves appreciation for holding the Income Tax Fair so magnanimously. They also
acknowledged the tax-payers by presenting a souvenir containing an important guide book on
how to fill-up the tax return form and other related tax issues.

I would like to extend my sincere thanks and appreciation to NBR. We hope that the NBR will
continue to improve their services in the future.

Recommendations

 Broadening of the taxpayers’ base and identification of sectors. This will require the
monitoring of the ownership of all sizable physical and financial assets of taxpayers to
determine the income generated by those assets.
 Broadening of the tax revenue sources from the traditional dependence on taxing
financial institutions and a few large non-financial corporations. The tax administration
has the tendency to increase the tax burden on existing and compliant taxpayers and to
not work hard on identifying new taxpayers by gathering information from multiple
sources.
 Focusing on income from service providers and self-employed.
 VAT in Bangladesh could be made less regressive by making a distinction between
luxury goods and basic-needs goods. Supplementary taxes can be imposed on luxury
goods.
 VAT exemptions in Bangladesh should be limited to basic health services, public
transport, agriculture and ago-based industries and government education.

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 Conclusion

Taxation is indispensable in order to support the basic function of a sustainable state and to
create the context for economic growth. An improved tax system is the key to financing public
services, reducing inequality, making government more accountable and helping to improve self-
reliance.
Over time, the NBR has had major achievements as it invested time and efforts to achieve its
objectives and to reform the tax system. The tax system in Bangladesh is gradually improving,
raising more revenue and reducing the dependency on aid. However, Bangladesh is still a low
tax effort country with a high buoyancy ratio, implying that the policy-makers of Bangladesh
have the scope and potential to opt for greater revenue mobilization through internal resources in
order to meet the budgetary deficit.
This report analyzed seven areas of the tax system: tax system in general; distribution of the tax
burden and progressivity; revenue sufficiency and tax leakages; tax exemptions; effectiveness of
the tax administration; government spending and transparency and accountability. With the

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objectives of looking into the complex character of tax systems in order to evaluate the fairness
of a tax system under review.

Reference

 Bangladesh Income Tax Ordinance 1984

 The National Board Revenue
 The daily Star

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