Tax Law

Introduction
 What is Tax
A tax is a compulsory payment levied on the persons or companies by the
govenement to meet the expenditure incurred on conferring common
benefits upon the people of a country.
Two aspects of taxes follow from this definition:
(1) A tax is a compulsory payment and no one can refuse to-pay it.
(2) Proceeds from taxes are used for common benefits or general
purposes of the State.
Inother words, there is no direct quid pro quo involved in the payment of
a tax.
Taxes are what we pay for Civil Society- Justice Holmes
 Canons/Principles of taxation
• These canons of taxation define numerous rules and principles upon which a good
taxation system should be built. Although these canons of taxation were presented a
very long time ago, they are still used as the foundation of discussion on the principles
of taxation:

1. Canon of Equality
2. Canon of Certainty
3. Canon of Convenience
4. Canon of Economy
5. Canon of Productivity
6. Canon of Simplicity
7. Canon of Diversity
8. Canon of Elasticity
9. Canon of Flexibility
 Structure of Income Tax Law in Bangladesh
The income tax laws consist of the following statutes (apart from the main statute):
• 1. Income Tax Ordinance 1984 – the parent statute;
• 2. Income Tax Rules 1984;
• 3. S.R.O. (Statutory Rules and Order)/Gazette Notification;
• 4. Income Tax Circular;
• 5. General or Special Order;
• 6. Explanation/Office Memorandum;
• 7. Verdicts of Appellate Tribunal for equivalent fact;
• 8. Verdicts of the High Court Division on question of law; and
• 9. Verdicts of the Appellate Division on judgment of the High Court Division.
 Statutory aspects of Taxations
• According to Section 2(62) of the Income Tax Ordinance 1984, ‘"tax" means the income
tax payable under this Ordinance and includes any additional tax, excess profit tax,
penalty, interest, fee or other charges leviable or payable under this Ordinance.’

• Tax is a payment to the Government as it is levied by the Government as Article 83 of the Constitution of
the Peoples Republic of Bangladesh

• As per Article 152(1) of the Constitution of Bangladesh,’ “taxation” includes the imposition of any
tax, rate, duty or impost, whether general, local or special, and “Tax” shall be construed accordingly.’
 Types of Taxation

Tax structure of Bangladesh consists of followings:

• Direct Tax: If a tax is such that its burden cannot be shifted to others and the person who pays it to the
Government has to bear it, it is called a direct tax. Income tax, annual wealth tax etc are examples of
direct taxes. In case of a direct tax there is a direct contact between the tax payer and tax levying public
authority.
• Indirect Tax: Indirect taxes are those burden of which can be passed on others through price vehicles.
Example: Value Added Tax (VAT), Customs Duty, Supplementary Duty.
• Indirect taxes can be either specific or ad-valorem. A specific tax on a commodity is a tax per unit of
the commodity, whatever its price. Thus the amount of total specific tax will vary in accordance with
the changes in total output or sales of the commodity and not with the total value of output or sales.
On the other hand, an ad-valorem type of an indirect tax is levied according to the value of the
commodity. For instance, sales tax in India is an ad-valorem tax as the rate of sales tax in case of
several commodities is 10 per cent of the value of sales of the commodities.

The current fiscal regime of Bangladesh consists of direct and indirect taxation. It is governed by the National
Board of Revenue (NBR). Revenue is also generated from non-NBR sectors and under the laws and acts of
related ministries. The NBR taxes include Customs Duty, Value Added Tax (VAT), Supplementary Duty (SD),
Personal Income Taxes (PIT) and Corporate Income Taxes (CIT).
Classification on the basis of subject matter of taxation:

• Personal Tax: This tax is levied on the basis of the personal tax paying capability. Such
as income tax.

• In Rem Tax: This tax is levied on some activities or objects like sales tax, wealth tax
etc.
 Classification on the basis of tax base:

INCOME WEALTH TAX: VALUE ADDED TAX

(VAT):
EXPENDITURE
TAX: This tax is charged TAX:
on the basis of the Here tax is Here tax is
It is charged on
the basis of
value of financial charged on charged on
asset like share,
income of a security etc or non the basis of the basis of
person or entity. financial asset like value added expenditure
building, premises in a
etc. Such as, gift like sales or
tax. commodity. purchase tax.
Multiple Tax System of Bangladesh:
• A. Taxes on Income and Profits
• i. Income Tax- Company
• ii. Income Tax- Other than Company
• B. Taxes on Property and Capital
Transfer
• i. Estate Duty and Wealth Tax
• ii. Gift Tax
• iii. Narcotics Duty
• iv. Land Revenue
• v. Stamp Duty- Non Judicial
• vi. Registration
• C. Taxes on Goods and Services
• i. Customs Duties
• ii. Excise Duties
• iii. Value Added Tax (VAT)
• iv. Supplementary Duties on Luxury Items
in Addition to VAT
• v. Taxes on Vehicles
• vi. Electricity Duty
• vii. Other Taxes and Duties (Travel Tax,
Turn Over Tax)
 Classification on the basis of structure of tax rate:

i. Proportional Tax: In proportional tax, the same rate of the tax is charged, whatever be
the magnitude of the base on which it is levied. For instance, if rate of income tax is 25 per
cent whatever the size of income of a person, it will then be a proportional income tax.
ii. Progressive Tax: In a progressive tax, rate of the tax increases as the amount of the tax
base (income, wealth or any other object) increases. The principle underlying a
progressive tax is that greater the tax base, the higher the tax rate.
iii. Regressive Tax: A regressive tax is the opposite of a progressive tax. In case of a
regressive income tax, the rate is lowered as the income rises. Thus, under regressive tax
system, the burden of the tax is relatively more on the poor than on the rich. A regressive
tax is therefore inequitable and no civilised Government in the world today will levy such a
tax.
iv. Degressive Tax: In degressive tax, a tax may be slowly progressive up to a certain limit,
after that it may be charged at a flat rate. In Bangladesh, this system is followed.
 • The Government provide Health care through Government
hospitals (usually they offer service without any cost), Education
(In Municipal and Government schools the fee is negligible).
• The Government also provides cooking gas at concessional rate or
gives subsidy.
What • Of course the major expenditure of Government has to be
incurred on National Defense, Infrastructure Developments etc.
Government • Taxes are used by the government for carrying out various
welfare schemes including employment programs.
Do from our • There are thousands of employees in various departments and
the administrative cost has to be borne by the Government.
TAX?  • Though the judicial process involves delay, yet the Salaries, perks
of Judges, Magistrates and judicial staff has also to be paid by the
Government.
• Thus on considering these various duties of the Government, we
need to appreciate that we must pay tax as per law. We have to
act like a responsible citizen.
Annual Value: According to Section 2(3) of the Income Tax Ordinance, 1984, Annual Value shall
deemed to be-
In relation to any property let out (rented)-
a. The sum for which property might reasonably be expected to let from year to year,
b. Where the annual rent in respect thereof is in excess of the paragraph (a), the value of annual rent.
Assessee: A taxpayer is called assessee under the Income Tax Ordinance, 1984, though all the
assesse need not to pay tax. The term Assessee is defined in Section 2(7) of the Income Tax
Ordinance, 1984. According to it, an Assessee means
“a person by whom any tax or other sum of money is payable under Income Tax Ordinance,
1984”
Assessment: Assessment is the determination of tax liability of an assesse. It is defined in Section
2(8) of the Income Tax Ordinance, 1984. According to it, it includes re-assessment, additional
assessment as well with grammatical variation and cognate expression.
Assessment Year: Assessment year means the period of twelve months commencing on the first day
of July every year; and includes any such period which is deemed under the provisions of the
Income Tax Ordinance, 1984. This definition is mentioned in Section 2(9) of the Income Tax
Ordinance, 1984.
 Important Terms
“Income year” means-
(a) the period beginning with the date of setting up of a business and ending
with the thirtieth day of June following the date of setting up of such business;
(b) the period beginning with the date on which a source of income newly
comes into existence and ending with the thirtieth day of June following the
date on which such new source comes into existence;

• An individual is treated as a resident of Bangladesh if that person stays in Bangladesh

for 182 days or more in any income year; or 90 days or more in an income year if that
person has previously resided in Bangladesh for a period of more than 365 days
during the 4 preceding years.

• Residence is determined in Bangladesh purely on the period of presence in

Bangladesh irrespective of residency in other countries/jurisdictions. Short-term visitors
and dependents of foreign nationals not earning any income in Bangladesh are not
taxed in Bangladesh and are not required to file tax return.
Heads of Income: (Section 20 of the
Ordinance)

•For the purpose of computation of total

income and charging tax thereon, sources
of income can be classified into 7
categories, which are as follows :
• Salaries.
• Interest on securities.
• Income from house property.
• Agricultural Income.
• Income from business or profession.
• Capital gains.
• Income from other sources.
 Who should submit Income Tax Return?
• If total income of any individual other than female taxpayers, senior male taxpayers of 65 years and above, retarded
taxpayers and war wounded gazetted freedom fighter during the income year exceeds Tk 2,50,000/-.
• If total income of any female taxpayer, senior male taxpayer of 65 years and above during the income year exceeds Tk
3,00,000/-.
• If total income of any retarded taxpayer during the income year exceeds TK. 3,75,000.
• If total income of any gazetted war-wounded freedom fighter taxpayer during the income year exceeds Tk. 4,25.000/-.
• A person who lives in any city corporation/paurashava/divisional HQ/district HQ and owns motor car/owns membership of a
club registered under VAT Law.
• If any person runs a business or profession having trade license and operates a bank account.
• Any professional registered as a doctor, lawyer, income tax practitioner, Chartered Accountant, Cost & Management
Accountant, Engineer, Architect and Surveyor etc.
• Member of a Chamber of Commerce and Industries or a trade Association.
• Any person who participates in a tender.  Candidate for Paurashava, City Corporation, Upazilla or Parliament elections.
• Any company registered under the Company Act, 1913 or 1994.  Any Non-government organization (NGO) registered with
NGO Affairs Bureau.
Time to submit Income Tax Return: [Section 75(2) of the Ordinance]

(a)For Company Taxpayers: By fifteenth day of July next following the income year

(b)For Other Taxpayers: Unless the date is extended, by the Thirtieth day of September next following the
income year.

Consequences of Non-Submission of Return and Return of withholding tax. (Section 124 of the
Ordinance):

• imposition of penalty amounting to 10% of tax on last assessed income subject to a minimum of Tk.
1,000/-

• in case of an individual assessee whose income was not assessed previously Tk. 5,000/-.

• In case of a continuing default by any type of assessee, a further penalty of Tk. 50/- for every day of delay.