Tax System

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critically evaluation of tax system of bangladesh.

Transcript of Tax System

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    Assignment on:

    Critical Analysis of Taxation System of Bangladesh

    Course Title:

    Public Finance and Taxation

    Submission Date: 30 August, 2014

    Submitted By: (Group: CBS Sanguine)

    Md. Emad Uddin Khan 1302007

    Mahmud Ismet Sunny 1302029

    Rejaul Alam Opu 1302031

    Fazle Hasan Zami 1302036

    Prianka Chowdhury 1302039

    Submitted To:

    Mr. Tanvir Md. Hayder Arif

    Associate Professor

    Department of Finance and Banking

    University of Chittagong

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    Table of Contents

    Topic Page No.

    Chapter-1: Introduction 1.1 Background of the Study 4

    1.2 Objectives of the Study 4

    1.3 Methodology 5

    1.4 Limitations 5

    Chapter-2:Study of the Tax History 2.1 Historical Background of Tax Law 7

    2.2 Historical Background of the VAT 7

    Chapter-3:Tax Scenario of Bangladesh and Critical Analysis 3.1 Tax Schedule 9

    3.2 Canons 13

    3.3 Tax Law 14

    3.4 Authority Simplicity 15

    3.5 Unfair Practice 15

    3.6 Tax Holiday 15

    3.7 Tax Process 16

    3.8 Income From Landlord 16

    3.9 Black Money 16

    Chapter-4:Recommendations 4.1 Increasing Time phases 18

    4.2 Simplified Tax procedure 18

    4.3 Centralized Authority 18

    4.4 Consistency 18

    4.5 Sector wise Tax holiday 18

    4.6 Environmental Tax 18

    4.7 VAT system 18

    4.8 Widening of Tax Umbrella 18

    4.9 Elimination of Existing Duties and Tax 18

    4.10 Participation of Multi-national organizations 19

    4.11 Stop evading Tax 19

    4.12 Allowance for Scientific Research 19

    4.13 Provide Grand Reward 19

    Conclusion 21

    Reference 23

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    Chapter: 1


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    1.1 Background of the Study:

    Bangladesh has been independent for about 54 years. It gained independence first from

    the British Rule in 1947 and then again for the second time in 1971 from the West


    Since 1947 till date our population has increased from some 50 million to 160 million. In

    the meantime it has faced several famines, floods and cyclones, not to mention other

    kinds of losses. The economic situation has worsened day by day.

    Political independence failed to lead this country to the desired goal of economic

    independence. Throughout these long years extending more than half a century,

    Bangladesh has definitely made some serious mistakes that have resulted in its fiscal

    failure. Some of these mistakes are oldest form of tax law, defective and inefficient tax

    policy in Bangladesh.

    However this report is intended to be a matter of critical evaluation of the tax system of


    Bangladesh now has a population of about 160 million. The per-capita income is

    somewhat like US$ 1190 per year. Though it is unthinkable to raise the income of a

    Bangladeshi to a level comparable to those of people in developed nations. But we have

    to make continuous effort to utilize this large number of population and their income to

    ensure maximum amount of benefit.

    1.2 Objectives of the Study:

    The main objective of this report is to analyze the Critical Analysis of Taxation System

    of Bangladesh.

    Specific Objectives are-

    1. To get an overview on tax policy of Bangladesh.

    2. To know the present scenario of taxation policy of Bangladesh and

    3. To modify existing tax policy and process of Bangladesh.

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    1.3 Methodology:

    The study mainly involves descriptive analyses based on available secondary data

    provided by the Government of Bangladesh and Non-government Organizations about

    Critical Analysis of the Taxation System of Bangladesh. The latest data provided by

    different Govt. organizations was used to analyze the current taxation policy and to

    modify existing tax policy of Bangladesh.

    1.4 Limitations:

    - Lack of sufficient latest data was the major problem we faced at the time of

    analyzing data.

    - Very little readymade information. Relevant papers and documents were not

    available sufficiently, which could aid us in writing the report easily.

    - Relative published data varied organization to organization under the same


    - Limitation of time was the most important factors that languish the present study.

    Due to time limitation many aspects could not be discussed in the present study.

    - Limitation of the word. It was difficult to accommodate detailed information and

    data because of the word limit of this report.

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    Chapter: 2

    Study of the Tax History

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    2.1 Historical Background of Tax law in Bangladesh:

    After the independence in Bangladesh 1971, she inherited the income Tax Act, 1922 and

    adapted with the changes made from time to time but due to longtime gap from its

    farming. The act needed a change to cope with prevailing condition in fact for long

    different quarter were demanding the repeal of the act and to frame a new act to cope

    with the demand of time and at last in 1984 new act was established under the title

    income tax ordinance(XXXVI), 1984 was then enforced from 01/07/1984. By the

    enforcement of this new law the old income tax law of 1922 stands repealed.

    No major conceptual change the content of previous act has been made. The object was

    to being into focus the constituent element of is provision imposing liabilities and

    granting rights so as to minimize scope of dispose.

    At present income tax and corporate tax system are practiced under this law.

    2.2 Historical Background of Value Added Tax (VAT):

    Bangladesh introduced the Value Added Tax (VAT) in 1991 by replacing the age-old

    excise duty on the domestically produced goods and services and sales tax at the

    importation stage. VAT has been introduced not only because of its revenue raising

    potentials but also because of its simplicity, effectiveness and efficiency, transparency,

    equity, and progressiveness all of which complement the establishment of good

    governance. Of all the tax revenues, VAT at present is the single largest contributor to

    GDP. It has been found that VAT funds the government expenditure more than any other

    tax. But still different stakeholders raise the questions of efficiency and effectiveness of

    the VAT.

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    Chapter: 3

    Tax Scenario of Bangladesh

    and Critical Analysis

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    3.1 Tax Schedule:

    Present Scenario:

    In Bangladesh we have taxes divided on two broad aspects:

    Direct Tax

    Indirect Tax

    Before going to the discussion of tax structure of Bangladesh it is necessary to know

    about the taxes which follow these above written types mostly.

    3.1.1 Direct Tax

    In the general sense, a direct tax is paid directly at one shot to the government by the

    persons on whom it is imposed.

    Income taxes

    Corporate taxes

    Transfer taxes

    Wealth taxes

    Narcotics duties

    Land revenue

    Stamp duty-non-judicial


    Income Tax:

    Among direct taxes, income tax is one of the main sources of revenue. In Bangladesh

    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. All individuals and companies in the country need to pay income tax if

    their annual income excess certain limit determined by the Government. There are some

    conditions for paying Income Tax which are controlled by Tax Laws and Amendments in


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    General Tax Rate:

    2012-13 2013-14

    Income slabs (in taka) Tax rate Income slabs (in taka) Tax rate

    On first tk. 200000 0% On first tk. 220000 0%

    On next tk. 300000 10% On next tk. 300000 10%

    On next tk. 400000 15% On next tk. 400000 15%

    On next tk. 300000 20% On next tk. 300000 20%

    On balance of total income 25% On balance of total income 25%

    Tax rate for women and senior citizen: (65 years and above)

    2012-13 2013-14

    Income slabs (in taka) Tax rate Income slabs (in taka) Tax rate

    On first tk. 225000 0% On first tk. 250000 0%

    On next tk. 300000 10% On next tk. 300000 10%

    On next tk. 400000 15% On next tk. 400000 15%

    On next tk. 300000 20% On next tk. 300000 20%

    On balance of total income 25% On balance of total income 25%

    Critical Analysis:

    In this existing tax slabs we can see that, the amount of minimum taxable limit is high

    which is done to encourage people to pay more tax in a relaxed way on their income. But

    if we cannot ensure a flexible and efficient tax administration for collecting tax this

    objective cannot be successful. So for that, it should provide low amount of tax slab as it

    can increase the number of tax payer.

    Corporate Tax:

    Present Scenario:

    There is no significant change in corporate tax rates. But considering the public health the

    tax rate for the companies, producing cigarettes, raised from 37.5% to 42.5%. Along with

    this, these companies have to pay .50% tax on their total receives as the mandatory tax

    rates. Tax holiday facility is allowed to newly setup industrial undertakings, tourist

    industry and physical infrastructure facilities subject to certain specified conditions in