1 Introduction
The
main tax grossing or revenue collecting institution is generally known as
National Board of Revenue (NBR). And as the central authority of tax policy and
administration in Bangladesh, it plays a critical part in the development of
the country. During the current fiscal year (FY 2010-11), NBR is expected to
collect Taka 75,600 crore, providing much needed support to the government’s
development efforts. In recent years, Bangladesh’s tax collection has recorded
an impressive growth averaging 20% per annum. Despite this good achievement, a
lot remains to be done. Bangladesh’s tax-GDP ratio at 9.3% remains quite low
when compared with other similarly placed countries in South Asia. Less than 1%
of the population pays income tax and tax evasion is persistent even though a
significant amount of tax revenue is given up in the form of tax incentives.
Together, curbing tax evasion and dealing with tax incentives could add 5
percentage points to the tax-GDP ratio, potentially adding about 40,000 crore
to the revenue collection. Most of NBR‟s processes are manual and there is
little in the nature of taxpayer service and taxpayer education. The NBR also
faces problems in its functioning due to its current administrative structure.
Despite being under the same board, the different wings of the NBR (Income Tax,
Value Added Tax (VAT) and Customs) operate almost independently providing
little support to each other in combating tax evasion and providing a unified
front to taxpayers. Moreover, the NBR faces the problems of acute shortage of
trained manpower as well as physical infrastructure. These weaknesses of the NBR
have not gone well with the business community and individual taxpayers.
And
on other hand, the tax system of Bangladesh includes several tax revenue
measures under the two broad headings of direct taxes and indirect taxes. The
major policy objectives behind the tax expenditure measures in Bangladesh are
to accelerate the process of industrialization, to attract foreign currency
through increasing export and foreign direct investment (FDI) and to ensure
social security and welfare of low-income groups. Tax expenditure measures
exist in sectors such as public services, agriculture, labor and employment
affairs, transport and communication, social security and welfare etc.
2 Descriptions
In
Bangladesh we have taxes divided on two broad aspects which are as following,
I.
Direct Tax
II.
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.
2.1 Direct
Tax
In
the general sense, a direct tax is paid directly at one shot to the government
by the persons (juristic or natural) on whom it is imposed.
• Income taxes
• Corporate taxes
• Transfer taxes
• Wealth taxes
• Narcotics duties
• Land revenue
• Stamp duty-non-judicial
• Registration
2. 11 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 Bangladesh.
|
EXISTING TAX
RATE(in taka) 2010-11
|
PROPOSED TAX RATE(in taka) 2011-12
|
|
Income slabs(in taka)
|
Tax rate
|
Income slabs (in taka)
|
Tax rate
|
|
Up to 165000
|
0%
|
Up to 180000
|
0%
|
|
165001 – 440000
|
10%
|
180001 – 480000
|
10%
|
|
440001 – 765000
|
15%
|
480001 – 880000
|
15%
|
|
765001 – 1140000
|
20%
|
880001 – 1180000
|
20%
|
|
Above
1140000
|
25%
|
Above
1180000
|
25%
|
In
fiscal year 2011-2012 tax free income level has been set to 180000 taka.
Moreover this senior citizen (age above 65 years) and women enjoy additional
20000 taka as tax free income. And the people those who are physically disable
will enjoy up to 250000 taka as tax free income level.
2.12 Income Tax
at a Glance
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. And Income
Tax Authorities are as follows,
Ø National Board of
Revenue,
Ø Director-General
of Inspection (Tax),
Ø Commissioner of
Taxes (Appeals),
Ø Commissioner of
Taxes, Large Taxpayers' Unit (LTU),
Ø Director General
(Training),
Ø Director General,
Central Intelligence Cell (CIC),
Ø Commissioner of
Taxes,
Ø Additional
Commissioner of Taxes (Appeal/Inspecting),
Ø Joint
Commissioner of Taxes(Appeal/Inspecting ),
Ø Deputy
Commissioner of Taxes,
Ø Tax Recovery
Officers,
Ø Assistant
Commissioner of Taxes,
Ø Extra Assistant
Commissioner of Taxes,
Ø Inspectors of
Taxes.
2.21
Corporate Tax
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 .5% 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 order to promote industrialization,
encourage tourism and for employment generation. Exemptions and deductions are
applicable to incomes from firms in Export Processing Zone (EPZ), 50% of income
for export earnings, power generation companies, computer software business,
agriculture related industry,
micro credit for Non-government organizations (NGOs), Local government, welfare
activities, etc.
|
Company
|
Tax rate
|
|
Publicly Traded Companies (other than Banks,
Insurance & Financial Institutions)
|
27.50%
|
|
Normal Tax Rate (paying Dividend 10% or
more)
|
37.50%
|
|
Additional Tax if the declared
dividend/bonus share is not declared or distributed at least 15% within 6
months of the following income year
|
10.00%
|
|
Companies declaring dividend less than 10%
|
40.00%
|
|
Rebate @ 10% on applicable tax in case where
dividend is more than 20%
|
10.00%
|
|
Banks, Insurances and Financial
Institutions:
|
45.00%
|
|
Excess Profit Tax (additional)-for banks
only
|
20.00%
|
|
Companies Not Publicly Traded
|
40.00%
|
2.3 Indirect Tax
The
term indirect tax has more than one meaning. An indirect tax is a tax collected
by an intermediary (such as a retail store) from the person who bears the
ultimate economic burden of the tax.
• Value added taxes (VAT)
• Customs duties
• Excise duties
• Supplementary duty
• Taxes of vehicle
• Electricity duty
• Travel tax
• Turn over tax etc.
2.31 Value Added Taxes (VAT):
To
facilitate some industries and services VAT has been exempted in some selected
areas. Goods exempted from VAT include food and agricultural products, animal
products poultry sector, agriculture imputes, cloths made of cotton and
synthetics, malaria. TB/ cancer preventive medicine, homoeopathic medicine,
family planning items, books and periodicals, etc. Services exempted from VAT
include fundamental services for livelihood, social welfare services, services
relating to culture, services relating to money and finance, transport
services, personal services and other services other than the above.
The
general rate of Value Added Tax (VAT) in Bangladesh is 15%.
i.
Value Added Tax
(VAT) is imposed on goods and services at import stage, manufacturing,
wholesale and retails levels;
ii.
A uniform VAT
rate of 15% is applicable for both goods and services;
iii.
15% Value Added
Tax (VAT) is applicable for all business or industrial units with an annual
turnover of Taka 2 million and above;
iv.
Turnover tax at
the rate of 4% is livable where annual turnover is less than BDT 2 million;
v.
Value Added Tax
is applicable to all domestic products and services with some exemptions;
vi.
Value Added Tax
(VAT) is payable at the time of supply of goods and services;
vii.
Tax paid on
inputs is creditable / adjustable against output tax;
viii.
Export is VAT
exempt;
ix.
- Cottage
industries (defined as a unit with an annual turnover of less than BDT 2
million and with a capital machinery valued up to BDT 300,000) are exempt from
Value Added Tax;
x.
Tax returns are to be submitted on monthly or quarterly or half
yearly basis as notified by the Government.
2.32 Customs
and Supplementary Duty
Exemptions from customs duty are granted to capital machinery, raw
materials of medicine, poultry medicine, feed & machinery, defense stores,
chemicals of leather and leather goods, private power generation unit, textile
raw materials and machinery, solar power equipment, relief goods, goods for
blind and physically retarded people and import by embassy and UN.
Concessionary rates are applicable to agro-processing, textile and leather
industry, educational institutions, hospitals, privileged persons, etc. 15%
supplementary duty is applicable to sugar and kerosene. Tariff rate on any
mobile is Tk. 1,500. 7.5% import duty is applicable to chemical color for
textile industries. Incentives are also given to these sectors, which are
complying with the international and bilateral agreements and conventions.
In
case of Bangladesh as it is export led country, so the tax on exported goods is
zero and tax on imported goods in general is high. Till to the November of FY 2010- 2011, the total
collected import tax had amounted to 10,326.59 Taka which was 17.41% higher
than that of previous FY 2009- 2010.
3 Future Path of NBR
The
National Board of revenue basing on these above written kinds of tax collection
tools has already set up some goals regarding incurring the problems of paying
taxes by tax payers in order to accelerate the overall revenue collection
process, which are as follows-
I.
Reach a tax-GDP
ratio of 13% by 2016;
II.
Provide exemplary
customer service to all taxpayers through a web enabled tax administration from
e-registration, e-filing of tax returns to e-payments/refunds by 2016; and
III.
Reduce the tax
pendency in the courts by 80% by 2016.
With
these above customer care related goals NBR has also aimed at some major goals
which are written as below,
The
goals of the Modernization Plan are:
I.
A sound tax
policy in line with the international best practice while also being consistent
with the local conditions in Bangladesh as well as the higher economic and
fiscal policy goals and imperatives of the GOB.
II.
ii. Significant
growth in revenue performance through widening and deepening of the existing
tax base across all the three taxes.
III.
Enriched and
enhanced taxpayer experience through an array of easily accessible taxpayer
services available at multiple remote/ customer facing touch points.
IV.
Reducing
compliance cost for the taxpayer by reducing unnecessary paper works and
contacts between tax administration and taxpayers thereby establishing a regime
that makes the relationship between the tax departments and the honest and
diligent taxpayer incident free.
V.
Shifting tax
compliance management from the traditional subjective audit selection approach
to a computer assisted intelligent selection approach based on efficient data
mining and revenue risk management tools.
VI.
Setting up an
efficient, integrated national tax accounting network that will correctly
account for, reconcile and record tax payment information at a transactional
level for all the three taxes and make visible this information in real time
basis to taxpayers and to all stakeholders including GOB, NBR, tax officers,
Bangladesh Bank and taxpayers.
VII.
Reassignment of
tax personnel from non priority routine work to priority compliance and tax
collection work through separation and consolidation of non-priority
non-taxpayer facing high volume low knowledge, tasks like return receipt and
processing, tax accounts, taxpayer registration with TIN/BIN, record keeping
etc. in a remote centralized mass processing center.
VIII.
Creating an
administrative and legal framework that ensures the collection of sovereign
taxes in a fair / accurate manner while also supporting the competitiveness of
Bangladeshi businesses in a transnational global economy.
IX.
Strengthening of
tax evasion detecting unit like Central Intelligence Cell (CIC) and other
intelligence units.
X.
Increased
cooperation and coordination with other government and non-government agencies.
XI.
Human resource
development through effective training.
4
Tax Rebate for investment
Types of investment qualified for the tax
rebate are:
i. Life insurance premium,
ii. Contribution to deferred annuity,
iii. Contribution to Provident Fund to which Provident Fund Act, 1925 applies,
iv. Self contribution and employer's contribution to Recognized Provident Fund,
v. Contribution to Super Annuation Fund,
vi. Investment in approved debenture or debenture stock, Stocks or Shares,
vii. Contribution to deposit pension scheme approved by the government,
viii. Contribution to Benevolent Fund and Group Insurance premium,
ix. Contribution to Zakat Fund,
x. Donation to charitable hospital approved by National Board of Revenue,
xi. Donation to philanthropic or educational institution approved by the
Government,
xii. Donation to socio-economic or cultural development institution established
in Bangladesh by Aga Khan Development Network,
xiii. Donation to ICDDR, B, Dhaka Community Hospital,
xiv. Donation to philanthropic institution- CRP, Savar, Dhaka,
xv. Donation up to five lac to (1) Shishu Swasthya Foundation Hospital Mirpur,
Shishu Hospital, Jessore and Hospital for Sick Children, Satkhira run by Shishu
Swasthya Foundation, Dhaka, (2) Diganta Memorial Cancer Hospital, Dhaka, (3)
The ENT and Head-Neck Cancer Foundation of Bangladesh, Dhaka; and (4) Jatiya
Protibandhi Unnayan Foundation, Mirpur, Dhaka;
xvi. Asiatic Society of Bangladesh;
xvii. Muktijudha Jadughar;
5
Scenarios of Tax Exemptions and Tax Holidays in Bangladesh
In
the interest of industrialization and investment, tax holiday has been
continuing in the tax regime of Bangladesh since her liberation in 1971. There
are forceful arguments for and against continuing this facility. At present
more than 2000 industries are enjoying tax holiday. The existing tax law
permits, extension unit of an industry to be entitled to tax holiday. Such
facilities of granting tax holiday have been found ineffective. A mechanism of
internal transfer pricing could be arisen as a vehicle for perpetual tax
holiday. As observed, the present income tax act is full of rebates and
exemptions (Hussain, 1999). It is now needed to minimize and to come straight
to a threshold of income, which is taxable. The present scheme of granting tax
holiday has not been a very good experience. In FY 1999-2000, total number of
tax holiday cases were 1531 and the estimated loss of revenue was about 250
crore taka (1 crore is 10 million) that was estimated as about 9.6 percent of
total income-tax earnings of that year. The benefits of the tax holiday are
being enjoyed mainly by the garment industries. Their growth has enhanced due
to external factors. Even if the 10 incentive of tax holiday were not given,
the garment industry would have grown up and the state would have earned quite
a substantial amount of revenue from the industry. Thus the revenue foregone
does not appear to be fiscally efficient (Waresi,
1998).
However this has not been able to foster industrial growth in different regions
of the country. Such a perpetuating provision for tax holiday creates
distortion in taxation mechanism and against the norms of equity and
neutrality. It is thus important to restrict such unbound opportunities for the
sake of better future of the country. Under the present arrangement any income
accruing from poultry, fishery, livestock etc. is exempted from income taxes
until June 30, 2005. This provision is being abused indiscriminately. A lot of
black money is being laundered into the market through this mechanism. One
potential remedy should be to allow an initial support to this sector then
bringing back them under the purview of taxation.
6 Tax Liability in Bangladesh
Tax
deducted at source for the following cases is treated as final discharge of tax
liabilities. No additional tax is charged or refund is allowed in the following
cases:
i. Supply or contract work
ii. Band rolls of handmade cigarettes
iii. Import of goods
iv. Transfer of properties
v. Export of manpower
vi. Real Estate Business
vii. Export value of garments
viii. Local shipping business
ix. Royalty, technical know-how fee
x. Insurance agent commission.
xi. Auction purchase
xii. Payment on account of survey by surveyor of a general insurance company
xiii. Clearing & forwarding agency commission.
xiv.Transaction by a member of a Stock Exchange.
xv. Courier business
xvi. Export cash subsidy
7 Policy Suggestions
Some
new policies should be taken for meeting the recent changing socio economic
condition of Bangladesh which are as below,
1.
One of the most
burning questions of Bangladesh now a day is to meet up the highly increasing
demand of electricity. For having such solution present government is looking
for setting up nuclear or coal based electricity production unit. In first
case, government can impose a one shot fixed but small amount of per head tax
to all earners of the country. Such that
if 100 Taka per head of this kind of tax is imposed at once on 5 crore
people then at once government can collect 500 crore Taka just at a time which
will enable it not to sink in debt further. And this one can be termed as ‘Nuclear Electricity Production Tax’. On
the other hand, equal ‘Coal Tax’ can be introduced to the earners which will be
imposed to them on monthly basis say 100 Taka per head i.e., there are 5 crore
capable persons who can pay it monthly,
then the monthly collection of ‘Coal
Tax’ will amount to 500 crore Taka. Which means, in total 6,000 crore Taka can
be collected throughout the year and can be used to buy coal from international
market easily leaving internal coal reserve in rest as opened coal mining
process hampers environment hugely which actually will cause more to lose than
to gain and on other side closed coal mining process does not give the right
& desired output of coal production.
2.
Collection
process of these ‘Nuclear Electricity Production Tax’ & ‘Coal Tax’ should
must be made via online. Cause, if it is not done through the online process
then collection cost will amount to high which means actual revenue may decrease.
3.
Value added tax
on Tobacco related products & Cigarettes should be much higher than that of
now.
4.
If the subsidy on
overall oil is not withdrawn in general, then a kind of new tax namely ‘Private
Vehicle Holding Tax’ should be introduced to the private vehicle holders. It
should be levied on per unit of all kind of petroleum products bought by
private vehicle holders as to reduce the overall subsidy on petroleum products
to zero Taka.
5.
‘Pigou Tax’
should be imposed to the industries which are highly polluting the environment.
6.
‘Transit Tax’,
‘Transshipment Tax’ & ‘Corridor Tax’ should be imposed on respective cases
as natural environment, transport infrastructure & agro land of the country
will go under an adverse situation. These kinds of taxes may help to cover that
accumulated adverse situation.
8 Conclusions
This
paper analyses the concept of overall taxation system of Bangladesh. Major
portion of the tax revenues comes from indirect taxes, particularly VAT at
domestic stage. For a developing country like Bangladesh, domestic resource
mobilization in the face of targeted socio economic objectives is important in
formulating an effective tax policy. It is also required to create an efficient
tax system, which includes appropriate tax revenue measures that serve social
objectives as well as being economically feasible. Therefore, a critical review
of the existing tax revenue measures in Bangladesh is necessary in order to
oversee a balance between these two goals, Our analysis has identified some
avenues for possible expansion of tax base through restructuring the exhibiting
tax revenue measures, especially in the categories of income tax and VAT. Along
with restructuring the measures, the tax administration requires a
comprehensive organizational re-invention that is capable of meeting the
revenue needs of Bangladesh. It is also important to set a definition and to
develop a methodology for measuring the tax revenues in the context of
Bangladesh.
© Enamul Hafiz Latifee
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