Course Outline 070811

Course Outline
Aminur Rahman Member (Income Tax Policy) National Board of Revenue. Cell No. 01715-021791
Course Outline:
Definition of tax Tools of Govt. to influence the economy How tax influences business Type and classification of tax Difference between types of taxes Authorities of tax Legal foundation of income tax Some concepts of income tax Heads of income Computation of total income and calculation of tax Filing of income tax return Tax deduction at source Accounting profit vs. Fiscal profit
Course Reference
: (1) Income Tax Ordinance, 1984 (2) Income Tax Rules, 1984 (3) Annual Finance Act (4) NBR Website www.nbr.bd.org
/opt/scribd/conversion/tmp/scratch6349/81092038.doc
Definition of tax :
Oxford dictionary: Money compulsorily levied by state on person, property or business. Collins dictionary: Money we pay to the government so that it can pay for public goods and services. Samsad. English-Bangla Dictionary: Contribution extracted by the state Ki, LvRbv Mitras legal Dictionary: `Tax is not correlated to a particular service rendered but intended to meet the expense of the government. Justice Oliver Wendal Homes: Chief Justice, USA: Tax is what we pay for a civilized Society. 2. Every type of tax has defined its our arena in the law. For example in the Income Tax Ordinance, 1984 tax was defined tax as follows : [Section 2(62) "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;] From the definition the following aspects are revealed:(a) Tax is not voluntary contribution. The payer does not have the option of not paying or paying at lower rate. It is a compulsory levy. (b) It is levied by the state or local authority (c) It is levied on goods, services, person or property (d) Tax so collected is used to pay for public service.
Role of Government in the Economy

1. 2. 3. Allocation of resources between different lines of production in a way that economic welfare of the community is maximized [allocation]. To distribute national income in side a way that it leads to maximum total satisfaction of the community [distribution]. To maintain the total volume of effective demand and thus national income at such a level that there is full employment without either deflationary or inflationary tendency [stabilization].
Explanation : 1. Allocation: How much resource is to be allocated by the government for the provision of social goods for which there are no market eg. defence, flood control, highways etc. & How to distribute the cost of provision of the goods among the individuals in an optimum manner (by means of to taxation). Individuals do not reveal their preference for social goods they do not bid for such goods. Since the preference remains indeterminate, allocation also become indeterminate. attempts made to determine preference : (i) benefit approach (ii) process of voting. Once the preference is determined then allocation can be done. 2. Distribution: Use the government revenue expenditure to bring about 'ideal' distribution of economic welfare. 'Ideal' generally means equality between man to man. What is equality after all ? Whether equality of income or equality of wealth or equality of welfare or equality of opportunity. Since others are difficult to determine equality of income is being pursued.
3.
Stabilization: (i) when private investment + consumption inadequate to full employment state increase its expenditure or induce private sector to increase expenditure by tax reduction. (ii) when private investment + consumption cause inflation decreases expenditure or induce private sector to cut expenditure. state
Tools of government to influence the economy

1. Fiscal policy -Tax 2. Monetary Policy - Money supply.
Tax:
a: b. c. d. When employment is low: Tax is reduced on business which are labour incentive. When wealth is concentrated: Incremental tax rate on high income groups or high property tax. When economic activity is skewed between places: Tax holiday for less developed areas and high rate for developed areas. When balance of payment is in disfavor: High tax on import, low tax or tax free on export.
Money Supply:
a. b. c. When there is inflation: Increase interest rate, squeeze credit. When there is recession: Reduce interest rate, liberalize credit. When gap between export & import : Devalue currency or increase L/C margin high import duty, tax free export.

1.
How tax influences business

In attaining growth
: Tax collected is spent for payment of salary,
bills to contractors who spent this money to buy goods & services. In other words creates effective demand. Thus indirectly it creates market for the tax payer and enlarges its business. majority will have no money to buy goods. As a result traders will have inadequate sale. By taxing rich it also creates business for rich people. & electricity supply thereby easing access to market, or supply of run the machinery. sector of economy.
2.
In redistribution of income
: If income is concentrated in few hands large
3.
Facilitate utility
: Tax money is used to build roads, bridges, water
4.
Set priority
: Vary tax rates to encourage or discourage some

Taxes
Types & classification of tax

Direct tax- incidence can not be shifted example: Income tax, property tax , Foreign Travel Tax Indirect tax-incidence is shifted by the payer example, VAT, customs duty.
Tax
Direct tax on person eg. income tax. Foreign travel tax
Indirect tax on goods and services eg. VAT.
Personal income tax on individual, firm
Corporate income tax on companies
Difference between types of taxes

Direct/Indirect tax
Sl. No. 1. 2. 3. 4. 5. Difference factor Direct tax levied on person Incidence can not be shifted Examples income tax, gift tax, foreign travel tax Enforcing agency Income tax department Purpose Equity Indirect tax goods, services is shifted value added tax, customs duty Customs, Excise &VAT department Protection of domestic industries
Personal income tax/Corporate tax

Sl. No. Difference factor Personal Income tax 1. levied on individuals, partnership firm 2. Tax rate Calibrated 3. Threshold level Exist (Tax free limit) 4. Purpose Revenue, Equity Corporate tax Companies Flat rate Does not exist Revenue priorities
Authorities of tax
Name Income Tax, Gift Tax Foreign Travel Tax Advertising Tax Customs Duty, Value Added Tax, Excise Duty, Supplementary Duty, Turn over Tax, IDSC Liquor Duty, Motor Vehicles Tax, Land Revenue, Stamp (nonjudicial stamps) Municipal Holding Tax, Trade license Fee, Enforcing Agency Income Tax Department, NBR Customs Excise and VAT Department Narcotics Department BRTA, department City Corporation Poursoshabha, Union Parishad. Classification Direct tax Indirect tax Direct tax Direct tax
Legal Foundation of Income Tax

(i) (ii) (iii) (iv) (v) Income Tax Ordinance, 1984 Income Tax Rules, 1984 Avoidance of Double Taxation Treaty (with 27 countries) SROs Finance Act/Ordinance Income Tax Ordinance, 1984 (Comprises) Substantive Law 23 Chapters 8 Schedules 240 Sections Income Tax Rules, 1984 (Forms & Procedures) Subsidiary Law 97 Rules SROs tax concessions From 1974-2007 (No. of SROs 265) Double Taxation Avoidance Agreements 27 Countries.
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Some concepts of income tax

Taxpayers Residential Status
Resident Individual HUF, Firm, AOP Company conditions 182 days (Respective year) or 90 days (respective year) +365 days ( Previous 4 years) Control & Management wholly or partly in Bangladesh in the year. Control & Management wholly in Bangladesh in the year.
Taxpayers Status and Residence Implication of Residential Status

Type of Income Domestic income Foreign income Tax Rate Resident Taxable Taxable Nil, 10/-, 15%, 20%, 25% Non resident Taxable Not Taxable 25%
TIN:
Stands for Tax payers Identification Number. According to section 184B every tax payers will be given a TIN. This is actually registration number of taxpayers. It is a 10 (ten) digital number.
Basic Principles of Charging Income Tax

Income tax shall be imposed on total income of the income year of any person and payable in the assessment year at the tax rate determined by the Finance Act. Taxpayer Tax-base Tax Period Tax rate : : : : Assessee-every person Total income Income year Prescribed at Finance Act and 2nd schedule of income Tax Ordinance, 1984
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Person [section 2(46)]

Person includes:
Individual Firm (partnership firm) Association of Person (AOP) Hindu Undivided Family (HUF) Local authority Company Every other Artificial Juridical Person.
Tax Period
Income year [section 2(35)]: Income year is the year used to determine the tax-base of income tax (for separate source of income). Following are the provisions. Normally this is the financial year (1st July of one year to 30th June of next year). business. applicable. Tax Period Income year [section2(35)]/ assessment year {section 2(9)} : Come Year ended on 30.06.2004 31.12.2004 13.04.2004 31.11.2004 26.04.2002 Financial Year in which last date of Income Year falls 2003-2004 2004-2005 2003-2004 2004-2005 2001-2002 Assessment Year 2004-2005 2005-2006 2004-2005 2005-2006 2002-2003 For any person or a class of persons as may be prescribed. For share of income from a partnership firm, firms income year is Any year (not exceeding 12 month) as opted by the assessee. For a newly set up business, it may less than 12 months for the first year of
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Heads of Income
Heads of Income [section-19]
(i) (ii) (iii) (iv) (v) (vi) (vii) Salaries [Sec.-21] Interest on securities [Sec.-22] Income from house property [Sec.-24] Agricultural income [Sec.-26] Income from business or profession [Sec.-28] Capital gain [Sec.-31] Income from other sources [Sec.-32]
Tax is levied on sum of income from all sources in a year. The sum amount is known as total income.
Income form salaries [Section-21]

Includes Includes - arrear salary - advance salary - Benefit paid in kind for example: (i) leave fare assistance (ii) free transport (iii) free accommodation. (i) leave encashment (ii) pension (iii) gratuity (iv) fees, commission, allowances, profit in addition to salary (v) Director's remuneration/fees
Includes
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Some components of salary income

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) Basic salary Bonus Festival Incentive Profit
House Rent allowances Medical allowances Batman allowances Hill allowances Gas allowances Conveyance allowances Entertainment allowances Companies contribution to provident fund Foreign allowances Leave encashment
Computation of salary income

Basis : (i) Some income of salary partly/ fully exempted (ii) Notional income is taken for some benefits
Exemptions
Gross Exempted amount amount (1) (2) (3) Basic pay No exemption House rent all Tk. 15,000 per month or 50% of basic which one is lower Conveyance all Tk. 24,000 per annum Leave fare assistance once is every to year Medical allowances Actual expenditure Companies contribution No exemption to provident fund Item Net income charged to tax (4) col-2 col-2 col-3 col-2 col-3 col-2 col-3 col-2 col-3 col-2
Notional income:
Free accommodation Conveyance
25% of Basic salary
7.5% of basic salary

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Income form house property [Section-24] 1. Characteristics

(i) (ii) (iii) (iv) (v) (vi) 2. Recipient is the owner of the property Irrespective of commercial/residential use commercial/residential Property is to be a building property is let out Let out may be partial (Partly self occupied). In such rent of partial building. Let out for a part of the year in such case rent is to be taken for the part period.
Rental receipt Monthly rent period for which rented.
3.
Expenses against rental receipt (section 25)

(i) (ii) (iii) Repair and maintenance (res: 25% of gross rent com: 30% of gross rent) Interest on loan for construction/reconstruction/renovation [Note: interest not principal] Municipal/City Corporation holding tax Land rent (Khajna) Insurance premium (if any) [Note: Depreciation not admissible]
4.
House Property income = rental receipt - Expense.
Agriculture income [Section-26]

Value of yield = Yield per acre of crop Area (acre) Price of crop Cost of yield = 60% of value Net income from agriculture = value of yield - cost of yield.
Income form business or profession [Section-28]

(a) Admissible expenditure against receipt or sale [sec. 29] (i) Office/factory rent (ii) Repair and maintenance (iii) Interest on loan (project/working capital) (iv) Insurance premium (v) Transport/freight (vi) Trade license/renewals/municipal tax (vii) Salary to staff (viii) Bad debt written off (ix) Other business related expenditure.
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(b)
Restriction of business expense: (i) Tax to be withhold while making payment for expanses; (ii) Depreciation declining value method rate as per 3rd schedule (iii) Maximum limit for- entertainment - leave fare assistance -perquisite (benefit paid to an employee)
Capital gain [Section-31]

Capital gain (sec. 31) = receipt form sale of capital asset - (cost of acquisition = development cost) (a) Admissible expenditure against receipt or sale [sec. 29]
Income form other sources [Section-33]

Income form other sources (a) Dividend (b) Interest from bank deposit. Tax is levied on total income which is the sum of income from all sources.
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Computation of total Income and calculation of tax:
Computation of total Income: Section 2 (65) of the Income Tax Ordinance defines total income but its scope is describes in section 17. It is the sum of income from all sources in a year. Tax rate is applicable on this sum. Computation of tax: Section 16 of the Income Tax Ordinance empress tax authorities to charge tax. The rate of tax is incorporated in the Finance Act each year. Present tax rate (a) For Companies: Mobile Phone 45% Banks, Leasing, Insurance 42.5% Cigarette Manufacturer Company 42.5% Private Limited 37.5% Listed with Stock Exchange 27.5% (b) For others : (Ind. Partnership) Ladies/Senior citizens First Tk. 2,00,000 Next Tk. 3,00,000 Next Tk. 4,00,000 Next Tk. 3,00,000 Balance Others Nil 10% 15% 20% 25%
Nil First Tk. 1,80,000 10% Next Tk. 3,00,000 15% Next Tk. 4,00,000 20% Next Tk. 3,00,000 25% Balance Minimum Tax Tk. 2000
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Submission of Income Tax Return

1. Who is required to submit income tax return ? Ans: (a) all companies (whether having any business in the year or not). (b) (i) (ii) all individuals, firms etc, having income over tax free limits. persons residing in a City Corporation, Pourashava, divisional headquarter or district headquarter & owns a building which is more than one storied & plinth area exceed 1600 sft. owns a motor car member of a club registered under
(iii) runs a business or profession having trade license and operates bank a/c. (iv) registered professional (doctors, lawyers, chartered accountant); (v) member of chamber of commerce or trade association; (vi) a candidate for election of, union parishad. Pourashava & City Corporation or MP; (vii) participant of a public tender; (viii) surveyors of a general insurance; (ix) opens a letter of credit; (x) owns a credit card; (xi) sponsor director of a company; (xii) marriage registrar, (xiii) ISD telephone holder. (xiv) sanction a loan exceeding TK 5,00,000 by commercial Bank or leasing company. 2. Where to submit the income tax returns ? Ans: In respective tax circles or Taxpayers Service Wing (in case of L T U) 3. Type of circle: Companies Circle Salaries Circle Business Circle Contractors Circle
4. When to submit income tax return ? Ans: In case of companyYear ending on 31st December-by 15th july (example 31-06-2004 by 15-7-2005) Year ending on 30th June-by 31st December
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(example 30-6-2005 by 31-12-2005) In case of individual, firm etc. (other than company) by 30th September 5. Whether time for submission of return car be extended On application DCT can extend time up to 3 months & with permission of Joint/Additional Commissioner further 3 months.
6. What should accompany the income tax return ? Ans : (i) In case of companyAudited statement of accounts. Evidence payment of admitted tax (ii) In case of individualStatement of assets & Liabilities (part of return) life style form (part of return) Evidence payment of admitted tax 7. Is the return submission acknowledged ? Ans : Tax authority will sign & affix seal the acknowledgment receipt (part of return-0 tear it and hand it over to tax payer or his authorized representative instantly. 8. Whether revised return can be submitted ? Ans : Tax prayer is entitled to submit revised return ay time before assessment (u/s 78). This will result cancellation of the original return. 9. Where the return is available ? Ans : At your respective tax to office or NBR website www.nbr-bd.org 10.. What is the price of the return ? Ans : Free 11. What is the consequence of failure to file return in time ? Ans : Penalty u/s 124 amounting Tk 1000+50 for each day of default. 12. Filing up of income tax return; Ans : Income Tax return has been revised. The new return comprises of 3 parts, 5 schedules. The salient items arePage-1: [ part-1] Identification, particulars, namely photograph name address, father's/ husband's name, mother's name, status, date of birth, TIN, circle-7. one assessment year etc. Page-2: List of documents enclosed
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Page-3:
[part-11] Summary of income from different source, total income, tax payable, tax paid, exempted income, tax paid last year, [part-111] Schedule-1: Details of Salary income including exempted items. Schedule-2: Details of house property income. Schedule-3: Details of investment tax credit Acknowledgement Slip. verification (Declaration Acknowledgement Slip. Life style form. of correctness) and signature.
Page-4:
Page-5: Page-6:
Page 7-8: Statement of assets & liabilities. Page-9: Page-10: Instructions. Complainer of income tax law 1. Obtain TIN (registration as tax payer) [section 184B] 2. 3. 4. 5. 6. 7 8. 9. File income tax return in time [section-75] Pay advance income tax where necessary [section-64] Comply notice of income tax authority [e. g. u/s 77, 79, 83(1), 93 etc.] Pay income tax on the basis of income disclosed in the income tax return [section-74] To furnish information for the self of others it called for [section-113] Display TIN certificate in business premises [section 184C] Co-operate field enquiry officials [section-110] To pay income tax demanded [section-135]
10. To deduct income tax from salaries, bills, [Chap-V11] 11. To furnish certificate of income tax within a week of deduction [Rule-131] 12. To deposit the income tax deducted within a week of deduction [Rule-131] 13. To disclose complete, true & correct information in income tax return & other statements. 14. Send annual statement of income tax deduction for salary to tax authority [section-108/Rule 21]
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Tax deduction at source

1. Tax deduction law is available in : (a) Chapter VII of the Income Tax Ordinance (b) SRO's (i) Registration & renewal of fitness of car Jeep (new) (ii) Registration & renewal of vehicles for carrying goods and people (iii) Registration of renewal of fitness of inland water transport. 2. Tax deduction under chapter VII (a) Section 49 states the list of tax deductions (b) Tax deducted of source is treated as advance tax. (c) Three parameters of tax deduction (i) Deducting/collecting authority (who has the responsibility) (ii) When to deduct/collect (iii) Rate of deduction/collection 3. Consequence of failure to deduct tax of paying authority (a) The respective expenditure of paying authority is disallowed & added to profit (sec- 30) (b) The paying authority is treated as assessee in default. Tax + penalty @ 2% per month can be recovered from him (sec - 57) 4. Some items of tax deduction : (a) salary : Employer will deduct tax on probable salary income of the year. Tax on such salary is divided by 12 and deducted from each months salary [sec-50] (b) supplier/contractor : (i) Threshold : 2,00,000 (ii) rate : Rate 1% - 4% (iii) rate applicable on cumulative amount (iv) the computation is confined by each paying authority. (v) The computation is confined in a financial year. [section 52A, Rule- 16] (c) Professional to Technical service (i) Rate: 10% (ii) Professional services means legal, engineering, architectural, accounting, technical consultancy, interior decoration, advertising. (iii) Technical serves means managerial, technical on consultancy service (does not include construction, assembly, mining). [section 52A].
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(d) Import: (i) rate 5% (ii) withholding authority: Customs authority (iii) A list of exempted items (iv) on application board my reduce or waive tax deduction [section 53, rule- 17A] (e) Interest on Bank deposit: rate: 10% (f) Rented property (i) Threshold : Tk 20,000 (ii) rate : Tk 20,001 --- Tk 40,000 -- 3% Tk 40,000 + ---------- 5% 5. On application no deduction or reduction at lower rate may be allowed in following: Sl No Source section Authority 1. Supplier/contractor 52 (rule-16) NBR 2. 3. 4. 5. 6. 7. 6. Fees for professional service Import House property Export of knitwear etc Export of other items Dividend 52A (3) 53 (rule-17) 53A (rule 17 B) 53BB 53BBBB 54 NBR NBR DCT NBR NBR DCT
Tax deducted is treated final discharge of tax liability in the following field : (i) Supplier/contractor (52/16) (ii) Bandrol of cigarette (52B) (iii) Commercial import (53) (iv) Transfer of properly (53H) (v) Interest on savings instrument (52D) (vi) Winning of lottery (55) (vii) Export of manpower (53B) (viii) Commission of insurance agents (53G) (ix) Surveyor of general insurance (53GG) (x) Royalty, technical know how fee (52 A(3)]) (xi) Auction purchase (53C)
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(xii) Commission of C & F agent (52AAA) (xiii) Resident shipping (53AA) (xiv) Real estates business (53FF) (xv) Member of stock exchange (53BBB) (xvi) Agent of non resident courier service (53CC) 7. Time limit for tax deduction at source (rule-13) (i) To be deposited to good exchequer with in 3 weeks from deduction (ii) DCT, in case of salary, with permission of IJCT may allow payment of tax deducted on 15 September, 15 December, 15 March, 15 June. 8. Manner of payment of tax deducted at source (rule- 14) by treasury challan in Sonali/Bangladesh Bank Double check system for contractor/supplier (52) fees for professional and technical services (52A) House property (53A) Commission or fees (53E)
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Accounting profit:
Is the profit as per books of accounts which is maintained according to accounting principles. It comes from Profit & Loss Account. Fiscal profit : Is the profit according to tax law. Operating profit : This is the profit for operates before changes. Why accounting profit varies from fiscal profit. (i) Depreciation rate & perquisite (ii) Restriction in some expenditure Royalty Head office expenses Perquisite Free sample Entertainment. Incentive bonus
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Course Outline 070811

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Course Outline

Role of Government in the Economy

Tools of government to influence the economy

How tax influences business

: Tax collected is spent for payment of salary,

: If income is concentrated in few hands large

: Tax money is used to build roads, bridges, water

: Vary tax rates to encourage or discourage some

Types & classification of tax

Direct tax on person eg. income tax. Foreign travel tax

Indirect tax on goods and services eg. VAT.

Personal income tax on individual, firm

Corporate income tax on companies

Difference between types of taxes

Personal income tax/Corporate tax

Legal Foundation of Income Tax

Some concepts of income tax

Taxpayers Status and Residence Implication of Residential Status

Basic Principles of Charging Income Tax

Person [section 2(46)]

Income form salaries [Section-21]

Some components of salary income

Computation of salary income

25% of Basic salary

7.5% of basic salary

Income form house property [Section-24] 1. Characteristics

Rental receipt Monthly rent period for which rented.

Expenses against rental receipt (section 25)

House Property income = rental receipt - Expense.

Agriculture income [Section-26]

Income form business or profession [Section-28]

Capital gain [Section-31]

Income form other sources [Section-33]

Computation of total Income and calculation of tax:

Submission of Income Tax Return

Tax deduction at source

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