ACN 4135: Taxation

Chapter 01: Introduction

Bangladesh Income Tax: Theory and Practice 9 th edition; Nikhil, Masud & Alam

Chapter 1
Introduction
1.
2.
3.
4.
5.
6.
7.

Definition of Tax
Characteristics of Tax
Purposes or Objectives of Taxation
Canons of Taxation
Classification of Taxes
Characteristics of a good tax system
Tax structure in Bangladesh

01. Definition of Tax

The word tax has been derived from the
French word taxe and the Latin word
taxare which means to charge
Tax is a non-penal but compulsory and
unrequited transfer of resources from the
private to public sector, levied on the basis
of predetermined criteria.

02. Characteristics of
Tax

Compulsory payment to the government

Imposed by the government
Tax finances the government expenditure
It is one of the prime sources of revenue for the
government
It is not a fine or penalty
It is paid by the taxpayer without expectation
of any direct return from the government

03. Purposes or
Objectives of Taxation
Revenue collection
Reduction of inequalities in income and
wealth
Accelerating economic growth
Control of consumptions
Protection of local industries
Economic development

04. Canons of Taxation

Four canons mentioned by Adam Smith:
1.
2.
3.
4.

Canons of Equality: The burden of taxation must be

distributed equitably in relation to the ability of the tax
payers.
Canons of Certainty: The tax payer should be well
informed about the time, amount and method of tax
payment.
Canon of Economy: The cost of tax collection and
payment should be minimum.
Canon of Convenience: The time and mode of tax
payment should be convenient to the taxpayer.

05. Classification of
Taxes
Important classification bases are:

Direct vs. Indirect

Proportional vs. Progressive vs. Regressive vs.

Degressive

Classification of Taxescontinuation

Direct tax : The burden cannot be shifted. Tax is paid by the

person on whom the tax is imposed.
Indirect tax: The burden can be shifted.
Proportional tax: The rate of tax is constant for any amount of
income.
Progressive tax: Higher the income, higher the rate.
Regressive rate: Higher the income, lower the rate.
Degressive rate: The tax is slightly progressive upto a certain
limit, after that it is charged at a flat rate.

06. Characteristics of a
good Tax System
1. All the canons should be followed in the tax system.
2. Direct and indirect tax amount should be balanced in
the system
3. Tax authority should be supported by simple laws and
rules and effective and efficient administration.
4. Tax system should have positive effect on the
economy of the country.
5. Cost of collecting tax should be minimum.
6. Tax system should ensure maximum social advantage.

07. Tax structure in

Bangladesh

Multiple tax system

High ratio of indirect to direct tax revenue
Dominance of indirect tax
Inefficient tax administration
Huge tax evasion and avoidance
Narrow tax base

Thank You