A Critical Analysis on

Taxation in Bangladesh
Presented By:
Sk. Walid Uddin Abhi (EV-213071052)
Dipa Das Gupta (EV-213071054)
Mobbershira Haider Saba (EV-213071028)
Rezaul Hasan Abir (EV-213071046)
Md Robiul Islam (EV-213071043)
What is Tax?

A tax is a compulsory financial charge or some other type of levy imposed on a

taxpayer (an individual or legal entity) by a governmental organization in order to
fund government spending and various public expenditures. A failure to pay,
along with evasion of or resistance to taxation, is punishable by law.
Objectives

 Determination of Tax-
o On Salaries
o On Securities
o On House Property
o On Agricultural Income
o On Business & Profession
o On Capital Gain
Tax on Salaries

 Content-
o Findings and Analysis
o Salary Income
o Tax Rates
o Problems Identified
o Conclusion
Findings & Analysis

 Tax compliance depends on how the government perceives the social contract
between the government and the taxpayers. Normally, when citizens realize
that the services they get from the government are less than what they pay for,
i.e. the social contract is not honored, they tend to reduce their tax compliance
by evading or avoiding paying income tax.
 In the new budget, the tax-free income limit has been fixed at Tk. 300,000.
Those earning Tk. 300,000 annually will not have to pay any tax. The limit is
Tk. 250,000 in the current fiscal.
What is Salary Income?

 Salary is the remuneration paid by the employer to the employee for the
services rendered for a certain period of time. It is paid in fixed intervals i.e.
monthly one-twelfth of the annual salary.
 Salary includes:
 Basic Salary or the fixed component of salary as per the terms of
employment.
 Fees, Commission and Bonus that the employee gets from the employer
 Allowances that the employer pays the employee to meet his personal
expenses. Allowances are taxed either fully, partially or are exempt.
Tax Rates

Total Income Tax Rate

First TK 300000 Nil
Next TK 1000000 5%
Next TK 3000000 10%
Next TK 4000000 15%
Next TK 5000000 20%
On the balance of total income 25%
Problems Identified

 According to National Board of Revenue (NBR) data, as of June 2018, there

are about 3.5 million tax identification number (TIN) holders, of which about
1.95 million submitted tax returns.
 However, this does not mean that those who have paid tax have not evaded
tax. Tax evasion can have many forms. In Bangladesh, businessmen who
collect value added tax from consumers also evade tax by under-reporting the
same.
 Importers avoid tax by under-invoicing. Tax avoidance is thus a major
problem.
 The burden of tax lies on a limited number of persons/companies with higher
marginal income tax rates.
Conclusion

As income tax is one of the major sources of the NBR's revenue, the policy of tax
collection requires a complete overhaul to induce higher revenue mobilization.
The government should come up with pro-people policy measures and create
awareness on developing a culture of paying taxes. The main thrust of tax policy
reform is to boost revenue mobilization by expanding the tax base. There are
ample opportunities to increase tax revenue collection as under the current
practices.
Tax on House Property

 Content-
o Income from House Property
o Conditions for Taxability of House Property
o Income Deemed to Arise in Bangladesh
o House Property Exempted from Tax
o Deductions from income from house property
o Problems Identified
o Conclusion
Income from House Property

 The income earned by the ownership of a property is said to be Income from

House property. If a taxpayer owns a house property and rents it, the rent
received from that property is taxable.
 Your house, building, office, or shop can be termed as house property. All the
properties are taxable be it commercial or residential.
Conditions for Taxability of House Property

 All the properties are taxable be it commercial or residential. If the property is

used for residential purpose it is taxed under income from house property.
 The income from house property is added to your gross total income only
when it fulfills three basic conditions -
1. You are the owner of that property.
2. Property consist of any buildings and/or land. Building can be residential
house, factory building, shops, offices etc.
3. The property is used for any purpose except used by you(owner)for the
purpose of running your business or profession.
Income Deemed to Arise in Bangladesh

The scope of income has been widened in our tax law. As per the new law, any
income from the below sources will be captured:
a) Any permanent establishment in Bangladesh
b) Any property, asset, right or other source of income, including intangible
property, in Bangladesh
c) The transfer of any assets situated in Bangladesh
d) The sale of any goods or services by any electronic means to purchasers in
Bangladesh
e) Any intangible property used in Bangladesh.
House Property Exempted from Tax

The following house properties are exempted from income tax:

 Property income of approved religious or charitable institutions in Bangladesh
and voluntary contribution to such institutions.
 Income from house constructed and used by Refugee.
 Income of any residential building occupied by owner.
 House property used in the business of the owner, if the income of the business
is assessable separately under the head “Income from Business or Profession.”
 Income of the property used for Agricultural purpose by the owner.
 Income from newly constructed house as follows for a period as set by NBR.
Deductions from income from house
property

 Any sum payable to Government as land development tax or rent on account

of the land comprised in the property;
 The amount of any premium paid to insure the property against risk of damage
or destruction;
 Where the property is subject to mortgage or other capital charge for the
purpose of extension or reconstruction or improvement, the amount of any
interest payable on such mortgage or charge;
 Where the property is subject to an annual charge not being a capital charge,
the amount of such charge;
 Where the property is subject to a ground rent, the amount of such rent.
Problems Identified

Dispute regarding annual value and income from housing property has been a
major point of dispute among the assessee and the tax officials over the years. The
officials often arbitrarily estimate the rental income without verifying the reality.
Conclusion

Investment in property is a common means of parking money unaccounted for

and a large number of transactions in real estate are not reported or are under-
reported. This is mainly on account of very high levels of property transaction
taxes, commonly in the form of stamp duty. In order to prevent tax avoidance,
property transaction tax needs to be reformed.
Tax on Agricultural Income

 Content-
o Agricultural Income
o Scope of Agricultural Income
o Income from Agriculture
o Admissible Expenses
o Classification of Agricultural Income
o Characteristics of Agricultural income
o Problems Identified
o Conclusion
Agricultural Income

 Agriculture is the cultivation of animals, plants, fungi and other life forms for
food, fiber, and other products used to sustain life.
 Agricultural income refers to income earned or revenue derived from
sources that include farming land, buildings on or identified with
an agricultural land and commercial produce from a horticultural land.
 Agricultural Income (whose agriculture is the only source of income) up to TK
200000 for an individual is tax exempted.
Scope of Agricultural Income
 Gain from land.
 Gain from building occupied by cultivator.
 Gain from the sale of the machinery or plant exclusively used for agricultural
purposes (Capital Gain).
 Compensation money received against demolished machinery or plant
exclusively used for agricultural purposes (Equipment insurance).
 Income from sale of partly agricultural goods such as sale of tea, jute, rubber
tobacco etc.
Income from Agriculture
 Income from cattle rearing
 Income from sale of palm or date juice
 Income from sale of seeds of grass
 Income from agro-co-operative society
 Income from land leased for agro work
 Income from sale of herbal or medical plants
 Income from sale of produce that has no agricultural work like forest trees,
wild grass, fruit and flowers.
 Income from tea garden
 Income from Sugar mill
 Income from Plantation of rubber
 Income from Tobacco etc.
Admissible Expenses

 Land development tax

 Local tax
 Production cost
 Insurance premium
 Maintenance cost for irrigation plant
 Depreciation
 Interest on mortgage
 Interest on borrowing capital
 Losses from the Sale of Demolished Machinery
Classification of Agricultural Income

Considering the Provisions of the ITO,1984,agricultural income can be classified

into following categories:
 Fully Agricultural Income
 Partially agricultural Income
 Other agricultural income
Characteristics of Agricultural income

 Land situated in Bangladesh

 Fundamental agricultural work
 Marketing of Products used by farmers
 Fundamental agricultural work
 Adjacent agricultural land
 Sale or discarded value of agricultural machines and plants
 Partly agricultural and non agricultural income.
Problems Identified

 Farmers can show false sale amount of money which can reduce the tax
amount. If government makes a rules and regulation that sales document must
be needed to show the sales. So, famer cannot provide any false sales
document and maximize the agricultural tax.
 The government can buy agricultural commodity from the farmers and then
sales to the purchaser. In this case government will control the market of
commodities and also can collect the tax properly.
Conclusion

Agricultural income is the most important sector in the economy of Bangladesh,

whereas the contribution of tax from this sector is very insignificant. It is because
of some blackness in infrastructure of NBR and local developmental issues.
Following steps can be taken to make the agro- income more stable:
 Influence local member to set fair price.
 Provide special training to the farmer.
 Concern farmer to create crops insurance.
 Develop communication and distribution system.
Tax on Securities

 Content-
o Security Tax
o Factors to Consider
o Interest on Securities
o Deductions from interest on securities
o Problems Identified
o Conclusion
Security Tax

This is a tax that is levied on the purchase or sale of shares and other trade-
able securities of the companies listed on the stock exchange.
 Securities transaction tax is a direct tax.
 Securities carry a monetary value. The broad categories of securities include
equity, debt and hybrid securities. Corporations raise money from through
public and private means from the sale of securities. Equity represents an
ownership interest in a public enterprise.
Factors to Consider

 Equity securities do not carry a fixed rate of return. Equity shareholders are,
however, entitled to a dividend as and when paid by the company.
 Debt securities, such as debentures or bonds, and hybrid securities such
as preference shares carry a fixed rate of return.
 Debt securities are issued in return to monies borrowed. The securities are for
a fixed tenure; they carry an interest rate and a maturity or renewal date.
 Debt securities may be secured (using collateral) or unsecured
 Hybrid securities combine features of equity and debt.
 Most types of securities are listed and traded on the stock exchange.
 Debt securities and hybrid securities are redeemed at par. However, holders of
equity securities are paid at the end after the payment of all creditors.
Interest on Securities

The following income of an Assessee shall be classified and computed under

the head "Interest on securities", namely:
 interest receivable by the Assessee on any security of the Government or any
security approved by Government; and
 interest receivable by him on debentures or other securities of money issued
by or on behalf of a local authority or a company.
Deductions from interest on securities

 Any sum deducted from interest by way of commission or charges by a bank

realizing the interest on behalf of the Assessee;
 Any interest payable on money borrowed for the purpose of investment in the
securities by the Assessee.
Problems Identified

 The central bank has recommended the Ministry of Finance (MoF) not to
impose the proposed source tax on the government securities, whose trading is
set to start in the stock market within a couple of months.
 If the proposed tax measure is executed, trading of the government-approved
securities, particularly in the secondary market, may fall drastically. It will
hamper development of the bond market in the country, the Bangladesh Bank
(BB) said in its recommendations
 The BB (Bangladesh Bank) said the calculation of tax contribution by the
investors may become extremely complicated under the proposed tax
framework.
Conclusion

Throughout the world, responsible governments follow the policy of a

progressive income tax. Those with higher incomes are expected to pay a higher
percentage of their income in tax than those with lower incomes. But the
policymakers of Bangladesh should think about this independently rather than
compare tax rates with neighboring countries.
Tax on Business and Profession

 Content-
o Income from Business or Profession
o Deductions from income from business or profession
o Deduction not admissible in certain circumstances
o Tax Rates
o Conclusion
Income from Business or Profession

 Profits and gains of any business or profession carried on, or deemed to be

carried on, by the Assessee at any time during the income year;
 Income derived from any trade or professional association or other association
of like nature on account of specific services performed for its members;
 Value of any benefit or perquisite, whether convertible into money or not,
arising from business or the exercise of a profession.
Deductions from income from business or
profession
 The amount of any rent paid for the premises in which the business or
profession is carried on.
 The amount of any interest paid or any profit shared with a bank run on
Islamic principles in respect of capital borrowed for the purposes of the
business or profession.
 The amount paid on account of current repairs to buildings, machinery, plant
or furniture used for the purposes of the business or profession.
 Any expenditure, not being in the nature of capital expenditure, laid out or
expended on scientific research in Bangladesh related to the business carried
on by the Assessee.
 Any expenditure, not being in the nature of capital expenditure, laid out or
expended on any educational institution or hospital established for the benefit
of the employees of the Assessee.
Deduction not Admissible in certain
circumstances
 Any payment which is an income of the payee classifiable under the “Salaries”.
 Any payment by way of interest, salary, commission or remuneration made by a
firm or an association of persons to any partner of the firm or any member of the
association.
 Any payment by way of brokerage or commission made to a person who is not a
resident in Bangladesh unless tax has been deducted.
 Any expenditure in respect of the following as is in excess of the amount or rate
prescribed in this behalf and as is not, namely:
I. entertainment;
II. foreign travels of employees and their dependents for holidaying and recreation ;
III. publicity and advertisement; and
IV. distribution of free samples.
Tax Rates
For Companies:

Category Tax Rate

Publicly Traded Company 25%
Non-publicly Traded Company 32.5%
Bank, Insurance & Financial 37.5% (Publicly traded)
institutions (Except Merchant bank) 40% (Non-Publicly traded)
Merchant bank 37.5%
Cigarette manufacturing 45%
company/Others
Mobile Phone Operator Company 45%
Publicly traded mobile company 40%
Tax Rates

Other than Company:

Category Tax Rate

Non-resident Individual (other than 30%
non-resident Bangladeshi)
Cigarette and tobacco manufacturer 45%
(not company)
Co-Operative Society Registered 15%
under Co-Operative Society Act 2001
Conclusion

It has been noted that we are practicing too much of the “infant-industry” theory.
Fifty years have passed since independence, and our industry by now should have
been “adult” enough not to be shielded from global competition. As such,
withdrawal of all sorts of tax holidays and tax exemptions from all sectors needs
to be considered (special consideration can be given in some cases).
For the NBR to collect taxes effectively, it needs to be fully equipped with
modern ICT instruments to collect enough information to assess individuals' or
organization's tax liabilities.
Tax on Capital Gain

 Content-
o Capital Gain
o Computation of capital gains
o Tax Rates
o Problems Identified
o Conclusion
Capital Gain

Capital gains arise following the transfer of “capital assets”, which within The
Income Tax Ordinance, 1984 (ITO, 1984) in Bangladesh has been defined as
property of any kind held by an individual or
business except the following:
 Inventory, comprising of raw materials, work-in-progress, finished goods, and
consumables; and
 Personal effects, i.e., movable property which have been held exclusively for
personal use and not within the scope of business, with examples including
wearing apparel, jewellery, furniture, fixtures, equipment, and, notably, motor
vehicles as well.
Computation of Capital Gains

The income under the head "Capital gains" shall be computed after making the
following deduction from the full value of the consideration received or accruing from
the transfer of the capital asset or the fair market value thereof, whichever is higher,
namely:
 Any expenditure incurred solely in connection with the transfer of the capital
asset; or
 The cost of acquisition of the capital asset and any capital expenditure incurred for
any improvements thereto but excluding any expenditure in respect of which any
allowance is admissible.
 Where it was acquired by the assesse by purchase, the actual cost of acquisition;
 Where it became the property of the assesse- under a deed of gift, bequest or will;
or under a transfer on a revocable or irrevocable trust; or on any distribution of
capital assets on the liquidation of a company.
Tax Rates
Asset Surcharge rate Minimum Surcharge
Value of total asset up to TK 3Crore Nil Nil
Value of total asset is more than TK 10% 3000/-
3Crore but less than TK 5Crore;
Or owner of multiple motor vehicle;
Or house property of more than 8000 sq.
feet in any city corporation area
Value of total asset is more than TK 15% 3000/-
5Crore but less than TK 10Crore
Value of total asset is more than TK 20% 5000/-
10Crore but less than TK 15Crore
Value of total asset is more than TK 25% 5000/-
15Crore but less than TK 20Crore
Value of total asset is more than TK 30% 5000/-
20Crore
Problems Identified

An independent survey finds a few reasons for reluctance or lack of interest in

paying taxes:
 People would like to be assured that their money is being used for the right
cause. A majority of the people feel our tax system is unnecessarily complicated
wrecked by age-old corruption and incompetence.
 Many individuals with taxable income are not interested in paying taxes because
they think there is no level playing field when it comes to paying taxes.
 Some get demoralized seeing rich people and big companies not pay taxes
properly. Moreover, we have seen in the past that all successive governments
offered the scope for legalizing “undisclosed money” and most of the time, rates
were lower than the normal tax rate. 
Conclusion

Tax shall be payable by an assesse under the head "Capital gains" in respect of
any profits and gains arising from the transfer of a capital asset and such profits
and gains shall be deemed to be the income of the income year in which the
transfer took place.
Income tax is one of the major components of tax revenue. The main use for the
money governments collect in taxes is to provide goods and services to the public.