Assignment on

Law and practices of taxation in Bangladesh

Course Code: FBK 415
Course Title: Investment Analysis and Portfolio Management
Submitted To:
MD. HASAN UDDIN
Assistant Professor
Department of Finance and Banking
Faculty of Business Administration and Management
Patuakhali Science and Technology University
Submitted By:
Name: MAKSUDA MILA
Id No.: 1103011
Registration No: 03249
Name: MST. MARIAM AKTER
Id No.: 1103023
Registration No: 03261
Faculty of BAM
Patuakhali Science and Technology University
Submission Date: 28 Feb, 2015
Faculty of Business Administration and Management
Patuakhali Science and Technology University

COURSE LAYOUT
AIS 223: LAW AND PRACTICE OF TAXATION IN BANGLADESH
This course primarily designed to provide the students with fundamental understanding of
economic effects of taxation on business entities and individuals prevailing in
Bangladesh. At the end of this course, students are expected to be able to i) understand the
role of taxation in overall economic development of an economy, ii) understand the place
of taxation in overall fiscal policy of a government, iii) understand relevant provisions of
taxation rules in Bangladesh and iv) independently assess the tax liabilities of personal
and corporate entities.
Part A
1

Introduction
public Finance-Definition-Difference Between public Finance and Private Financepublic Finance and the Economics system-The Principles of Maximum Advantage and
its limitations.

Public Revenue and expenditure

Revenue Receipts - Capital Receipts - Tax Revenue and Non-tax Revenue -tax Base of a
tax Principles of taxation Characteristics of a good tax system. Public expenditure revenue and capital expenditure (development and non-development), effects of public
expenditure on production, distribution, income and employment.

Tax Burden
The Expediency Approach -The Social Political Approach the benefit-Received TheoryLimitations of the Benefit. Received Approach-Cost of Service Approach. The Ability to
pay Approach-Usefulness the Concept.

4. Taxation
Incidence of taxes: The impact the incidence and the effects of a tax-Theories of tax
shifting-imposition of a specific tax, Deficit Financing as a hidden tax classification
and Choice of taxes: Single and Multiple tax system: Proportional Progressive taxesDeferred Taxes, direct and indirect tax, VAT etc. Effects of Taxation: Effects on
production and growth-Effects on supply of resources Economic Stabilization.

Part B
1.

Income tax
Components of Total Income: salary income, income from house property, income from
agriculture, income from business or profession, income from interest on securities,
income from capital gain and income from other sources.

2.

Value-Added-Tax (VAT)
Scope, Registration and De-registration; Exemption and Zero Rating; Tax Point of VAT;
Taxable Value for VAT, VAT Computation, Turnover Tax (TT) & Supplementary Duty
(SD), Books of Accounts to be maintained under the VAT Laws, Filing of VAT Return,
Tax Authorities under the VAT Laws, Payments, Refund and Recovery of Taxes under
the VAT Laws.

3.

Customs Duty
Custom Authorities, Customs-Port, Customs-Airports, Land Customs-Stations &
Customs-Houses, Warehousing Stations & Public/Private Warehouses, Prohibited Goods
or Piece-Goods, Goods Dutiable, Exemptions from Customs Duty, PSI, Value of
Imported and Exported Goods for Imposing Customs Duty, General Customs Duty,
Countervailing Duty, Anti-dumping Duty and Safeguard Duty, Duty Drawback,
Infrastructure Development Surcharge, Offences and Penalties, Prevention of
Smuggling-Powers of Search, Seizure and An-est-Adjudication of Offences, Appeals and
Revisions.

4.

Excise duty
Goods and Services subject to Excise Duty, Level of Excise Duties, Regulatory Duty
under the Excise and Salt Act, Determination of Value for Imposing Excise duty, License
Necessary for Certain Operations, Offences and Penalties, Recovery of Sums Due to
Government; Exemptions from Excise Duty.
Goods subject to Infrastructure Development Surcharge, Tax Rate & Collection Point of
the Tax.

5.

Case Study/ Field work

To enrich the students theoretical knowledge, related to industry / company / factory /
entity, fieldwork will be assigned. After practical visit, reports are to be prepared group-

wise on respective field assigned by the course teacher. The prepared reports are to be
presented in sessional examinations that weigh 20% of the total marks of the course.
Books Recommended:
1

Nikhil C.S., Faridul A., : Taxation in Bangladesh

Fazlul Haque, M.A. Akkas : Three taxes of Bangladesh

MM Mahmud, KK purohit and MK Bhattacharjee: Income tax.

H.L Bhatia: Public Finance; Vikas Publishing House PVT. Ltd.

Dalton: Public finance.

NBR VAT Bullectin.

Customs Act 1969

Finance Ordinances

M.A.Baree:law and Practice VAT in Bangladesh

Glossary:
Part A
Chapter 1: Introduction
Public Finance: Public finance means how the government raises funds and spends the
money on various kinds of services for the economy.

Functions of public finance

1. Allocative function
2. Distributive function
3. Stabilization function
Principles of public finance
1. Keep the budget as small as possible.
2. Keep the budget balanced.
3. Borrow only for productive purposes.
4. Pay off the debt at the earliest.
5. Tax consumption rather than saving.
Role of public finance in developing economy
1. Capital formation
2. Regulation of consumption and production
3. Matching physical development
4. Influencing rates of savings
Private Finance:

Private Finance is a method of providing funds for major capital investments where private
firms are contracted to complete and manage the projects. These contracts are typically given
to construction firms and last a long time, sometimes up to 30 years. The public services are
leased to the public and the government authority makes annual payments to the private
company.
Similarities between public and private finance
1. Both try to maximize the benefit with the minimum use of resources
2. Both have to borrow to bridge the gap between their current revenue and
expenditure
3. Both can increase their income by increasing their investment expenditure
Private Finance vs. Public Finance
1.
2.
3.
4.
5.

Adjustment of Income to Expenditure

Period of Time.
In the case of an individual, there can be no internal borrowing
The State can issue paper currency in order to meet its expenditure
No Equi-marginalising of utilities

Chapter 2:
Public Revenue and expenditure
Public revenue is exactly income generated from sources of government in order to meet
requirements of expenses of public.
Sources of public revenue
1. Tax revenue
2. Non-tax revenue
Tax Revenue: The chief source of public revenue is Tax. To define tax, it is said that tax is a
mandatory imposition of duty on public authority by government organizations to meet
requirements of general public as a whole.

Non tax revenues: Non Tax Revenue comprises all revenues apart from taxes accumulated to
the Government. Non tax revenues are funds that are generated from internal sources.

Principles of Taxation by Adam Smith

(1)
(2)
(3)
(4)

Cannon of equality or ability,

Cannon of certainty,
Cannon of convenience, and
Cannon of economy.

Essentials/Features/Characteristics of a Good Tax System

1.
2.
3.
4.
5.

fair and equal distribution of wealth

Sufficient revenue to the government.
cost on collection of taxes should not be excessive
tax system should be fairly elastic
certainty with regard to the time and the amount to be paid

Public expenditure
Public expenditure refers to the expenses which the Government incurs for its own
maintenance as also for the society and the economy as a whole.
Classification of Public Expenditure
1. Functional Classification

2.
3.
4.
5.
6.

Revenue and Capital Expenditure;

Transfer and Non-Transfer Expenditure
Productive and Unproductive Expenditure
Grants and Purchase Price
Classification According to Benefits
Common benefits to all
Special benefits to all
Special benefits to some

Principles of public expenditure

Four basic principles of public spending;
1.
2.
3.
4.

All government spending should have Parliament's sanction

Government spending should be managed with probity and efficiency.
The value of government spending should be measured by what it achieves.
Government spending programs should remain current.

Reasons for rapid growth of public expenditure in Bangladesh

1.
2.
3.
4.

Education
Health and population
Poverty alleviation
Communication and transportation

Effects of Public Expenditure

1.
2.
3.
4.

Effects on production
Effects on distribution
Effects on level of income and employment
Effects on level of income and employment in a developing economy

Chapter 3: Tax Burden

Definition
The amount of income, property, or sales tax levied on an individual or business. Tax burdens
vary depending on a number of factors including income level, jurisdiction, and current tax
rates.
Theory of taxation

Expediency Theory: This theory asserts that every tax proposal must pass the test of
practicality. It must be the only consideration weighing with the authorities in choosing a tax
proposal. Economic and social objectives of the state as also the effects of a tax system
should be treated irrelevant.
Socio Political Theory: This theory of taxation states that social and political objectives
should be the major factors in selecting taxes. The theory advocated that a tax system should
not be designed to serve individuals, but should be used to cure the ills of society as a whole.
Benefit Received Theory: This theory proceeds on the assumption that there is basically an
exchange relationship between tax-payers and the state. The state provides certain goods and
services to the members of the society and they contribute to the cost of these supplies in
proportion to the benefits received.
Cost of Service Theory: This theory is similar to the benefits received theory. It emphasizes
the semi commercial relationship between the state and the citizens to a greater extent. In this
theory, the state is being asked to give up basic protective and welfare functions.
Ability-to-pay approach: The ability-to-pay approach treats government revenue and
expenditures separately. Taxes are based on taxpayers ability to pay; there is no quid pro quo.
Taxes paid are seen as a sacrifice by taxpayers, which raise the issues of what the sacrifice of
each taxpayer should be and how it should be measured:

CHAPTER 4: TAXATION
Taxation is a way of raising income in order to defray/cover the necessary expenses of the
government. It is the inherent power of the state to demand contribution to finance all the
government expenses.
Objectives of Tax

Raising Revenue
Regulation of Consumption and Production
Encouraging Domestic Industries
Stimulating Investment
Reducing Income Inequalities

 Promoting Economic Growth

Ensuring Price Stability
CLASSIFICATION OF TAX
On the basis of number of taxes
1. Single tax: When the tax system of a country incorporates only one tax, it is called
single tax. In ancient times, tax was levied on person as poll tax or head tax.
2. Multiple taxes: when a tax system comprises different types of taxes, it is called
multiple taxes. At present, all countries in the world follow multiple tax system.
On the basis of impact
1. Direct tax: These taxes are imposed on income of individuals and organization. A direct
tax cannot be shifted to another individual or entity.
2. Indirect tax: These are taxes on goods and services produced inside or outside the country.
On the basis of structure of tax rate: Another way of classifying tax is according to
structure of the rate. The rate can be structured as follows:
a. Proportional Tax: The rate of tax under the proportional tax is constant in respective of
the level of taxable income.
b. Progressive Tax: Under this system the rate of taxation increases as the taxable income
increase. In simple terms, it imposes a greater burden (relative to resources) on the rich than
on the poor.
c. Regressive tax: A tax is said to be regressive in nature, if the rate of such tax decreases as
tax base increases. Value Added Tax {VAT} can be described as regressive tax because the
burden is more felt by the poor than the rich.
d. Degressive Tax: Where the rate of tax rises at decreasing rate as a result of increase in tax
base, such tax is call degressive tax. In degressive taxation, a tax may be slowly progressive
up to a certain limit, after that it may be charged at a flat rate.
On the basis of elasticity of tax:

1. Elastic tax the rate of changes in tax is more than the rate of changes in the tax
base.
2. Inelastic tax- the rate of changes in tax is less than the rate of changes in the tax
base.
On the basis of taxing authority:
1.
2.

Central tax tax levied by central government.

Local tax-tax levied by local government.

On the basis of tax base:

1.

Income tax-it is changed on the basis of income of a person or entity

2. Value added tax-tax is charged on the basis of the value addition in a commodity or
service.
3. Wealth tax it is charged on the basis of the value of the financial asset or nonfinancial asset.
4. Expenditure tax-it is charged on the basis of expenditure like purchase tax.

Part B
Chapter 1: Income tax
Definition of 'Income'
Money that an individual or business receives in exchange for providing a good or service or
through investing capital.
Sources of Income: For the purpose of computation of total income and charging tax
thereon, sources of income can be classified into 7 categories, which are as follows:

Salaries

Interest on securities

Income from house property

Income from agriculture

Income from business or profession

Capital gains

Income from other sources.

Income tax
An income tax is a government levy (tax) imposed on individuals or entities (taxpayers) that
vary with the income or profits (taxable income) of the taxpayer.

Chapter 2: Value-Added-Tax (VAT)

A value added tax (VAT) is a consumption tax added to a product's sales price.
Main Features of VAT in Bangladesh
(i) VAT is imposed on goods and services at import stage, manufacturing, wholesale
and retails levels;
(ii) A uniform VAT rate of 15 percent is applicable for both goods and services;

(v) VAT is applicable to all domestic products and services with some exemptions;
(vi) 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 exempt;
(ix) Tax returns are to be submitted on monthly or quarterly or half yearly basis as
notified by the Government.
Advantages of Value Added Tax (VAT)
1. Minimizes tax evasion.
2. It is simple to administer.
3. Transparent and has minimum burden to consumers
4. Mass participation of taxpayers.
Disadvantages of Value Added Tax (VAT)
1. Costly to implement
2. Complex to understand.
3. Customers need to be conscious; otherwise tax evasion will be widespread.

Types of Value Added Tax (VAT): There are three types of VAT, they are:
* Consumption type
* Income type
* Gross National Product (GNP) type
1. Consumption Type VAT
Under consumption type VAT, all capital goods purchased from other firms, in the
year of purchase, are excluded from the tax base while depreciation is not deducted
from the tax base in subsequent years. The base of tax is consumption since
investment is relieved from taxation under this type.

2.

Income Type VAT

The income type VAT does not exclude capital goods purchased from other firms
from the tax base in the year of purchase. This type, however, excludes depreciation
from the tax base in subsequent years. The tax falls both on consumption and net

investment. The tax base of this type is the net national income.
3. GNP Type VAT
Under this type, capital goods purchased by a firm from other firms are not deductible
from the tax base in the year of purchase. It also does not allow the deduction of
depreciation from the tax base in subsequent years. Tax is levied both on consumption
and gross investment. The tax base of this type is gross domestic product.

Registration
If you supply taxable goods and services and you qualify or wish to register for VAT, you
should apply for registration. Those who fall under this category include sole proprietors,
partnerships, limited liability companies or corporations.
Deregistration
If the VAT taxable turnover for the year is less than or equal to the deregistration threshold or
it is expected to fall below it in the next 12 months, a business has the option of deregistering
if it wants to.

Chapter 3: Customs Duty

Customs duty is a kind of national tax revenue, which is its most essential nature. The nation
is the subject of taxation of Customs duty. Customs duty is collected from the taxpayers by
the Customs on behalf of the nation.
Custom Authorities
Customs is an authority or agency in a country responsible for collecting customs duties and
for controlling the flow of goods, including animals, transports, personal effects, and
hazardous items, into and out of a country.
Government warehouse

Government warehouse means a warehouse established by the Director- for the deposit of
dutiable goods.
Prohibited goods
Prohibited goods means goods the import or export of which is prohibited, either
conditionally or absolutely.
Dutiable goods
Dutiable goods means any goods subject to the payment of customs duty or excise duty on
entry into customs territory or manufactured including any free trade zone and on which
customs duty or excise duty has not been paid and includes goods manufactured in a free
trade zone from materials of a class dutiable on entry into customs territory for consumption
within the customs territory.
Pre-shipment inspection (PSI)
An inspection of contract goods prior to shipment so as to ascertain their quality, quantity or
price. Importers may insist on PSI, requiring the exporter to furnish a certificate of inspection
commonly issued by neutral, internationally respected firms.

Various types of customs duties

Countervailing Duty
Duties that are imposed in order to counter the negative impact of import subsidies to protect
domestic producers are called countervailing duties.
General customs duty
A tax levied on imports (and, sometimes, on exports) by the customs authorities of a country
to raise state revenue, and/or to protect domestic industries from more efficient or predatory
competitors from abroad.
Anti-dumping duty

A penalty imposed on suspiciously low-priced imports, to increase their price in the

importing country and so protect local industry from unfair competition.
Safeguard Duty
When imports of a particular product, as a result of tariff concessions or other WTO
obligations undertaken by the importing country, increase unexpectedly to a point that they
cause or threaten to cause serious injury to domestic producers of like or directly competitive
products, a safeguard which is a form of temporary relief is used.
Duty drawback
A refund that can be obtained when an import fee has already been paid for a good, but the
good is then subsequently exported. In order to obtain a duty drawback, a business does not
have to have paid the import duty, nor do they have had to perform the product's exportation,
they only need to be assigned the drawback from those to whom it would typically be due.

Exemptions from Customs Duty:

i) Capital machinery;
ii) Raw materials of Medicine;
iii) Poultry Medicine, Feed & machinery;
iv) Defense stores;
v) Chemicals of leather and leather goods;
vi) Private power generation unit;

vii) Textile raw materials and machinery;

viii) Solar power equipment;
ix) Relief goods;
x) Goods for blind and physically retarded people; and
xi) Import by Embassy and UN.

Chapter 4: Excise duty

An excise or excise tax (sometimes called a duty of excise special tax) is an inland tax on the
sale, or production for sale, of specific goods or a tax on a good produced for sale, or sold,
within a country or licenses for specific activities.
Who is liable to pay excise duty?
The liability to pay tax excise duty is always on the manufacturer or producer of goods. There
are three types of parties who can be considered as manufacturers:

Those who personally manufacture the goods in question

Those who get the goods manufactured by employing hired labor

Those who get the goods manufactured by other parties

Reference:

Shil N.C., Masud M.Z., & Alam M.F.(September 2012). Theory and practices:

Income tax, Bangladesh.

Bhatia H.L., (2012-2013). 26th edition, Public Finance.
Dewett k.k. (2000).Modern economic theory: concepts (Millennium edition).
Value added tax. investopedia. Retrieved from

www.investopedia.com/terms/v/valueaddedtax.asp
Value added tax. In Wikipedia, The free Encyclopedia. Retrieved from

http://en.wikipedia.org/wiki/Value-added_tax
countervailing-duties. India times.com.

Customs Act 1969

Tax teach (2009-10). classification-of-tax. Retrieved from

http://taxteach.blogspot.com/2009/10/classification-of-tax.html
tradeindia. Safeguard- Duty. Retrieved from
http://www.tradeindia.com/communities/2/414/International-Trade-

Basics-/Safeguard-Duty.html
The law dictionary. (10thedition).excise-duty. Bryan A. Garner
Customs duty. National board of revenue. Retrieved from http://www.nbrbd.org/customs.html