Table of Content

Abstract
Objectives
Methodology
Limitations

-----------------------------------------------------------------------------------------------------------------

Introduction
1. What is tax?
2. Derived from
3. Taxonomy

05
-------------------------------------------------------------------------------------

Functions of tax for country

1. Functions
2. Types of tax

Page
01
02
03
04

05
05
05
06-07

---------------------------------------------------------

Principle of Taxation

06
06-07
08-11

A: Ethical Aspects
1. Canon of equality

------------------

B: Administrative Aspects
2. Canon of certainty -----------------3. Canon of Convenience ---------------4. Canon of Economy -----------------5. Canon of Productivity----------------6. Canon of Buoyancy -----------------7. Canon of Flexibility -----------------8. Canon of Simplicity -----------------9. Canon of Diversity ------------------

08-09
09
09
10
10
10
10
11
11

An overview of tax system in Bangladesh

11-14

1. The tax structure for

individual tax payers

------------------

11-12

2. The percentage of
corporate tax levied

------------------

12

3. The period for

assessment determined

------------------

12-13

4. Tax Administration in
Bangladesh

------------------

13-14

Deterring the existing position of

The canon of tax in Bangladesh
1. Impartiality of imposing
tax (Canon of Equality)

------------------

2. Assurance of paying tax -----------------(Canon certainty)

1.1. Time of payment----------------17
1.2. Quantity of Payment-----------1.3. Manner of payment-------------

15-24

15-16
16-19
17
18-19

2. Canon of Convenience

------------------

19

4. Cost Cutting Measure

(Canon of Economy)

------------------

19-20

5. Tax revenue not at Efficient-----------------Level (Canon of Productivity)

20-21

6. Elastic Tax Structure

(Canon of Elasticity)

21-23

------------------

7. Tax to be imposed on Multi -----------------23-24

Sources (Canon of Diversity)
Conclusion and Recommendations
1. Conclusion
2. Recommendations
Bibliography

-----------------------------------

25-26
25
25-26
27

List of table
Particulars
Table 1: For the assessment year 2006/07

12

Table 2: Revenue Yield in Bangladesh (1990/91

- 2000/01)

13

Table 3: Types of Taxpayers in Bangladesh

15

Table 4: Types of Taxpayers on the basis of

Individual Income Taxes

16

Table 5: Tax rate

17

Table 6: Revenue Earned v/s Cost Of Collection

20

Table 7: Measure of Efficiency

20

Table 8: Quantum of different taxes vis a vis

total tax revenue

23

April 2, 2007

Page No.

Rehana Fowzia
Lecturer
Department Business Administration
Stamford University Bangladesh
Subject: Submission of the report on Ascertain the Position of
Canons of Taxation in Tax System of Bangladesh
Dear Madam:
Our report is on Ascertain the Position of Canons of Taxation in Tax
System of Bangladesh that you have assigned us as part of the Business
Taxation. We have tried to follow the instructions and suggestions that
you have given in every aspects of our study.
We would like to request you that if you have any question about the
report, please dont be indecisive to contact with us. We will always be
available at your convenience to make further detail of the study.

Sincerely yours,
Group Chowkosh
1.
2.
3.
4.
5.
6.
Sec I
27th batch

Report

on

Ascertain the Position of Canons of Taxation in Tax System

of Bangladesh

Submitted
to
Rehana Fowzia
Lecturer
Course Title Business Taxation

Submitted
by
Group Name Chawkash
Section I
Batch 27th
Trimester spring07

Department of Business Administration

STAMFORD UNIVERSITY BANGLADESH

April 2, 2007

Ascertain The Position of Canons of Taxation

in Tax System of Bangladesh

Group Name Chawkash

Workforce Behind This Report

Name
1. MD. Faiz-ur-Rahman
2. MD. Mahbub Hossain
3. Sunayan Kanti Paul
4. MD. Wahidur Rahman
5. MD. Mehedi Mustafa
6. MD. Modassar Hossain

ID
02707021
02707093
02707063
02707092
027070107
02707198

ACKNOWLEDGEMENT

We are truly thankful to our course teacher, Rehana Fowzia, Department

of Business Administration, Stamford University Bangladesh. Without
whose heartfelt supervision and suggestions it was extremely difficult for
us to prepare the assignment.
We want to thank and convey our heartiest gratitude to executives of the
BD income tax department, who gave us the obvious information and
noteworthy documents and helped us to understand the several that
entailed to the assignment.
Especially, thank to all of our class mates who encourage us and coordinate us in many troublesome tasks.

ABSTRACT
As a requirement of our course curriculum of Business Taxation we are
assigned a report on Ascertain the position of canons of taxation in tax
system of Bangladesh. The main purpose of this report is to analyze and
determine the existing situation of tax system of Bangladesh and to know
what revenue comes from which sectors as tax. Revenue from taxation
has been used by states and their functional equivalents throughout
history to carry out many functions. And we should abide by some
principles of taxation if it is subjected to earn revenue from tax properly
for our country. The principles are such canon of equality, economy,
certainty, productivity, convenience, and many more. Estimates for the
period between 2003-2004 showed that on average, the NBR is
responsible for collection of about 95% of total tax revenue and about
81% of the total revenue of the government in a year. By analyzing the
canon of taxation and existing situation of taxation system of Bangladesh
there are some recommendations, which could act as remedies for a better
income tax system in Bangladesh and would relevant to other developing
countries as well.

OBJECTIVES
9

The objectives are divided into two parts:

1. Broad Objective:
Get an idea about the existing situation of tax system in Bangladesh and
determining the tenet of taxation of Bangladesh
2. Specific Objectives:

To know the canon of taxation.

To know about the tax system of Bangladesh.

To know the tax revenue in a year

To know classification of tax payers

Finally recommend some strategies that should be taken.

METHODOLOGY

Two types of data sources are used for the study:

Primary source
Secondary source
Primary Data:
The study has been developed by taking some exclusive interviews with
several persons of National Board of Revenue and Ministry of Finance,
Govt. of Bangladesh. We are very thankful to the respective authority of
National Board of Revenue for helping us by giving their important time
and support. We have used both structured and unstructured interviews to
10

collect data. We tried to gather the following types of data to construct the
report:
What is the canon of taxation?
What are the sources of tax?
What are the methods to impose tax?
What are the tax rates for different category of tax for different
years?
What are the income sources of tax payers?
What is national revenue or total revenue from tax?
How much earn from particular sectors?
Secondary Data:
To construct our report, we have also taken help of various secondary
sources like annual report published by NBR, journal, book and also
searched through the intranet & internet for various pertinent information
which have definitely enriched the research findings.

LIMITATIONS

Firstly, there was lack of sufficient data.

Secondly, we have not got enough time, which hampered the related
processes to some extent. The time was not enough to prepare a formal
and long business report.
Thirdly, financial bindings were another drawback in preparing the
report.
Fourthly, there were some technological problems.
We think the report could be organized more extensively if there was
sufficient time and proper response of the reference groups to cover all
particulars regarding report format, structure, investigation.

11

Introduction
1. What is Tax?
Taxation one of the major sources of public revenue to meet a country's
revenue and development expenditures with a view to accomplishing
some economic and social objectives, such as redistribution of income,
price stabilization and discouraging harmful consumption. It supplements
other sources of public finance such as issuance of currency notes and
coins, charging for public goods and services and borrowings.
2. Derived From:
The term 'tax' has been derived from the French word taxe and
etymologically, the Latin word taxare is related to the term 'tax', which
means 'to charge'. Tax is 'a contribution exacted by the state'. It is a
nonpenal but compulsory and unrequited transfer of resources from the
private to the public sector, levied on the basis of predetermined criteria.
3. Taxonomy of Tax:
Tax can be categorized in different types based on different angels, sucha. On The Basis of Incidence
i)
Direct tax
ii)
Indirect tax
b. On The Basis of Progression
i)
Progressive Tax
ii)
Proportionate Tax
iii) Regressive Tax
c. On The Basis of Base
i)
Single Tax
ii)
Multiple Tax
12

Functions

of Tax for a

Country
1. Functions:
Funds provided by taxation have been used by states and their functional
equivalents throughout history to carry out many functions. Some of
these include
expenditures on war
the enforcement of law and public order
protection of property
economic infrastructure (roads, legal tender,
enforcement of contracts, etc.)
public works
social engineering
the operation of government itself
Most modern governments also use taxes to fund welfare and public
services. These services can include
education systems
health care systems
pensions for the elderly
unemployment benefits
public transportation
Energy, water and waste management systems are also common public
utilities. Colonial and moderning states have also used cash taxes to draw
or force reluctant subsistence producers into cash economies.
2. Types of tax:

13

The Organisation for Economic Co-operation and Development (OECD)

publishes perhaps the most comprehensive analysis of worldwide tax
systems. In order to do this it has created a comprehensive categorisation
of all taxes in all regimes which it covers:
i) Income tax
ii) Capital gains tax
iii) Corporation tax
iv) Excises duty
v) Import and export duty
vi) VAT (value added tax)
vii) Suplimentary duty
viii) Motor vehical tax
ix) Land revenue
x) Non judicial stam
xi) Inherent tax
xii) Pool tax
xiii) Property tax
xiv) Retirement tax
xv) Sales tax
xvi) Tarrifs
xvii)Transfer tax
xviii) Wealth (not worth) tax

14

Principle of Taxation
A tax system for achieving certain objectives, choose and adheres to
certain principles which are termed its characteristics. A good tax system,
therefore, is one which is designed on the basis of an appropriate set of
principles, such as equality and certainty. Mostly, however, objectives of
taxation conflict with each other and a compromise is needed. Therefore
usually equally economists select some important objectives and work
out the corresponding principles which the tax system should adhere to. A
summarized version of these is given below:
Adam Smith's canons of taxation
Adam Smith's contribution to economic theory is regarded as classic. His
statement of canons of taxation has hardly been surpassed in clarity and
simplicity. Four canons of taxation are as under:
A: Ethical Aspects
1. Canon of equality.
This is based on the following concept
The subjects of every State ought to contribute towards the support of
the govt., as nearly as possible, in proportion to there respective abilities;
that is, in proportion to the revenue which they respectively enjoy under
the protection of the State.
This canon tries to observe the objective of economic justice. It dictates
that in absolute terms the richer should pay more taxes because without
15

the protection of the State they could not have earned and enjoyed that
extra income. If we interpret this principles in terms of this disutility
which the tax payers suffer by paying taxes, it follows that the tax should
impose equal marginal disutility upon every tax payer. Tow possibilities
emerge in this case. If incomes are subject to constant marginal utility,
then both the rich and the poor should be subjected proportional taxation
each person paying a given percentage office income as tax. On the
other hand, if we agree with the more realistic proposition that income is
subject to diminishing marginal utility, than the richer should pay a larger
proportion of their income as taxes.
B: Administrative Aspects
2. Canon of Certainty:
This canon is meant to protect the taxpayers from unnecessary
harassment by the tax officials. The tax which each individual is bound
to pay ought to be certain, and not arbitrary. Some fact should be clear
and plain to the contributor and every other person, such
The time of payment
The quantity of payment
The manner of payment
The tax payers should not be subject to arbitrariness and discretion of
tax officials, since that breeds a corrupt tax administration. Smith is so
emphatic about this principle as to claim that a very considerable degree
of inequality.is not near so great an evil as a very small degree of
uncertainty.
Certainty is needed not only from the point of view of the tax-payer but
also from that of state.
3. Canon of Convenience:
This canon takes into consideration the interest of the tax payer from the
view of payment of tax. It emphasizes that the mode and timings of tax
payment should be, so far as possible, convenient to the tax payers. This
16

canon recommends that unnecessary trouble to the tax payer should be

avoided, other vicarious ill effects may result.

4. Canon of Economy:
Every tax has a cost of collection. This canon recommends that cost of
collection of taxes should be as minimized as possible. It will be unless to
impose taxes which are too widespread and difficult to administer.
Productivity of taxes has been given importance in this canon. These
taxes entail an unnecessary burden upon the society in the form of
additional administrative expense. The productive effort of the people
suffers due to this wastage. Realizing that the tax collections are being
wasted, the tax payers also tend to evade them.
These canons of taxation of a sound philosophy behind them and exhibit
an insight into the practical aspect of tax administration and its effects.
However, in view of development in economic philosophy and problems
of a modern state, a few additional principles were also suggested by later
writer. A brief description of these is as follows:
5. Canon of Productivity:
It is also called the canon of fiscal adequacy. According to this principle,
the tax system should be able to yield enough revenue for the treasury
and the govt. should have no need to resort to deficit financing. The
canon is thus also called canon of adequacy.
6. Canon of Buoyancy:
The tax revenue should have an inherent tendency to increase along with
an increase in national income, even if the rates and coverage of taxes are
not revised.
7. Canon of Flexibility:

17

It should be possible for the authorities without undue delay, to revise the
tax structure, both with respect to its coverage and rates, to suit the
changing requirements of the economy and of the treasury.

8. Canon of Simplicity:
The tax system should not be too complicated. That makes it difficult to
administer and understand and breeds problems of difference in
interpretation and legal disputes.
9. Canon of Diversity:
It is risky for the state to depend upon too few a source of public revenue.
Such a system is bound to breed a lot of uncertainty for then treasury. It is
also likely to be inequitable as between different sections of the society.
On the other hand, if the tax revenue comes from diversified sources, then
any reduction in the tax revenue on account of one cause is bound to be
very small. However, too much multiplicity of taxes is also to be avoided.
That leads to unnecessary cost of collection and violates the canon of
economy.

An Overview of Tax System in

Bangladesh
1. The tax structure for individual tax payers:
If an individual has been in Bangladesh for a period/period totaling 182
days or more in the income year, he/she is considered a resident. In case
an individual has been in the country for 90 days in the income year and

18

365 days in four years preceding this year, he/she will also be considered
a resident.
Each individual is entitled to an investment tax credit of 15 percent of the
total income or Tk. 100,000 whichever is less. Incomes from small and
cottage industries are entitled to a 5 to 10 per cent tax rebate depending
on the production volume. Tax liability of an assessee is determined at the
rate or rates applicable on the total income of the assessee. The tax rate is
not uniformed for all types of assessee and for any level income. This is
varied from assessment year to assessment year.
Table 1: For the assessment year 2006/07
Rate
on taka tk. 1,20,000

Nil

on next taka tk. 2,50,000

10%

on next taka tk. 3,00,000

15%

on next taka tk. 3,50,000

20%

on the rest

25%

Source: NBR financial Report 2006

2. The percentage of corporate tax levied:

Any income collected or gained by a company doing business in
Bangladesh, whether resident or not is taxable. Corporate tax rates for
industrial companies whose shares are publicly traded is 35% and the rate
of those whose shares are not publicly traded is 40%.
Tax rates on income of all other companies including banks, financial
institutions, insurance companies and local authorities are 45%.
Companies enjoying tax holiday are required to invest only 25% to 30%
of their income in other activities as per rules of the National board of
Revenue (NBR).
3. The period for assessment determined:

19

Income tax is levied on all companies and individuals for the previous
year and payable for the year of assessment of fiscal year (July to June).
If a company adopts an accounting period different from the fiscal year,
the business period is a 12 month accounting period preceding the year of
assessment. Taxable income is calculated after adjusting for incurred
expenses in the production of income.
Returns filed received by or due to foreign technician under contract if it
is accompanied by audited accounts and certified by a chartered
accountant as to the correctness of the total income of the assesses.
Salary income received by or due to a foreign technician under contract
of service approved by the NBR is fully exempted from paying tax
(subject to prescribed conditions and limitations) for a period of three
years from the date of his arrival in Bangladesh.
Expenditure incurred by an employer in respect of remuneration of a
foreign technician is also fully exempted from income tax (subject to
stipulated conditions).
Expenditure incurred as a remuneration payable to a foreign technician by
a Bangladeshi firm carrying on the business of consultant and engineers
in Bangladesh is fully exempted from tax (subject to prescribed
conditions and limitations).
4. Tax Administration in Bangladesh:
National Board of Revenue (NBR) is the central authority for tax
administration in Bangladesh and collects almost 78 percent of total
revenue for the country (NBR annual report, 2000). Table 1 show that the
total internal resource generation due to revenue earnings has been
accounted for less than 10 percent of the gross domestic product (GDP)
of Bangladesh in recent years. Tax revenue in general contributed more
than eighty percent towards the total revenue earning of the economy.
Table 2: Revenue Yield in Bangladesh (1990/91 - 2000/01)

20

NON-TAX2
REVENUE
(%)

TOTAL1
REVENUE
(%)

TAX2
REVENUE
(%)

1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002

9.13
9.22
9.84
9.22
9.62
9.50
9.00
8.47
9.28
9.83

7.26
7.07
7.90
7.29
7.89
7.69
7.36
6.78
7.80
8.09

1.87
2.15
1.94
1.93
1.73
1.81
1.64
1.69
1.47
1.74

Periodic Average
1992/93-1996/97
1997/98-2001/02

9.41
9.22

7.48
7.54

1.93
1.67

Periodic Average3
1975/76 1979/80
1980/81-1984/85

8.8
9.2

5.5
7.7

1.3
1.5

YEAR

Note: 1. Total Revenue as Percentage of GDP

2. Tax and non-tax revenue as a percentage of total revenue

3. Adopted from previous Study by Ghafur, A. and Chowdhury,
O.H. (1987)
Source: Finance Division, NBR and BBS (Note: Periodic data compiled by author)

21

Determining the Existing Position of

the
Tax in Bangladesh:

Canon of

1. Impartiality of imposing tax (Canon of Equality):

In Bangladesh majority of people are lower earning people. According to
canon of equality both the richer and poorer should pay a certain amount
of their income as tax. National Board of Revenue (NBR) is the central
authority for tax administration in Bangladesh formed a tax structure for
the tax payers. This is subject to pay tax according to individuals ability
to pay.
Taxpayers in Bangladesh can be categorized into three main groups.
Table 3 shows the scenario in detail. The elite group consists of corporate
taxpayers those are about 3.02 percent of the total taxpayers. The next
group consists of wage earners or salaried taxpayers and shares about
18.81 percent. The largest and the last group consists taxpayers of
remaining all others and mainly those who have income from business
and profession and shares about 78.17 percent.
Table 3: Types of Taxpayers in Bangladesh
(as of FY 2005-2006)

Types

No. of Tax payers

Corporate tax payers

Salaried tax payers
Other tax payers

24,770
154,245
640,795

3.02
18.81
78.17

22

Total

819,810

100.00

Source: NBR annual report 2005/06

In reality a major portion of taxes is paid by a small group of people with

higher marginal rates. As stated the question arises whether the
agriculture sector in Bangladesh will remain untaxed or not. Simply, in a
country having its sixty percent population engaged in this sector, if kept
untaxed for eternity will be undoubtedly impede broadening of the much
desired tax base. Since the land distribution is widely unequal, one way
might be to bring the top landowners under the tax net with major tax
exemptions under some presumptive tax rates. Other way could be to
reconsider their income as per their statement or estimating their income
based on landownership and market rates. Table 4 shows the result of an
analysis of personal income tax scenario in Bangladesh based on income
classification
Table 4: Types of Taxpayers on the basis of Individual Income Taxes
Income
Classificatio
n
(in Taka)

Number of
Individual
Taxpayers

% of total Collection of
taxpayers in Tax Revenue
each
(Million
category
Taka)

0-100,000

371,172

53.42

4.10

0.08

100,001200,000
200,001250,000
250,001350,000
Above 350,000

233,910

30.67

1,403.30

7.01

60,463

8.71

1,606.60

21.27

29,177

4.20

2,124.60

31.34

15,516

3.00

2,815.30

40.30

Total

794,722

100.00

6,512.60

100.00

Source: NBR annual report 2004/05

2. Assurance of paying tax (Canon certainty):

This is about canon of certainty. The factor such
Time of payment (When to pay)
23

Payment of
Taxes by
each group
in %

Quantity of payment (How much to be paid)

Manner of Payment (How to pay)
should be apparent and plain to all the contributors who pay tax so that
the tax paid easily. In Bangladesh all of the factors that stated above are
determined by the NBR (National Board of Revenue). Certainty is needed
not only from the point of view of the tax-payer but also from that of
state.
2.1. Time of payment The assessment year and income should
be apparent to the entire tax payer. In Bangladesh this is clear to all. The
income year is the fiscal year or the year commencing on 1st July every
year immediately preceding the assessment year or where the accounts of
the assesses have been made upto a date within the said financial year and
the assessee so opts. The twelve months ending on such day. And the
assessment year means the period of twelve months commencing on first
day of July every year. For example

Income Year
2000/2001

Assessment Year
2001/2002

2.2. Quantity of Payment NBR (National Board of Revenue)

sets the quantity of payment known as Tax rate in every year. Tax
liability of an assessee is determined at the rate or rates applicable on the
total income of the assessee. The tax rate is not uniformed for all types of
assessee and for any level income. This is varied from assessment year to
assessment year.
Table 5: Tax rate
To be paid

Rate

on taka tk. 1,20,000

Nil

on next taka tk. 2,50,000

10%

on next taka tk. 3,00,000

15%

on next taka tk. 3,50,000

20%

on the rest

25%

24

Source: NBR Annual Reports (FY2006 FY2007) and Ministry of Finance,

2.3. Manner of payment This is subject to method of payment.
Government of Bangladesh

The reports considers a time series tax data on both personal and
corporation income taxes from FY2004-FY20051 for calculating the
revenue trend and marginal and average tax rates over the years and a
cross section data of last available fiscal year 2005/06 to determine the
sector wise tax burden. First of all, taxpayers information of different
category and revenue yield in each sector is needed. National Board of
Revenue (NBR) annual reports are considered as main indirect source in
that aspect. Year-wise revenue collection and statistics is important to
forecast the revenue trend, also based on such reports. To analyze the tax
incidence in each major fields of taxation, it is important to measure the
progressivity of taxes and hence to calculate the marginal and average tax
rates in different income year. Sector-wise tax collection data has been
collated to analyze the revenue trend and their respective contribution
over the years.
2.3. Manner of Payment The average and marginal tax rates for
different income groups show the degree of progressiveness of any tax
system. Many reasonable alternatives have been proposed to find out the
ratios. Formby, Smith and Skyes (1986) two methods are used here for
the calculation of the vital ratios for Bangladesh tax structure. The first
method says that the greater the increase in average tax rates as income
increases, the more progressive the system. Algebraically, let T0 and T1
be the tax liability of income levels I0 and I1, respectively (assumption,
I1 is greater than I0). The measurement of progressiveness, V1, is
V1 = (T1/I1 T0/ I0) / (I1 I0)
Once the analyst has found the economic incidence of the tax as
embodied in T1 and T0, the tax system with the higher value of v1 is said
to be more progressive. The second possibility is to say that one tax
system is more progressive than another if its elasticity of tax revenues
with respect to income (i.e., the percentage change in tax revenues

25

divided by percentage change in income) is higher. Here the expression to

be evaluated is V2, defined as
V2 = (T1 T0)/ T0 (I1 I0)/ I0
1

Fiscal Year (FY): July to June

4. Canon of Convenience:
Every tax ought to be levied at the time or in the manner in which it is
most likely to be convenient for the contributor to pay it. This ought to be
specified to every contributor that
Whom to pay
How much pay
Whether the given amount is used for
common purpose or not.
Everything has to be convenient to every tax payer otherwise they try to
evade the tax and various ill effects may result. In Bangladesh the
report of revenue from tax the expenditure plan is published every year.
But Bangladesh is unable to raise enough resources in taxes. The taxGDP ratio was only 3.4% in 1972-73 and it remained below 9% until the
introduction of VAT in the country in 1991. The ratio was 9.8% in 199293 and although it was more than 9% in the successive years, it never
reached 10%. The revised budgets of 1999-2000 and 2000-01 estimated
the ratio at 8.6%. The budgeted expenditure of 2001-02 was Tk. 447.65
billion against projected total revenues of Tk. 272.39 billion i.e., the
overall deficit was Tk. 175.26 billion. The revenue receipts included tax
revenue of Tk. 220.23 billion (13% higher than that in the preceding year)
and non-tax revenue of Tk. 52.16 billion (11% higher than that in the
preceding year). The tax revenues covered only 40% of total
expenditures.
4. Cost Cutting Measure (Canon of Economy):

26

Every tax ought to be so contrived as both to take out and to keep out of
the pocket of the people as little as possible, over and above what it
brings into the public treasury of the State. The canon of economy urges
that the cost of collection should be as minimum as possible. In
Bangladesh since 1972 when the NBR was established try to minimize
the cost of collection of tax. As the administration is expert and
experienced and the system is more sophisticated day by day the cost is
minimized to some extent.
Table 6: Revenue Earned v/s Cost Of Collection

Fiscal Year
1996/97
1997/98
1998/99
1999/2000
2001/2002
2002/2003

Revenue Earned
(in crore Taka)
14074
15001
15855
17096
19278
29071

Cost of Collection
(in crore Taka)
1072
1236
970
339
313
389.56

Source: NBR Annual Reports (FY2002 FY2003)

5. Tax revenue not at Efficient Level (Canon of Productivity):

Though every tax has a cost of collection, the cost should not be yielded
at exceeding level of total expenditure. Otherwise it would not be
efficient for any country. After the liberation war Bangladesh can not
reach at perfect efficient level till now.
Table 7: Measure of Efficiency

Fiscal Year

27

Revenue
Earned
(in crore
Taka)

Cost of
Collection
(in crore
Taka)

Productivity
%

1996/97
1997/98
1998/99
1999/2000
2001/2002
2002/2003

14074
15001
15855
17096
19278
29071

1072
1236
970
339
313
389.56

13.12%
12.13%
16.34%
50.43%
61.59%
74.62%

According to this table shows in 2001/02 productivity was measured by

61.59% and in 2002/03 it was measured by 74.62% which is not desirable
.This is a bottleneck in the process of progress of the economy of
Bangladesh.
6. Elastic Tax Structure (Canon of Elasticity):
Tax liability of an tax payer is determined at the rate or rates applicable
on the total income of the contributors. So it is important to know the rate
or rates applicable for both different types of assessee and the tax
authorities for different assessment year.
For The Assessment Year of 2005-2006 and 2006-2007
For the Assessment Year 2005/06
Rate
on the first tk. 1,00,000

00%

on the next tk. 2,00,000

on the next tk. 2,50,000

10%
15%

on the next tk. 3,50,000

20%

on the rest income

25%

For the Assessment Year 2006/07

Rate
on tk. 1,20,000

Nil

28

on the next tk. 2,50,000

on the next tk. 3,00,000

10%
15%

on the next tk. 3,50,000

20%

on the rest income

25%
It is to be mentioned that the minimum tax liability of an assessee from
the assessment year 2005/06 it is tk. 1,500 and for 2006/07 it is tk. 1,800.
It is to be noted that for small & cottage industry situated in less
developed or least developed areas tax rate rebate will be allowed as
follows:

PARTICULARS OF CONDITION
Production increased by 15-25% over last ear
Production increased over 25% than last year

TAX
REBATE
5% rebate on
tax rate
10% rebate on
tax rate

Tax rate of a company for the assessment year 2005/06 and 2006/07
In the Finance Act, 2005, the tax rates for the companies have been
changed as follows:
DESCRIPTION OF THE
COMPANY

TAX RATE
2005/06

TAX RATE
2006/07

1)
ALL
PUBLICLY
TRADED
COMPANY
(EXCEPT
BANKS,
INSURANCES, LEASING
AND OTHER INVESTING
CO.)

30% of total
income

30%

29

37.5% of total
income

40%

2)
NOT
PUBLICLY
TRADED
COMPANY
(EXCEPT
BANKS,
INSURANCES, LEASING
AND OTHER INVESTING
CO.)

45% of total
income

45%

3) BANKS, INSURANCES,
LEASING AND OTHER
INVESTING CO.
Here is to be noted that if a publicly traded company declares dividend
more than 20% then it will get tax rate rebate @ 10%. Further, if a
publicly traded company declares dividend less than 10% it will be taxed
@ 37.5%. For 2006/07 instead of 37.5%, it will be 40%.
[Source: NBR annual reports 2005/06 and 2006/07]

7. Tax to be imposed on Multi Sources (Canon of Diversity):

It is risky for the state to depend upon too few a source of public revenue.
Such a system is bound to breed a lot of uncertainty for then treasury. Tax
system of Bangladesh is based on multiple tax system. A good number of
taxes are in existence. Among these taxes, contribution of indirect taxes
to the exchequer is quite significant.
Direct taxes consist mainly of income tax and land tax, etc. Whereas
indirect taxes consist of import export duty, value added tax, motor
vehicle tax, excise duty, etc. The following table shows the contribution
of different taxes to total tax revenue:
Table 8: Quantum of different taxes vis a vis total tax revenue
(in crore Tk.)
Types of Tax

1998/99

1999/2000

2000/01

2003/04

Income Tax

2,335

2,980

3,800

5,270
30

Import export duty

Excise duty
VAT
Supplementary Duty
Motor vehicle tax
Land Revenue
Non judicial Stamp
Others

4,755
205
4,800
2,540
125
215
625
255

4,536
240
5,405
2,664
111
266
692
208

4,790
275
5,940
3,035
120
301
807
200

7,300
170
8,575
5,430
241
259
710
1,116

Total

15,855

17,096

19,278

29,071

Source: A journal published by NBR

From this table it is evident that value added tax and export-import duty
contributed lions share to the total tax revenue followed by income tax
and Supplementary tax. It has earlier been pointed out that the tax

system of Bangladesh is based on multiple taxes. And also has been

pointed out that the tax revenue comes from diversified sources, and then
any reduction in the tax revenue on account of one cause is bound to be
very small.
Considering the existence tax structure and the previous structure it is
noticed that the cost of collecting of tax from multi sources is not higher
than the cost of collecting tax from single source such income, land tax.
Rather tax from multi sources plays a vital role in budget.

31

Conclusion & Recommend

ations
1. Conclusion:
This is the recent scenario of taxation system of Bangladesh. Attaining an
optimal tax system is a difficult and unenviable task, but nevertheless
critical for revenue generation required for accelerating growth and to
improve the quality of life of the citizens. Economist Adam Smith
introduces the core canon of taxation which are effective for any country
to develop its economic growth. The rests are also play an important role
to cover common expenditure of a country and essential for economical
development. If we abide by this canon of taxation perfectly we do not
need the help of foreign aids. These are the weapon to take Bangladesh
ahead in globalization war. Govt. should take some step so that tax payers
and tax authorities are bound to abide by these canons. This report
unveils the present scenario of tax incidence among different income
groups, in case of personal and corporation income taxes in Bangladesh
tax system.
2. Recommended Strategy:
1. There is a need to educate people in Bangladesh for developing
tax culture.

32

2. Tax Evasion should be given as priority number one monster

and a strategy to be worked out to effectively tackle it.
3. Income Tax rates should be substantially reduced with quantum
jump in the number of income tax assesses.
4. Tax structure is to be simplified to encourage potential assessees
to deposit the income tax into the coffers of me sate.
5. National movement must be launched with the slogan: Let us
all pay income tax.
6. The tax dodgers ought to be caught.
7. Aware the people about payment of tax.

33

Bibliography
Books and Web Address
1. Income Tax
[Revised according to financial act,
2005]

Author
Dr.Munir Morshed Mahmud
Dr. Kanchan Kumar Purohit
Dr. Milan Kumar
Bhattacharjee

2.http://www.asiatradehub.com/
bangladesh/tax.asp

Not Applicable

3.http://en.wikipedia.org/wiki
/Tax system

Not Applicable

4. Financial reports (2002/03,

2003/04, 2004/05, 2005/06)

National Board Of Revenue

(NBR)

5.http://www1.worldbank.org/publics
ector/tax/
6. Revenue Reforms Commission
Report

Not Applicable
The Daily Star, January 14,
2004

34

7. Income Tax Manual, Part I, The

Income Tax Ordinance, 1984
(XXXVI of 1984) Government of the
Peoples Republic of Bangladesh

35

Bangladesh Government Press,

Dhaka, 1999