Jagannath University

Report
On
Taxation in Bangladesh: Income from
Agriculture

Submitted To
Sonia Munmun
Assistant Professor,
Department of Finance,
Jagannath University, Dhaka.

Submitted By
Group No: 16

Date of Submission: May 10, 2018

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Taxation in Bangladesh: Income from
Agriculture

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Table of Contents
1. Introduction.............................................................................................................................................5
2. Income from Agriculture.........................................................................................................................5
3. Scope of agricultural income...................................................................................................................6
4. Characteristics of Agricultural Income.....................................................................................................7
5. Classification of Agricultural income........................................................................................................8
5.1. Fully Agricultural Income:.................................................................................................................8
5.2. Partly Agricultural Income:...............................................................................................................8
5.3. Other Agricultural Income:...............................................................................................................9
6. Admissible Expenses................................................................................................................................9
7. Non- Assessable Agricultural Income....................................................................................................10
8. How the government can maximize agricultural income tax.................................................................11
9. Other steps can be taken by the government.......................................................................................12
10. Conclusion...........................................................................................................................................12

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Serial Name I.D
no
1 MD. Jahidul Islam Touhed B150203010
2 Maya Patuary B150203012
3 Md. Shafiquzzaman B150203081
4 Jannatul Ferdous B150203090
5 Rashed Hossain B150203102
6 Sanjida Islam B150203106
7 Md. Mostafijur Rahman B130203041

Group-16

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1. Introduction
A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a
functional equivalent of a state. Taxes consist of direct taxes and indirect taxes. Pecuniary burden
laid upon individuals or property to support the government a payment exacted by legislative
authority”. Tax is not a voluntary payment or donation but an enforced contribution, exacted
pursuant to legislative authority and is any contribution imposed by government whether under
the name of VAT, Custom, Excise, or other name. Taxation means imposition of a non-penal yet
compulsory levy for transfer of resources from private to public sector, imposed by the public
representative based on pre-determined criteria and without reference to any specific
commitment, in order to accomplish some nations economic and social objective. These are dues
that we pay for the privileges of membership in an organized civil society. Tax is imposed in the
assessment year based on income year. Total taxes in Bangladesh are divided into direct and
indirect taxes. Direct taxes in Bangladesh consist of taxes on income (income tax, corporation
tax, agricultural income tax) and taxes on property (wealth tax, gift tax, estate duty, capital gains
tax, urban property tax, house rent, land revenue, registration and non-judicial stamp). The direct
taxes in general accounted for less than a fifth of the total tax revenue of the country in the recent
years and the rest is accounted for by indirect taxes.
According to section 20 of the income tax ordinance 1984, agricultural income is the fourth head
among the seven heads of income. It is the most important sector in the economy of Bangladesh,
whereas the contribution of tax from this sector is very insignificant. In Bangladesh, agricultural
income was non-assessable up to 1976. It has brought under the tax net through the finance act
1976.

2. Income from Agriculture

Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and
other products used to sustain life. Agriculture was the key implement in the rise of sedentary
human civilization, whereby farming of domesticated species created food surpluses that
nurtured the development of civilization. The study of agriculture is known as agricultural
science. Agriculture is also observed in certain species of ant and termite.

Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary
crops, wheat is assuming greater importance. Tea is grown in the northeast. Because of
Bangladesh’s fertile soil and normally ample water supply, rice can be grown and harvested
three times a year in many areas. Due to a number of factors, Bangladesh’s labor-intensive
agriculture has achieved steady increases in food grain production despite the often-unfavorable
weather conditions. These include better flood control and irrigation, a generally more efficient
use of fertilizers, and the establishment of better distribution and rural credit networks. With 35.8
million metric tons produced in 2000, rice is Bangladesh’s principal crop

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Crops or trees of spontaneous growth in forests or any other places where there is no human
effort, is not consider as agriculture. As per the various provision of OTI, 1984, generally income
generated from any land situated in Bangladesh or from any other assets used solely for
agricultural purposes is consider as agricultural income.

The allowable deductions under agriculture are given below:

 
 Agricultural income shall be determined after allowing a deduction of 60% from receipt
from agriculture as agricultural expenses to avoid the no acceptable evidences of the
production cost of cultivation.

 If the agriculturist does not have any other income source other than the agriculture then
he or she will get exemption of more taka 50000 after the deduction of 60% of the
receipts as the agricultural expense.

There are some agricultural incomes which are also considered as the business income. As for
example- income from tea gardens is bifurcated between agricultural income and business income
at the ratio of 60% and 40% consecutively. Income from rubber cultivation is also bifurcated at
the same ratio.

3. Scope of agricultural income

According to Section 2(1) of the income tax ordinance, 1984, “agricultural income” means

1. Any income derived from any land in Bangladesh and used for agricultural purposes-
a. By means of agriculture.
b. By the performance of any processes ordinarily employed by a cultivator to render
marketable the produce of such land.
c. By the sale of the produce of the land raised by the cultivator in respect of which no
process, other than that to render the produce marketable, has been performed.
d. By granting a right to any person to use the land for any period.

2. Any income from any building which-

a. Is occupied by the cultivator of any such land as is referred to in sub-clause- In which any
process is carried on to render marketable any such produce aforesaid.
b. Is on, or in the immediate vicinity of such land.
c. Is required by the cultivator as the dwelling house or store-house or other out-house by
the reason of his connection with such land.

From the above discussion it can be said that any income derived from any land or building in
Bangladesh that is used for agricultural purposes will be considered under the head “Agricultural
Income”. There are some other scopes of agricultural income under the considerations of income
process. These are:

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 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 (Tea, Sugarcane, Jute).

 Other agricultural income by notifications.

4. Characteristics of Agricultural Income

 
From the various provisions of the ITO, 1984, various definitions mentioned in dictionaries and case
decisions, the following characteristics are relevant to agricultural income:

i. It must derive from any agricultural land situated in Bangladesh. Land is located outside
the country, it will be considered as foreign income.

ii. It must come from fundamental agricultural work like field cultivation or cultivation of
the ground, in the sense of tilling of the land, sowing seeds, planting and similar basic
and subsequent operation on the field.

iii. Marketing of the agricultural goods should be through the ordinary process.

iv. Income may come from any building situated in the agricultural land or adjacent vacant
agricultural land.

v. Income may come from gain or sale or discarded value of the of machinery or plant used
for agricultural purpose.

vi. Some income may partially be considered as agricultural income such as sale of tea, jute,
rubber tobacco etc.

5. Classification of Agricultural income

Considering the provisions of the ITO, 1984, agricultural income can be classified into following
categories:
 
1. Fully Agricultural income.

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 2. Partially Agricultural income.

3. Other Agricultural income.

5.1. Fully Agricultural Income: According to the provisions under Section 2(1), 26(1),
19(17), & 19(19) of the ITO, 1984, the following incomes Fully Taxable:

i. Any income derived from any land or building situated in Bangladesh and used for
agricultural purposes.

ii. Gain from the sale of the machinery or plant exclusively used for agricultural purposes
(Capital Gain).

iii. Compensation money received against demolished machinery or plant exclusively used
for agricultural purposes (Equipment insurance).

5.2. Partly Agricultural Income: According the Provision under Section 26(2) & 26(3) of
ITO, 1984, the following incomes are partly considered as agricultural income with the standard
proportionate rate:

Nature of partly To be considered as To be considered as Reference

agricultural income agricultural income income from business
or profession

Income from tea 60% 40% Sec 26(2) rule 31

garden
Income from rubber 60% 40% Sec 26(3) rule 32
garden
Income from tobacco/ 60% (if further 40% if further process is Sec 26(3) rule 32
sugarcane/ other processing is done by the done or, nothing
similar products assessee) or,100% is
sold directly after
production

5.3. Other Agricultural Income: In addition to above sources of incomes, the following
incomes are also considered under the head of agricultural income:
 
 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.

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  Income from land leased for agro work.
 Income from sale of herbal or medical plants.

There are also some non-agricultural incomes:

 
 Income from ferry ghat.
 Income from sale of produce that has no agricultural work like forest trees, wild grass,
fruit and flowers.
 Income from salt production on flooded land.
 Income from sale of water for irrigation.
 Income from poultry firm (till 2011).
 Income from butter and cheese making.
 Income from salary working in agro firm and a lot more indirect agricultural income.

6. Admissible Expenses

 Land development tax: Any land development tax or rent paid in respect of the land
used for used for the agricultural purposes
 Local tax: Any tax, local rate paid in respect of the agricultural land is subject to
allowable deduction, provided that no such deduction is allowed if the tax is charged for
any income arising or accruing from agricultural operation.
 Production cost: the expenditure incurred for the following purposes-

i. For cultivating the land or raising livestock thereon

ii. For performing any process ordinarily employed by a cultivator to render
marketable the produce of the land.
iii. For transporting the produce of the land or the livestock raised thereon to the
market.
iv. For maintaining agricultural implements and machinery in good repair and for
providing upkeep of cattle for the purpose of cultivation, processing and or
transportation as aforesaid;

Where the book of account in respect such account is not properly maintained, production cost
will not be the amount claimed by the assessee rather it will be 60% of the market value of the
produce.

 Insurance premium: Any sum pain as premium in order to affect any insurance against
loss of, or damage to the land any crop to be raised from or cattle to be reared on the land
 Maintenance cost for irrigation plant: Any sum pain in respect of maintenance of any
irrigation or protective work or other capital asset; and such maintenance includes current
repair and in the case of protective dykes and embankments, all such work may be
necessary from year to year for repairing any damage or destruction caused by flood or
other natural causes.
 Depreciation: Depreciation expenses are relating to all the assets and facility from which
agricultural income is derived as consider as allowable deduction.

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  Interest on mortgage: Where the land is subject to a mortgage or the capital charge for
the purpose of reclamation or improvement, the amount of any interest paid in respect of
such mortgage or charge

 Interest on borrowing capital: Where the land has been acquired, reclaimed or
improved by use borrowed capital, the amount of any interest paid in respect of such
capital.
 Losses from the Sale of Demolished Machinery: Where any machinery or plant which
has been used by the assessee exclusively for the agricultural purposes has been
discarded, demolished or destroyed in the income year, the amount of losses from such
destruction is allowable expense. But maximum limit of such are:

i. When no insurance or compensation has been received;

 Maximum limits = written down value – scrap value
ii. When insurance or compensation has been received;
 Maximum limits = (written down value – scrap value) – amount of insurance or
compensation money received.

 Losses on sale or exchange of machineries: When any machinery or plant which has
been used by the assessee.
 Other expenses: any other expenditure, not being the nature of capital expenditure or
personal expenditure lay out wholly and exclusively for the purpose of delivering
agricultural income from the land is allowable.

7. Non- Assessable Agricultural Income

According to the various provision of the ITO, 1984, the following agricultural incomes are non-
assessable subject to some conditions:

1. Agricultural is not exceeding Tk. 50,000 is non-assessable for an individual assessee,

where only source of his income is agriculture.

2. Any income thus including indigenous Hillman from agriculture of any district
of Khagrachari, Bandarban, Rangamati hill tracks, which have been solely derived from
economic activities undertaken within the above hill tracks.3.

3. Subject to the condition made hereunder any income from fisheries, poultry, cattle
farming, floriculture, sericulture for the period from the first day of July,2008, to the 30 th
day of June, 2011-

a. Exempted income level is Tk. 150,000 and 10% shall be invested in government
bond.
b. The person should file return the income.
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 c. No such income shall be transferred within five years from the end of the income
year.

8. How the government can maximize agricultural income tax

From this above discussion we have understood that agriculture is the most important sector in
the economy of Bangladesh, So, the contribution of tax of this sector should be very significant.
But in Bangladesh is not collecting agricultural tax according to the expectation.  Because, in
Bangladesh has full of exemption in the sector of agriculture. So the government needs to take
necessary step to maximize agricultural income. The governmental steps regarding agricultural
income tax like-

 A farmer gets the exemption Tk.50000 if he earns only from agriculture.

For maximize the agricultural income tax, government can remove or reduce this above
exemption. Because a person gets exemption Tk.165000 according to the tax lair. So, a
farmer gets the total exemption (Tk.50000+Tk.165000) = Tk.215000. It is one kind of
inequality because farmers get the more tax benefit than other. So, if the government
removes or reduces the exemption, the agricultural tax will be increased.

 An indigenous Hillman gets the full exemption if he cultivates in the hill areas.

For maximize the agricultural income tax, the above exemption shod be stop. Because, as
farmer he has got exemption Tk.215000, if he earns only agriculture. If he earns more
than Tk.215000, so we can consider him as a rich man. So, he needs to provide tax for
contributing to the society.

 Tax holiday. (Any income from fisheries, poultry, production of seed, marketing of
locally produced seeds, cattle farming, dairying farming, horticulture, frog farming, and
floriculture, from the first day of July, 2008 to the thirtieth day of July, 2011. In this
period of time there is no tax for these above agricultural incomes.)

Tax holiday should be closed because if government wants to increase these above
agricultural product, government can take many other steps which more effective like-
providing load without or little interest, training, free seeds and fertilizer will be etc.
Generally, farmers will not think about tax before producing something. So, the
government should remove the tax holiday opportunity.

9. Other steps can be taken by the government

Other steps can be taken by the government to maximize the agricultural income tax. These steps
are given below-

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  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.
 Government can make market in different place in Bangladesh where agricultural
commodity will be sold with government approval document. This document will
essential to show the sale of agricultural commodities. Thus, agricultural income will be
increased.
 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.
 Government can reduce “the production cost percentage of farmer from 60% to 30% or
less”. Because if the farmer has ability to maintain the book of accounts they do not do
this due to high percentage (60%). If percentage is decreased the farmer will have to
maintain books of account. Thus, agricultural income tax can be increased.
 Government also provide training to the farmer for maintaining accounts of book instead
of changing percentage (60%) and the government can show the benefit of maintain book
of accounts to farmers. Like-easily understand the profit and loss of his cultivation.

10. 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.

The heavy reliance on indirect taxation has been treated as one of the main obstacle in attaining
economic progress in developing countries. The problem arises mainly due to the fact that only a
few taxpayers share the burden of taxes. Bangladesh is exception which is also trying to reform
its tax structure for long time through structural adjustment and growing demands have been
placed on it to suggest towards a desirable tax system. A huge segment of the population living
in acute poverty and disparity is also evident in income distribution. Tax burden is ultimately
shared by a limited number of individual taxpayers and corporations. Thus, attaining a broad
based and optimal taxation system is a much desirable task for the government. This study tries
to keep forward such an endeavor by analyzing the distribution of burden of income taxation in
Bangladesh.

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