Act370_Taxation_Final Assignment

Submitted by:
Name: Ankan Saha
ID: 1711046030
Section: 02

Submitted to:
Kali Shankar Roy (Ksr)
Department of Accounting and Finance

Submission Date: 04-06-2020

 Part-A
A-1:

PROFIT AS PER AUDIT REPORT 10,340,000

ADD
Legal expenses 350,000
Business Income from Sale of Machinery 600,000
SALARIES( Retired Manger House rent) 500,000
Printing and stationary Expense 400,000
Bad debt (600,000 +65,000) 665,000
Shortage of cash 260,000
Interest on Govt securities 400,000
Other Income 1,140,000
4,315,000
14,655,000

Less :Non business Income

Bad Debt written off 75000
Profit on sale of Asset 500,000
Interest on Govt securities 400,000
Share premium 350,000
Other Income 1,140,000
2,465,000
BUSINESS INCOME 12,190,000

Capital Gain
selling price (500,000 + 100,000) 600,000
Less: cost 1,000,000
Capital Gain 0

Recvenue gain
GAIN ON SALE OF ASSET
600,000.00
LESS CAPITAL GAIN
-
Recvenue gain 600,000

Summary Tax Rate Tax Payable

Business Income 12,190,000 33.50% 4083650
Income tax On tax free securities 400,000 0% 0
Share premium 350,000 10% 35000
 Recvenue gain 600,000 33.50% 201000
Other income 1,140,000 33.50% 381900
Total 4701550
TURNOVER RATE
MINIMUM TAX @.40% ON TURNOVER 0.40%
25,000,000.0 100,000.00
0

TAX LIABILITY(MINIMUM TAX OR TOTAL TAX

WHICHEVER IS HIGHER) 4,701,550.00

A-2: Please enumerate how tax reforms of Bangladesh is influenced by the informal
institutions.

Answer: Before amplifying this question we have to know about the tax reforms. What is called
tax reforms?
Tax reform: Tax reform is a process in which the tax policies of a government are changed. The
usual goal of promoters for tax reform is more fairness in taxation, but there are a number of
ways to assess fairness, and what seems fair to one person might seem like a gross imposition
to another. The goals of tax reform can cover things like how taxes are administered, collected,
and handled, as well as how the tax code is structured. Some tax reformers actually want to
abolish taxes altogether, while others would like to see changes in how taxes are handled. For
example, a reformer might advocate to get rid of income taxes and focus on sales taxes for the
purpose of taxing consumption, rather than income, arguing that this method would be fairer.
Some tax reformers advocate for a flat tax, in which everyone pays the same amount or the
same percentage of income in taxes. Others would prefer to see scaled tax systems like those in
use in many nations which charge income tax in brackets, allowing low income individuals to
pay a lower percentage in tax while high income individuals pay more.
Tax reform of Bangladesh is influenced by the informal institution: Bangladesh presents a
desirable case during which to explore the economics of taxation. In its broad characteristics,
the legal system in Bangladesh resembles those of most other developing countries,
administration is led by the National Board of Revenue (NBR), which is split into three divisions:
tax, VAT, and Customs. Though confrontation to tax reform may be a common feature of the
policy site in lower-income countries, the weird determination and strength of resistance in
Bangladesh is striking. Not only does the prevailing legal system fail to form significant revenue
for the govt, but extremely high levels of corruption and discretion within the system appear
abomination to the will amongst businesses for Predictability and low rates. Understanding the
persistence of this seemingly dysfunctional system demands going beyond the formal features
of the system and therefore the formal interests of individual actors. Instead, a full explanation
lies within the informal rules, norms, and networks that have shaped de facto outcomes and
made the prevailing system interdependent to powerful political, economic, and administrative
actors. What follows briefly describes the interests of administrators, businesses, and
politicians, before highlighting the ways during which their interests are interconnected within
the prevailing system. Larger firms have traditionally been most concerned with defending
existing incentives, exemptions, and special regimes within the VAT and tax laws, also as
informal practices that leave corruption and collusion in reducing the effective tax burden.
Their lobbying has been grounded in support for both leading parties, and in close relationships
between political and economic elites.16 By partial contrast, small and medium-sized
enterprises (SMEs) are more consistently mobilized con to the VAT, out of a fear of stronger
enforcement and increased compliance costs. This reflects their small size and frequent
informality, and has resulted in success in pushing for retention of a widely applied presumptive
tax regime for little firms. Unlike larger firms, their political influence is grounded in their
national organization and potential for disruptive collective action.

Finally, while this paper has focused on the legal system, it's sought for instance the potential
for debates over taxation to act as a lens through which to know broader political dynamics.
Significant recent research has focused on the so-called ‘paradox of Bangladesh’, with informal
institutions ensuring the predictable distribution of rents, relative political stability, and
continued economic process despite high corruption and dysfunctional formal governance This
paper has provided an in depth view of the functioning of precisely this sort of dynamic within
the governance of taxation, while highlighting the ways during which formal and informal rules
are negotiated and renegotiated within the face of domestic and external stresses. Disclosure
statement No potential conflict of interest was reported
The government responded by seeking a technique that would simultaneously satisfy powerful
local constituencies also as IMF demands for reform. In practice it had been ready to do so by
drawing on both formal and informal bargains with key stakeholders in reaching a mutually
acceptable compromise. The Awami League was persuaded to quieten its opposition after
significant lobbying by the reform leadership, and by the planet Bank and IMF. It feared being
branded irresponsible and ‘anti-market’ following its defeat in earlier elections, while its
willingness to compromise was equally an early example of aggressive partisan political
competition being moderated so as to manage key areas of economic regulation. Meanwhile,
the political leadership relied on its clientelistic relationship with the elite leadership of the
Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) so as to solicit a proper
statement of support for the reform. Informal norms and networks again appear to possess
been critical in persuading large businesses that their interests would be protected following
reform, whether formally or informally. Having reached agreement with these larger actors, the
govt pursued a series of more explicit compromises so as to deal with persistent resistance
from the broader businessmen and from battlefront NBR officials. Small and medium business,
particularly within the wholesale and retail sectors, wielded the potential to mobilize disruptive
2011; Chowdhury 2005; TIB 2011). However, the 2 VAT reform efforts offer particularly high-
profile illustrations of the broader dynamics of reform. 21 protests and, at the acute, violence.
They were placated with the introduction of the so-called ‘package system’, which offered small
firms a simplified tax regime that might effectively guarantee lower tax burdens and expanded
scope for negotiation with tax officials. Meanwhile, NBR officials were granted various
concessions allowing them to retain a degree of discretion and control through, for instance,
continued requirements that prices utilized in calculating VAT liabilities had to be approved by
tax officials. More importantly, NBR officials successfully resisted efforts aimed toward
reorganizing or modernizing the administration by drawing on their high-level political patrons
to defend the executive status.

Part-B
B-1: Do you believe that psychological preparedness of tax payers is one of the driving factors for
successful implementation of tax policy. Amplify what you believe?

Answer: Yes, I believe that psychological preparedness of tax payers is one of the driving factors for
successful implementation of tax policy. Because of common human attitude. Nobody will like to pay tax
even not least since it involves betterment of public facilities and at the same time there are incentives
to free ride. Selfish individuals would be encouraged not to pay taxes, because the chance of being
detected and the size of the fines are so low that it is advantageous to evade. Tax payment is considered
to be a ‘quasi-voluntary’ act and the tax authority must acknowledge that external interventions in the
form of rewards or sanctions may crowd out the intrinsic motivation to pay taxes. The idea of intrinsic
motivation is largely attached to psychology. It is identified that under particular conditions, monetary
(external) rewards undermine intrinsic motivation. Giving of rewards for undertaking an activity has
indirect negative consequences as rewards lead to the expectation of future rewards such that desired
behavior is undertaken only if rewards are provided. The basic ides may be generalized three ways:

(a) All types of external interventions may negatively affect intrinsic motivation, i.e. not only offering
rewards but also issuing commands, imposing rules and regulations as well as punishments. Thus,
deterrence imposed by the tax authority, may undermine individuals ‘intrinsic willingness to conform to
tax laws.

(b) The intrinsic motivation affected by external intervention is broadly conceived. It comprises actions
undertaken for their own sake, i.e. without expectation of external reward, as well as internalized norm
guided behavior. The latter is the relevant concept as far as taxpaying is concerned.

(c) External interventions undermine intrinsic motivation when they are perceived to be intrusive by the
individuals concerned (‘crowding out effect’), and they maintain or raise intrinsic motivation when they
are perceived to be supportive. The underlying psychological processes depend on how self-
determination and self-esteem are affected. Tax audits (reopening of assessments under Sec.93 or
selecting returns filed under “Universal self-assessment scheme”) as intrusion by tax authorities can
undermine tax morale more strongly if the taxpayers’ sense of self-determination is high.

In a country like Bangladesh we can see that almost 68% of the people who earns taxable income
are not paying tax. Which is clearly not a good sign for the government. We can see that the
government will not be able to earn enough revenue to develop the country if this situation of the
tax paying continues. Although the people are starting to earn a lot of money but since most of
them are not paying tax we can see that the government are not having enough revenue so that
they can use the money to and start to develop the country. This is a problem which is existing
for a very long time that is being very hard for the government for being solved.
In my opinion the main reason most of the people are not paying tax is because of most of the
individuals lack the psychological preparedness for paying tax. We can see that most of the
people of Bangladesh view paying tax as a pain. They do not like to pay tax as they see this as
reducing their income for no reason. It is the duty of the government to make these people realize
that paying tax is not a pain rather it is a commitment to our previous generation and the future
generation. It is a commitment to our previous generation because we can see that we are helping
the government like they did to develop our country and we are also helping the state to be a
better and developed place for our future generation. This is how we are maintaining a
commitment to our previous generation and our future generation. We can see that it is the duty
of the government to finally make the people of the state realize that paying tax is obligatory and
if we are having any type o0f taxable income then it is our duty to pay the tax to the government.
We can see that the people should realize that their tax is main source of the government of the
state that they receive to develop the country. There are also many facilities that every citizen of
a state is enjoying, the people of the state should realize their tax is indirectly paying for these
facilities and if they do not pay tax then they might not get these type of facilities.
So we can see that once the people of the state start tom realize that paying tax is their obligation,
then a psychological preparedness will work inside them for paying the tax as soon as they get
their salary. We can see that they will not see this tax paying as a pain and deny to pay tax.
Rather, they will see this tax paying as an obligation and also a commitment to their previous
generation and the future generation. We can see that it will be very normal to them like a daily
routine to pay tax and then the number of tax payers will drastically increase which will help the
government to develop the state. We can see that if people are always aware about the paying tax
then it will be very easy for the government for implementing the tax policy.
So, in conclusion we can say that the psychological preparedness of the tax payers is one of the
main driving factor for implementing a successful tax policy.

B-2:

ENTYITY-01

SELLING PRICE 50.00

AMOUNT TO BE COLLECTED FROM IMMIDIATE BUYER 50.00

ENTITY-02

PURCHASE PRICE 50.00

PAYMENT ON ACCOUNT OF VAT -

TOTAL APPLICATION OF FUND 50.00

VALUE ADDITION 5.00

COGS 55.00

PROFIT MARGIN 11.00

SELLING PRICE 66.00

VAT 9.90

AMOUNT TO BE COLLECTED FROM IMMIDIATE BUYER 75.90

ENTITY-02 TO RETAIN 66.00

DEPOSIT TO TREASURY 9.90

ENTITY-03

PURCHASE PRICE 66.00

PAYMENT ON ACCOUNT OF VAT 9.90

TOTAL APPLICATION OF FUND 75.90

VALUE ADDITION 7.92

COGS 73.92

PROFIT MARGIN 7.39

SELLING PRICE 81.31

VAT 12.20

AMOUNT TO BE COLLECTED FROM IMMIDIATE BUYER 93.51

ENTITY-03 TO RETAIN 81.31

DEPOSIT TO TREASURY 2.30

RECOVERING VAT PAID 9.90

93.51

ENTITY-04

PURCHASE PRICE 81.31

PAYMENT ON ACCOUNT OF VAT 12.20

TOTAL APPLICATION OF FUND 93.51

VALUE ADDITION 8.13

COGS 89.44

PROFIT MARGIN 17.89

SELLING PRICE 107.33

VAT 16.10

AMOUNT TO BE COLLECTED FROM IMMIDIATE BUYER 123.43

ENTITY-04 TO RETAIN 107.33

DEPOSIT TO TREASURY 3.90

RECOVERING VAT PAID 12.20

123.43

Entity-05

PURCHASE PRICE 107.33

PAYMENT ON ACCOUNT OF VAT 16.10

TOTAL APPLICATION OF FUND 123.43

VALUE ADDITION 12.34

COGS 119.68

PROFIT MARGIN 23.94

SELLING PRICE 143.61

VAT 21.54

AMOUNT TO BE COLLECTED FROM IMMIDIATE BUYER 165.15

ENTITY-05 TO RETAIN
 143.61

DEPOSIT TO TREASURY 5.44

RECOVERING VAT PAID 16.10

165.15

Entity-06 Ultimate Consumer

Have to Pay for consumption 143.61

VAT 21.54

Total Amount to pay 165.15

X

1. Here we can see that the VAT is only paid by the ultimate consumer and also we can see
that the COGS of any of the entities are not impacted due to the Vat and also Vat
doesn’t have any impact on of the profitability of value adders. Because who made the
product didn’t impose the vat. Vat usually impose by the reseller and reseller gets the
vat from the buyer, hence vat doesn’t give any profitability to the value adder.it is
enough to prove that the VAT has no impact to the profitability upon the value adders

2. The cost of consumption by the ultimate consumer is absolutely dependent on the

length of the value addition chain. We can see that the longer the value addition chain
the greater the cost of consumption will be. Here, we can see that the cost of
consumption is BDT 165.15, but if there was only 5 Entities then the final cost of
consumption would have been BDT 123.43. So, we can say that the cost of consumption
is influenced by the length of the value addition chain.

B-3: Do you consider tax rebate as simple an offer from the government to relive the tax burden of tax
payers. Explain what you consider..
Answer: Tax rebate as a refund of taxpayer money after a retroactive tax decrease. These measures are
more immediate than tax refunds because governments can enact them at any time during the year.

Yes, I believe that tax rebate is an offer from the government that relive the burden of tax payers.
Rebate is not just a relief for the tax payers but also an instrument for the government to increase the
rate of interest by promoting incensement in certain sector which will help in controlling the money
malefaction. So, Rebate is given to promote the tax payers not to consume more, but to make a balance
between consumption and differed consumption.

B-4: Explain the impact of having the positive and negative impact figure against row 22 of statement of
assets, liabilities and expenses (From IT10B 2016) upon the equation net worth +consumption=income.
There is no positive negative impact on the from IT because no immediate reaction in tax dictation, loss,
deduction etc. they will go in the asset form.
Here we can see that the net worth is the difference between the Asset and the Liability. If the net
worth is the positive, then it considered to be the source of fund and if the net worth is negative then
it's considered to be the appliance of fund. allow us to see the equation now:

Δ net worth +consumption=income

The left side of the equation is the consists of change in net worth which incorporates the external
liabilities and the capital asset and the unamortized amount of revenue expense. So, it's safe to mention
that the left side of the equation is the appliance of fund and the proper hand side of the equation is the
income which is the source of the fund. If the appliance is bigger than the source i.e. if the left side is
bigger than the proper hand side then the tax are going to be imposed on the hidden sources and the
tax are going to be the difference between the appliance and the Source. On the opposite hand, if the
appliance is a smaller amount than the source i.e. if the left side is a smaller amount than the proper
hand side of the equation then the tax are going to be imposed next year.