Definition of Tax ; The word ‘tax’ has been derived from the French word ‘taxe’ and the Latin word ‘taxare’ which means ‘to charge’. Tax is a contribution exacted by the state. It is a non-penal but compulsory and unrequited transfer of resources from the private to the public sector, levied on the basis of predetermined criteria. According to P. E. Taylor, “ Taxes are compulsory payment to government without expectation of direct return in benefit to the taxpayer.
According to Section 2(62) of the Income Tax Ordinance 1984, “ Tax means the income tax payable under this ordinance and includes any additional tax, excess profit tax, penalty, interest, fees or other charges leviable or payable under the ordinance” Characteristics of Tax * Compulsory payment to the government * Imposed by the government * Tax finances the government expenditure * It is one of the prime sources of revenue for the government * It is not a fine or penalty * It is paid by the taxpayer without expectation of any direct return from the government Purposes or Objectives of Taxation Revenue collection * Reduction of inequalities in income and wealth * Accelerating economic growth * Control of consumption * Protection of local industries * Economic development Role of Tax in Economic Development * Optimum allocation of available resources: Imposition of tax leads to diversion of resources from the taxed to the non-taxed sector. This revenue is allocated on various productive sectors with a view to increasing the overall growth of the country. Tax revenues may be used in less developed areas of the country. Reduction of inequalities in income and wealth: Efficient tax system can reduce inequalities in income and wealth. * Accelerating economic growth: Tax policy can be used to handle critical economic situations like depression and inflation. In depression, tax policy is designed to increase consumption and thus to increase the aggregate demand. Tax policy may be used to strengthen incentives to savings and investment. * Raising government revenue: Government need financial resources to meet administrative expenses, to maintain law and order, to ensure social welfare etc.
Increase in tax collection can ensure sufficient resources to such expenditures of the government. * Control mechanism: Tax policy can be used as a control mechanism to check inflation, to check consumption of liquor and luxury goods. It is also used to protect local industry. Canons of Taxation Four canons mentioned by Adam Smith: 1. Canons of Equality: The burden of taxation must be distributed equitably in relation to the ability of the tax payers. 2. Canons of Certainty: The tax payer should be well informed about the time, amount and method of tax payment. . Canon of Economy: The cost of tax collection and payment should be minimum. 4. Canon of Convenience: The time and mode of tax payment should be convenient to the taxpayer. Different Tax System Classification on the basis of incidence * Direct tax (Taxes paid entirely by the persons on whom they are imposed. The burden cannot be shifted to others. Such as Income Tax); * Indirect tax (Taxes imposed on sales or purchase of any goods or services. The burden is shifted to others. Such as VAT, customs duty) Classification on the basis of structure of tax rate Proportional Tax: Whatever the size of income, the rates of taxation remains constant. Same percentage is charged on all taxpayers. * Progressive Tax: The rate of taxation increases as the taxable income increases. Higher the income, higher the rate. It is considered more equitable. * Regressive Tax: Burden falls more heavily on the poor than the rich. Tax rate decreases as the tax base increases. * Degressive tax: Tax may be slowly progressive up to a certain limit, after that it may be charged at a flat rate. Characteristics of a good Tax System 1.
All the canons should be followed in the tax system. 2. Direct and indirect tax amount should be balanced in the system 3. Tax authority should be supported by simple laws and rules and effective and efficient administration. 4. Tax system should have positive effect on the economy of the country. 5. Cost of collecting tax should be minimum. 6. Tax system should ensure maximum social advantage. Basic principles of Charging Income tax Tax base: Total income of the income year Tax rate: Income tax rate or rates to be provided by an act of parliament.
Tax period: Assessment year Period of tax base: Total income is to be computed for the income year. Tax payer: Every person. Tax Collector: Direct tax wing or NBR. Scope of Income Tax Law * The income Tax Ordinance 1984 – Income Tax Manual 1, 23 chapters, 187 sections, and 7 schedules. * Income Tax Rules 1984 – Various rules for the administration of the Income Tax Ordinance 1984. * Finance Act – Various proposals in the annual budget covering the areas of direct and indirect taxes. Contains various applicable tax rates and other amendments of the Income tax Ordinance and Rules. SRO (Statutory Regulatory Orders) – NBR issue circulars as and when necessary. Provisions of SROs are considered at the time of computing income tax like the ITO and Rules. * Case Law – Dispute between the NBR and the assessee over the interpretation of the provision of the Act and the Rules. The judgements given by the courts act as guidance to the assessing officers and the assessee in similar circumstances in the future. Income tax Authority * National Board of Revenue, · Director-General of Inspection (Tax), · Commissioner of Taxes (Appeals), · Commissioner of Taxes, Large Taxpayers’ Unit (LTU), Director General (Training), · Director General, Central Intelligence Cell (CIC), · Commissioner of Taxes, · Additional Commissioner of Taxes (Appeal/Inspecting), · Joint Commissioner of Taxes(Appeal/Inspecting ), · Deputy Commissioner of Taxes, · Tax Recovery Officers, · Assistant Commissioner of Taxes, · Extra Assistant Commissioner of Taxes, Tax structure in Bangladesh * Multiple tax system * Poor Tax-GDP ratio * High ratio of indirect to direct tax revenue * Dominance of VAT and Import duty * Inefficient tax administration * Huge tax evasion and avoidance * Narrow tax base Income includes a.
Any income, profits or gains, from whatever source derived; b. Any loss of such income, profits and gains; c. The profits and gains of any business of insurance carried on by a mutual insurance association d. Any sum deemed to be income, or any income accruing or arising or received , or deemed to accrue or arise or be received in Bangladesh under any provision of income tax ordinance 1984 Accounting income Vs Taxable income * Accounting income is the resulting income in the financial statements of an economic entity through the implication of GAAP and other accounting conventions and rules.
Accounting income may be operating income, non-operating income, income before interest, income after interest. * Taxable income, on the other hand, is the income that is derived from accounting income after deducting the stated type of allowable expenses(i. e tax deductable expenses) and the expense under those heads as provided in the ITO as exemptions. Total Income Total income is the tax base of income tax. Total income means U/S 2(65) of Tax ordinance – The total amount of income referred to in section 17 and includes any income, under any provision of the income tax ordinance is to e included in the total income of the assessee. Scope of Total Income (1) The total income of any income year of any person includes – (a) in relation to a person who is a resident, all income, from whatever source derived, which – (i) is received or deemed to be received in Bangladesh by or on behalf of such person in such year; or (ii) accrues or arises, or is deemed to accrue or arise to him in Bangladesh during that year; or (iii) accrues or arises to him outside Bangladesh during that year; and (b) in relation to a person who is a non-resident, all income from whatever source derived, which – i) is received or deemed to be received in Bangladesh by or on behalf of such person in such year; or (ii) accrues or arises, or is deemed to accrue or arise, to him in Bangladesh during that year. 2) Where any amount consisting of either the whole or a part of any income of a person has been included in his total income on the basis that it has been accrued or arisen, or is deemed to have accrued or arisen, to him any year, it shall not be included again in his total income on the ground that it is received or deemed to be received by him in Bangladesh in another year.
Income deemed to accrue or arise in Bangladesh The following income shall be deemed to accrue or arise in Bangladesh – (1) any income which falls under the head “Salaries”, wherever paid if- (a)it is earned in Bangladesh; or (b) it is paid by the government or a local authority in Bangladesh to a citizen of Bangladesh in the service of such Government of authority; (2) any income accruing or arising, whether directly or indirectly, through or from- (a)any business connection in Bangladesh (b) any property, asset, right or other sources of income in Bangladesh; or c) transfer of capital assets in Bangladesh; (3) any dividend paid outside Bangladesh by a Bangladeshi company; (4) Any income by way of interest payable – (a) by the Government; or (b) by a person, who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside Bangladesh or for the purpose of making or earning any income from any source outside Bangladesh; or c) by a person who is a non-resident when the interest is in respect of any debt incurred, or moneys borrowed and used for the purpose of a business or profession carried on by such person in Bangladesh or for the purpose of making or earning any income from any source in Bangladesh; (5) Any income by way of fees for technical services payable- (a) by the Government; or b) by a person, who is a resident, except where such fees are payable in respect of services utilized in a business or profession carried on by any such person outside Bangladesh or for the purposes of making or earning any income from any source outside Bangladesh; or (c) by a person who is a non-resident where such fees are payable in respect of services utilized in a business or profession carried on by such person in Bangladesh or for the purpose of making or earning any income from any source in Bangladesh. (6) Any income by way of royalty payable – a) by the Government; or (b) by a person who is a resident, except where the royalty is payable in respect of any right, property or information used or utilized for the purpose of a business or profession carried on by such person outside Bangladesh or for the purpose of making or earning any income from any income from any source outside Bangladesh; or (c) by a person who is a non-resident where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in
Bangladesh or for the purposes of making or earning any income from any source in Bangladesh. Summary U/S-17 S. N | Types of Income | Income to be included in total Income| | | Resident | Non-Resident | 1 | Income received in Bangladesh | v | v | 2 | Income deemed to received in Bangladesh | v | v | 3 | Income accrue or arise in Bangladesh | v | v | 4 | Income deemed to be accrue or arise in Bangladesh | v | v | 5 | Income accrue or arise outside in Bangladesh | v | ? | Heads of income
For the purpose of charge of income tax and computation of total income, all incomes shall be classified and computed under the following heads of income: (a) Salaries. (b) Interest on securities. (c) Income from house property. (d) Agricultural income. (e) Income from business or profession. (f) Capital gains. (g) Income from other sources. Definition of Income Tax Income tax is a tax on income. Income tax is a direct tax and single tax charged on the total income of a person for a relevant income year in relevant assessment year Characteristics of Income Tax Is a direct tax * It is levied or imposed by the government on an annual basis * Charged as per the provisions of the income tax law * Charged on total income of an income year of a person in an assessment year * The income tax rate is determined by the government Charge of Income Tax (1) Where an Act of Parliament provides, income tax shall be charged for any assessment year at any rate or rates, Income tax at that rate or those rates shall be charged, levied, paid and collected in accordance with the rovision of Income Tax Ordinance 1984 in respect of the total income of the income year of every person. (2) Where under the provision of this ordinance income tax is to be deducted at source, or paid or collected in advance, it shall be deducted, paid and collected accordingly. (3) Notwithstanding anything contained is sub-section (1), Income tax shall be charged at the rates specified in the Second Schedule in respect of – (i) a non-resident person, not being a company; (ii) any income classifiable under the head “Capital gains”; and iii) any income by way of “winnings” Tax rate Income Year a. The financial year immediately preceding the assessment year; or b. Where the accounts of the assessees have been made up to a date within the said financial year and the assessee so opts , the twelve months ending on such date; or c. In case of business or profession newly set up, the period beginning with the date of the setting up of the business or profession and (i) ending with the said financial year; or ii) where the accounts of the assessee have been made up to a date within the said financial year and the assessee so opts, ending on that date; or d. In the case of any person and class of persons or any business or profession or class of business or profession such period as may be determined by the board or by such authority as the board may authorize in this behalf; e. In respect of the assessee’s share in the income of a firm of which the assessee is a partner and the firm has been assessed as , the period determined as the income year for the assessment of income of the firm; Assessment year
Assessment year means the period of twelve months commencing on the first day of July every year; and includes any such period which is deemed, under the provisions of this ordinance, to be assessment year in respect of any income for any period. Assessment Assessment , with its grammatical variations and cognate expressions, includes re-assessment and additional or further assessment. Assessee Assessee, means a person by whom any tax or other sum of money is payable under this ordinance, and includes – a.
Every person in respect of whom any proceeding under this ordinance has been taken for the assessment of his income or the income of any other person in respect of which he is assessable, or of the amount of refund due to him or to such other person; b. Every person who is required to file a return under section 75, section 89 or section 91; c. Every person who desires to be assessed and submits his return of income under this ordinance; and d. Every person who is deemed to be an assessee, or an assessee in default, under any provisions of this ordinance; Resident
Resident, in respect of any income year, means – a. An individual who has been in Bangladesh – (i)for a period of, or for periods amounting in all to, one hundred and eighty-two days or more in that year; or (ii) for a period of, or periods amounting in all to, ninety days or more in that year having previously been in Bangladesh for a period of, or periods amounting in all to, three hundred and sixty-five days or more during four years preceding that year; b.
A Hindu undivided family, firm or other association of persons, the control and management of whose affairs is situated wholly or partly in Bangladesh in that year; and c. A Bangladeshi company or any other company the control and management of whose affairs is situated wholly in Bangladesh in that year; Who is file the return * Any person income has exceeding the minimum taxable limit. * Any person who had paid tax of any of the three (3) year’s immediately preceding the income year. * Any person who is leaving the country forever or permanently. Any person who has closed the business and profession. Tax rebate for investment Amount of allowable investment is either actual investment in a year or up to 25% of total income or Tk. 10,00,000/- Type of investment qualified for tax rebate * Life insurance premium , · Contribution to deferred annuity , · Contribution to Provident Fund to which Provident Fund Act, 1925 applies , · Self contribution and employer’s contribution to Recognized Provident Fund , · Contribution to Super Annuation Fund , Investment in approved debenture or debenture stock, Stocks or Shares , · Contribution to deposit pension scheme approved by the government, · Contribution to Benevolent Fund and Group Insurance premium , · Contribution to Zakat Fund , · Donation to charitable hospital approved by National Board of Revenue , · Donation to philanthropic or educational institution approved by the Government , · Donation to socio-economic or cultural development institution established in Bangladesh by Aga Khan Development Network , · Donation to ICDDR,B, Dhaka Community Hospital, Donation to philanthropic institution- CRP, Savar, Dhaka, · Donation upto five lac to (1) Shishu Swasthya Foundation Hospital Mirpur, Shishu Hospital, Jessore and Hospital for Sick Children, Satkhira run by Shishu Swasthya Foundation, Dhaka, (2) Diganta Memorial Cancer Hospital, Dhaka, (3) The ENT and Head-Neck Cancer Foundation of Bangladesh, Dhaka; and (4) Jatiya Protibandhi Unnayan Foundation, Mirpur, Dhaka; · Asiatic Society of Bangladesh;