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EXECUTIVE SUMMARY
The term paper is a requirement of BBA Program. This term paper focuses on TAX STRUCTURE IN
BANGLADESH, TAX EVASION AND TAX AVOIDANCE & PUBLIC ACCOUNTING PRACTICES IN
BANGLADESH: STANDARDS FROM ICMAB & ICAB.The total term paper is divided into three broad
parts. The first part includes the Tax Structure in Bangladesh. The second part includes the Tax Evasion
and Tax Avoidance &the final part includes the Public Accounting Practices in Bangladesh: Standards
from ICMAB & ICAB. In the first part we discuss about the overview, types, function, characteristic,
sources and pay system of tax in Bangladesh. In the second part we discuss about reasons, modes of tax
evasion and avoidance and strategies against them. Then we discuss about the public accounting
practices standards from ICMAB & ICAB in Bangladesh. And finally we have tried to draw a conclusion on
the above analysis.
Introduction
One of the major sources of public revenue to meet a countrys revenue and development expenditures
with a view to accomplishing some economic and social objectives, such as redistribution of income,
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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. 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 no penal but compulsory and unrequited transfer of resources from the private to the
public sector, levied on the basis of predetermined criteria.
Taxes are compulsory payment to the government without expectation of direct return in benefit to
the taxpayer.
According to section 2(62) of the ITO 1984 Tax means the income tax payable under the ordinance and
includes any additional tax, excess of profit, penalty, interest, fees or other charges leviable or payable
under this ordinance.
duty, motor vehicle tax, narcotics and liquor duty, VAT, SD, foreign travel tax, TT, electricity duty,
advertisement duty etc.).
Analysis of revenue collection activities in Bangladesh for the fiscal year 2012-13 reveals that tax
revenue accounts for 83.64% of government revenue and direct taxes represent only about 33.12% of
total taxes. As per the national budget of FY 2013-14, the tax revenue has been targeted to
1412.19billion which was tk.1122.59 billion in the fiscal year 2012-13 as per the revised budget. From
the analysis of the national budget 2013-14, it can be said that in the FY 2013-14 revenue collections
from value added taxes (VAT) have been estimated at around tk.499.56 billion(35.37% of total taxes),
from import duty at tk.146.29 billion(10.36%), income tax at tk.482.97 billion(34.20%), supplementary
duty at tk.208.53 billion(14.77%) and others 5.30% of this aggregate target.
Features of Bangladesh Tax Structure
The salient features of Bangladesh tax system are as follows:
Multiple tax system:
The tax system of Bangladesh consists of various types of taxes which are as follows:
A. Taxes on Income and Profit:
1. Income tax-Company
2 .Income tax-other than company
B. Taxes on Capital and Property Transfer
1. Estate Duty
2.Gift tax
3 .Narcotics Duty
4.land revenue
6.Registration
2.3
2008-09
2009-10
2010-11
2011-12
2012-13
11.3
11.4
11.9
12.5
13.5
9.0
9.2
9.9
10.5
11.3
2.2
2.2
2.0
2.0
2.2
2013-14
Revenue
(Tk.in Crore)
Total
Revenue
5
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
60539
69180
79484
95187
114885
139670
Tax
Revenue
Non-tax
Revenue
% of tax
to Revenue
Direct Tax
(DT)
% of DT to
Total Tax
Indirect Tax
(IT)
% of IT to
Total Tax
48012
55526
63956
79052
96285
116824
12527
13654
15528
16135
18600
22846
79.31%
80.26%
80.46%
83.30%
83.81%
83.64%
12502
15462
19516
24592
31011
38693
26.04%
27.85%
30.51%
31.11%
32.21%
33.12%
35510
40064
44440
54460
65274
78131
73.965
72.15%
69.49%
68.89%
67.79%
66.88%
2009-10
2010-11
2011-12
2012-13
35.6%
35.8%
35.65
34.6%
Import duty
17.25
16.35
13.8%
13.1%
12.4%
Income Tax
24.4%
25.9%
28.0%
29.1%
30.2%
Supplementary 16.4%
Duty
Other
taxes .8%
and duties
Excise Duty
.4%
16.4%
17.1%
16.8%
17.1%
.7%
.6%
.7%
.9%
.4%
.34%
.5%
.9%
Direct taxation on agricultural sector normally takes two forms; land revenue tax and tax on agricultural
income. This sector accounted for more than 50% of total direct tax revenue in the early sixties, but now
agricultural income tax is very negligible. It accounts for only 0.01% of the GDP, although the average
contribution of agriculture to the GDP is 35%. Agriculture, more specifically, non-farm activity, still
remains an untapped source of revenue to the government. In most cases, income from agriculture does
not exceed the ceiling of non-taxable limit primarily due to subdivision and fragmentation of holdings
for which income is distributed to different hands. Furthermore, tax administration is not expanded
down to village, and therefore, current information on this source of income cannot be easily collected
for making assessment. Placing more emphasis on the collection of income tax from agriculture may
augment the price of our main food and may create socio-political unrest. Government does not like
others to do politics with food. High cost of collection of agricultural tax may be another consideration.
All these factors may contribute to the poor tax performance of agriculture sector.
To explain ins and outs of tax structure in Bangladesh we should explain above three major parts of
tax revenue. For this reason in this perspective we will decorate our topic in the three headlines and
subhead lines.
2. Interest on securities
3. Income from house property
4. Income from agriculture
5. Income from business or profession
6. Capital gains
7. Income from other sources
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 365 days in four years proceeding this year, he/she will also be considered a resident.
Tax Rate (Assessment Year- 2013-2014): Other than Company: For individuals (other than female
taxpayers, senior taxpayers of 65 years and above and retarded taxpayers), tax payable for theFirst 2,20,000
Nil
Next 3,00,000/-
10%
Next 4,00,000/-
15%
Next 3,00,000/-
20%
Rest Amount
25%
For female taxpayers, senior taxpayers of age 65 years and above, tax payable for the:
First 2,50,000
Nil
Next 3,00,000/-
10%
Next 4,00,000/-
15%
Next 3,00,000/-
20%
Rest Amount
25%
Nil
Next 3,00,000/-
10%
Next 4,00,000/-
15%
Next 3,00,000/-
20%
Rest Amount
25%
For Companies:
Publicly Traded Company 27.5%
Non-publicly Traded Company 37.5%
Bank, Insurance & Financial Company (Except merchant bank) 42.5%
Merchant bank 37.5%
Cigarette manufacturing company 45%
Publicly traded cigarette company 40%
Mobile Phone Operator Company 45%
Publicly traded mobile company 40%
If any publicly traded company declares more than 20% dividend, tax rate would be 24.75% and
if declares less than 10%
dividend tax rate would be 37.5%.
If any non publicly traded company transfers minimum of 20% shares of its paid-up capital
through
IPO(Initial Public Offering) it would get 10% rebate on total tax in the year of transfer.
The period of such tax holiday will be calculated from the month of commencement of commercial
production. The eligibility of tax holiday to be determined by the NBR and the time of the
commencement of commercial production is certified by the respective sponsoring agencies. The
industrial establishment should be registered under the companies Act. 1994.
Tax holiday facility can be availed by industries coming into commercial production within 30 June 2000
A.D
Value Added Tax (Vat):
A type of consumption tax that is placed on a product whenever value is added at a stage of production
and at final sale. Value-added tax (VAT) is most often used in the European Union. The amount of valueadded tax that the user pays is the cost of the product, less any of the costs of materials used in the
product that have already been taxed.
Characteristics of VAT:
VAT is imposed on goods and services at import stage, manufacturing, wholesale
and retails levels;
A uniform VAT rate of 15 percent is applicable for both goods and services.
15 percent VAT is applicable for all business or industrial units with an annual
turnover of Taka 2 million and above;
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Turnover tax at the rate of 4 percent is leviable where annual turnover is less than
Taka 2 million.
VAT is applicable to all domestic products and services with some exempted
Cottage industries (defined as a unit with an annual turnover of less than Taka 2
million and with a capital machinery valued up to Taka 3,00,000) are exempted
There are so many tax system remains in Bangladesh. Among this tax system some cannons are
followed, some are not.
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Canon of equality:
In these cannon it imposes of tax according to ability to pay. So under these circumstances this is usually
followed in the tax system of Bangladesh.
Canon of certainty
This canon describe that the tax which each individual is bound to pay or to be certain and not arbitrary.
The time of payment, the manner of payment, the quantity to be paid, all ought to be clear and playing
to the contributor and to every other person. This canon is not to be followed in the tax system of
Bangladesh. So many corruptions are seen here.
Canon of convenience:
It should be convenient to pay tax. A person who starts to get earning money he or she has to give tax
on that moment. This step is not followed in tax system of Bangladesh properly.
Canon of economy:
Every tax has a tax of collection. It is important that the cost of collection should be as small as possible.
It will be useless to imposed tax which is too widespread and difficult to administer.
Canon of productivity:
According to this principle, the tax system should be able to yield enough revenue for the treasury and
the Government should not be forced to resort to deficit financing.
Canon of elasticity:
As the need of the country increases, the revenue should also increase. To meet emergency, the govt.
should be in a position to augment its financial revenue through increasing tax rate.
Canon of simplicity:
The tax system should be simple and plain so that every one can easily understand it. The assessment of
tax must be simplified. To avoid corruption taxation should be simple.
Canon of diversity:
In line of productivity, canon of diversity also gives importance to adequate collection of tax through
diversification. Such a system breeds a lot of uncertainty for the treasury. On the other hand, if the tax
revenue comes from diversified sources, then any reduction in tax revenue on account of any one is
likely to be very small on total tax revenue. However, too much multiplicity of taxes is also to be
avoided.
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Economic growth is co-related with budget. It is natural that higher government`s income support to
do large budget and large budget helps to accelerate economic development of a country. But due to
tax evasion and tax avoidance a lot amount of revenue is not collected. As a result the government has
to shortcut the budget.
In capitalist and mixed economy private sector is supposed to play vital role in investment and
development. But sometimes direct investment by the governments is necessary. Due to tax evasion
and tax avoidance the government cannot supply the expected fund for investment.
The government has to take various plans for economic development. But lack of fund the plan cannot
be implemented. If the people would not evade tax, the government could implement the plans.
Due to tax evasion and tax avoidance the government cannot ensure the employment opportunity.
Tax evaded incomes are used for conspicuous consumption in the form of buying luxurious goods. As a
result honest tax payers find various methods of tax evasion and tax avoidance. So the stability of the
society will be endangered. Such illegal money is also transferred abroad weakening the economy of the
country.
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Strong fiscal courts are essential to protect taxpayers rights and safeguard them from arbitrariness. The
lack of rule of law reduces transparency of public action and fosters distrust among citizens. As a result,
citizens may not be willing to finance the state through taxes, and decide to evade these liabilities.
1.2High compliance costs
High compliance costs, that are the costs the taxpayer has to bear to gather the necessary information,
fill out tax forms etc, can be an additional reason for tax evasion and avoidance.
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Often these consist of a series of separate transactions, all of them within the letter of the tax law, that
reduce tax liability, but produce no expectation of pretax economic gain. Tax result depends on
definitions of legal terms which are usually vague. For example, vagueness of the distinction between
business expenses and personal expenses is of much concern for taxpayers and tax authorities. More
generally, any term of tax law, has a vague subsection, can be a potential source of tax avoidance
.
3.PSI agencies and dodging of customs duty:
Customs duties are the important sources of tax revenue in the developing countries like Bangladesh. It
is often alleged that tax lawyers and chartered accountants help tax payers including firms and
companies in evading taxes. In the same vein, the C & F agents help in evasion of customs duties. The
importers contend to evade customs duty by under invoicing and misstatement of quantity and product
price.
4.Underground trafficking:
An import and export of illegal products through unauthorized way is a source of tax evasion. This act is
resorted to for total evasion of taxable revenues as well as for importation of contraband (smuggled
goods) items. A purported trafficker does not have to pay any customs duty since the products are not
routed through an authorized or notified customs port and therefore, not subjected to declaration and
payment of duties and taxes.
5. Elusive VAT and Turnover taxes:
VAT is the most talking and latest issue of the time of modern taxation age. An ultimate consumer who
bears the real burden of this taxation has little scope to evade, but producers or distributors who collect
VAT from the consumers may evade tax by under-reporting the amount of sales.
6. Dishonesty of tax officials and hissing of paying taxes to respective order:
Sleaze tax officials cooperate the tax payers who intend to evade taxes is an open-secrete matter in the
most developing country like Bangladesh. When they detect an instance of evasion, they refrain from
reporting in return for illegal gratification or bribe. Corruption by tax officials is a serious problem for the
tax administration in a huge number of underdeveloped countries like Bangladesh.
regular payment of taxes serves the country and ensures justice in the society. This can be done not only
by
appropriate
NBR personnel, educational campaigns and by seeking support and cooperation from professionals like chartered accountants, tax lawyers, etc.
2. Broad band tax net:
A wide base and a low rate structure would maximize the tax revenue. Presumptive tax on professionals
such as accountants, lawyers, doctors, engineering and management consultants, university teachers
may be brought to the tax net. Assessments on coaching center, private university, English medium
schools, and private educational institutions for professional development are still at large from tax net.
Special turnover tax (not VAT) may be imposed on coaching centers and private educational institutions
including university and English medium schools.
illiteracy and poor record keeping and accounting habits. So, there is a ongoing demand to make the tax
system simple and easily convincible to the taxpayers.
6. Penalty and Reward:
Appropriate design of a penalty rate structure also appears to be anti-evasive and anti-avoidance. The
rate of penalty should be progressively higher with the amount of tax evaded and must also reflect the
current market conditions. At present, the provision of penalty in the statute books is one
sided. The tax payers only to be penalized for an act of omission or default but there is no corresponding
provision to penalize dishonest, inefficient or unjust tax officials. Moreover, there must be reward for
them who pays taxes regularly and on time.
7. Standardization of public utility price:
The
policy
of
taxation
and
user
charges
for
services provided by nationalized state enterprises, i.e., PDB, WASA, DESA, etc., should be well
formulated. The latter when based on standard marginal pricing would collect more revenue and would
generate less resistance by the tax payers. The result may be low income tax rate and lesser tax evasion
8. Updating Anti-evasion Provisions in the ITO, 1984:
Income Tax Ordinance 1984 was equipped supposedly adequate legible provisions to tackle concurrent
tax under reporting-evasion and avoidance, and penal provision for purported taxpayers. Section 19
deals with unexplained investment, Section 115 for detecting concealment, Section 123-124 deal with
imposing penalty for tax evasion and chapter XXI for offences and prosecution. Special provisions are
incorporated in Section 93, 104 and 106 for escaped income assessment or non-filing tax return; and
Sections 117-119empower NBR officials to raid, search, seize and retain the concealments of bullion or
valuables required to be disclosed under the ITO, 1984.
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ICMAB more..
Members are known as CMAs with their designatory title ACMA and FCMA. They play leading roles in
the accountancy and finance profession in Bangladesh. 30% of members live and work in UK, USA,
Canada, Australia and Gulf Countries. ICMAB UK Chapter is a lively forum for members working in the
UK.
Vision: Institutes vision is to help Bangladesh become an industrialized nation by promoting and
regulating Cost and Management Accounting profession towards market economy to enhance economic
competitiveness and quality of life
Mission: The Institute mission is to enable them to provide better services to the society.The Institute is
entrusted with the formulation and implementation of National Accounting as well as Cost Accounting
Standards and take other necessary steps with a view to regulating the Cost and Management
Accounting profession commensurate with global standard with the ultimate objective of developing
Bangladesh's human and natural resources to ensure common welfare and to enrich our shared future.
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ICAB
The Institute of Chartered Accountants of Bangladesh (ICAB) is the national professional accountancy
body in Bangladesh. It is the sole organisation in Bangladesh with the right to award the Chartered
Accountant designation. It has around 1,400 members.[1]
It was established under the Bangladesh Chartered Accountants Order 1973 (Presidential Order No. (2 of
1973). The Ministry of Commerce, Government of the People's Republic of Bangladesh is the
administrative Ministry of the ICAB. The mission of the ICAB is to provide leadership in the development,
enhancement and coordination of the accountancy profession in Bangladesh in order to enable the
profession to provide services of consistently high quality in the public interes
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