TAXATION

Chapter – 1:
Introduction
 Introduction to taxation

Reference

Definition Characteristics of Tax

Purposes of Taxation Canons of Taxation

Classification of Taxes Good Tax System

Role of Tax in the economic development

Tax Structure in Bangladesh

BANGLADESH INCOME TAX
Theory and Practice
Chapter – 1:
Introduction
Nikhil Chandra Shil
Mohammad Zakaria Masud
Mohammad Faridul Alam
 Introduction

Definition of Tax

Taxes are compulsory payment to government without expectation

of direct return in benefit to the tax payer.
- P. E. Taylor

A tax is a compulsory contribution imposed by a public authority

irrespective of the exact amount of service rendered to the tax payer
in return and not imposed as penalty for any legal offense.
- Dalton

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 2
 Introduction

Characteristics of Tax

 Tax is a payment to the Government by the people.

 Payment of taxes is non-penal and compulsory.
 An element of sacrifice is there in the payment of a tax as they pay the
taxes in order to ensure public interest.
 The aim of tax collection is to finance the government expenditure to
ensure public interest and welfare.
 Tax is not the cost of the benefit conferred by the government on the
public.
 It is one of the prime sources of revenue for the government.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 2
 Introduction

Revenue collection Control of consumption

Purposes of Taxation

Reduction of inequalities Protection of local industry

Accelerating economic growth Economic development

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 3
 Introduction

Canon of Equality Canon of Certainty

Burden of taxation must be Tax payer should be well

distributed equally in relation informed about the time, amount
Canons of Taxation
to the ability of the tax payer and method of tax payment

Canon of Economy Canon of convenience

Every tax ought to be contributory Every tax ought to be levied in

to the public treasury and take out a convenient manner to the tax
minimum from public pocket payer

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 3& 4
 Introduction

Classification of Taxes

Number of taxes Impact and incidence of taxes Structure of tax rate Others

Single tax:
When the tax system of a country incorporates only one
tax, it is called single tax. In ancient times tax was levied
on person as poll tax or head tax.

Multiple tax:
When the tax system comprises different types of taxes, it
is called multiple tax. At present, all the countries in the
world follow multiple tax system.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 4 – 7
 Introduction

Classification of Taxes

Number of taxes Impact and incidence of taxes Structure of tax rate Others

Direct tax:
Direct taxes are those taxes which are paid entirely by those
Vs persons on whom they are imposed. The burden cannot be shifted to
others in case of direct tax. Such as, income tax, land revenue tax etc.

Indirect tax:
Indirect taxes are those taxes which are imposed on sales or
purchase of any goods or services other than personal services. Here the
burden is ultimately shifted to others. Such as, VAT, customs duty etc.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 4 – 7
 Introduction

Classification of Taxes

Number of taxes Impact and incidence of taxes Structure of tax rate Others

Proportional Tax: A proportional tax is one in which, the rates of

taxation remains constant.

Progressive Tax: Under this system the rate of taxation increases as the
taxable income increases.

Regressive Tax: A tax is said to be regressive when its burden falls more
heavily on the poor than the rich since the tax rate decreases as
the tax base (income) increases.

Degressive tax: In degressive taxation, a tax may be slowly progressive

upto a certain limit, after that it may be charged at a flat rate.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 4 – 7
 Introduction

Classification of Taxes

Number of taxes Impact and incidence of taxes Structure of tax rate Others

 Classification on the basis of elasticity of tax:

Elastic tax
Inelastic tax
 Classification on the basis of tax base:
Income tax
Wealth tax
Value Added Tax
Expenditure tax
 Classification according to taxing authority:
Central tax
Local tax

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 4 – 7
 Introduction

Direct Tax Indirect Tax

Cannot be shifted Burden Can be shifted

Impact &
On same person On different person
Incidence

Generally elastic Elasticity inelastic

Adverse effect on tax

payer’s willingness to Effect No direct adverse effect
work and save

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 4 – 7
 Characteristics of a good tax system Introduction

 Tax should be levied on the basis of fundamental principles of taxation

like the principle of least sacrifice, cost and benefit etc.

 The taxes should be so imposed that they should follow the most
important canons.

 Tax system should be balanced containing both direct and indirect nature
of taxes so that it can maximize government revenue.

 Efficient tax authority and effective taxation procedure.

 Tax system should have positive effect on both production and

distribution without causing any adverse effect upon ability and
willingness to work, save and invest.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 8
 Introduction

Optimum allocation
Raising government revenue
of available resources

Encouraging Reduction of inequality

savings and investment in income and wealth

Role of Tax in the economic development

Accelerating economic growth Price stability

Control mechanism

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 8
 Introduction

Multiple tax system

Tax Structure in Bangladesh
Inadequate and stagnant revenue yield relative to GDP

High-ratio of indirect to direct tax revenue

Dominance of VAT and import duty

NBR is the central authority for tax administration

Tax avoidance behavior of the taxpayers

Narrow tax base

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 8
 Introduction

Taxes on Income and Profit

Income tax – Company
Income tax – Other than Company
Taxes on Property & Capital Transfer
Estate Duty and Gift Tax
Wealth Tax
Narcotics Duty
Land Revenue
Stamp Duty – non judicial
Registration
Taxes on Goods and Services
Customs Duties
Excise Duties
Value Added Tax (VAT)
Supplementary Duty (on luxury items and in addition to VAT)
Taxes on Vehicles
Electricity Duty
Other Taxes and Duties (travel tax, turn over tax, etc.)

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 8
 Introduction

Revenue as % of
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
GDP
Total revenue 10.21 10.35 10.63 10.57 10.99 11.24
Tax Revenue 7.81 8.30 8.50 8.62 8.97 9.18
Non-tax Revenue 2.4 2.05 2.13 1.96 2.02 2.06

(Source: Bangladesh Economic Review – 2007):

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 8
 Introduction

Revenue (Tk. in Crore) 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Total revenue 27,893 31,120 35,400 39,200 45,722 52,540

Tax Revenue 21,332 24950 28,300 31,950 37,312 42,920
Non-tax Revenue 6561 6170 7,100 7,250 8,410 9,630
% of Tax to Revenue 76.48% 80.17% 79.94% 81.51% 81.61% 81.69%
Direct Tax 4,390 5,430 5,850 6,730 7,490 8,500
% of Direct Tax to Total
20.58% 21.76% 20.67% 21.06% 20.07% 19.80%
Tax
Indirect Tax 16,942 19,520 22,450 25,220 29,800 34,420
% of indirect tax to total
79.42% 78.24% 79.33% 78.94% 79.93% 80.20%
tax

(Source: Bangladesh Economic Review – 2007):

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 8
 Introduction

Item wise collection 2004-05 2005-06 2006-07

VAT 34.9% 37.3% 38.1%
Import duty 26.4% 24.5% 23.8%
Income tax 18.9% 17.5% 19.9%
Supplementary duty 18.5% 19.3% 16.6%
Other taxes and duties 0.8% 0.8% 0.9%
Excise duty 0.5% 0.6% 0.6%

(Source: Bangladesh Economic Review – 2007):

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 1; Page no. – 8