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Tax Structure in Bangladesh

Taxes are the major source of mobilizing internal resources of an economy. Bangladesh revenue structure has been burdened by taxes from indirect sources for long time and usually characterized by heavy import and excise duties. To cope with the challenge due to globalization, government of many such countries has to cut down such duties and levies.The taxation system in Bangladesh is based on the ability to pay theory and hence utilizes the progressive tax system. As a resource constraint nation coupled with limited capacity, we are confronted with persistent pressure to address that challenge. The implementation of an effective revenue system will involve the setting up of new organizational structures, the designing of new procedures and forms, writing of new instructions, arranging for the provision of better management information and statistics, etc. This gives the administration the opportunity to develop new skills and abilities which can subsequently be deployed. The revenue administrative body is the National Board of Revenue under the Ministry of Finance. The main responsibility of NBR is to collect domestic revenue for the government. However, revenue collection and management has been a perennial challenge for Bangladesh since its very inception. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate. It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes attempt to reduce the tax incidence of people with a lower abilityto-pay, as they shift the incidence disproportionately to those with a higher ability-to-pay. The term is frequently applied in reference to personal income taxes, where people with more disposable income pay a higher percentage of that income in tax than do those with less income. Sources of Income: For the purpose of computation of total income and charging tax thereon, sources of income can be classified into 7 categories, which are as follows :

1. 2. 3. 4. 5. 6. 7.

Salaries Interest on securities Income from house property Income from agriculture Income from business or profession Capital gains Income from other sources.

Tax Rate (Assessment Year- 2012-13):


Other than Company: For individuals other than female taxpayers, senior taxpayers of 65 years and above and retarded taxpayers, tax payable for the First 2,00,000/ Next 3,00,000/ Next 4,00,000/ Next 3,00,000/ Rest Amount Nil 10% 15% 20% 25%

For female taxpayers, senior taxpayers of age 65 years and above and, tax payable for the: First 2,25,000/ Next 3,00,000/ Next 4,00,000/ Next 3,00,000/ Rest Amount Nil 10% 15% 20% 25%

For retarded taxpayers threshold limit is TK.2, 75,000 Minimum tax for any individual assessee is Tk. 3,000 Non-resident Individual 25% (other than non-resident Bangladeshi) For Companies Publicly Traded Company Non-publicly Traded Company Bank, Insurance & Financial Company (Except merchant bank) Merchant bank Cigarette manufacturing company Publicly traded Cigarette Company Mobile Phone Operator Company Publicly traded mobile company 27.5% 37.5% 42.5% 37.5% 42.5% 35% 45% 35%

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. Tax Rebate for investment: Rate of Rebate: Amount of allowable investment is - actual investment or 20% of total income or Tk. 100,00,000/-whichever is less. Tax rebate amounts to 10% of allowable investment.

Why the tax rate is progressive in Bangladesh:


Historically Bangladeshs direct taxes have been heavily skewed against salary-earners and corporate sector. Small business, services and farm incomes manage to slip through the tax net effortlessly. There are some reasons for following progressive tax rate in the taxation system in Bangladesh. These are A progressive tax is an automatic stabilizer in the sense that if a person were to suffer a decrease in wages due to a recession then the money regained by being in a lower tax bracket lessens this blow. Progressive taxation makes all citizens sacrifice equally. Progressives assign too much value to money in individual welfare. Progressive taxation fosters greater happiness in society. Progressive taxation is not to penalize those who succeed, but to protect those who have not. Progressive taxation helps combat extreme poverty. Progressive tax rates stimulate higher consumer activity. Progressive taxes help increase employment rate.

Conclusions:

There are many problems in our taxation system. It is important for the government of Bangladesh to carry on future tax reforms and to make Bangladesh tax structure more broad based, revenue buoyant and equitable.