Tapan K Sarker1 ABSTRACT: This article reviews the incidence of income taxation in Bangladesh tax system. The main purpose of the study is to determine how the burden of personal and corporation income taxes is allocated among taxpayers of different income groups. In case of personal income taxes it shows that only 13 percent taxpayers paying around 73 percent of tax revenue collected through personal income taxes and interestingly about 53 percent taxpayers pay only 0.08 percent taxes. In case of corporation income taxes the study shows similar results. For privately owned unlisted companies only 25 percent of them bears about 84 percent taxes earned through this sector and about 13 percent corporations pay nothing to the exchequer in the form of income taxes. Among the listed companies only 1.15 percent of them pay about 53.28 percent taxes and top 40 percent of them pay the entire taxes collected from this sector. The reasons identified behind such eccentric burden of taxes are, unlimited tax exemptions and tax holidays, poor tax base, inequality of taxing urban and rural sectors, special privileges to the public sectors, repeated tax amnesty etc. This study gives some recommendations, which could act as remedies for a better income tax system in Bangladesh and would relevant to other developing countries as well. Key Words: Tax Incidence, tax progressivity, tax base, tax exemptions, tax holiday, tax amnesty etc. 1. INTRODUCTION 1.1 Aim and Scope of the Study The heavy reliance on indirect taxation has been treated as one of the main obstacles in attaining economic progress in developing countries. The problem arises mainly due to the fact that only a few taxpayers share the burden of taxes. Bangladesh is no exception which is also trying to reform its tax structure for long time through structural adjustment and growing demands have been placed on it to suggest towards a desirable tax system. A huge segment of the population living in acute poverty and disparity is also evident in income distribution. Tax burden is ultimately shared by a limited number of individual taxpayers and corporations. Thus attaining a broad based
The Author is a Tax Official of Bangladesh and currently a doctoral fellow at the Australian National University and can be contacted at firstname.lastname@example.org . The author is grateful to Prof. Yukinobu Kitamura of Keio University, Japan for his supervision and to the World Bank for financing the study. 1
and optimal taxation system is a much desirable task for the government. This study tries to keep forward such an endeavor by analyzing the distribution of burden of income taxation 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. It seems that government might have to collect more money either through VAT (Value Added Tax) or from direct taxes. In Bangladesh VAT introduced in 1991 by replacing the sales taxes is still known as the vital reform in Bangladesh revenue structure. The remaining potential sector is the income taxes sharing almost all taxes coming through direct sources. In Bangladesh having a population of about 133 million, the number of registered taxpayers is only 1.25 million2 (which is only 0.94 percent of the total population). Tax base is too narrow and the tax law is full of exemptions and allowances. Agriculture sector provides employment for around 60 percent of the population contributes only 25 percent of GDP and virtually pays little in the form of income tax. There is always a controversy whether this sector is extra protected or not and if yes – to continue for how long. There are many affluent people lying...