Tax Structure and Policy Suggestions: Bangladesh Case

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Monday, November 21, 2011

Tax Structure & Policy Suggestions: Bangladesh Case

1 Introduction

The main tax grossing or revenue collecting institution is generally known as National Board of Revenue (NBR). And as the central authority of tax policy and administration in Bangladesh, it plays a critical part in the development of the country. During the current fiscal year (FY 2010-11), NBR is expected to collect Taka 75,600 crore, providing much needed support to the government’s development efforts. In recent years, Bangladesh’s tax collection has recorded an impressive growth averaging 20% per annum. Despite this good achievement, a lot remains to be done. Bangladesh’s tax-GDP ratio at 9.3% remains quite low when compared with other similarly placed countries in South Asia. Less than 1% of the population pays income tax and tax evasion is persistent even though a significant amount of tax revenue is given up in the form of tax incentives. Together, curbing tax evasion and dealing with tax incentives could add 5 percentage points to the tax-GDP ratio, potentially adding about 40,000 crore to the revenue collection. Most of NBR s processes are manual and there is little in the nature of taxpayer service and taxpayer education. The NBR also faces problems in its functioning due to its current administrative structure. Despite being under the same board, the different wings of the NBR (Income Tax, Value Added Tax (VAT) and Customs) operate almost independently providing little support to each other in combating tax evasion and providing a unified front to taxpayers. Moreover, the NBR faces the problems of acute shortage of trained manpower as well as physical infrastructure. These weaknesses of the NBR have not gone well with the business community and individual taxpayers. And on other hand, the tax system of Bangladesh includes several tax revenue measures under the two broad headings of direct taxes and indirect taxes. The major policy objectives behind the tax expenditure measures in Bangladesh are to accelerate the process of industrialization, to attract foreign currency through increasing export and foreign direct investment (FDI) and to ensure social security and welfare of low-income groups. Tax expenditure measures exist in sectors such as public services, agriculture, labor and employment affairs, transport and communication, social security and welfare etc.

2 Descriptions

In Bangladesh we have taxes divided on two broad aspects which are as following, I. Direct Tax II. Indirect Tax Before going to the discussion of tax structure of Bangladesh it is necessary to know about the taxes which follow these above written types mostly. 2.1 Direct Ta In the general sense, a direct tax is paid directly at one shot to the government by the persons (juristic or natural) on whom it is imposed. • Income taxes • Corporate taxes • Transfer taxes • Wealth taxes • Narcotics duties • Land revenue • Stamp duty-non-judicial • Registration 2. 11 Income Ta Among direct taxes, income tax is one of the main sources of revenue. In Bangladesh Income tax is imposed on the basis of ability to pay. The more a taxpayer earns the more he should pay - is the basic principle of charging income tax. It aims at ensuring equity and social justice. All individuals and companies in the country need to pay income tax if their annual income excess certain limit determined by the Government. There are some conditions for paying Income Tax which are controlled by Tax Laws and Amendments in Bangladesh. EXISTING TAX RATE(in taka) 2010-11 Income slabs(in taka) Up to 165000 165001 – 440000 440001 – 765000 765001 – 1140000 Above 1140000 Tax rate 0% 10% 15% 20% 25% PROPOSED TAX RATE(in taka) 2011-12 Income slabs (in taka) Up to 180000 180001 – 480000 480001 – 880000 880001 – 1180000 Above 1180000 Tax rate 0% 10% 15% 20% 25%

In fiscal year 2011-2012 tax free income level has been set to 180000 taka. Moreover this senior citizen (age above 65...
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