INCOME TAX IN BANGLADESH
INTRODUCTION
The situation in Bangladesh is not like to encourage. Here condition is worst from peoples’ side. Most of our citizens are puzzled on various taxes. They even do not know the purpose and aspects of different taxes. So we have to know why we give tax, and investigate the advantages or disadvantages of it. More specifically, maybe we are interested in income tax, the most common area of tax. Therefore this paper is going to find out the income tax situation in Bangladesh and disadvantages of avoiding it.
Citizens of our country are not aware of the rules and regulations of taxation, and they are avoiding it without knowing that it has deleterious effect on the development of the country. Though people usually do not confess, they avoid tax, even by giving bribe to government officers. It is illegal and should be prevented.
Government has fixed a standard rate for tax payment. These laws have several revisions and corrections accordingly. Beside these to prevent unethical practice of avoiding income tax, government had made some essential punishable laws for this crime.
This study is based on a hypothesis and some research scope. Investing these areas this paper tries to prove that hypothesis on the basis of some surveys and relevant information. On the ongoing of this paper, it has been also found some possible solutions of taxation problem, and some ideas to improve the situation. Therefore it maybe found useful for the tax payers as well as the up coming new generation giving a sketch of current income tax condition in Bangladesh.
Importance
Every citizen has the right to have some facilities from the government of the country. But do we think about the expenses of those facilities or where the expenses come from? It is the tax that normal people pay to the government. Even the protection of the state and life of every citizen is depended on this tax money. That is – as much as properly tax is paid, the facilities are respectively high.
From the economic view, we know that the government income (GDP) mainly comes from a sum of domestic financing, foreign investment, net export, foreign grants and loans and tax revenues. Then with these money and equipment or goods, government builds schools, colleges, hospitals and so many basic important things for the sake of its citizens.
In the budget for the 2006-07 fiscal years, government had estimated total tax revenue of 42,915,450 million taka (including both NBR and non NBR revenue) of total receipt of 76,558,618 million taka which is 61.6% of total receipt of the country. Out of this profit only income tax will generate 8,500,000 million taka which is 11.1%.
From this total receipt both from domestic and foreign source government expend accordingly. These fields includes social security & welfare, education & information technology, energy & power, transport & communication, local govt. & rural development, agriculture, health and many other sectors.
In Bangladesh, most of the people are usually ignorant about taxation and are unwilling to give the money of their toil, especially in terms of income tax. So government can not give them the facilities, even which are required for the basic need of human, because of its low income. Moreover, the government is also unable to pay proper salary to its officers and labors. This is why they take bribe to spend enough for their cost of living. With these bribe facilities; people do another crime by deceiving the tax. Then to give away the essentials, government has to increase the tax rate, and people become more deceitful. This is like a circular course, which has no end.
Another most important reason of increased tax rate is to pay back the money, which Bangladesh has borrowed from World Bank, IMF and other international monetary fund. If people do not pay the tax properly, it is impossible to repay that money.
In the business sector, people have the most opportunity to avoid the tax. But again, for their illegal attitude like this, government can not give them the facilities that they need in business and to compete with other countries. The moral says that, income tax is the value that a citizen gives in return of getting facilities, so income tax is not unnecessary burden for any business.
Research scope
In order to find out the current situation of income tax some identified areas were studied in this report. Each part is responsible for respective area analysis.
First Area:
Related laws and the rules and regulations of Income Tax
Except the amendments, the main income tax law in this country is the Income Tax Ordinance, 1984 (xxxvi-1984). It was a statute law, which was set in the parliament. Beside this, the Finance Act of each year is also applicable for anywhere it is needed for income tax rule. The government publishes regularly the amendments, even for a very small change, every year. If there is no change in any year, they republish the previous one. All these published and declared notices are available in the department of Statistical Bureau, and open for all.
The Income Tax Ordinance, 1984 divides the tax payers into two categories – (i) Resident, (ii) Non-Resident. Period of stay in the country is the chief determining factor for deciding the status of an assessor; companies and firms, whether resident or non-resident, are assessed on the basis of their location of head office during the period.
Income (according to the law XI-1922[Sec.6]) for the purpose of levy of income tax on computation of total income is classified under the following heads:
1. Salaries
2. Interest on Securities
3. Income from House Property
4. Agricultural Income
5. Income from Business or Profession
6. Income from other Sources
Income tax is charged for each fiscal year beginning on the first day of July each year at the rate or rates prescribed in an Act of parliament.
[For more information please visit http:// www. bangladeshinfo.com ) and go through Income Tax Manuals.]
SECOND AREA:
Current rate and range of income tax payment in Bangladesh
The laws of income tax are constantly on the anvil; different provisions and rates of tax, penalty, interest etc. The rate of income tax for residents and non-residents are different. A resident tax payer pays tax under normal rate while non-resident pays under different category depending on the slab of income. This however may change time to time by the finance Act.
Rates of Income Tax for the Assessment Year 2006-2007 according to the Finance Act, 2006
| Amount (of yearly income) | Rate |
| On the first Tk. 1,20,000/- | Nil |
| On the next Tk. 2,50,000/- | 10% |
| On the next Tk. 3,00,000/- | 15% |
| On the next Tk. 3,50,000/- | 20% |
| On the balance of total income | 25% |
Tax Rate for Non-Resident (The Second Schedule of the Income Tax Ordinance, 1984):
Where a person, not being a company, is a non-resident in Bangladesh, except a Bangladeshi non-resident, tax shall be payable by him or on his behalf on his total income at the maximum rate of 25% of total income as prescribed in the Finance Act, 2006.
Tax Rates in Respect of Capital Gains (The Second Schedule of the Income Tax Ordinance, 1984):
There has been brought a change in the tax rate of capital gains in the hands of a company. It will be taxed as a block of income separate from other income of the assessor company at a flat rate of 15% despite of the period of holding of its assets from the date of acquisition.
Third Area:
Negative approach of people in paying income tax
In poor country like Bangladesh, normal mentality of the people means avoiding the income tax is beneficial of one self, because then they can consume more. Since Illiteracy is relatively high in Bangladesh, people do not know the importance of income tax. Again there is no simple book for our common people, which can simply explain the taxation and can encourage them.
In a nut shell, various political and social reasons add to the tendency of tax evasion. Some of these reasons are-
1. Lack of tax education
2. Traditional Psychology to evade taxes
3. Lack of socio-economic justice
4. Resistance of the vested interest
5. Lack of serious political commitment
6. Allowance of different kinds of tax exemptions without proper security and study, and so on.
FOURTH AREA:
The effects of ignorance of taxes
The effects of ignorance of tax are vast and related to every sector of the development of whole economy. Tax collection and economic growth are directly connected with each other, and are independent. To fulfill the lack of Income Tax revenue gov’t has to give money from its fund. That’s why for the last few years gov’t can’t manage the whole process properly.
That’s why Government needs money to pay different expenses, finance development projects and reduce dependence on foreign aid. If development projects do not take off properly, we will not generate resources from them, and we will be more and more reliant on foreign grants. Therefore tax collection is such an important issue now-a-day and so important is the education on taxation.
Hypothesis
In a poor but developing country like Bangladesh, it is certainly difficult to collect income tax and keep all ends happy. Our basic Economic structure is weak. Therefore the people of the country should aware of their duties and should be honest. But most of the citizens are not paying their income tax properly which plays a vital role in development of any country. So its time to find out which sector of our country is deceiving income tax most. From my point of view may be the business sector is swindling most.
So the hypothesis for this research is –
Business sector of the economy is swindling income tax greatly than the service holders’ group.
This research was for finding whether it is true or not; but this is not the last word, this research also reveal the improvement ideas of collecting tax more effectively and harmoniously.
Methodology
After selecting the topic, the rough sketch of the whole work has been done. Then I collected the data in two ways. These are:
1. Secondary Data
2. Primary Data
a) Survey
b) Interview
Then the secondary data collected from internet searching and relevant books from the library of the North South University, from the web sites the name of the books and the web sites are mentioned in the bibliography.
When the secondary data is discussed, the primary data is needed to prove the hypothesis of the research. In order to get primary data a survey was conducted based on a questionnaire. After that, comes the questionnaire analysis of the responses. The interview of few lawyers (Adv. Sirajul Islam & Adv. Atiqur Rahaman) senior citizens were also added in this section but not mentioned as separately.
Then it is seen if the primary data can prove the hypothesis or not. In the concluding part, there are some suggestions too.
Data PRESENTATION & Analysis
We collected data from people of two different target groups (Service holders and Business people). 20 (Twenty) people are from the service holders and 20 from the business people total (20+20) = 40 people. The survey findings are as follows at a glance in the table:
| Q. No. | Options | |||||||
| Service Holder | Business People | |||||||
| A | B | C | D | A | B | C | D | |
| 1 | 01 | 06 | 09 | 04 | 02 | 03 | 10 | 05 |
| 2 | 03 | 11 | 05 | 01 | 05 | 12 | 02 | 01 |
| 3 | 05 | 09 | 04 | 02 | 01 | 11 | 03 | 05 |
| 4 | 12 | 05 | 02 | 01 | 02 | 03 | 09 | 06 |
| 5 | Open Ended Question | |||||||
| 6 | 11 | 07 | 02 | 0 | 03 | 12 | 05 | 0 |
| 7 | 0 | 08 | 10 | 02 | 09 | 05 | 05 | 01 |
| 8 | 01 | 13 | 0 | 06 | 0 | 13 | 0 | 7 |
| 9 | 0 | 02 | 13 | 05 | 10 | 06 | 03 | 01 |
| 10 | 06 | 0 | 13 | 01 | 05 | 01 | 13 | 01 |
Table: The finding of Survey for both Service Holder and Business People
Question no.1 Educational qualification
a) H.S.C. or below
b) Under Graduate
c) Post Graduate
d) Masters or Higher
Service Holder
|
Business People
|
Analysis:
This above question was asked to find out the comparative educational qualification of people from two target group.
From the survey it has been found that the most respondents are educated up to Post Graduate (45% of the service holders are post graduate and 50% of the business people are post graduate). For business group the educational standard is comparatively higher than service people. May be in our country job standard is lower and people prefer business after higher education.
Question no. 2 Duration of occupation?
a) One year or less
b) Almost 5-10 years
c) Almost twenty years
d) More than twenty years
Service Holder
|
Business People
|
Analysis:
The graph shows the occupational duration of two different target group’s respondents. For service holders’ maximum duration is almost 5-10 years (55%), and business people this is almost also 5-10 years (65%). Same way for both of the group the minimum duration of experience is more than twenty years. For service holders it is 1% and for business people it is also 1%.
Question no. 3 What do you think about income tax?
a) Legal right of the government
b) Beneficial for the country
c) Needed for the sake of citizens
d) Extra burden for people
Service Holder
|
Business People
|
Analysis:
The above question was asked to figure out the general mentality of public about the importance of income tax.
Most of the respondents from both of the groups replied that income tax is beneficial for the country (45% service holders and 55% business people). But service holders mostly said it is legal right of government and needed for the sake of citizen as well. In contrast business people think it is important for development but in our country it is just a burden.
Question no. 4 Tax payment
a) Yes, regular
b) Yes, but not regular
c) Sometimes I missed my payment
d) No, I don’t
Service Holder
|
Business People
|
Analysis:
For this question maximum service holders agreed that they pay income tax sincerely (60%) and quite regularly (25%) while the scenario is just opposite for the business people. Most of the business people (45%) replied that they missed their payments or they simply don’t pay at all (30%).
Question no. 6 Showing exact figures in the audit
a) Yes, Sincerely
b) No, I only show my salary amount
c) I manipulate the original amount
d) Yes, but not full amount
Service Holder
|
Business People
|
Analysis:
It has been found that most of the service holders (55%) show exact amount of income during tax collection and only few (10%) manipulate the actual figure. The picture is just opposite for the business people. They mostly show their income little bit lower (60%) and manipulate the original amount (25%). Few of them (15%) sincerely give the proper figure to the tax collectors.
Question no. 7 Managing the authority
a) Offering and giving bribe to the concerned officer
b) With the help of my backing source
c) By other means
d) I don’t want to explain
Service Holder
|
Business People
|
Analysis:
It shows that most of the service holders said that they escape from tax by using backup source (40%) or by other means (50%) which they don’t want to disclose. But most of the business people getaway of tax simply offering bribe (almost 45%) to the concerned officer. Some other business men didn’t want to reveal their way of deceiving income tax. Here it has been found that people can easily escape from paying tax by giving bribe or by back up sources in our country.
Question no. 8 Avoiding the income tax
a) Illegal and should be punished and prevented
b) Natural behavior of our country people
c) Not a serious crime
d) Not punishable because I can’t afford it
Service Holder
|
Business People
|
Analysis:
Here surprisingly found that both service holders and business people think avoiding income tax is very common behavior of our citizen almost 65% of respondents of both groups). Beside this most of the others do not pay tax because they cannot afford it for high cost of living (30% of service holders and 35% of business people). But most amazing fact is that not a single respondent consider it is a light topic, nobody consider it as not a serious crime.
Question no. 9 Fairness of the tax policy
a) Yes, it is manageable
b) Maybe it is quite expensive
c) No, it is too high for us
d) No comments
Service Holder
|
Business People
|
Analysis:
Most of the service holders consider the present tax rate as too high for our people (65%). Few others said it is quite expensive (10%) or they refuse to comment (25%). In contrast most of the business people (50%) said it is manageable. Others said it is quite expensive (30%).
May be our tax rate is not suitable according to the per capita income our country people. It could be one major reason behind deceiving tax.
Question no. 10 Suggestion to the government
a) Should fix a standard rate of tax
b) Should make effective laws and punishment system
c) Should try to encourage people
d) Should try to decrease the rate of income tax
Service Holder
|
Business People
|
Analysis:
For this question, both groups are coming out with common opinion (65%) of the responses; that is both groups suggest the government to encourage general people. It is also clear in the graph. Some other options like fix, consistent tax rate (30% by service holders and 25% by business people) and decreasing tax rate are also appreciated.
This result implies that people are willing to pay tax if it is suitable with the par capita income and actually implemented for the sake of the country.
Question no. 5
Question number 5 was to know how much income tax is paid by that respondent. As an open ended question, everyone answered differently. But it seemed that business people skipped the question by giving a vague answer like “I give as required rate.” Maybe because they even don’t know the tax amount that they have to pay.
Suggestions
In this report a very important issue of this country has been discussed elaborately. Now it is needed to find out what possible solutions of it can be shown. As this is a burning problem which concerned the total population, no one alone can overcome the situation. There are responsibilities of the government as well as the citizens.
Responsibilities and duties of the government
First of all, government has to spread the tax education which will aware the citizens about the importance and its benefits. To do this, government should include some simple idea about tax in the text books for college level students.
Government should give some incentives to encourage people to give income tax accurately.
Government should clearly publish the explanation that what the government will do with the income tax that is paid by the citizens.
To stop taking bribe, government should have strict monitoring system and should give the officers a standard salary, by which they can maintain a standard living style.
Responsibilities and duties of the citizens
è As a citizen of a poor and less developed country, we, the people who know about the tax, should try to be honest in giving the tax properly. Moreover our duty is to aware and encourage others to do this.
Conclusion
As a civilized citizen, we should not feel proud to know that we are not aware of any subject that has a great contribution in the development of our country. But unfortunately, here we have countless people like me, who ask about the benefit of taxes though they have passed many education levels successively.
Bibliography
1. Hussain, Mustafa Tariq. (1997). Direct Taxes in Bangladesh: Dhaka: Shafket Prokashoni.
2. Peoples’ Republic of Bangladesh. (1977). Income Tax Manual: Dhaka: GPO.
3. Metropolitan Chamber of Commerce and Industry. (2006). Summary of Taxation Rules in Bangladesh: Dhaka: Tapan.
4. National Board of Revenue. (1997). Income Tax Manual: The Income Tax Ordinance: Dhaka.
5. Income Tax Incentives (2005, July 26). Home Page. Retrieved Nov 12, 2006 from http:// www.bizinfo-bangladesh.com
6. Khan, Abu Sayed. (2005, May 5).Investment in Bangladesh. Nov 12, 2006, from http:// www.bangladeshinfo.com