tax process of bangladesh
TRANSCRIPT
Introduction
One of the major sources of public revenue to meet a country's revenue and development
expenditures with a view to accomplishing some economic and social objectives, such as
redistribution of income, price stabilization and discouraging harmful consumption. It
supplements other sources of public finance such as issuance of currency notes and coins,
charging for public goods and services and borrowings. The term 'tax' has been derived
from the French word taxe and etymologically, the Latin word taxare is related to the
term 'tax', which means 'to charge'. Tax is 'a contribution exacted by the state'. It is a no
penal but compulsory and unrequited transfer of resources from the private to the public
sector, levied on the basis of predetermined criteria.
According to Article 152(1) of the Constitution of Bangladesh, taxation includes the
imposition of any tax, rate, duty or impost, whether general, local or special, and tax shall
be construed accordingly. Rate is a local tax imposed by local government on its
residents or the property owners of the locality, a duty is a tax levied on a commodity,
and an impost is a tax imposed for an entry into a country. Under the provision of article
83 of the Constitution, "no tax shall be levied or collected except by or under the
authority of an Act of Parliament". The imposition, regulation, alteration, remission or
repeal of any tax is dealt with by the 'Money Bill', but except in case of reduction or
abolition of any tax, the 'Money Bill' cannot be introduced in the Parliament without the
President's recommendation.
Taxation:
Taxation means imposition of a non-penal yet compulsory levy for transfer of resources
from private to public sector, imposed by the public representative based on pre-
determined criteria and without reference to any specific commitment, in order to
accomplish some nation’s economic and social objective. These are dues that we pay for
the privileges of membership in an organized civil society. Tax is imposed in the
assessment year based on income year.
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Assessment year: The assessment is a period of 12 months just following the income
year means computation of total income and tax payable there on.
Income year: Income year is the year when the income is earned.
Income: Income means anything received in cash or in kind unless exempted by laws.
1) Assessable Income: Assessable Incomes are those incomes, which are included in
the determination of total income of a taxpayer.
A. Taxable Income: Taxable Incomes are those incomes that the tax is to be paid on
those incomes.
B. Non- Taxable Income: Non – taxable income is taken into total income for
taxation rate purpose but no tax is to be paid on this part of income.
2) Non- Assessable Income: Non- assessable incomes are those incomes which are
not included in the determination of total income of a taxpayer.
INCOME-TAX AUTHORITIES
In Bangladesh, under the Ministry of Finance, there are three separate divisions viz.a) Finance Division (FD)b) Internal Resource Division (IRD)c) External Relations Division (ERD)
National Board of Revenue is working under Internal Resource Division and it is the
apex body of tax administration. Under National Board of Revenue, there are two wings
viz.
i) Taxes Wingii) Customs & VAT Wing
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Comprehensive example of calculation of total income
Heads of income:
According to sec 20, there are seven heads of income
Income from salary (sec-21)
Income from securities (sec-22)
Income from house property (sec-24)
Income from agriculture (sec-26)
Income from business and profession (sec-28)
Income from capital gain (sec-32)
Income from other sources (sec-23)
1. Income from salary (sec-21):
Salary ordinary means a fixed periodical payment received from employer by an
employee for service regarded. According to sec-2 (58), salary includes any wages,
annuity, pension or gratuity, fees, commissions, allowance, perquisites and any leave
encashment. If the employee has other investment he is entitled to enjoy investment tax
rebate.
In calculating salary income certain exemption from allowances are –
House rent allowance: 50%of the basic or 15000 per month; whichever is less. If
the employer provides employee a resident, in that case 25% of the basic will be
taken as a notional income for the residential accommodation.
Conveyance allowance: 7.5% of the basic will be added to the total income as a
notional income for full time transport. In case of half time transport, 5% of the
basic will be added.
Medical allowance: expenses are subject to verified.
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“Computation of Total Taxable Income” ofMr. Golam Kibria
Income Year 2010-2011Assessment Year 2011-2012
Calculation of salary income:
Details Amount(TK) Amount(TK)
Basic salary (45000 pm * 12) 540000
House rent (60% of basic salary)
Less: exemption 50% of the basic (270000)
Or, TK 15000 pm; (180000)
whichever is less
324000
180000
144000
Conveyance ( 3500 pm * 12)
Less: Maximum allowance exemptions
42000
24000
18000
Medical allowance (25% of the basic)
Less: actual expenses.
135000
110000
25000
Dearness allowance (25% of basis) 135000
Special allowance for overtime 25000
Bonus 50000
Examination of scripts 15000
Employer’s contribution to RPF 50000
Entertainment 20000
Income from salary 1022000
Note: He got pension from earlier employment of tk. 6,000/month which is totally a non-
assessable income. That’s why we did not take his pension income in calculation of total
income from salary.
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2. Income from Interest on securities
Security is a promissory note, which bear interest issued by government to meet money
demands. It means acknowledgement of indebtedness by the government towards the
members of the public who buy the security certificate issued by government.
If the security certificate is issued by government then it is called ‘security’. Otherwise, it
is called ‘debenture’, when it is issued by any entity except government through Security
and Exchange Commission (SEC)
Mr. Golam Kibria invested in earlier year TK 500,000 in approved securities out of bank
loan for which he paid bank interest of TK 30,000. He received interest on securities and
debenture: TK 50,000 for the year:
Calculation of income from interest on securities
details Amount(TK)
Interest on securities 15000
Interest on debentures 35000
Total income from securities 50000
Less: Interest on bank loans 30000
Assessable income from interest 20000
3. Income from house property
Income from house property will be as certained on the basis of annual value of the house
concerned. The said property is applicable in both commercial and residential purpose.
Only the house owner will be assessed to tax. If the owner occupies a portion of the
property, he would not fall under the charge of income tax for his residential portion.
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Annual value:
It is the reasonable ret at which the house owner is expected to get from time to time or
the actual rent.
Statutory allowance:
This refers to the allowances, which are to be allowed in determining total income
irrespective of its expense or not. For example: 25% of annual value for residential house
and 30% of annual value for commercial house.
Mr. Golam Kibria had a three storied house at Gulshan. The first & second floor was let
out from 1st July at Tk 30,000 & Tk 20,000 per month respectively and the ground floor
was occupied as his residence.
Annual letting value:
(30,000 pm × 12) (20,000 pm × 12)
360000
240000 600000
Deductions from the letting value:
statutory allowance of 1/4 for repair,maintenance etc
150000
City corporation tax 40000
Insurance premium 50000
HBFC loan interest 30000
Since he occupied 1/3rd as his residence,
Proportional expenses are disallowed
(40000)
The 2nd floor of the house Remained vacant for
one month So, vacancy allowance
20000
Total deductions 250000
Net income from house property 350000
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4. Income from agriculture
According to sec-2 (1), agriculture income means
Any income derived from any land in Bangladesh and used for agriculture
purpose by means of agriculture or by performance of any process by employing
cultivator or by the sale of the agriculture product or by granting a right to any
person to use the land.
Any income derived from building, which is occupied by the cultivator of such
land or is required by cultivator as dwelling house, storehouse or other outhouse
because of his connection with such land.
Allowance in income from agriculture
Agriculture income will be determined after allowing a reduction of 60% from the
amount of receipts, where no acceptable evidence can be produced for cost
production.
If the assesse does not have any other income except agriculture, he will get an
additional exemption of TK50000 in additional to normal tax exemption, which is
185000.them his exempted will be (185000+50000) =235000.
Mr. Golam Kibria owns 03 acres of land of double crop. Yield per acre 20 tons of paddy.
Per ton earnings is 300Tk. Production cost was TK 70,000.
Calculation of income from agriculture:
Income from Agriculture
details Amount (TK)
Sale of agricultural product
Total production 20 × 3 × 2= 120 tons × 300 per ton 36000
Less:60% for expense 21600
Income from agriculture 14400
Note: Production cost was shown TK 70,000 by the assessee however allowable expense
should not exceed 60% of the sales proceeds. Also as the individual assessee has other
source of income other than agricultural income, he won’t get the special exemption of
additional 50,000 taka.
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5. Income from capital gain
Capital gain arises as a result of disposal of capital assets except personal effects like
wearing apparel, jewelries, furniture, vehicles and equipments. It also does not include as
a capital gain by the sale of agricultural land, which is situated beyond 5 miles of the
radius of the municipality or city corporation area.
Laws regarding capital gain:
Tax realized at the time of registration @ 3% no the deed value will be deemed to
be final discharge of the tax liability under the head of capital gain arising out of
disposal of land property.
If the difference between deed value and the fair market value is more than 15%,
the Deputy Commissioner of Tax (DCT) may with prior approval of his joint
commissioner, estimate the fair market value.
However, if the difference goes further to more than 25%, the government may
opt to buy it as per the provision of Income Tax Ordinance, 1984.
Capital gain earned by both corporate and non-corporate taxpayer is liable to be
taxed, but the rate of tax is different. For corporate the rate is 15%. On the other
hand, individuals pay tax at normal rate along with income if the gain occurs
within 5 years of acquisition of the capital asset.
If the gain is accrue after 5 years then the individual will pay tax at normal rate
along with other income or normal rate on the other income, if there is any, plus
15% on the portion of capital gains; whichever is beneficial for the tax payer.
The excess of the salvage value over the book value subject to deduction of
maximum depreciation amount allowed so far will be taken as a capital gain and
deducted amount of depreciation shall be deemed to be business income.
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Mr. Golam Kibria had sold a machinery of his personal printing press, at TK 900000
more than 03 years ago at TK 800000 and so far depreciation was charged of TK 400000.
Also disposed a land property in the Dhaka city and from there earned a capital gain of
Tk1000000. And taxes @ 2% of deed value were realized during registration.
In the instant case , capital gain of TK 10,00,000 shall not be taxed again because tax
deducted at the time of land registration is deemed to be final discharge of tax and it will
be treated U/S 82 c(4) as aforesaid. Capital gain arising out of the sale of machinery shall
be treated as follows:
Calculation of capital gain:
Sale of machinery
Details Amount(TK)
Salvage value 900000
Less: book value 400000
Surplus 500000
Less: depreciation so far allowed Is taken
as revenue income
400000
Balance capital gain 100000
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6. Income from Business and Profession (sec-28)
Among all the heads of income, income from business and profession is considered to be
the most important one, as maximum amount of tax is collected from this income head.
This term business has defined under section 2 (14) to include any trade, commerce or
manufacture of any adventure of concern in the nature of trade, commerce or
manufacture in economic sense, business means the work concerning with buying,
producing and selling of goods for profit.
The characteristics of business include:
Production or acquisition of goods
Sales or transfer of title
Dealings an goods and services
Mr. Golam Kibria had income from a export business of TK1000000.
Income from business and profession
Details Amount(TK)
Export income 1000000
Less: Exempted (1000000*50%) 500000
Income from business & profession 500000
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7. Income from Other Sources (sec-33)
The last and the residuary head of income is income from other sources. Under this
income head, not only certain specific income is discussed but also many of income is
discussed which can’t be classified under any sort of income.
The following incomes are charged under this income head:
Dividend and interest
Royalties and fees for technical services
Income from letting of machinery, plants or furniture belonging to the assessee
and also of buildings belonging to him/her if the building is inseparable from the
letting of the machinery, plant or furniture
Any income to which section 19 (1) , (2) , (3) , (4) , (5) , (8) , (9) , (10) , (11) ,
(12) , (13) , (21) , (21A) , (24) applies. (according to the Finance Ordinance 2008)
Interest on fixed deposits, term deposits or any other bank account, no exemption like the
past up to 30.06.02 this means that bank interest henceforth, shall be shown in the return
and tax deducted at source at the rate of 10% shall be given credit from payable.
Mr. Golam Kibria invested TK 300,000 in approved share of a public co. out of bank
loan for which he paid bank interest of TK 30000. He received dividend: TK 50,000 for
the year.
Calculation of Income from other sources:
Details Amount(TK)
Income from dividend from public company 50000
Less: Interest on bank loan for investment 30000
Net income from other sources 20000
Income from other sources will also include any other incomes which are deemed to be
any other income under different subsections of sections 19 of the IT ordinance 1984.
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Calculation of total income of Mr. Golam Kibria for the assessment year of 2011-
2012 and the income year 2010-2011
Details Amount(TK)
1) Income from salary 1022000
2) Income from interest on securities 20000
3) Income from house property 350000
4) Income from agriculture 14400
5) Income from business & profession 500000
6) Income from capital gain 100000
7) Income from other sources 20000
Total Income of Mr. Golam Kibria for the
assessment year of 2011-2012
2026400
Rates of Taxes as per Finance Act,2011.
Details Rate Tax
On First TK180000 @ 0% Nil
Next TK 300000 @ 10% 30000
Next TK 400000 @ 15% 60000
Next TK 300000 @ 20% 60000
On balanceTK846400 @ 25% 211600
Total tax payable 361600
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He invested TK 130,000 in IPO (share) of public limited company and contributed at
Zakat Fund TK50, 000.
Actual Investment
Details Amount(TK)
Contributory recognized provident fund
(both self + employers)
100000
Invest in IPO 130000
Savings certificate 50000
Total investment claimed 280000
Investment allowance comes to 20% of total income excluding employer’s contribution to
R.P.F = (2026400-50000)*20%=395280) or
Actual investment 280,000 or maximum 10000000 whichever is less.
So allowable investment allowance is Tk. 280,000
Investment Tax Rebate
Here actual investment is less and here invest tax rebate will be 280000*10%=28000 and
tax deducted at source TK 5000 per month from his salary.
Details Amount(TK)
Total tax payable 361600
Less: Investment tax rebate 28000
333600
Less: Tax deducted at source (5,000*12) 60000
Net tax payable 273600
Mr. Golam Kibria will pay this tax by a pay order of any scheduled bank.
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