As Governments throughout the world have assumed more responsibility for the management of the economy, their financial transactions have increased in size and complexity. The developing countries (where needs are greatest and resources scarcest), have found their fiscal systems severely tested. The scarcity of means is indicated by low per capital national income and by conditions that result in low productivity and market imperfections. Other forms of scarcity that complicate fiscal policy in majority of the developing countries are shortage of well trained and experienced civil servants in economic and financial matters and a lack of system to provide needed information (transparency). The cyclical instability to which primary-producing nations are subjected is a hazard to revenue forecasting. If the government attempts to use fiscal policy to mitigate such fluctuations or instability, heavy demands are placed on the budget process.
Revenue receipt of a government consists of two parts, viz:
- Tax-revenue, and
- Non-tax revenue
Two basic differences between tax-revenue and non-tax revenue are (i) while the former is imposed by law, the latter's mandate is derived from rule, tariff or other agreement, (ii) while the former does not represent a direct benefit to the tax payer, the latter generally involves the rendering by government of a service or supply. Non-tax receipts are characterized by three criteria: -
Ø Large volume but small money value (hospital, police receipts, etc.)
Ø Contractual (but outside the parameters of statutes e.g. forest receipts) and
Ø Contractual, but within the parameters of statutes (e.g. mining royalties, mineral cases, - etc.).
Major heads of tax-revenues of Bangladesh
1. Taxes on Income and Profit
1. Income tax-Companies
2. Income tax-Other than Companies
2. Taxes on Property & Capital Transfer
1. Estate Duty and Gift Tax
2. Wealth Tax
3. Narcotics Duty
4. Land Revenue
5. Stamp duty-non-judicial
6. Registration
3. Taxes on goods and services
1. Customs Duties
2. Excise Duties
3. Value Added Tax (VAT)
4. Supplementary Duty (On luxury items and in addition to VAT)
5. Taxes on Vehicles
6. Electricity Duties
7. Other Taxes and Duties (travel tax, turn over tax, etc.)
Major heads of non-tax revenues are as follows:
D. Interest, Dividend and Profit
E. General Administration and Services
F. Social and Community Service
G. Economic Services
H. Agriculture and Allied Services
I. Transport and Communication
J. Other non-tax revenue
K. Capital Revenue
The characteristic of Bangladesh
(a) Revenue GDP Ratio:
A key component of fiscal policy of the government is to make stronger the effort to mobilise domestic resources to generate a larger share of resources for investment. The strategy involves both revamping tax management and providing the right incentives to stimulate domestic savings. Domestic resource mobilisation through the tax effort is not outstanding, but is a significant improvement over the past. In the year 1972-73, tax-GDP ratio was 3.67%, but in the year 1995-96 (July '95 to June '96) it reached upto 9.4%. Tax-GDP ratio of Bangladesh Bangladesh India
(b) Realization of taxes vis-a-vis budget:
The apex organisation, which controls the bulk of revenue receipts and taxes in Bangladesh Bangladesh
(c) NBR Tax Vis-a-vis Total Revenue: Relative share of NBR's tax in total revenue is shown in the following bar-graph:
FIGURE - I
NBR'S. Tax in total Revenue: 1992 to 1995
NBR'S. Tax in total Revenue: 1992 to 1995
In the year 1994-95, NBR collected revenue, which was 74.68% of total revenue and 92.66% of total tax revenue. This has been achieved through improvements/ rationalization of the tax structure. The top individual income tax rate is 25% and corporate income-tax rate is 45%, which is among the lowest in South Asia . Customs Revenue in 1994-95 was 68% higher than 1990-91.
(d) Trend of Revenue Receipts (1972-1995):
Since independence in 1971, revenue receipts are increasing gradually. The following graph depicts, this progress from 1972-73 to 1994-95.
Figure - 2
Trend of Revenue Realisation inBangladesh
Trend of Revenue Realisation in
(e) Domination of Indirect Tax Over Direct Tax:
Despite the progress for ensuring self-reliant development in a global climate of free economy, a major thrust of fiscal policy in Bangladesh has to be on raising the revenue-GDP ratio. Further, there is an urgent need for shift in the composition of revenues away from tax on international trade, goods and services towards direct taxes on income and profit, whose share in total revenue in Bangladesh Asia .
(f) Forecast of Tax-Revenue:
The introduction of VAT in 1991 was a bold move. It now covers manufacturing at the wholesale and retail stage and some selected services. Efforts are on to make VAT as comprehensive as possible. Though VAT is now recognized as an efficient and non-distorting means of taxation by economists and policy makers alike, its introduction in many countries is held up due to political reasons. Thus Bangladesh
Tax revenues have recently shown unusual buoyancy and responsiveness to tax reforms and rate adjustments. Imports responded vigorously in 1994-95 to the sharp reductions in tariffs yielding significantly higher revenues from import taxation with tariffs rates at an all time low. As most revenue targets except those of direct taxes were exceeded in 1994/95, it warranted upward revision of targets for the following year. This optimistic trend is expected to continue into the year 2000 with tax revenues posing a higher trajectory, than would have been the case without tax-reforms. Please see figure below: (Fig.4).
Figure - 3
Changing Structure of Tax Revenue (Billion Taka)
Changing Structure of Tax Revenue (Billion Taka)
Note: Forecast-1 based on FY 1973-90 data: Forecast-2 based on FY 1973-95 data Excludes stamp duties, motor vehicles tax, and other minor taxes
(a) Forecast-1 based on FY 1973-90 data; Forecast-2 based on FY 1973-95 data excludes Stamp Duties, motor vehicles tax, and other minor taxes.
Basic Laws Of Taxation:
This section consists of the essential features of Bangladesh Taxation System and the in-built safeguard for government revenues and control mechanism available in laws and executive instructions flowing there from.
The organization that handles major portion of revenue for the government is the National Board of Revenue (NBR). Secretary, Internal Resources Division (under Ministry of Finance) is the ex-officio chairman of NBR. The main functions of NBR are as follows:
a. Framing of rules and regulations relating to different direct and indirect taxes.
b. Supervision and Administration of Customs, Value Added Tax, Supplementary Duty, Excise and Income Taxes.
c. Assisting government in processing revenue policy, preparation of revenue budget, entering into international treaty relating to taxes etc.
d. Settlement of revision cases under different tax laws and approval of exemption cases.
e. Assisting government in controlling smuggling cases, implementation of import-export policy for development of domestic industrialization.
Under NBR, 15 directorates are engaged in direct tax collection. In addition to these there are 5 Appellate, 1 Inspectorate, 1 Training and 1 Survey directorate. There are 15 directorates under indirect taxes. Of them 9 are engaged in collecting revenue, 1 directorate is for Appeal, 1 is for Intelligence and Investigation, 1 is for Inspection, 1 is for Duty Exemption and Drawback (DEDO), 1 is for Training and 1 for Valuation.
Direct Tax
All the direct taxes are on a progressive scale. Of the direct taxes, the following taxes are in vogue:.
Income Tax:
The levy of Income tax is regulated by Income Tax Ordinance XXXVI of 1984. Finance Act is published every year after passing of national budget in the Parliament. It contains the amendments to the income tax, if any, and prescribed tax rates. Besides rules/orders are issued by the National Board of Revenue from time to time. Decisions are also arrived at based on previous income tax cases. Income Tax is calculated on salaries, interest on securities, income of residential property, income from business or profession, capital gains, income from other sources, profit of any mutual insurance association, any income that accrued, arose, or is received in Bangladesh.
In the income tax law, tax-payers are divided into two classes, resident and non-resident, depending on the period of stay in Bangladesh
- Income tax returns submitted by the assessed and the facts gathered by the income tax officer through accounts, statements, documents, files or audit report of chartered accountants relating to assessment.
- Income Tax Act;
- Income Tax Law;
- Discretion of the Deputy Commissioner of Tax.
Since the year 1996-1997, income tax is determined in the following way:
(a) In case of individual, firm, association of persons, partnership firms:
| Level of Income | Rate | |
| (i) | Income up to 80,000 taka | Nil |
| (ii) | Income up to next 95,000 taka; or 1,40,000 taka, whichever is higher | 15% |
| (iii) | Income up to next 2,00,000 taka | 20% |
| (iv) | The rest amount of income | 25% |
(b) In case of company or local authority:
- All income except dividend income of the Company that is registered in
| Category | Rate | |
| (i) | Income of Publicly Traded Company | 35% |
| (ii) | Income of non-Publicly Traded Company | 25% |
| (iii) | Bank, Insurance or Investment Companies, nonresident Companies | 40% |
The rate of income tax will be 15% on the amount representing income from dividends declared and paid by a company formed and registered in Bangladesh 14th August 1947 .
In the case of a person not being a Company (non-resident), the rate of income tax will be 25 % of income.
Wealth Tax
The provisions of Wealth Tax Act, 1963 (Act No regulate 9.4.2.1. Wealth tax. XV). Wealth is assessed as per the prevailing market price in respect of the wealth of Hindu undivided family or individual.
| Value of Wealth | Rate | |
| (i) | First 30,000,000 taka net wealth | Nil |
| (ii) | Next 55,000,000 taka net wealth | 1/2% |
| (iii) | Next 55,000,000 taka net wealth | 3/4% |
| (iv) | For the balance amount of Value | 1% |
If any tax payer pays income and wealth taxes in any year, wealth tax plus income tax must not exceed 30% of income.
The number of wealth tax payers stood at 18,350 in 1994-1995. 9.4.3. Gift Tax:
Gift tax Act, 1963 was repealed in 1985, but came into force again in 1990. As per the quoted Act, 'gift' means any transfer of ownership of movable or immovable property by one person to another willingly and without any profit. Property is evaluated at the current market price.
The following rates are applicable now:
| Value of property | Rate | |
| (i) | 5,000,000 taka beyond exempted limit | 5% |
| (ii) | On next 10,000,000 taka value | 10% |
| (iii) | On next 10,000,000 taka value | 15% |
| (iv) | On the balance amount of value | 20% |
Indirect Taxes:
The following are the main indirect taxes:
Customs:
Wester defines customs as "duties; tolls or imposts, imposed by sovereign laws of a country on imports and exports". This duty is imposed as per Bangladesh Customs Act, 1969 and as per the Customs Tariff. As per the Customs Act, banned and illegal items are sold on auction and sale-proceeds are deposited into government treasury. Smuggled gold seized at air/sea ports are deposited into Central Bank.
In order to hasten customs clearance and thereby encourage investment in the country, government has introduced Per-shipment Inspection (PSI) Scheme under which approved internationally reputed inspection firms issue certificate regarding quality, quantity, price, classification of the imported items. On the basis of that certificate (known as 'Clean Report on Finding'), goods are cleared without delay at sea or air ports. But Revenue Audit authorities have detected cases of under-invoicing and wrong classification by the PSI agencies, which deprive the government of large revenues.
Moreover bonded warehouses get special duty privileges for imports. There are 2,956 bonded warehouses (private and special) in the country. There are also privileges for import under baggage rules.
Excise:
Excise duty is imposed on some items that are produced within Bangladesh
VAT
Value Added Tax is imposed on production, wholesaling and retailing when value is added. This was introduced in 1991. Maximum limit of VAT is 15% on import and home-made goods and services. The number of registered firms/companies under VAT net is 100,000 (approx.).
Supplementary Duty
This is imposed on luxury items and services, like cigarette, cinema, alcohol, etc. in addition to VAT. The rate varies from 5% to 350%.
Turnover Tax:
Those organizations whose annual sale is less than Taka 150,000,000 are to pay turnover tax.
Non-NBR Taxes & Non-Tax Revenues:
In this section, taxes collected by bodies other than National Board of Revenue (NBR) and non-tax revenues will be discussed.
I. Non-NBR Taxes
This includes Land Development Tax, Stamps (Non-Judicial), Registration, Narcotics Duty and Taxes on Vehicles.
Non-Tax Revenues
Of the non-tax revenues, the following are the main:
a. Dividend And Profit From Public Financial Institutions:
This includes profit earned by Bangladesh Bank, Nationalised Commercial Banks, Financial Institutions owned by the Government and other banks and financial institutions in which Government has shares. The Bangladesh Bank contributes more than 95% of the total.
b. Dividend And Profit From Non-Financial Public Enterprises:
The profits and dividends deposited by the public enterprises and corporations to the national exchequer come under this category, [e.g. Bangladesh Oil, Gas & Minerals Corporation (BOGMC), Civil Aviation, Bangladesh Petroleum Corporation, Mongla Port Authority, Chittagong Port Authority, Bangladesh Biman (National airline), etc].
c. Interest Income:
Interest earning on loans of all kinds both domestic and foreign comes under this head.
d. Economic Services:
Fees realized under Import and Export Act, fees form registration of firms and companies, Co-operative Society Registration and Renewal Fees, Fees under Insurance Act and Audit Fees are included in this group.
e. General Administration and Services:
This includes receipts from Administration of Justice, Jails, Police, Civil Defense and Fire Service, Education, Health and Population Control and Defense.
f. Agriculture and Ahead Services:
g. Social and Community Services:
Receipts from Public Health and Sanitation, Water Supply, Rent from Government Housing, Broadcasting, Press and Publication are included.
h. Transport and Communication:
Receipts from Roads, Bridges and Ferries, Ports, Light Houses and Shipping are included under this group.
i. Other Non- Tax Revenue:
Other Non-Tax Revenue includes receipts from Passports and Visas, Audit Fees, Examination Fees, Receipts under the Jute Act, Recoveries of over payment and various other miscellaneous receipts.
j. Capital Revenue:
This includes sale proceeds of Government assets, Receipts from Disinvested Industrial Units and Receipts from Abandoned Units.
Tax Expenditure:
Tax expenditures consist in exemptions, deductions, credits, reduced tax rates or tax deferrals. In Bangladesh
Inter-departmental coordination in implementation of tax expenditures scheme has not yet been spelt out. Nor has audit studied anything in that line. Board of Revenue has worked out an administrative cost for direct and indirect tax. In the year 1994-95, administrative cost for realization of 100 taka of direct tax has been worked out at 0.87 taka and for indirect tax. 0.61 taka. Out of 582, 662 income tax payers, the number of tax-holiday cases is 2,334.
Tariff Classification & Valuation In Commodity Taxation:
Bangladesh Customs Tariff is contained in the first schedule to the Customs Act, 1969. This tariff was previously based on the schedules to the Tariff Act, 1934, which was partially repealed in 1969 and fully repealed in 1980. The Finance Act of 1980-substituted section 18 of the Customs Act substituted to consolidate the provisions relating to the tariff of customs duties.
Till June 1988, the customs tariff was based on the Customs Cooperation Council Nomenclature (CCCN). From the 1st. of July 1988, Harmonized System Nomenclature (HSN) commonly known as the Harmonized Commodity Description and Coding System replaced this Nomenclature. Bangladesh Brussels
The creation of the Harmonized Commodity Description and Coding System and its worldwide acceptance within five years of its implementation is indeed a great achievement. The nomenclature under this system comprises of 5,019 groups of goods identified by an eight digit commodity code and is provided with necessary definitions and rules to ensure a correct and uniform application of the same. For the purpose of tariff classification, the Harmonized system provides a legal and logical structure within which a total of 1,241 headings are grouped into 97 chapters arranged in 21 sections. Each heading in the system is identified by a four digit code column entitled 'Heading No.', the first two digits of which indicate the chapter in which the heading occurs, while the latter two digits indicate the position of the heading in the chapter. Under the title 'HS code', the first four digits correspond to the relevant heading number, the latter sub-headings being indicated by one-dash two digits and two-dash digits.
An ideal classification system associates each individual product with a sub-heading to which the product can be simply and unequivocally assigned. Hence rules are designed to ensure that a given product is always classified in one and the same heading and sub-heading to the exclusion of any other which might seem to merit equal consideration. The customs tariff under the Harmonized System incorporates preliminary provisions codifying the principles on which the system is based and laying down general rules to ensure uniform legal interpretation.
As a general rule, goods are arranged in order of their degree of manufacture, e.g. raw materials uncorked products, semi-finished products and finished products. For example, live animals fall in chapter I, animal hides in chapter 41, leather footwear in chapter 64. The same progression also exists within chapters and headings. However, with millions of products to be classified in only 5,019 HS Categories, it is natural that from time to time disputes about classification will arise between various users. Fortunately the Harmonized System is well supported by its complementary publications such as Explanatory Notes and the Compendium of Classification of Opinions as well as the International Body for settlement of classification of disputes. The Harmonized System Committee ensures that the system is applied uniformly.
Conclusion:
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