Income Tax Law
Definition of Tax
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 non-penal but compulsory and unrequited transfer of resources from the private to the public sector levied on the basis of predetermined criteria.
Income Tax is a compulsory levy imposed by the Government. People pay taxes to the Government on the basis of what they earn, what they own and what they purchase. A tax is a compulsory payment levied on the persons or companies to meet the expenditure incurred on conferring common benefits upon the people of a country.
Two aspects of taxes follow from this definition:
1. A tax is a compulsory payment and no one can refuse to pay it; and
2. Proceed from taxes are used for common benefits or general purposes of the state.
Classification of Tax
Tax is mainly classified into the following two categories:
1) Direct tax:
A direct tax is a form of tax which is collected directly by the government from the persons who bear the tax burden. Taxable individuals file tax returns directly to the government. Examples of direct taxes are corporate taxes, income taxes, and transfer taxes.
2) Indirect tax:
An indirect tax is a form of tax collected by mediators who transfer the taxes to the government and also perform functions associated with filing tax returns. The customers bear the final tax burden. Examples of indirect taxes are sales tax and value-added tax (VAT).
There are other types of taxes, which may either be direct tax or indirect taxes, including capital gains tax, corporation tax, consumption tax, inheritance tax, property tax, excise duty, retirement tax, tariffs, wealth tax or net worth tax, toll tax, and the poll tax.
Income Tax at a Glance
Among direct taxes, income tax is the main source of revenue. It is a progressive tax system. 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. In Bangladesh income tax is being administered under the tax legislations named as “The Income Tax Ordinance, 1984 and The Income Tax Rules, 1984”.
Purposes of Taxation:-
The money provided by taxation has been used by states and their functional equivalents throughout history to carry out many functions. Income tax is one of the major components of tax revenue. The main use for the money governments collect in taxes is to provide goods and services to the public. Taxes are used to spend on education, building and maintaining roads and highways, public transportation, and public welfare programmes such as social security, unemployment benefits, public housing, health, security, fire protection, and so on. Tax money also pays for the daily operating expenses of the government, such as the salaries of government employees and interest owed on government debt. In order to provide a better life for the people, the government needs money and thus internal resource is the key for sustenance and development of a nation.
The Income Tax Ordinance, 1984
The history of income tax law in Bangladesh is more than two hundred years old. After independence, the country inherited and subsequently adopted the Income Tax Act of 1922 which was actually in vogue during the rule of Pakistan. In 1976, a commission was formed when the necessity to make the regulation pragmatic had been felt. As a result, in 1984, Income Tax Act, 1922 was replaced by new legislation named Income Tax Ordinance, 1984 (ITO). At present, the matters of income tax are governed by the regulations of Income Tax Ordinance, 1984 subject to the amendments made through the annual Finance Acts and Statutory Regulatory Orders (SRO).
Income Tax Authorities:-
According to section 3 of the Income Tax Ordinance, 1984, there shall be the following classes of income tax authorities:
• The National Board of Revenue;
• Chief Commissioner of Taxes;
• Directors-General of Inspection (Taxes);
• Commissioner of Taxes (Appeals);
• Commissioner of Taxes (Large Taxpayer Unit);
• Director General (Training);
• Director General, Central Intelligence Cell;
• Commissioners of Taxes;
• Additional Commissioners of Taxes (Appeal/Inspecting);
• Joint Commissioners of Taxes (Appeal/Inspecting );
• Deputy Commissioners of Taxes;
• Tax recovery officers;
• Assistant Commissioners of Taxes;
• Extra Assistant Commissioners of Taxes; and
• Inspectors of Taxes.
Heads of Income:-
According to section 20 of the Income Tax Ordinance, 1984, for the purpose of computation of total income and charging tax thereon, sources of income can be classified into 7 categories, which are as follows:
a) Salaries.
b) Interest on securities.
c) Income from house property.
d) Agricultural Income.
e) Income from business or profession.
f) Capital gains.
g) Income from other sources.
Constitutional provisions of Tax:-
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.
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”.
According to the Articles 81(1) and 82 of the Constitution, 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.
Present Rate of Tax in Bangladesh
Total Income Tax rate
On first Tk. 3,00,000 Nil
On next Tk. 1,00,000 5%
On next Tk. 3,00,000 10%
On next Tk. 4,00,000 15%
On next Tk. 5,00,000 20%
On the balance of total income 25%
Tax administration in Bangladesh:-
National Board of Revenue (NBR) is the central authority for tax administration in Bangladesh. Formulation of tax policy and its execution responsibilities are performed by the NBR under the Internal Resource Division of the government of Bangladesh.
National Board of Revenue:-
The National Board of Revenue (NBR) is the apex authority for tax administration in Bangladesh. It was established by the father of the Nation Bangabandhu Sheikh Mujibur Rahman under President’s Order No. 76 of 1972. Administratively, it is under the Internal Resources Division (IRD) of the Ministry of Finance (MoF). The Secretary, IRD is the ex-officio Chairman of NBR.
NBR is responsible for the formulation and continuous re-appraisal of tax-policies and tax-laws, negotiating tax treaties with foreign governments and participating in inter-ministerial deliberations on economic issues having a bearing on fiscal policies and tax administration. The main responsibility of NBR is to collect tax revenues (primarily, Value Added Tax, Customs Duty, Excise Duty and Income Tax). It works with three tax-type wings namely, Customs wing, VAT Wing and Income Tax Wing. There are two more wings named IT wing and Research & Statistics wing under NBR.
The problem with our tax system
It is not necessary to think that the persons who have paid tax have not evaded tax. Tax evasion can have many forms. In Bangladesh, businessmen who collect Value Added Tax from consumers also evade tax by under-reporting the same. Importers avoid tax by under-invoicing. Tax avoidance is thus a major problem.
An independent survey finds a few reasons for reluctance or lack of interest in paying taxes. People would like to be assured that their money is being used for the right cause. A majority of the people feel our tax system is unnecessarily complicated wrecked by age-old corruption and incompetence. Many individuals with taxable income are not interested in paying taxes because they think there is no level playing field when it comes to paying taxes. Some get demoralised seeing rich people and big companies not pay taxes properly. Moreover, we have seen in the past that all successive governments offered the scope for legalising “undisclosed money” and most of the time, rates were lower than the normal tax rate.
Honest taxpayers, who pay taxes on a regular basis, become frustrated seeing such unfair government policies. Also, this encourages many individuals and companies to abstain from paying taxes because they can in future take advantage of a low tax rate when such an amnesty is offered.
Writer: Law for Nations. Email: lawfornations.abm@gmail.com, website: www.lawfornations.com, Mobile: 01842459590.
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