Prepared for

Ms. Fahmida Sultana

Assistant Professor
Department of Development Studies
University of Dhaka


Prepared by
Nishat Farzana
Class Roll: RK-19
5
th
Batch
Department of Development Studies
University of Dhaka

Date of Submission
27
th
April, 2014

TAX SYSTEM IN BANGLADESH
DEFINITION OF TAX
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. It 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.
BACKGROUND OF TAXATI ON IN BANGLADESH
Every country has distinctive tax system. 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 social welfare program.
MAJOR CATEGORIES OF TAXES
In Bangladesh, the principal categories of taxes are:
Personal income taxes
Corporate income taxes.
Value-Added-Tax (VAT),
Customs Duty and Supplementary Duty
The standard rate of VAT is 15% levied on transaction value of most of the imports and supplies of goods
and services. The top income tax rate for individuals is 25%. For the 2011/12 tax year (July 1, 2011June
30, 2012) the top corporate rate was 45%. However, publicly traded companies registered in Bangladesh
are charged a lower rate of 27.5%. Banks, financial institutions and insurance companies are charged the
45% rate. All other companies are taxed at the 37.5% rate.


The major types of taxes are discussed in details below:
1. PERSONAL INCOME 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. It aims at ensuring equity and social justice. And Income Tax Responsible Authority is
National Board of Revenue.
2. CORPORATE INCOME TAXES
Corporate Income Tax is that which is imposed over the yearly income on the corporate house. There is
no significant change in corporate tax rates. But considering the public health the tax rate for the
companies, producing cigarettes, raised from 37.5% to 42.5 %. Along with this, these companies have to
pay .5% tax on their total receives as the mandatory tax rates. Tax holiday facility is allowed to newly
setup industrial undertakings, tourist industry and physical infrastructure facilities subject to certain
specified conditions in order to promote industrialization, encourage tourism and for employment
generation. Exemptions and deductions are applicable to incomes from firms in Export Processing Zone
(EPZ), 50% of income for export earnings, power generation companies, computer software business,
agriculture related industry, micro credit for Non-government organizations (NGOs), Local government,
welfare activities, etc.
3. VALUE ADDED TAXES (VAT):
To facilitate some industries and services VAT has been exempted in some selected areas. Goods
exempted from VAT include food and agricultural products, animal products poultry sector, agriculture
imputes, cloths made of cotton and synthetics, malaria. TB/ cancer preventive medicine, homoeopathic
medicine, family planning items, books and periodicals, etc. Services exempted from VAT include
fundamental services for livelihood, social welfare services, services relating to culture, services relating
to money and finance, transport services, personal services and other services other than the above.
The general rate of Value Added Tax (VAT) in Bangladesh is 15%. Value Added Tax (VAT) is imposed on
goods and services at import stage, manufacturing, wholesale and retails levels; An uniform VAT rate of
15% is applicable for both goods and services; 15% Value Added Tax (VAT) is applicable for all business
or industrial units with an annual turnover of Taka 2 million and above;
4. CUSTOMS AND SUPPLEMENTARY DUTY:
Exemptions from customs duty are granted to capital machinery, raw materials of medicine, poultry
medicine, feed & machinery, defense stores, chemicals of leather and leather goods, private power
generation unit, textile raw materials and machinery, solar power equipment, relief goods, goods for
blind and physically retarded people and import by embassy and UN. Concessionary rates are applicable
to agro-processing, textile and leather industry, educational institutions, hospitals, privileged persons,
etc. 15% supplementary duty is applicable to sugar and kerosene. Tariff rate on any mobile is Tk. 1,500.
7.5% import duty is applicable to chemical color for textile industries. Incentives are also given to these
sectors, which are complying with the international and bilateral agreements and conventions.
CENTRAL AUTHORITY OF TAXATION IN BANGLADESH
The National Board of Revenue (NBR) is the central authority for tax administration in Bangladesh.
Administratively, it is under the Internal Resources Division (IRD) of the Ministry of Finance (MoF). MoF
has 4 Divisions, namely, the Finance Division the Internal Resources Division (IRD), the Banking Division
and the Economic Relations Division (ERD). Each division is headed by a Secretary to the Government.
Secretary, IRD is the ex-office of Chairman of NBR. NBR is responsible for formulation and continuous re-
appraisal of tax-policies and tax-laws in Bangladesh.
APPLICATION OF C ANNON IN T HE TAX S YSTEM OF BANGLADESH
There are so many tax system remains in Bangladesh. Among this tax system some cannons are
followed, some are not.
1. CANON OF EQUALITY:
In these cannon it imposes of tax according to ability to pay. So under these circumstances this is usually
followed in the tax system of Bangladesh.
2. CANON OF CERTAINTY:
This canon describe that the tax which each individual is bound to pay or to be certain and not arbitrary.
The time of payment, the manner of payment, the quantity to be paid, all ought to be clear and playing
to the contributor and to every other person. This canon is not to be followed in the tax system of
Bangladesh. So many corruptions are seen here.
3. CANON OF CONVENIENCE:
It should be convenient to pay tax. A person who starts to get earning money he or she has to give tax
on that moment. This step is not followed in tax system of Bangladesh properly.
3. CANON OF ECONOMY:
Every tax has a tax of collection. It is important that the cost of collection should be as small as possible.
It will be useless to imposed tax which is too widespread and difficult to administer.
4. CANON OF PRODUCTI VITY:
According to this principle, the tax system should be able to yield enough revenue for the treasury and
the Government should not be forced to resort to deficit financing.
5. CANON OF ELASTI CI TY:
As the need of the country increases, the revenue should also increase. To meet emergency, the govt.
should be in a position to augment its financial revenue through increasing tax rate.
6. CANON OF SIMPLI CI TY:
The tax system should be simple and plain so that everyone can easily understand it. The assessment of
tax must be simplified. To avoid corruption taxation should be simple.
8. CANON OF DI VERSI TY:
In line of productivity, canon of diversity also gives importance to adequate collection of tax through
diversification. Such a system breeds a lot of uncertainty for the treasury. On the other hand, if the tax
revenue comes from diversified sources, then any reduction in tax revenue on account of any one is
likely to be very small on total tax revenue.