Introduction

Taxation, a fundamental component of public finance, occupies a pivotal position in the

curriculum of economics and managerial science education. This course, Taxation Practices of
Bangladesh, is meticulously designed to cater to the needs of students and executives, aiming
to enhance their theoretical understanding of taxation and equip them with the practical skills
necessary for applying this knowledge in various business contexts.

The contemporary economic landscape underscores the inseparable relationship between

taxation and development. Governments, through the collection of taxes, allocate these funds
towards the development of essential infrastructure, thereby stimulating economic activity
throughout the country. Moreover, the concept of taxation holds significant importance for
businesses, as governments can reinvest these funds back into the economy through loans or
other funding mechanisms, fostering a virtuous cycle of growth.

The pursuit of knowledge has led to the development of numerous sophisticated analytical tools
and theories, revolutionizing various fields of economic development. Taxation Practices of
Bangladesh stands as a recent addition to this growing body of knowledge, offering a fresh
perspective on conventional revenue generation challenges. By focusing on the determination
of optimal courses of action within the constraints of limited resources, taxation has emerged
as a versatile instrument in the realm of public finance, with immense potential for future
applications.

Taxation, one of the major sources of public revenue to meet the revenue and development
expenditures with a view to accomplishing some economic and social objectives, such as
redistribution of income, price stabilisation 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 taxes and etymologically, the Latin word tax is related to the term 'tax', which
means 'to charge'. Tax is 'a contribution exacted by the state'. It is a nonpenal 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

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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&#8221. 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.

Bangladesh inherited a system of taxation from its the British and Pakistani regimes. The
system, however, developed on the basis of generally accepted canons and there had been
efforts towards rationalising the tax administration for optimising revenue collection, reducing
tax evasion and preventing revenue leakage through system loss. To develop manpower for
efficient tax administration, the government runs two training academies - BCS (Tax) Academy
at Dhaka for direct tax training and Customs, Excise and Value Added Tax Training Academy
at Chittagong for indirect tax training. The national board of revenue (NBR) is the apex tax
authority of Bangladesh and it collects around 95% of total taxes or 77% of total public
revenues (2009-10). The NBR portion of total taxes includes customs duty, value added tax
(VAT), supplementary duty (SD), excise duty, income tax, turnover tax (TT), foreign travel tax,
electricity duty, advertisement tax, gift tax and miscellaneous insignificant taxes. Other taxes
(amounting to around 5% of total taxes or 4% of total revenues in 2009-10) are often referred
to as 'non-NBR portion' of tax revenue. These taxes include narcotics duty (collected by the
Department of Narcotics Control, Ministry of Home Affairs), land revenue (administered by
the Ministry of Land and collected at local Tahsil offices numbered on average, one in every
two Union Parishads), non-judicial stamp (collected under the Ministry of Finance),
registration fee (collected by the Registration Directorate of the Ministry of Law, Justice and
Parliamentary Affairs) and motor vehicle tax (collected under the Ministry of Communication).
The NBR previously collected some other taxes, such as, wealth tax (under the Wealth-tax Act
1963 up to assessment year 1998-99 and thereafter as a surcharge at a percentage of income
tax up to assessment year 2001-2002 under the Income Tax Ordinance 1984), estate duty (under
the Estate Duty Act 1950 up to assessment year 1981-82), sales tax (under the Sales Tax Act
1951 up to assessment year 1981-82 and thereafter under the Sales Tax Ordinance 1982 up to
assessment year 1990-91), urban immovable property tax (under the Urban Immovable
Property Tax Act, 1957 up to assessment year 1982-83), business turnover tax on selective
goods and services (under the Business Turnover Tax Ordinance 1982 from assessment years
1982-83 to 1990-91), Infrastructure Development Surcharge (under the Finance Act 1997 from

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financial years from 1997-98 to 2006-07), airline ticket tax (ATT) from financial years 1986-
87 to 2003-04 and excise duties on goods (up to financial year 2003-04).

Bangladesh is unable to raise enough resources in taxes. The tax-GDP ratio was only 3.4% in
1972-73 and it remained below 9% until the introduction of VAT in the country in 1991. The
ratio was 9.8% in 1992-93 and although it was more than 9% in the successive years, it never
reached 10% (9.2% in 2007-08). The revised budget of 2008-9 and budget of 2009-10
estimated the ratio at 9.0% and 9.3% respectively. The budgeted expenditure of 2009-10 was
Tk 1,138.19 billion against projected total revenues of Tk 794.61 billion i.e., the overall deficit
was Tk 343.58 billion. The revenue receipts included tax revenue of Tk 639.55 billion (15%
higher than that in the preceding year) and non-tax revenue of Tk 155.06 billion (14% higher
than that in the preceding year). The tax revenues covered only 56% of total expenditures.

The History of income tax in Bangladesh

The history of income tax in Bangladesh dates back to the British Raj, when it was first
introduced in 1860 under the title "Income Tax Act". After Bangladesh achieved independence
in 1971, it inherited the income tax system from the Pakistani regime, which itself was a
continuation of the British legacy. Since then, the system has undergone various changes and
modifications.

Key milestones in the history of income tax in Bangladesh include:

➢ 1860: Introduction of the first income tax law by the British Raj.

➢ 1922: After Bangladesh's independence, the Income Tax Act 1922 was enacted, based
on the recommendations of the All-India Income Tax Committee.

➢ 1984: The Income Tax Ordinance 1984 was promulgated and made by the President of
the People's Republic of Bangladesh, on the 3rd June, 1984, replacing the 1922 Act and
incorporating changes based on the recommendations of the Taxation Enquiry
Commission.

➢ 2023: The income tax system in Bangladesh is currently administered under the Income
Tax Act 2023.

The income tax system in Bangladesh is a progressive tax system, meaning that the more a
taxpayer earns, the higher the tax rate they pay. It aims to ensure equity and social justice. The
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National Board of Revenue (NBR) is the responsible authority for the administration of income
tax in Bangladesh.

In recent years, there have been efforts to modernize and improve the income tax system in
Bangladesh, including initiatives to reduce tax evasion, improve tax compliance, and enhance
the efficiency of tax administration.

The history of income tax in Bangladesh is a complex story that reflects the nation's historical,
economic, and political evolution. From its colonial origins to its ongoing development, income
tax has played a crucial role in shaping Bangladesh's fiscal landscape.

Definitions 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.
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. Taxes are the most important source of revenue of the modern governments. It is
a compulsory levy, to be paid by the citizens who are liable to pay it, imposed by the
government. Many economists like Seligman, Adam Smith, Bastable, Taussig and Dalton hold
the unanimous opinion that tax is a compulsory payment to the government by taxpayer without
any expectation of some specified return. But essence of the argument is this that the taxpayer,
is not entitled to claim return of his taxes though be may receive benefits of the services which
the State provides by means of the taxes collected from him and many other like him. The
followings are the various definitions of tax given by different economists:

Definitions of Tax as per Income tax act-2023: "Tax" means the income tax payable under
the act and includes any additional tax, excess profit tax, penalty, interest, fee or other charges
leviable or payable under the Income tax act-2023.

Tax Definitions in Bangladesh: Tax in Bangladesh is a compulsory financial charge imposed

by the government on individuals and businesses to generate revenue for public services and
development. It's a fundamental mechanism through which the government funds essential
functions like education, healthcare, infrastructure, and defence.

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Classification of Taxes in Bangladesh:
Taxes have been differently classified by different economists in course of time. The
classifications have been made on different bases, which are presented in the following figure
followed by discussion:

Taxes can be classified based on their structure into four main categories: Proportional Tax,
Progressive Tax, Regressive Tax and Degressive Tax. Let's break each of these down:

1. Proportional Tax: A proportional tax is one in which, whatever the size of income, the rates
of taxation remain constant. Here the same percentage is charged on all taxpayers. For example,
tax on Tk. 100,000 is 10% and Tk. 500,000 is also 10%. In the former case tax becomes Tk.
10,000 and in the later Tk. 50,000. Here in absolute form, tax has increased in proportion to
rate of increase of income.

➢ A proportional tax, also called a flat tax, is levied at a constant rate, regardless of the
income or wealth of the taxpayer.
➢ The tax rate remains the same for all levels of income or consumption.

Example: A flat 10% income tax on everyone, where both high and low-income earners pay
the same percentage of their income in taxes.

2. Progressive Tax: Under this system, the rate of taxation increases as the taxable income
increases. The principle of a progressive tax is "higher the income, higher the rate". It is
considered more equitable. For example, tax on total income of Tk. 100,000 is 10% but on Tk.
500,000 is 15%. Here tax will increase more than proportionately.

➢ A progressive tax is structured so that the tax rate increases as the taxpayer’s income or
wealth increases.
➢ Individuals or entities with higher incomes are taxed at higher rates.
➢ This system is designed to reduce income inequality by placing a heavier tax burden on
those with greater financial resources.

Example: Income tax brackets where low earners might pay 10%, middle earners pay 20%,
and high earners pay 30%.

3. Regressive Tax: A tax is regressive when its burden falls more heavily on the poor than the
rich since the tax rate decreases as the tax base (income) increases. This is just the opposite of
progressive tax. Sales tax is a regressive tax. If two individuals spend the same amount on a

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given product, they'll both pay the same sales tax, regardless of whether one earns more than
the other one. For another example, tax on total income of Tk. 100,000 is 15% but on Tk.
500,000 is 10%. Here tax will decrease more than proportionately.

➢ A regressive tax takes a larger percentage of income from low-income earners than
from high-income earners.
➢ The tax is applied uniformly, but because low-income individuals have less disposable
income, the tax has a disproportionately negative impact on them.

Example: Sales tax, where everyone pays the same rate on goods regardless of their income.
Since lower-income individuals spend a higher percentage of their income on necessities, the
tax burden is higher for them.

4. Degressive Tax: Taxes which are mildly progressive, hence not very steep so that high
income does not make a due sacrifice, such taxes on the basis of equity are called degressive.
In degressive taxation, a tax may be slowly progressive up to a certain limit, after that it may
be charged at a flat rate. In Bangladesh, this system is followed. The tax rate for the assessment
year 2024-25 is:

Total income Slab Tax Rate

On first Tk. 350,000 Nil
On next Tk. 100,000 5%
On next Tk. 400,000 10%
On next Tk. 500,000 15%
On next Tk. 500,000 20%
On next balance 25%

Above mentioned tax rate is determined and based on Finance Act, 2024 and Income Tax Act,
2023.

Taxes can be classified based on impact and incidence into two main categories: Direct taxes
and Indirect taxes. These categories distinguish how taxes are imposed and ultimately who
bears the financial burden of paying them.

1. Direct Taxes: Direct taxes are taxes where the impact (initial payment) and the
incidence (ultimate burden) fall on the same person or entity. The taxpayer cannot shift
the burden of the tax to another individual.

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Examples:

➢ Income Tax: Individuals and businesses pay income tax directly on their earnings, and
they bear the burden themselves.
➢ Wealth Tax: A tax imposed on the value of assets owned by an individual.
➢ Corporate Tax: Companies pay this tax on their profits.

Key Features Direct Taxes:

❖ The tax is paid directly to the government by the individual or organization on whom
it is imposed.
❖ Progressive in nature, meaning that higher incomes or wealth typically result in higher
tax rates.
❖ No shifting of the burden to another person is possible.

2. Indirect Taxes: Indirect taxes are taxes where the impact (initial payment) is on one
person, but the incidence (ultimate burden) can be shifted to another individual. In this case,
the burden of the tax is usually passed on to the final consumer.

Examples:

➢ Sales Tax: Levied on goods and services, but the burden is passed on to consumers
through higher prices.
➢ Value-Added Tax (VAT): Imposed at various stages of production, but the final
consumer ultimately bears the burden.
➢ Excise Duty: Tax on specific goods like tobacco or alcohol, where the manufacturer
passes the burden to the buyer.

Key Features Indirect Taxes:

➢ The tax is imposed on the production or sale of goods and services, but it is ultimately
borne by consumers.
➢ Regressive in nature, meaning the tax affects lower-income individuals
disproportionately since everyone pays the same tax regardless of income level.
➢ Allows the shifting of the tax burden to another party (usually the end consumer).

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Summary Table

Category Impact Incidence Examples

Income Tax,
Direct Taxes Same person/entity Same person/entity Wealth Tax,
Corporate Tax
Sales Tax, VAT,
Indirect Taxes On producers/sellers Passed on to consumers
Excise Duty

In essence, the key distinction between direct and indirect taxes lies in who ultimately bears
the financial burden after the tax is levied.

Any other classification of Taxes are as follows:

1. Income-based Taxes
These taxes are levied on the income or earnings of individuals or entities. The tax base is the
income earned, whether from wages, salaries, dividends, interest, business profits, or other
sources.

Examples:
➢ Personal income tax
➢ Corporate income tax

2. Wealth-based Taxes
These taxes are imposed on the ownership or value of assets, property, or wealth. The tax base
includes assets like land, real estate, investments, or inheritances.

Examples:
➢ Property Tax
➢ Inheritance Tax
➢ Wealth Tax
➢ Gift Tax
➢ Estate Tax

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Impact, Incidence and Effect of a Tax:
Taxes impose a burden on the taxpayer because he sacrifices something. This burden does not
always lie on the shoulders of a person from whom it is collected. In many cases, the burden is
shifted to some other person who ultimately pays the tax. In the study of taxation, it is necessary
to know who bears the ultimate burden of tax. This classification of burdens led to the
conceptions of impact, shifting and incidence of taxes. These three concepts are essential in
understanding how taxes affect individuals, businesses, and the overall economy. Here's a brief
overview of each:

Tax Impact: The impact of tax is the immediate money burden i.e. where tax falls on the
person who pays the tax in the first instance (i.e., who has legal responsibility to pay). The
impact of a tax is on the person on whom the tax is imposed. The man, who pays the tax to the
government, bears its impact. For example, an income tax is levied on the net income / profit
of a company who is legally bound to pay it to the government.

Tax Incidence: On the other hand, incidence of tax means the final money burden of a tax i.e.
ultimate resting point of tax (i.e., who ultimately pay it whether it may or may not be levied on
him). The incidence of tax is on the person who cannot shift it to anybody else. For example,
the incidence of customs duty / value added tax is on the consumer as he will ultimately pay
tax with the acquisition price.

Effect of a Tax: When a tax is imposed and collected, it involves certain responses from
taxpayers and the economy. Such responses can be of great variety and can profoundly
influence the working of the economy in terms of production, growth, savings, investment,
choice of techniques of production, regional imbalances, inequalities of income and wealth,
and so on. These responses and their results are collectively called the effects of that tax. These
effects can be the result of the fact of tax imposition itself and they could also follow from the
process of shifting its incidence. Effects of a tax can be both beneficial and harmful. Harmful
effects of a tax will be referred to as the burden of that tax.

Burden of a Tax:
Money burden: It is the reduction in the disposable income of the taxpayers. This can be of
two types:

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 1. Direct money burden - amount of tax being paid by the taxpayers to the tax authorities.

2. Indirect money burden - additional money expenses incurred by the taxpayers for tax
payment.

Real Burden: It is the loss of welfare to the taxpayers and the community as a whole, in terms
of increasing unemployment, reduced production, etc. This can be of two types:

1. Direct real burden - sacrifice of the welfare which the tax itself imposes upon the
taxpayers, but not as net of the benefits, if any
2. Indirect money burden - indirect loss of welfare which results from interference- with
consumer choice, changes in factor supply and hence total output, and changes in
employment through changes in aggregate demand.

Role Of Income Tax in Economic Development of Bangladesh:

As it has been discussed before, taxation is one of the major sources of public revenue to meet
a country's revenue and development expenditures with a view to accomplishing some
fundamental economic and social objectives, such as redistribution of income, price
stabilization and discouraging harmful consumption. The contribution of income tax is playing
a pivotal role in the economic development of Bangladesh. The government of Bangladesh has
taken various measures to modernize the tax system and imposed various provisions in the
Income Tax Ordinance, 1984. Some of the provisions are as following:

1. Tax Holiday Scheme: According to Section 45, 46, 46A, 46B, 46C, 47 and Para 44 &
45 of Sixth Schedule Part A of the ITO, 1984, an industrial enterprise established within
prescribed time limit in the prescribed area shall be exempted from tax for certain
period i.e. five to ten years. This is known as Tax Holiday Scheme. The main objective
of this scheme is to ensure economic development through industrialization attracting
investment in some specific sectors e.g. tourism industries.

2. Investment allowance: Investment allowance is given on the investment in new

machineries (like machineries of new Fishing Boats & passenger boats) @ 20%, if they
are established in NBR specified areas it is 25%. This provision is also attracting
investors.

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3. Accelerated Depreciation Allowance: Depreciation allowance is allowed on the new
machineries used in various industries at a specified rate (100% in first year for
specified areas, and 80% in first and 20% in the second year for industries established
in other areas.)

4. Tax incentives for Small & Cottage Industries: According to Section 47(b)(ii) tax
incentives are allowed on the income and profit of cottage industries to encourage
investment which can contribute to the economy significantly.

5. Tax incentives for encouraging savings: The government also encourages savings
providing tax credit facilities on certain types of investment and expenditures. Such as,
investment in stock market, savings certificate, DPS, insurance premium, provident
fund, government treasury bill etc.

6. Tax exemptions in certain expenditures: Certain expenditures to enhance social

welfare like contribution to president's prime minister's relief fund; Government Zakat
fund, Ahsania Mission Cancer Hospital etc. are exempted from tax payment. These
provisions also encourage people to spend in certain social development program.

7. Tax incentives for foreign investors: For attracting foreign investors various
concessions like tax holiday, tax exemptions for interest, royalty, technical assistance
and fees, remittance to own country have been allowed as per the ITO, 1984.

8. Allowance for scientific research: For developing new products, technologies in the
industrial sectors certain allowance is allowed. Tax rebate is given on the cost of
relevant scientific research.

9. Tax incentives for remittance to Bangladesh: A significant number of Bangladeshi

people works abroad and to encourage them remittances through banking channel has
been declared tax exempted.

10. Stabilizing the Economy: A well-structured income tax system helps the government
manage economic fluctuations by adjusting tax rates and policies to stabilize the
economy. For instance, during economic downturns, the government may reduce taxes
to boost consumption and investment, while in periods of high growth, higher taxes can
be used to curb inflation and prevent overheating.

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 11. Encouraging Compliance and Transparency: Income tax policies in Bangladesh are
designed to increase tax compliance through measures like online tax filing systems,
tax education campaigns, and penalties for tax evasion. A transparent tax system helps
improve trust between taxpayers and the government, which is vital for fostering a
culture of compliance and long-term economic sustainability.

12. Encouraging Formalization of the Economy: Income tax policies encourage

businesses and individuals to formalize their economic activities. By formalizing,
businesses can gain access to credit, government support, and broader markets, which
can spur growth. A formal economy is easier to regulate, monitor, and tax, which
increases overall revenue and boosts transparency in the economic system.

13. Boosting Investment: Tax incentives such as tax holidays, reduced tax rates for
specific industries, and exemptions on investment in priority sectors encourage both
domestic and foreign investments. In Bangladesh, income tax policies have been used
to attract investments in industries like textiles, manufacturing, IT, and agriculture, all
of which play crucial roles in the country’s economic development.

So, it can be said that to ensure the economic development of the country certain provisions
have been introduced in the Income Tax Act, 2023. These provisions encourage not only
foreign investors but also the local entrepreneurs.

Tax Administration in Bangladesh:

The tax administration system in Bangladesh is governed by the National Board of Revenue
(NBR), which oversees both the formulation of tax policies and the collection of taxes. The
NBR is divided into several wings, including:

• Income Tax Wing: Responsible for direct tax collection, including income and
corporate tax.

• Customs Wing: Handles customs duties, import tariffs, and other related taxes on
international trade.

• VAT Wing: Oversees the implementation and collection of VAT on goods and services
within the domestic market.

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Despite efforts to modernize the system, tax collection in Bangladesh faces several challenges,
including inefficiency, corruption, and a lack of taxpayer education. The introduction of the
online tax filing system (e-Tax Return) and electronic VAT (e-VAT) are recent reforms aimed
at improving efficiency and transparency in tax administration.

Major Tax Reforms in Bangladesh:

Over the years, the government of Bangladesh has introduced several reforms to improve the
effectiveness of the taxation system. Some key reforms include:

• Introduction of VAT Act, 2012: This reform sought to modernize the VAT system by
making it more transparent and efficient. The VAT Act of 2012 introduced the electronic
VAT registration and payment system.

• Taxpayer Identification Number (TIN): The government made it mandatory for

individuals and corporations to obtain a TIN to file income tax returns. This move was
aimed at broadening the tax base and bringing more taxpayers into the formal system.

• Automation of Tax Collection: The government introduced an online tax return filing
system, allowing taxpayers to file returns electronically, reducing manual errors and
delays.

• Tax Incentives for Industries: Special tax exemptions and incentives have been
provided to encourage investment in certain sectors, such as the export-oriented
garment industry, renewable energy, and IT sectors. Special Economic Zones (SEZs)
offer tax holidays to attract foreign direct investment (FDI).

Characteristics of Tax:
The characteristics of a tax may be studied under the following heads:

▪ Tax is a payment to the Government by the people as it is levied by the government as

per the Section 83 of the Constitution of Bangladesh.

▪ Payment of taxes is non-penal and compulsory; hence refusal to pay a tax is a

punishable offence.

▪ An element of sacrifice is there in the payment of a tax as they pay the taxes in order to
ensure public interest.
▪ The aim of tax collection is to finance the government expenditure to ensure public
interest and welfare.
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 ▪ Tax is not the cost of the benefit conferred by the government on the public. The benefit
received from the country is not directly the return of tax.

▪ It is one of the prime sources of revenue for the government.

▪ Tax is not any fine or penalty.

▪ Tax can only be imposed by the government of a country.

▪ Tax is mandatory, imposed by the government, and individuals or entities cannot refuse
to pay it without facing legal consequences.

▪ Unlike fees or charges, taxpayers do not receive a direct or specific benefit from the
payment of taxes. Taxes are used for the collective benefit of society, not for individual
services.

▪ Taxes are imposed and collected by the government, either central or local authorities,
as a means of generating revenue.

▪ Tax revenues are utilized by the government to fund public services such as
infrastructure, healthcare, education, and defence.

▪ Taxes are imposed under statutory laws and regulations, making them a legal obligation
for citizens and businesses within the jurisdiction.

▪ Taxes are not meant to be a punishment but a contribution to the functioning of the
state.

▪ Taxes come in different forms such as income tax, sales tax, property tax, excise tax,
and corporate tax, depending on the type of activity or wealth being taxed.

▪ Tax systems often aim to redistribute wealth in society by taxing higher earners more
and using the revenue for public welfare programs.

These characteristics define the core nature of taxation in most modern economies.

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Objectives Of Tax:
Taxation is a major source of revenue for the government. In order to accelerate economic
development as well as to ensure the defence, administration, social welfare and other
development activities government needs huge number of resources. Taxation is a way to
transfer the resources from private or non-government sectors to government sectors. The main
purposes or objectives of tax are enumerated below:

1. Revenue collection: Tax is a major source of revenue for the government. In

Bangladesh tax revenue accounts for nearly 80 percent of the total government revenue.

✓ Primary Objective: The most important function of taxes is to raise

revenue for the government. These funds are used to finance public
goods and services such as infrastructure, healthcare, education, law
enforcement, and defense.
✓ Public Expenditure: Bangladesh's government uses tax revenue to
meet expenditures for various development projects, poverty reduction
programs, and administrative costs.

2. Reduction of inequalities in income and wealth: One of the main objectives of

taxation is to reduce inequalities in income and wealth. This is possible by taxing rich
people heavily and to confer benefit to the poorer section through progressive income
tax, wealth tax, expenditure tax etc.

3. Accelerating economic growth: In order to ensure the economic growth, the tax
system must be so designed as to raise the rates of savings and investments. This savings
may be invested in productive sectors of the country.

4. Control of consumption: The government not only raises revenue through taxation
but it also imposes restriction on the use of certain goods and services in a way desirable
and respectable for a healthy state of the society. Taxes on intoxicant, tobacco etc. raise
public revenue no less than other taxes but their main aim is to prevent the deterioration
of health of general public. More tax is also levied on luxury goods to reduce their use.

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5. Protection of local industries: In order to protect the local industries from the uneven
competition government may provide tax incentives for poor local industries and so,
should design the tax policy to ensure the protection of poor local industries.

6. Economic development: The tax revenue can be used by the government to ensure the
economic development of the country. It can be used to build the infrastructure, to invest
in social security programs, in various poverty elevation programs. Government can
invest in productive sectors and can reduce unemployment.

7. Regulation of Inflation and Demand: Tax policy can be used as a tool to control
inflation and stimulate or dampen demand. During periods of inflation, higher taxes can
reduce consumer spending, while tax reductions can boost spending during recessions.

8. Curbing Overconsumption: Taxes on certain goods and services, such as tobacco,

alcohol, and luxury items, help to discourage overconsumption of these products,
contributing to economic stability and better public health.

9. Encouraging Investments: Bangladesh uses its tax system to attract domestic and
foreign investment by providing tax incentives like reduced corporate tax rates, special
economic zones, or tax holidays for specific sectors.

10. Encouraging Growth in Key Sectors: The government may impose lower taxes on
industries it wants to promote, such as agriculture, ICT, or renewable energy, to foster
economic growth in those areas.

11. Environmental Protection: Taxes can be imposed to discourage activities harmful to

the environment, such as pollution. For instance, carbon taxes are designed to promote
environmental sustainability.

12. Supporting SMEs: Bangladesh offers tax exemptions or reduced rates to small and
medium-sized enterprises (SMEs) to encourage entrepreneurship, reduce
unemployment, and stimulate economic growth.

13. Sectoral Development: Sectoral development of tax refers to the strategic allocation
of tax burdens across different economic sectors to achieve specific policy objectives.
It's a crucial aspect of tax policy, as it can significantly influence economic growth,
income distribution, and the overall development of a nation.

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 14. Import Duties: Bangladesh uses tariffs and customs duties as tools to regulate
international trade. Higher duties on imports can protect local industries from foreign
competition, while export incentives can promote international competitiveness.

15. Encouraging Exports: Tax policies such as tax-free zones for export-oriented
industries help increase the competitiveness of Bangladeshi products in international
markets.

16. Reducing Informal Economy: By simplifying the tax system and reducing tax rates
for certain businesses or individuals, the government aims to bring more economic
activities under the formal economy, enhancing tax compliance and reducing evasion.

17. Improving Collection Efficiency: The government of Bangladesh works to streamline

tax collection processes and enhance enforcement mechanisms to ensure that the tax
system functions efficiently and effectively.

So, it can be said that the purpose of tax is not only the collection of revenue, but also to ensure
the economic development and social welfare of the country. But it is only possible when the
country designs the tax policy in an effective and efficient manner.

Canons of Taxation:
Canons of taxation refer to the administrative aspects of a tax. They relate to the rate, amount,
method of levy and collection of a tax. In other words, the characteristics or qualities which a
good tax should possess are generally described as canons of taxation. According to Adam
Smith, there are four canons or maxims of taxation which are still recognized as classic and
there are some other cannons referred by other economists some of which are explained below:

Adam Smith-Canons of Taxation:

1. Canon of Equality: The canon of equality implies that the burden of taxation must be
distributed equally or equitably in relation to the ability of the tax payers. Equity or
social justice demands that the rich people should bear a heavier burden of tax and the
poor a lesser burden.

2. Canon of Certainty: The canon suggests that the tax which an individual has to pay,
should be certain and not arbitrary. The tax payer should be well informed as to the
time, amount and the method of the payment of tax.
P a g e 17 | 42
 3. Canon of Economy: Every tax ought to be so contributed as both to take out and to
keep out of pockets of the people as little as possible, over and above what it brings into
the public treasury of the State.

4. Canon of Convenience: Every tax ought to be levied at the time or in the manner in
which it is most likely to be convenient for the contributor to pay it.

Bastable-Canons of Taxation:

1. Canon of Productivity / Adequacy: The State should be able to function with the
revenue raised from the people by means of taxes which should adequately cover the
government expenditure and cannot be forced to resort to deficit financing. Canon of
Simplicity: This norm suggests that tax rates and tax systems ought to be simple, plain
and intelligible to the common understanding.

2. Canon of Simplicity: This norm suggests that tax rates and tax systems ought to be
simple, plain and intelligible to the common understanding.

3. Canon of Elasticity: The tax system should be flexible so that it is possible for the
authority to revise the rates and system with the least in convenience in order to increase
or decrease the revenue.

4. Canon of Expediency: A tax should be determined on the ground of economic, social

and political expediency.

5. Canon of Diversity: A tax system should not be based on a single tax or only a few
taxes. There should be a large variety of taxes so that all the citizens, who can afford to
contribute to the state revenue, should be made to do so. There should be a wide
admixture of direct and indirect taxes.

6. Canon of Functional Efficiency: A tax policy and system of a country should be

effective and efficient so that it can generate sufficient revenue for the government in
order to ensure the economic development of the country. The system should be able to
reduce the harassment and tax avoidance.

A tax system with the above canons will be able to generate sufficient revenue and fulfil the
objectives and purposes of taxation.

P a g e 18 | 42
Characteristics of a Good Tax System:
Tax has a very important role in the economic development of a country. As a major source of
government revenue, tax ensures the availability of resources for the various development
programs undertaken by the government. In order to be treated as a good tax system, it should
be featured with following characteristics:

1) Tax should be levied on the basis of fundamental principles of taxation like the principle
of least sacrifice, cost and benefit and above all ability to pay.

2) The taxes should be so imposed that they are equitable, convenient to pay, economical,
certain, productive and elastic i.e. they should follow the most important canons.

3) Tax system should be balanced containing both direct and indirect nature of taxes so
that it can maximize government revenue.

4) The tax authority should be supported by sufficient simple laws and rules, skilled
manpower and efficient administrative tools and techniques.

5) Tax system should have positive effect on both production and distribution without
causing any adverse effect upon ability and willingness to work, save and invest.

6) The tax system should be so framed as to ensure that the productive resources of the
economy are optimally allocated and utilized. For this purpose, it is essential that the
tax system should be economically neutral.

7) A good tax system has least collection cost to collect maximum amount of taxes.

8) The tax system of a country must be so devised as to leave no scope for the evasion of
tax by the tax payer.

Above all, the tax system should conform to the principle of maximum social advantage so that
the society as a whole is benefited to the maximum effect possible. Maximizing social
advantage or least aggregate sacrifice is not the task of one tax, but it is from the combination
of all the taxes.

P a g e 19 | 42
Role of Tax in The Economic Development of a Country:
The classical economists were in view that the only objective of taxation was to raise
government revenue. But with the changes in circumstances and ideologies, the aim of taxes
has also been changed. These days apart from the object of raising the public revenue, taxes
are levied to affect consumption, production and distribution with a view to ensuring the social
welfare through the economic development of a country. For economic development of a
country, tax can be used as an important tool in the following manner:

1. Optimum allocation of available resources: Tax is the most important source of

public revenue. The imposition of tax leads to diversion of resources from the taxed to
the non-taxed sector. This revenue is allocated on various productive sectors in the
country with a view to increasing the overall growth of the country. Tax revenue may
be used to encourage development activities in the less developed areas of the country
where normal investors are not willing to invest.

2. Raising government revenue: In modern times, the aim of public finance is not merely
to raise sufficient financial resources for meeting administrative expenses, for
maintenance of law and order and to protect the country from foreign aggression. Now
the main object is to ensure the social welfare. The increase in the collection of tax
increases the government revenue. It is safer for the government to avoid borrowings
by increasing tax revenue.

3. Encouraging savings and investment: Since developing countries like Bangladesh

has a mixed economy, care has also to be taken to promote capital formation and
investment both in the private and public sectors. Taxation policy is to be directed to
raising the ratio of savings to national income.

4. Reduction of inequalities in Income and wealth: Through reducing inequalities in

income and wealth by using an efficient tax system, government can encourage people
to save and invest in productive sectors.

5. Accelerating Economic growth: Tax policy may be used to handle critical economic
situations like depression and inflation. In depression, tax policy is set to increase the
consumption and reduce the savings to increase the aggregate demand and vice versa.
Thus, it may be used to strengthen incentives to savings and investment.

P a g e 20 | 42
 6. Price Stability: In under-developed countries, there is another role to maintain price
stability to ensure growth with stability.

7. Control Mechanism: Tax policy is also used as a control mechanism to check inflation,
consumption of liquor and luxury goods and to protect the local poor industries from
the uneven competition.

Thus, it can be said that the economic development of a country mainly depends on the of an
effective and efficient taxation policy.

Importance of Tax in Bangladesh:

Taxes play a crucial role in Bangladesh's economic development and governance, as they are
the primary source of revenue for the government. The importance of taxes in Bangladesh can
be understood in the following key areas:

1. Revenue Generation for Public Services

Taxes are the main source of revenue for the government, which funds essential public
services such as healthcare, education, infrastructure, law enforcement, and public safety.
Without tax revenue, the government would struggle to provide these services.

2. Infrastructure Development
Bangladesh has been focusing on improving infrastructure such as roads, bridges, ports,
and power supply to boost economic growth. Tax revenue funds these large-scale
infrastructure projects, supporting the country’s long-term development goals and
improving living standards.

3. Poverty Reduction and Social Welfare

Through tax revenue, the government is able to fund social programs aimed at reducing
poverty, improving literacy rates, providing healthcare for the underprivileged, and
ensuring food security. Programs such as the Vulnerable Group Development (VGD) and
safety net programs rely on government funds largely collected through taxes.

4. Reduction of Income Inequality

A progressive tax system, where higher-income individuals are taxed at a higher rate, helps
reduce income inequality in the country. By redistributing wealth through social programs
funded by tax revenues, the government can address disparities in income distribution.

P a g e 21 | 42
5. Economic Stability
Taxation helps regulate the economy by managing inflation and consumption. By
controlling money supply through tax policies, the government can maintain economic
stability and prevent hyperinflation or deflation, which could disrupt growth.

6. Promoting Industrial Growth and Investments

The government uses tax incentives to promote industrial growth and attract foreign
investments. For instance, special economic zones (SEZs) and tax holidays in certain
sectors encourage both local and foreign entrepreneurs to invest in Bangladesh, which
boosts economic development.

7. International Obligations and Debt Servicing

Taxes are vital for Bangladesh to meet its international financial obligations, including
paying off foreign debts and maintaining a stable financial standing in global markets.
This is crucial for maintaining investor confidence and securing international aid or
loans for development projects.

8. Regulation of Consumption
Through taxes such as value-added tax (VAT) and excise duties, the government can
regulate consumption patterns. For example, higher taxes on goods like tobacco and
alcohol help reduce consumption of harmful products while generating revenue.

9. Encouraging Compliance and Governance

A well-functioning tax system encourages greater compliance and governance. In
Bangladesh, reforms aimed at improving tax collection, broadening the tax base, and
curbing tax evasion help ensure a more efficient system and contribute to greater
accountability in government spending.

Tax revenue Summary of Bangladesh:

Bangladesh’s tax revenue income in the immediately past fiscal year ending in June fell short
of target by around 1.19 percent as the world economic recession constricted imports growth,
chopping off big slice of earnings from customs duties.

According to provisional statistics of the country’s National Board of Revenue (NBR), the
board collected 523.71 billion takas about 7.48 billion US dollars) in tax revenues in the last
fiscal year.

P a g e 22 | 42
Bangladesh’s total revenue collection target in the 2008-09 fiscal year was earlier set at
693.82 billion takas, of which the government set a tax revenue target of 545 billion taka.

The provisional statistics of the NBR, however, showed tax revenue earnings of the country
was 10.41 percent higher than the collections in the previous fiscal year.

The South Asian country’s tax revenue income in the previous fiscal year stood at 474.35
billion takas, with nearly 27 percent growth over that of the fiscal year.

“We missed a large sum of customs and supplementary duties because of price fall of
imported items, a senior official in the customs department under the NBR said, requesting
to be unnamed.

He said the NBR data showed the country’s tax revenue earnings growth steadily decelerated
from 19.80 percent in the first quarter of 2022-23 fiscal year to 13.24 percent in the first half
and 12.21 percent in the first nine months.

However, of three major revenue wings including income tax, customs and value added tax
(VAT), the official said earnings from the customs department, which accounts for more than
40 percent of the NBR’s annual tax revenue collections, was 5.19 billion takas less than the
revised target of 213.22 billion taka in last 2022-23 fiscal year.

Apart from this, the provisional data showed earnings from VAT also fell short of target with
around 4.55 billion takas in the last 2022-23 fiscal year, largely because of shortfall of
supplementary duty collection.

The official of customs department said if the sliding trend in tax revenue collections
continue, the government will face problem managing finance for its current 2022-23 fiscal
year’s budget.

In recent years, analysis of tax expenditures has received much attention in the literature of
public policy, particularly in the developing and transition economies. This policy note
attempts to introduce the concept and size of tax expenditures in the context of Bangladesh
with special references to experiences of India and Pakistan. It shows that the amount of tax
expenditures in Bangladesh is 2.52 percent of GDP in FY 23, in which expenditures in the
direct taxes and indirect taxes are 0.28 per cent and 2.24 percent respectively.

P a g e 23 | 42
Computation of Income:
Heads of income: Save as otherwise provided in this Ordinance, all incomes shall, for the
purpose of charge of income tax and computation of total income, be classified and computed
under the following heads of income, namely: -

a) Income from 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.

Income from Salaries:

(1) The following income of an Assessee shall be classified and computed under the head
"Salaries", namely: -

a) any salary due from an employer to the Assessee in the income year, whether
paid or not;

b) any salary paid or allowed to him in the income year, by or on behalf of an

employer though not due or before it became due to him; and

c) any arrears of salary paid or allowed to him in the income year by or on behalf
of an employer, if not charged to income-tax for any earlier income year.

(2) Where any amount of salary of an Assessee is once included in his total income of an income
year on the basis that it had become due or that it had been paid in advance in that year, that
amount shall not again be included in his income of any other year.

P a g e 24 | 42
Specimen of Income from Salary:

TO WHOM IT MAY CONCERN

This is to certify that Mr. ABC S/O Mr. XYZ is working with us as Managing Director & CEO.
He was paid salary and allowances during the Income year of July 2023 to June 2024 and
Assessment year of 2024-2025 as under:

Particulars Taka
Basic Salary 1,500,000
House Rent 900,000
Medical Allowance 300,000
Conveyance Allowance 300,000
Bonus 375,000
Provident Fund 150,000
Total 3,525,000
Total: Thirty-Five Lac Twenty-Five Thousand Only.

Tax Slab for Individual as per Income Tax Act-2023.

আয়কর পররপত্র ২০২৪-২০২৫

P a g e 25 | 42
Income from interest on securities:
The following income of an Assessee shall be classified and computed under the head "Interest
on securities", namely: -

(a) interest receivable by the Assessee on any security of 1[the Government or any security
approved by Government]; and

(b) interest receivable by him on debentures or other securities of money issued by or on behalf
of a local authority or a company.

Deductions from interest on securities:

(1) In computing the income under the head "Interest on securities", the following allowances
and deduction shall be made, namely: -

a) any sum deducted from interest by way of commission or charges by a bank realizing
the interest on behalf of the Assessee;

b) any interest payable on money borrowed for the purpose of investment in the
securities by the Assessee:
(2) Notwithstanding anything contained in sub-section (1), no deduction shall be allowed under
this section in respect of any interest payable outside Bangladesh on which tax has not been
paid or deducted in accordance with the provisions of Chapter VII.

Income from house property:

(1) Tax shall be payable by an Assessee under the head "Income from house property" in respect
of the annual value of any property 1[, whether used for commercial or residential purposes,]
consisting of any building 2[, furniture, fixture, fittings etc.] and lands appurtenant thereto of
which he is the owner, other than such portions of the property as he may occupy for the
purposes of any business or profession carried on by him, the income from which is assessable
to tax under this Act.

(2) Where any such property as is referred to in sub-section (1) is owned by two or more
persons and their respective shares are definite and ascertainable, such persons shall not
constitute and shall not be deemed to be, an association of persons; and for the purpose of
computation of the income of an Assessee in respect of that property, only such part of such
income as is proportionate to the share of the Assessee shall be reckoned as his income from
that property.

P a g e 26 | 42
Deductions from income from house property:
(1) In computing the income under the head "Income from house property" the following
allowances and deductions shall be made, namely: -

a) any sum payable to Government as land development tax or rent on account of the land
comprised in the property;

b) the amount of any premium paid to insure the property against risk of damage or
destruction;

c) where the property is subject to mortgage or other capital charge for the purpose of
extension or reconstruction or improvement, the amount of any interest payable on such
mortgage or charge;

d) where the property is subject to an annual charge not being a capital charge, the amount
of such charge;

Explanation. - The expression "annual charge", as used in this clause, includes any tax
leviable, in respect of property or income from property, by local authority or
Government but does not include the tax leviable under this Ordinance;
e) where the property is subject to a ground rent, the amount of such rent;

f) where the property has been acquired, constructed, repaired, renewed or reconstructed
with borrowed capital 1[from bank or financial institution], the amount of any interest
payable on such capital

g) [Where the property has been constructed with borrowed capital 5[from bank or
financial institution] and no income under section 24 was earned from that property
during the period of such construction, the interest payable during that period on such
capital, in three equal proportionate installments for subsequent first three years for
which income is assessable from that property;]

h) [in respect of expenditure for repairs, collection of rent, water and sewerage, electricity
and salary of darwan, security guard, pump-man, lift-man and caretaker and all other
expenditure related to maintenance and provision of basic services:

i. an amount equal to one fourth of the annual value of the property where
the property is used for residential purpose;

ii. an amount equal to thirty per cent of the annual value of the property
where the property is used for commercial purpose;]

P a g e 27 | 42
 i) where, the whole of the property is let out and it was vacant during a part of the year, a
sum equal to such portion of the annual value of the property as is proportionate to the
period of the vacancy; and

j) where, the property is let out in parts, a sum equal to such portion of the annual value
appropriate to the vacant part as is proportionate to the period of the vacancy of such
part.

(2) Notwithstanding anything contained in sub-section (1), no deduction shall be allowed under
this section in respect of any interest or annual charge payable outside Bangladesh on which
tax has not been paid or deducted in accordance with the provisions of Chapter VII.

Agricultural Income:
(1) The following income of an Assessee shall be classified and computed under the head
"Agricultural income", namely: -
a) any income derived by the Assessee which comes within the meaning of
"agricultural income" as defined in section 2(1);

b) the excess amount referred to in section 19(17); (c) the excess amount referred
to in section 19(19).

(2) Agricultural income derived from the sale of tea grown and manufactured by the
Assessee shall be computed in the prescribed manner.

(3) Where the Board, by notification in the official Gazette, so directs, agricultural income
from the sale of rubber, tobacco, sugar or any other produce grown and manufactured
by the Assessee may be computed in the manner prescribed for the purpose.

Deductions from agricultural income:

(1) In computing the income under the head "Agricultural income", the following allowances
and deductions shall be made, namely: -

a) any land development tax or rent paid in respect of the land used for agricultural
purposes;

b) any tax, local rate or cess paid in respect of the land used for agricultural purposes, if
such tax, rate or cess is not levied on the income arising or accruing, or deemed to

P a g e 28 | 42
 accrue or arise, from agricultural operations or is not assessed at a proportion or on the
basis of such income;

c) (i) subject to sub-clauses (ii) and (iii), the cost of production, that is to say, the
expenditure incurred for the following purposes, namely: -

a) for cultivating the land or raising livestock thereon;

b) for performing any process ordinarily employed by a cultivator to render

marketable the produce of the land;

c) for transporting the produce of the land or the livestock raised thereon to the
market; and

d) for maintaining agricultural implements and machinery in good repair and for
providing upkeep of cattle for the purpose of cultivation, processing or
transportation as aforesaid;
ii) where books of accounts in respect of agricultural income derived from the
land are not maintained, the cost of production to be deducted shall, instead of
the expenditure mentioned in sub-clause (i), be sixty per cent of the market
value of the produce of the land;

iii) no deduction on account of cost of production shall be admissible under this

clause if the agricultural income is derived by the owner of the land from the
share of the produce raised through any system of sharing of crop generally
known as adhi, barga or bhag;

Income from business or profession:

(1) The following income of an Assessee shall be classified and computed under the head
"Income from business or profession", namely: -

a) profits and gains of any business or profession carried on, or deemed to be carried on,
by the Assessee at any time during the income year;

b) income derived from any trade or professional association or other association of like
nature on account of specific services performed for its members;

c) value of any benefit or perquisite, whether convertible into money or not, arising from
business or the exercise of a profession;

d) the amount, the value of the benefit and the trading liability referred to in section 19(15);
P a g e 29 | 42
 e) the excess amount referred to in section 19(16);

f) the excess amount referred to in section 19(18);

g) the sale proceeds referred to in section 19(20);

h) [the amount of income under section 19(23).]

Explanation: Where speculative transactions carried on by an Assessee are of such a

nature as to constitute a business, the business (hereinafter referred to as "speculation
business") shall be deemed to be distinct and separate from any other business.

Scope of the total income:

(1) Subject to the provisions of this Ordinance the total income of any income year of any
person includes-

(a) In relation to a person who is a resident, all income, from whatever source derived,
which-

(i) Is received or deemed to be received in Bangladesh by or on behalf of such person

in such year; or

(ii) Accrues or arises, or is deemed to accrue or arise to him in Bangladesh during that
year; or

(iii) Accrues or arises to him outside Bangladesh during that year; and

(b) In relation to a person who is a non-resident, all income from whatever source derived,
which-

(i) Is received or deemed to be received in Bangladesh by or on behalf of such person

in such year; or

(ii) Accrues or arises, or is deemed to accrue or arise, to him in Bangladesh during that
year.

(2) Notwithstanding anything contained in sub-section (1), where any amount consisting of
either the whole or a part of any income of a person has been included in his total income on
the basis that it has accrued or arisen, or is deemed to have accrued or arisen, to him in any
year, it shall not be included again in his total income on the ground that it is received or deemed
to be received by him in Bangladesh in another year.

P a g e 30 | 42
Voluntary disclosure of income:
1[19E. (1) Notwithstanding anything contained in this Ordinance, any person-

(a) Who has not been assessed to tax for previous assessment year or years and he
has not submitted return of income for those year or years may disclose such
income in the respective heads of income in the return of income along with the
income for the current assessment year; or

(b) Who has been assessed to tax for previous assessment year or years and any
income has escaped assessment in those assessments or the amount of income
assessed is less than the actual income, may disclose that income for respective
heads of income in the return of income along with the income for the current
assessment year.

(2) Return of income mentioned in sub-section (1) shall be treated as valid, if-
(a) The assessee pays before the submission of return-

(i) Tax payable at applicable rate on total income including such income under
respective heads of income; and

(ii) Penalty at the rate of ten percent of tax proportionate to such income under
respective heads of income;

(b) The return of income is submitted within the time specified in 2[sub-section (5)] of
section 75; and

(c) A declaration is enclosed with the return of income in respect of the following:

(i) Name of the person declaring;

(ii) Head of the declared income and amount thereof; and

(iii) Amount of tax and penalty paid thereof.

(3) The provision of this section shall not apply where-
3[(a) a notice under section 93 has been issued before submission of such return of income for
the reason that any income, assets or expenditure has been concealed or any income or a part
thereof has escaped assessment;]

(c) A notice on a banking company under clause (f) of section 113 has been issued
before submission of such return of income;

P a g e 31 | 42
 (d) Any proceeding under sections 164, 165 or 166 has been initiated before
submission of such return of income; 4[***]

(e) Any income declared under this section is-

(i) Not derived from any legitimate source of income; or

(ii) Derived from any criminal activities under any other law for the time being in
force5[; or

(f) Any income declared under this section which is –

(i) Exempted from tax in the concerned income year; or

(ii) Chargeable to tax at a reduced rate in accordance with section 44 of this Act.
(4) The income shown under this section may be invested in any income generating activities
or any sector including the following:

(a) Industrial undertaking including its expansion;

(b) Balancing, modernization, renovation and extension of an existing industry;

(c) Building or apartment or land;

(d) Securities listed with a Stock Exchange in Bangladesh; or

(e) Any trade, commercial, or industrial venture engaged in production of goods or

services.]

Special Tax Treatment in respect of undisclosed offshore assets:

1[19F. (1) Notwithstanding anything contained in this Ordinance or any other law for the time
being in force, no question as to the source of the undisclosed asset located outside of
Bangladesh shall be raised by any authority if an assessee pays, before the submission of return
of income applicable for the assessment year 2022-2023, tax at the rate specified in the
following table:

Any cash or cash equivalents, bank deposits, bank notes, bank accounts, convertible securities
and financial instruments if repatriated to Bangladesh through banking channel

(2) Where an assessee repatriates any sum from abroad under the scheme of this section, the
bank responsible for crediting to the account of the assessee shall deduct tax in accordance with
sub-section (1) before crediting and give a certificate of such deduction to the assessee.

P a g e 32 | 42
Subject to sub-section (2), tax under this section shall only be paid by automated challan.
The provisions of this section shall not apply to cases where any proceeding has been drawn
on account of tax evasion or criminal activities under any provision of this Ordinance or any
other law by thirtieth June, 2022.

For the purpose of this section, “return” shall include amended return under section 82BB or
revised return under section 78 and be submitted by thirtieth day of June, 2023.

Appointment of income-tax authorities4. (1) Subject to the rules and orders of the Government
regulating the terms and conditions of service of persons in public services and posts,
appointment of income-tax authorities shall be made in accordance with the provisions of this
Ordinance.

(2) The Board may appoint 1[2[Chief Commissioner of Taxes, Director General], Central
Intelligence Cell,]3[ * * *] as many 4[ Directors-General of Inspection], 5[ Commissioners
(Appeals),] Commissioners, Joint Commissioners of Taxes, Deputy Commissioners of Taxes,
Tax Recovery Officers and Assistant Commissioners of Taxes and such other executive or
ministerial officers and staff as it may think fit.

6[(2A) Notwithstanding anything contained in this Ordinance, the Board may, with the
approval of the Government, appoint one or more person having appropriate professional skill
and experience to perform such function as may be specified by an order issued in this behalf,
and the person or persons so appointed shall be deemed to be an income-tax authority for the
purposes of this Ordinance.]

(3) Subject to such orders or instructions as the Board may, from time to time, issue in this
behalf, any other income-tax authority may appoint any income-tax authority subordinate
thereto and such other executive or ministerial officers and staff as may be necessary for
assistance in the execution of its functions.

Income-tax authorities: There shall be the following classes of income-tax authorities for the
purposes of this Ordinance, namely: -

(1) The National Board of Revenue, 1[* * *]

(2) [(IB) Chief Commissioner of Taxes;]

(3) 3[(2) Directors-General of Inspection (Taxes),]

P a g e 33 | 42
 (4) 4[(2A) Commissioner of Taxes (Appeals),]

(5) [(2B) Commissioner of Taxes (Large Taxpayer Unit),]

(6) [(2C) Director General (Training),]

(7) [(2D) Director General, Central Intelligence Cell,]

(8) [Commissioners of Taxes,]

8[(3A) Additional Commissioners of Taxes who may be either Appellate Additional
Commissioners of Taxes or Inspecting Additional Commissioners of Taxes,]

(9) Joint Commissioner of Taxes who may be either Appellate Joint

Commissioner of Taxes or Inspecting Joint Commissioner of Taxes,

(10) Deputy Commissioners of Taxes,

9[(6) Tax Recovery Officers nominated by the Commissioner of Taxes among the Deputy
Commissioner of Taxes within his jurisdiction;]

(7) Assistant Commissioners of Taxes,

(8) Extra Assistant Commissioners of Taxes, and

(9) Inspectors of Taxes.

Delegation of powers: [4A. The Board may, by notification in the official Gazette, and subject
to such limitations or conditions, if any, as may be specified therein, empower by name or
designation, -
(a) Any Inspecting Additional Commissioner of Taxes to exercise the powers of a
Commissioner of Taxes 2[;]

(b) Any Appellate Additional Commissioner of Taxes to exercise the powers of a

Commissioner of Taxes (Appeal) 3[; and

(c) Any Additional Director General or Joint Director General of Central

Intelligence Cell to exercise the powers of Director General, Central
Intelligence Cell.]

Computation of total income 43. (1) For the purpose of charge of tax, the total income of an
assessee shall be computed in the manner provided in this ordinance.

(2) In computing the total income of an assessee, there shall be included any exemption or
allowance specified in part B of the Sixth Schedule and any income deemed to be the income

P a g e 34 | 42
of the assessee under section 19, subject to the limits, conditions and qualifications laid down
therein.

(3) Where the assessee is a partner of a firm, then, whether the firm has made a profit or a loss,
his share (whether a net profit or a net loss) shall be taken to be any salary, interest, commission
or other remuneration payable to him by the firm in respect of the income year increased or
decreased respectively by his share in the balance of the profit or loss of the firm after the
deduction of any interest, salary, commission or other remuneration payable to any partner in
respect of the income year 1[* * *] and such share shall be included in his total income:

Provided that if his share so computed is a loss, such loss may be set off or carried forward
and set off in accordance with the provisions of section 42.

(11) In computing the total income of any individual for the purpose
of assessment, there shall be included-

(a) So much of the income of the spouse or minor child of such individual as arises,
directly or indirectly, -

(i) From the membership of the spouse in a firm of which such individual is a partner;

(ii) From the admission of the minor child to the benefits of partnership in a firm of
which such individual is a partner;

(iii) From assets transferred directly or indirectly to the spouse 2[otherwise than by way
of gift or for adequate consideration] or in connection with an agreement to live
apart; or

(iv) From assets transferred directly or indirectly to the minor child, not being a married
daughter, by such individual 3[otherwise than by way of gift or for adequate
consideration]; and

(b) So much of the income of any person or association of persons as arises from
assets transferred, 4[otherwise than by way of gift or for adequate
consideration], to such person or association or persons by such individual for
the benefit of the spouse or minor child or both.

(12) All income arising to any person by virtue of a settlement or disposition

whether revocable or not from assets remaining the property of the 5[settlor] or

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 disponer, shall be deemed to be income of the 6[settlor] or disponer, and all
income arising to any person by virtue of a revocable transfer of assets shall be
deemed to be income of the transferor and shall be included in the total income
of such person 7[.[* * *]]

(13) For the purpose of sub-section (5), -

(a) A settlement, disposition or transfer shall be deemed to be revocable if it

contains any provision for the retransfer directly or indirectly of the income or
assets to the 8[settlor], disponer or transferor, or in any way gives the 9[settlor],
disponer or transferor a right to resume power directly over the income or assets;

(b) The expression “settlement or disposition” shall include any disposition, trust,
covenant, agreement or arrangement, and the expression 10[settlor] or disponer,
in relation to a settlement or disposition, shall include any person by whom the
settlement or disposition was made.

Will be tax deductible in future periods when actual cash outflow takes place
(IAS 12:25 & Section 50 of ITA 2023)

Liabilities for long-term employee benefits are recognised under IAS 19 Employee Benefits
which will be tax deductible in future periods when actual cash outflow takes place (IAS
12:26(a) & Section 34 of ITO 2023)

Lease liability (IFRS 16 & Section 55(na) of Income Tax Act-2023.

Research costs are recognised as an expense in determining accounting profit in the period in
which they are incurred but may not be permitted as a deduction in determining taxable profit
until a later period (IAS 12:26(b));

The identifiable liabilities assumed in a business combination are recognised at their fair values
in accordance with IFRS 3, but no equivalent adjustment is made for tax purposes (IAS
12:26(c)); or

Assets are revalued downwards or impaired, but this does not affect taxable profit in the current
period (IAS 12:26(d) & Section 57 of ITA 2023).

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3. Is it logical to calculate deferred tax assets/liability whose final tax is not dependent on
taxable income rather it is determined on gross receipt or tax paid at source u/s 163 of Income
Tax Act 2023.

Deferred tax is calculated based on assumptions that taxable income and accounting income is
differed for temporary difference, but which will be adjusted over the period to calculate
taxable income. So, the entities whose tax liability is not relevant with the taxable income
which means that advance tax paid at source under section 163(2b) or minimum tax on gross
receipts as per Section 163(5) is higher than the tax liability on taxable income at applicable
rate. Resultantly, add/less of IFRSs and Taxation different items will not impact on the entity’s
future tax liabilities. Ultimately, the requirements of deferred tax to those entities are
questionable.

Challenges in the Taxation practices of Bangladesh:

Taxation practices in Bangladesh face several challenges that affect both revenue collection
and overall economic development. Some of the key challenges include:

1. Narrow Tax Base

• Low Taxpayer Numbers: Bangladesh has a population of over 170 million, but the
number of registered taxpayers is relatively low. Many individuals and businesses
remain outside the formal tax system, leading to a narrow tax base.
• Informal Economy: A significant portion of the economy operates informally, making
it difficult for the government to track income and enforce tax compliance.
2. Tax Evasion and Avoidance
• Non-compliance: Many individuals and corporations engage in tax evasion and
avoidance through underreporting income, over-reporting expenses, or using loopholes
in the law.
• Weak Enforcement: The tax authorities often struggle to detect and prosecute tax
evasion due to limited resources, lack of sophisticated tracking systems, and potential
corruption.
3. Complex Tax Laws
• Outdated and Complex Regulations: Tax laws in Bangladesh can be complex and
difficult for the average taxpayer to understand, contributing to errors and non-
compliance.

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 • Frequent Changes: Continuous changes in tax policies and rates create uncertainty for
businesses, making it difficult for long-term planning.
4. Administrative Inefficiency
• Bureaucratic Delays: The tax administration is often slow and bureaucratic, causing
delays in processing tax returns, refunds, and audits.
• Lack of Digitization: Although some progress has been made in digitizing tax filing
processes, many tax-related services remain manual, leading to inefficiencies and
increased opportunities for corruption.
5. Corruption
• Bribery and Manipulation: Corruption within the tax administration often leads to
bribery and manipulation of tax assessments, allowing individuals and businesses to
underpay their taxes.
• Lack of Transparency: A lack of transparency in how tax revenues are collected and
used discourages compliance and erodes public trust.
6. Low Tax-to-GDP Ratio
• Bangladesh has one of the lowest tax-to-GDP ratios in the world, currently hovering
around 7-9%. This low ratio reflects both weak tax administration and widespread tax
evasion, limiting the government’s ability to finance public services and infrastructure.
7. Dependence on Indirect Taxes
• Heavy Reliance on VAT and Customs Duties: The tax system relies heavily on
indirect taxes such as VAT and customs duties, which are often regressive, placing a
heavier burden on lower-income households compared to wealthier individuals.
8. Weak Taxpayer Services
• Lack of Awareness and Education: Many taxpayers, particularly in rural areas, are
not aware of their tax obligations or how to file taxes. There is limited access to taxpayer
services, education programs, and assistance.
• Inadequate Grievance Redressal Mechanisms: Taxpayers often face difficulties in
resolving disputes with tax authorities, as the grievance redressal mechanisms are not
efficient.
9. Tax Incentives and Exemptions
• Overuse of Tax Holidays: The government provides numerous tax holidays and
exemptions to attract investment, which reduces the overall tax revenue.

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 • Inefficiency in Incentive Distribution: In many cases, tax incentives benefit large
corporations and wealthy individuals disproportionately, rather than promoting
inclusive growth.
10. Political Influence and Patronage
• Tax Enforcement Loopholes: Political influence can lead to selective enforcement of
tax laws, with powerful individuals or businesses receiving favorable treatment.
• Inconsistent Tax Policy: Changes in tax policies often reflect political priorities rather
than sound economic principles, leading to inconsistencies in the tax system.

Recommendation of Challenges of Tax in Bangladesh:

1. Broadening the Tax Base
• Current Situation: Bangladesh has a relatively low tax-to-GDP ratio (around 9-10%).
This is largely due to a small taxpayer base.
• Recommendation: The government should work on increasing the number of
taxpayers by identifying potential taxpayers in the informal economy. Digital
databases, national identification numbers (NIDs), and other mechanisms could be
leveraged to ensure individuals and businesses pay their fair share.
2. Simplifying the Tax Code
• Current Situation: The complexity of the tax code often discourages compliance and
increases loopholes for tax evasion.
• Recommendation: Bangladesh should focus on simplifying its tax laws and
regulations. A more transparent and streamlined tax code would reduce corruption,
make it easier for businesses and individuals to comply, and improve overall efficiency.
3. Enhancing Digitalization
• Current Situation: Though some digitization has taken place, tax filings and processes
are still paper-based in many cases.
• Recommendation: Fully digitalizing tax filing and payment systems would increase
transparency and efficiency. It can also reduce tax evasion and human errors. Digital
solutions such as online tax returns and e-invoicing systems could be strengthened to
improve compliance.
4. Introducing a Progressive Tax System
• Current Situation: Bangladesh has a relatively regressive tax system, particularly due
to a high dependence on indirect taxes like VAT.

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 • Recommendation: Move towards a more progressive taxation system by increasing
the tax rates for higher income brackets while reducing the burden on lower-income
groups. This would make the system fairer and reduce income inequality.
5. Improving VAT Implementation
• Current Situation: VAT is the largest source of revenue, but its implementation is often
flawed due to low compliance and collection inefficiencies.
• Recommendation: Streamline VAT implementation by increasing the threshold for
VAT registration and improving monitoring mechanisms to reduce underreporting and
evasion. Proper enforcement and education about VAT compliance can also help
improve collections.
6. Strengthening the National Board of Revenue (NBR)
• Current Situation: The NBR suffers from inadequate manpower, resources, and
corruption.
• Recommendation: The NBR should be strengthened and modernized by increasing
its autonomy, improving training, and incentivizing performance-based metrics for its
employees. This will help in better collection and enforcement of tax laws.
7. Incentivizing Voluntary Compliance
• Current Situation: Many individuals and businesses are not motivated to comply with
tax regulations voluntarily.
• Recommendation: The government should offer incentives for voluntary
compliance, such as lower penalties for early filers, tax credits, or rebates for
businesses that maintain good compliance records. Public awareness campaigns about
the benefits of paying taxes and its role in national development can also improve
voluntary compliance.
8. Reducing Corruption and Leakages
• Current Situation: Corruption in the taxation system leads to significant revenue
losses.
• Recommendation: Implement anti-corruption measures, including the use of
technology for audits and assessments, to reduce human interference. The NBR can
introduce randomized digital audits and increase penalties for tax officers involved
in corrupt practices.
9. Focusing on Property and Wealth Taxation
• Current Situation: Bangladesh lacks effective property and wealth taxation
mechanisms.
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 • Recommendation: The government should consider implementing property taxes or
enhancing current mechanisms. Proper valuation of properties and wealth would lead
to better revenue collection and discourage the accumulation of untaxed wealth.
10. Promoting Transparency and Accountability
• Current Situation: A lack of transparency in how tax revenues are used discourages
compliance.
• Recommendation: The government should promote transparency in public
expenditure by making budgetary processes and spending visible to the public.
Demonstrating the link between taxes collected and public services can enhance
taxpayer confidence and compliance.
11. Capacity Building and Training
• Current Situation: The lack of skilled human resources in tax administration affects
its efficiency.
• Recommendation: A comprehensive capacity-building program for tax officials
should be introduced to update them on modern taxation practices, auditing techniques,
and technological advancements.
12. Introducing Environmental and Sin Taxes
• Current Situation: The taxation system currently lacks specific taxes aimed at
mitigating environmental and social harms.
• Recommendation: The introduction of environmental taxes (carbon tax, plastic tax)
and sin taxes (on tobacco, alcohol, sugary drinks) could provide additional revenue
streams while promoting sustainable behavior and reducing social costs.

Conclusion:
The conclusion on taxation practices of Bangladesh under the Income Tax Act 2023 reflects
several key developments aimed at improving the overall tax system, enhancing compliance,
and ensuring equitable taxation. Here’s a summarized conclusion:

1. Modernization and Simplification:

The Income Tax Act 2023 of Bangladesh has introduced significant reforms to modernize the
tax system. It simplifies tax calculations, improves clarity in tax policies, and makes provisions
more accessible to individual taxpayers and corporations. The law also encourages the use of
technology in filing and paying taxes, reducing bureaucratic delays.

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2. Broadening the Tax Base:
One of the major objectives of the new act is to broaden the tax base by bringing more
individuals and businesses into the tax net. This includes increased efforts to capture income
from previously untaxed or under-reported sectors, such as the informal economy and digital
businesses.

3. Equity in Taxation:
The act incorporates a more progressive tax structure to reduce income inequality. It adjusts
tax rates based on income slabs, thereby ensuring that higher-income individuals and
corporations pay proportionally more in taxes. This focus on equity helps to distribute the tax
burden fairly across different income groups.

4. Encouraging Investment and Growth:

Through various incentives, including tax holidays, exemptions for specific industries, and
deductions for research and development, the act is designed to encourage investment in key
sectors such as manufacturing, technology, and renewable energy. These measures aim to
stimulate economic growth and job creation.

5. Improved Compliance and Transparency:

Stricter penalties for tax evasion and non-compliance have been introduced, along with
mechanisms to ensure better tax reporting and auditing. Transparency in the tax process has
been enhanced by improved regulations on documentation and disclosure, making it harder for
individuals and businesses to engage in tax evasion.

The Income Tax Act 2023 represents a significant step towards a more efficient, equitable, and
transparent tax system in Bangladesh. While it introduces critical reforms aimed at expanding
the tax base, ensuring fairness, and promoting economic growth, its success will largely depend
on effective implementation, taxpayer awareness, and continued efforts to tackle challenges
such as non-compliance and administrative inefficiencies.

The End

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