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taxation system in bangladesh

taxation system in bangladesh

Introduction
In Bangladesh, the principal direct taxes are personal income taxes and
corporate income taxes, and a value-added tax (VAT) of 15% levied on all
important consumer goods. The top income tax rate for individuals is 30%. For
the 2019/20 tax year (July 1 2019–June 30 2020) the top corporate rate was
45%. However, publicly traded companies registered in Bangladesh are
charged a lower rate of 30%. Banks, financial institutions and insurance
companies are charged the 45% rate. All other companies are taxed at the 35-
37.5% rate. Effective 1 July 2020, certain agricultural equipment and electricity
supplied to the agricultural sector was exempted from VAT altogether. VAT on
the transfer of land is also to be abolished. Essential agricultural implements
and irrigation pumps had previously been excluded from certain taxes
9.2 Tax (definition)
To tax is to impose a financial charge or other levy upon a taxpayer (an
individual or legal entity) by a state or the functional equivalent of a state such
that failure to pay is punishable by law.
Simply we say Tax is a compulsory levy imposed by Government under
specific Acts on persons or goods to defray expenditure for common benefit of
citizen.
Taxes are also imposed by many subnational entities. Taxes consist of direct
tax or indirect tax, and may be paid in money or as its labour equivalent (often
but not always unpaid labour). A tax may be defined as a “pecuniary burden
laid upon individuals or property owners to support the government a payment
exacted by legislative authority.” A tax “is not a voluntary payment or
donation, but an enforced contribution, exacted pursuant to legislative
authority” and is “any contribution imposed by government whether under the
name of toll, tribute, tillage, gable, impost, duty, custom, excise, subsidy, aid,
supply, or other name.”
In modern taxation systems, taxes are levied in money, but in-kind and curve
taxation are characteristic of traditional or pre-capitalist states and their
functional equivalents. The method of taxation and the government expenditure
of taxes raised is often highly debated in politics and economics. Tax collection
is performed by a government agency such as Canada Revenue Agency, the
Internal Revenue Service (IRS) in the United States, or Her Majesty’s Revenue
and Customs (HMRC) in the UK. When taxes are not fully paid, civil penalties
(such as fines or forfeiture) or criminal penalties (such as incarceration) may be
imposed on the non-paying entity or individual.

9.3 Tax Classifications
Direct tax:
A direct tax is a form of tax is collected directly by the government from the
persons who bear the tax burden. Taxable individuals file tax returns directly to
the government. Examples of direct taxes are corporate taxes, income taxes,
and transfer taxes.
Indirect tax:
An indirect tax is a form of tax collected by mediators who transfer the taxes to
the government, and also perform functions associated with filing tax returns.
The customers bear the final tax burden. Examples of indirect taxes are sales
tax and value added tax (VAT).
There are other types of taxes, which may either be direct tax or indirect taxes,
including capital gains tax, corporation tax, consumption tax, inheritance tax,
property tax, excise duty, retirement tax, tariffs, wealth tax or net worth tax, toll
tax, and poll tax.
9.4 Purposes and effects
Money provided by taxation have been used by states and their functional
equivalents throughout history to carry out many functions. Some of these
include expenditures on war, the enforcement of law and public order,
protection of property, economic infrastructure (roads, legal tender,
enforcement of contracts, etc.), public works, social engineering, and the
operation of government itself. Governments also use taxes to fund welfare and
public services. These services can include education systems, health care
systems, and pensions for the elderly, unemployment benefits, and public
transportation. Energy, water and waste management systems are also common
public utilities. Colonial and modernizing states have also used cash taxes to
draw or force reluctant subsistence producers into cash economies.
Governments use different kinds of taxes and vary the tax rates. This is done to
distribute the tax burden among individuals or classes of the population
involved in taxable activities, such as business, or to redistribute resources
between individuals or classes in the population. Historically, the nobility were
supported by taxes on the poor; modern social security systems are intended to
support the poor, the disabled, or the retired by taxes on those who are still
working. In addition, taxes are applied to fund foreign aid and military
ventures, to influence the macroeconomic performance of the economy (the
government’s strategy for doing this is called its fiscal policy – see also tax
exemption), or to modify patterns of consumption or employment within an
economy, by making some classes of transaction more or less attractive.

A nation’s tax system is often a reflection of its communal values or/and the
values of those in power. To create a system of taxation, a nation must make
choices regarding the distribution of the tax burden—who will pay taxes and
how much they will pay—and how the taxes collected will be spent. In
democratic nations where the public elects those in charge of establishing the
tax system, these choices reflect the type of community that the public and/or
government wishes to create. In countries where the public does not have a
significant amount of influence over the system of taxation, that system may be
more of a reflection on the values of those in power.
The resource collected from the public through taxation is always greater than
the amount which can be used by the government. The difference is called
compliance cost, and includes for example the labour cost and other expenses
incurred in complying with tax laws and rules. The collection of a tax in order
to spend it on a specified purpose, for example collecting a tax on alcohol to
pay directly for alcoholism rehabilitation centers, is called hypothecation. This
practice is often disliked by finance ministers, since it reduces their freedom of
action. Some economic theorists consider the concept to be intellectually
dishonest since (in reality) money is fungible. Furthermore, it often happens
that taxes or excises initially levied to fund some specific government programs
are then later diverted to the government general fund. In some cases, such
taxes are collected in fundamentally inefficient ways, for example highway
tolls.
Since governments also resolve commercial disputes, especially in countries
with common law, similar arguments are sometimes used to justify a sales tax
or value added tax. Others (e.g. libertarians) argue that most or all forms of
taxes are immoral due to their involuntary (and therefore eventually
coercive/violent) nature. The most extreme anti-tax view is anarcho-capitalism,
in which the provision of all social services should be voluntarily bought by the
person(s) using them.
9.5 The Four “R” s
Taxation has four main purposes or effects: Revenue, Redistribution, Reprising,
and Representation.
The main purpose is revenue: taxes raise money to spend on armies, roads,
schools and hospitals, and on more indirect government functions like market
regulation or legal systems.
A second is redistribution. Normally, this means transferring wealth from the
richer sections of society to poorer sections.
A third purpose of taxation is reprising. Taxes are levied to address
externalities: tobacco is taxed, for example, to discourage smoking, and a
carbon tax discourages use of carbon-based fuels.
A fourth, consequential effect of taxation in its historical setting has been
representation. The American r evolutionary slogan “no taxation without
representation” implied this: ruler’s tax citizens, and citizens demand

accountability from their rulers as the other part of this bargain. Studies have
shown that direct taxation (such as income taxes) generates the greatest degree
of accountability and better governance, while indirect taxation tends to have
smaller effects.
9.6 Tax incidence
Law establishes from whom a tax is collected. In many countries, taxes are
imposed on business (such as corporate taxes or portions of payroll taxes).
However, who ultimately pays the tax (the tax “burden”) is determined by the
marketplace as taxes become embedded into production costs. Depending on
how quantities supplied and demanded vary with price (the “elasticity’s” of
supply and demand), a tax can be absorbed by the seller (in the form of lower
pre-tax prices), or by the buyer (in the form of higher post-tax prices). If the
elasticity of supply is low, more of the tax will be paid by the supplier. If the
elasticity of demand is low, more will be paid by the customer. And
contrariwise for the cases where those elasticity’s are high. If the seller is a
competitive firm, the tax burden flows back to the factors of production
depending on the elasticity’s thereof; this includes workers (in the form of
lower wages), capital investors (in the form of loss to shareholders),
landowners (in the form of lower rents) and entrepreneurs (in the form of lower
wages of superintendence).

To illustrate this relationship, suppose the market price of a product is $1.00,
and that a $0.50 tax is imposed on the product that, by law, is to be collected
from the seller. If the product has an elastic demand, a greater portion of the tax
will be absorbed by the seller. This is because goods with elastic demand cause
a large decline in quantity demanded for a small increase in price. Therefore, in
order to stabilize sales, the seller absorbs more of the additional tax burden. For
example, the seller might drop the price of the product to $0.70 so that, after
adding in the tax, the buyer pays a total of $1.20, or $0.20 more than he did
before the $0.50 tax was imposed. In this example, the buyer has paid $0.20 of
the $0.50 tax (in the form of a post-tax price) and the seller has paid the
remaining $0.30 (in the form of a lower pre-tax price).

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