Report on National Board of Revenue Bangladesh

7/27/2019 Report on National Board of Revenue Bangladesh.

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University of Dhaka

Faculty of Business Studies

Department of Accounting & Information Systems

A thesis paper on

A study on National Board of Revenue__ present, past and future.

Supervisor:

Dr. Syed Masud Husain

Professor


University of Dhaka

Submitted by:

Md. Nazmul Husain

Roll# 13041; Section- A

B.B.A 13th Batch


University of Dhaka

Submission Date: 10th August 2011

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LETTER OF TRANSMITTALAugust 10, 2011

To,

Dr. Syed Masud Husain

Professor


University of Dhaka

Subject: Submission of the thesis paper on A study on National Board of Revenue___

present, past and future.

Dear Sir,It is a great pleasure for me to present the thesis paper which was assigned by you. It was a

great opportunity for me to prepare this thesis paper.

I have concentrated my best efforts to achieve the objectives of the report and hope that myendeavor will serve the purpose. I sincerely believe that the knowledge and experience I

have gathered during the preparation of the thesis paper will immensely help me in my

future professional life. I thank you for providing me with this opportunity.

I have enjoyed working on the thesis paper & hope that you will consider all my mistakesgenerously.

Sincerely,

Md. Nazmul Husain

BBA 13th Batch

ID: 13041; Section: A


University of Dhaka

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Acknowledgement

In preparing this thesis paper, I had to need a number of assistance

and guidance from reliable sources. I would like to express my

deepest respect to my honorable teacher and supervisor, Dr. Syed

Masud Husain, Professor, Department of Accounting &

Information Systems, University of Dhaka. His valuable guidance

and continuous supervision has inspired me to complete such

research, relatively new issues in National Board oRevenue__ present, past and future.

I have received cooperation from Md. Abdul Aziz, head librarian,

and Md. Samad Ali, assistant librarian, National Board o

Revenue. I am very thankful to them.

I am thankful to all the people including my all friends who have

helped me in completing this thesis paper.

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ii

EXECUTIVE SUMMARY

The National Board of Revenue (NBR) is the central authority for tax

administration in Bangladesh. The main responsibility of NBR is to collect

domestic revenue (primarily, Import Duties and Taxes, VAT and Income Tax)

for the government. Other responsibilities include administration of all

matters related to taxes, duties and other tax producing fees.

In chapter 01, I have described the introduction, methodology and

limitations of this report where all the information related to have been

described.

In chapter: 02, I have discussed about the background and history of tax of

National Board of Revenue where all history and background of NBR have

been detailed.

In chapter 03, I have discussed at first, the overview the National Board of

Revenue where the overall conditions have been described. In second portionof this chapter, I have discussed the functions of the National Board of

Revenue where all the key works done by this organization have been

discussed. And at last, the sources of revenues of NBR like income tax, VAT,

Customs Duty and Excise Duty have been detailed.

In chapter 04, I have described the Present, past and future perspectives of

National Board of Revenue where the overall perspectives and performances

of National Board of Revenue have been detailed.

In chapter 05, I have discussed Initiatives taken to motivate taxpayers and

revenue collection of NBRwhere two sub-chapters have covered its

procedures taken named Modernization Plan 2011-2016 and Steps taken to

collect more revenues.

In chapter 06, I have discussed the findings of this analysis and tried to

clarify the problems and ultimate benefits of National Board of Revenue by

which this organization will grow swiftly.

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iii

TABLE OF CONTENTSLetter of Transmittal i

Acknowledgement ii

Executive Summary iiiTable of contents iv-v

Chapter: 01 Introduction 1-4

1.1 Objectives of the report 2

1.2 Methodology of the report3

1.3 Limitations of the report

4Chapter: 02 Background and history of tax of National Board of Revenue 5-9

2.1 Background tax 52.2 History of tax 6

Chapter: 03 National Board of Revenue, its functions and sources of revenues. 10-37

3.1 Overview of National Board of Revenue 10

3.2 Functions of National Board of Revenue 13

3.3 Some terms and conditions 14-163.3.1 Tax authorities of Bangladesh 14

3.3.2Types of Income 143.3.3 Classification of Tax systems 15

3.3.4 Types of Taxation 15

3.4 Sources of revenues of National Board of Revenue

3.3.1 Income tax 163.3.2 Value Added Tax 31

3.3.3 Excise Duty 34

3.3.4 Customs Duty 37

Chapter: 04 Present, past and future perspectives of National Board of Revenue 39-43

Chapter: 05 Initiatives taken to motivate taxpayers and collection 44-795.1 NBR Modernization Plan 2011-2016 445.2 Steps taken to collect more revenue 48

Chapter: 06 Findings of the analysis and conclusion 72

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Chapter: 01 Introduction

National Board of Revenue (NBR) is an organ of the Ministry of Finance. It lies at the apex

of the whole revenue organization of the government and is responsible for the

administration of almost all the direct and indirect taxes.

The main direct taxes are the income tax, wealth tax (collected as a surcharge of income

tax since assessment year 1999-2000) and gift tax, while the indirect taxes are the customs

duty, excise duty, VALUE ADDED TAX (VAT), turnover tax, supplementary duty and

infrastructure development surcharge.

Estimates for the period between1990-2000 showed that on average, the NBR is

responsible for collection of about 93% of total tax revenue and about 81% of the total

revenue of the government in a year.

The taxes collected by organs other than the NBR are narcotics duty, land revenue, sale of

non-judicial stamp, registration and motor vehicles tax. In addition to collection of taxes,

NBR plays a key role in formulation and implementation of the FISCAL POLICY of the

government.

NBR was constituted in 1972 under the National Board of Revenue Order 1972, which

repealed and replaced the Central Board of Revenue Act 1924. The secretary of the Internal

Resources Division of the Ministry of Finance is the ex-officio chairman of the Board.

The chairman is assisted by four members of the customs, excise and VAT cadre and four

members of the income tax cadre. The members of NBR hold the rank of additional

secretary. There are 367 posts under the organization structure of the Board. Of them 70 are

class-I officers, and 193 are class-III and 109 are class-IV employees. There are 38

directorates under the control of the Board and 22 of them are related with direct tax

administration, 15 with indirect tax administration and 1 with the complaints

(investigation) on both direct and indirect taxes.

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Objectives of the study

The objectives of this analysis are mainly as follows:

1. To understand the revenue calculation procedures ofNational Board of Revenue

(NBR).

2. To acquire knowledge about the accounts prepared by NBR for the purpose of

income tax, VAT and other revenue collection.

3. To understand the difference between the taxes and revenue collection procedures

from individuals, company and other incorporated companies.

4. To understand the significance of revenue collection of NBR.

5. To understand the significance of NBR as it plays the most important roles for

overall development of the country.

6. To understand and get an overall ideas and functions as well as the development of

NBR.

7. TO get knowledge about Excise Duty and customs Duty.

8. How economic control to achieve their micro economic control.

9. Effect of the tax system of Bangladesh to economic development.

10. How national income is raised in desired level.

Methodology of the study

This is a descriptive paper incorporating both primary and secondary data. Primary data has

been collected through relevant information search, observation, analysis and

interpretation. This paper primarily is based on desk based research and therefore depends

mostly on the secondary data. It used synthesized information collected from several

recognized books, annual reports and web based publications. Collected data are analyzed

with respect to the objectives of the study. While interpreting the findings, apart from using

these sources the writer also incorporated his experiences about the study matters with

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some people who are working in NBR. This paper discusses the relevant issues and

analyses the current as well as past situation of NBR

Limitations of the study

1. The study could not cover the sufficient data due to time constraint.

2. The study could not cover the sufficient data due to lack of sufficient

publications related this report paper.

3. The study does not cover practical example because of confidentiality the NBR

did not provide actual information.

4. There is also lack of resource constraints about the income tax calculation

procedures of business in Bangladesh.

5. The authority was not at all co-operative.

6. Due to several causes caused by the authority make this paper insufficient.

7. There is lack of flexibility of providing necessary information.

8. The duration that is for assignment program is not enough to learn about the tax

system of Bangladesh.

9. This assignment does not analyze the critical analysis of different sectors in the

tax system of Bangladesh in details.

The assignment has encountered these limitations that may have hinder progress. But

with constant effort, our goal was to minimize the negative efforts of these limitations.

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CHAPTER: 02

Background of NBR:

The National Board of Revenue (NBR) is the central authority for tax administration in

Bangladesh. It was established by President's Order No. 76 of 1972. Administratively, it is

under the Internal Resources Division (IRD) of the Ministry of Finance (MoF). MoF has 3

Divisions, headed by 3 permanent Secretaries to the Government, namely, the FinanceDivision the Internal Resources Division (IRD) and the Economic Relations Division

(ERD).

The Secretary, IRD is the ex-officio Chairman of NBR. NBR is responsible for formulation

and continuous re-appraisal of tax-policies and tax-laws, negotiating tax treaties with

foreign governments and participating in inter-ministerial deliberations on economic issues

having a bearing on fiscal policies and tax administration.

The main responsibility of NBR is to collect domestic revenue (primarily, Import Duties

and Taxes, VAT and Income Tax) for the government. Other responsibilities include

administration of all matters related to taxes, duties and other tax producing fees. Under the

overall control of IRD, NBR administers the Excise, VAT, Customs and Income-Tax

services consisting of 3434 officers of various grades and 10195supporting staff positions

(Approved set up as on 09 Feb., 2000 AD).

Negotiating tax treaties with foreign governments and participating in inter-ministerial

deliberations on economic issues having a bearing on fiscal policies and tax administration

are also NBR's responsibilities. The main responsibility of NBR is to mobilize domestic

resources through collection of import duties and taxes, VAT and income tax for the

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government. Side by side with collection of taxes, facilitation of international trade through

quick clearance of import and export cargoes has also emerged as a key role of NBR.

Other responsibilities include administration of matters related to taxes, duties and other

revenue related fees/charges and prevention of smuggling. Under the overall control of

IRD, NBR administers the excise, VAT, customs and income-tax services consisting of

3434 officers of various grades and 10195 supporting staff positions.

Taxation and its history

Taxation- one of the major sources of public revenue to meet a country's revenue and

development expenditures with a view to accomplishing some economic and social

objectives, such as redistribution of income, price stabilization 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 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 based on 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 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". Bangladesh inherited a system of

taxation from its past British and Pakistani rulers. The system, however, developed based

on generally accepted canons. And there had been efforts towards rationalizing the tax

administration for optimizing revenue collection, reducing tax evasion and preventing

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revenue leakage through system loss. 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),

registrationfee (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 tax structure in the country consists of both direct (income tax, gift tax, land

development tax, non-judicial stamp, registration, immovable property tax, etc) and

indirect (customs duty, excise duty, motor vehicle tax, narcotics and liquor duty, VAT, SD,

foreign travel tax, TT, electricity duty, advertisement tax, etc) taxes.

The present land revenue system of Bangladesh has its base in the East Bengal state

acquisition and tenancy act 1950 which established a direct contract between the taxpayer

and the government. The most important tax on the value of transferred property is the non-

judicial stamp tax (levied under the Stamp Act 1899), which has been in existence since

January 1899.

Current rates of non-judicial stamp duty are provided in the First Schedule of the Finance

Act 1998, ranging from Tk. 4 to Tk. 10,000 in case of absolute rate, or from 0.07% to 1.5%

of the value of consideration in case of advalorem rate. The judicial stamp tax is being

levied under the Court Fees Act 1870, although the levy of court fees originated in the

introduction of the Bengal Regulation No. 38 of 1795.

The first sales tax was introduced in the former Central Provinces of India in 1938. In

Bengal, sales tax was adopted in 1941. In 1948, sales tax was transferred as a central tax

under the General Sales Tax Act of 1948. The Sales Tax Act 1951 came into force on 1

July 1951 by repealing the Pakistan General Sales Tax Act of 1948.Until 1982, sales tax

was being collected under the 1951 Act, which was replaced by the Sales Tax Ordinance

1982.

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The VAT law was promulgated by repealing the Business. Income tax was first introduced

in the subcontinent by the British in 1860 to makeup the revenue deficit caused by the

sepoy revolt, 1857. After independence of Bangladesh, income tax was made effective

under the Income Tax Act 1922 passed on the basis of the recommendations of the All-

India Income Tax Committee appointed in 1921.

Currently, income tax has been imposed under the Income Tax Ordinance 1984 (ITO)

promulgated on the basis of recommendations of the Final Report of the Taxation Enquiry

Commission submitted in April 1979. Income taxpayers (assesses) are classified as

individuals, partnership firms, Hindu undivided families (HUF), associations of persons

(AOP), companies (publicly traded and private), local authorities, and other artificial

juridical persons. Tax rates and scope of taxable income differ based on residential status of

an assesses (resident or non-resident).

From fiscal or assessment year, (AY) 2000-01, there is a filing threshold of annual total

income of Tk. 100,000 applicable for individuals (including non-resident Bangladeshis),

partnership firms, HUF, AOP and assesses other than companies and local authorities. In

case an identity of this group has a total annual income less than this level, he is not

required to submit tax return but if someone's income is higher, he is to pay a minimum tax

of Tk. 1,000.Bangladesh inherited a system of taxation from its past British and Pakistani

rulers.

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Chapter: 03 National Board of Revenue and its functions

3.1: Overview of NBR:The National Board of Revenue (NBR) is the central authority for tax administration in

Bangladesh. It was established by President's Order No. 76 of 1972. NBR was constituted

in 1972 under the National Board of Revenue Order 1972, which repealed and replaced the

Central Board of Revenue Act 1924.

The secretary of the Internal Resources Division of the Ministry of Finance is the ex-officio

chairman of the Board Administratively; it is under the Internal Resources Division (IRD)

of the Ministry of Finance (MoF). It has 4 Divisions, headed by 4 permanent Secretaries to

the Government, namely, the Finance Division the Internal Resources Division (IRD), the

Banking Division and the Economic Relations Division (ERD).

The Secretary, IRD is the ex-officio Chairman of NBR. NBR is responsible for

formulation and continuous re-appraisal of tax-policies and tax-laws, negotiating tax

treaties with foreign governments and participating in inter-ministerial deliberations on

economic issues having a bearing on fiscal policies and tax administration.

The main responsibility of NBR is to collect domestic revenue (primarily, Import Duties

and Taxes, VAT and Income Tax) for the government. Other responsibilities include

administration of all matters related to taxes, duties and other tax producing fees.

The taxes collected by organs other than the NBR are narcotics duty, land revenue, sale of

non-judicial stamp, registration and motor vehicles tax. In addition to collection of taxes,

NBR plays a key role in formulation and implementation of the FISCAL POLICY of the

government.

The chairman is assisted by four members of the customs, excise and VAT cadre and four

members of the income tax cadre. The members of NBR hold the rank of additional

secretary. There are 367 posts under the organization structure of the Board

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Moreover, the NBR faces the problems of acute shortage of trained manpower as well as

physical infrastructure. These weaknesses of the NBR have not gone well with the business

community and individual taxpayers. In response to these challenges, the NBR has

embarked on far reaching reforms both on tax policy and tax administration.

In addition, as part of the governments Digital Bangladesh agenda, the NBR has

undertaken several initiatives on automation of its tax processes to improve its efficiency

and provide better taxpayer service. The NBR is also being supported by several bilateral

donors and the multilateral organizations on reforms on tax policy as well as

administration.

While, all these efforts have supported NBR s reform efforts, the reform agenda appears to

lack proper sequencing, prioritization and comprehensiveness and at times leading to

duplication of efforts.

In March 2011, the NBR took the decision to chart out a comprehensive modernization

plan, encompassing all components of NBR reform efforts under one Plan that could be

implemented with a view to achieving the intended goals over the next five years.

Two retreats were organized, the first in March and the second in May, 2011, to bring

together the senior NBR officials from the different wings towards a common purpose of

motivating them about reforms.

3.2: Functions done by NBR

NBR performs the same functions and is vested with the same powers and duties as those

of the former Central Board of Revenue. The main functions of NBR are:

1) collecting direct and indirect taxes,

2) formulating and dealing with policy matters including continuous re-appraisal

of tax policies and tax laws;

3) controlling and supervising direct and indirect tax administration;

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4) helping in formulating tax policy and processing legislation, preparing tax

revenue budget, negotiating agreements relating to tax, donations, debts and

general cooperation with foreign governments and international agencies, and

also vetting tax clauses of agreements with foreign governments, agencies or

institutions;

5) performing all the functions and exercising the powers vested in the

government by various tax laws, such as disposing of revision application under

the customs, excise and VAT laws, and dealing with exemptions from various

taxes; and

6) helping in preventing smuggling, implementing import and export policies, and

formulating policies for domestic industrialization or encouraging FOREIGN

DIRECT INVESTMENT. In its secretariat functions, NBR participates in inter-

ministerial deliberations on all economic policies having a taxation bearing.

Till 1995, it was the highest appellate authority on matters of assessments of customs duty.

A CUSTOMS, EXCISE AND VAT APPELLATE TRIBUNAL was established in 1995 under the

Finance Act 1995 to deal with appeal cases relating to customs, excises and VAT.

3.3: Some terms and conditions related to NBR3.3.1: Tax Authorities of Bangladesh

1. There are 3-divisions under the Ministry of Finance (MOF) and Secretary leads

each division.

2. The Chairman of NBR (National Board of Revenue) is working under Internal

Resource Division (IRD).

3. NBR is the apex body of the Tax Administration. It consists of two parts :( 1)

Customs & VAT (2) Income Tax. Both are under the same authority. There are 4-

members under NBR.

Under the NBR, a Commissioner of Taxes is the head of the department and he is in

charge of a taxes Zone

There are 8-Zones in Bangladesh.

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3.3.2: Types of Income

I n c o m e : Income means anything received in cash or in kind unless exempted by laws.

1) A s s e s s a b l e I n c o m e :

Assessable Incomes are those incomes, which are included in the determination of total

income of a taxpayer.

a ) T a x a b l e I n c o m e :

Taxable Incomes are those incomes that the tax is to be paid on those incomes.

b ) N o n - T a x a b l e I n c o m e :

Non taxable income is taken into total income for taxation rate purpose but no tax is to be

paid on this part of income.

2) N o n - A s s e s s a b l e I n c o m e :

Non- assessable incomes are those incomes which are not included in the determination of

total income of a taxpayer.

3.3.3: Classification of Tax systems

1. Multiple Taxes

2. Single Tax

1 . S i n g l e T a x : Only one tax for everybody. Single tax is the poll tax or the head

tax or adolescent tax, which is imposed on a person simply because he is there in

the society.

2 . M u l t i p l e T a x e s : A system under which different types of taxes shall be

levied by the govt. according to suitability. Ex. Income Tax, VAT.

3.3.4: Types of Taxation

a) Progressive Tax

b) Regressive Tax

c) Proportional Tax

a) Direct Tax

b) Indirect Tax

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Types of Taxation

a ) D i r e c t T a x :

Direct tax is a sort of tax the impact of effect incidents and which fallback on the person on

whom it is imposed. i.e.: Income Tax, Marriage Tax etc.b ) I n d i r e c t T a x :

Indirect taxes are those burden of which can be passed on others through price vehicles.

c ) P r o g r e s s i v e T a x :The tax rate increases as the taxable income/amount increases.

d ) R e g r e s s i v e t a x :

The opposite of a progressive tax is a regressive tax where the tax rate decreases as the

taxable income/amount increases.e ) P r o p o r t i o n a l T a x :

In between is a proportional tax, where tax is fixed as the amount to which the rate is

applied increases.

3.3: SOURCES OF RVENUES OF NBR

Income tax:

Sources of Income Tax:

For the purpose of computation of total income and charging tax thereon, sources

of income can be classified into 7 categories, which are as follows

Salaries

Interest on securities

Income from house property

Income from agriculture

Income from business or profession

Capital gains

Income from other sources.

T a x R a t e ( A s s e s s m e n t Y e a r - 2 0 1 1 - 1 2 )

O t h e r t h a n C o m p a n y :For individuals other than female taxpayers, senior taxpayers of 70 years and above and

retarded taxpayers, tax payable for the First 1,65,000/- Nil Next 2,75,000/- 10%Next

3,25,000/- 15%Next 3,75,000/- 20%Rest Amount 25%For female taxpayers, senior

taxpayers of age 70 years and above and retarded taxpayers, tax payable for the First

1,80,000/- Nil Next 2,75,000/- 10%Next 3,25,000/- 15%.

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Next 3,75,000/- 20%Rest Amount 25%Minimum tax for any individual assesses is Tk.

2,000 Non-resident Individual 25%(other than non-resident Bangladeshi)

F o r C o m p a n i e s

Publicly Traded Company 27.5%Non-publicly Traded Company 37.5%Bank, Insurance &

Financial Company 45%Mobile Phone Operator Company 45%If any publicly traded

company declares more than 20% dividend, 10% rebate on total tax is allowed.

Tax Rebate for investment

Rate of Rebate:

Amount of allowable investment is either up to 25% of total income or Tk.5, 00,000/-

whichever is less. Tax rebate amounts to 10% of allowable investment.

Types of investment qualified for the tax rebate are:

Life insurance premium

Contribution to deferred annuity

Contribution to Provident Fund to which Provident Fund Act, 1925 applies

Self contribution and employer's contribution to Recognized Provident Fund

Contribution to Super Annuation Fund

Investment in approved debenture or debenture stock, Stocks or Shares

Contribution to deposit pension scheme

Contribution to Benevolent Fund and Group Insurance premium

Contribution to Zakat Fund

Donation to charitable hospital approved by National Board of Revenue

Donation to philanthropic or educational institution approved by the Government.

Donation to socioeconomic or cultural development institution established in

Bangladesh by Aga Khan Development Network.

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Who should submit Income Tax Return?

If total income of any individual other than female taxpayers, senior taxpayers of 70years and above and retarded taxpayers during the income year exceeds Tk

1,65,000/-.

If total income of any female taxpayer, senior taxpayer of 70 years and above and

retarded taxpayer during the income year exceeds Tk 1,80,000/-.

If any person was assessed for tax during any of the 3 years immediately preceding

the income year.

A person who lives in any city corporation/paurashava/divisional HQ/district HQ

and owns a building of more than one storey and having plinth area exceeding

1,600 sq. feet/owns motor car/owns membership of a club registered under VAT

Law.

If any person subscribes a telephone.

If any person runs a business or profession having trade license.

Any professional registered as doctor, lawyer, income tax practitioner, Chartered

Accountant, Cost & Management Accountant, Engineer, Architect and Surveyor

etc.

Member of a Chamber of Commerce and Industries or a trade Association.

Any person who participates in a tender.

A person who has a Taxpayer's Identification Number (TIN).

Candidate for Union Parishad, Paurashava, City Corporation or Parliament.

Any company registered under Companies Act, 1930.

Time to Submit Income Tax Return

For Company

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By fifteenth day of July next following the income year or, where the fifteenth day of July

falls before the expiry of six months from the end of the income year, before the expiry of

such six months.

For Other than Company

Unless the date is extended, by the Thirtieth day of September next following the income

year.

Consequences of Non-Submission of Return

Imposition of penalty amounting to 10% of tax on last assessed income subject to a

minimum of Tk. 1,000/-

In case of a continuing default a further penalty of Tk. 50/- for every day of delay.

Assessment Procedures

For a return submitted under normal scheme, assessment is made after hearing. For returns

submitted under Universal Self Assessment Scheme, the acknowledgement slip is

determined to be an assessment order. Universal Self Assessment is of course subject to

audit

Appeal against the order of DCT

A taxpayer can file an appeal against DCT's order to the Commissioner

(Appeals)/Additional or Joint Commissioner of Taxes (Appeals) and to the Taxes Appellate

Tribunal against an Appeal order.

Tax withholding functions

In Bangladesh withholding taxes are usually termed as Tax deduction and collected at

source. Under this system both private and public limited companies or any other

organization specified by law are legally authorized and bound to withhold taxes at some

point of making payment and deposit the same to the Government Exchequer.

The taxpayer receives a certificate from the withholding authority and gets credits of tax

against assessed tax on the basis of such certificate. Heads of Income Subject to deduction

or collection of income tax at source with specified rates of deduction.

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Major areas for final settlement of tax liability

Tax deducted at source for the following cases is treated as final discharge of tax

liabilities. No additional tax is charged or refund is allowed in the following cases

Supply or contract work

Band rolls of handmade cigarettes

Import of goods

Transfer of properties

Export of manpower

Real Estate Business

Export value of garments

Local shipping business

Royalty, technical know-how fee

Insurance agent commission.

Auction purchase

Payment on account of survey by surveyor of a general insurance company

Clearing & forwarding agency commission.

Transaction by a member of a Stock Exchange.

Courier business

Export cash subsidy

Winning lotteries.

Tax Recovery System

In case of non-payment of income tax demand the following measures can be taken against

a taxpayer for realization of tax:

Imposition of penalty Attachment of bank accounts, salary or any other payment. Filing of

Certificate case to the Special Magistrate

Advance Payment of Tax

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Every taxpayer is required to pay advance tax in four equal installments falling on15th

September; 15th December; 15th March and 15th June of each year if the latest assessed

income exceeds Taka three lakh. Penalty is imposed for default in payment of any

installment of advance tax.

Fiscal incentives

Following are fiscal incentives available to a taxpayer:

a) Tax holiday:

Tax holiday is allowed for industrial undertaking, tourist industry and physical

infrastructure facility established between 1st July 2008 to30th June 2011 in fulfillment of

certain conditions.

Industrial Undertaking Eligible for Tax holiday:

(i) An industry engaged in production of textile, textile machinery, jute goods,

high value garments, pharmaceuticals, melamine, plastic products, ceramics,

sanitary ware, steel from iron ore, MS Rod, CI Sheet, fertilizer, insecticide

& pesticide, computer hardware, petro-chemicals, agriculture machinery,

boilers, compressors, basic raw materials of drugs, chemicals and

pharmaceuticals.

(ii) An industry engaged in agro-processing, ship building, diamond cutting.

Physical Infrastructure Eligible for Tax holiday:

Sea or river port, container terminals, internal container depot, container freight station,

LNG terminal and transmission line, CNG terminal and transmission line, gas pipe line,flyover, mono rail, underground rail, telecommunication other than mobile phone, large

water treatment plant & supply through pipe line, waste treatment plant, solar energy plant,

export processing zone.

Tourism Industry Eligible for Tax holiday

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Residential hotel having facility of three stars or more

b) Accelerated depreciation:

Accelerated depreciation on cost of machinery is admissible for new industrial undertaking

in the first year of commercial production 50%, in the second year 30% and in the third

year 20%.

c) Income derived from any Small and Medium Enterprise (SME) engaged in

production of any goods and having an annual turnover of not more than taka

twenty four lakh is exempt from tax.

d) Industry set up in EPZ is exempt from tax for a period of 10 years from the date of

commencement of commercial production.

e) Income from fishery, poultry, cattle breeding, dairy farming, horticulture,

floriculture, mushroom cultivation and sericulture are exempt from tax up to

30thJune, 2011, subject to investing at least 10% of the exempted income that

exceeds one lakh Taka, in government bonds

f) Income derived from export of handicrafts is exempted from tax up to 30thJune,

2011.

g) An amount equal to 50% of the income derived from export business is exempted

from tax.

h) Listed companies are entitled to 10% tax rebate if they declare dividend of 20% or

more.

i) Income from Information Technology Enabled Services (ITES) business is

exempted up to 30th June, 2011.

Avoidance of Double Taxation Agreement

There are agreements on avoidance of double taxation between Bangladesh and

28countries which are:-

(1) United Kingdom of Great Britain and Northern Ireland

(02) Singapore

(03) Sweden

(04) Republic of Korea

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(05) Canada

(06) Pakistan

(07) Romania

(08) Sri Lanka

(09) France

(10) Malaysia

(11) Japan

(12) India

(13) Germany

(14) The Netherlands

(15) Italy

(16) Denmark

(17) China

(18) Belgium

(19) Thailand

(20) Poland

(21) Philippines

(22) Vietnam

(23) Turkey

(24) Norway

(25) USA

(26) Indonesia

(27) Switzerland

(28) Oman

Steps for collecting Income Tax in Bangladesh

Submission of income tax returns is generally due by:

30th September in case of non-companies and

31st December in case of companies.

Assessment is made in several procedures. They are:

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1. Self assessment

2. Presumptive assessment

3. Spot assessment

4. Pre-audit based assessment.

However, certain percent of self assessment cases are selected for audit. Assesses can

prefer appeal if aggrieved by his assessment. There are three primary forums for appeal.

They are to the Appellate Commissioner/Additional Commissioner/Joint Commissioner or

to the Commission for reviews. The decisions of Appellate Commissioner/Additional

Commissioner/Joint Commissioner can be challenged to the next Appellate Court named as

Appellate Tribunal. Withholding tax is levy able on a number of items including

contractors, imports, transfer of urban land/building, bank deposits etc.

Procedure of Assessment

Generally the followings steps are followed in case of Assessment of the Company and the

Corporation:

Computation of Business Income:

Step-1 Computation of Total Income

Step-2 Determination of Total Tax Liabilities

Step-3 Determination of Net Tax Liabilities

Step-4 According to Sections 28, 29 and 30 of ITO, 1984 Income from business is to be

calculated after considering admissible and inadmissible expenses to this end. Total Income

of the Company is to be calculated by adding other income with income from business.

Total Tax liabilities are to be determining by applying prescribed tax rate.Net Tax liability

is to be ascertained by deducting the following tax rebate from Total Tax liabilities:

10% Tax rebate on foreign income

Tax rebate on increased production in case of industrial company, if applicable.Tax rebate on export income (at rate applicable)

Tax rebate and average rate on tax free income

Problems for collecting Income Tax:

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Tax avoidance is one of the main problems for collecting Income Tax by the Income Tax

Authority in Bangladesh. It is the legal utilization of the tax regime to one's own advantage,

in order to reduce the amount of tax that is payable by means that are within the law.

By contrast tax evasion is the general term for efforts to not pay taxes by illegal means. The

term tax mitigation is a synonym for tax avoidance. Its original use was by tax advisors as

an alternative to the pejorative term of tax avoidance.

Latterly the term has also been used in the tax regulations of some jurisdictions to

distinguish tax avoidance foreseen by the lawmakers from tax avoidance which exploits

loopholes in the law.

Based on these concepts arise the pillars of Tax Protesters as well as Tax Resistance:

Some of those attempting not to pay tax believe that they have uncovered interpretations of

the law that show that they are not subject to being taxed: these individuals and groups are

sometimes called tax protesters. An unsuccessful tax protestor has been attempting openly

to evade tax, while a successful one avoids tax. Tax resistance is the declared refusal to pay

a tax for conscientious reasons(because the resister does not want to support the

government or some of its activities). Tax resistors typically do not take the position that

the tax laws are themselves illegal or do not apply to them (as tax protesters do) and they

are more concerned with not paying for particular government policies that they oppose.

Responses to tax avoidance:

Avoidance also reduces government revenue and brings the tax system into disrepute, so

governments need to prevent tax avoidance or keep it within limits. The obvious way to do

this is to frame tax rules so that there is no scope for avoidance. In practice, this has not

proved achievable and has led to an ongoing battle between governments amending

legislation and tax advisors' finding new scope for tax avoidance in the amended rules.

Tax evasion:

By contrast, tax evasion is the general term for efforts by individuals, firms, trusts and

other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers

deliberately misrepresenting or concealing the true state of their affairs to the tax

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authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting

(such as declaring less income, profits or gains than actually earned; or overstating

deductions).

Illegal income and tax evasion:

Who earn income by illegal means (gambling, theft, drug trafficking etc.) is required to

report unlawful gains as income when filing annual tax returns. Suspected lawbreakers

have therefore been charged with tax evasion when there is insufficient evidence to try

them for their non-tax related crimes.

Other times, tax evasion can be used as a "one more nail in the coffin" by prosecutors by

stating that if a person earns illegal income, s/he may also be guilty of tax evasion. Those

who attempt to report illegal income as coming from a legitimate source could be charged

with money laundering.

Evasion of Value Added Tax (VAT):

During the latter half of the twentieth century, Value Added Tax (VAT) has emerged as a

modern form of consumption tax through the world. Producers who collect VAT from the

consumers may evade tax by under-reporting the amount of sales.

Control of evasion:

Level of evasion depends on a number of factors one of them being fiscal equation.

People's tendency to evade income tax declines when the return for due payment of taxes is

not obvious. Evasion also depends on the efficiency of the tax administration. Corruption

by the tax officials often renders control of evasion difficult. Tax administrations resort to

various means for plugging in scope of evasion and increasing the level of enforcement.

Public opinion on tax avoidance:

Tax avoidance may be considered to be the dodging of one's duties to society, or

alternatively the right of every citizen to structure one's affairs in a manner allowed by law,

to pay no more tax than what is required. Attitudes vary from approval through neutrality

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to outright hostility. Attitudes may vary depending on the steps taken in the avoidance

scheme, or the perceived unfairness of the tax being avoided.

Corruption by tax officials:

Corrupt tax officials cooperate with the tax payers who intend to evade taxes. When they

detect an instance of evasion, they refrain from reporting in return for illegal gratification

or bribe. Corruption by tax officials is a serious problem for the tax administration in a

huge number of underdeveloped countries.

The distinction in various jurisdictions of Tax Evasion and Tax Avoidance:

The use of the terms tax avoidance and tax evasion can vary depending on the jurisdiction.

In general, the term "evasion" applies to illegal actions and "avoidance" to actions within

the law. The term "mitigation" is also used in some jurisdictions to further distinguish

actions within the original purpose of the relevant provision from those actions that are

within the letter of the law, but do not achieve its purpose.

2.3.1:Value Added Tax:

(i) VAT is imposed on goods and services at import stage, manufacturing, wholesale and

retails levels;

(ii) A uniform VAT rate of 15 percent is applicable for both goods and services;

(iii) 15 percent VAT is applicable for all business or industrial units with an annual

turnover of Taka 2 million and above;

(iv) (iv) Turnover tax at the rate of 4 percent is leviable where annual turnover is

less than Taka 2 million;

(v) VAT is applicable to all domestic products and services with some exemptions;

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(vi) VAT is payable at the time of supply of goods and services;

(vii) Tax paid on inputs is creditable/adjustable against output tax;

(viii) Export is exempt;

(ix) Cottage industries (defined as a unit with an annual turnover of less than Taka 2

million and with a capital machinery valued up to Taka 3,00,000) are exempt from VAT;

(x) Tax returns are to be submitted on monthly or quarterly or half yearly basis as notified

by the Government.

(xi) Supplementary Duty (SD) is imposed at local and import stage under the VAT Act,

1991. Existing statutory SD rates are as follows:

(a) On goods: 20%, 35%, 65%, 100%, 250% & 350%

(b) On services: 10%, 15% & 35%.

Tax Base for VAT:

Import Stage:

Customs Assessable Value + Customs duty +Supplementary Duty

Domestic/Local Stage: a) Goods (manufacturing): [Production cost + Profit

and Commission (if any) + Supplementary duty (if any)]

b) Services: [total receipts excluding VAT but including

supplementary duty (if any)]

Truncated Base / Fixed Value Addition: In some of the cases of goods and services

producers and sellers face difficulties in availing VAT credit/adjustment facilities due to

non availability of invoices from the sellers of input. In order to remove this operational

difficulty fixed bases such as 10%, 25%, 30%, and 60% value addition is taken into

account for calculation of VAT for a number of goods and services. In such circumstances

net VAT rate for different rates of value addition comes to 1.5%, 2.25%, 4.5% and 9%.

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VAT at the wholesale and retail stage: In case of wholesalers and retailers, there is a

special provision for a 1.5% percent VAT known as Trade VAT on the total sale, provided

that the wholesaler/retailer do not avail the facility of input credit/adjustment.

Such tax is also collected at the import stage from importers of finished goods as an

advance trade VAT.

Tariff Value for imposition of VAT: Under the VAT Law, the government is empowered

to fix Tariff Value for some items for the collection of VAT. Example: tariff value for

mild-steel products produced from imported/locally procured re-rollable scraps is TK

4000.00 per MT. Normal VAT input credit is also not available under this system.

Deduction of VAT at source: As deduction at source is also practiced in case of VAT on

certain services, Government, Semi-Government, Autonomous Bodies, NGOs, Banks,

Insurance Companies and Limited Companies are authorized by the government to deduct

applicable VAT on the services at source.

Excise Duty: At present excise duty applies to only two items: bank deposits and domestic

air ticket (Tk. 250 per journey).

Customs Duty

Customs Duty synonymous to tariff and involves a tax on commodities entering and

leaving the country. Customs duty is sometimes called an 'external excise tax', which

includes an export duty or an import duty.

The origin of customs duty dates back to the 'customary levies' of ancient times. As

recorded in theKautiliyam Arthasastram (circa 321-300 BC), the highest revenue officer of

the time was called the Samaharta (collector-general) and his responsibility was to arrange

revenue collection from seven types of places, of which the seventh was the vanikpaths

(trade routes) of 2 kinds, land routes and sea-routes.

The subcontinent witnessed the levy ofchungi during the Mughal period (1526-1707). The

country was then divided into subas or provinces and chungi was leviable on commodities

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moving from one province to the other. Customs levy were also imposed on goods

imported from abroad by sea.

Chungi gharof those days were perhaps the precursor of today's customs house. In British

India, Lord Cornwallis abolished customs duty in 1788 but it was reintroduced again in

1801. Collection of customs duty in 1839-40 was Rs 4,103,298 accounting for 5% of public

revenue. In the early twentieth century, 'taxes on imports and exports' were the seventh

major source of public revenue.

The present customs system came into being in the nineteenth century. The entire law and

machinery for collection was consolidated in 1878, when the Sea Customs Act was enacted

on the pattern of the British customs law, giving legal authority for the levy and collection

of customs duty.

The administration was initially vested in the provincial government until 1924, when it

was brought under the central control with the establishment of the Central Board of

Revenue (CBR) under CBR Act of 1924.

The Land Customs Act was also promulgated in 1924 to enable the central government to

enforce control on the movement of goods and passengers by land routes and frontiers from

the subcontinent to adjoining territories and vice versa or in transit from one country to the

other via the subcontinent.

The Customs Act 1969 was enacted to consolidate and amend the law relating to the levy

and collection of customs duties and provide for allied matters. As a result, under Section

220 of the Customs Act 1969, four acts (the Sea Customs Act 1878, the Inland Bonded

Warehouses Act 1896, the Land Customs Act 1924, and the Tariff Act 1934) and Section

14 of the Civil Aviation Ordinance 1960 were repealed.

This put an end to legal features, which had so long separated the sea customs, land

customs, and air customs from one another. After the emergence of Bangladesh, the

government abolished CBR and created NATIONALBOARDOFREVENUE (NBR) as the apex

tax authority with power to take over customs administration.

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The Customs Act was made effective in Bangladesh by President's Order no. 48 of 1972

with effect from 01 January 1970. The primary function of the customs authority is the

administration of revenue under the Customs Act 1969 and the Value Added Tax Act 1991.

The customs authority is responsible mainly for assessment and collection of customs

duties, VALUE ADDED TAX, supplementary duty and other taxes and charges leviable on

imported or exported goods. Its collateral function includes prevention of smuggling,

implementation of the Imports and Exports (Control) Act 1950, and the enforcement of the

Foreign Exchange Regulation Act 1947. In its auxiliary function, the customs authority

also maintains the security measures under different statutes, namely the Arms Act 1878,

the Explosives Act 1884, the Merchandise Marks Act 1889, the Livestock Importation Act

1898, the Narcotics Control Act 1990, etc.

Duties and taxes collected on international trade now comprise the largest share of tax

revenue in Bangladesh. More than three-fourth of total taxes comes from indirect taxes,

about 70% of which is collected at customs-station.

Customs duties represent about 30% of total tax or about 40% of indirect tax. However,

due to tariff reduction after the signing of the World Trade Organization (WTO)

Agreement, the share of customs duty in the tax structure has been falling in recent years.

Excise Duty

Excise Duty a tax on goods produced inland. The term 'excise tax' in lieu of 'excise duty' is

more comprehensive and covers taxes levied on the manufacture, sale, or purchase of any

commodity or service. Unlike the excise tax, which applies to domestic and imported goods

alike, the excise duty is levied on domestic products only. Excise duty is a tool of

government revenue collection. The government can use it with the motive of 'income

distribution' or for implementing the benefit principle ofTAXATION i.e., collection of funds

through excise on particular products (like TOBACCO) and using the funds for assisting

people affected by consumption of that product.

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Excise duty is also imposed to discourage the consumption of certain so-called 'undesirable'

commodities (e.g., liquor and tobacco) or to control or ration the consumption of certain

commodities in times of external scarcity (such as in wartime) or inflationary pressure. The

basis of tax computation may be ad valorem (as in a VALUEADDEDTAX) orspecific orin

rem (i.e., on the physical units).Of the three main indirect taxes - CUSTOMSDUTY, excise

and sales tax - customs duty was the first to be introduced in Bengal as early as in the

period of ancient India (before 300 BC). The subcontinent witnessed a similar tax known as

chungi during the Mughal period and sales tax was introduced only in 1938. The Muslim

rulers in India introduced the salt tax, considered equivalent to an excise duty, and although

EmperorAKBARhad issued an order to abolish salt tax, the order was not properly carried

out in remote provinces.

Muslim invaders brought opium to India from Persia and the tax on opium, similar to

excise duty, was a major source of income of the Muslim rulers. Excise duty is imposed in

Bangladesh under the Excise and Salt Act 1944 (Act I of 1944) enacted on 24 February

1944. This law was introduced to levy and collect excise duties on salt and on goods

manufactured or produced in the sovereign territory of the country. Before introducing

Value Added Tax (VAT) in July 1991, the excise constituted the second largest source of

revenue for the government (about 22% of total revenue). But VAT had reduced the tax-

coverage of excise duty to a minimum.

In 1991-92, the tax-net of excise duty was reduced to only 25 items (22 items of goods and

3 items of services) from the 99 items (90 items of goods and 9 items of services) subject to

excise duty until the end of the previous fiscal year. The change was caused by shifting

74.7 percent of coverage of excise duty to that of VAT. The share of excise duty in total tax

in 1990-91was 26.53%, which fell to 17.8% in 1991-92, 3.68% in 1992-93, and to only

1.4% in 2000-2001.All kinds of produced alcohol are subject to narcotics duty at the rates

specified in the Second Schedule of the Narcotics Control Act 1990, and not subject to

excise duty or VAT. The excisable goods and services kept outside the VAT-net in 1991-

92 include tobacco, NATURALGAS and PETROLEUM products, newsprint, gold or silver and

products thereof, salt, bank cheques and ordinary bricks.

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The goods and services subject to excise duty are listed in the First Schedule of the Excise

and Salt Act 1944 and their list includes BIDI, cloth and cloth goods, and bank services.

Excise duty is collected by the Customs, Excise and VAT wing of the NATIONALBOARDOF

REVENUE.

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The National Board of Revenue has achieved a big success in revenue receipts, 27 percent

or around Tk 3,000 crore more than the target, in the first six months of current fiscal year.

If the trend continues, NBR will be able to realise more revenues than the target at the end

of the current fiscal year. During July-December, the revenue administrator collected Tk

33,550 crore in revenues, up from Tk 26,394 crore in the same period of the previous fiscal

year.

The body set a target to gather Tk 72,590 crore in revenues in fiscal 2010-11, which was

fixed at Tk 30,720 crore for the first six months. The revenues collected from income taxes

saw a growth of 34 percent, the highest this time. Realization of value-added-tax (VAT)

increased by 34 percent at local level while the collection went up 27 percent at import

level. the tax collection process had been made simpler. The electronic tax collection has

been introduced in many cases. These actually helped the organization collect the revenues

at all levels.

The NBR has taken many people-based programmes this time, which helped increase the

number of income tax returns submissions, The number of submissions as of December

2010 was 9.83 lakh, up from 7.72 lakh in the same-year-ago period, the target for revenue

earnings from the sector will not fall short despite a recent fall in the share market.

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NBR made the tax projection from the share market anticipating a daily transaction of Tk

1,500 crore. The average daily transaction will maintain the projected rate, regardless of a

decrease in transactions in recent times. In future we will attach highest emphasis to

income tax.

Mentioning the NBR teams recent visit to South Africa, only 4 percent of the tax comes

from import level and 24 percent from VAT. The tenure of pre-shipment inspection system

has been extended to December 2012. The appointment of a new company is now under

process.

Future perspectives

Recommendations for increasing revenue:

Expand the tax base by introducing a comprehensive taxpayment system,

An equitable tax system should be introduced

Improve administrative efficiency by reducing corruptionin the system. Current system

entails high transactioncosts for the potential taxpayers.

Further enhance the scope and coverage of the Large

Taxpayers Units Make tax payment system easier and online in order to

reduce administrative hassle.

Concerns on Some Changes in Taxes:

Tax reduced:

For LP gas, import duty (ID) has been reduced from 5% to 0%

- Meter system should be introduced for efficient gas utilization.

For LED lamps and T5 tube lights, ID has been reduced from 25%

to 12%Tax increased:

Text books for Primary and secondary (5 to 12%) revision

Optical fiber cables (3 to 12%)

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Tax at source for export items (.4 or 0.5 to 1.5%): 1% may be OK

Supplementary duty for imported motor vehicles

Wealth Tax: If wealth/asset value at the time of purchase exceeds

Tk. 2 crore, Surcharge@10% will be imposed.

Capital Market: 10% tax on Brokerage house commission

Reforms in Tax Administration-Budget FY12:

By 2016, e-filing and e-registration,

By 2013, online tax return

Alternative Dispute Resolution (ADR)

Initiatives are taken to increase staff of NBR.

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CHAPTER: 05

5.1: NBR Modernization Plan 2011-2016

The National Board of Revenue (NBR) is the apex national tax policy and tax collection

and tax systems administration agency of the Government of the Peoples Republic of

Bangladesh (GOB). The NBR is responsible for end to end oversight and superintendence

over both direct taxes as well as indirect taxes.

These include Income Tax, VAT and Customs. The NBR in turn reports to the Internal

Resources Division (IRD) of the Ministry of Finance, Government of the Peoples

Republic of Bangladesh. The Secretary to GOB in the IRD also serves as the Chairman of

the NBR. Other Members of the Board include professional tax cadre officers from the

three tax wings under NBR control.

The NBR has undertaken an aggressive and comprehensive organizational renewal

program that seeks to put in place an efficient, effective, fair and responsive tax regime

which is benchmarked against international best practice. The envisaged reform program

covers all the three taxes i.e. Income Tax, VAT and Customs.

The reform will review and modernize both, (i) the tax policy (tax laws and statutory rules)

and (ii) tax administration (business process, organizational design, HR policies, taxpayer

services etc.). Tax performance in Bangladesh has been registering a steady incremental

annual improvement over the years with an average 20% growth over the last four years.

However the gap between tax policy expectation and tax performance is significant. This

gap is going to become far wider in future as the GOB expects the three taxes to deliverrevenue outturns that would be more than 200% higher than the current tax performance

over the next five years. The macroeconomic framework underpinning the budget

envisages the Bangladesh economy to grow by 7% in FY 2011-12. This outcome is

predicated upon a significantly enhanced revenue outturn by allowing the government to

finance a much larger Annual Development Program.

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iii. Enriched and enhanced taxpayer experience through an array of easily

accessible taxpayer services available at multiple remote/ customer facing touch

points.

iv. Reducing compliance cost for the taxpayer by reducing unnecessary paper

works and contacts between tax administration and taxpayers thereby

establishing a regime that makes the relationship between the tax departments

and the honest and diligent taxpayer incident free.

v. Shifting tax compliance management from the traditional subjective audit

selection approach to a computer assisted intelligent selection approach based

on efficient data mining and revenue risk management tools.

vi. Setting up an efficient, integrated national tax accounting network that will correctly

account for, reconcile and record tax payment information at a transactional level for

all the three taxes and make visible this information in real time basis to taxpayers and

to all stakeholders including GOB, NBR, tax officers, Bangladesh Bank and taxpayers.

vi. Reassignment of tax personnel from non priority routine work to priority

compliance and tax collection work through separation and consolidation of

non-priority non-taxpayer facing high volume low knowledge, tasks like return

receipt and processing, tax accounts, taxpayer registration with TIN/BIN, record

keeping etc. in a remote centralized mass processing center.

vii.

viii. Creating an administrative and legal framework that ensures the collection of

sovereign taxes in a fair / accurate manner while also supporting the competitiveness of

Bangladeshi businesses in a transnational global economy.

ix. Strengthening of tax evasion detecting unit like Central Intelligence Cell (CIC) and

other intelligence units.

x. Increased cooperation and coordination with other government and non-government

agencies.

xi. Human resource development through effective training.

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5.2: Steps taken to reach the modernization goals

The Modernization Plan of the NBR is the result of a series of engagements that the NBR

has had with its rank and file and key stakeholders to address the problems outlined above.

It covers a period of five years and has well defined goals and sub-goals under nine

strategic areas.

1. Tax Policy Reforms

This covers a new Income Tax Act, a new VAT Act and Customs Tariff rationalization and

modernization of the Customs Act

2. Integrated Revenue Management Program Business Process Reform

This component aims to streamline the business processes across the different taxes for

greater efficiency and better tax compliance. This component is closely dependent on the

automation process as well as the reform that re-organizes the NBR by function and size

3. Integrated Revenue Management Program Automation of the Tax Processes:

This component includes the automation of the different wings of the NBR. A key part of

this is the allotment of Taxpayer Identification Number (TIN) and Business Identification

Number (BIN) for income tax payers and VAT payers respectively. The other major

components are the setting up of an NBR Data Center, Centralized Processing for Income

Tax and VAT Returns, Tax Information Network and installing a Integrated Tax

Administration Software that would help tax officials perform their functions in a

computerized environment.

4. Redefining the Status and Regulatory Power of the NBR

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This work stream addresses the overarching administrative structure of the NBR. This

includes strengthening the Headquarters including autonomy of financial and personnel

management, modifying reporting lines for greater efficiency and the place of NBR within

the executive and its relation with the government.

5. Restructuring NBR according to Function and Size

This component looks at means to improve the efficiency of the tax administration by

organizing it to deal with taxpayers by size (The Large Taxpayer Unit, Medium Taxpayer

Unit and Small Taxpayer Unit). Efficiency could also be derived by merging functions

(such as tax collection, and filing of tax returns) across the different taxes.

6. Strategic Communication and Taxpayer Outreach, Education and Assistance

This part includes designing a comprehensive communication strategy for the NBR,

devising taxpayer education modules, supporting taxpayers through direct face-to-face

assistance provided in taxpayer service centers and through call centers, and a Web

interface that provides comprehensive support to taxpayers.

7. Enforcement Improvement Program

This component focuses at efforts to improve tax compliance through better audits, better

investigation including combating international tax evasion, improving collection of tax

arrears and addressing taxpayer grievances through quick disposal of tax appeals including

alternative dispute resolution (ADR) mechanism.

8. Human Resources and Institutional Development Program

This component looks at the various resources to successfully manage the implementation

of the Modernization Plan. It includes human resources (HR) management such as

performance management, developing a research wing within the NBR and upgrading the

training infrastructure including the two tax training institutions.

9. Infrastructure Development Program

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This component looks at the requirement of the physical infrastructure such as building and

furniture as well as the IT hardware requirements to support the automation of the tax

processes.

1.1. Tax Policy Reforms

Underpinning any tax modernization plan is a sound tax policy that is efficient equitable

and that can be easily administered. The Income Tax Ordinance of 1984 has become out of

date and complicated over time due to several amendments through successive Finance

Acts. The VAT Act of 1991 is badly in need of reform to move it from an excise based

system towards a true VAT. The Customs Tariff is also in need of restructuring and the

Customs Act, 1969 needs to be modernized.

1.1.1. Formulation of Income Tax Law

There are several weaknesses in the current Income Tax Ordinance. These include, the

excessive discretion provided to tax authorities on policy issues, the proliferation of tax

incentives and concessions, poor compliance arising due to weak enforcement, limited use

of information of taxpayers from other taxes as well as third party information from other

agencies, and over dependence on presumptive taxes as a final tax irrespective of taxpayer

size. The NBR is undertaking a comprehensive review and re-casting of the Income Tax

Ordinance through a new Income Tax Act. The policy framework for the proposed Code

seeks to simplify and streamline tax laws, reduce opportunities for disputes and litigation,

correct and check transfer of national tax resources to locations outside the country and

move to a full-fledged self-assessment tax regime in line with international best practices.

The Code will also rationalize and streamline work distribution pattern and enable and

support centralized operations and return processing, electronic filing, gathering of third-

party information and improved compliance management methods. The Code will do away

with desk audit and other manpower hungry procedures and assist in re-allocation of

administrative resources for tax compliance and customer service. The new Code is likely

to be signed into law within the next one year.

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1.1.2 Formulation of VAT Act

The VAT Act of 1991 suffers from several weaknesses that several Finance Act

amendments have not been able to rectify and requires a comprehensive and new law. The

main problem is that the existing VAT is primarily built around the old excise system that

it replaced. The problems are, excessive use of physical monitoring of businesses rather

than the use of secondary information, treatment of each unit of a multi unit business as a

separate business entity, use of deemed value added based on a percentage of sales

(truncated VAT), tax liability based on approved prices rather than actual prices, over

reliance on presumptive VAT, etc

A working draft of the new VAT Act has already been prepared and is under discussion

with the key stakeholders. The proposed statute seeks to replace the existing VAT Act and

will rationalize the operation of the law as well as facilitate country-wide administration of

the VAT regime. The proposed statute will facilitate electronic interface for taxpayers and

a national tax accounting platform for VAT credits and refunds/adjustments of input/output

tax. It will also facilitate centralized processing of returns and effective flagging and

reporting of exceptions for compliance intervention by field staff. The new VAT Act is also

likely to be signed into law in the next one year.

1.1.3 Customs Tariffs restructuring and Rationalization including modernization of

Customs Act:

This program will seek to improve the policy content and framework of the Customs Act,

1969 in the context of the national vision of Bangladesh as well as the required operational

efficiency of the customs interface in the country. The reform of the Customs Act would

include,

(a) Provision for full implementation of Revised Kyoto Convention (RKC)

(b) Introduction of WCO SAFE Framework of Standards (FoS)

(c) Review of related SROs

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the different taxes. The integrated revenue management program will enable the desired

flow of information and consequent synergy among the three tax wings of the NBR.

1.2.1 Direct Tax Modernization Program:

The policy content of the new Direct Tax Code will put in place an efficient and modern

direct tax regime in the country. The design will seek to encourage wide voluntary

compliance by the over-whelming majority of taxpayers.

This is sought to be achieved by making it simple for the honest taxpayer to meet his/her

tax obligations with minimum inconvenience and with no additional compliance cost.

The design will also seek to increase the cost of non-compliance and make the likelihood

of detection of evasion much higher. This will be achieved by a strong and efficient third

party reporting system. This will enable an integrated platform for capturing, analyzing and

disseminating information after identifying logical inconsistencies between such

information and information reported by a taxpayer in his/her tax return.

Improved risk management methods will enable focused deployment of compliance

resources in high revenue yielding cases and this in turn will produce a compelling

compliance regime that will widen the tax base. Tax administration reforms will segregate

and consolidate non-customer facing non-discretionary, high volume mass tax tasks in a

centralized processing centre for efficient processing and closure.

The manpower released from this re-design will be re-assigned for compliance, customer

service, collection, market surveys, intelligence gathering and other customer facing

activities. The policy and administrative procedure will seek to widen the taxpayer base to

at least two million taxpayers from the present one million.

1.2.2 VAT Modernization Program

The objective is to modernize the VAT administration in order to improve voluntary

compliance and customer convenience in meeting tax obligations under the law. The Act

and procedure as well as business process will also establish an efficient risk management

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arithmetic processing of tax returns. Under this program, a Central Processing Centre is to

be set up for processing all Income-tax and VAT returns, whether e-filed or paper filed at

one integrated processing centre.

The entire database and transaction processing will reside at the NBR Primary Data Centre

(PDC) and the economies of scale achieved will enable quick service turn-around time as

well as efficient information management for all the three taxes.

This centre will draw tax payment information from the tax record keeping accounting

agency or CRA and deliver products and services to tax-payers, to NBR and other key

stakeholders. The centralization of high volume low knowledge, repetitive jobs like receipt

and processing of returns and accounting for taxes etc. will free critical trained manpower

of the NBR for attending to the highly neglected tax compliance activities. This change in

management of tax work will support significant improvements in revenue mobilization.

1.3.3 NBR Data Centre

The NBR will set up centralized hardware architecture to cover the whole country. This

will establish a Primary Data Centre (PDC) at the data centre of the Bangladesh Computer

Council in Dhaka. The Primary Data Centre will be linked to a Business Continuity Centre

(BCC) located in a different building in Dhaka.

This in turn will be connected, along-with the PDC to the Disaster Recovery Centre (DRC)

to be located in an NBR building at Rajshahi or within another seismic zone. This will

serve as a backbone for ICT for the NBR and this in turn will be linked to client machines

across all locations covering the three taxes under the NBR.

The entire database and transaction processing will be carried out at the PDC and will be

mirrored and mimicked at the BCC/DRC. The data centre and the network are intended to

be established through a Systems Integrator (SI) Project, possibly under a BOT model.

1.3.4 Tax Information Network

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relationships between taxpayers and tax officials and generates a discretionary rent seeking

environment. It also crowds out serious compliance effort as offices tend to get swamped

with routine low knowledge jobs. It is recognized that there is a strong case for functional

distribution of tax work at the line level so that economies of scale can be achieved and

more efficient and specialized approach to tax management is possible.

It is also not possible to efficiently and effectively computerize the legacy manual

administrative design and procedure that supports cross-functional responsibility for all tax

work in a given territory with only one individual. Hence, the NBR is moving towards

distribution of work according to function and size in order to achieve a more balanced re-

assignment of administrative resources across functions. For example, in the front offices

of the NBR, audit assessment, collections, customer service, risk profiling, investigations

and intelligence will all be separate functions that would encourage specialization and

professional excellence.

Similarly in the back office or Central Processing Centers and CRA, return receipts, return

processing, tax account reconciliation, exceptional handling, refunds, call centers and

customer facilitation, problem resolution, record keeping/archiving will all be separate

specialized functions. The integrated information system and ICT platform will create a

seamless environment for inter-function and intra-function flow of information. The LTUs

have largely been a success as they ensure a highly trained workforce tackling the cases

that generate about 80% of the tax revenue.

Among the remaining taxpayers are those who are medium and small/micro taxpayers. The

small and micro taxpayers require a very different approach from the medium taxpayers as

they require a greater emphasis on service and assistance than on audit. The segmented

administration by size ensures a customized approach to taxpayers that enable the tax

administration to manage their resources accordingly.

1.6 Strategic Communication and Taxpayer Outreach, Education and Assistance:

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1.7 Enforcement Improvement Program

Enforcement will be entirely revamped and re-organized along modern and efficient lines.

The traditional system of subjective selection and intuitive enforcement with no

measurement criteria for success will be replaced by a risk based compliance regime that

will seek to make a distinction between honest and delinquent taxpayers.

It will encourage delinquent taxpayers to join the voluntary compliance mainstream. The

compliance system will be assisted by modern data mining audit selection tools that will

identify and give a risk rating to different taxpayers and persons for enforcement action.

The enforcement system will also be informed by the accounting CRA databases for

identifying delinquency in TDS compliance.

This will identify eligible non-deductors, deductors who deduct but do not pay, deductors

who short deduct, and deductors who deduct and pay late. The exception reporting system

will generate case specific compliance action information for the enforcement wing to help

enforce compliance to the TDS regime.

1.7.1 Audit: Skill (Training and Manual) Development Project; capacity build-up:

Since the Circle Officer handles every tax task in his jurisdiction in relation to every

taxpayer, audit is only one of his/her several responsibilities. Hence, even competent and

experienced tax officers have neither the time nor the opportunity to develop skills in

effective audit work. In fact, the audit work has been largely crowded out on account of

increase in workload and lack of manpower and other resources. Once routine and

repetitive jobs are centralized in CPC, CRA, Centralized TIN administration etc., the Circle

Officer will have the space and opportunity for quality audit work.

An aggressive program for skill development and training in audit work is planned.

Additionally, access to taxpayer specific third party information, TDS information, tax

accounts information and industry specific performance information will enable the audit

wing for moving to information driven audit of cases selected through an identity blind

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intelligent selection criteria. Skill development will include the latest techniques in

combating international tax evasion, tax avoidance and transfer pricing.

1.7.2 Investigation: Training, Skill and Manual Development Capacity Building:

The function of audit is the right of the tax department to select a certain percentage of

cases from the self-assessment basket for verification and intensive audit. This reinforces

voluntary compliance by keeping taxpayers assured that their cases can be picked up for

detailed and intensive audit. This process encourages taxpayers to report correctly and

within time.

Investigation is at a level higher than regular audit and cases selected for investigation will

also be based on identification through an efficient risk evaluation system. Investigations

can be case specific, group specific or industry specific. The investigation wing will be

informed by an effective evaluation and analysis of first party, second party and third party

information in diverse data bases of the NBR. The investigation wing will also depend on

field based enquiries and surprise checks and its operations will be evaluated and improved

through a system of outcome measurement and feedback.

1.7.3 Collection: Organization and Structure and Development:

The NBR faces a serious problem with managing its tax arrears. This component would

look into ways of managing the tax dues owed but not paid. Collection is a key function of

any tax regime. Today it is a disaggregated and de-centralized operation with no clear

information about who owes what or how much to the NBR. In the functional distribution

of work, the collection function will need to be completely re-organized with a centralized

database and a centralized/decentralized enforcement teams.

All information related to taxes payable will be captured concurrently from diverse sources

and will inform the collection enforcement teams automatically. The collection teams will

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proposed to expose officers of the NBR to different functions in the first few years of

service.

1.8.1 Performance Appraisal, Integrity Management Development Project:

With the implementation of the organizational renewal and modernization plan,

performance appraisal has to be strongly re-visited with emphasis shifting on established

measurement standards for tasks performed by the NBR officers and staff. Presently, the

appraisal is largely dependent upon subjective evaluation. Integrity needs to be reinforced

and improved in any tax system and it is proposed to put in place an effective ethics

management policy that encourages adherence to expected ethics standards and values

across the NBR and also adoption of incentives/disincentives schemes based on

quantifiable performance appraisal system.

Since the NBR

Documents

Report on National Board of Revenue Bangladesh