Taxation in Bangladesh: Income

Tax
Income from Agriculture

Md. Abul Hasnat

Contents
Introduction....................................................3
Income from Agriculture................................4
Scope of agricultural income..........................4
Characteristics of Agricultural Income...........5
Classification of Agricultural income..............6
Admissible Expenses......................................8
Non- Assessable Agricultural Income.............8
Conclusion......................................................9
Introduction
A tax is a financial charge or other levy imposed on an individual or a legal entity by a
state or a functional equivalent of a state. Taxes consist of direct taxes and indirect
taxes. “Pecuniary burden laid upon individuals or property to support the government a
payment exacted by legislative authority”. 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 VAT, Custom, Excise,
or other name. Taxation means imposition of a non-penal yet compulsory levy for
transfer of resources from private to public sector, imposed by the public representative
based on pre-determined criteria and without reference to any specific commitment, in
order to accomplish some nation’s economic and social objective. These are dues that
we pay for the privileges of membership in an organized civil society. Tax is imposed in
the assessment year based on income year. Total taxes in Bangladesh are divided into
direct and indirect taxes. Direct taxes in Bangladesh consist of taxes on income (income
tax, corporation tax, agricultural income tax) and taxes on property (wealth tax, gift tax,
estate duty, capital gains tax, urban property tax, house rent, land revenue, registration
and non-judicial stamp). Table 2 shows that the direct taxes in general accounted for
less than a fifth of the total tax revenue of the country in the recent years and the rest is
accounted for by indirect taxes.

According to section 20 of the income tax ordinance 1984, agricultural income is the
fourth head among the seven heads of income. It is the most important sector in the
economy of Bangladesh, whereas the contribution of tax from this sector is very
insignificant. In Bangladesh, agricultural income was non-assessable up to 1976. It has
brought under the tax net through the finance act 1976.
Income from Agriculture
Generally the term of agriculture refers to the production of goods through the growing
of plants, animals and other life forms. It also refers to field cultivation or cultivation of
the ground, which involves a combination of both basic and subsequent operation. Any
receipts out of cultivation of land and the use of buildings, premises, and land
appurtenant thereto shall be considered as the income from agriculture after some
considerations. The allowable deductions under agriculture are given below.

 Agricultural income shall be determined after allowing a deduction of 60% from

receipt from agriculture as agricultural expenses to avoid the no acceptable
evidences of the production cost of cultivation.

 If the agriculturist does not have any other income source other than the
agriculture then he or she will get exemption of more taka 50000 after the
deduction of 60% of the receipts as the agricultural expense.

There are some agricultural incomes which are also considered as the business income.
As for example- income from tea garden is bifurcated between agricultural income and
business income at the ratio of 60% and 40% consecutively. Income from rubber
cultivation is also bifurcated at the same ratio.

Scope of agricultural income

According to Section 2(1) of the income tax ordinance, 1984, ‘agricultural income’
means

1. Any income derived from any land in Bangladesh and used for agricultural
purposes-
a. By means of agriculture
b. By the performance of any processes ordinarily employed by a cultivator to
render marketable the produce of such land
 c. By the sale of the produce of the land raised by the cultivator in respect of which
no process, other than that to render the produce marketable, has been
performed
d. By granting a right to any person to use the land for any period

2. Any income from any building which-

a. Is occupied by the cultivator of any such land as is referred to in sub-clause
i. In which any process is carried on to render marketable any such
produce aforesaid
b. Is on, or in the immediate vicinity of such land
c. Is required by the cultivator as the dwelling house or store-house or other out-
house by the reason of his connection with such land.

From the above discussion it can be said that any income derived from any land or
building in Bangladesh that is used for agricultural purposes will be considered under
the head “Agricultural Income”. There are some other scopes of agricultural income
under the considerations of income process. These are:

 Gain from the sale of the machinery or plant exclusively used for agricultural
purposes (Capital Gain)
 Compensation money received against demolished machinery or plant
exclusively used for agricultural purposes (Equipment insurance)
 Income from sale of partly agricultural goods ( Tea, Sugarcane, Jute)
 Other agricultural income by notifications

Characteristics of Agricultural Income

From the various provisions of the ITO, 1984, various definitions mentioned in
dictionaries and case decisions, the following characteristics are relevant to agricultural
income:

i. It must derive from any agricultural land situated in Bangladesh. Land is

located outside the country, it will be considered as foreign income.
 ii. It must come from fundamental agricultural work like field cultivation or
cultivation of the ground, in the sense of tilling of the land, sowing seeds,
planting and similar basic and subsequent operation on the field.
iii. Marketing of the agricultural goods should be through the ordinary process.
iv. Income may come from any building situated in the agricultural land or
adjacent vacant agricultural land
v. Income may come from gain or sale or discarded value of the of machinery
or plant used for agricultural purpose
vi. Some income may partially be considered as agricultural income such as sale
of tea, jute, rubber tobacco etc.

Classification of Agricultural income

Considering the provisions of the ITO, 1984, agricultural income can be classified into
following categories:

1. Fully Agricultural income

2. Partially Agricultural income
3. Other Agricultural income

Fully Agricultural income

According to the provisions under Section 2(1), 26(1), 19(17), & 19(19) of the ITO, 1984,
the following incomes Fully Taxable:

i. Any income derived from any land or building situated in Bangladesh and
used for agricultural purposes
ii. Gain from the sale of the machinery or plant exclusively used for
agricultural purposes (Capital Gain)
iii. Compensation money received against demolished machinery or plant
exclusively used for agricultural purposes (Equipment insurance)
Partly Agricultural Income

According the Provision under Section 26(2) & 26(3) of ITO, 1984, The following
incomes are partly considered as agricultural income with the standard proportionate
rate:

Nature of partly to be considered as to be considered as Reference

auricular income agricultural income from business or
income profession
Income from tea Garden 60% 40% Sec 26(2)
rule 31
income from rubber 60% 40% Sec 26(3)
garden rule 32
Income from Tobacco/ 60% (if further 40% if further process is Sec 26(3)
sugarcane/ processing is done by done or, rule 32
other similar products the assessee) nothing
or,
100% is sold directly
after production

Other Agricultural income

In addition to above sources of incomes, the following incomes are also

considered under the head of agricultural income:

 Income from cattle rearing

 Income from sale of palm or date juice
 Income from sale of seeds of grass
 Income from agro-co-operative society
 Income from land leased for agro work
 Income from sale of herbal or medical plants

There are also some non-agricultural incomes:

 Income from ferry ghat

 Income from sale of produce that has no agricultural work like forest trees, wild grass,
fruit and flowers
 Income from salt production on flooded land
 Income from sale of water for irrigation
 Income from poultry firm (till 2011)
  Income from butter and cheese making
 Income from salary working in agro firm and a lot more indirect agricultural income.

Admissible Expenses
As per Sec 27 ITO, 1984, in computing the taxable income under the head ‘agricultural
income’ , some expenses are allowed to be deducted from the revenues under this
head. Those allowable allowances and deductions are as follows:

 Land Development Tax

 Local Tax (for agricultural operations)
 Production Cost
o Cultivating land or raising livestock
o Processing cost of operation to produce
o Transportation of the produce
o Maintenance of machineries used for production

Up to 60% of the production cost is admissible.

 Insurance premium
 Maintenance cost for irrigation plant
 Depreciation
 Interest on mortgage
 Interest on borrowed capital
 Losses for the sale of demolished machineries
 Losses on sale or exchange of machineries
 Other expenses

Non- Assessable Agricultural Income

According to the various provision of the ITO, 1984, the following agricultural incomes
are non-assessable subject to some conditions:

1. Agricultural is not exceeding Tk. 50,000 is non-assessable for an individual

assessee, where only source of his income is agriculture.
 2. Any income thus including indigenous Hillman from agriculture of any district of
Khagrachari, Bandarban, Rangamati hilltracks, which have been solely derived
from economic activities undertaken within the above hill tracks.
3. Subject to the condition made hereunder any income from fisheries, poultry,
cattle farming, floriculture, sericulture for the period from the first day of July,
2008, to the 30th day of June, 2011-
i. Exempted income level is Tk. 150,000 and 10% shall be invested in
government bond
ii. The person should file return the income
iii. No such income shall be transferred within five years from the end of the
income year.

Conclusion
Agricultural income is the most important sector in the economy of Bangladesh,
whereas the contribution of tax from this sector is very insignificant. It is because of
some lackness in infrastructure of NBR and local developmental issues. Following steps
can be taken to make the agro- income more stable:

 Influence local member to set fair price

 Provide special training to the farmer
 Concern farmer to create crops insurance
 Develop communication and distribution system

The heavy reliance on indirect taxation has been treated as one of the main obstacle in
attaining economic progress in developing countries. The problem arises mainly due to
the fact that only a few taxpayers share the burden of taxes. Bangladesh is exception
which is also trying to reform its tax structure for long time through structural
adjustment and growing demands have been placed on it to suggest towards a desirable
tax system. A huge segment of the population living in acute poverty and disparity is
also evident in income distribution. Tax burden is ultimately shared by a limited number
of individual taxpayers and corporations. Thus attaining a broad based and optimal
taxation system is a much desirable task for the government. This study tries to keep
forward such an endeavor by analyzing the distribution of burden of income taxation in
Bangladesh.
 Reference

 Shil, Nikhil Chandra. (2010). Bangladesh Income Tax, Theory and Practice.
4th Edition, Income from Agriculture (pp216 – pp226). Dhaka: Shams
Publications