Introduction

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 no penal but compulsory and unrequited transfer of resources from the private to the public sector, levied on the basis of predetermined criteria. According to Article 152(1) of the Constitution of Bangladesh, taxation includes the imposition of any tax, rate, duty or impost, whether general, local or special, and tax shall be construed accordingly. 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". The imposition, regulation, alteration, remission or repeal of any tax is dealt with by the 'Money Bill', but except in case of reduction or abolition of any tax, the 'Money Bill' cannot be introduced in the Parliament without the President's recommendation.

Taxation:
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 predetermined criteria and without reference to any specific commitment, in order to accomplish some nations 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. 1|Page

Assessment year: The assessment is a period of 12 months just following the income year means computation of total income and tax payable there on. Income year: Income year is the year when the income is earned.

Income: Income means anything received in cash or in kind unless exempted by laws.
1) Assessable Income: Assessable Incomes are those incomes, which are included in the determination of total income of a taxpayer. A. Taxable Income: Taxable Incomes are those incomes that the tax is to be paid on those incomes. B. Non- Taxable Income: 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) Non- Assessable Income: Non- assessable incomes are those incomes which are not included in the determination of total income of a taxpayer.

INCOME-TAX AUTHORITIES In Bangladesh, under the Ministry of Finance, there are three separate divisions viz. a) Finance Division (FD) b) Internal Resource Division (IRD) c) External Relations Division (ERD) National Board of Revenue is working under Internal Resource Division and it is the apex body of tax administration. Under National Board of Revenue, there are two wings viz. i) Taxes Wing ii) Customs & VAT Wing

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Comprehensive example of calculation of total income

Heads of income:
According to sec 20, there are seven heads of income Income from salary (sec-21) Income from securities (sec-22) Income from house property (sec-24) Income from agriculture (sec-26) Income from business and profession (sec-28) Income from capital gain (sec-32) Income from other sources (sec-23)

1.

Income from salary (sec-21):

Salary ordinary means a fixed periodical payment received from employer by an employee for service regarded. According to sec-2 (58), salary includes any wages, annuity, pension or gratuity, fees, commissions, allowance, perquisites and any leave encashment. If the employee has other investment he is entitled to enjoy investment tax rebate. In calculating salary income certain exemption from allowances are House rent allowance: 50%of the basic or 15000 per month; whichever is less. If the employer provides employee a resident, in that case 25% of the basic will be taken as a notional income for the residential accommodation. Conveyance allowance: 7.5% of the basic will be added to the total income as a notional income for full time transport. In case of half time transport, 5% of the basic will be added. Medical allowance: expenses are subject to verified.

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Computation of Total Taxable Income of Mr. Golam Kibria Income Year 2010-2011 Assessment Year 2011-2012
Calculation of salary income: Details Basic salary (45000 pm * 12) House rent (60% of basic salary) Less: exemption 50% of the basic (270000) Or, TK 15000 pm; (180000) whichever is less Conveyance ( 3500 pm * 12) Less: Maximum allowance exemptions Medical allowance (25% of the basic) Less: actual expenses. Dearness allowance (25% of basis) Special allowance for overtime Bonus Examination of scripts Employers contribution to RPF Entertainment Income from salary 144000 42000 24000 18000 135000 110000 25000 135000 25000 50000 15000 50000 20000 1022000 Amount(TK) 324000 180000 Amount(TK) 540000

Note: He got pension from earlier employment of tk. 6,000/month which is totally a nonassessable income. Thats why we did not take his pension income in calculation of total income from salary.

2.

Income from Interest on securities

Security is a promissory note, which bear interest issued by government to meet money demands. It means acknowledgement of indebtedness by the government towards the members of the public who buy the security certificate issued by government. 4|Page

If the security certificate is issued by government then it is called security. Otherwise, it is called debenture, when it is issued by any entity except government through Security and Exchange Commission (SEC) Mr. Golam Kibria invested in earlier year TK 500,000 in approved securities out of bank loan for which he paid bank interest of TK 30,000. He received interest on securities and debenture: TK 50,000 for the year:

Calculation of income from interest on securities details Interest on securities Interest on debentures Total income from securities Less: Interest on bank loans Assessable income from interest Amount(TK) 15000 35000 50000 30000 20000

3. Income from house property Income from house property will be as certained on the basis of annual value of the house concerned. The said property is applicable in both commercial and residential purpose. Only the house owner will be assessed to tax. If the owner occupies a portion of the property, he would not fall under the charge of income tax for his residential portion.

Annual value: It is the reasonable ret at which the house owner is expected to get from time to time or the actual rent. Statutory allowance:

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This refers to the allowances, which are to be allowed in determining total income irrespective of its expense or not. For example: 25% of annual value for residential house and 30% of annual value for commercial house.

Mr. Golam Kibria had a three storied house at Gulshan. The first & second floor was let out from 1st July at Tk 30,000 & Tk 20,000 per month respectively and the ground floor was occupied as his residence. Annual letting value: (30,000 pm 12) (20,000 pm 12) Deductions from the letting value: statutory allowance of 1/4 for repair, maintenance etc City corporation tax Insurance premium HBFC loan interest Since he occupied 1/3rd as his residence, Proportional expenses are disallowed The 2nd floor of the house Remained vacant for one month So, vacancy allowance Total deductions Net income from house property 360000 240000 150000 40000 50000 30000 (40000) 20000 250000 350000 600000

4. Income from agriculture According to sec-2 (1), agriculture income means Any income derived from any land in Bangladesh and used for agriculture purpose by means of agriculture or by performance of any process by employing cultivator or by the sale of the agriculture product or by granting a right to any person to use the land.

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Any income derived from building, which is occupied by the cultivator of such land or is required by cultivator as dwelling house, storehouse or other outhouse because of his connection with such land.

Allowance in income from agriculture Agriculture income will be determined after allowing a reduction of 60% from the amount of receipts, where no acceptable evidence can be produced for cost production. If the assesse does not have any other income except agriculture, he will get an additional exemption of TK50000 in additional to normal tax exemption, which is 185000.them his exempted will be (185000+50000) =235000. Mr. Golam Kibria owns 03 acres of land of double crop. Yield per acre 20 tons of paddy. Per ton earnings is 300Tk. Production cost was TK 70,000. Calculation of income from agriculture: Income from Agriculture details Sale of agricultural product Total production 20 3 2= 120 tons 300 per ton Less:60% for expense Income from agriculture Amount (TK) 36000 21600 14400

Note: Production cost was shown TK 70,000 by the assessee however allowable expense should not exceed 60% of the sales proceeds. Also as the individual assessee has other source of income other than agricultural income, he wont get the special exemption of additional 50,000 taka. 5. Income from capital gain Capital gain arises as a result of disposal of capital assets except personal effects like wearing apparel, jewelries, furniture, vehicles and equipments. It also does not include as a capital gain by the sale of agricultural land, which is situated beyond 5 miles of the radius of the municipality or city corporation area. Laws regarding capital gain: 7|Page

Tax realized at the time of registration @ 3% no the deed value will be deemed to be final discharge of the tax liability under the head of capital gain arising out of disposal of land property. If the difference between deed value and the fair market value is more than 15%, the Deputy Commissioner of Tax (DCT) may with prior approval of his joint commissioner, estimate the fair market value. However, if the difference goes further to more than 25%, the government may opt to buy it as per the provision of Income Tax Ordinance, 1984. Capital gain earned by both corporate and non-corporate taxpayer is liable to be taxed, but the rate of tax is different. For corporate the rate is 15%. On the other hand, individuals pay tax at normal rate along with income if the gain occurs within 5 years of acquisition of the capital asset. If the gain is accrue after 5 years then the individual will pay tax at normal rate along with other income or normal rate on the other income, if there is any, plus 15% on the portion of capital gains; whichever is beneficial for the tax payer. The excess of the salvage value over the book value subject to deduction of maximum depreciation amount allowed so far will be taken as a capital gain and deducted amount of depreciation shall be deemed to be business income.

Mr. Golam Kibria had sold a machinery of his personal printing press, at TK 900000 more than 03 years ago at TK 800000 and so far depreciation was charged of TK 400000. Also disposed a land property in the Dhaka city and from there earned a capital gain of Tk1000000. And taxes @ 2% of deed value were realized during registration. In the instant case , capital gain of TK 10,00,000 shall not be taxed again because tax deducted at the time of land registration is deemed to be final discharge of tax and it will be

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treated U/S 82 c(4) as aforesaid. Capital gain arising out of the sale of machinery shall be treated as follows: Calculation of capital gain: Sale of machinery Details Salvage value Less: book value Surplus Less: depreciation so far allowed Is taken as revenue income Balance capital gain Amount(TK) 900000 400000 500000 400000 100000

6.

Income from Business and Profession (sec-28)

Among all the heads of income, income from business and profession is considered to be the most important one, as maximum amount of tax is collected from this income head. This term business has defined under section 2 (14) to include any trade, commerce or manufacture of any adventure of concern in the nature of trade, commerce or manufacture in economic sense, business means the work concerning with buying, producing and selling of goods for profit.

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The characteristics of business include: Production or acquisition of goods Sales or transfer of title Dealings an goods and services

Mr. Golam Kibria had income from a export business of TK1000000. Income from business and profession Details Export income Less: Exempted (1000000*50%) Income from business & profession Amount(TK) 1000000 500000 500000

7.

Income from Other Sources (sec-33)

The last and the residuary head of income is income from other sources. Under this income head, not only certain specific income is discussed but also many of income is discussed which cant be classified under any sort of income. The following incomes are charged under this income head: Dividend and interest Royalties and fees for technical services

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Income from letting of machinery, plants or furniture belonging to the assessee and also of buildings belonging to him/her if the building is inseparable from the letting of the machinery, plant or furniture

Any income to which section 19 (1) , (2) , (3) , (4) , (5) , (8) , (9) , (10) , (11) , (12) , (13) , (21) , (21A) , (24) applies. (according to the Finance Ordinance 2008)

Interest on fixed deposits, term deposits or any other bank account, no exemption like the past up to 30.06.02 this means that bank interest henceforth, shall be shown in the return and tax deducted at source at the rate of 10% shall be given credit from payable. Mr. Golam Kibria invested TK 300,000 in approved share of a public co. out of bank loan for which he paid bank interest of TK 30000. He received dividend: TK 50,000 for the year. Calculation of Income from other sources: Details Income from dividend from public company Less: Interest on bank loan for investment Net income from other sources Amount(TK) 50000 30000 20000

Income from other sources will also include any other incomes which are deemed to be any other income under different subsections of sections 19 of the IT ordinance 1984. Calculation of total income of Mr. Golam Kibria for the assessment year of 2011-2012 and the income year 2010-2011 Details 1) Income from salary 2) Income from interest on securities 3) Income from house property 4) Income from agriculture 5) Income from business & profession 6) Income from capital gain 11 | P a g e Amount(TK) 1022000 20000 350000 14400 500000 100000

7) Income from other sources Total Income of Mr. Golam Kibria for the assessment year of 2011-2012

20000 2026400

Rates of Taxes as per Finance Act,2011. Details On First TK180000 Next TK 300000 Next TK 400000 Next TK 300000 On balanceTK846400 Total tax payable Rate @ 0% @ 10% @ 15% @ 20% @ 25% Tax Nil 30000 60000 60000 211600 361600

He invested TK 130,000 in IPO (share) of public limited company and contributed at Zakat Fund TK50, 000. Actual Investment Details Contributory recognized provident fund (both self + employers) Invest in IPO Savings certificate Total investment claimed Amount(TK) 100000 130000 50000 280000

Investment allowance comes to 20% of total income excluding employers contribution to R.P.F = (2026400-50000)*20%=395280) or Actual investment 280,000 or maximum 10000000 whichever is less. So allowable investment allowance is Tk. 280,000 12 | P a g e

Investment Tax Rebate Here actual investment is less and here invest tax rebate will be 280000*10%=28000 and tax deducted at source TK 5000 per month from his salary. Details Total tax payable Less: Investment tax rebate Less: Tax deducted at source (5,000*12) Net tax payable Amount(TK) 361600 28000 333600 60000 273600

Mr. Golam Kibria will pay this tax by a pay order of any scheduled bank.

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