Islamic University, Bangladesh

Department of Marketing
Course Title: Taxation & Auditing
Course Code: 315
Assignment Topic: A Report on Tax Performance of
Bangladesh

Submitted By:
Md. Asaduzzaman
ID: R-1725071
Session: 2017-2018
Department of Marketing
Email: adrazan7@gmail.com

Submitted To:
K. M. Sharf Uddin
Assistant Professor
Department of Management
Islamic University, Bangladesh

Submission Date: 28-09-2020

Abstract
Bangladesh is a developing country. Some countries fail to ensure that their
citizens and businesses make an appropriate contribution to the financing of
public tasks. But not all countries with a low tax ratio automatically fall into
this category. The external environment influencing the tax performance of
Bangladesh has changed remarkably as the country became increasingly
integrated with the global economy during the 1990s. Development policy
should analyze countries carefully. This paper presents an approach to assess
the performance of Bangladesh and other developing countries’ tax systems
based on aggregated data and country-specific information. Instead of defining
general across-the- board criteria, the approach accounts for different
development levels and other influencing factors, such as non-tax revenue and
governance levels.

Objectives of this report: The current practice of National Board of Revenue in

terms of accountability, collection of tax, implementing budget etc. has been
found during the preparation of the assignment. At last, the objective of the
assignment is enormous learning and tremendous experience on Tax system in
Bangladesh. Purpose of preparing the report is to fulfill the requirement of
Business Taxation course. Moreover, it anticipates learning about the summit
body of Bangladesh in the collection of tax. It also has given me the opportunity
to analyze the tax collection, growth in tax collection, budget situations, and
deficit budget and so on.

Introduction: Formulation of tax policy and its execution responsibilities are

performed by the NBR under the Internal Resource Division of government of
Bangladesh. In FY 2012-13, NBR collected 81.07% of total revenue. National
Board of Revenue (NBR) is the central authority for tax administration in
Bangladesh. Of the total tax revenue, NBR collected 96.36%. NBR taxes mainly
come from income and profit, value added tax (VAT), import duty, export duty,
excise duty, supplementary duty and other taxes and duties. In contrast, non-
NBR taxes consist of narcotics duty, motor vehicles tax, land tax and stamp (non-
judicial). The total number of departments/directorates under the NBR is 45.

Although collection of revenue is the main responsibility, these offices are also
involved in trade liberalization and facilitation including application of various
legal provisions. These activities are carried out through 4 customs houses, 1
bond commissioner ate, 1 customs-intelligence and investigation department, 1
duty valuation and internal inspection commissioner ate and 28 effective land
customs stations at various places of the country. On the other hand, there are
2 departments, 8 VAT commission rates, and 30 departmental and 112 circle
offices under the Value Added Tax (VAT) wing. The areas of work of the VAT
wing include establishment of a modern, tax-payer friendly, accountable and
dynamic revenue administration, enhancing revenue from domestic sources
and playing an effective role in industrialization and expansion of trade and
commerce. There are 18 tax regions, 5 appellate tax regions and 2 departments
under the direct tax or income tax wing of NBR. There is a total of 303 circles
under the 18 tax regions.

Brief Findings: At first, we will look Tax to GDP ratio and will compare it to other
countries like Bhutan, Indian, Nepal, Pakistan.

Tax-to-GDP Ratio
Bhutan 14.7

India 16.7

Nepal 12.3

Pakistan 10

Srilanka 12.9

Bangladesh 9.2

0 2 4 6 8 10 12 14 16 18

Tax-to-GDP Ratio

The tax revenue to GDP ratio of Bangladesh is still low in comparison with
South Asian countries. (About 12% in South Asia).
• Tax revenue in South Asian countries during the 2000s experienced
declining trends in relation to GDP.
• But, on average, these countries maintained their tax to GDP ratios at
significantly higher levels than Bangladesh.
• Customs duty (import tariff) used to be the preeminent contributor to
the revenue envelope in the early 1980s – accounting for 35.4% of total
tax revenue (FY73-80) and 32.6% in 1990’s.
• In FY1991 VAT was introduced with a view to gradually replace the sales
tax that has cascading effects; over the years VAT emerged as one of the
major components of tax revenue.
 • Dependency on custom duty in this post VAT period declined steadily to
16.8% in the recent decade, and to 14.8% in FY11(the most recent year).

Table 1: Asian countries Income tax & VAT

Countries Total Tax Income Tax Value added
Tax
Bangladesh 0.508 0.357 0.482
India 0.775 0.975 0.774
Pakistan 0.942 0.952 0.969
Sri Lanka 1.182 0.677 1.812
Indonesia 1.014 1.283 0.821
Philippines 1.02 1.19 0.743
Singapore 1.009 0.967 0.989
South Korea 1.206 1.372 1.572
Thailand 0.936 0.705 0.687

Potential tax payers are out of tax net

In Bangladesh, the potential tax payers are out of tax net; among them, the
businessmen are highest. According to NBR survey 2014, the 79%
businessman is out of tax net.

Besides, NBR identified potential 1 lakh 66 thousand 546 house owners and
business house in urban areas are not paying taxes, NBR is taking initiative to
file cases against these potential payees.
Table 2:
Year Disclosed amount (BDT Collection of tax % amnesty tax of total
Crore) through tax amnesty income collection
program (BDT Crore)
2006-2007 3,500.82 100 2.85
2007-2008 14,520 No tax 0.00
2008-2009 7,162.01 345 4.81
2010-2011 8,721.24 687.43 7.88
2012-2013 11,744.66 800.03 6.81
2014-2015 13,857.74 100.08 0.72
2015-2016 17,042.28 121 0.70
Source: NBR Bangladesh

Tax evasion and avoidance

Tax avoidance is the way to reduce tax through using the loopholes of law,
while tax evasion does the same by violating the law. These have been taking
place through understatement and concealment of taxable objects, property
transfer, and so on. Tax evasion and tax incentive eliminate the 5 percentage.
 Table 3: Turn over tax (in crore taka) and % of total tax, FY 2008-2017
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total 29904.46 34002.43 37219.32 47435.66 52527.25 62042.16 79403.11 95058.99 109151.73 120512.83
Tax

VAT 10458.47 12358.17 13782.3 17671.36 20146.85 24468.05 30190.68 35777.43 41182.42 44571.01

VAT % 34.97 36.34 37.03 37.25 38.36 39.44 38.02 37.64 37.73 36.98
of total
tax

Turnover tax:
The contribution of turnover tax in total tax is very few; consisted 6 to 4 crore
Taka within the period of FY 2008 to 2017 (Table 3). It has been found that the
share of turn over tax has been declining over the period, 0.019% to 0.004%.
Turnover tax (TT) gives preferential provision to the small enterprises, which
has annual turnover below Tk. 80 lakhs, to pay turnover tax at a lower rate of 3
per cent. Under ‘turnover tax’ provision, an entrepreneur has to keep
minimum ledger accounting that could reduce his administrative cost.

Excise duty
Table 4 shows that share of excise duty in total tax has been increasing; it was
0.48% in 2008 which increased 0.68% in 2017. It has been found that the share
of excise duty consisted less than 0.5% within 2008 to 2012; the upward trend
started from 2010 and reached above 0.7% in 2016.

Table 4: Share of excise duty in total tax for the period of 2008-17
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total 29904.46 34002.43 37219.32 47435.66 52527.25 62042.16 79403.11 95058.99 109151.73 120512.83
Tax
Excise 144.39 161.15 183.49 214.33 238.34 347.49 486.18 660.36 772.53 822.39
tax
% of 0.48 0.47 0.49 0.45 0.45 0.56 0.61 0.69 0.71 0.68
total
tax

Source: NBR Annual Report 2012-13 and Bangladesh Economic Review 2017
 Value Added Tax (VAT)
The share of VAT is a highest in tax structure of Bangladesh, about 37% in
2014; the share of VAT has been increased about 35% to 39.44% within 2008
to 2012 (Table 4). Despite remaining highest position, VAT failed to maintain
momentum and has been declining; it became 36.98% of total tax in 2014 due
to increase of share from all direct sources.

Source: NBR Annual Report 2012-13 and Bangladesh Economic Review 2017

Tax Exemption: Bangladesh, like other developing countries, provides various

supports to major and emerging industries with a view to enhancing
industrialization in the country. Tax exemption and concession related
measures are provided under the directives of industrial policy, export/import
policy, SME policy and fiscal policy of the country. Direct tax
exemptions/incentive measures are: tax holiday, exemptions and deductions,
tax rate reductions, deferrals, tax credits and others; on the other hand,
indirect tax measures are: exemptions and deductions.

Table 5: Tax Effort in Bangladesh, 2007-2016

FY Direct Tax Effort Index Indirect Tax Effort Index
2007 0.614 0.468
2008 0.588 0.477
2009 0.612 0.504
2010 0.609 0.520
2011 0.560 0.540
2012 0.513 0.553
2014 0.573 0.589
2016 0.601 0.604

Low tax effort

Bangladesh is a lowest tax effort country among the developing countries.
According to a study conducted by policy analysis unit of Bangladesh Bank
found that Bangladesh as the lowest tax effort country in the sample, with an
average tax effort index of 0.493. This has important policy implications that
Bangladesh and other countries having low tax effort (less than unity) are not
utilizing their full capacity of tax revenue, and therefore, have the potential for
financing budgetary imbalance through raising tax revenue. The tax effort
index for both direct and indirect taxes is below 0.6, implying that Bangladesh
has the potential for raising revenue collection from both direct and indirect
taxes.
Table 6: Tax Efforts in Selected Countries (for the most recent years)
Country Tax Efforts Income Tax Efforts VAT Efforts
Bangladesh 0.657 0.531 0.567
India 0.850 1.491 0.765
Pakistan 0.920 1.279 1.007
Sri Lanka 0.983 0.640 1.722
Nepal 0.668 0.522 0.729
Korea Republic 1.004 2.953 2.953
Philippines 1.040 1.324 0.743
Bhutan 0.690 1.066 0.687
China 1.015 0.923 1.170
Ghana 1.613 0.692 1.082
Kenya 1.309 1.886 1.394
Malaysia 0.848 1.104 0.614
Thailand 0.891 0.495 0.992
Vietnam 1.556 1.902 1.080

Source: Policy Research Institute

Conclusion:
The persistent weakness of the tax system in Bangladesh is best understood as
the product of well-established informal rules, norms, and networks that have
served the broader interests of political, economic, and bureaucratic elites.
This ‘political settlement’ has ensured predictably low rates and the strategic
distribution of economic rents, despite the existence of widespread corruption,
discretion, and informality. However, this system has not been static.
Repeated efforts to reform the VAT system – driven to a significant extent by
external pressure – have seen the government seek to re-negotiate existing
rules in ways that satisfy both external actors and key domestic constituencies.
In doing so, it has drawn on existing informal norms and networks in order to
reconcile external pressure for de jure policy reform with a desire to preserve
key features of the existing system.

References:1. https://excludedvoices.wordpress.com/2016/01/21/tax-system-in-
bangladesh-efficiency-and-fairness
2. https://www.ceicdata.com/en/indicator/bangladesh/tax-revenue
3. https://www.semanticscholar.org/paper/A-Systematic-Literature-Review-on-Tax-
Amnesty-in-9-Ibrahim-Myrna/4e2845f3f00c21ee10a7626a5951120dc809dc8f#extracted