Complexities in The Income Tax Laws: A Quest For A Simpler Taxation System

Complexities in the Income Tax Laws: A Quest for a Simpler Taxation System
Report Report
on on
Complexities in the Income Tax Laws: Complexities in the Income Tax Laws:
A Quest for a Simpler Taxation System A Quest for a Simpler Taxation System
By
Swapan Kumar Bala Swapan Kumar Bala FCA FCA
Associate Professor Associate Professor
Department of Accounting & Information Systems Department of Accounting & Information Systems
University of Dhaka University of Dhaka
International Business Forum of Ban!la"esh #IBFB$
%ecem&er' ())*
International Business Forum of Ban!la"esh
0
IBFB
Ta&le of Contents Ta&le of Contents
Acknowledgement Acknowledgement...............................................................................................................
List of A!!re"iation List of A!!re"iation............................................................................................................#
$xecuti"e Summary $xecuti"e Summary............................................................................................................%
&. &. Introduction Introduction................................................................................................................'
. . (!)ecti"es of the Study (!)ecti"es of the Study...............................................................................................*
#. #. +ethodology +ethodology...............................................................................................................*
%. %. Income Tax Laws in ,angladesh Income Tax Laws in ,angladesh...............................................................................*
'. '. Importance of Corporate Income Taxpayers Importance of Corporate Income Taxpayers.............................................................-
*. *. .imensions and $xtent of Complexities in the Income Tax Laws .imensions and $xtent of Complexities in the Income Tax Laws.........................&/
*.& *.& Length of Income Tax Code in ,angladesh: 0ow lengthy1 Length of Income Tax Code in ,angladesh: 0ow lengthy1...............................&/
*. *. Certainty 2rinciple under the Income Tax Laws: 0ow far certain1 Certainty 2rinciple under the Income Tax Laws: 0ow far certain1..................&&
-. -. The Complexities in the Tax Laws 3 4hy and how costly1 The Complexities in the Tax Laws 3 4hy and how costly1..................................../
5. 5. 0ow to $liminate the Complexities 0ow to $liminate the Complexities.........................................................................
5.& 5.& Concerns Concerns..............................................................................................................
5. 5. 6ecommendations for 2ossi!le 6emedies 6ecommendations for 2ossi!le 6emedies..........................................................
7. 7. Concluding 6emarks Concluding 6emarks................................................................................................'
6eferences 6eferences.........................................................................................................................*
1
Ac+nowle"!ement Ac+nowle"!ement
The tax-DP ratio in !ang"a#esh is very "o$% It crosses & percent on"y in '00(-0) *&%'
percent+% In the current ,u#get of '00&-10- it has ,een expecte# to ,e &%. percent% /ut of
the many reasons- the tax cu"ture might ,e the one reason% This cu"ture is a pro#uct of
#ifficu"ties face# ,y a taxpayer for the sheer technica"ities $hi"e *s+he starts to fi"" up the
return% If *s+he goes to the tax office #irect"y- the treatment receive# is rare"y
praise$orthy% Taking he"p of the tax practitioners is not on"y cost"y ,ut a"so might "ea# to
further hass"e #ue to the unho"y a""iance ,et$een the tax a#ministration an# the tax
"a$yers0practitioners%
Since its inception in Septem,er '001- I!2! has $orke# on some of the very important
areas in ,usiness an# po"icy a#vocacy% I!2! is a p"atform of professiona"s engage# in
tra#e- commerce an# in#ustry% I!2! is a p"atform for practicing professiona"s engage# in
various tra#es- $ith an aim to #e"iver to the nation an effective voice for an ena,"ing
,usiness atmosphere- $here ,usiness an# the economy can gro$ an# a"so #eve"op on a
soun# ,asis% 3e at I!2! ,e"ieve that an ena,"ing atmosphere- free from conf"ict an#
,ase# on Socia" 4ustice- is the key to economic integration% 2or this reason- $e have
un#ertaken this stu#y to "et the pu,"ic kno$ $hat ,usinesses fee" a,out the current fisca"
environment in terms of its comp"exities- an# $e a"so hope that the re"evant authorities
$i"" a"so take note of the inputs that $e have provi#e# an# act accor#ing"y so as to he"p
faci"itate ,usiness-frien#"y tax po"icy making ,y the overnment%
3e $ou"# "ike to offer our sincerest thanks an# gratitu#e to our partners- the Unite#
States Agency for Internationa" Deve"opment-Promoting overnance- Accounta,i"ity-
Transparency an# Integrity *USAID-P5/ATI+ for their continue# support an#
consu"tancy in he"ping us to carry out this stu#y% 3e a"so thank the 6igh /fficia"s of the
Tax Department- a"ong $ith the ,usiness peop"e- for taking the time out from their ,usy
sche#u"es an# provi#ing us $ith their va"ua,"e inputs% It is hope# that the fin#ings $i""
a"so create opportunities for further research that may ,enefit ,usinesses an# a##ress
many of their pro,"ems%
7ahmu#u" Is"am 8ho$#hury
Presi#ent- I!2!
'
List of A&&re,iation List of A&&re,iation
AD! Asian Deve"opment !ank
AIT A#vance Income Tax
A9 Assessment 9ear
!5TA !ang"a#esh 5oa# Transport Authority
8&A 8omptro""er & Au#itor enera"
8PI 8orruption Performance In#ex *of the Transparency Internationa"+
D8T Deputy 8ommissioner of Taxes
:P; :xport Processing ;one
2A 2inance Act
2/ 2inance /r#inance
29 2inancia" 9ear
DP ross #omestic pro#uct
/! overnment of !ang"a#esh
6D8 *The 7ah,u, u" 6a<+ 6uman Deve"opment 8entre
I!2! Internationa" !usiness 2orum of !ang"a#esh
I:2 In#ex of :conomic 2ree#om
I5S Interna" 5evenue Service *USA+
IT Income Tax *in 2orm+
IT/ Income Tax /r#inance
=08 =etter of cre#it
>!5 >ationa" !oar# of 5evenue
PA9: Pay-as-you-earn
SAA58 South Asian Association for 5egiona" 8ooperation
S5/ Statutory 5u"es an# /r#er
TDS Tax De#ucte# at Source
TI> Taxpayer?s I#entification >um,er
T5 Treasury 5u"es *in 2orm+
u0r un#er ru"e
u0s un#er section
.
-xecuti,e Summary -xecuti,e Summary
The comp"exity is an integra" part of the overa"" taxation system in genera"- ,ut regar#ing
income tax the #egree of comp"exity is of such sca"e an# scope that every,o#y $ants to
get it un#erstoo# in a simp"er $ay% This report examines the $ay ho$ our income
taxation has ,een affecte# ,y various intricacies an# then tries to sho$ some in#ications
ho$ one can perceive it in a ,etter $ay%
The #imensions an# extent of comp"exities are the pro#uct of a,sence of the @certainty?
princip"e in terms of the time of payment- the manner of payment- an# the amount of tax
to ,e pai#% The other aspect of comp"exities is the sheer "ength of the Tax 8o#e%
2i""ing up the 5eturn 2orm is comp"icate# for a taxpayer- for severa" factors such asA so
many hea#s of incomeB #ifficu"ties in ac<uiring prior kno$"e#geB re<uirement of
kno$"e#ge of the tax "a$s an# practica" #emonstrative ski""B time"y investment in
prescri,e# areas after fu"fi""ing con#itions setB #ifficu"ties in co""ecting re<uisite
#ocuments to ,e attache# $ith returnB a,sence of fami"y return an# conse<uent emotiona"
accounting for marrie# coup"eB etc%
/ther areas of comp"ications inc"u#eA contextua" "ega" #efinitions $ithout any reference
to the contextB #iffering treatment of same thing for "ack of c"arificationB presence of
unusua" provisionsB a,sence of provisionsB provisions on"y through S5/B presence of
unconstitutiona" provisionsB am,iguous provisionsB over"apping provisions for #e#uctions
from CIncome from ,usiness or professionDB #e#uctions from CIncome from ,usiness or
professionD ,oth generous an# restrictive against norma" accounting practiceB an#
presence of mu"tip"e types of #isperse con#itions%
The comp"exities in the tax "a$s are cost-incurring% 6uge resource costs in terms of
a#ministrative costs *tax co""ection costs+ an# comp"iance costs *taxpayers? costs+ in
terms of out-of-pocket costs an# non-monetary costs%
6o$ever- many of these comp"exities are ,eneficia" for those $ho can exp"oit them% The
"ive"ihoo# of the tax "a$yers an# the tax practitioners is #epen#ent on this comp"ication
of the tax co#e%
The possi,"e po"icy recommen#ations to e"iminate or re#uce the comp"exities of the
income tax system inc"u#e inter alia *a+ avai"a,i"ity of up#ate# tax co#e $ith ear"ier
amen#ments as reference in the >!5?s $e,site *$$$%n,r-,#%org+B *,+ exten#ing the
scope of $ithho"#ing taxes for rea" taxpayers- there might ,e one secon# option- $hich is
the payment ,efore su,mission of returnB *c+ a""o$ing f"exi,"e cash or ,ank #eposit in
any sche#u"e# ,ank a"ong $ith intro#uction of on-"ine #eposit systemB *#+ a he"p #esk in
tax office shou"# ,e a,"e to fi"" up the return <uick"y on having a "ist of prescri,e# set of
#ocuments to ,e su,mitte# ,y a taxpayerB *e+ a simp"ifie# one-page return $ith fe$ hea#s
of income shou"# ,e prescri,e# for sa"arie# an# "o$er-income se"f-emp"oye# taxpayersB
*f+ centra"iEation of tax offices $ith on"ine ,ooth at #ifferent convenient "ocationsB *g+
fina" sett"ement of tax on the ,asis of $ithho"#ing tax shou"# ,e a,o"ishe# except for
cases of CincomeD on"yB etc%
F
./ ./ Intro"uction Intro"uction
",ert :instein *1)(&-1&GG+ is repute# to have sai# that the har#est things in the $or"#
to un#erstan# $as the income tax- a"though he never $rote this an# it isn?t entire"y
c"ear that he ever uttere# it- either% It is $i#e"y cite#-
1
though- an# even if it is
apocrypha" it i""ustrates the popu"ar vie$ that the income tax system can #efeat even the
,rightest *a"though not necessari"y the most organiEe#+ among us *S"emro# an# !aki4a-
'000A xi- '&(+%
A
A
!ut since tax is so pervasive"y re"ate# to our "ife- the taxpayers shou"# not ,e a victim of
comp"exity of the tax "a$s% It is expecte# that the remova" of comp"exities $i"" resu"t in a
fairer tax statute- in greater ease of tax a#ministration an# in a re#uction of the costs an#
irritation of the taxpayers that often accompany the proper computation of a taxpayer?s
tax "ia,i"ity *:ichho"E- 1&.&A 1'00+% This report is an attempt to i#entify the ma4or areas
of comp"exities in the income tax "a$s in !ang"a#esh an# to sho$ some specific
#irections to$ar#s the simp"ification thereof%
In '00)-0&- the >ationa" !oar# of 5evenue *>!5+ rea"iEe# Taka 1.)-G)0%& mi""ion against the
revise# target of Taka 1.G-.)0%0 mi""ion *aroun# '%F percent higher+% In '00&-10- up to
Septem,er '00&- the >!5 has co""ecte# Taka '(G'(%1 mi""ion against the target of Taka
'F'F0%0 *1.%G1 higher than target- an# 'G%&' percent higher than income tax co""ecte# up
to Septem,er '00) in '00)-0&- $hich $as Taka '1-)1'%0 mi""ion+ Hsee $$$%n,r-,#%orgI%
This co""ection might ,e higher if the ho"#ers of TI> *Taxpayer?s I#entification >um,er+
proper"y su,mitte# the income tax returns% The ,usiness communities *the corporate
entities an# their #irectors+ an# the sa"aries assessees *$here a"so a significant portion of
them emp"oye# ,y the ,usiness communities+ are not usua""y any #efau"ter in su,mitting
the income tax returns% !ut others are the ma4or #efau"ter in fi"ing the return% In A9
'00&-10- tota" num,er of income tax returns su,mitte# $as (G(-&1F in num,er ,y
>ovem,er 1'- '00&- the exten#e# fina" #ate of su,mitting the return% This num,er is
1G%G1 percent higher than "ast year *1G1-1&. returns su,mitte# "ast year+% !ut out of
aroun# '' "akh taxpayer?s i#entification num,er *TI>+ ho"#ers across the country *$hich
is on"y 1%G percent of tota" popu"ation+- on"y .F%G percent have su,mitte# their return an#
ma4ority *1G%G percent+ are stop-fi"ers- that is- they have #iscontinue# the fi"ing *The
Daily Star- 11%11%'00&+% /n"y vo"untary comp"iance can enhance the motivation to
su,mit the return% The remova" of comp"exities in the income tax "a$s can ,e one of the
important issues to re#uce the #epen#ency of the taxpayers on other tax professiona"s
*$ho are sometimes exp"oiting the taxpayers #ue to their "ack of un#erstan#ing of the
"ega" provisions+ an# conse<uent"y contri,ute to improve the tax cu"ture in se"f-fi"ing of
the tax return in time an# vo"untary tax payment a"so%
1
This tax <uotation of :instein is avai"a,"e at httpA00<uotations%a,out%com0o#0moretypes0a0tax<uotes1%htmB
accesse# 'F%11%'00&%
G
(/ (/ 0&1ecti,es of the Stu"y 0&1ecti,es of the Stu"y
The purpose of the present stu#y is to enumerate the $i#th an# ,rea#th of the key areas
of comp"exities prevai"ing in the income tax "a$s an# to fin# out some po"icy
recommen#ations $ith a vie$ to stream"ining those comp"exities% The specific o,4ectives
of the stu#y are as fo""o$sA
'%1 To i#entify the ma4or areas of comp"exities in the income tax "a$s in !ang"a#eshB
'%' To enumerate the possi,"e costs of the comp"exities from the taxpayer perspectiveB
'%. To provi#e po"icy recommen#ations for e"iminating the comp"exities i#entifie#%
2/ 2/ etho"olo!y etho"olo!y
The stu#y is primari"y ,ase# on secon#ary #ata an# archiva" resources% The initia" fin#ing
$as presente# in a stakeho"#ers? meeting an# the fee#,ack an# recommen#ations ,y the
participants from their o$n practica" experience have ,een incorporate#% Intervie$s have
,een un#ertaken on a "imite# num,er of persons regar#ing their experience an#
perceptions on comp"exities in income tax "a$s- #ifferent #imensions of costs an# hass"es
arising out of these comp"exities- an# the $ays an# means to simp"ify the "a$s% These
persons inc"u#e taxmen- taxpayers- an# tax practitioners%
3/ 3/ Income Tax Laws in Ban!la"esh Income Tax Laws in Ban!la"esh
Income-tax in the In#ian su,continent ha# its origin in the year 1)10 $hen 7r% James
3i"son- the first 2inance 7em,er in In#ia- intro#uce# the Income-tax !i"" entit"e# CAn
Act for imposing Duties on Profits arising from Property- Professions- Tra#es an#
/fficesD% The !i"" sought to raise a##itiona" finances in or#er to rep"enish the revenue
#eficit cause# ,y the Sepoy 7utiny of 1)G(% 6o$ever- the tax "evie# $as eventua""y
#iscontinue# in 1)1G% In 1)1(- the tax $as reimpose# in an improvement form in the
name of a certificate tax% In 1)1&- the certificate tax $as converte# into regu"ar income-
tax on a $i#er coverage of assessees% In 1)(.-(F- $hen there $as a comforta,"e
,u#getary surp"us- income-tax $as a"together a,o"ishe#% 2ive years "ater- the tax $as
again revive# in the form of "icence taxes an# continue# ti"" the year 1))G-)1% In 1))1-
the overnment of In#ia enacte# the In#ian Income-tax Act- 1))1% In 1&11- compe""e# ,y
the necessity to rep"enish the finances #amage# ,y the 3ar of 1&1F-1)- the overnment
ma#e some enhancement in the rates of income-tax in the gra#uate# sca"e% In 1&1)- the
Income-tax Act 1))1 $as su,stantia""y amen#e# to conso"i#ate the "a$ re"ating to
income-tax% In 1&''- ,ase# on the recommen#ations of the A""-In#ia Income-tax
8ommittee appointe# in 1&'1- the Income-tax Act- 1&'' *Act KI of 1&''+ $as passe#% A
!oar# of In"an# 5evenue $as create# un#er the Act- $hich $as to ,e the highest
authority for income-tax% The concept of @previous year? as the ,asis of assessment of
income- profits an# gains- the taxpayer?s choice of the system of accounting- tota"
income- an# a#4ustment of "osses containe# in the Act% It $as the annua" 2inance Act
$hich $as to set out the rates of taxes an# set the machinery into motion% The Act of
1
1&'' $as amen#e# in 1&'F to su,stitute the 8entra" !oar# of 5evenue for the !oar# of
In"an# 5evenue% It $as further amen#e# an# su,stantia""y so in 1&.& to provi#e inter alia
for the Income-tax Appe""ate Tri,una" *T:8- 1&(&A (G-((+%
In pursuance of the proc"amation of 'Fth 7arch 1&)' an# in exercise of a"" po$ers
ena,"ing him in this ,eha"f- the Presi#ent is p"ease# to make an# promu"gate the Income
Tax /r#inance- 1&)F *KKKLI of 1&)F+ $hich came into force on the 1st Ju"y- 1&)F- to
conso"i#ate an# amen# the "a$ re"ating to income tax% The Income-tax Act- 1&'' $as
repea"e# an# rep"ace#% The Income-tax Act- 1&'' he"# the fie"# of "evy- co""ection an#
a#ministration of the income tax up to 1&11 in In#ia $hen the Income-tax Act- 1&11
came into force there- up to 1&(& in Pakistan- $hen the Income-tax /r#inance- 1&(& $as
promu"gate# an# up to 1&)F in !ang"a#esh- $hen $as rep"ace# ,y the Income Tax
/r#inance- 1&)F HIqbal Hasan Mahmood vs. Bangladesh 10 D=5 *'00)+ ))I
(
% Thus- the
"ega" frame$ork of Income Tax in !ang"a#esh can ,e sho$n as fo""o$sA
'1 7arch 1&(1 to .0 June 1&)FA The Income-tax Act 1!!B an#
01 Ju"y 1&)F an# on$ar#sA The Income Tax "rdinance 1#$%
6o$ever- the income tax "a$s #o not consist of on"y the main statute- rather these
encompass a num,er of statutory e"ements as fo""o$sA
M Income Tax /r#inance 1&)F N the %arent stat&teB
M Income Tax 5u"es 1&)FB
M S%5%/% *Statutory 5u"es an# /r#er+0aEette >otificationB
M Income Tax 8ircu"arB
M enera" or Specia" /r#erB
M :xp"anation0/ffice 7emoran#umB
M Ler#icts of Appe""ate Tri,una" for e<uiva"ent factB
M Ler#icts of the 6igh 8ourt Division on <uestion of "a$B an#
M Ler#icts of the Appe""ate Division on 4u#gment of the 6igh 8ourt Division%
4/ 4/ Importance of Corporate Income Taxpayers Importance of Corporate Income Taxpayers
!ang"a#esh is not a,"e to generate enough revenue from taxes for financing the pu,"ic
expen#iture% The tax-DP ratio is very "o$ in !ang"a#esh- ,ut s"o$"y improving% !oth
tax an# non-tax revenues as a percent of DP have ,een increasing over the years% It
crosses & percent *i%e%- &%1) percent+ on"y in '00(-0) *>!5- '00&a+% 6o$ever- in '00)-
0&- the ratio fa""s a "itt"e to &%0. in the revise# target- ,ut in the current year?s ,u#get
target *'00&-10+- the tax-DP ratio $ou"# increase to &%.1 percent% 3ith a s"ight increase
in non-tax-DP ratio- the overa"" revenue-DP ratio is a"so expecte# to gro$ to 11%G(
percent in '00&-10 from its "ast year?s position at 11%'G percent *see Ta,"e 1+% !ut the
situation is the $orst in the SAA58 region% !oth the tax-DP ratios an# revenue-DP
ratios are the "o$est in !ang"a#esh among the seven SAA58 countries *see Ta,"e '+%
'
Iqbal Hasan Mahmood alias Iqbal Hasan Mahmood T&'& vs. (overnment o) Bangladesh and others
*Ju#gment on 0G%1'%'00(+- The Dha'a *a+ ,e%orts *D=5+- Lo"% 10- 2e,ruary '00)- the 6igh 8ourt Division Part-
pp% ))-1F0%
(
Ta&le .: Tax an" 5on6Tax Re,enue as a 7ercenta!e of 8%7
Financial 9ear #F9$
As a 7ercenta!e of 8%7
Tax Re,enue 5on6Tax Re,enue Total Re,enue
1&('-(. to 1&(&-)0 G%1' 0%)& 1%G1
1&)0-)1 to 1&)&-&0 G%.& 1%0G 1%FF
1&&0-&1 to 1&&&-'000 (%11 1%(0 )%)1
1&&1-&' to 1&&&-'000 (%1& 1%(. )%&'
'000-01 to '00(-0) )%F1 1%&) 10%FF
'00)-0& *5!+ &%0. '%'' 11%'G
'00&-10 *!+ &%.1 '%'1 11%G(
5ote: @5!? means @5evise# !u#get? *5!+ an# @!? means @!u#get? *origina"+%
Sources: 8omputation ,ase# on the Ann&al ,e%ort !--.-!--# of the >!5 an# Ann&al B&dget !---1-%
Ta&le (: Tax68%7 Ratios an" Re,enue68%7 Ratios in SAARC Countries
/0ercentage o) (D01
Country
Tax68%7 Ratio Re,enue68%7 Ratio
'00)
a
AD!?s Asian Develo%ment "&tloo' !--
'00& I:2 '00F '00G '001 '00( '00)
!ang"a#esh )%G 10%1 10%G 10%( 10%' 11%'
!hutan 10%( .1%0 .0%G .G%0 .G%0 .(%)
In#ia 1(%( 1&%( 1&%) '1%1 ''%' N
7a"#ives '0%G .F%G F)%1 G'%G G)%' G1%.
>epa" 10%& 1.%F 1F%1 1'%& 1F%1 1G%1
Pakistan 10%1 1F%1 1.%) 1F%1 1F%& 1F%.
Sri =anka 1G%. 1F%& 1G%G 11%. 1G%) 1G%1
South Asia A,era!e
,
.2/4 ()/3 (./: (2/( (3/2 (3/2
a
7ain"y '00) #ata- ,ase# primari"y on Tax 0&blications ,y !ig F Accounting 2irms in '00)%
,
Simp"e average
Sources: *1+ Data of !-- Index o) 2conomic 3reedom *I:2+ ,y the 6eritage 2oun#ation *$$$%heritage%org+ are
avai"a,"e at httpA00en%$ikipe#ia%org0$iki0=istOofOcountriesO,yOtaxOrevenueOasOpercentageOofODP-
accesse# 11%0(%'00&% *'+ 5evenue-DP ratio from '00F to '00) from Asian Deve"opment !ank *AD!+
*'00&+- Asian Develo%ment "&tloo' !--4 ,ebalancing Asia5s (ro+th- avai"a,"e at
httpA00$$$%a#,%org0Documents0!ooks0AD/0'00&0- accesse# 1'%(%'00&%
After a continuing stigma ,eing the "ast ranke# country over '001 to '00G in the
Transparency Internationa"?s corruption performance in#ex *8PI+- the ranking of
!ang"a#esh has ,een improve# significant"y in recent years *see Ta,"e .+% Due to
stream"ining over the years in many sectors inc"u#ing the Tax A#ministration- this
situation of #ec"ining corruption has ,een achieve# an# the vo"untary tax comp"iance has
a"so ,een increase#% If $e "ook to$ar#s the structure of income tax- the gro$ing share of
income tax testifies that the overa"" tax system in !ang"a#esh is a#vancing to$ar#s
progressivity $ith "o$ering #epen#ency on in#irect taxes- $hich are main"y ,orne ,y the
common peop"e% Income tax co""ection $as average 10%' percent of tota" taxes #uring
1&('-(. to 1&(G-(1- an# no$ in '00&-10- this is targete# to aroun# '1 percent of tota"
taxes% !ut the rea"ity is that income tax is main"y pai# ,y corporate taxpayers% /ut of tota"
)
income tax- the share of corporate income tax $as the highest *('%1 percent+ #uring 1&)1-
)' to 1&)G-)1- an# in '00(-0)- it $as aroun# G&%1 percent *see Ta,"e F+%
Ta&le 2: C7I Ran+in! of SAARC Countries &y Transparency International
Country ()). ())( ())2 ())3 ())4 ()); ())< ()): ())*
>o% of countries covere# &1 10' 1.. 1F1 1G& 11. 1(& 1)0 1)0
!ang"a#esh &1 10' 1.. 1FG
a
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,
1G1 11' 1F( 1.&
In#ia (. (. ). &1 &' (0 (' )G )F
>epa" >I
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Sri =anka >I
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>I
c
>I
c
)F 11G 1.0
a
a"ong $ith 6aiti- hence "ast rank
,
a"ong $ith 8ha#- hence "ast rank
c
not inc"u#e#
Source: httpA00$$$%transparency%org
Ta&le 3: Structure of Income Tax an" Income Tax Re,enue as = of Total Tax
Financial
9ear #F9$
As a = of Total Income Tax As a = of Total Tax
Company 0thers Total Company 0thers Total
29(.-29(1 (0%0 .0%0 .))/) (%1 .%1 10%'
29((-29)1 (0%0 .0%0 .))/) &%0 .%) 1'%)
29)'-29)1 ('%1 '(%& .))/) 10%1 .%& 1F%1
29)(-29&1 (0%( '&%. .))/) 10%( F%F 1G%1
29&'-29&1 1(%) .'%' .))/) 10%. F%& 1G%1
29&(-2901 G(%G F'%G .))/) )%( 1%F 1G%'
290'-2901 GG%& FF%1 .))/) 10%1 )%0 1)%'
'001-0(
1F%)
*G1-G0F%&+
.G%'
*.0-(0(%G+
.))/)
*)(-'1'%F$
1F%G (%& ''%.
'00(-0)
1&-F''%(
*G&%1+
F)-0'.%&
*F0%&+
.))/)
*11(-FF1%1+
1F%0 &%( '.%1
'00)-0& *5!+ -- -- *1.G-.)0%0+ -- -- 'F%F
'00&-10 *!+ -- -- *11G-100%0+ -- -- 'G%&
5ote: 2igures in parentheses from '001-0( *290(+ to '00&-10 *2910+ are in mi""ion Taka of income tax amount%
Sources: 8omputation ,ase# on the Ann&al ,e%ort !--.-!--# of the >!5 an# Ann&al B&dget
!---1-%
!ut the num,er of corporate taxpayers is very minimum in proportion to tota" income
taxpayers *on"y '%) percent corporate taxpayers in A9 '00(-0)- see Ta,"e G+% Thus aroun#
10 percent of tota" income tax is ,eing pai# ,y a,out . percent corporate entities%
Ta&le 4: Type of Income Taxpayers in ())<6):
Assessment
9ear #A9$
Type of Income Taxpayers
Corporate Assessee Salarie" Assessee 0ther Assessee Total Assessee
'00(-0) F1-110 '&&-(G1 1111-'&G 1G0'-(01
*P of tota"+ '%) 1&%& ((%. 100%0
Sources: The Ann&al ,e%ort !--.-!--# of the >!5%
&
;/ ;/ %imensions an" -xtent of Complexities in the Income Tax Laws %imensions an" -xtent of Complexities in the Income Tax Laws
A#am Smith *1('.-1(&0+- $ho is kno$n as the father of mo#ern economics for his
famous ,ook tit"e# An Inq&iry into the 6at&re and 7a&ses o) the 8ealth o) 6ations
*1((1+- has state# his secon# maxim on taxation *certainty+ as fo""o$sA CThe tax $hich
each in#ivi#ua" is ,oun# to pay ought to ,e certain- an# not ar,itrary% The time of
payment- the manner of payment- the <uantity to ,e pai#- ought a"" to ,e c"ear an# p"ain
to the contri,utor- an# to every other personD *see Smith- 1&((A 110F+%
.
3hen a tax
system "oses the certainty princip"e- it ,ecomes comp"ex% Another aspect of comp"exities
is the sheer "ength of the Tax 8o#e% !e"o$ is a ,rief enumeration of the #imensions an#
extent of these issues that create the comp"exities in the income taxation system in
!ang"a#esh%
*.& *.& *ength o) Income Tax 7ode in Bangladesh4 Ho+ lengthy9 *ength o) Income Tax 7ode in Bangladesh4 Ho+ lengthy9
In the origina" version of the Income Tax /r#inance 1&)F- there $ere '' chapters- 1)(
sections an# seven sche#u"es% Then comes the regu"ar an# irregu"ar changes over the
years% The regu"ar annua" changes in the tax "a$s are ma#e #uring annua" ,u#get p"ace#
an# passe# in June an# the other changes ma#e ,y the >!5 un#er the authority of parent
statutes% In this regar#- the comment ,y Tim 8estnick *'00(+ can ,e mentione#A CIn the
$or"# of tax- change is the on"y constantD *8estnick- '00(A xix+% As on Ju"y 1- '00&- the
Income Tax /r#inance 1&)F consists of '' chapters- 'F. sections an# ) sche#u"es% 2rom
Ju"y 1- 1&&F to June .0- '00'- there $as another chapter *8hapter KLIIIA on CSett"ement
of casesD- having five sections from section 1G'A to section 1G':+% This Tax Sett"ement
office might ,e again set up after scrapping the Tax /m,u#sman office- for $hich the
7inistry of 2inance has taken a move recent"y to annu" the Tax /m,u#sman office from
the next fisca" year '010-11 *The 3inancial 2x%ress- )%1'%'00&+%
F
Thus- in terms of
num,er of sections- the Income Tax /r#inance is a,out one-thir# more vo"uminous from
its origina" "ength%
The Income Tax 5u"es 1&)F ha# origina""y 11 5u"es- an# no$ on Ju"y 1- '00&- it has &&
5u"es% Thus- the Income Tax 5u"es 1&)F has ,een increase# ,y G0 percent in terms of
num,er of ru"es% /ut of the && ru"es- one ru"e *5u"e 1) on C7o#es of recovery of taxesD-
inserte# on 7ay '0- '00(+ contains materia"s of a,out G1 pages *see >!5- '00&c- pages
1&1 to 'F1+%
.
The other maxims areA )irst- e<uity *the su,4ects of every state ought to contri,ute to$ar#s the support of the
government- as near"y as possi,"e- in proportion to their respective a,i"ities+B third- convenience *every tax ought to
,e "evie# at the time- or in the manner- in $hich it is most "ike"y to ,e convenient for the contri,utor to pay it+B
)o&rth- economy *every tax ought to ,e so contrive# as ,oth to take out an# to keep out of the pockets of the peop"e
as "itt"e as possi,"e over an# a,ove $hat it ,rings into the pu,"ic treasury of the state *Smith- 1&((A 110.-110G+%
F
The Par"iament passe# the Tax /m,u#sman Act '00G on Ju"y 10- '00G% The Presi#entia" assent $as given to
the Act on Ju"y 1'- '00G an# it $as pu,"ishe# in the /fficia" aEette as Act >o% 1& of '00G on the same #ay% /n Ju"y
&- '001- 7r% QhairuEEaman 8ho$#hury $as appointe# the first Tax /m,u#sman for four years $ith imme#iate
effect% /n /cto,er 1G- '001- the Tax /m,u#sman Act '00G $as ma#e effective retrospective"y from 0&-0(-'001
Hvide S5/ >o% 'G'-Ain-'001- #ate# 1G%10%'001I%
10
Another fre<uent statutory #ocument is the Income Tax S%5%/% *a"though it is acronym
for @Statutory 5u"es an# /r#er?- ,ut sometimes co""o<uia""y kno$n as S+i)t ,o&te to
"%&lence- $hen use# ,y ru"ers for granting #iscretionary tax favours to their cronies- see
6D8- 1&&&A ).+% Its use is fre<uent an# at the #iscretion of the >!5 an# for that reason-
the up#ate# vo"ume is #ifficu"t to o,tain% In the "atest vo"ume of @comp"ie# S5/s?- 7r%
=a" !aha#ur A#hikary has pu,"ishe# a .G1-page #ocument containing a tota" of ')(
S5/s prescri,e# from 7ay .0- 1&(F up to Ju"y 1- '00&% /f these S5/s- G) S5/s have
a"rea#y ,een repea"e# an# 11 S5/s have ,een amen#e# su,se<uent"y% Thus ''& S5/s
can ,e ca""e# effective- ,ut since this not an officia" pu,"ication of the >!5- it is #ifficu"t
to say- ho$ many S5/s are current"y effective an# $e are not sure $hether there are any
further S5/s prescri,e# after Ju"y 1- '00& *see >!5- '00&#+%
/ther aspects of regu"atory pu,"ications inc"u#e other vo"uminous "ength of regu"ations-
main"y to he"p the taxpayers an# to ease the tax a#ministrationA *a+ Income Tax 8ircu"ars
*from 1&&&-'000 to '00&-'010- the vo"ume $as a '&)-page materia"s+B an# *,+
:xp"anations an# /r#ers issue#0given ,y the >!5 *from Apri" F- '000 to Apri" 11- '00&-
the vo"ume $as a '.1-page materia"s+%
Thus- the Income Tax =a$s in !ang"a#esh is un#ou,te#"y of sheer "ength% If $e consi#er
the fu"" F-vo"ume "atest pu,"ications compi"e# ,y 7r% =a" !aha#ur A#hikary *see >!5-
'00&,B '00&cB '00&#B '00&e+- $e fin# a vo"uminous printe# materia" of 11FG pages
inc"u#ing some past reference materia"s of interest an# a"so some repea"e# materia"s%
*. *. Certainty 2rinciple under the Income Tax Laws: 0ow far certain1 Certainty 2rinciple under the Income Tax Laws: 0ow far certain1
The certainty princip"e suggeste# ,y A#am Smith *1((1+ for taxation in terms of the time
of payment- the manner of payment- an# the <uantity to ,e pai#- has ,een examine# here
to sho$ ho$ uncertain these issues are%
Time of Tax 7ayment: Certain>
2or income tax%ayers- there are four types of timing for tax payment as fo""o$s an#
hence- it might ,e affecte# ,y uncertaintyA
Pay-as-you-earn *PA9:+ N Tax De#ucte# at Source *TDS+ Hsec% F)-1.IB
A#vance Income Tax *AIT+- if tota" income excee#s Tk% . "akh through <uarter"y
insta""ments on the 1Gth #ay of Septem,er- Decem,er- 7arch an# June Hsec% F)-
1F-(.IB
Payment of tax on the ,asis of return on or ,efore the #ate of fi"ing the return Hsec%
(FIB an#
Payment $ithin the stipu"ate#0exten#e# time if re<uire# to pay as per notice of
#eman# u0s 1.G%
2or entities ded&cting tax at so&rces- there are a"so three types of timing for #epositing
the tax $ithhe"# as fo""o$s an# hence- it is a <uestion of appropriate #e#uction an# then
the comp"iance of #eposit accor#ing to "a$A
11
:mp"oyer $ith prior permission through <uarter"y insta""ments on the 1Gth #ay of
Septem,er- Decem,er- 7arch an# June Hru"e 1.IB
Dou,"e-che<ue metho# for F cases *supp"y of goo#s or execution of contract u0s
G'- fees for professiona" or technica" services u0s G'A- house property for house
rent a,ove Tk% '0-000 pm u0s G.A & u0r 1(! or commission or fees for
#istri,ution or marketing of manufacture# goo#s u0s G.:+ Hru"e 1F*'+IB an#
3ithin . $eeks from the #ate of #e#uction Hru"e 1.I%
anner of Tax 7ayment: Certain>
In case of manner of tax payment- there are a"so mu"tip"e options as fo""o$s an# hence- it
is a matter of #ifficu"ty on the part of the taxpayer0tax-#e#ucting entities ho$ to pay the
#ue taxA
8ash #eposit to Treasury- if the payment #oes not excee# Tk% 10-000 Hru"e '1!IB
Pay or#er or #eman# #raft or account payee che<ue of a sche#u"e# ,ank issue# in
favour of the Deputy 8ommissioner of Taxes *D8T+ of the concerne# taxes circ"e
Hru"e '1!IB
Payment of tax on the ,asis of return on or ,efore the #ate of fi"ing the return Hsec%
(FIB
Payment on receiving the notice of #eman# Hru"e '1!IB
Payment through recovery ,y tax authorities Hsec% 1.)-1F.B ru"es 1) an# 1&IB an#
Payment through a#4ustment of surp"us income tax or other taxes Hsec% 1G'I%
Quantity of Tax to &e 7ai": Certain>
Pro,a,"y this is the most uncertain part of the Income Tax System% Due to comp"ex an#
numerous tax exemptions- tax #e#uctions an# other tax incentives su,4ect to
con#itiona"ities- it is #ifficu"t to proper"y ascertain the amount of tax to ,e pai#%
2o""o$ing are the factors of uncertainty in this regar#A
Factors of uncertainties: Relate" to Return
Accor#ing to 6erman 3ouk *1&1G-+- Pu"itEer PriEe-$inning American nove"ist- CIncome
tax returns are the most imaginative fiction ,eing $ritten to#ay%D
G
To a former 7em,er of
the >!5- the current Income Tax 5eturn is too comp"icate# to un#erstan# an# fi"" up%
/ne senior officia" from the 8&A *8omptro""er & Au#itor enera"+ /ffice has
commen#e# that the Income Tax 5eturn is over-,ur#ene# $ith information re<uirement%
1
The factors of comp"exities can ,e mentione# as fo""o$sA
Tota" *taxa,"e+ income is to ,e c"assifie# into 10 hea#s *& #omestic hea#s an# 1
hea# for foreign income+- a"though ( statutory hea#s for computationa" purpose
Hfor corporate taxpayersA 1 statutory hea#s- except sa"aryIB
G
This tax <uotation is avai"a,"e at httpA00<uotations%a,out%com0o#0moretypes0a0tax<uotes1%htmB accesse#
'F%11%'00&%
1
These comments are ma#e in the I!2!?s stakeho"#ers? meeting he"# on 1)%11%'00&%
1'
5eporting the tax exempte# income an# tax free income HItem 1) on page 'IB
Tax computation HItem 1. on page 'I might ,e the most comp"icate# things in
some casesB
Tax cre#it on investment a""o$ances HItem 1F on page 'I might ,e #ifficu"t to
o,tainB
Documents to o,tain for any sort of tax ,enefitsB
Source of income *even if it is i""ega"+ may not ,e raise# if you pay tax thereon-
,ut no i""ega" expense is a""o$a,"eB
If ,oth hus,an# an# $ife are taxpayers- then fi""ing up the IT-10! an# the IT-
10!! might ,e an issue of emotiona" fami"y accounting $ith respect to #ivi#ing
the "ive"ihoo# expen#itures- the num,er of #epen#ent mem,ers- the property
un#er 4oint name- an# so onB an#
/ne information is a"so #ifferent in :ng"ish version an# !ang"a version in the IT-
10! HItem 1G%*,+ in IT-10!A C>um,er of #epen#ent chi"#ren0mem,er of the
fami"yI%
Factors of uncertainties: 0thers
/ther factors have ,een #iscusse# at the en# of this section un#er the tit"e C/ther Areas of
8omp"ications%D
!e"o$ is an overvie$ of the extent of comp"exities in our income tax "a$s%
Say- you are a ne$ taxpayer% 9ou $ant to ,e an ASS:SS:: *the very termino"ogy use# to
refer to an income taxpayer+% The initia" con#ition is to o,tain a TI> *Taxpayer?s
I#entification >um,er+ un#er section 1)F! of the Income Tax /r#inance 1&)F% 9ou may
not ,e an assessee- ,ut $i""ing to open a "etter of cre#it *=08+ for the purpose of import or
to app"y for a ,ank "oan of more than Taka G "akh or to app"y for a cre#it car# or to
purchase an# register a "an# "ocate# in city corporation- the #ee# va"ue of $hich is more
than Taka 1 "akh% 9ou must have a TI> un#er section 1)FA $ithout $hich you $i"" not ,e
a""o$e# to procee# for this% 6o$ can you get this TI>R If you have no access to internet-
you cannot ,e in a position to visit the $e,site of the >ationa" !oar# of 5evenue- the
apex tax authority *$$$%n,r-,#%org+ to ,e a$are a,out the initia" information to "ocate a
tax office% Then you may #irect"y go to the office of the >!5- $hich is not an accessi,"e
office $ithout prior appointment% If you can c"ear"y exp"ain your o,4ective- you may ,e
a""o$e# to visit the 6e"p Desk of the >!5 at 5oom >o% 1&& at 2irst 2"oor $orking since
1' >ovem,er '00( to he"p the taxpayers% Then you might ,e aske# to give ans$ers to
fe$ <ueriesA *1+ Is the assessee re"ate# to a company *the company itse"f or any of its
#irectors+R Then he $i"" ,e #irecte# to the specific tax circ"e un#er a tax Eone accor#ing
to the first "etter of the name of the company *exc"u#ing 70S or The+% *'+ Is the assessee
an emp"oyeeR 2or overnment emp"oyees- ;one-F might ,e the ,roa#er office% 2or other
emp"oyees- type of organiEation $i"" #etermine the tax circ"e% *.+ 2or non-corporate
,usiness- territoria" c"assification is to ,e emp"oye# to i#entify the circ"e% *F+ Is the
assessee a professiona"R 2or 4uris#ictiona" purpose- #octors- a#vocates- tax a#visers- fi"m
actors0actresses an# ra#io0TL artists are treate# as professiona"s an# their circ"e is ,ase#
1.
on this status% *G+ Is the assessee a specia"iEe# entityR 2or 4uris#ictiona" purpose- non-
corporate hote"s0restaurants- fast foo#0piEEa shop- trave" agents- manpo$er exporters-
community centers- guest0rest houses- an# 8hinese restaurants are treate# as specia"iEe#
organiEations an# their circ"e is fixe# accor#ing"y% Thus- you may ,e u"timate"y
successfu" to kno$ your #esignate# tax circ"e in a tax Eone% !ut $hat is its a##ressR Since
the tax offices are "ocate# in rente# ,ui"#ings $ith overnment prescri,e# maximum
month"y rent- it might ,e a ,ig <uestion an# on"y the kno$"e#gea,"e tax officia"s can
c"ear"y give you the office a##ress% /ffices are usua""y ,ase# on Tax ;one "ocate# $ithout
any ru"e of #istri,ution% If you u"timate"y arrive at the specific tax office- then you can
app"y su,4ect to a num,er of other con#itions *t$o copies of fi""e# in forms- t$o
photographs- copy of treasury cha"an as a proof of #eposit of Taka 1 thousan# an# an
app"ication for provi#ing a TI> an# a certificate thereon+% The up#ate# TI> app"ication
form is not yet printe# ,y the >!5- so you might re<uire to ,uy it from private sources%
This fo""o$s the co""ection of Treasury 8ha"an *T%5% 2orm >o% 1+ an# the fi""ing up of its
three copies a"ong $ith the re<uire# information on Tax 8irc"e an# Tax ;one- 8o#e >o%
H1-11F1-0000-0111I an# purpose of #eposit HAIT for TI>I an# then #epositing the same
in !ang"a#esh !ank or any #esignate# Treasury !ranch of Sona"i !ank stan#ing in a "ong
cro$#e# <ueue $ith a risk of facing a pickpocket% Then you might face the time-
consuming ,ehaviour of the staff in the tax office to get your TI> an# TI> certificate-
$ho might expect the spee# money to expe#ite your task% 2or a"" these efforts- you may
resort to a tax "a$yer0practitioner- $hich is cost"y an# a"so risky for possi,"e frau#u"ent
treatment% Accor#ing to a press re"ease of the >!5 *#ate# 0G%0.%'00&- avai"a,"e at
$$$%n,r-,#%org- accesse# 1G%0&%'00&+- the >!5 has foun# 'G' fake TI> 8ertificates out
of 1GF) re"ate# to January an# 2e,ruary of '00& an# G(F fake TI> 8ertificates out of
.FF) in '00) *partia"+ $ith respect to TI> certificates su,mitte# for car registration at
!5TA *!ang"a#esh 5oa# Transport Authority+ an# 1(& mem,ers? TI> certificates are
fake out of 1F) mem,ers of the Dhaka Je$e"ry Association% So take the hass"e to o,tain a
true TI> for "ifetime%
Then pro,a,"y the rea" comp"exities arise $hen you have to fi"" up the Income Tax 5eturn
form% 2or non-corporate taxpayers- the 5eturn 2orm is one $ith num,er CIT-11AD%
Income tax return form has ,een revise# from assessment year *A9+ '00)-0&% The ne$
return for non-corporate taxpayers *in#ivi#ua"s an# taxpayers other than company+ is a
composite form containing . 2ormsA IT-11A *the 5eturn 2orm having . Parts an# .
Sche#u"es+- IT-10! *Statement of assets an# "ia,i"ities+- an# IT-10!! *Statement
regar#ing particu"ars of "ife sty"e+I% The sa"ient items are as fo""o$sA
Page-1 A HPart-II
I#entification- particu"ars- name"y- photograph- name an# a##resses-
father?s0hus,an#?s name- mother?s name- status- #ate of ,irth- TI>-
8irc"e0;one- assessment year etc%
Page-' A =ist of #ocuments enc"ose#
Page-. A HPart-III
Summary of income from #ifferent sources- tota" income- tax paya,"e- tax
pai#- exempte# income- tax pai# "ast year- etc%
Page-F A HPart-IIII
Sche#u"e-1A Detai"s of Sa"ary Income inc"u#ing exempte# items
1F
Sche#u"e-'A Detai"s of 6ouse Property Income
Page-G A Sche#u"e-.A Detai"s of investment tax cre#it
6ouse Property Income
Ackno$"e#gement S"ip
Page-1 A Lerification *Dec"aration of correctness+ an# signature
Page-(-) A Statement of assets an# "ia,i"ities HIT-10!I
Page-& A Statement regar#ing particu"ars of "ife sty"e HIT-10!!I
Page-10 A Instruction%
2i""ing up the 5eturn 2orm is comp"icate# for an in#ivi#ua" taxpayer- for severa" factors
as fo""o$sA
So many heads o) income4 Tota" *taxa,"e+ income is to ,e c"assifie# into 10 hea#s
*& hea#s for #omestic income an# 1 hea# for foreign income+- a"though the
income tax "a$ has c"assifie# the income into ( statutory hea#s for computationa"
purpose% Some of this income might ,e ri#icu"ous"y sho$n even un#er a "oss
,ase# on fina" #ischarge of tax "ia,i"ity un#er section )'8% Some of the
components of income un#er a hea# might ,e sho$n as C#eeme# incomeD or
C#eeme# to ,e receive# incomeD $ithout getting it in cash%
Di))ic&lties in acq&iring %rior 'no+ledge4 5eporting the tax exempte# income an#
tax free income HItem 1) on page 'I is possi,"e if you are a$are a,out the Part A-
Sixth Sche#u"e an# numerous S5/s on exemption- some of $hich are prescri,e#
un#er section 10*1+ of the repea"e# Income Tax Act 1&''- ,ut sti"" are va"i#%
,eq&irement o) 'no+ledge o) the tax la+s and %ractical demonstrative s'ill4 Tax
computation HItem 1. on page 'I might ,e the most comp"icate# things in some
cases- ,ecause that is not a straight for$ar# function% There are specia" tax rates
su,4ect to #etermination through a mathematica" app"ication in Secon# Sche#u"e
Hfor 8apita" ains un#er section .1 an# for $in#fa"" income un#er section
1&*1.+I% There might ,e income su,4ect to $ithho"#ing tax to ,e treate# as a fina"
#ischarge of tax "ia,i"ity un#er section )'8 Hor eventua" "oss- ,ut you are not
a""o$e# to report a "oss- since overnment $i"" not refun#0a#4ust this taxI- $hich
is to ,e #ocumente# $ith proof% Then the resi#ua" income is su,4ect to app"ication
of the tax rates prescri,e# ,y the 2inance Act *usua""y propose# in the secon#
$eek of June an# passe# on the "ast #ay of the concerne# income year+% Then the
tax re,ates on tax-free income Hre,ate at average tax rate on share of pre-tax
income from a partnership firm or association of persons- $here the
firm0association has a"rea#y pai# tax thereonI an# the re,ates for enhance#
income for very high taxpayers H10P tax re,ates on the a##itiona" tax pai# ,y
those in#ivi#ua" taxpayers paying tax at the highest rate of 'GP prece#ing A9 an#
#isc"osing more than 10P higher income than that prece#ing A9I%
Timely investment in %rescribed areas a)ter )&l)illing conditions4 Tax cre#it on
investment a""o$ances HItem 1F on page 'I might ,e #ifficu"t to o,tain if you #o
not invest in #esignate# savings0investment schemes #uring the income year%
1G
Di))ic&lties in collecting req&isite doc&ments4 9ou have to co""ect a"" the
#ocuments to o,tain for any sort of tax ,enefits or to c"aim any #e#uctions or
exemption inc"u#ing the $ithho"#ing taxes%
Di))ering treatment regarding illegal income and illegal ex%enses4 Source of
income *even if it is i""ega"+ may not ,e raise# if you pay tax thereon- ,ut no
i""ega" expense is a""o$a,"e%
Absence o) )amily ret&rn and conseq&ent emotional acco&nting4 If ,oth hus,an#
an# $ife are taxpayers- then fi""ing up the IT-10! an# the IT-10!! might ,e an
issue of emotiona" fami"y accounting $ith respect to #ivi#ing the "ive"ihoo#
expen#itures- the num,er of #epen#ent mem,ers- the property un#er 4oint name-
an# so on%
Di))erent in)ormation on )orms in di))erent lang&age4 /ne information is a"so
#ifferent in :ng"ish version an# !ang"a version in the IT-10! HItem 1G%*,+ in IT-
10!A C>um,er of #epen#ent chi"#ren of the fami"yA A#u"t an# 8hi"#D in :ng"ishB
C>um,er of #epen#ent mem,er of the fami"yA A#u"t an# 8hi"#D in !ang"aI%
The 8orporate Tax 5eturn HIT-116AI is app"ica,"e for companies $ith huge
information covering a"most the $ho"e Annua" 5eport% 2o""o$ing are some #etai"s of this
returnA
Part-IA Particu"ars of Assessee
Part-IIA A% Statement of Income of the 8ompany
!% Income tax payments of the 8ompany
8% Particu"ars of Income0:xpenses
Part-IIIA Particu"ars of ,a"ance Sheet
Part-ILA A% Statement of 3ithho"#ing taxes *see 7ha%ter :II o) Income tax "rdinance; 1#$+
!% Particu"ars of Shareho"#er Directors of the 8ompany
8% Particu"ars of !ank Accounts
D% Particu"ars of 5e"ate# Parties0Su,si#iary an# Associate# 8ompanies0Directors0
7anagers
Lerification *Dec"aration of correctness+ an# signature
If a 8ompany has a goo# accountant $ith sufficient tax kno$"e#ge- then pro,a,"y the
company an# its #irectors may resort to that executive for tax-re"ate# matters an# the "ife
may not ,e a comp"icate# one for tax%
The usua" comp"ications re"ating to income tax are norma""y for existence of
in#iscriminate exemptions- mu"tip"e tax rates *often gra#uate#+- an# issuance of S5/s
outsi#e the visi,"e statutory ,oun#ary% 7ost of these things are c"aime# to ,e 4ustifie# in
the name of e<uity- $hich is essentia" ,ut causing comp"iance cost%
(ther Areas of Complications: /ther areas of comp"ications might ,e for fo""o$ing
thingsA
1% %ifferent perspecti,es' "ifferent meanin!s:
11
5ecipient vs% Payer H:mp"oyer vs% :mp"oyee- such as Cper<uisiteD #efine# u0s
'*FG+ for emp"oyer an# Cper<uisiteD as mentione# in section '*G)+*c+ for
emp"oyeeB Depositor vs% !ank- such as CinterestD #efine# u0s '*.)+ for ,ank an#
CinterestD as mentione# in section ..*a+ for #epositorsIB
De#uction ,y a tax paying entity vs% that ,y an exempte# entity- ,ecause in
a##ition to the interaction ,et$een the t$o parties *the payer ,eing the #e#ucting
entity an# the recipient+- a tax paying entity is monitore# for secon# time ,y the
tax authority at the time of assessment%
'% Same thin! clarifie" "ifferently:
Income from sa"e of shares of "iste# companies may ,e treate# as Ccapita" gainD
in genera"- since the shares are treate# as @capita" asset? Hu0s '*1G+I- ,ut the income
may ,e treate# as Cspecu"ation ,usiness incomeD Hu0s '*11+ an# :xp"anation to
section ')*1+I for the mem,ers0,rokers of a stock exchangeB
5ente# ,ui"#ing space may or may not ,e su,4ect to #e#uction ,y the tenant
,usinessman Ha""o$e# u0s '&*1+*i+- ,ut not a""o$e# u0s 'F*1+I%
.% 7resence of unusual pro,isions:
In case of Ca private "imite# company or a pu,"ic "imite# company not "iste# $ith
a stock exchange-D if the company #isc"oses any amount of investments in its
e<uity receive# any shareho"#er or #irector- $hich is not receive# through crosse#
che<ue or ,ank transfer- the amount is taxa,"e as CIncome from other sourcesD-
a"though the amount is sho$n in the #irector?s return as a transfer to the
company?s return an# the company has sho$n it proper"y in its return Hu0s 1&*'F+-
effective from A9 '001-0(IB
3ithho"#ing tax treate# as fina" #ischarge of tax "ia,i"ity Hu0s )'8IB
(
Prescri,e# rate of #epreciation HThir# Sche#u"eIB
>o #epreciation on "ease# assets Hpara '*1+ an# para .*F+ of Thir# Sche#u"eIB
7aximum cost prescri,e# for #epreciation purpose Hpara 11*1+*a+ of Thir#
Sche#u"eIB
(
As on Ju"y 1- '00&- amount of tax #e#ucte# on the fo""o$ing 1) situations sha"" ,e consi#ere# fina" #ischarge
of tax "ia,i"ity for the concerne# source on"yA *1+ supp"y of goo#s or execution of contract on $hich tax #e#ucte# at
source u0s G' Hru"e 11- ru"e 1(IB *'+ payment on account of roya"ty or technica" kno$-ho$ fee on $hich tax #e#ucte#
at source un#er section G'A*'+B *.+ commission from c"earing an# for$ar#ing on $hich tax #e#ucte# at source u0s
G'AAAB *F+ manufacture of cigarettes on $hich tax #e#ucte# at source on $hich tax #e#ucte# at source un#er
section G'!B *G+ interest on savings instruments un#er section G'D Hsavings instruments purchase# after 10-01-1&&&
an# ,efore 01-01-'00FIB *1+ sa"aries of a foreign technician serving in a #iamon# cutting in#ustry- for $hich tax is
#e#ucti,"e un#er section G'/B *(+ import of goo#s on $hich tax #e#ucte# at source un#er section G.B *)+ freight
earning from shipping ,usiness of a resi#ent on $hich tax #e#ucte# at source u0s G.AAB *&+ export of manpo$er on
$hich tax #e#ucte# at source un#er section G.! Hru"e 1(8IB *10+ export of certain items Hknit$ear an# $oven
garments- terry to$e"- carton an# accessories of garments in#ustry- 4ute goo#s- froEen foo#- vegeta,"es- "eather
goo#s- packe# foo#I on $hich tax #e#ucte# at source un#er section G.!!B *11+ transaction ,y a mem,er of any stock
exchange on $hich tax #e#ucte# at source u0s G.!!!B *1'+ auction purchase on $hich tax #e#ucte# at source un#er
section G.8 Hru"e 1(DIB *1.+ service charge from courier ,usiness of a non-resi#ent on $hich tax #e#ucte# at source
un#er section G.88B *1F+ transfer of rea" estate or "an# #eve"oper on $hich tax #e#ucte# at source un#er section
G.22B *1G+ remuneration or re$ar# on $hich tax #e#ucte# at source on $hich tax #e#ucte# at source un#er section
G.B *11+ payment on account of survey un#er section G.B *1(+ va"ue of property for the purpose of co""ection of
tax un#er section G.6 Hru"e 1( IIB an# *1)+ $innings from "ottery or cross-$or# puEE"e- etc% referre# to sec% 1&*1.+
an# tax #e#ucte# at source un#er section GG%
1(
Depreciation not ,ase# on extent of useA 2u"" #epreciation in year of ac<uisition
an# no #epreciation in year of #isposa" Hpara 11*G+ of Thir# Sche#u"eIB
Distinction of revenue "oss *#e#ucti,"e+ an# capita" "oss *not #e#ucti,"e+ at the
time of #isposa" of ,usiness0agricu"tura" assets su,4ect to #epreciationB revenue
"oss as @o,so"escence a""o$ance? for ,usiness assets is #e#ucti,"e un#er c"ause *xi+
of su,-section *1+ of section '&IB revenue "oss for agricu"tura" assets is #e#ucti,"e
un#er c"auses *i+ an# *4+ of su,-section *1+ of section '(I an# capita" "oss *not
#e#ucti,"e+ at the time of #isposa" of ,usiness0agricu"tura" assets su,4ect to
#epreciation Hfirst proviso to section .(IB
T$o capita" expen#itures a""o$e# as fu""y #e#ucti,"e at the time of incurrence
Hc"auses *xx+ an# *xxiii+ of su,-section *1+ of section '&IB
2ees for any Ctechnica" or consu"tancyD services H#efine# u0s '*.1+I treate# as
CIncome from other sourcesD u0s .. an# fees for any Ctechnica" consu"tancyD
services H#efine# as Cprofessiona" servicesD un#er :xp"anation *a+ to section G'AI
treate# as CIncome from ,usiness or professionD u0s ')B an#
=imit for #e#ucti,i"ity on certain ,usiness expenses Hsection .0I%
F% A&sence of pro,isions:
>o fu"" proof #istinction ,et$een investment an# specu"ation is avai"a,"e in the
"a$B
>o #efinition of @capita" "oss? is givenB an#
>o provision for amortiEation on intangi,"e assets- a"though there are provisions
for #epreciation in Thir# Sche#u"e an# for #ep"etion in 2ifth Sche#u"e%
G% 7ro,isions only throu!h SR0:
Income tax #ue to o$nership of a car HS5/ >o% 1)(-Ain0'00&- #ate# 01%0(%'00&IB
an#
Presumptive assessment for vehic"es HS5/ >o% 1(1-Ain0'00&- #ate# .0%01%'00&
an# S5/ >o% 1(.-Ain0'00&- #ate# .0%01%'00&I%
1% 7resence of unconstitutional pro,isions:
Un#er section 1&*1.+- any amount is receive# C,y $ay of $innings from "otteries-
cross$or# puEE"es- car# games an# other games of any sort or from gam,"ing or
,etting in any form or of any nature $hatsoeverD sha"" ,e #eeme# to ,e his
income% Un#er su,-artic"e *'+ of Artic"e 1) *Pu,"ic hea"th an# mora"ity+ of our
8onstitution- the State sha"" a#opt effective measures to prevent prostitution an#
gam,"ing%
(% Am&i!uous pro,isions:
Tit"e of Part !- Sixth Sche#u"e is C:xemptions an# A""o$ances for Assessees
,eing 5esi#ent an# >on-5esi#ent !ang"a#eshi Hsee section FF*'+I% Is it app"ica,"e
for C5esi#ent 2oreignerDR
Is there any "oss un#er the hea# CIncome from house propertyD u0s 'FR
Is the #e#uction app"ica,"e for CIncome from house propertyD u0s 'G for the $ho"e
house or on"y to the "et-out portionR
)% 0,erlappin! pro,isions for "e"uctions from ?Income from &usiness or
profession@:
1)
:xpen#iture incurre# in connection $ith visits a,roa# Hu0s '&*1+ *xxv+- foreign
trave" Hu0s .0*f+*ii+ an# u0r 1GAI- an# overseas trave" Hu0s .0*k+IB
Per<uisite for one emp"oyee Hu0s .0*e+I- the #efinition of $hich excl&des
Cincentive ,onus not excee#ing ten per cent of #isc"ose# profit of re"evant income
yearD a"so for one emp"oyee Hu0s '*FG+I- Cany expen#iture ,y $ay of incentive
,onus excee#ing ten per cent of #isc"ose# net profitD as expen#iture for a""
emp"oyees Hu0s .0*4+I%
Per<uisite for one emp"oyee Hu0s .0*e+I- the #efinition of $hich incl&des the
,enefit of Cforeign trave"s of one emp"oyee an# their #epen#ents for ho"i#aying
an# recreationD Hu0s .0*f+*ii+ an# u0r 1GAI- an# ,oth have separate prescri,e#
"imit%
Profit-,ase# computation- ,ut #ifferent $or#ing for CprofitDA
- any expen#iture excee#ing ten per cent of the profit un#er the hea# of 6ea#
/ffice expenses ,y a company- not incorporate# in !ang"a#esh un#er the
8ompanies Act 1&&F Hu0s .0*g+IB
- any payment ,y $ay of roya"ty- technica" services fee- technica" kno$ ho$ fee
or technica" assistance fee excee#ing eight per cent of the profit Hu0s .0*h+IB
- any expen#iture ,y $ay of incentive ,onus excee#ing ten per cent of the
"isclose" net profit Hu0s .0*4+IB
- any expen#iture in respect of CentertainmentD to ,e #etermine# ,y app"ying
the prescri,e# rate *FP on first Taka 10 "akh an# 'P on the ,a"ance+ on
Cincome- profits an# gains of the ,usiness or profession *compute# ,efore
making a""o$ance in respect of expen#iture on entertainment+D Hu0s .0*f+*i+
an# u0r 1GI%
&% %e"uctions from ?Income from &usiness or profession@ &oth !enerous an"
restricti,e a!ainst normal accountin! practice:
Initia" #epreciation- acce"erate# #epreciation- carrie# for$ar#e# "oss- fu""
a""o$ances on capita" expen#iture on scientific research an# any e#ucationa"
institution or hospita" esta,"ishe# for the ,enefit of emp"oyees an# their fami"ies
an# #epen#ents or on the training of in#ustria" $orkersB
5estricte# expenses on a num,er of items u0s .0 an# no a""o$a,"e #e#uction for
certain profit-,ase# expenses for "osing entity% /f the 1' prescri,e# ina#missi,"e
expenses u0s .0- there are . c"auses Hc"auses *a+ an# *#+ for TDS on CSa"ariesD an#
c"ause *aa+ for $ithho"#ing income tax or va"ue a##e# tax *LAT+ in genera"I- if the
tax0LAT not $ithhe"# proper"y- the payment is not a""o$e# as expense an# the
#isa""o$e# expenses are treate# as @a##itiona" taxa,"e income? su,4ect to income
tax #irect"y% !ut proper #e#uction of income tax or LAT at source is #ifficu"t #ue
to tracking pro,"em for numerous items an# rates% Un#er the Income Tax
/r#inance there are as many as F. items un#er F0 sections are su,4ect to TDS *tax
#e#ucte# at sources+ at more than 1G relati,e rates Hsuch as 0%'GP- 0%0.P- 1P-
'P- '%GP- .P- .%GP- FP- GP- 1P- (P- (%GP- 10P- '0P- an# 'GPB an# in some
cases unspecifie#I an# fe$ a&solute rates Hsuch as Tk% G00- or Tk% 10-000- or Tk%
1'-000- or Tk% 1)-000I% Un#er the LAT Act 1&&1- there are no$ *'00&-10+- '(
services are su,4ect to LAT #e#ucte# at sources at G #ifferent rates- such as 1%GP-
'%'GP- F%GP- &P an# 1GP% Up#ate# rates of $ithho"#ing taxes $ith
1&
correspon#ing payment are not ma#e avai"a,"e officia""y ,y the Income Tax
authorities or the LAT /fficia"s% In many cases- these #e#uctions at sources are
a"so not app"ica,"e for particu"ar taxpayers%
'0
10% Con"itions' con"itions' con"itionsA//:
A"ternatives $ith $or#ing of C$hichever is "o$erD He%g%- G0P of ,asic sa"ary or
Taka 1G-000 per month- $hichever is "o$er- for cash house rent a""o$ance to an
emp"oyee u0r ..AI
A"ternatives $ith $or#ing of C$hichever is higherD He%g%- Csa"e procee#sD for the
purpose of Thir# Sche#u"e *8omputation of Depreciation A""o$ance+ means-
$here the asset is actua""y so"#- the sa"e prices thereof or the fair market va"ue-
$hichever is higher un#er paragraph 11*.+*a+ of Thir# Sche#u"eIB
A"ternatives $ithout $or#ing of C$hichever is higher or "o$erD He%g%- any sum
representing interest cre#ite# on the accumu"ate# ,a"ance of an emp"oyee in a
recogniEe# provi#ent fun#- in so far as it #oes not excee# one-thir# of the sa"ary
of the emp"oyee for the year concerne# an# in so far as it is a""o$e# at a rate not
excee#ing such rate as the !oar# may- ,y notification in the officia" aEette- fix in
this ,eha"fB %aragra%h !< o) 0art A; Sixth Sched&le4 C:xc"usions from Tota"
IncomeDB see section FF*1+IB
Diversifie# $or#ing to "imit on an amount- e%g%- Cas excee#s taka t$o "akhD Hu0s
.0*e+I- Cexcee#ing eight percent of the profitD Hu0s .0*h+I- Cnot excee#ing ten per
cent of #isc"ose# profit of re"evant income yearD Hu0s '*FG+I- Cup to taka t$enty
five thousan#D Hpara ''A- Part A- Sixth Sche#u"eI- Cnot excee#ing t$enty five
thousan# takaD Hpara .1!- Part A- Sixth Sche#u"eI- Csha"" not excee# t$enty
thousan# takaD He%g%- proviso to para 1.- Part A- Sixth Sche#u"eI- C#oes not excee#
one-thir# of the sa"aryD Hpara 'G- Part A- Sixth Sche#u"eI- etc%
</ </ The Complexities in the Tax Laws B Chy an" how costly> The Complexities in the Tax Laws B Chy an" how costly>
The argument in favour of the #ifficu"ty containe# in the tax regu"ations might ,e
un#erstoo# from the fo""o$ing <uoteA
Peop"e think taxation is a terri,"y mun#ane su,4ect% !ut $hat makes it fascinating
is that taxation- in rea"ity- is "ife% If you kno$ the position a person takes on taxes-
you can te"" their $ho"e phi"osophy% The tax co#e- once you get to kno$ it-
em,o#ies a"" the essence of "ifeA gree#- po"itics- po$er- goo#ness- charity%
:verything?s in there% That?s $hy it?s so har# to get a simp"ifie# tax co#e% =ife
4ust isn?t simp"e% S2ormer I5S 8ommissioner She"#on 8ohen- <uote# in Jeffrey
6% !irn,aum an# A"an S% 7urray *1&)(+- Sho+do+n at (&cci (&l) *vide
7c8affery- '00'- p% 11'+%
S"emro# an# !aki4a *'000+ have mentione#- from the US perspective- the reasons
responsi,"e for making the tax system comp"ex as fo""o$sA CThe #esire to achieve e<uity
an# fairness provi#es one set of reasons% Attempts to encourage certain activities #eeme#
socia""y or economica""y #esira,"e provi#e another% Sometimes- pure"y po"itica" factors
appear to ,e responsi,"eD *S"emro# an# !aki4a- '000A 1.&+%
'1
In our income taxation system- the gra#uate# tax rates for non-corporate taxpayers are for
ensuring e<uity- exemptions an# tax #e#uctions are often provi#e# for encouraging
socia""y #esira,"e activities% !ut many issues- particu"ar"y the imposition of restriction on
amount an# con#itiona"ities for ,usiness tax #e#uctions- might ,e pure"y for intro#ucing
@expe#iency? an# another un#isc"ose# o,4ective of raising the revenue $ith a pressure for
achieving the tax target ,y tax circ"es0Eones that is given through ,u#get%
Dow the complexities are costly>
Collection costs #Tax A"ministratorEs Costs$: The comp"exities in the tax "a$s are a"so
cost-incurring% 6uge resource costs in terms of a#ministrative costs *tax co""ection costs+
are invo"ve# for these% The >!5?s a#ministrative costs $ere Tk% G-(0G%' mi""ion in '00(-
0) to co""ect Tk% F(F-.G1%1 of tax% Thus- average annua" tax co""ection costs *per Taka
100 of tax+ in '00(-0) $as Tk% 0%G1 for in#irect tax an# Tk% 0%10 for #irect tax an# hence
a tota" of Tk% 1%'0 for overa"" tax *inc"u#ing the >!5?s 6ea# /ffice costs+% A"though-
over '00.-0F to '00(-0)- the annua" average tax co""ection costs *per Taka 100 of tax+
$as Tk% 0%G1 for in#irect tax an# Tk% 0%(G for #irect tax an# hence a tota" of Tk% 1%.1 for
overa"" tax *see Ta,"e 1+% A"though the tax co""ection cost for #irect tax is to some extent
higher- ,ut the fact that is that more that ha"f of the income tax is ,eing co""ecte# at
sources *in '00(-0)- G'%G) percent of tota" income tax $as co""ecte# at sourcesB vi#e
>!5- '00&aA (1+%
Ta&le ;: Collection -fficiency of Tax A"ministration
*2igures in mi""ion Taka except for @8ost per Tk% 100 Taxes+
7articulars ())26)3 ())36)4 ())46); ());6)< ())<6):
F9)3 to F9):
A,era!e
-xpen"iture:
Direct Taxes F(1%G F&1%' G)1%0 1&'%1 (.1%0 G&.%F
In#irect Taxes 1-''0%& 1-'F0%G 1-1)'%1 1-1G(%1 1-)0G%0 1-G'1%.
>!5 6ea# /ffice '-11'%& '-1(G%1 '-1)G%. '-11)%& .-11&%' '-F('%F
Total 2':44/2 2'*)</2 3'33:/* 4').:/; 4'<)4/( 3'4:</.
Tax Collection:
Direct Taxes G0-011%G G)-'(F%( (F-FF&%F &0-G00%G 1'1-))'%' (&-0'.%(
In#irect Taxes '11-&'1%' 'F0-(1&%& '1G-(&(%1 ')1-1&'%( .G'-F(F%F '(0-G.'%1
>!5 6ea# /ffice n0a n0a n0a n0a n0a n0a
Total (;.'*2</< (**')33/; 23)'(3;/4 2<('.*2/( 3<3'24;/; 23*'444/<
Cost per T+/ .)) Taxes:
Direct Taxes 0%&F 0%)F 0%() 0%(1 0%10 )/<4
In#irect Taxes 0%G) 0%G' 0%1. 0%G& 0%G1 )/4;
>!5 6ea# /ffice n0a n0a n0a n0a n0a nFa
Total ./3< ./2. ./2. ./24 ./() ./2.
Sources: Ann&al ,e%orts !--=--$ to !--.--# of the >ationa" !oar# of 5evenue *>!5+%
Compliance costs #TaxpayersE Costs$: 2rom the perspective of taxpayers- the costs of
comp"exities are main"y re"ate# to comp"iance- $hich inc"u#e the fo""o$ingA
/ut-of-pocket costsA
M Direct monetary out"ays for professiona" gui#ance
M :xpenses for recor#keeping an# @supp"ies? *stationeries- fi"es- etc%+
M :xpenses for ,uying "atest tax pu,"ications
''
M 8ost of au#its- appea"s an# "a$suits
Time spent ,y the taxpayers on their tax affairs
M /$n time for preparing return
M 2or activities such as researching the tax "a$- meeting $ith an a#visor- or
arranging financia" affairs to minimiEe taxes
Time spent an# costs incurre# ,y ,usiness entities *usua""y "arge corporate ,o#ies+
M 7ore time for corporate return an# returns for #irectors
M 8omp"ex #epreciation ru"es
M A"ternative tax rates *say- for exporters+
M Juris#ictiona" #ifferences for tax treatments *:P;- 8hittagong 6i"" Districts- etc%+
>on-monetary costsA
M Anxiety suffere# ,y taxpayers concerne# a,out getting their taxes #one on time
an# #one rightB an#
M 3orrying a,out a tax au#it%
These huge costs re"ate# to comp"exities can ,e consi#ere# as imp"icit taxes an# on"y
simp"ification can re#uce or e"iminate these costs a"so%
:/ :/ Dow to -liminate the Complexities Dow to -liminate the Complexities
5.& 5.& Concerns Concerns
7any of these comp"exities are ,eneficia" for those $ho can exp"oit them%
The "ive"ihoo# of the tax "a$yers an# the tax practitioners is #epen#ent on this
comp"ication of the tax co#e- ,ecause
most of the taxpayers are not $i""ing to un#erstan# his o$n tax issues *$hich
are not at a"" comp"icate#+ an#
they have an un$i""ingness to face the perceive# hass"e an# harassment in the
tax offices%
5. 5. 6ecommendations for 2ossi!le 6emedies 6ecommendations for 2ossi!le 6emedies
!e"o$ is an enumeration of the possi,"e po"icy recommen#ations to e"iminate or re#uce
the comp"exities of the income tax system an# to make the system simp"er than ,efore%
Initia""y- the top fi,e priority recommen"ations have ,een provi#e# an# then other
recommen#ations fo""o$%
A/ Two recommen"ations important to any corporations:
8ithdra+al o) %rovision o) >ca%ital loss54 The provision of @capita" "oss? Has
mentione# first proviso to section .( an# section F0I shou"# ,e imme#iate"y
$ith#ra$n- ,ecause there is no #efinition of @capita" "oss? an# there is no metho#
'.
of computation prescri,e# for @capita" "oss? Ha"though there is a separate provision
for C8omputation of capita" gainsD un#er section .'I an# accor#ing to provision
of paragraph 10 of Thir# Sche#u"e- any "oss *capita" "oss or revenue "oss+ on
#isposa" of ,usiness asset Cshall &e #eeme# to ,e an expen#iture- #e#ucti,"e from
the profits an# gains of ,usiness or professionD Hc"ause *c+ of paragraph 10 of
Thir# Sche#u"eI% In Accounting- there is on"y C"oss on #isposa" of assetsD $ithout
any #istinction ,et$een @capita" "oss? or @revenue "oss?- ,ecause- there might ,e
@capita" gainD *excess of sa"e procee#s a,ove cost+ or @revenue gain? *recovery of
#epreciation charge#+- ,ut there cannot ,e @capita" "oss?%
8ithdra+al o) restrictive %rovision on b&siness ex%endit&res4 5estrictive
provision on ,usiness expen#iture other than @expe#iency princip"e? un#er c"ause
*xxvii+ of su,-section *1+ of section '&
)
shou"# ,e $ith#ra$n% An# there shou"# ,e
a provision in the Income Tax /r#inance 1&)F Hmay ,e ,y inserting a ne$ su,-
section in section F&I an# a"so in the LAT Act 1&&1 Hmay ,e ,y inserting a proviso
to su,-section *FAA+ of section 1I that the >!5 at the outset of a financia" year
sha"" supp"y a "ist of items $ith the prescri,e# rate of #e#uction for each item-
other$ise the fai"ure of the corporate entities in $ithho"#ing tax shou"# ,e
exempte#- ,ecause u"timate responsi,i"ity of tax payment "ies $ith the recipient of
money% !ecause of the fre<uent changing nature of the "ist of numerous items an#
rates of #e#uction HF. items $ith more than 1G rates in percentage an# fe$
a,so"ute rates of #e#uction in the Income Tax /r#inanceB an# '( vata,"e services
$ith five rates of #e#uction un#er the LAT ActI- this provision is a necessity-
,ecause enforcement shou"# not ,e un#ertaken $ithout any prior notice $ith
up#ate# "ega" provisions%
B/ Two recommen"ations important to the em&ers of the IBFB: A"though these
recommen#ations are given main"y ,y the mem,ers of the I!2!- ,ut they are e<ua""y
app"ica,"e for private sector corporate entities a"so%
2x%licit %rovision )or distinction bet+een >investment5 and >s%ec&lation54 :xp"icit
provision to i#entify @investment? #istinguishe# from @specu"ation? regar#ing
investment in shares of "iste# company an# for this purpose su,-section *(+ of
section .' shou"# ,e amen#e# to incorporate the perio# of investment- $hich
might ,e minimum six months%
Allo+ing cash trans)er )rom director5s ret&rn to ne+ com%any5s ret&rn4 2rom A9
'001-0(- cash transfer out of @tax pai# income? sho$n in the #irector?s return to
form a ne$ ,usiness again taxa,"e in company?s return% This cash transfer shou"#
,e a""o$e# su,4ect to exp"icit #ocumente# transfer from one return to another
Hamen#ment to ,e ma#e in section 1&*'F+I%
C/ 0ne !eneral recommen"ation: The I!2! ,e"ieves that unconstitutiona" e"ement
shou"# not ,e in a nationa" statute an# hence the provision of income from
unconstitutiona" sources- such as income from @gam,"ing? u0s 1&*1.+ shou"# ,e
$ith#ra$n%
)
Un#er the @expe#iency princip"e-? any expen#iture- not ,eing capita" or persona"- ma#e exc"usive"y for
,usiness or professiona" purposes is fu""y a""o$e# u0s '&*1+*xxvii+%
'F
0ther Recommen"ations: 2o""o$ing recommen#ations are a"so foun# from the
fee#,ack of the participant stakeho"#ers%
Sl/ -lement !i,in! rise
to Complexities
Implication of the
Complexities
7ossi&le ways to o,ercome
1% *engthy and
vol&mino&s nat&re o)
Tax 7ode and no
o))icial %&blication
available
Taxpayer $i""ing to consu"t
the tax co#e faces #ifficu"ty
in fin#ing an up#ate#
version of the tax co#e
Up#ate# tax co#e $ith ear"ier
amen#ments as reference shou"# ,e
avai"a,"e in the >!5?s $e,site
*$$$%n,r-,#%org+%
' Timing o) tax
%ayments
7u"tip"e options cause
extra ,ur#en in terms of
comp"iance costs%
:xten#ing the scope of $ithho"#ing
taxes for rea" taxpayers-
&
there might
,e one secon# option- $hich is the
payment ,efore su,mission of
return%
. Manner o) tax
%ayments
7u"tip"e options $ith
physica" ,arrier to "ocate
the p"ace of #eposit- $ith
"imite# num,er of p"aces%
A""o$ing f"exi,"e cash or ,ank
#eposit in any sche#u"e# ,ank a"ong
$ith intro#uction of on-"ine #eposit
system%
10
F ?ncertain amo&nt o)
tax
6ass"e $ith tax authorities-
uncertain higher tax after
assessment- possi,"e appea"
an# "itigation an# inci#enta"
costs
A he"p #esk in tax office shou"# ,e
a,"e to fi"" up the return <uick"y on
having a "ist of prescri,e# set of
#ocuments to ,e su,mitte# ,y a
taxpayer%
G 3orm o) the income
tax ret&rn
=engthy- over-,ur#ene#
$ith information
re<uirement- #ifficu"ty in
reconci"iation #ue to
ignoring the hypothetica"
#eeme# incomes arisen for
tax purposes
A simp"ifie# one-page return $ith
fe$ hea#s of income shou"# ,e
prescri,e# for sa"arie# an# "o$er-
income se"f-emp"oye# taxpayers
1 *ocation o) tax o))ice 2in#ing out the appropriate
tax circ"e office is a"most
impossi,"e for a ne$
taxpayer
It shou"# ,e fu""y centra"iEe# $ith
on"ine ,ooth at #ifferent convenient
"ocationsB up to that centra"iEation-
the government shou"# provi#e
#irection of tax offices or map%
( 8ithholding tax
treated as )inal
discharge o) tax
liability &@s #!7
In many cases- tax is ,eing
#e#ucte# not on income or
u"timate resu"t might ,e a
"oss
It shou"# ,e a,o"ishe# except for
cases of CincomeD on"y%
11
&
In many cases- tax is ,eing $ithhe"# from persons $ho are not at a"" taxpayers *e%g%- tax #e#ucte# ,y ,anks
u0s G.2 on interest payment to a"" the #epositors- most of $hom have no other income ,eing stu#ents or non-earning
fami"y mem,ers+%
10
!ang"a#esh !ank has a"rea#y issue# a notification on >ovem,er '- '00& to a""o$ the sche#u"e# ,anks on"ine
transactions- $hich is expecte# to ,e the ,eginning of the e"ectronic commerce *e-commerce+ in !ang"a#esh *The
0rothom Alo- 0.%11%'00&- pp% 1-'+%
11
A"though- this is against the norm of income taxation- yet this is high"y "ucrative to taxpayers- since this
re#uces hass"e $ith tax authorities an# the taxpayers can fee" the comp"acency that they are not tax-#efau"ter at "east
in these specific cases%
'G
Sl/ -lement !i,in! rise to
Complexities
Implication of the
Complexities
7ossi&le ways to o,ercome
) 7om%lexities related to
de%reciation
Separate computation of
tax #epreciation $ith
prescri,e# rate-
#isregar#ing the usefu"
"ife an# extent of use
Thir# Sche#u"e *for #epreciation+
shou"# enumerate on"y the
provisions of initia" #epreciation an#
acce"erate# #epreciationB for finance
"ease the #epreciation shou"# ,e
a""o$e# for the "essee%
& *oss o) sale o) assets Distinction ,et$een
capita" "oss an# revenue
"oss $ithout any
prescri,e# gui#e"ine
affecting the ,usiness
communities
=oss shou"# ,e treate# as @"oss?
$ithout any #istinction ,et$een
revenue or capita" "ossB an# shou"#
,e a""o$e# as tax #e#ucti,"e%
10 AmortiAation on
intangible assets
3ithout any provision- if
any ,usiness entity
capita"iEes @intangi,"e
asset?- it $i"" face
pro,"em%
Provision of amortiEation shou"# ,e
intro#uce# for the sake of tax
revenue%
2e$ other recommen#ations in genera" can ,e as fo""o$sA
Discretionary po$er of the tax authority shou"# ,e e"iminate# an# if it is
necessary un#er any provision- the action shou"# ,e in $riting an# su,4ect to
scrutiny $hether the #iscretion is ,eyon# the authority as per "a$%
In case of an a,sence of any provision- it cannot ,e impose# as a "ogic- ,ecause
on"y tax "a$ can give the tax authority to impose an action%
The ,enefit of any am,iguity in interpreting any provision must ,e given to the
taxpayers%
5efun# system shou"# ,e ma#e automatic an# <uick%
!ur#en of proof must "ie on the person raising the comp"aint%
6e"p #esk shou"# ,e responsive <uick"y an# the ans$er to any taxpayer?s <uery
shou"# ,e in $riting an# the $ritten rep"y ,y a tax executive shou"# not create a
further hass"e to the taxpayer #ue to any interpretation $hich might ,e contrary to
the accepte# meaning of the provision%
*/ */ Conclu"in! Remar+s Conclu"in! Remar+s
f the recommen#ations #e"ineate# a,ove can ,e imp"emente#- the comp"exities can ,e
re#uce# significant"y% Then hopefu""y every taxpayer $i"" han#"e his o$n tax affairs
$ithout any fear an# taking any cost"y favour from others%
I
I
'1
References References
!irn,aum- Jeffrey 6%- an# A"an S% 7urray *1&)(+- Sho+do+n at (&cci (&l)4 *a+ma'ers;
*obbyists; and the ?nli'ely Tri&m%h o) Tax ,e)orm *>e$ 9orkA Lintage !ooks+%
!ittker- !oris I% *1&(F+- CTax 5eform an# Tax Simp"ification-D ?niversity o) Miami *a+
,evie+- '&*1+- *2a""+A 1-'0%
!"um- 3a"ter J% *1&GF+- Simp"ification of the 2e#era" Income Tax =a$-D Tax *a+ ,evie+-
Lo"% 10A '.&-'G.%
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In#ivi#ua" Income Tax SystemA A Secon# =ook After Tax 5eform-D 6ational Tax
Bo&rnal- FG*'+- *June+A 1)G-'0'%
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Tho&sands *8ana#aA John 3i"ey & Sons 8ana#a- =t#%+%
8ommittee on Tax Po"icy *1&('+- A ,e%ort on 7om%lexity and the Income Tax *>e$
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7o&ntries *3ashington- D%8%A The 3or"# !ank+%
7c8affery- :#$ar# J% *1&&0+- CThe 6o"y rai" of Tax Simp"ification-D 8isconsin *a+
,evie+- Lo"% 1&&0- 1'1(-1.''%
7c8affery- :#$ar# J% *'00'+- 3air 6ot 3lat4 Ho+ to Ma'e The Tax System Better and
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an# Statistics 3ing- >!5- Apri" 1+%
>!5 *'00&,+- The Income Tax "rdinance 1#$ EAs amended &% to B&ly; !--F *DhakaA
Supreme PrakashaniB compi"e# ,y =a" !aha#ur A#hikary+%
>!5 *'00&c+- The Income Tax ,&les 1#$ EAs amended &% to B&ly; !--F *DhakaA
Supreme PrakashaniB compi"e# ,y =a" !aha#ur A#hikary+%
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*DhakaA Supreme PrakashaniB compi"e# ,y =a" !aha#ur A#hikary+%
'(
>!5 *'00&e+- Income Tax 7irc&lars; Im%ortant 2x%lanations and S&mmary o) Income
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')

Complexities in The Income Tax Laws: A Quest For A Simpler Taxation System

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