Taxation one of the major sources of public revenue to meet the revenue and development expenditures with a view to accomplishing some economic and social objectives, such as redistribution of income, price stabilisation 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 nonpenal 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&#8221. 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.

Bangladesh inherited a system of taxation from its the British and Pakistani regimes. The system, however, developed on the basis of generally accepted canons and there had been efforts towards rationalising the tax administration for optimising revenue collection, reducing tax evasion and preventing revenue leakage through system loss. To develop manpower for efficient tax administration, the government runs two training academies - BCS (Tax) Academy at dhaka for direct tax training and Customs, Excise and Value Added Tax Training Academy at chittagong for indirect tax training. The national board of revenue (NBR) is the apex tax authority of Bangladesh and it collects around 95% of total taxes or 77% of total public revenues (2009-10). The NBR portion of total taxes includes customs duty, value added tax (VAT), supplementary duty (SD), excise duty, income tax, turnover tax (TT), foreign travel tax, electricity duty, advertisement tax, gift tax and miscellaneous insignificant taxes. Other taxes (amounting to around 5% of total taxes or 4% of total revenues in 2009-10) are often referred to as 'non-NBR portion' of tax revenue. These taxes include narcotics duty (collected by the Department of Narcotics Control, Ministry of Home Affairs), land revenue (administered by the Ministry of Land and collected at local Tahsil offices numbered on average, one in every two Union Parishads), non-judicial stamp (collected under the Ministry of Finance), registration fee (collected by the Registration Directorate of the Ministry of Law, Justice and Parliamentary Affairs) and motor vehicle tax (collected under the Ministry of Communication). The NBR previously collected some other taxes, such as, wealth tax (under the Wealth-tax Act 1963 up to assessment year 1998-99 and thereafter as a surcharge at a percentage of income tax up to assessment year 2001-2002 under the Income Tax Ordinance 1984), estate duty (under the Estate Duty Act 1950 up to assessment year 1981-82), sales tax (under the Sales Tax Act 1951 up to assessment year 1981-82 and thereafter under the Sales Tax Ordinance 1982 up to assessment year 1990-91), urban immovable property tax (under the Urban Immovable Property Tax Act, 1957 up to assessment year 1982-83), business turnover tax on selective goods and services (under the Business Turnover Tax Ordinance 1982 from assessment years 1982-83 to 1990-91), Infrastructure Development Surcharge (under the Finance Act 1997 from financial years from 1997-98 to 2006-07), airline ticket tax (ATT) from financial years 1986-87 to 2003-04 and excise duties on goods (up to financial year 2003-04).

Bangladesh is unable to raise enough resources in taxes. The tax-GDP ratio was only 3.4% in 1972-73 and it remained below 9% until the introduction of VAT in the country in 1991. The ratio was 9.8% in 1992-93 and although it was more than 9% in the successive years, it never reached 10% (9.2% in 2007-08). The revised budget of 2008-9 and budget of 2009-10 estimated the ratio at 9.0% and 9.3% respectively. The budgeted expenditure of 2009-10 was Tk 1,138.19 billion against projected total revenues of Tk 794.61 billion ie, the overall deficit was Tk 343.58 billion. The revenue receipts included tax revenue of Tk 639.55 billion (15% higher than that in the preceding year) and non-tax revenue of Tk 155.06 billion (14% higher than that in the preceding year). The tax revenues covered only 56% of total expenditures.

The tax structure in the country consists of both direct (income tax, gift tax, land development tax, non-judicial stamp, registration, immovable property tax, etc) and indirect (customs duty, excise duty, motor vehicle tax, narcotics and liquor duty, VAT, SD, foreign travel tax, TT, electricity duty, advertisement tax, etc) taxes. Since direct taxes represent only about 27.9% of total taxes (2008-09), tax-structure is heavily dependent on indirect taxes, which are usually of regressive nature. Of the direct taxes, around 87.5% come from income tax, 9.8% from non-judicial stamp, 2.6% from land revenue and balance from gift tax and other direct taxes. Indirect taxes (representing 72.1% of total taxes in 2008-09), on the other hand, are mainly import-dependent. Around 53.3% of indirect taxes are collected at import stage by customs authorities as customs duty (23.9% of indirect tax or 17.2% of total tax), VAT (23.4% of indirect tax or 16.9% of total tax), and SD (6.0% of indirect tax or 4.3% of total tax). Balance of indirect taxes (representing around 33.7% of total taxes) include taxes collected on domestic production, consumption or transactions such as VAT (19.3%), SD (12.1%), excise duty (0.4%), foreign travel tax (0.8%), motor vehicle tax (1.0%), narcotics and liquor duty (0.1%) and TT (0.01%). Public revenue also comes from non-tax receipts such as surplus of sector corporations, financial institutions, railways, postal department, telegraph and telephone, judicial stamp, etc, and these non-tax revenues represent around 19.7% of total revenues.

The tax related to land or the produce thereof has been recognised in the subcontinent since antiquity. In the Vedic period (2000 to 1500 BC), initially the king';s power was not well established and taxation seems to have been occasional and voluntary. The term bali originally used to devote voluntary offerings made to gods for securing their favour, came to be applied later to the presents and taxes offered to the king, more or less voluntarily. In the later Vedic period, the nature of taxation changed and the king was described as the 'eater of his subjects', and this phrase might have had its origin in a custom by which the king and his retinue were fed by the people's contributions.

Kautiliya's Arthasastra (circa 321-300 BC) recorded that the Samaharta (Collector-General) collected revenue from seven broad places - fortified city, the country part, mines, irrigation works, forests, herds, and trade routes. Some taxes on land were related to the country part known as svatva (revenue collected from the produce of crown lands), bhaga (one-sixth share of produce from personal land), bali (King's receipts as gifted or asked), kar (periodical tax paid to King in relation to fruits and trees), etc. The ancient land taxation was not significantly changed during the Muslim rule in India (1200-1757), except that the rate of revenue was raised to one-third and sometimes to one-half of the gross produce. During the British rule (1757-1947), the British adopted the traditional Indian land tax for financing administration. They established zamindars, or 'tax farmers' to collect the revenue from the individual tenants. The taxes were based, in general, on the produce of the land, and were often oppressive, reaching in some areas a levy of over half the net produce. The tax rates in Bengal were fixed in nominal terms at ten-elevenths of net rental receipts for zamindars at the time of the permanent settlement Act of 1793. The zamindari system was abolished in 1952.

The present land revenue system of Bangladesh has its base in the east bengal state acquisition and tenancy act 1950 which established a direct contract between the taxpayer and the government. Before the independence of Bangladesh, the total revenue demand of the government for agricultural land was Tk 6.47 per acre: Tk 3.75 as land revenue and Tk 2.72 as other taxes (development and relief tax, and local rates). In 1972, the government exempted all owners having land up to 25 bighas (8.33 acres) from paying land revenue by a Presidential Order. The revenue demand from landholders above 25 bighas was kept as before (ie, Tk 6.47 per acre), but owners having land up to 25 bighas were subject to only other tax of Tk 2.72 per acre. In 1976, the Land Development Tax Ordinance was passed by which land revenue and other taxes were merged together to be called 'land development tax'; (LDT). Immediately after the independence, land revenue fell sharply because of a liberal attitude of the tax collection machinery and reduction in tax-base. In 1972-73, the land revenue was only Tk 25 million (1.5% of total tax) and it increased continuously in nominal terms over the years. In 1997-98, land revenue collection was Tk 1.614 billion (1.1% of total tax) and it was targeted at Tk 4.90 billion (0.8% of total tax) in the budget of 2009-10.

The most important tax on the value of transferred property is the non-judicial stamp tax (levied under the Stamp Act 1899), which has been in existence since January 1899. Current rates of non-judicial stamp duty are provided in the First Schedule of the Finance Act 1998, ranging from Tk 4 to Tk 10,000 in case of absolute rate, or from 0.07% to 1.5% of the value of consideration in case of ad valorem rate. The judicial stamp tax is being levied under the Court Fees Act 1870, although the levy of court fees originated in the introduction of the Bengal Regulation No 38 of 1795.

The present customs system was introduced by enacting the Sea Customs Act 1878. The Land Customs Act was promulgated in 1924 to enable the central government to enforce control on the movement of goods and passengers by the land routes. The Customs Act 1969 was enacted to consolidate and amend the law relating to customs duties and provide for allied matters and this Act was made effective in independent Bangladesh since January 1970.

Excise duty is currently imposed in Bangladesh under the Excise and Salt Act 1944 introduced to levy and collect duties of excise on domestically manufactured goods and also to salt. Before introducing VAT since July 1991, the excise constituted the second largest source of revenue for the government (about 22% of total revenue), but out of 99 excisable items, 74 were shifted under VAT in 1991-92. The excisable items subject to excise duty are listed with the tax rates in the First Schedule of the Excise and Salt Act 1944. In 2004, Part-I of this First Schedule, which contained the list of excisable goods, was repealed and hence there are no excisable goods from FY 2004-05. Since then excise duty has been collected on two services: (1) services rendered by banks through maintaining a deposit account; and (2) services rendered by airline through issuing a domestic 'Airline Ticket per seat' for single journey to ultimate airport of destination. Narcotics duty continued to be collected from all kinds of produced alcohol at rates specified in the Second Schedule of the Narcotics Control Act 1990 and alcohol products are not subject to excise duty or VAT.

The first sales tax was introduced in the former Central Provinces of India in 1938. In Bengal, sales tax was adopted in 1941. In 1948, sales tax was transferred as a central tax under the General Sales Tax Act of 1948. The Sales Tax Act 1951 came into force on 1 July 1951 by repealing the Pakistan General Sales Tax Act of 1948. Until 1982, sales tax was being collected under the 1951 Act, which was replaced by the Sales Tax Ordinance 1982. The VAT law was promulgated by repealing the Business Turnover Tax Ordinance 1982 and the Sales Tax Ordinance 1982 with effect from 1 July 1991 by imposing three types of taxes, viz, VAT, SD and TT. Now VAT is being imposed at 15% on 'value added'; at import and all production and distribution stages of taxable goods and services and collected from VAT-registered persons having annual turnover of Tk 2 million or more. In case of annual turnover of less than Tk 2 million, TT is imposed at 4% on gross turnover. Goods and services, which are luxurious, non-essential and socially undesirable, are subject to SD at seven different rates on goods (20%, 30%, 45%, 60%, 100%, 250% and 350%) and at three different rates on services (10%, 25% and 35%) in 2009-10. Exports are subject to imposition of VAT at zero-rate, ie, VAT paid at pre-export stages are refunded to the exporters. The VAT authority has also been collecting advance trade VAT (ATV) on commercial importers since October 1, 2004 (the rate being 2.25% in 2009-10).

Income tax was first introduced in the subcontinent by the British in 1860 to make up the revenue deficit caused by the sepoy revolt, 1857. After independence of Bangladesh, income tax was made effective under the Income Tax Act 1922 passed on the basis of the recommendations of the All-India Income Tax Committee appointed in 1921. Currently, income tax has been imposed under the Income Tax Ordinance 1984 (ITO) promulgated on the basis of recommendations of the Final Report of the Taxation Enquiry Commission submitted in April 1979. Income taxpayers (assessees) are classified as individuals, partnership firms, Hindu undivided families (HUF), associations of persons (AOP), companies (publicly traded and private), local authorities, and other artificial juridical persons. Tax rates and scope of taxable income differ on the basis of residential status of an assessee (resident or non-resident).

Taxpayers can submit tax return under 'universal self-assessment' (since assessment year 2007-08) or 'normal' scheme. In the classified income tax return, a non-corporate assessee has to show his/her total taxable income under 9 heads of domestic income and 1 head of foreign income; but a corporate assessee has to file a separate tax return showing 6 heads of income. Tax-base for income taxation is 'annual total income' computed with consideration of a number of 'exclusions' provided in Part-A, Sixth Schedule of the ITO.

From fiscal or assessment year (AY) 2008-09, there is an initial exemption limit of annual total income of Tk 165,000 applicable for individuals (including non-resident Bangladeshis), partnership firms, HUF, AOP and assessees other than companies and local authorities. This initial exemption limit is higher for taxpayers being women, senior citizens and retarded persons. In FY of 2009-10, the initial exemption limit for women taxpayers and taxpayers having age of 65 years or more was Tk 180,000 and for retarded taxpayers was Tk 200,000. In case an assessee of these group has an annual total income less than this initial exemption limit, the assessee is not required to pay any tax but as a holder of TIN (Taxpayer Identification Number), if already issued to the assessee, must submit a tax return. If annual total income is higher, he is to pay a minimum tax of Tk 2,000. A progressive slab taxation is applicable for these income taxpayers. Since AY 2008-09, the income tax rate for first Tk 275,000 above the initial exemption limit is 10%, for next Tk 325,000 it is 15%, for next Tk 375,000 it is 20% and for any further income 25%. However, a tax credit at 10% is allowed on specified investments/donations, total of which cannot exceed Tk 1,000,000, but in no case 25% of total income (excluding employer';s contribution to recognised provident fund and taxable interest on accumulated balance of recognised provident fund). Besides, every individual assessee has to furnish a statement of assets and liabilities [IT-10B] and a statement regarding particulars of life style [IT-10BB] along with the tax return.

Other corporate taxpayers must submit a tax return. In FY of 2009-10, for any company, the common tax rates are: 20% on dividend income, 10% on capital gain arising out of transfer of stocks and shares of private limited company, and 15% on capital gain arising out of transfer of other capital assets. Special tax rate on other income for bank, insurance and financial institutions is 42.5%, for mobile phone operators 35% (if converted into a publicly traded through transfer of at least 10% shares through stock exchanges) or 45%, for other listed publicly traded companies 27.5% (if dividend declared by at least 10% and no failure to pay declared dividend within the time stipulated by the Securities and Exchange Commission) or 37.5%, and for other companies 37.5%. In case of individual non-resident assessees (other than non-resident Bangladeshi), total income is subject to a tax rate of 25%. Income tax is often a withholding tax and there are a good number of transaction-points where tax is deducted or collected at source by the persons paying the income or bill.

However, industrial undertaking, tourist industry or physical infrastructure facility (including 'expansion unit' thereof), if established within June 2011, are allowed 'tax holiday' for 4 to 6 years (4 years for Dhaka and Chittagong divisions, except the three districts of chittagong hill tracts, and 6 years for other regions), subject to fulfillment of certain conditions. Alternatively, they can be allowed 'accelerated depreciation'. Subject to fulfillment of the stipulated conditions, newly established private hospitals can be allowed a tax holiday of 5 years. In general, half of the export income is non-assessable and thus not included in the tax-base. But industries established in the export processing zone enjoy special tax treatments such as tax holiday of 10 years for pioneering industries, and treating 50% of export income non-assessable even after the expiry of tax holiday. Company investing in any sector of Bangladesh economy on a commercial basis under an agreement between Bangladesh Government and any other foreign government or any investment organisation established by the foreign government is also allowed tax holiday according to the agreement. Tax holiday up to June 2011 is also being enjoyed by fishery, poultry, poultry feed production, seed production, marketing of locally produced seed, livestock farm, dairy farm, frog farm, horticulture, plantation of mulberry tree, cocoon farm, mushroom farm and floriculture. Since July 2009, a Private Sector Power Generation Company (established after fulfillment of all the conditions of the Private Sector Power Generation Policy of Bangladesh and which shall commence commercial production within June 2012), has been allowed 15-year tax holiday on company's income from the date of commercial production and there are additional incentives, such as 3-year tax exemption on income of the foreign individuals working in the company from the date of their entry into Bangladesh, and tax exemption on interest payable on foreign loan taken by the company, on royalties, technical know-how and technical assistance fees payable by the company and on capital gain arising from transfer of company's shares. Tax holiday has been provided since 1959-60 (except for 1972-73 and 1973-74) with a view to encouraging industrialisation in the country. In the budget of 2009-10, reduced-rate scheme has been announced as an alternative to tax holiday for prescribed new industries (established between July 2009 to June 2012), where the tax rates are 5% to 15% for first 5 years for Dhaka and Chittagong Divisions (except for Rangamati, Bandarban and Khagrachari hill districts) and 5% to 10% for first 6 years for other regions.

Gift-tax has been collected by the income tax authority since 1963 except for 1985-86 to 1989-90. Under the Gift-tax Act 1990, it is now payable by the donor and applicable only for gifts of domestic property donated except to spouse, blood-related family members and dependent relatives, government recognised educational, religious, charitable, disaster-management or medical establishments, local authorities and some other prescribed persons. In the line of income tax, a progressive slab taxation is also applicable for taxable gifts. The gift-tax rate for first Tk 5 lakh of taxable gift is 5%, for next Tk 10 lakh is 10%, for next Tk 20 lakh is 15% and for any further taxable gift 20%.

Foreign travel tax has been introduced since 1980-81. For foreign travel by air, the tax is collected through air tickets. Since October 2004, travel tax is being collected under the Travel Tax Act 2003. The tax rates for each Bangladeshi national for air travel are: Tk 2,500 for travel to any country of the continents of North America, South America, Europe, Africa, Australia and New Zealand and any country of the Far East; Tk 800 for SAARC (south asian association for regional cooperation) countries; and Tk 1,800 for any other countries. The tax rate for each Bangladeshi national in case of foreign travel by land is Tk 300 and by sea Tk 500. Besides an excise duty on domestic airline is being collected since June 2004 at a rate of Tk 200 for single journey to ultimate airport of destination through a domestic airline, except for foreign national of diplomatic class.

The distribution of tax burden in the country is uneven due to high dependence of indirect taxes. The agriculture sector pays much less tax due to predominance of the small farmers and the landless and also due to additional income tax incentives to this sector such as tax-holiday to farm-owners and allowance of extra non-assessable income of Tk 40,000 to farmers having exclusive agricultural income. The effective tax rate is more progressive in the urban sector than in the rural sector because of the character of the dominant tax in each sector - a proportional land tax in agriculture and a progressive income tax in the urban sector. The per capita tax burden increased over time - from only Tk 23 in 1972-73 to around Tk 1,000 in 1995-96, to little over Tk 1,500 in 2000-01, Tk 3,500 in 2007-08 and proposed around Tk 4,400 in 2009-10.

Local level resource mobilisation in Bangladesh has been very poor. There are two sources of resources for local governments: (a) collection of taxes and non-tax revenues such as various fees and tolls, income from hats, bazars, sairat mahals and ponds, etc and (b) grants from the central government. Local governments depend heavily on the central government grants. Except Municipalities and City Corporations, they rely on very few sources of raising revenue. The main source of raising revenue by Zila Parishads (District Councils) is the immovable property transfer tax (IPPT). Since 1986-87, the rate of IPPT applicable on the value of consideration is 1% for areas falling within a Municipality or a City Corporation and 0.5% for other areas. Union Parishads (Councils) mainly collect chowkidari (village militia) tax, which barely covers wages and salaries of staff. Municipalities (Paurashavas) and City Corporations have varied sources of revenue - taxes on the annual value of lands and buildings (commonly known as municipal tax), lighting rate, octroi (tax on import of goods for consumption, use or sale in the municipality; abolished in 1982), tax on professions, trades and callings, tax on advertisement, tax on vehicles other than motor vehicles and boats, tax on cinemas, dramatic and theatrical shows, etc. More than three-fourths of their income comes from own sources. Tax collections are, however, affected by tax defaults and evasions. [M Habibullah and Swapan Kumar Bala]