Chapter 1: Introduction:

1. What is meant by Tax? Discuss its characteristics and objectives. (TB) (2021, 2020)

Meaning of Tax:

A tax is a financial charge or levy imposed by a government on individuals, businesses, or other entities
to generate revenue. This revenue is used to fund public services like education, healthcare,
infrastructure, defense, and more. Taxes are mandatory, and failure to pay can result in penalties. Taxes
are collected without providing a direct return or service to the taxpayer, though society as a whole
benefits from government-funded services.

The Organisation for Economic Co-operation and Development (OECD) defines a tax as a “compulsory,
unrequited payment to government.” That is, you have to pay it, and you don't get anything back—at
least not directly.

Taxes can be classified into two major categories:

1. Direct Taxes: Paid directly to the government by the person or organization on whom it is imposed
(e.g., income tax).

2. Indirect Taxes: Collected by intermediaries who then pass the tax on to the government (e.g., VAT).

Characteristics of Tax:

1. Compulsory Nature: Taxes are mandatory under the law, and everyone eligible must pay, regardless
of their willingness.

2. No Direct Benefit: Unlike fees, taxes do not guarantee a direct benefit to the payer. The government
uses the collected funds for public welfare, but there is no specific return to the person who pays.

3. Legal Obligation: Taxation is imposed under the authority of laws like the Income Tax Ordinance
1984 in Bangladesh. The government has the legal power to enforce tax collection.

4. Periodic Payment: Most taxes are collected periodically (e.g., annually).

5. Source of Government Revenue: Tax is a major source of revenue for the government to carry out its
functions.

6. Non-Penal: Taxes are not a form of punishment. They are meant for economic regulation and
resource generation.

Objectives of Taxation:

1. Revenue Generation: The primary objective is to generate funds for the government to finance public
goods and services, such as healthcare, education, and infrastructure

2. Redistribution of Income: Taxes can reduce income inequality by redistributing wealth from higher-
income groups to lower-income groups through social welfare programs.

3. Economic Stability: Taxation can be used as a tool to control inflation and deflation. During inflation,
higher taxes reduce disposable income, decreasing demand. During deflation, lower taxes increase
spending capacity, boosting demand.

4. Resource Allocation: Through taxation, the government can influence the allocation of resources in

1st Page
 the economy. For example, higher taxes on harmful products (like cigarettes) discourage their
consumption.

5. Encouraging or Discouraging Behavior: Taxes can encourage positive behaviors (e.g., tax credits for
green energy) or discourage negative behaviors (e.g., sin taxes on tobacco or alcohol).

6. Promoting Economic Growth: By managing taxes effectively, governments can stimulate investment,
consumption, and savings, thereby promoting economic development.

7. Encouraging Social Responsibility: Tax breaks for charitable donations or investments in public
goods encourage positive societal behaviors.

2. Classify tax. Distinguish between direct and indirect tax and state advantages and disadvantages
of direct and indirect tax. (TB)

Classification of Tax:

Tax can be classified into different types on the basis of Incidence, progression, and base, which are
described below:

1. On the Basis of Incidence:

This classification is based on who bears the burden of the tax.

a. Direct Tax: Paid directly by individuals or organizations to the government. The person on whom the
tax is imposed bears the entire tax burden.

Examples: Income tax, property tax.

b. Indirect Tax: Paid indirectly by consumers through businesses or intermediaries. The tax is shifted
from the seller to the consumer, who ultimately bears the tax burden.

Examples: VAT, customs duty.

2. On the Basis of Progression:

This classification depends on how the tax rate changes with income levels.

a. Progressive Tax: The tax rate increases as the income or wealth of the taxpayer increases. Higher-
income earners pay a larger proportion of their income as tax.

Example: Income tax in many countries.

b. Proportionate (Flat) Tax: A fixed rate of tax is applied to all taxpayers, regardless of their income level.
Everyone pays the same percentage of their income or value of goods.

Example: A flat 10% income tax on all income levels.

c. Regressive Tax: The tax rate decreases as the income of the taxpayer increases. Lower-income
individuals pay a higher proportion of their income compared to higher-income individuals.

Example: Indirect taxes like VAT can be regressive because poorer individuals spend more of their
income on consumption.

3. On the Basis of Base:

2nd Page
This classification is based on the number of tax bases or types of taxes applied.

a. Single Tax: When in a country the tax system compromises only one tax, then it is called single tax. At
present, single tax system is found absent.

Example: Poll tax or head tax, which in ancient time would be imposed on a person because he lived in
that society.

b. Multiple Tax: When in a country different types of taxes are imposed considering different bases, then
it is called multiple tax. At present this system is prevalent worldwide.

Advantages and Disadvantages of Direct Taxes:

Advantages of Direct Taxes:

1. Equitable: Higher-income earners are taxed more heavily, promoting fairness and income
redistribution.

2. Certainty: The taxpayer knows exactly how much they are required to pay, ensuring clarity in their
financial obligations.

3. Discourages Inequality: Since it’s progressive in nature, it helps to reduce income inequality in society.

3rd Page
4. Predictable Revenue: The government can plan its budget based on predictable income from direct
taxes.

Disadvantages of Direct Taxes:

1. Tax Evasion/avoidance: Since individuals must declare their own income, some may attempt to evade
taxes by underreporting their earnings.

2. Disincentive to Work: Higher direct taxes, particularly on income, may discourage people from
working harder or earning more, as they may feel more of their income is taken by the government.

3. High Administrative Costs: Collection of direct taxes requires administrative resources, which can be
expensive and complex to maintain.

4. Complexity: Direct taxes often come with complex regulations, exemptions, and rates, making the tax
system difficult for ordinary citizens to navigate.

Advantages and Disadvantages of Indirect Taxes:

Advantages of Indirect Taxes:

1. Easy to Collect: Collected automatically at the point of sale, which reduces the government’s
administrative burden.

2. Difficult to Evade: Since the tax is included in the price of goods or services, consumers can’t evade
paying it.

3. Wider Tax Base: Everyone, including tourists and people from informal sectors, contributes to indirect
taxes when they purchase goods and services.

4. Encourages Savings: Indirect taxes are levied on consumption, so people who save more are taxed less.

Disadvantages of Indirect Taxes:

1. Regressive Nature: Indirect taxes can disproportionately affect lower-income individuals, as they spend
a higher percentage of their income on consumption.

2. Inflationary Impact: Indirect taxes increase the price of goods and services, which can contribute to
inflation.

3. Hidden Nature: Consumers may not always be aware of the amount of tax they are paying, as it is
included in the price of the product.

4. Less Equitable: Unlike direct taxes, indirect taxes do not distinguish between the rich and the poor,
meaning everyone pays the same rate regardless of their income level.

3. Define tax and state its role in the economic development of a country. (TB)

Meaning of Tax:

Tax is a compulsory levy imposed by a government under specific Acts on persons or goods to defray
expenditure of govt for common benefits of citizen.

4th Page
Role of Tax in the Economic Development of a Country:

Taxes play a vital role in the economic development of a country. Here is how:

1. Revenue Generation:

Taxes are the main source of revenue for the government. These funds are essential for financing
development projects such as building infrastructure (roads, bridges, etc.), improving healthcare
systems, and providing education. Without taxes, the government cannot provide public goods or
services, which are vital for economic growth.

2. Redistribution of Wealth:

Through progressive taxation, governments can redistribute wealth by taxing higher-income earners
more and using that money to fund social welfare programs. This helps reduce income inequality
and ensure that everyone has access to basic services, which contributes to overall social and
economic development.

3. Encouraging Economic Stability:

Taxes help regulate inflation and deflation. For instance, during periods of high inflation,
governments can increase taxes to reduce disposable income and control excessive demand.
Similarly, lowering taxes during a recession can stimulate spending and investment, promoting
economic stability.

4. Influencing Consumption and Investment:

By adjusting taxes on specific goods (e.g., high taxes on tobacco or alcohol), the government can
influence consumer behavior. Likewise, tax incentives for certain industries (like technology or
renewable energy) can encourage investment in key sectors that drive long-term economic growth.

5. Infrastructure Development:

Taxes provide the necessary funding for the development and maintenance of infrastructure, such as
transportation, communication, and utilities. Good infrastructure is crucial for economic activities, as
it improves the efficiency of businesses and attracts foreign investment.

6. Promoting Industrial Growth:

Through favorable tax policies, such as reduced corporate taxes or tax holidays, governments can
stimulate the growth of domestic industries. This leads to job creation, boosts manufacturing, and
contributes to a stronger economy.

7. Protect Domestic Industries :

Taxes, such as customs duties, can protect domestic industries from foreign competition by making
imported goods more expensive. This can help local industries grow, create jobs, and develop the
domestic economy.

8. Social and Environmental Goals:

Taxes are also used to achieve social and environmental goals. For instance, carbon taxes can
discourage pollution and support sustainable development by promoting environmentally friendly
business practices.

5th Page
Conclusion:

Taxes play a fundamental role in the economic development of any country. By providing necessary
funding for public services, infrastructure, and social programs, taxes help governments create a stable
environment for growth, reduce inequality, and foster long-term economic progress.

4. Give a short description about the tax system in Bangladesh. (TB) (2021, 2020)

Tax System:

A tax system refers to the set of laws, regulations, and procedures a government uses to impose and
collect taxes from individuals, businesses, and other entities. It includes the types of taxes, tax rates, the
methods of collection, and the enforcement of tax laws. A well-designed tax system ensures fairness,
efficiency, and adequate revenue generation to fund public services like infrastructure, education,
healthcare, and security.

Tax System in Bangladesh:

The tax system in Bangladesh is mainly administered by the National Board of Revenue (NBR), which is
responsible for the collection of various taxes, such as income tax, corporate tax, value-added tax (VAT),
and customs duties. The system operates under the Income Tax Ordinance of 1984, along with several
other laws for indirect taxes like VAT (Value Added Tax) and customs duties.

Tax System of Bangladesh is based on multiple tax system. A good number of taxes are in existence.
Among these taxes, contribution of indirect taxes to the government revenue is quite significant.
Following table shows the share of contribution of tax to the total revenue in one hand and the share of
direct and indirect taxes there of on the other:

Particulars 2023-24 Budget

(In crore Taka)

Total revenue 5,00,000

Tax revenue 4,50,000

% of tax to revenue 90%

Direct tax 1,53,260

% of direct tax to total tax 34.06%

Indirect tax 2,96,740

% of indirect tax to total tax 65.94%

It has earlier been pointed out that the tax system of Bangladesh is based on multiple taxes. In such a
context, a brief description of the important taxes that are in existence in Bangladesh now follows:

1. Income Tax: Income tax in Bangladesh is a direct tax imposed on the income or earnings of
individuals, businesses, and other legal entities. It is progressive in nature, meaning that individuals
with higher incomes are taxed at higher rates, while lower-income earners may fall under lower tax
brackets or enjoy exemptions.

6th Page
2. Corporate Tax: Corporate tax is a specific form of income tax imposed on the profits of corporations.
The tax rate varies depending on the industry. For example, financial institutions such as banks are
taxed at higher rates compared to manufacturing companies.

3. Value Added Tax (VAT): Value Added Tax (VAT) is an indirect tax levied on the sale of goods and
services at each stage of production and distribution. It is one of the most important sources of
revenue for the Bangladesh government. The standard VAT rate is 15%, although certain essential
goods and services may be exempt or subject to lower rates. VAT is collected from consumers at the
point of sale.

4. Customs Duties: Customs duties are taxes imposed on goods imported into Bangladesh. These duties
are designed to regulate international trade, protect domestic industries from foreign competition,
and generate government revenue. Customs duties vary depending on the type of goods being
imported, with essential goods often taxed at lower rates and luxury items facing higher tariffs.

5. Excise Duty: Excise duty is a form of indirect tax applied to the production or sale of specific goods
within the country, such as tobacco, alcohol, and fuel. This tax is often used to discourage the
consumption of harmful or non-essential products. The rates for excise duty tend to be higher for
products considered harmful to public health or the environment. In Bangladesh, excise duty
contributes to government revenue and is a way to regulate consumption patterns, particularly of
luxury or harmful goods.

6. Property Tax: Property tax is a direct tax imposed on the ownership of land and real estate. This tax
is typically levied based on the assessed value of the property, and the revenue is used to support
local infrastructure and services. Local government bodies are responsible for collecting property
taxes, and these funds are often used for community development projects such as roads, schools,
and sanitation.

Chapter 2: Income Tax (Bangladesh Context)

1. What is meant by Income Tax? State its characteristics. Discuss the importance of charging
income tax from socio-economic point of view. (TB) (2021)

Definition of Income Tax:

Income tax is a direct tax imposed by the government on the income earned by individuals, businesses,
and other entities. It is calculated based on an individual’s or corporation's annual earnings, and the
amount to be paid depends on the tax rates set by the government. In Bangladesh, income tax is governed
by the Income Tax Ordinance, 1984. Income Tax is a major source of government revenue, used to fund
public services, infrastructure, and social programs.

Income Tax Ordinance, 1984 does not directly define Income-tax. However, analysis of section 16 of the
Ordinance provides some indication to this end. It provides that Income tax is one which is imposed,
charged, payable and collected in relation to the income of a person for income year/years, on the basis of
tax rate of the assessment year.

Characteristics of Income Tax:

From the analysis of the definition and nature of income tax, the following characteristics can be
identified:

7th Page
1. Direct Tax: Income tax is a direct tax, which means that it is levied directly on the individual or
business that earns the income.

2. Charged on Total Income: Income tax is charged based on the total income of a person for the
relevant income year.

3. Taxable Income: The amount of income that is subject to taxation is determined by the taxpayer's
taxable income. Taxable income is calculated by subtracting allowable deductions and exemptions
from gross income.

4. Progressive Taxation: Income tax is typically progressive, meaning that higher-income individuals
pay a higher rate of tax on their income. This means that those who have more wealth and income
are required to contribute a greater share of their resources to the government in the form of taxes.

5. Tax Deductions and Exemptions: Taxpayers may be allowed to deduct certain expenses or claim
exemptions to reduce their taxable income. These can include deductions for education expenses,
mortgage interest, or charitable donations.

6. Annual Assessment: Income tax is usually assessed annually based on the total income earned during
the tax year. Taxpayers file their returns and pay taxes accordingly.

7. Legal Obligation: Paying income tax is a legal obligation, and failure to do so can result in penalties,
fines, or legal action.

8. Varied Rates: Different income levels may be taxed at different rates, and there may be different
rates for individuals and businesses.

Importance of Charging Income Tax from a Socio-Economic Point of View:

Charging income tax is essential for a country's socio-economic development. It plays a critical role in
addressing inequality, funding public services, and ensuring economic stability. Here’s a breakdown of
its importance from a socio-economic perspective:

1. Revenue for Public Services

Income tax is a major source of government revenue, which is essential for financing public services
such as healthcare, education, infrastructure, and social welfare programs. By collecting income tax,
the government ensures that essential services are accessible to all, contributing to improved living
standards and quality of life.

2. Wealth Redistribution

A progressive income tax system helps in redistributing wealth from higher-income individuals to
lower-income citizens. This reduces income inequality, as wealthier individuals pay a larger
proportion of their income in taxes, while low-income individuals may pay little or no tax. The
revenue collected is often redirected into social welfare programs, helping the less privileged
sections of society.

3. Reduction of Poverty

Income tax revenue allows the government to fund poverty alleviation programs. This includes
subsidies for housing, food security, healthcare, and education for lower-income groups. By
redistributing income through taxation, the government can uplift underprivileged sections of

8th Page
 society and reduce poverty levels, contributing to a more inclusive economy.

4. Financing Infrastructure Development

The income tax collected by the government is crucial for the development of infrastructure such as
roads, bridges, public transportation, and utilities. Infrastructure development not only enhances the
quality of life but also boosts economic activity by improving access to markets, reducing
transportation costs, and attracting investment.

5. Economic Stability

Income tax helps in maintaining economic stability by enabling the government to regulate the
economy. During periods of inflation or economic recession, tax policies can be adjusted to either
increase government spending or reduce taxes to stimulate demand. This fiscal flexibility is crucial
for stabilizing the economy and ensuring long-term growth.

6. Encouragement of Savings and Investment

Income tax systems often include deductions or incentives for savings and investments, which
encourage individuals and businesses to save or invest their money. These investments can then be
used for business expansion, creating jobs, and boosting economic growth. Tax exemptions for
investments in sectors like education, healthcare, and renewable energy also promote responsible
and sustainable economic activities.

7. Promotes Fairness in the Tax System

Income tax, particularly when it follows a progressive structure, ensures that taxation is fair.
Individuals with higher earnings contribute more to society, while those with lower incomes pay less
or are exempt from taxes. This fairness encourages social cohesion and prevents the concentration of
wealth in the hands of a few.

8. Social Equity and Justice

By ensuring that wealthier individuals contribute more towards public services and national
development, income tax fosters social equity and justice. This not only helps bridge the gap between
different socio-economic classes but also promotes a sense of collective responsibility, enhancing
social harmony and stability.

2. What is income tax? Show arguments for and against income tax. Do you find any adverse
impact of income tax? If so, what are they? (TB)

Definition of Income Tax:

Income tax is a direct tax imposed by the government on the income earned by individuals, businesses,
and other entities. It is calculated based on an individual’s or corporation's annual earnings, and the
amount to be paid depends on the tax rates set by the government. In Bangladesh, income tax is governed
by the Income Tax Ordinance, 1984. Income Tax is a major source of government revenue, used to fund
public services, infrastructure, and social programs.

Arguments in favour Income Tax:

1. Ability to Pay: Income tax can be imposed based on the taxpayer’s ability to pay. This allows for a fair
and just taxation system where individuals with higher incomes pay more, ensuring social justice.

9th Page
2. Progressive Nature: It is generally charged on a progressive rate basis, meaning higher-income
earners pay a larger percentage of their income, which helps in redistributing wealth and reducing
income inequality.

3. Ease of Administration: Since income tax is a direct tax, it can be easily administered. The cost of
collection and management is relatively low compared to other forms of taxation.

4. Certainty in Budgeting: Income tax follows the canon of certainty, meaning the amount of revenue
generated is predictable. This helps governments create accurate budget estimates and manage
public finances effectively.

5. Flexible Revenue Generation: Adjusting income tax rates allows governments to easily increase or
decrease revenue based on economic conditions. This flexibility helps manage national finances and
respond to changing circumstances.

6. Instrument of Fiscal Policy: Income tax can be used to influence the economy. By adjusting tax rates,
governments can control economic growth, investment, and inflation in desired directions.

Arguments against Income Tax:

1. Difficult to Define Income: Defining what constitutes taxable income is often challenging. This leads
to confusion, disputes, and ambiguity in tax administration, making the system less efficient.

2. Ambiguity in Tax Provisions: Many tax provisions are not simplified, which creates confusion and
difficulties for taxpayers. This can lead to misreporting and penalties for honest taxpayers who
struggle to understand complex regulations.

3. Harassment by Tax Administration: Some taxpayers face harassment or undue scrutiny by tax
officials. This can lead to resentment towards the government, as individuals feel unfairly targeted
for tax collection.

4. Hostility Towards Direct Payment: Since income tax is taken directly from a person’s earnings,
taxpayers may feel resentful towards the government for directly reducing their disposable income.

5. Encourages Tax Evasion and Avoidance: High-income tax rates often lead to attempts at evasion or
avoidance, as individuals and businesses seek to reduce their tax burden. This decreases the overall
revenue collected by the government and undermines social responsibility.

6. Complexity in Compliance: Maintaining accurate tax records and following regulations can be
burdensome for individuals and businesses. This complexity increases the chances of arbitrary
decisions by tax officials, leading to potential errors or unfair treatment.

Adverse Impacts of Income Tax

While income tax is an essential tool for generating government revenue and promoting socio-economic
equality, it can also have some adverse impacts if not managed properly. Below are the main potential
negative effects of income tax:

1. Disincentive to Work and Invest: High income tax rates can discourage individuals and businesses
from earning more income or making further investments. People may feel less motivated to work
harder or take risks if a significant portion of their additional income is taxed away. This disincentive
can limit innovation, entrepreneurship, and overall economic growth.

10th Page
2. Tax Evasion and Avoidance: High or complex income tax rates can lead to tax evasion and avoidance.
Individuals or businesses may resort to legal loopholes (tax avoidance) or illegal activities (tax
evasion) to reduce their tax liabilities. This results in lost revenue for the government and increases
the tax burden on honest taxpayers.

3. Administrative Complexity and Cost: Income tax systems often require detailed records, complex
calculations, and regular reporting. This can be costly and time-consuming for both taxpayers and
the government. The complexity of tax codes and regulations can also lead to mistakes, audits, and
penalties, increasing the administrative burden.

4. Reduction in Disposable Income: Income tax directly reduces an individual’s disposable income,
which is the money available for personal spending and saving. When income is taxed, people have
less money to spend on goods and services, potentially reducing overall demand in the economy and
slowing economic activity.

5. Impact on Business Expansion: High corporate income taxes may discourage businesses from
expanding or reinvesting their profits into their operations. This can result in reduced job creation,
lower investment in technology or infrastructure, and slower economic growth overall. In highly
taxed environments, businesses may even relocate to countries with lower tax rates.

6. Black Market and Informal Economy Growth: High income tax rates can encourage the growth of an
informal economy or black market, where people earn income "off the books" to avoid taxes. This
results in lost government revenue and makes it harder to regulate or monitor economic activities,
ultimately harming the formal economy.

7. Capital Flight: In economies with very high income tax rates, there is a risk that wealthy individuals
or corporations may move their capital and operations to countries with more favorable tax regimes.
This process, known as capital flight, can result in reduced investment, employment, and innovation
in the domestic economy.

3. State the role of Income Tax in the industrial development of Bangladesh. (TB)

Introduction:

Income tax is a significant source of revenue for governments around the world, including Bangladesh. It
plays an essential role not only in supporting the country’s overall economic stability but also in fostering
industrial growth. In Bangladesh, income tax contributes to infrastructure development, encourages
investment, and promotes industrial expansion through various fiscal policies and incentives. By
strategically managing income tax policies, the government can create a favorable environment for
industrial development. Below are the key roles income tax plays in the industrial development of
Bangladesh.

Role of Income Tax in the Industrial Development of Bangladesh:

1. Revenue Generation for Infrastructure Development:

Income tax plays a crucial role in generating government revenue. This revenue is often used to fund
infrastructure projects such as roads, power plants, ports, and other facilities necessary for industrial
development. Improved infrastructure enhances the ease of doing business and attracts investment
in various industries.

2. Incentives for Industrial Growth:

11th Page
 The government often provides tax incentives, such as reduced income tax rates or tax holidays, to
industries in Bangladesh. These incentives encourage local and foreign investors to establish
businesses, particularly in sectors critical for economic growth like manufacturing, textile, and IT.
This helps stimulate industrial expansion and technological advancement.

3. Support for SMEs (Small and Medium Enterprises):

Income tax policies in Bangladesh often provide special considerations for small and medium-sized
enterprises (SMEs), offering lower tax rates or exemptions. This support allows SMEs to flourish and
contribute to the overall industrial landscape, creating jobs and fostering innovation.

4. Encourages Foreign Direct Investment (FDI):

Income tax policies that offer incentives, such as double taxation avoidance agreements and reduced
tax rates for foreign investors, help attract foreign direct investment (FDI) into Bangladesh. Increased
FDI brings in capital, technology, and expertise, all of which are essential for the industrial sector's
growth and development.

5. Redistribution of Wealth and Industrial Financing:

Through progressive income tax systems, wealth is redistributed from higher-income individuals to
the broader economy. The government can use this tax revenue to provide loans or grants to
struggling industries or invest in sectors that have high growth potential, thus promoting industrial
development.

6. Stabilization of the Economy:

Income tax serves as an effective fiscal policy tool to stabilize the economy. During times of industrial
slowdown, the government can reduce income tax rates to stimulate investment and production. On
the other hand, when the economy is booming, the government may increase taxes to prevent
overheating and ensure long-term industrial growth.

7. Environmental and Sustainable Industrial Development:

Income tax policies can also promote environmentally sustainable industrial practices by offering tax
credits or deductions to companies that adopt eco-friendly technologies. This encourages industries
to operate in ways that are less harmful to the environment while still contributing to economic
development.

4. State the advantages and disadvantages of income tax. (TB)

Introduction:

Income tax is one of the most important sources of revenue for governments worldwide, including
Bangladesh. It is a direct tax that is levied on individuals and businesses based on their earnings. While
income tax serves various purposes, including funding essential public services and promoting social
equality, it also comes with certain challenges. To understand its full impact, it is necessary to weigh the
advantages and disadvantages of income tax from both economic and social perspectives.

Advantages of Income Tax:

1. Equitable Revenue Collection:

Income tax is usually based on an individual's ability to pay, with higher earners paying a higher

12th Page
 percentage. This progressive nature ensures fairness and helps in redistributing wealth, promoting
social equality.

2. Source of Government Revenue:

Income tax is a stable and significant source of revenue for governments. It is essential for funding
public services such as healthcare, education, infrastructure, and social welfare programs, which are
crucial for a country's development.

3. Economic Stabilization Tool:

The government can adjust income tax rates to stabilize the economy. During economic downturns,
tax reductions can stimulate spending and investment, while higher taxes in boom periods can help
control inflation.

4. Promotes Fiscal Responsibility:

By paying income tax, citizens are more aware of their role in national development. It fosters
accountability and increases political consciousness among taxpayers regarding how their
contributions are used.

5. Encourages Wealth Redistribution:

Progressive income tax systems help redistribute wealth by taxing the rich more and using the
revenue to provide services for the entire population, particularly lower-income groups.

Disadvantages of Income Tax:

1. Tax Evasion and Avoidance:

One of the main challenges with income tax is tax evasion and avoidance. High-income individuals
or corporations may exploit loopholes to underreport their income, reducing the potential revenue
for the government.

2. Administrative Complexity:

Income tax systems can be complex to administer, particularly with multiple tax brackets and
deductions. This complexity increases the cost of tax collection and often requires a larger
bureaucracy.

3. Negative Impact on Savings and Investment:

High-income tax rates can discourage savings and investment. Individuals may prefer leisure or
saving their income rather than engaging in additional work that will result in higher taxation,
potentially reducing overall economic growth.

4. Burden on Middle-Class Earners:

In some cases, the middle class may feel the impact of income tax more than high-income individuals,
especially when there are fewer tax breaks or deductions available to them, leading to discontent.

5. Potential for Reduced Productivity:

High income tax rates can act as a disincentive to work harder or earn more, as individuals may feel
that a significant portion of their additional income will be taxed away, thus affecting productivity

13th Page
 and labor supply.

Conclusion:

Income tax plays a crucial role in generating government revenue and ensuring wealth redistribution,
but it also faces challenges such as tax evasion and potential negative impacts on savings and
investments. A balanced approach to income tax policies can maximize its advantages while minimizing
its disadvantages.

6. What is Income Tax? State the position of income tax in the revenue earning of Bangladesh. Do
you find any problem in charging income tax? If so, analyse those problems. (TB) (2021)

Income Tax:

Income tax is a direct tax imposed by the government on the income earned by individuals, businesses,
and other entities. It is calculated based on an individual’s or corporation's annual earnings, and the
amount to be paid depends on the tax rates set by the government. In Bangladesh, income tax is governed
by the Income Tax Ordinance, 1984.

Position of Income Tax in the Revenue Earning of Bangladesh:

In Bangladesh, income tax is a critical source of government revenue. As a developing country,

Bangladesh depends heavily on its tax system to fund essential public services such as infrastructure,
healthcare, and education. Among various taxes, income tax contributes significantly to the overall tax
revenue, making it a key pillar of the country's fiscal policy.

Income tax plays a central role in the revenue collection system of Bangladesh. Administered by the
National Board of Revenue (NBR), income tax contributes a substantial portion of the total tax revenue. In
the 2023-24 national budget, income tax was expected to account for nearly one-third of the total tax
revenue (total tax revenue was expected 4,50,000 crore BDT and income tax was expected 1,53,260 crore),
highlighting its importance in the overall fiscal framework of the country.

Problems in Charging Income Tax:

The process of charging income tax is not without its problems. Issues such as tax evasion, system
complexity, and administrative inefficiencies can all hamper the effectiveness of income tax collection.
Addressing these problems requires simplifying the tax code, raising awareness, improving
infrastructure, and enhancing transparency within the tax administration.

1. Tax Evasion and Avoidance:

One of the major issues faced in charging income tax is tax evasion and avoidance. High-income
earners and corporations often use loopholes in the tax system to minimize their tax liabilities. This
undermines the integrity of the tax system, reducing the amount of revenue the government can
collect. The existence of a large informal sector in Bangladesh further complicates this, as many
individuals and businesses operate outside the formal tax network.

2. Complex Tax Structure:

The income tax system can be quite complex, with multiple tax slabs, exemptions, and deductions.
This complexity often confuses taxpayers and makes compliance difficult, particularly for small
businesses and individual taxpayers who lack professional tax advice. As a result, many taxpayers
either underpay or avoid paying taxes entirely, further reducing government revenue.

14th Page
3. Administrative Inefficiency:

The administration of income tax is often inefficient, with outdated systems, insufficient manpower,
and lack of proper monitoring. In Bangladesh, the tax administration still relies on manual systems
in many areas, which leads to delays, errors, and corruption. This inefficiency discourages taxpayers
from complying with tax laws and makes enforcement difficult for the authorities.

4. Narrow Tax Base:

Despite various initiatives to expand the tax base, the number of registered taxpayers in Bangladesh
remains relatively low compared to the working population. A large portion of the population is
either under-taxed or not taxed at all, which puts additional pressure on the compliant taxpayers.
This creates an imbalance in the tax system and leads to inequities in how the tax burden is
distributed.

5. Lack of Awareness and Education:

Many people, especially in rural areas or within lower-income brackets, are not fully aware of their
tax obligations. This lack of awareness results in low compliance, as people either do not file returns
or underreport their income. Additionally, the tax literacy level in the country is low, and many
taxpayers are unaware of the benefits of paying taxes and how their contributions support national
development.

6. High Tax Rates and Disincentives:

In some cases, income tax rates are perceived as high, which can act as a disincentive for individuals
to work harder or invest more, knowing that a significant portion of their additional earnings will be
taxed. High-income tax rates can also discourage savings and investment, which are crucial for
economic growth.

7. Corruption and Mismanagement:

Corruption within tax authorities and a lack of transparency in the use of tax revenue are significant
challenges in Bangladesh. Taxpayers often feel that their tax money is not being used efficiently for
public services, which reduces their willingness to comply with tax laws. Mismanagement of tax
funds can lead to mistrust in the government, further fueling tax evasion.

Chapter 3: Definition and Characteristics of Income

1. Define Income as per Income Tax Ordinance. (2022)

Definition of Income:

In general, income refers to the total amount of money or other forms of payment that an individual or
household receives over a certain period, typically a year. This can include wages and salaries from
employment, profits from business activities, investment income, rental income, and other sources.

[Follo the Taxation Book for Definition of Income as per Income Tax Ordinance, 1984]

15th Page
 Chapter 4: Classification of Income for Tax Purpose

1. Discuss relatively non-assessable, Tax-credit, and Tax-free income with their effects on assessing
income tax. (2022)

Introduction:

Non-assessable, tax-credit, and tax-free income are key concepts in tax systems that help manage the tax
burden for individuals and businesses. They provide relief in different ways: non-assessable income by
excluding specific income from taxation, tax credits by reducing the final tax bill, and tax-free income by
exempting certain earnings from taxes.

In this discussion, we will explore the meaning of each of these terms and their effects on income tax
assessments.

Non-assessable:

Non-assessable income refers to certain types of income that are not included in the calculation of an
individual's or entity's taxable income. This means that such income is exempt from taxation and is not
required to be reported in the tax returns for assessment purposes.

Examples:

 Government subsidies

 Specific pensions or allowances

 Gifts and inheritances (under certain thresholds)

Effect on Tax Assessment:

Since non-assessable income is excluded from the taxable base, it reduces the amount of income subject
to taxation. This directly lowers the tax liability of individuals or businesses, allowing them to keep more
of their income without incurring a tax burden. However, it also reduces the overall revenue collected by
the government, which might affect public spending.

Tax-credit:

A tax credit is a direct reduction in the amount of tax owed by a taxpayer. Unlike deductions, which
reduce taxable income, tax credits directly lower the amount of tax a person or business has to pay. Tax
credits are often provided as incentives for specific activities, such as investments in renewable energy or
for low-income individuals.

Examples:

 Credits for educational expenses

 Childcare tax credits

 Investment tax credits for certain industries

Effect on Tax Assessment:

Tax credits can significantly reduce the final tax bill for a taxpayer. For example, if a taxpayer owes
$5,000 in taxes and has a tax credit of $1,000, their tax liability is reduced to $4,000. Tax credits encourage

16th Page
specific behavior (like investing in education or renewable energy) and are often used as tools for
economic and social policy. They do not affect the taxable income but reduce the tax payment directly.

Tax-free:

Tax-free income is income that is completely exempt from taxation. Unlike non-assessable income, tax-
free income can still be reported for information purposes but does not attract any tax liability.

Examples:

 Interest earned on specific government bonds

 Income from certain non-profit organizations

 Dividends from tax-exempt sources

Effect on Tax Assessment:

Tax-free income reduces the taxpayer’s overall tax liability since it is not subject to any taxation. This
allows individuals to save more of their income, and it encourages investment in areas that provide such
tax-free returns. For example, people may be more likely to invest in government bonds if the interest
earned on those bonds is tax-free. While it benefits taxpayers, it can limit government revenue if a
significant portion of income in the economy is classified as tax-free.

Chapter 6: Income Tax Authorities

[Skipped>>]

Chapter 9: Income from Salary (Section: 21)

1. What is meant by Salary under Income Tax? State in brief the elements of salary. (TB)

or, What is Salary? Mention the elements of salary.(2022, 2021, 2020)

Definition of Salary:

In general, salary means any payments received by an employee for physical and mental work from the
employer for a definite time or work.

When it comes to income tax, the definition of salary is broader and includes various forms of payments
offered by an employer to an employee. In the context of income tax, salary includes not only the basic
salary but also other components such as allowances, bonuses, commissions, perquisites, and more.

“In Income Tax Ordinance - 1984, an inclusive definition of Salary is given in Section 2 (58), where it is said
that salary includes:

a. any pay or wages;

b. any annuity, pension or gratuity;

c. any fee, commission, allowance, perquisites, profit in lieu of salary or in addition to salary & wages;

17th Page
 d. any advance salary;

e. leave encasement.”

Elements of Salary.

Elements of Salary refer to the various components that make up an employee's total compensation
package. These elements can include both financial and non-financial benefits provided by the employer.
These elements can include:

i. Basic salary

ii. Bonus

iii. Dearness allowance

iv. Commission

v. Annuity

vi. Pension

vii. Gratuity

viii. Leave encashment

ix. Compensation for loss of service

x. Contribution to Recognized Provident Fund

xi. Perquisites: Different facilities in cash and kind are allowed to employees as perquisites which
are also elements of salary. These are now mentioned below.

1. House Rent Allowance (HRA)

2. Conveyance Allowance

3. Entertainment Allowance

4. Medical Allowance

5. Interest of Recognized Provident Fund

6. Balance of Unrecognized Provident Fund

7. Traveling Allowance

Chapter 10: Income from Securities (Section: 22-23)

1. What is Securities? (TB)

Securities are financial instruments that represent ownership or debt in a company or government entity.
They are tradable assets that investors can buy or sell in financial markets. Securities can be classified
into two main categories: (a) government securities and (b) commercial securities.

18th Page
2. What is meant by Interest on Securities under Income Tax Ordinance? Discuss different classes
of Securities. (TB) (2021, 2020)

Meaning of Interest on Securities:

Interest on securities refers to the income earned from holding financial instruments, such as bonds,
government securities, or corporate debt. This form of income is vital for individuals and institutions
looking to generate passive income from their investments.

In Bangladesh, interest on securities is subject to taxation under the provisions of the Income Tax
Ordinance, 1984. The ordinance outlines how income from securities should be treated, declared, and
taxed. Under the Income Tax Ordinance, interest on securities refers to the interest income earned from
any government, corporate, or other financial instruments recognized as securities.

Classification of Securities:

Securities can be classified broadly into two groups: (1) Government Securities, and (2) Commercial
Securities. These can be further classified into (a) Tax free, and (b) Less Tax

Following chart shows the picture of classification clearly:

1. Government Securities:

Income Tax Law has not defined Government Securities. However, as per Indian Securities Act-1920, a
list of Govt. Securities are available to be Govt. Securities which in Bangladesh are also accepted now.
These are,

 Govt. Promisory notes;

 Treasury Bill;

 Govt. Stock Certificate;

 Bearer bond;

19th Page
  Govt. Loan documents; and the like.

These govt securities are found to be of two types:

a. Tax-free Govt. Securities: Interest on these securities are totally non-assessable.

b. Less-Tax Govt Securities: Securities issued by the Govt. & not falling under tax-free declared
securities can be categorized as Less-Tax Govt Securities. Interest on these securities are
exempted up to Tk. 5,000.

2. Commercial Securities:

Commercial Securities means the securities or debenture issued by local government, Port Trust or any
commercial company.

These commercial Securities can also be classified into two types:

a. Tax-free Commercial Securities: Some years ago interest from tax-free Commercial Securities
was eligible from tax exemption up to Tk. 20,000. But this exemption has been withdraw by
Finance Act, 2011. Hence, interest on commercial Securities are now fully assessable.

b. Less-Tax Commercial Securities:

Chapter 11: Income from House Property (Section: 24-25)

1. What is the basis of Taxation in respect of House Property? How the Annual Value of House
Property is determined? (TB) (2022, 2021, 2020)

Taxation in Respect of House Property:

Taxation in respect of house property refers to the imposition of taxes on income generated from owning
or renting out a house or property.

In many countries, including Bangladesh, taxation on house property typically involves calculating the
rental income earned from letting out the property to tenants. This income is then subject to tax
according to the applicable tax laws and rates set by the government. Additionally, deductions for certain
expenses related to the property, such as municipal taxes and interest on housing loans, may be allowed
to arrive at the taxable income.

Determination of Annual Value of House Property:

There are three simple steps in determining the annual value of house property. Here, I provide a step-by
-step process for determining the annual value of a house property for taxation purposes:

1. Calculate the Actual Rental Value: The first step is to calculate the Actual Rental Value. This involves
taking the rent paid by the tenant and adding any expenses they bear, such as utilities. Then, you
subtract any expenses bear by the owner. This gives you the Actual Rental Value.

2. Determine the Municipal Value: Next, you need to determine the Municipal Value, which is the value
assigned to the property by the local government for taxation purposes.

3. Compare the Actual Rental Value and the Municipal Value: The final step is to compare the Actual
Rental Value and the Municipal Value. Whichever is higher is considered the Actual Value of the

20th Page
 property, and this is the value that will be used for taxation.

2. What exemption are allowed in determining income from house property? (TB) (2020)

Allowable Exemptions:

When calculating income from house property for tax purposes, certain deductions and exemptions are
allowed to reduce the taxable amount. These exemptions help property owners manage expenses related
to maintaining the property. Below is a brief explanation of the key exemptions.

1. Repair and Maintenance (¼ of Annual Value): Property owners are allowed a flat deduction of 25% of
the annual value (AV) of the property for repairs and maintenance, regardless of actual repair costs.
This covers expenses for routine upkeep like painting, cleaning, and other minor repairs.

2. Land Revenue: Any land revenue or tax paid to the government on the property can be deducted
from the income. This includes charges levied for the use of the land on which the property is
situated.

3. Insurance Premium: Deductions are allowed for the insurance premiums paid to protect the house
against risks like fire, theft, or natural disasters. This ensures property owners are financially
covered for potential damages.

4. Mortgage Interest: If the property is under a mortgage, the interest paid on the loan can be deducted.
This is beneficial for property owners as it reduces their taxable income by accounting for the cost of
borrowing money to buy or maintain the property.

5. Municipal or Local Authority Tax: Any municipal or local authority taxes, such as property taxes or
charges for water and sewage services, are deductible. However, these taxes must be paid by the
property owner, not just due.

6. Ground Rent: If a property owner leases the land, they may pay ground rent for its use. This rent can
be deducted from income since it is a necessary expense for maintaining property rights over the
land.

7. Interest on Borrowed Capital (House Property Related): Deductions are allowed for interest on loans
taken to purchase, construct, or repair the house property. This helps reduce the taxable amount for
property owners who have borrowed money to invest in their property.

8. Vacancy Allowance: If the property is vacant for part of the year and doesn't generate rental income,
the owner can claim a deduction for that period. This prevents taxation on income that wasn't
earned due to vacancy.

3. What house properties are exempted from taxation?

Types of House Property That Are Exempted from Taxation:

In Bangladesh, certain types of house properties are exempted from income tax under the Income Tax
Ordinance, 1984. These exemptions are intended to provide relief for specific cases, such as properties
used for religious, charitable, or personal purposes. Below is a brief discussion of the key house property
exemptions allowed under the law.

1. Property income of approved religious or charitable institutions in Bangladesh and voluntary

contribution to such institutions.

21st Page
2. Income from house constructed and used by Refugee.

3. Income of any residential building occupied by owner.

4. House property used in the business of the owner, if the income of the business is assessable
separately under the head "Income from Business or Profession."

5. Income of the property used for Agricultural purpose by the owner.

6. Income from newly constructed house as follows for a period as set by NBR.

Chapter 12: Income from Agriculture (Section: 26-27)

1. What is Agriculture Income? How is it computed under Income Tax law? (2022)

Meaning of Agriculture Income:

Agriculture income refers to the earnings generated from agricultural activities such as farming,
cultivation, and land-related activities. In many countries, including Bangladesh, agriculture plays a vital
role in the economy, and income derived from agriculture is treated differently under income tax laws.
The Income Tax Ordinance, 1984 provides specific provisions for the computation and treatment of
agricultural income.

Agriculture income generally includes earnings from:

 Cultivation of Land: Any income generated from activities such as growing crops, fruits, or
vegetables on land owned or leased by an individual.

 Sale of Produce: Revenue earned from the sale of agricultural products leasinggrown on the land,
such as grains, fruits, vegetables, or other crops.

 Rent or Revenue from Agricultural Land: Income received as rent from agricultural land for farming
purposes.

 Income from Farmhouses: Earnings from buildings on agricultural land that are used for agriculture-
related activities, such as storing produce or housing equipment.

Computation of Agriculture Income Under Income Tax Law:

1. Determining Total Agricultural Income:

To calculate agriculture income, the total revenue earned from agricultural activities during the financial
year is first determined. This includes the value of crops sold, rent received from leasing land, and any
other related earnings.

2. Deducting Allowable Deductions:

Certain expenses are allowed as deductions from total agricultural income, such as:

 Cost of Cultivation/Production (subject to 60% of total sale of crops if books are not maintained)

 Insurance Premium on land or crops

22nd Page
 Depreciation on Agricultural Machinery

 Interest on borrowed capital

 Land revenue

3. Taxable Income from Agricultural Income:

After deducting the allowable expenses from the total agricultural income, the net agricultural income is
determined. This net income is considered the final figure for tax purposes.

Chapter 13: Income from Business and Profession (Section: 28-30)

1. What is depreciation? State the various kinds of depreciation allowances approved by the
Income Tax Authority. (2022)

Meaning of Depreciation:

Depreciation refers to the gradual reduction in the value of an asset over time due to factors like wear
and tear, obsolescence, or regular usage. In the context of income tax, depreciation is an allowable
deduction that businesses and individuals can claim for the loss in value of their fixed assets, such as
machinery, buildings, or vehicles. The Income Tax Authority recognizes depreciation as a legitimate
expense, and it reduces the taxable income by accounting for this decline in asset value.

Kinds of Depreciation Allowances Approved by the Income Tax Authority:

1. Normal Depreciation Allowance (NDA):

This is the standard depreciation allowed on fixed assets such as buildings, machinery, and vehicles
used for business or professional purposes. It is calculated based on the rate set by the Income Tax
Authority and applied annually over the useful life of the asset. This depreciation allows businesses
to gradually recover the cost of their assets.

2. Initial Depreciation (ID):

In addition to the normal depreciation, initial depreciation is an extra allowance given in the first
year when a new asset is acquired or constructed. It is usually allowed for assets used in priority
sectors, such as manufacturing or production, to incentivize capital investment. Initial depreciation
helps businesses reduce their taxable income more significantly in the asset's first year of use.

3. Special Depreciation for Ships (SDS):

This depreciation allowance is specifically designed for ships or vessels used in business activities
such as transportation or fishing. Ships, being expensive and having a longer lifespan, are provided
with special depreciation rates to help businesses recover the cost of such high-value assets over a
reasonable period.

4. Accelerated Depreciation Allowance (ADA):

Accelerated depreciation allows businesses to claim a higher percentage of depreciation in the initial
years of the asset's life. This method is intended to front-load the deduction, enabling companies to
write off the cost of the asset more quickly. It is beneficial for businesses that invest in assets that lose

23rd Page
 their value rapidly or require frequent upgrades due to technological advances.

5. Balancing Depreciation Allowance (BDA) or Obsolescence Allowance (OA):

Balancing depreciation is allowed when an asset is sold, discarded, or becomes obsolete before the
end of its useful life. This allowance enables businesses to claim the remaining value of the asset as a
deduction, reducing their taxable income. It helps offset the financial loss from an asset that no
longer holds significant value due to market changes or technological advancements.

Chapter 18: Tax Evasion and Tax Avoidance

1. Find how an assessee can evade and avoid tax? (2022)

[Follow the Taxation Book]

2. Describe the preventive measures those are available in income tax law with respect to tax
evasion and tax avoidance. Do you think the provisions are adequate? Why or why not? (2022)

[Follow the Taxation Book]

24th Page