Contents EXECUTIVE EXECUTI VE SUMMARY ................................. ................ .................................. ................................... ................................... ................................... .................................... .......................... ........ 2 Introduction .................................................................................................................................................. 2
Hstory of tax in Bangladesh ......................................................................................................................... 3 Tax structure in Bangladesh .......................................................................................................................... 3 Features of Bangladesh Tax Structure ...................................................................................................... 4
Tax system in Bangladesh ............................................................................................................................ 7 Income Tax at a Glance: ............................................................................................................................ 7 Sources of Income: ................................................................................................................................ 7 Application Of Cannon In The Tax System Of Bangladesh ................. ........................... ................... .................. .................. .................. .................. ........... .. 11 Tax Evasion And Tax Avoidance .................................................................................................................. 13 What is tax evasion & tax avoidance? ........................................................................................................ 13
Effects of Tax Evasion and Avoidance in Economic Development: .......................................................... 13 Reasons for tax evasion and tax avoidance ................................................................................................ 14 Scopes of tax evasion and avoidance ......................................................................................................... 16 Recommendation to reduce tax evasion and tax avoidance .................. ........................... .................. .................. .................. .................. ................ ....... 17 Public Accounting Practices Pr actices in Bangladesh: Standards S tandards from ICMAB & ICAB .................. ........................... ................... ................... ......... 19 Accounting in Bangladesh: .......................................................................................................................... 19 ICMAB: .................................................................................................................................................... 20 Roles and Standards of ICMAB............................................................................................................ 21
References and Bibliography ..................................................................................................................... 23
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EXECUTIVE SUMMARY
The term paper is a requirement of BBA Program. This term paper focuses on “ TAX STRUCTURE IN
BANGLADESH, TAX EVASION AND TAX AVOIDANCE & PUBLIC ACCOUNTING PRACTICES IN BANGLADESH: STANDARDS FROM ICMAB & ICAB. ”The total term paper is divided into three broad parts. The first part includes the Tax Structure in Bangladesh. The second part includes the Tax Evasion and Tax Avoidance &the final part includes the Public Accounting Practices in Bangladesh: Standards from ICMAB & ICAB. In the first part we discuss about the overview, types, function, characteristic, sources and pay system of tax in Bangladesh. In the second part we discuss about reasons, modes of tax evasion and avoidance and strategies against them. Then we discuss about the public accounting practices standards from ICMAB & ICAB in Bangladesh. And finally we have tried to draw a conclusion on the above analysis.
Introduction development expenditures expenditures One of the major sources of public revenue to meet a country’s revenue and development with a view to accomplishing some economic and social objectives, such as redistribution of income,
2
price stabilization and discouraging harmful consumption. It supplements other sources of public finance such as issuance of currency notes and coins, charging for public goods and services and borrowings. The term ‘tax’ has been derived from the French word taxe and etymologically, the Latin
word taxare is related to the term ‘tax’, which means ‘to charge’. Tax is ‘a contribution exacted by the state’. It is a no penal but compulsory and unrequited transfer of resources from the private to the
public sector, levied on the basis of predete rmined criteria. “Taxes are compulsory payment to the government without expectation of direct return in benefit to the taxpayer.” According to section 2(62) of the ITO 1984 “Tax means the income tax payable under the ordinance and
includes any additional tax, excess of profit, penalty, interest, fees or other charges leviable or payable under this ordinance.”
History of tax in Bangladesh Bangladesh inherited a system of taxation from its past British and Pakistani rulers. The system, however, developed on the basis of generally accepted canons and there had been efforts towards rationalizing the tax administration for optimizing 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 f or direct tax training and Customs, Excise and Value Added Tax Training Academy at chittagong f or indirect tax training. The national board of revenue (NBR) is the apex tax authority of Bangladesh and it collects around 93% of total taxes or 83% of total public revenues. The NBR portion of total taxes includes customs duty, value added tax (VAT), supplementary duty (SD), excise duty, income tax, foreign travel tax, electricity duty, wealth tax (collected as a surcharge of income tax since fiscal year 1999-2000), turnover tax (TT), air ticket tax, advertisement tax, gift tax and miscellaneous insignificant taxes. Other taxes (amounting to around 7% of total taxes or 5% of total revenues) 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).
Tax structure in Bangladesh The tax structure in Bangladesh consists both of direct tax(income tax, gift tax, land development tax, non-judicial stamp, registration, immovable property tax etc.) and indirect taxes (custom duty, excise
3
duty, motor vehicle tax, narcotics and liquor duty, VAT, SD, foreign travel tax, TT, electricity duty, advertisement duty etc.). Analysis of revenue collection activities in Bangladesh for the fiscal year 2012-13 reveals that tax revenue accounts for 83.64% of government revenue and direct taxes represent only about 33.12% of total taxes. As per the national budget of FY 2013-14, the tax revenue has been targeted to 1412.19billion which was tk.1122.59 billion in the fiscal year 2012-13 as per the revised budget. From the analysis of the national budget 2013-14, it can be said that in the FY 2013-14 revenue collections from value added taxes (VAT) have been estimated at around tk.499.56 billion(35.37% of total taxes), from import duty at tk.146.29 billion(10.36%), income tax at tk.482.97 billion(34.20%), supplementary duty at tk.208.53 billion(14.77%) and others 5.30% of this aggregate target. Features of Bangladesh Tax Structure The salient features of Bangladesh tax system are as follows:
Multiple tax system: The tax system of Bangladesh consists of various types of taxes which are as follows: A. Taxes on Income and Profit: 1. Income tax-Company 2 .Income tax-other than company B. Taxes on Capital and Property Transfer 1. Estate Duty
2.Gift tax
3 .Narcotics Duty
4.land revenue
5. Stamp Duty-non judicial
6.Registration
C. Taxes on Goods and Services 1. Customs Duty 2. Excise Duty 3. Value Added tax(VAT) 4. Supplementary Duty( on luxury items and in addition to VAT) 5. Taxes on Vehicles 6. Electricity duty 7. Other taxes and duties (travel tax , turnover tax etc.) 4
Sources of Non-tax Revenue
Interest, Dividend and Profit
General Administration and Services
Social and Community Service
Economic Services
Agriculture and Allied Services
Transport and Communication
Other non-tax revenue
Capital Revenue
Inadequate and stagnant yield relative to GDP The ratio of the tax revenue to GDP is very low comparing to other developing countries. In FY 1973-74 tax GDP ratio was around 5% and even after 35 years the progress is not satisfactory. We can see the status of the ratio of tax revenue to GDP of Bangladesh in the following table for the last seven years.(Bangladesh Economic Review-2013):
Revenue as % of GDP Total Revenue Tax Revenue
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
11.1
11.3
11.4
11.9
12.5
13.5
8.8
9.0
9.2
9.9
10.5
11.3
Non-tax Revenue
2.3
2.2
2.2
2.0
2.0
2.2
2013-14
High ratio of indirect and direct tax revenue Despite the progress in a global climate of free economy, a major thrust of fiscal policy in Bangladesh has to be on raising the revenue-GDP ratio. Further, there is an urgent need for shift in the composition of revenues away from indirect taxes on international trade, goods and services towards direct taxes on income and profit, whose share in total revenue in Bangladesh is appallingly low, even compared to other developing countries in Asia. An analysis of the revenue from the existing taxes shows that the indirect taxes pre-dominate the revenue yield of the country. Nearly 67% of the tax revenue is from indirect taxes which are clear from the following table (Bangladesh Economic Review-2013):
Revenue (Tk.in Crore) Total Revenue 5
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
60539
69180
79484
95187
114885
139670
Tax Revenue Non-tax Revenue % of tax to Revenue Direct Tax (DT) % of DT to Total Tax Indirect Tax (IT) % of IT to Total Tax
48012
55526
63956
79052
96285
116824
12527
13654
15528
16135
18600
22846
79.31%
80.26%
80.46%
83.30%
83.81%
83.64%
12502
15462
19516
24592
31011
38693
26.04%
27.85%
30.51%
31.11%
32.21%
33.12%
35510
40064
44440
54460
65274
78131
73.965
72.15%
69.49%
68.89%
67.79%
66.88%
Dominance of VAT and Import Duty It has been notified that dominance of VAT and import duty in tax revenue sector is increasing day by day. Moreover, in order to increase revenue collection from domestic sources, VAT network has been widened in recent years (See the following table:BER-2013):
Item Wise Collection
2008-09
2009-10
2010-11
2011-12
2012-13
VAT
36.2%
35.6%
35.8%
35.65
34.6%
Import duty
17.25
16.35
13.8%
13.1%
12.4%
Income Tax
24.4%
25.9%
28.0%
29.1%
30.2%
Supplementary Duty Other taxes and duties Excise Duty
16.4%
16.4%
17.1%
16.8%
17.1%
.8%
.7%
.6%
.7%
.9%
.4%
.4%
.34%
.5%
.9%
Negligible Direct Contribution Of The Agricultural Sector To Tax Revenue 6
Direct taxation on agricultural sector normally takes two forms; land revenue tax and tax on agricultural income. This sector accounted for more than 50% of total direct tax revenue in the early sixties, but now agricultural income tax is very negligible. It accounts for only 0.01% of the GDP, although the average contribution of agriculture to the GDP is 35%. Agriculture, more specifically, non-farm activity, still remains an untapped source of revenue to the government. In most cases, income from agriculture does not exceed the ceiling of non-taxable limit primarily due to subdivision and fragmentation of holdings for which income is distributed to different hands. Furthermore, tax administration is not expanded down to village, and therefore, current information on this source of income cannot be easily collected for making assessment. Placing more emphasis on the collection of income tax from agriculture may augment the price of our main food and may create socio-political unrest. Government does not like others to do politics with food. High cost of collection of agricultural tax may be another consideration. All these factors may contribute to the poor tax performance of agriculture sector.
Tax system in Bangladesh
To explain ins and outs of tax structure in Bangladesh we should explain above three major parts of tax revenue. For this reason in this perspective we will decorate our topic in the three headlines and subhead lines.
Income Tax at a Glance: Among direct taxes, income tax is one of the main sources of revenue. It is a progressive tax system. Income tax is imposed on the basis of ability to pay. The more a taxpayer earns the more he should pay''- is the basic principle of charging income tax. It aims at ensuring equity and social justice. Sources of Income: For the purpose of computation of total income and charging tax thereon, sources of income can be classified into 7 categories, which are as follows: 1. Salaries
7
2. Interest on securities 3. Income from house property 4. Income from agriculture 5. Income from business or profession 6. Capital gains 7. Income from other sources The tax structure for individual tax payers:
If an individual has been in Bangladesh for a period/period totaling 182 days or more in the income year, he/she is considered a resident. In case an individual has been in the country for 90 days in the income year and 365 days in four years proceeding this year, he/she will also be considered a resident. Tax Rate (Assessment Year- 2013-2014): Other than Company: For individuals (other than female taxpayers, senior taxpayers of 65 year s and above and retarded taxpayers), tax payable for the-
First 2,20,000
Nil
Next 3,00,000/-
10%
Next 4,00,000/-
15%
Next 3,00,000/-
20%
Rest Amount
25%
For female taxpayers, senior taxpayers of age 65 years and above, tax payable for the:
First 2,50,000
Nil
Next 3,00,000/-
10%
Next 4,00,000/-
15%
Next 3,00,000/-
20%
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Rest Amount
25%
For retarded taxpayers, tax payable for the:
First 3,00,000
Nil
Next 3,00,000/-
10%
Next 4,00,000/-
15%
Next 3,00,000/-
20%
Rest Amount
25%
For Companies:
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Publicly Traded Company 27.5%
Non-publicly Traded Company 37.5%
Bank, Insurance & Financial Company (Except merchant bank) 42.5%
Merchant bank 37.5%
Cigarette manufacturing company 45%
Publicly traded cigarette company 40%
Mobile Phone Operator Company 45%
Publicly traded mobile company 40%
If any publicly traded company declares more than 20% dividend, tax rate would be 24.75% and if declares less than 10%
dividend tax rate would be 37.5%.
If any non publicly traded company transfers minimum of 20% shares of its paid-up capital through
IPO(Initial Public Offering) it would get 10% rebate o n total tax in the year of transfer.
Who is entitled to a Tax Holiday: Tax holiday is allowed to industries subject to the relevant rules and procedures set by the National Board of Revenue (NBR) for the following period according to the location of the establishment. In Dhaka and chittagong Divisions (excluding 3 hill districts): 5 years. In other divisions (including 3 hill districts of chittagong Division): 7 years.
The period of such tax holiday will be calculated from the month of commencement of commercial production. The eligibility of tax holiday to be determined by the NBR and the time of the commencement of commercial production is certified by the respective sponsoring agencies. The industrial establishment should be registered under the companies Act. 1994. Tax holiday facility can be availed by industries coming into commercial production within 30 June 2000 A.D Value Added Tax (Vat): A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. Value-added tax (VAT) is most often used in the European Union. The amount of valueadded tax that the user pays is the cost of the product, less any of the costs of materials used in the product that have already been taxed.
Characteristics of VAT:
VAT is imposed on goods and services at import stage, manufacturing, wholesale and retails levels;
A uniform VAT rate of 15 percent is applicable for both goods and services. 15 percent VAT is applicable for all business or industrial units with an annual turnover of Taka 2 million and above;
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Turnover tax at the rate of 4 percent is leviable where annual turnover is less than Taka 2 million.
VAT is applicable to all domestic products and services with some exempted
VAT is payable at the time of supply of goods and services;
Tax paid on inputs is creditable/adjustable against output tax ;
Export is exempt;
Cottage industries (defined as a unit with an annual turnover of less than Taka 2 million and with a capital machinery valued up to Taka 3,00,000 ) are exempted
Customs Duty/Import Tax: Of the three wings of the NBR, Customs Wing is responsible for the collection of customs duties on all imported goods. At present International trade (Export-Import trade) is conducted through Dhaka, Chittagong, Benapole, and Mongla Custom Houses and a few Land Customs Stations. At the import level Customs Duty, VAT, IDSC, SD, Advance Income Tax, and Advance Trade VAT are imposed. Although law provides for Regulatory Duty, Safeguard Duty and Anti-dumping Duty, these are rarely applied in Bangladesh. Over the past two decades consistent efforts have been made to rationalize the tariff structure with a view to achieving greater trade facilitation. As a result we have now only 4 slabs of customs duty (0%, 6%, 13%, 25%) as against a couple of dozens of them prevalent in the recent past. Customs department is also entrusted with the task of combating smuggling with the support and assistance of all law enforcing agencies of the country including Bangladesh Navy, Bangladesh Coast Guards, Bangladesh Police, Bangladesh Rifles, Bangladesh Ansar and the Narcotics Control Department. There is a special agency in the Customs Department called Customs Intelligence and Investigation Directorate, which plays an important role in anti-smuggling activities. In order to make customs procedures more transparent and achieve more trade facilitation, a number of measures have been taken over the past few years. With the introduction of ASYCUDA++ and DTI (Direct Traders Input) automation in customs clearance has begun. As a result clearance of goods has been accelerated, procedures simplified, lead-time reduced and collection of revenue augmented. The changes that have been undertaken over the past few years have significantly increased revenue collection thereby enhancing NBR’s contribution to the national economy.
Application Of Cannon In The Tax System Of Bangladesh
There are so many tax system remains in Bangladesh. Among this tax system some cannons are followed, some are not.
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Canon of equality: In these cannon it imposes of tax according to ability to pay. So under these circumstances this is usually followed in the tax system of Bangladesh.
Canon of certainty This canon describe that the tax which each individual is bound to pay or to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, all ought to be clear and playing to the contributor and to every other person. This canon is not to be followed in the tax system of Bangladesh. So many corruptions are seen here .
Canon of convenience: It should be convenient to pay tax. A person who starts to get earning money he or she has to give tax on that moment. This step is not followed in tax system of Bangladesh properly.
Canon of economy: Every tax has a tax of collection. It is important that the cost of collection should be as small as possible. It will be useless to imposed tax which is too widespread and difficult to administer.
Canon of productivity: According to this principle, the tax system should be able to yield enough revenue for the treasury and the Government should not be forced t o resort to deficit financing.
Canon of elasticity: As the need of the country increases, the revenue should also increase. To meet emergency, the govt. should be in a position to augment its financial revenue t hrough increasing tax rate.
Canon of simplicity: The tax system should be simple and plain so that every one can easily understand it. The assessment of tax must be simplified. To avoid corruption taxation should be simple.
Canon of diversity: In line of productivity, canon of diversity also gives importance to adequate collection of tax through diversification. Such a system breeds a lot of uncertainty for the treasury. On the other hand, if the tax revenue comes from diversified sources, then any reduction in tax revenue on account of any one is likely to be very small on total tax revenue. However, too much multiplicity of taxes is also to be avoided.
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Tax Evasion And Tax Avoidance Tax evasion and avoidance are both phenomena that are probably as old as taxation itself. Wherever and
whenever
authorities
decide
to
levy
taxes,
individuals
and
firms
try
to
avoid paying them. Developing and emerging countries like Bangladesh are particularly vulnerable to tax evasion and avoidance activities of individual taxpayers and corporations. While tax revenues in OECDcountries are almost 35 per cent of GDP ,in case of Bangladesh it is only around 10%.This can be considered one of the primary reasons for large differences in the ability to mobilize own resources between developed and developing countries. Tax evasion and tax avoidance is a great problem in our country. In Bangladesh there are many individual taxpayers and corporations who are evading or avoiding tax. What is tax evasion & tax avoidance?
Definition of Tax Evasion: Tax evasion may be defined either as the understatement or concealment of taxable object or as the failure to pay tax in time either by the assessee or his agent. So it is illegal. In case of tax evasion, tax liability is reduced or tax is not paid at all. Tax evasion means illegally hiding income or concealing the particulars of income or concealing particular source of income or manipulating account so as to inflate expenditure and other outgoings with a view to illegally reduce the burden of taxation. Hence, tax evasion is illegal.
Definition of Tax Avoidance: Tax avoidance is the minimization of tax liability by the tax-payer or his agent by efficient tax planning. It is possible by fully complying with the tax laws and meet ing tax liabilities. Thus tax avoidance takes the advantages of the loopholes in the existing fiscal laws. The avoider is just smart taxpayer who exploits loopholes in the tax laws (and related laws) to reduce tax liability.
Effects of Tax Evasion and Avoidance in Economic Development: Tax Evasion and Avoidance has a great impact in economic development. The effects of tax evasion and tax avoidance in economic development are as follows: · Tax revenue is used to build the infrastructure, to invest in social security programs, in various poverty elevation programs. But due to tax evasion and tax avoidance above the development activities are hampered. · Tax evasion and tax avoidance hamper the social welfare. It obliges the government to borrow loan that affects the economic development.
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· Economic growth is co-related with budget. It is natural that higher government`s income support to do large budget and large budget helps to accelerate economic development of a country. But due to tax evasion and tax avoidance a lot amount of revenue is not collected. As a result the government has to shortcut the budget. · In capitalist and mixed economy private sector is supposed to play vital role in investment and development. But sometimes direct investment by the governments is necessary. Due to tax evasion and tax avoidance the government cannot supply the ex pected fund for investment. · The government has to take various plans for economic development. But lack of fund the plan cannot be implemented. If the people would not evade tax, the government could implement the plans. · Due to tax evasion and tax avoidance the government cannot ensure the employment opportunity. · Tax evaded incomes are used for conspicuous consumption in the form of buying luxurious goods. As a result honest tax payers find various methods of tax evasion and tax avoidance. So the stability of the society will be endangered. Such illegal money is also transferred abroad weakening the economy of the country.
Reasons for tax evasion and tax avoidance There are various reasons for tax evasion and tax avoidance. In order to develop methods and instruments for fighting tax evasion and avoidance, it is very much important to establish a broad understanding of the different reasons underlying these problems. These reasons can be divided in two categories. The first category comprises factors that negatively affect taxpayers ‟compliance with tax
legislation. These factors can be subsumed either contributing to a low willingness to pay taxes (low tax morale) or to high costs to comply with tax laws. The second category contains reasons for the low ability of tax administration and fiscal courts to enforce tax liabilities. These factors can be summarized as resulting from insufficiencies in the administration and collection of taxes as well as weak capacity in auditing and monitoring tax payments which limit the possibility to detect and prosecute violators.
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1. Low level of (voluntary) tax compliance 1.1.Low tax morale Taxpayer’s willingness to pay taxes differs widely across the world. It cannot be viewed as simply
depending on the tax burden. Rather, empirical research indicates that taxpayers throughout the world pay more taxes than can be explained by even the highest feasible levels of auditing, penalties and riskaversion. These high levels of tax compliance result from the tax morale of society that fosters selfenforcement of tax compliance. Tax morale is, however, not easy to establish. Especially countries without a deep-rooted culture and habit of paying taxes find it difficult to establish tax morale. This “willingness to pay” of the taxpayer is influenced by the following factors:
Low quality of the service in return for taxes In general, citizens expect some kind of service or benefit in return for the taxes paid. If the government fails to provide basic public goods and services or provides them insufficiently, citizens may not be willing to pay taxes and tax evasion and avoidance will be the consequence
Tax system and perception of fairness Some studies suggest that high tax rates foster evasion. The intuition is that high tax rates increase the tax burden and, hence, lower the disposable income of the taxpayer. However, the level of the tax rate may not be the only factor influencing people’ s decision about paying taxes. In fact, the structure of the
overall tax system has an impact as well. For example, if the tax rate on corporate profits is relatively low, but individuals are facing a high tax rate on their personal income, they may perceive their personal tax burden as unfair and choose to declare only a part of their income.
Low transparency and accountability of public institutions Lack of transparency and accountability in the use of public funds contributes to public distrust both with respect to the tax system as well as the government. This, in turn, increases the willingness to evade taxes.
High level of corruption Due to high levels of corruption in the government sector, taxpayers may feel that their paid taxes are highly abuse d by the corrupted officers .That’s why they evade tax. A tax -payer might consider evading taxes if the cost of bribing a tax auditor is lower than the potential benefit from tax evasion.
Lack of rule of law and weak fiscal jurisdiction
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Strong fiscal courts are essential to protect taxpayer’s rights and safeguard them from arbitrariness. The lack of rule of law reduces transparency of public action and fosters distrust among citizens. As a result, citizens may not be willing to finance the state through taxes, and decide to evade these liabilities.
1.2High compliance costs High compliance costs, that are the costs the taxpayer has to bear to gather the necessary information, fill out tax forms etc, can be an additional reason for tax evasion and avoidance.
2.Weak enforcement of tax laws While the preceding section discussed the sources for low voluntary compliance and high regulatory costs of tax compliance, the current section turns to challenges in the enforcement of tax laws. There exist several circumstances that restrain tax administrations from performing their functions properly thereby increasing the possibility of tax evasion. 2.1 Insufficiencies in tax collection Regarding tax collection, like many developing countries, Bangladesh also faces difficulties with respect to developing a well functioning tax administration, especially with respect to identifying and administering those citizens and firms that are liable to tax payments. Problems of insufficient capacity may also occur due to the organizational set up of the tax administration and its relationship to the ministry of finance. Additionally, unclear responsibilities regarding the collection and administration of specific types of taxes by different institutions can lead to inefficiencies and tax losses and require a reorganization of the tax administration. Qualified, well trained and motivated tax o fficials are crucial for the collection of taxes and the performance of tax administration bodies as a whole. But in Bangladesh most of the tax officials are corrupted to have their personal gain.
Scopes of tax evasion and avoidance
1. Tax shelter and tax haven: The tricky transactions involve shifting of income between taxpayers and tax-indifferent entities through composite chains of interrelated entities are of this type. The use of offshore bank accounts in tax haven countries to hide unreported income, which can later be accessed through credit cards to finance personal consumption at home. For transactions that are clearly outside the tax law, the only question for tax gap measurement is the ability of NBR to find and identify them.
2. Legal vagueness:
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Often these consist of a series of separate transactions, all of them within the letter of the tax law, that reduce tax liability, but produce no expectation of pretax economic gain. Tax result depends on definitions of legal terms which are usually vague. For example, vagueness of the distinction between business expenses and personal expenses is of much concern for taxpayers and tax authorities. More generally, any term of tax law, has a vague subsection, can be a potential source of tax avoidance .
3.PSI agencies and dodging of customs duty: Customs duties are the important sources of tax revenue in the developing countries like Bangladesh. It is often alleged that tax lawyers and chartered accountants help tax payers including firms and companies in evading taxes. In the same vein, the C & F agents help in evasion of customs duties. The importers contend to evade customs duty by under invoicing and misstatement of quantity and product price.
4.Underground trafficking: An import and export of illegal products through unauthorized way is a source of tax evasion. This act is resorted to for total evasion of taxable revenues as well as for importation of contraband (smuggled goods) items. A purported trafficker does not have to pay any customs duty since the products are not routed through an authorized or notified customs port and therefore, not subjected to declaration and payment of duties and taxes.
5. Elusive VAT and Turnover taxes: VAT is the most talking and latest issue of the time of modern taxation age. An ultimate consumer who bears the real burden of this taxation has little scope to evade, but producers or distributors who collect VAT from the consumers may evade tax by under-reporting the amount of sales.
6. Dishonesty of tax officials and hissing of paying taxes to respective order: Sleaze tax officials cooperate the tax payers who intend to evade taxes is an open-secrete matter in the most developing country like Bangladesh. When they detect an instance of evasion, they refrain from reporting in return for illegal gratification or bribe. Corruption by tax o fficials is a serious problem for the tax administration in a huge number of underdeveloped countries like Bangladesh.
Recommendation to reduce tax evasion and tax avoidance
1. Social awareness program: Create awareness among the people and motivate the wealthy section of the society to pay taxes. Apart from the NBR, it must be ensured that the tax payers should be free from various complications and harassments in tax offices while coming to pay taxes. The NBR in alignment with the government concerned department can initiate motivational campaign in raising consciousness explaining how 17
regular payment of taxes serves the country and ensures justice in the society. This can be done not only by
appropriate
NBR personnel, educational campaigns and by seeking support and co-
operation from professionals like chartered accountants, tax lawyer s, etc.
2. Broad band tax net: A wide base and a low rate structure would maximize the tax revenue. Presumptive tax on professionals such as accountants, lawyers, doctors, engineering and management consultants, university teachers may be brought to the tax net. Assessments on coaching center, private university, English medium schools, and private educational institutions for professional development are still at large from tax net. Special turnover tax (not VAT) may be imposed on coaching centers and private educational institutions including university and English medium schools.
3.Special watch-dog for excise and turnover taxes: It presumes that the business houses and industrial firms are engaged in tax evasion in a significant scale. The success of government machinery for revenue collection is largely relied on administering the system involves in collection process, NBR policies and the honesty of the taxpayers. The national budget 2013-14 precludes cigarette, bidi, chanachur, juice, energy drink and M.S products from cottage industries facilities is an appreciable step but policy formulation is not enough to plug the loopholes of the perpetrators movements.
4. Reengineering custom duty net: For halting evasion of tax by means of under invoicing, proper valuation of imported and exported goods should be placed at most important custom centers of the country. The present custom net is too poor to fish many cross borders trade. Tax evasion by multinational companies through transfer pricing is a global phenomenon. Revenue people in many countries including USA, India have been given special power
and
training
to
examine
extensively
transfer pricing mechanism of those companies. In this country too, there is possibility of tax
the under
reporting through this mechanism.
5. Simplified Income Tax system: The present income tax system is too complicated to understand. Chartered accountants, tax lawyers and related professionals often allegedly are abusing this complexity. Their dubious roles as middle man help under reporting many income tax cases. People are likely to go for self assessments are discouraged by the difficult system. The problem is more acute in a poor economy like ours with high 18
illiteracy and poor record keeping and accounting habits. So, there is a ongoing demand to make the tax system simple and easily convincible to the taxpayers.
6. Penalty and Reward: Appropriate design of a penalty rate structure also appears to be anti-evasive and anti-avoidance. The rate of penalty should be progressively higher with the amount of tax evaded and must also reflect the current market conditions. At present, the provision of penalty in the statute books is one sided. The tax payers only to be penalized for an act of omission or default but there is no corresponding provision to penalize dishonest, inefficient or unjust tax officials. Moreover, there must be reward for them who pays taxes regularly and on time.
7. Standardization of public utility price: The
policy
of
taxation
and
user
charges
for
services provided by nationalized state enterprises, i.e., PDB, W ASA, DESA, etc., should be well formulated. The latter when based on standard marginal pricing would collect more revenue and would generate less resistance by the tax payers. The result may be low income tax rate and lesser tax evasion
8. Updating Anti-evasion Provisions in the ITO, 1984: Income Tax Ordinance 1984 was equipped supposedly adequate legible provisions to tackle concurrent tax under reporting-evasion and avoidance, and penal provision for purported taxpayers. Section 19 deals with unexplained investment, Section 115 for detecting concealment, Section 123-124 deal with imposing penalty for tax evasion and chapter XXI for offences and prosecution. Special provisions are incorporated in Section 93, 104 and 106 for escaped income assessment or non-filing tax return; and Sections 117-119empower NBR officials to raid, search, seize and retain the concealments of bullion or valuables required to be disclosed under the ITO, 19 84.
Public Accounting Practices in Bangladesh: Standards from ICMAB & ICAB Accounting in Bangladesh: In Bangladesh, the profession of accountancy developed during the British colonial period. Today it is represented by two professional bodies, the Institute of Cost & Management Accountants of Bangladesh (ICMAB) and the Institute of Charte red Accountants of Bangladesh (ICAB). Chartered Accountants complete their training in practising firms and specialise in financial accounting, financial audit and tax. CMAs receive particular training in cost audit, management audit and management accounting, as well as general accounting and taxation. Both the ICMAB and ICAB are under the administrative control of the Ministry of Commerce. The Government of Bangladesh
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considers both type of professional accountants equal in respect of employment in government services. The Generally Accepted Accounting Principles (GAAP) in Bangladesh are based upon standards set by the ICAB, which has stated its intention to adopt Inte rnational Financial Reporting Standards. As of 2001, 23 such standards had already been adopted, and listed companies are required to use IFRS. ICMAB: The Institute of Cost and Management Accountants of Bangladesh (ICMAB) at Nilkhet, Dhaka, Bangladesh is the only institution in the country dedicated to Cost and Management Accounting education and research. It is managed as an autonomous professional body under the Ministry of Commerce. As well as education, it is also engaged in regulating and promoting the profession of cost and management accounting in Bangladesh. The Institute is managed by a National Council of 16 members. It is a member of the International Federation of Accountants (IFAC), Confederation of Asian and Pacific Accountants (CAPA), and South Asian Federation of Accountants (SAFA).
ICMAB more…..
Members are known as CMAs with their designatory title ACMA and FCMA. They play leading roles in the accountancy and finance profession in Bangladesh. 30% of members live and work in UK, USA, Canada, Australia and Gulf Countries. ICMAB UK Chapter is a lively forum for members working in the UK.
Vision: Institute’s vision is to help Bangladesh become an industrialized nation by promoting and regulating Cost and Management Accounting profession towards market economy to enhance economic competitiveness and quality of life
Mission: The Institute mission is to enable them to provide better services to the society.The Institute is entrusted with the formulation and implementation of National Accounting as well as Cost Accounting Standards and take other necessary steps with a view to regulating the Cost and Management Accounting profession commensurate with global standard with the ultimate objective of developing Bangladesh's human and natural resources to ensure common welfare and to enrich our shared future.
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Roles and Standards of ICMAB Regulate and develop the Cost and Management Accounting (CMA) profession in Bangladesh
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Provide and confer the highest professional degree in Co st and Management Accounting
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Impart education and training to the members, corporate managers and intending students of CMA for
■
enhancing their capability in the fields of Cost and Management Accounting Develop knowledge, skills and competence of the CMAs needed to support economic development of
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the country and, thus, to prepare capable manpower needed for various national and international development activities according to the requirements of the millennium Help development, adoption and implementation of International Financial Reporting Standards (IFRS)
■
in Bangladesh Formulate, adopt and implement Cost Accounting and Auditing Standards (CAAS) in Bangladesh and
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international arena. Implement statutory Cost Audit as provided in the Companies Act, 1994
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Conduct research in the field of Cost and Management Accounting in order to promote and develop
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the profession to meet the requirement of the time. International organization....
ICAB
The Institute of Chartered Accountants of Bangladesh (ICAB) is the national professional accountancy body in Bangladesh. It is the sole organisation in Bangladesh with the right to award the Chartered Accountant designation. It has around 1,400 members.
[1]
It was established under the Bangladesh Chartere d Accountants Order 1973 (Presidential Order No. (2 of 1973). The Ministry of Commerce, Government of the People's Republic of Bangladesh is the administrative Ministry of the ICAB. The mission of the IC AB is to provide leadership in the development, enhancement and coordination of the accountancy profession in Bangladesh in order to enable the profession to provide services of consistently high quality in the public interes
THE ROLES OF ICAB AND ITS STANDARDS: The Institute of Chartered Accountants of Bangladesh(ICAB), the National Professional Accounting Body of Bangladesh established under the Bangladesh Chartered Accountants Order 1973(President's Order No. 2 of 1973).The Institute have the following objectives: 1. Regulates the accounting Profession and matters concerned there with in the country
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2. Administers it’s members and students 3. Ensures sound professional ethics and code of conduct by its member s 4. Provides specialized training and professional expertise in Accounting, Auditing, Taxation, Corporate Laws, Management Consultancy, Information Technology and related subjects 5. Imparts Mandatory continuing Professional Education (CPE) to its members 6.
Fosters
acceptance
and
observance
of
International
Accounting
Standards(IAS)and
International Standards on Auditing (ISA)and adopt IAS & ISA in Bangladesh as Bangladesh Accounting Standards(BAS)and Bangladesh Standards on Auditing (BSA) respectively 6.
Keeps
abreast
of
latest
developments
in
Accounting
techniques,
Audit
methodology,
Information technology , Management consultancy and related fields 7. Liaises with regional and international organizations to influence the development of efficient capital markets and international trade in services.
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References and Bibliography
Asiatradehub.com, (2014). Bangladesh Tax Structure > Income Tax at a Glance . [online] Available at: http://www.asiatradehub.com/bangladesh/tax.asp
Anon, (2014). [online] Available at: http://Tax Structure in Bangladesh - Research Papers Himubuet
Joseph E. Stiglitz (1980). Lectures in Public Economics, McGraw-Hill Economics Handbook Series
Alan S. Blinder, Robert M. Solow, et al. (1974). The Economics of Public Finance, Brookings Institution. Table of Contents.
Joseph E. Stiglitz (2000). Economics of the Public Sector , 3rd ed. Norton. Description.
Dyreng SD, Hanlon M, Maydew EL. (2008). Long-run corporate tax avoidance. The Accounting Review.
Prebble R, Prebble J. (2010). Does the Use of General Anti-Avoidance Rules to Combat Tax Avoidance Breach Principles of the Rule of Law?. Saint Louis University Law Journal.
Moran Harari, Markus Meinzer and Richard Murphy (October 2012) "Financial Secrecy, Banks and the Big 4 Firms of Accountants" Tax Justice Network
"Transfer Pricing". Tax Justice Network . Taxjustice Network. Retrieved 2012-08-09.
Sharife, Khadija (2011-06-18). "‘Transparency’ hides Zambia’s lost billions" . Al-Jazeera. Retrieved 2011-07-26.
Kristina Froberg and Attiya Waris (2011). "Introduction". Bringing the billions back: How Africa and Europe can end illicit capital flight . Stockholm: Forum Syd Forlag.
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