My Mid Assignment

8/2/2019 My Mid Assignment

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Stamford UniversityBangladesh

Assignment onSummary of Chapter -

1,4,5,9,10

Course TitleBusiness Tax

Course CodeACC-404

Submitted toMamun Ur Rasid

LecturerDepartment of Business

AdministrationStamford University

Bangladesh

Submitted by

Md. Ridwanur RahmanID: BBA 03110490Batch: 31-HDepartment of Business

AdministrationStamford University

Bangladesh

Date of Submission


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Chapter-1

Definition. Feature and Role

Tax

The term taxation comes from Latin word Taxatio. It means to

determine the payable quantum on estimate. Taxing authority

determines tax to be payable by the assessee. Taxes are compulsory

payment to the Government without expectation of direct or

proportionate benefits to the tax payer. In other words, it is a liabilityimposed by the Government upon assesses (such as individuals,

organizations) for living in a civilized society.

Characteristics of Tax

We can identify the following three characteristics of taxes by

analyzing the above definition:

It is a compulsory payment to the Government;

Taxpayers cannot expect direct or proportionate benefits;

It is a charge for living in a civilized society.

Objectives of Tax

Government needs revenue for defence, administration and

development activities. The main source of this revenue is tax. In such

a context, the objectives of tax can be identified as follows:

Collection of Revenue

arc ,


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No Govt. can run its administration and perform development works

without collecting tax as a source of revenue. So the main objective of

tax is the collection of revenue.

Redistribution of Income

Concentration of money and income in few hands can create socio-

economic and political problem. Through taxation and various

techniques under it, Govt. endeavours to the redistribution of income.

Economic Control

To guide the economy in desired direction, Govt. needs to control

inflation, push money to the economy, develop certain sectors of the

economy and control some activities. Taxation can be an importanttool to achieve this macro economic objective.

Protection of Industry

For greater interest of the country Govt. may provide incentive to

infant and certain basic industries.

Economic Development

Tax revenue can provide fund for the purpose of creating infrastructure

and invest in certain sectors for the development of the country.

Full Employment

According to F. E. Taylor, besides collecting revenue and economic

control, one of the important objectives of tax is to lead the economy

to full employment stage.

Raising National Income in Desired Level

For economic development of a country, national income needs to be

increased. According toA. P. Nearner , taxation can be used as a tool

for the purpose. He opined that the impact of taxes are two:

It decreases income of tax payer and increases the income of the

Govt.


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For increasing national income in adequate level.

Canons of Taxation

Adam Smith gave four principles of taxation which he called the

canons of taxation. They are:

Canon of Equity

This canon tries to observe the objective of economic justice.

Canon of Certainty

This canon describes that The tax which each individual is bound topay ought 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

plain to the contributor and to every other person.

Canon of Convenience

It emphasizes that the mode and timings of tax payment should be, so

far as possible, convenient to the tax payer. Unnecessary trouble to

the tax-payer should be avoided.

Canon of Economy

It is important that the cost of collection should be as minimum as

possible. It will be useless to impose taxes which are too widespread

and difficult to administer.

However, in view of the widespread recognition of many other

objectives of the economic philosophy of the Govt. and modern State,some additional principles have also been suggested by some other

authors. They are:

canon of productivity

canon of diversity


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canon of simplicity

Canon of flexibility

Canon of social objective

Canon of functional efficiency

In the above context , it need to be kept that the tax structure is a partof the economic organization society and should therefore ,fit in its

overall economic philosophy. Tax system that satisfies this basis

canon can be termed a good one.

Classification of tax:

Tax can be classified into different types based on

different angles.

(a)On the basis of incidence:

On the basis of incidence tax can be classified

into two categories;

1) Direct tax: Direct tax is one whose incidence rests upon theperson who bears its impact also such as income tax.

2) Indirect tax: Indirect tax is one of which is imposed on a personor goods but its burden is shifted to other, such as value addedtax excise duty etc. In this case incidence is shifted to other.

Merits and demerits of direct and indirect taxes:

There are many advantages and disadvantages of both direct and

indirect taxes taxes are now discussed below in short.

Advantages of direct tax:

1) It is related to ability to pay principle

2) Reducing inequality

3) Economy


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4)Flexibility

5) Difficult to evade tax

6)Revenue elasticity

7)Enhance social reasonability

Disadvantages of direct tax:

1) Inconvenient

2) Adverse effect on work

3) Tax evasion

4) Adverse impact on saving

Advantages of indirect tax:

1) Lesser inconvenient

2) Payment is not considered burdensome

3) Ease of administration

4)More flexible

5) Control of consumption

Disadvantages of indirect tax:

1)Unjust

2)Add to inflection

3)Uncertainty

(b) On the basis of progression:

Tax can also be classified on the basis of the

degree of progression as follows:


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1)Progressive tax: A tax said to be progressive when with the

increasing income the liability will be increasing in absolute from but

also in a progressive way. For example tax on total income of taka

10000 is 10% but on taka 500000 is 15%. Here tax rate increasing

as sales of income increases.

2)Proportionate tax: A tax said to be proportionate when tax

liability i.e quantum of tax increases in same of proportion as

income increase. For example, tk. 100000 is 10% and on tk. 500000

is also 10%.

3) Regressive tax:Regressive tax is one where rate of tax

decreases as the income property expenditure increases.

(c ) On the basis of base:Tax can be classified into two on the

basis base follow:

1)Single tax: When in a country the tax system are comprisesonly one tax .then it called single tax.

2)Multiple tax: When in a country different type of taxes areimposed considering different bases, then its called multiple tax.

Role of tax in the economic development country: For

economic development of a country tax can be used as a important

tools in the following manner.

1. Production use of available recourse

2. Contribution towards budget fund

3. Direct investment

4.Control of the economy


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Tax system of Bangladesh

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 exchequer is quite

significant. Following table show the share of contribution of tax of tax.

Table: Total revenue, total tax direct and indirect tax

Particular 2004-

05

2005-

06

2006-

07

2007-08 2008-09

Total

revenue

Tax

revenue

%of tax to

revenue

Direct tax

% of direct

tax total tax

Indirect

tax

%

indirect

tax of

total tax

39,200

31,950

81.51

6,175

19.33

25,775

80..67

44,868

36,175

80.63

7,344

20.30

28,831

79.30

52,542

42,915

81.68

8,975

20.77

34,000

79.23

60,539

48,012

79.31

11,500

23.95

36,512

76.05

69,382

65,789

81.85

13,604

23.95

43,183

76.05

It has earlier been pointed out that the tax system of Bangladesh is

based on the multiple taxes such a context a brief description of the

important taxes that are important in existence in Bangladesh now

follows:


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1.Income tax

2.Wealth tax

3.Gift tax

4.Estate duty

5.Import-export duty

6.Value add tax

7.Land revenue

8.Motor vehicle tax


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Chapter-4

Classification of income tax purpose

Introduction:

Income is a special meaning for income tax purpose. Only thereceipts mentioned in the ordinance are to be included in the total

income of the assesses and gross tax liability of an assesses is

determined that total income.

Classification of income:

It is clear that a deep understanding of the

different classes of income as per ordinance is per-requisite for

accurate estimation of tax liability. Show a chart depicting the different

classes of a income.


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Fig: classification of income

1.income from house property held under trust or operation of

religious and charitable trust

2.volentery contribution received by the religious or charitable

institution

3. Income for local authorities

4. Income of provident fund and specific funds

5.special allowances

6. Income received by the trustees of recognized provident fund

7.income of employee of foreign mission

8.pension

9. Interest on govt. Securities

10.interest on debenture and commercial securities

11.income from newly construction house

Income

(All Sources of Receipts)

Non-AssessableIncome

AssessableIncome

Special Exemption of

Untaxed Income U/S

19A,19AA and 19 B

Tax-exempted

Incomes

Under Section 44(2) part

B of sixth schedule

Tax free incomeInvestment Allowance

Tax Exemption

under specific

heads of income


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12.share of capital gains of a partner of a firm

13.income of member a Hindu undivided family

14.gratuity

15. Any payment received form provident and other funds

16.dividend income

17 interest on govt. Tax free securities

18 interest on the balance in a recognized provident

19.payment received on voluntary retirement

20.income of indigenous Hillman21. Income of export business

22.income from agriculture

23.income not exceeding taka15000 from interest on saving

instrument

24.income for software business

25income for fisheries poultry

26.income for handicraft

27.income for shipping business

28.income of stock exchange

Effect of different classes of income on assessment:

Classification ofincome for income tax purpose has important bearing on the

determination of total taxable incomes, tax rate and tax liability. The

impact of each classification is discussed below:


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A)non- taxable income

B)total income

C) tax exempt income

1)tax free income

2)investment allowance

3) tax- exempted income under specific head

Distinctions among non-assessable, tax-credit and tax-

free income :

The distinctions between among non-assessable taxcredit and tax free income are giving in the following chart:

Non

assessab

le

income

Tax credit income Tax free income

1)it is not including in

the total income

1) its remains in the total income 1) its including to

the total income


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2)it has no impact on

the determination of

total taxable income

and tax rate

2)it is considered to determine

the net tax liability.

2)its increasing

the total taxable

income and tax

rate pf the

assesses.

3) this type of

income does not

increasing the total

taxable income and

tax liability.

3) this type of income influences

the minimum taxable limit and

increase total income.

3) this type of

income does not

increasing the

total taxable

income and tax

rate.

4) this question tax

rebate on this

category of incomedose not arise.

4)tax rebate allow on this

category of income upto limit.

4)tax rebate is

granted at an

average rate.

5) this type of income

has positive impact

on the total taxable

income and tax rate.

5)this type of income has positive

impact on the tax liability of an

assesses.

This type of

income

increasing tax

rate .

Casual and non-recurring income:

Casual and non-recurring are not

regular source of income. Some casual and non-recurring incomes areconsidered taxable income. The definition of casual and non-recurring

income with the assessable and non-assessable distinction are given

below:

A) Casual income: the income about which the assesses remainsuncertain before in receipt is called casual income . For example :income for lottery, horse-race and cross word competition.

B) None-recurringincome: the income which does not arise atregular interval is non-recurring income. To be casual and non-recurring income, it should be fulfilled the following condition:

i) It is a sudden receipt and uncertain .ii) It is not a capital type of income under.


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iii) It is not earned from business income .iv) Ti is not perquisite in additional in salary.

Tax-holiday scheme:

It is a system of exemption from payment of tax. The

scheme was first introduction in Pakistan in 1959. After liberation

the system was revoked in 1972 govt. Of Bangladesh . The system

was re-introduced in under the income tax act of 1922 by inserting

see.14A in the act.

Objective :

The objective of this scheme are as follows:

i) To encourage formation of domestic capital needed for rapidindustrialization of the country.

ii) To attract direct foreign investment in the desire industrialsector of the economy.

iii) To maintain sectoral balance in industry.iv) To have a balance and equitable development of all the area

of the country.

Chapter 5

Assessee and residential status

Assessee

Generally assessee means a tax payer, that is a person who is to pay

tax. In the context of income tax in Bangladesh, section 2(7) of the

income tax ordinance, 1984 defines assesses as a person by whom any

tax or other sum of money is payable under the ordinance and

includes:

Person against whom income tax case/proceeding isgoing on,

Person who is required to file income tax return,

Person who desires to assessed and submit hisincome tax return,


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Person who is deemed to be an assessee or anassessee in default under any provision of income taxordinance.

Classification of assessee

Under section 2(46) of the income tax ordinance 1984, assessee is

classified into seven categories are stated below:

An individual

A firm(partnership)

An association of persons

A Hindu undivided family

A local authority

A company

Other artificial person as defined in ITO

Residential status

In general residential status means the standing of an individual as to

his residence in the taxable territory and for HUF, firm and company

the standing of the location of their management and control during

relevant income year. A person may be citizen of a country but he maybe in the resident for income tax purpose if the conditions of the

provision of the ordinance are not satisfied. As to the implication of

residential status two case decisions are cited here:

1. The tax liability of an assessee will be determined by hisresidential status

2. It is the responsibility of assessee to proof that he is a resident ornot.

Importance

The following difference account for importance of distinguishing a

resident and non-resident assessee:


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1. The system of determination of total tax liability of resident andnon-resident is different. In case of resident, income received ordeemed to be received in Bangladesh income accrued or arose to

accrue outside Bangladesh will be included in total income.2. Transaction may arise between a resident assessee and non-

resident.3. Some privileges in different sectors and areas may be given to

resident which may not be easily available to a non-resident.

Classification of assessee on the basis of residential

status

Resident Non-resident

Methods of determining residential status

1. An individual:

If he stays in the country for a period of at least 182 days during

the income year, If he stays in a country for at least 90 days during the income

year and also had been in the country for a period of at least 365days during 4 years preceding the income year.

2. Residential status of HUF, firm and AOP:

These assessee will be traded as residents in Bangladesh if anypart of the control and management of their affairs is situated inthe country.

3. Residential status of company:

It should be a company registered in Bangladesh undercompanies act of 1913 or 1994 or a body corporate establishedor constituted by or under any law for the time being in force inBangladesh having in either case its registered office inBangladesh.


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In the case of other companies, they will be treated as resident ifthe control and management of their affairs are situated whollyin Bangladesh.

Locales of Bangladesh

According to sec. 17 of the ordinance, the different sources of income

for determining the total income of an assessee are classified into the

following categories:

Income received or deemed to be received in Bangladesh

Income accruing or arising or deemed to accrue or arise inBangladesh

Income accrued or arise or deemed to accrue or arise inBangladesh.

Chapter 9

Income from salary


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Salary:

In general, salary means any income received by the employee fromthe employer for physical or mental work for a definite time or work.

In I.T.O. ,1984 an inclusive definition is given in sec. 2(58) where it is

said that salary includes :

Any wages

Any annuity, pension or gratuity

Any fees ,commissions allowances , perquisites or profits in lieuof or in addition to salary and wages

Any advances of salary Any leave encashment

Elements of salary:

Elements of salary can be identified as follows:

Basic salary

Bonus

Dearness allowance

Commission

Annuity

Pension

Gratuity

Leave encashment

Compensation for loss of service

Contribution to recognized provident fund

PerquisitesDifferent facilities in cash and kind are allowed to employees as

perquisites which are also elements of salary. These are as follows:

House rent allowances (HRA)


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Conveyance allowance

Entertainment allowances

Medical allowance

Interest of recognized P.F.

Balance of unrecognized P.F

Exclusion from salary income:

The items/amounts that will be excluded from computation of total

income under salary head are as follows:

Any payment received from govt. Recognized P.F.

Duty allowance of an employee for the performance of official

duties Provision for entertainment expenses in the office premises

during the course of work.

Pension for an income year in which the assessee stays inBangladesh for 182 days or more.

Any sum of gratuity income of an employee (assessee).

Salary income of an employee of a foreign diplomatic mission inBangladesh.

Insurance amount paid for personal accident.

Amount spent by employer for providing residential telephonefacilities.

Amount spent by employer for training of employee.

Provident fund

There are three type of provident fund found in enterprises and offices

viz,

I. Recognized provident fund (RPF), also called contributoryprovident fund

II. Govt. Provident fund (GPF), also called statutory provident fundunder provident fund act, 1925

III. Unrecognized provident fund (URPF).

Approved superannuation fund (ASF)


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It is one type of fund that may be created for granting pension and

other benefits to an employee on retirement on account of past

service, or after a specified age, or on becoming incapacitated prior to

such age or his death.

Workers participation fund (WPF)

It is established under the companies profit (workers participation) act,

1968 (act. XII of 1968). Any payment received by employee (assessee)

from this fund, subject to prescribe condition and limits, shall be

excluded from the total income as provided under Para 21 (d), part-a

of 6TH schedule to the it ordinance, 1984.


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Chapter 10

Income from securities

Security interest

Definition of interest on securities: section 2(38) of the income tax

ordinance,1984 defines interest a security interest is a property

interest created by agreement or by operation of law over assets to

secure the performance of an obligation (usually but not always thepayment of a debt) which gives the beneficiary of the security interest

certain preferential rights in relation to the assets. The rights vary

according to the type of security interest, but in most cases (and in

most countries) the main rights and purpose of the security interest is

to allow the holder to seize, and usually sell, the property to discharge

the debt that the security interest secures.

Classification of securities:

Government securities

Commercial securities

This may be classified into two sub groups:

1. Tax free securities

2. Less tax free securities


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Government SecuritiesThese are Govt. Promissory notes, Treasury Bill, Govt. Stock

Certificate, Bearer bond, Govt. loan document and the like. Govt.

securities are of two types:

Non-assessable and Tax free Govt. Securities:

Assessable Govt. Securities

Commercial SecuritiesThese are the securities or debenture issued by local Government

(Municipality, Union Parishad or City Corporation), Port Trust or any

commercial company. Commercial securities are also of two types:

Non-assessable Commercial Securities

Assessable Commercial Securities

Securities

Govt.

Securities

Commercial

Securities


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Ex-dividend transaction:

This literally means "without dividend." the buyer ofshares when they

are quoted ex-dividend is not entitled to receive a declared dividend. It

is the interval between the record date and the payment date during

which the stock trades without its dividend-the buyer of a stock selling

ex-dividend does not receive the recently declared dividend. Antithesis

ofcum dividend (with dividend).

Cum-dividend transaction:

When the purchaser is assessable on the whole amount of interest received by him on

the next due date and he is not entitled to any deduction in respect of the interest

paid by him to the vendor.

Bond-washing

A bond-washing transaction is a transaction where securities are sold sometime

before the due date of interest and reacquired after the due date is over. This

practice is adopted by persons in the higher income group to avoid tax by transferring

the securities to their relatives/friends in the lower income group just before the due

date of payment of interest. In such a case, interest would be taxable in the hands of

the transferee, who is the legal owner of securities.

To prevent this type of tax avoidance, section 106 of income tax ordinance 1984

taken measures to nullify this effect.
http://financial-dictionary.thefreedictionary.com/Dividendhttp://financial-dictionary.thefreedictionary.com/Shareshttp://financial-dictionary.thefreedictionary.com/Dividendhttp://financial-dictionary.thefreedictionary.com/Record+datehttp://financial-dictionary.thefreedictionary.com/Payment+datehttp://financial-dictionary.thefreedictionary.com/Stockhttp://financial-dictionary.thefreedictionary.com/Declarationhttp://financial-dictionary.thefreedictionary.com/Cum+dividendhttp://financial-dictionary.thefreedictionary.com/Shareshttp://financial-dictionary.thefreedictionary.com/Dividendhttp://financial-dictionary.thefreedictionary.com/Record+datehttp://financial-dictionary.thefreedictionary.com/Payment+datehttp://financial-dictionary.thefreedictionary.com/Stockhttp://financial-dictionary.thefreedictionary.com/Declarationhttp://financial-dictionary.thefreedictionary.com/Cum+dividendhttp://financial-dictionary.thefreedictionary.com/Dividend

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