Course No.
4135:
Taxation
Classification and Choice of Taxes Tax Structure in Bangladesh
Key Words / Outline
Slide 1-2
Issues to be discussed:
Classification Taxes Choice of Taxes between - Proportional and Progressive taxes - Direct and Indirect taxes Tax Structure in Bangladesh
Slide 1-3
Classification of Taxes
Basis Number of taxes Impact and incidence of taxes Structure of tax-rates Classification Single tax: when a country has only one tax. Multiple tax: when a country has more than one tax. Direct tax: when both the impact and incidence of tax fall on same person or entity (e.g., income tax, gift tax, etc.) Indirect tax: when the impact and incidence of tax fall on different persons or entities (e.g., VAT, customs duty, etc.) Proportional tax: when the tax increases (decreases) at a constant rate with the increase (decrease) in tax-base Progressive tax: with increase (decreases) in tax-base, if the tax increases (decreases) at a higher (lower) rate than the rate of increase (decrease) in the tax-base Regressive tax: with increase (decreases) in tax-base, if the tax increases (decreases) at a lower (higher) rate than the rate of increase (decrease) in the tax-base
Slide 1-4
Classification of Taxes
Tax-Base (Tk.) Proportional Tax
10,000 20,000 30,000 40,000
Total Tax (Tk.)
1,000 2,000 3,000 4,000
Marginal Tax Rate
10% 10% 10% 10%
Tax-Base (Tk.) Progressive Tax
10,000 20,000 30,000 40,000
Total Tax (Tk.)
1,000 2,500 4,500 7,000
Marginal Tax Rate
10% 15% 20% 25%
Tax-Base (Tk.) Regressive Tax
10,000 20,000 30,000 40,000
Total Tax (Tk.)
1,000 1,900 2,700 3,300
Marginal Tax Rate
10% 9% 8% 6%
Slide 1-5
Classification of Taxes
Basis Subjectmatter of taxes Classification Personal tax: when tax is imposed on person or entity In rem tax: when tax is imposed on goods, services, or property (i.e., other than on person or entity)
Elasticity of Elastic tax: when a tax produces more revenue with increase in tax taxes rate and/or tax-base Inelastic tax: when a tax produces equivalent or lower revenue with increase in tax rate and/or tax-base Classification of tax-bases
Tax on income: when tax is imposed on income of the taxpayer Tax on wealth: when tax is imposed on wealth of a taxpayer being the owner of the wealth Tax on transaction: when tax is imposed on the value of a transaction or on the quantity of goods or services under a transaction may be ad valorem tax if imposed on the value of a transaction, or specific tax (or unit tax) if imposed on the quantity of goods or services transacted Tax on people: when a tax is imposed per capita head/poll tax
Slide 1-6
Classification of Taxes
Basis Increase or decrease in public revenue Classification Positive tax: when a tax contributes positively towards the national exchequer real tax Negative tax: when a tax contributes negatively towards the national exchequer transfer payments
Collector of Central tax: when a tax is collected by a central taxes government Local tax: when a tax is collected by a local government
Choice of Taxes: Proportional vs. Progressive Taxes
Arguments in favour Proportional Tax 1. Complexity in deciding upon a precise and 1. appropriate degree of progression, and proportional tax is considered as better 1. alternative 1. Does not effect the relative position of the 1. taxpayers 1. Simplicity and uniformity 1. 1. Willingness to work more and save more of 1. the taxpayers not adversely affected as in case of progressive tax 1. Neutral tax in terms of allocation of resources 1. of the economy to different uses 1. Principle of equality justified on the ground that money burden of tax increases in the 1. same proportion as the tax-base increases Progressive Tax
Slide 1-7
Consistent with the ability-to-pay principles Contribution to economic growth and stability Powerful instrument for reducing economic inequality Minimizing aggregate sacrifice Economical from the viewpoint of collection, as the collection cost does not rise with the increase in tax rates Elastic tax system and public revenue can be raised at any time by increasing the tax rates and vice versa. Best alternative to proportional tax
Choice of Taxes: Proportional vs. Progressive Taxes
Arguments against
Proportional Tax Progressive Tax 1. Numerous tax collection points and 1. administrative unmanageability and not economical 1. Not consistent with the just and equitable distribution of tax burden, as it falls more heavily on the poor than on the rich 1. 1. Widens the inequality of the distribution of income and wealth 1. Possibility of being less revenue-yielding, since the tax rate for the rich and the poor is same and 1. the State cannot obtain from the richer sections of the community as much they can give 1. May cause to social instability, because it is regressive in terms of real burden and oppressive 1. to the poor 1. Cannot be an elastic tax system, if the tax rate for the small income-earner is already heavy 1.
Slide 1-8
Fear of communism by the antiCommunists (as per Communist Manifesto, graduated income tax proposed to achieve a transfer of capital from the bourgeoisie to the proletariat) Disincentive to work more and also to save and invest and thus possibility of adverse effect on production and capital formation Political irresponsibility (possible increase in government spending for more tax; & impossibility of taxing the richer minority ) Excessive complexity (subdivision of taxbase; unintended high tax for an inordinate slab) Possibility of very great efforts to evade a steeply graduate tax
Choice of Taxes: Direct vs. Indirect Taxes
Point Direct Tax
Slide 1-9
Distinctions
Indirect Tax
1. Impact and In this case, both impact and In this case, persons/enterprises on whom/which incidence incidence lie on same person or impact falls, they try to shift the incidence on enterprise. others and hence, usually impact and incidence lie on separate persons or enterprises. 2. Subjectmatter Direct taxes are usually personal Indirect taxes are usually in rem taxes. taxes.
3. Elasticity of If direct tax is progressive, then it Indirect taxes are usually inelastic. tax is also elastic. 4. Tax-base Usually, the tax-bases of direct Usually, the tax-bases of indirect tax are tax are income, wealth or people transactions and production. (in case of poll tax). Collection cost of direct tax is usually high due to evading tendency of taxpayers. In reality, direct taxes are progressive and hence, largely equitable. Incidence usually falls on consumers and hence the producers/sellers collect the tax from buyers/ consumers for Govt. & collection cost is low. Indirect taxes are usually regressive and hence, inequitable.
5. Tax collection cost 6. Equity
Choice of Taxes: Direct vs. Indirect Taxes
Arguments in favour
Slide 1-10
Direct Tax 1. Usually progressive. 1. 1. Redistribution of income and wealth in favour of lower earning group. 1. 1. Revenue increases with the increase of 1. income (productive). 1. Anti-inflationary. 1. 1. Easy to determine impact and incidence of 1. tax. 1. Educative value to taxpayers by generating a 1. feeling of economic consciousness in the mind of people. 1. Certainty ensured since the taxpayers are alarmed in advance about the amount of direct tax, timing and mode of its payment.
Indirect Tax Advantageous to pay and comprehensive tax payment. Voluntary. Does not make any harm to work-effort and initiative. Flexible. Can be used for special purpose. Tax-evasion is list possible.
Choice of Taxes: Direct vs. Indirect Taxes
Arguments against
Slide 1-11
Direct Tax 1. Disincentive effect against motivation 1. Stops or discourages work-effort and initiative 1. Encourages tax-evasion and taxavoidance 1. Discourages domestic and foreign investment 1. High collection cost 1. Reduces savings 1. Narrowness of scope 1. Unpopular
Indirect Tax 1. Regressive 1. Penalizes certain consumption 1. Does harm to concerned industry 1. Increases price 1. Difficult to determine the impact of incidence of tax
Tax & Nontax Revenues in Bangladesh
Tax Revenue NBR Portion
1. 2. 3. 4. 5. 6. Taxes on Income and Profit Value Added Tax (VAT) Import Duty Excise Duty Supplementary Duty (SD) Other Taxes and Duties
Slide 1-12
Non-Tax Revenue
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Dividend and Profit Interest Administrative Fees and Charges Fines, Penalties and Forfeiture Receipts for Services Rendered Rents, Leases and Recoveries Tolls and Levies Non-Commercial Sales Defence Receipts Other Non-Tax Revenue and Receipts Railway Post Offices Telegraph and Telephone Board Capital Revenue
Non-NBR Portion
1. 2. 3. 4. Narcotics and Liquor Duty Taxes on Vehicles Land Revenue Stamp Duty (Non Judicial)
Tax Structure of Bangladesh
Budget 2010-11 & Revised Budget 2009-10
Types of Taxes Direct Tax Taxes on Income and Profit Other Direct Taxes* Indirect Tax Border Taxes Domestic Taxes Total Taxes Tax-GDP Ratio Budget 2010-11
Tk. (mn) Revised 2009-10 Tk. (mn)
Slide 1-13
% Increase over FY10R
% 30.10 25.89 4.21 69.90 36.40 33.50 100.00
239,830 210,050 29,780 520,594 258,350 262,244 760,424 9.75
31.54 192,501 27.62 165,600 3.92 26,901 68.46 447,060 33.97 232,801 34.49 214,259 100.00 639,561 9.26
24.59 26.84 10.70 16.45 10.97 22.40 18.90
Revenue-GDP Ratio and Duties + Land Revenue + Stamp Duty 11.90 11.51 *Other NBR Taxes 2008-09 (Revised Budget): Direct Tax 28.60% Tax-GDP Ratio 9.03% Indirect Tax 71.40% Revenue-GDP Ratio 11.25%
Tax Structure of Bangladesh
Budget 2010-11 & Revised Budget 2009-10
Tax Revenue NBR Portion Taxes on Income and Profit Value Added Tax (VAT): VAT on Imports VAT on Domestic Goods and Services Turnover Tax (TT) Import Duty Excise Duty Supplementary Duty (SD): SD on Imports SD on Domestic Goods and Services Other Taxes and Duties: Travel Tax Other Taxes & Duties Sub-Total: NBR Portion Budget 2010-111 Tk. (mn) % 27.62 35.62 15.08 20.54 0.01 14.31 0.36 16.92 4.58 12.34 0.61 0.61 0.0003 95.46 Revised 2009-10 Tk. (mn) 165,600 227,890 102,000 125,890 60 104,300 2,610 104,850 26,501 78,349 4,690 4,678 13 610,000 % 25.89 35.63 15.95 19.68 0.01 16.31 0.41 16.39 4.14 12.25 0.73 0.73 0.002 95.38 210,050 270,864 114,684 156,180 60 108,847 2,750 128,659 34,819 93,840 4,670 4,668 3 725,900
Slide 1-14
% Increase over
FY10R 26.84 18.86 12.44 24.06 --4.36 5.36 22.71 31.39 19.77 -0.43 -0.21 -80.00 19.00
Tax Structure of Bangladesh
Budget 2010-11 & Revised Budget 2009-10
Budget 2010-111 Tax Revenue Tk. (mn) % Revised 2009-10
Tk. (mn)
Slide 1-15
% Increase over FY10R
Sub-Total of Taxes: NBR Portion Non-NBR Portion Narcotics and Liquor Duty Taxes on Vehicles Land Revenue Stamp Duty (Non-Judicial) Sub-Total: Non-NBR Portion Total Tax Revenue Non-Tax Revenue Total Revenues
725,900 714 8,700 5,490 19,620 34,524 760,424 168,049 928,473
95.46 0.09 1.14 0.72 2.58 4.54
610,000 600 6,750 3,921 18,290 29,561 155,253 794,814
95.38 0.09 1.06 0.61 2.86 4.62 100.00
19.00 19.00 28.89 40.01 7.27 16.79 18.90 8.24 16.82
100.00 639,561
Slide 1-16
End of the Presentation
Thank you.
