Back

Chapter - 3
Bangladesh
1. Introduction
1.1. As Governments throughout the world have assumed more responsibility for the
management of the economy, their financial transactions have increased in size and
complexity. The developing countries (where needs are greatest and resources scarcest),
have found their fiscal systems severely tested. The scarcity of means is indicated by low
per capita national income and by conditions that result in low productivity and market
imperfections. Other forms of scarcity that complicate fiscal policy in majority of the
developing countries are shortage of well trained and experienced civil servants in
economic and financial matters and a lack of system to provide needed information
(transparency). The cyclical instability to which primary-producing nations are subjected
is a hazard to revenue forecasting. If the government attempts to use fiscal policy to
mitigate such fluctuations or instability, heavy demands are placed on the budget process.
It goes without saying that SAl has a great role to play in ensuring accountability of those
who are engaged in collection of revenue which is the life blood of the economy.

1.2. Revenue receipt of a government consists of two parts, viz.

• tax-revenue, and
• non-tax revenue

1.3. Two basic differences between tax-revenue and non-tax revenue are (i) while the
former is imposed by law, the latter's mandate is derived from rule, tariff or other
agreement, (ii) while the former does not represent a direct benefit to the tax payer, the
latter generally involves the rendering by government of a service or supply. Non-tax
receipts are characterised by three criteria :-

i. Large volume but small money value (hospital, police receipts, etc.)
ii. Contractual (but outside the parameters of statutes e.g. forest receipts) and
iii. Contractual, but within the parameters of statutes (e.g. mining royalties, mineral
cases,- etc.).

1.4. Major heads of tax-revenues of Bangladesh are as follows :-

A. Taxes on Income and Profit

1. Income tax-Companies
2. Income tax-Other than Companies
B. Taxes on Property & Capital Transfer

1. Estate Duty and Gift Tax

2. Wealth Tax
3. Narcotics Duty
4. Land Revenue
5. Stamp duty-non-judicial
6. Registration

C. Taxes on goods and services

1. Customs Duties
2. Excise Duties
3. Value Added Tax (VAT)
4. Supplementary Duty (On luxury items and in addition to VAT)
5. Taxes on Vehicles
6. Electricity Duties
7. Other Taxes and Duties (travel tax, turn over tax, etc.)

1.5. Major heads of non-tax revenues are as follows:

D. Interest, Dividend and Profit

E. General Administration and Services

F. Social and Community Service

G. Economic Services

H. Agriculture and Allied Services

I. Transport and Communication

J. Other non-tax revenue

K. Capital Revenue

1.6. The characteristic of Bangladesh Tax System comprised of the

following factors:-

(a) Revenue GDP Ratio:

A key component of fiscal policy of the government is to strengthen the effort to mobilise
domestic resources to generate a larger share of resources for investment. The strategy
involves both revamping tax management and providing the right incentives to stimulate
domestic savings. Domestic resource mobilisation through the tax effort is not
outstanding, but is a significant improvement over the past. In the year 1972-73, tax-GDP
ratio was 3.67%, but in the year 1995-96 (July '95 to June '96) it reached upto 9.4%. Tax-
GDP ratio of Bangladesh is lower than that of many developing countries. In the year
1992-93, average tax-GDP ratio of developing countries was 18.5 % whereas tax-GDP
ratio of Bangladesh was 9.5% and the ratio of India was 16.9%. The following table gives
the ratio of tax revenue, non-tax revenue and revenue to GDP over the years.

Ratio of GDP

Year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96

Tax Revenue 7.7 8.5 9.5 9.6 9.5 9.4

Non-tax Revenue 1.7 2.0 2.2 2.3 2.6 2.5

Total Revenue 9.4 10.5 11.7 11.9 12.1 11.9

Source: Budget wing, M/o Finance & Bangladesh Bureau of Statistics (BBS)

(b) Realisation of taxes vis-a-vis budget:

The apex organisation which controls the bulk of revenue receipts and taxes in
Bangladesh is the National Board of Revenue (NBR), which was established in 1972. In
Bangladesh, it has been observed that over the years, realisation of revenue (NBR
portion) exceeds or comes closer to budget target. In the year 1994-95, the actual
realisation of revenue (NBR portion) was 2.16% higher than the target. This may be seen
clearly from the following table (1980-81 to 1994-95).

Actual Realisation of tax revenue vis-a-vis target

Financial Year Realisation of Target

1980-81 101.79%

1981 -82 99.15%

1982-83 98.78%

1983 -84 97.48%

1984-85 102.92%

1985-86 101.97%

1986-87 101.01%
1987-88 101.01%

1988-89 98.54%

1989-90 98.87%

1990-91 102.35%.

1991 -92 101.21%.

1992-93 101.04%

1993 - 94 97.78%

1994-95 102.16%

Source: National Board of Revenue

(c) NBR Tax Vis-a-vis Total Revenue:

Relative share of NBR's tax in total revenue is shown in the following bar-graph:

FIGURE - I
NBR'S. Tax in total Revenue : 1992 to 1995

In the year 1994-95, NBR collected revenue which was 74.68% of total revenue and
92.66% of total tax revenue. This has been achieved through improvements/
rationalisation of the tax structure. The top individual income tax rate is 25% and
corporate income-tax rate is 45%, which is among the lowest in South Asia. Customs
Revenue in 1994-95 was 68% higher than 1990-91.
(d) Trend of Revenue Receipts (1972-1995):

Since independence in 1971, revenue receipts are increasing gradually. The following
graph depicts, this progress from 1972-73 to 1994-95.

Figure - 2
Trend of Revenue Realisation in Bangladesh : 1972-1995

(e) Domination of Indirect Tax Over Direct Tax:

Despite the progress for ensuring self-reliant development 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 tax 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. This can be seen from the following table

Position of Different Taxes in their share to total revenue (%) 1992:

(Some Asian Examples)

Taxes On Income & Taxes On Goods Taxes From Non-Tax

Profit & Services International Trade Revenue

Singapore 27.0 22.8 2.2 33.5

Indonesia 58.0 26.3 5.1 7.8

Malaysia 34.2 20.0 14.9 26.9

Philippines 29.3 26.2 28.7 12.6

Thailand 27.5 41.6 16.7 9.9

Bangladesh 8.6 25.8 27.3 23.0

Bhutan 7.5 16.6 0.4 75.0

India 17.0 34.0 25.5 22.8

Myanmar 11.4 32.6 16.5 39.6

Nepal 9.9 36.7 30.8 17.1

Pakistan 10.0 32.2 30.2 27.2

Sri Lanka 11.2 47.8 27.6 9.8

Source: IMF Government Finance Statistics Year Book (Various Issues)

* Statistical figure of revenue collections under different heads of taxation and share of
each tax-revenue in total revenues is shown below (year 1994-95):

Total Amount Percentage

Heads of Taxation
(Crore Taka) (Rounded Off)

Customs duties (Export / import) 3,676.94 34%

VAT (Import) 2,215.23 21%

VAT (local production) 1.248.34 12%

Supplementary Duty (Luxury Items) 187.61 15%

Supplementary Duty (Luxury goods of local origin) 1,344.12

Excise Duty 177.82 2%

Income Tax 1,491.56 14%

Other Taxes 180.94 2%

Total 10,522.56 100%

Source: National Board of Revenue

* Exchange rate for different currencies vis-a-vis the US $ as on 31st March, 1997 are
indicated in Appendix 1 (Pg. 475)

* This is depicted in the following pie diagram.

It will be seen that major share of tax revenue is attributed to indirect taxes. Out of the
indirect taxes, share of import-based taxes was the highest. Lack of progress in expanding
the base for direct taxes remains a major shortcoming of the tax reform agenda of
Bangladesh.

(f) Forecast of Tax-Revenue:

The introduction of VAT in 1991 was a bold move. It now covers manufacturing at the
wholesale and retail stage and some selected services. Efforts are on to make VAT as
comprehensive as possible. Though VAT is now recognised as an efficient and non-
distorting means of taxation by economists and policy makers alike, its introduction in
many countries is held up due to political reasons. Thus Bangladesh can take credit of
introduction of VAT within so short a period of time. Due to computerization in progress
at NBR, it is now possible to predict revenues and their composition with much more
precision than in the past.

Tax revenues have recently shown unusual buoyancy and responsiveness to tax reforms
and rate adjustments. Imports responded vigorously in 1994-95 to the sharp reductions in
tariffs yielding significantly higher revenues from import taxation with tariffs rates at an
all time low. As most revenue targets except those of direct taxes were exceeded in
1994/95, it warranted upward revision of targets for the following year. This optimistic
trend is expected to continue into the year 2000 with tax revenues posing a higher
trajectory, than would have been the case without tax-reforms. Please see figure below:
(Fig.4).
 Figure - 4
Changing Structure of Tax Revenue (Billion Taka)

Note: Forecast-1 based on FY 1973-90 data: Forecast-2 based on FY 1973-95 data

Excludes stamp duties, motor vehicles tax, and other minor taxes

(a) Forecast-1 based on FY 1973-90 data; Forecast-2 based on FY 1973-95 data

excludes Stamp Duties, motor vehicles tax, and other minor taxes

2. Audit Mandate
2.1. The Supreme Audit Institution of Bangladesh is headed by the Comptroller and
Auditor General (C&AG) who derives his authority from the constitution. Article 128 (1)
of the constitution reads as follows:

" The public accounts of the republic and of all courts of law and all authorities and
officers of the government shall be audited and reported on by the Auditor General and
for that purpose he or any person authorised by him in that behalf shall have access to
all records, books, vouchers, documents, cash, stamps, securities, stores or other
government property in the possession of any person in the service of the Republic". The
Auditor General, in exercise of his functions under Article 128 (1) shall not be subject to
the direction or control of any other person or authority: [Article 128 (4) of the
constitution]. As per Article 11 of the Comptroller and Auditor General, Additional
Functions Act 1974, "The Comptroller and Auditor General may make rules and give
directions in respect of all matters pertaining to the Audit of any accounts he is required
to audit".

2.2. All these lead us to believe that the Auditor General is supreme in respect of audit.
But a controversy has been reigning over income tax assessment audit between the C &
AG and National Board of Revenue (NBR), the main revenue-earning department of the
country. NBR says that income tax assessments are confidential as per the Income Tax
Ordinance 1984, [Clause 163, Sub clause 1 (c)] and hence cannot be shown to the
revenue auditor nominated by the Auditor General. The Auditor General's office is of the
opinion that since the constitution is the supreme law of the land and constitution allows
the C & AG's representative to have access to all records, books, vouchers, documents,
cash, stamps, securities, stores or other government property in the possession of any
person in the service of the republic the argument shown by NBR to disallow auditors to
see assessment records of income tax is not tenable. Ministry of Law and Justice in their
latest opinion upheld the view of the Auditor General. So, in the true sense of the term,
income tax audit is not yet properly started. Attempts are underway between the NBR
and C & AG to solve the remaining issues. There is no prohibition in respect of auditing
assessment record of indirect taxes.

3. Audit Procedures And Methodologies In Revenue

Audit:
3.1. Under the domain of the C&AG there are nine Directorates of Audit. The
Directorate of Local and Revenue Audit is responsible, among others, for auditing the
main revenue earning departments of the country, e.g. Board of Revenue, Narcotics,
Registration, Land Revenue and National Savings Bureau. There is no exclusive
directorate for audit of revenue departments only. Revenue audit is performed on the
basis of guidelines issued by the Auditor General in Audit Code and Revenue Audit
Manual.

3.2. The most important function of revenue audit is to see that adequate regulations
and procedures have been formulated by the revenue departments to secure an effective
check on assessment, collection and proper allocation of revenue and to satisfy itself by
adequate test checks that such regulations and procedures are actually being observed. It
should also be borne in mind that the basic purpose of revenue audit is not just to ensure
that all demands raised are promptly collected and credited to government, but also to
secure that those demands are correctly raised and they satisfy the requirements of law
and that the Executive does not grant unjustified or unauthorised remissions to tax-
payers. In the audit of receipts ordinarily the general is more important than the
particular.

3.3. The above procedure is a traditional notion of revenue audit. Recently some
administrative units of the revenue earning departments like Airport Customs and
Narcotics Department have been earmarked for performance audit (i.e. economy,
efficiency, effectiveness audit). By and large, performance audit is at a nascent stage in
Bangladesh Audit Department. There is heavy dependence on clerical personnel who are
not fully skilled to perform the job. Recently some officers have been trained in respect
of performance audit at home and abroad.
3.4. As per the Bali Declaration, revenue audit should be mainly system-based and the
scope of audit should extend to cover efficiency, economy and effectiveness of tax
administration. In the audit of taxes, which are controlled more by laws than by financial
rules and procedures, a positive role would be to improve tax laws. Therefore, the
objective of revenue audit should be to discover loopholes, lacunae and deficiencies no
only in tax administration but also in tax laws. Adequate procedures for identifying and
dealing with tax avoidance due to deficiency of tax laws are being consideredfor
necessary rectification by the revenue audit directorate.

4. Audit Planning:
4.1. Audit planning is a scheme of action for accomplishment of Audit. For optimum
allocation of audit resources, audit planning is a sine qua non. In the Revenue Audit
Sector of the Directorate of Local & Revenue Audit, there are 1700 auditable offices (or
units). The total manpower available for revenue audit is 95 and the number of peripatetic
audit teams are 15. Each team consists of 2 members - one officer and one auditor
(clerical level). Because of shortage of manpower in the organisational set-up, all the
offices cannot be audited yearly. Depending on budget, size, revenue collection and risk,
auditees are categorised as A, B or C. 'A' category units are audited yearly, 'B' category
offices are audited once in two years, and 'C category offices are audited once in three
years or more. Besides special audit is undertaken at the instruction of the Auditor
General or at the request of the auditee. Audit teams are allotted man-days on the basis of
the size, budget and peculiarity of the organisation concerned. Attempts are underway to
computerise the yearly audit planning for better management of audit resources.

4.2. Usually audit programmes are prepared for the whole year before the start of the
financial year (1st. July) by the Audit Directorate. Then quarterly programmes are set
with specific man-power by the directorate of audit. In addition to these, there are
concurrent audit teams in major custom houses (Dhaka, Chittagong and Mongla port)
who work there round the year.

5. Audit Reporting:
5.1. During the course of an on-the-spot audit, audit queries are issued by the Audit
team to the auditee. On completion of audit, the audit team discusses the findings with
the head of the concerned revenue office or with the nominated representative. The
auditee has to put his seal and signature in the inspection report as evidence of his perusal
and discussion. Some observations may be dropped during that discussion if satisfactory
answers/ documents can be provided on the spot. Ordinary irregularities (called ordinary
paragraphs) are replied to directly. But if a serious financial irregularity is identified, it
has to be responded to through the next higher office of the respective auditee office. If
no reply is received in the audit office (called broad sheet reply) within six weeks of issue
of reports, a reminder is issued to the auditee. If no response is received, the report is
elevated from 'Ordinary Paragraph' to 'Advance Paragraph' stage and issued to the
Secretary, who is also the Principal Accounting Officer, of the respective ministry. If no
satisfactory reply is received in the audit office within six weeks of issuance, one
reminder is issued. If no reply is received, a second reminder is issued after another 2
weeks. As a last step, a demi-official letter is sent to the Secretary of the Ministry with 4
weeks time to reply to the audit office. If no reply is received even after that, then it is
sent to the Auditor General's office for inclusion in the Audit Report. All these exercises
should be completed within 180 days of initial audit findings.

5.2. Audit Reports are usually published according to the financial year and ministry
(i.e. according to major heads of account). Sometimes organisation-wise or issue-wise
reports are also compiled. In addition to the above process, audit observations are settled
in bilateral meetings held between the Revenue authority and the Revenue audit (if the
observation is of ordinary nature). If the observation relates to a serious financial
irregularity, it may be settled by tri-partite meeting among the controlling Ministry, the
revenue department and the audit office. Whether an irregularity is serious or not is to be
determined by the head of the audit directorate. There is no financial limit to it. As per
Article 132 of the Constitution, the Report of the Auditor General relating to the Public
Accounts of Republic shall be submitted to the President who shall cause them to be laid
before Parliament.

5.3. The number of Audit observations of different magnitude comes to 28,000 upto
30.6.96 and the amount involved is Taka 60,000 million (approximately). About Taka 06
million was realised due to audit observation during the last financial year.

6. Information Technology Audit Techniques:

6.1. Information technology (IT) audit is a process of collecting and evaluating
evidence to determine whether a computer system safeguards assets, maintains data
integrity, achieves organisational goals effectively and consumes resources efficiently
(Webster, 1988). For a good conduct of audit, we need auditors who are equipped with
knowledge in information technology/processing along with sound auditing skill. But
Computer Assisted Audit Techniques (CAAT) have not yet taken its root in Bangladesh.
The technique is being used by some of the firms of Chartered Accountants in the private
sector. The softwares used are Audit Command Language (ACL) and the Interactive Data
Extraction and Analysis (IDEA). National Board of Revenue or NBR, the apex body for
collection and administration of taxes, is involved in computerisation exercises for three
types of taxes, e.g. Customs Duties, Income Tax and Value Added Tax.

6.2. A programme known as ETAC (Excise, Taxes and Customs) Data Computerisation
Project was undertaken in 1987. The project aims at computerisation of Customs
Information System (CIS), VAT Information System and Research and Statistical Wing
of NBR. It includes preservation of information with respect to all type of taxes, tax or
custom intelligence, training, evaluation and monitoring.

6.3. The Directorate of Local and Revenue Audit under the Comptroller and Auditor
General is responsible for auditing revenue departments of Bangladesh. In this directorate
there are 2 pieces of Apple Macintosh brand computers and 2 printers. These are mainly
used for printing audit reports. The operators are mainly clerical level staff. The members
of the revenue audit team by and large, don't have any exposure to computers.

6.4. Under the circumstances, checking the reliability of IT systems, assessment of

whether IT controls are sufficiently robust to permit audit reliance, providing feedback on
areas of management weaknesses and significant IT risks, examining security of data in
computer environment, cannot be perfectly done by the Audit Office.

7. Human Resource Management:

7.1. Revenue Audit is a specialised job. A tax auditor should be thoroughly conversant
with the procedures relating to the levy and collection of tax and the laws/rules governing
all such procedures. He should also have an exposure to IT, so that he can work in the
computer environment.

7.2. It may be mentioned that skill in IT, in the over-all C&AG's department is still at
elementary stage. IT courses are offered at Audit and Accounts Training Academy
(AATA), a directorate under the administrative control of the Comptroller and Auditor
General in collaboration with Reforms in Budgeting and Expenditure Control (RIBEC)
project. The Directorate of Local & Revenue Audit may nominate officers and staff to
AATA in batches for training in IT courses. Attendance in these courses by revenue audit
personnel will help participants understand basics of computing and its role in workplace.

7.3. Courses for tax audit are tailored at Audit and Accounts Training Academy with
resource personnel from the taxation departments or courses may be organised under the
control of the taxation departments.

7.4. Training for selected staff of revenue audit can be availed at neighbouring SAI's
like India, Pakistan etc. In fact, a built-in system of up-gradation of skill and expertise of
revenue audit personnel is the need of the time.

7.5. Besides, revenue audit of SAI of Bangladesh is still limited to financial,

compliance and proprietary aspect. But this traditional audit cannot fully cope with the
emerging modes of governance. Hence we need performance audit (economy, efficiency,
effectiveness) or Value For Money Audit. Skill is again essential. This can be augmented
by training. In house training are arranged at Directorate of Local & Revenue Audit for
revenue audit personnel.

8. Legislative Provisions:
8.1. The constitution of the Peoples Republics of Bangladesh has indicated financial
and legislative procedures for national budget. As per Article 87 of the Constitution,
"there shall be laid before Parliament, in respect of each financial year, a statement of
estimated receipts and expenditure of the government for that year, in this part, referred
to as the Annual Financial Statement" [i.e. the Budget]. According to Article 83 of the
Constitution, "no tax shall be levied or collected, except by or under the authority of an
Act of Parliament".

8.2. New tax measures are reflected in the Finance Bill which is presented to
Parliament at the Budget session. This bill is adopted by Parliament through a procedure
of consideration and debate. Non-tax revenue receipts and receipts into the Public
Account of the Republic do not, however, require a treatment of the kind that taxation
requires. At any time when Parliament stands dissolved, new tax measures are taken
through a Finance Ordinance made by the President.

9. Basic Laws Of Taxation:

9.1. This section consists of the essential features of Bangladesh Taxation System and
the in-built safeguard for government revenues and control mechanism available in laws
and executive instructions flowing therefrom.

9.2. The organisation that handles major portion of revenue for the government is the
National Board of Revenue (NBR). Secretary, Internal Resources Division (under
Ministry of Finance) is the ex-officio chairman of NBR. The main functions of NBR are
as follows:

a. Framing of rules and regulations relating to different direct and indirect taxes.
b. Supervision and Administration of Customs, Value Added Tax, Supplementary
Duty, Excise and Income Taxes.
c. Assisting government in processing revenue policy, preparation of revenue
budget, entering into international treaty relating to taxes etc.
d. Settlement of revision cases under different tax laws and approval of exemption
cases.
e. Assisting government in controlling smuggling cases, implementation of import-
export policy for development of domestic industrialisation.

9.3. Under NBR, 15 directorates are engaged in direct tax collection. In addition to
these there are 5 Appellate, 1 Inspectorate, 1 Training and 1 Survey directorate. There are
15 directorates under indirect taxes. Of them 9 are engaged in collecting revenue, 1
directorate is for Appeal, 1 is for Intelligence and Investigation, 1 is for Inspection, 1 is
for Duty Exemption and Drawback (DEDO), 1 is for Training and 1 for Valuation.

Direct Tax

9.4. All the direct taxes are on a progressive scale. Of the direct taxes, the
following taxes are in vogue.

9.4.1. Income Tax:

9.4.1.1. The levy of Income tax is regulated by Income Tax Ordinance XXXVI of 1984.
Finance Act is published every year after passing of national budget in the Parliament. It
contains the amendments to the income tax, if any, and prescribed tax rates. Besides
rules/orders are issued by the National Board of Revenue from time to time. Decisions
are also arrived at based on previous income tax cases. Income Tax is calculated on
salaries, interest on securities, income of residential property, income from business or
profession, capital gains, income from other sources, profit of any mutual insurance
association, any income that accrued, arose, or is received in Bangladesh.

9.4.1.2. In the income tax law, tax-payers are divided into two classes, resident and
non-resident, depending on the period of stay in Bangladesh. The tax rate is relatively
higher for a non-resident. The tax payers may be individual, firm, association of persons,
undivided Hindu family, local authority, company etc. Usually income tax-returns are to
be submitted by 15th September each year after the close of the financial year. If the
income exceeds 200,000 taka, the return is to be accompanied with statement of assets,
liabilities and expenses. Income tax officer determines taxable income on the basis of the
following factors:

• Income tax returns submitted by the assessee and the facts gathered by the income
tax officer through accounts, statements, documents, files or audit report of
chartered accountants relating to assessment.
• Income Tax Act;
• Income Tax Law;
• Discretion of the Deputy Commissioner of Tax.

9.4.1.3. Since the year 1996-1997, income tax is determined in the following way:

(a) In case of individual, firm, association of persons, partnership firms:

Level of Income Rate

(i) Income up to 60,000 taka Nil

(ii) Income up to next 75,000 taka; or 1,20,000 taka, whichever is higher 15%

(iii) Income up to next 160,000 taka 20%

(iv) The rest amount of income 25%

(b) In case of company or local authority:

• All income except dividend income of the Company that is registered in

Bangladesh is taxable. The rate is as follows:-

Category Rate

(i) Income of Publicly Traded Company 35%

(ii) Income of non-Publicly Traded Company 40%

(iii) Bank, Insurance or Investment Companies, nonresident Companies 45%

The rate of income tax will be 15% on the amount representing income from dividends
declared and paid by a company formed and registered in Bangladesh under companies
Act, 1913 or a body corporate formed in pursuance of an Act of Parliament in respect of
the share capital issued, subscribed and paid after 14th August, 1947.

In the case of a person not being a Company (non-resident), the rate of income tax will be
25 % of income.

9.4.2. Wealth Tax

9.4.2.1. Wealth tax is regulated by the provisions of Wealth Tax Act, 1963 (Act No.
XV). Wealth is assessed as per the prevailing market price in respect of the wealth of
Hindu undivided family or individual.

Value of Wealth Rate

(i) First 25,000,000 taka net wealth Nil

(ii) Next 50,000,000 taka net wealth 1/2%

(iii) Next 50,000,000 taka net wealth 3/4%

(iv) For the balance amount of Value 1%

9.4.2.2. If any tax payer pays income and wealth taxes in any year, wealth tax plus
income tax must not exceed 30% of income.

9.4.3. The number of wealth tax payers stood at 18,350 in 1994-1995. 9.4.3. Gift Tax:

9.4.3.1. Gift tax Act, 1963 was repealed in 1985, but came into force again in 1990. As
per the quoted Act, 'gift' means any transfer of ownership of movable or immovable
property by one person to another willingly and without any profit. Property is evaluated
at the current market price.

The following rates are applicable now.

Value of property Rate

(i) 5,000,000 taka beyond exempted limit 5%

(ii) On next 10,000,000 taka value 10%

(iii) On next 10,000,000 taka value 15%

(iv) On the balance amount of value 20%

Indirect Taxes:

9.5. The following are the main indirect taxes:

9.5.1. Customs:

9.5.1.1. Wester defines customs as "duties; tolls or imposts, imposed by sovereign laws
of a country on imports and exports". This duty is imposed as per Bangladesh Customs
Act, 1969 and as per the Customs Tariff. As per the Customs Act, banned and illegal
items are sold on auction and sale-proceeds are deposited into government treasury.
Smuggled gold seized at air/sea ports are deposited into Central Bank.

9.5.1.2. In order to hasten customs clearance and thereby encourage investment in the
country, government has introduced Per-shipment Inspection (PSI) Scheme under which
approved internationally reputed inspection firms issue certificate regarding quality,
quantity, price, classification of the imported items. On the basis of that certificate
(known as 'Clean Report on Finding'), goods are cleared without delay at sea or air ports.
But Revenue Audit authorities have detected cases of under-invoicing and wrong
classification by the PSI agencies, which deprive the government of large revenues.

9.5.1.3. Moreover bonded ware houses get special duty privileges for imports. There
are 2,956 bonded warehouses (private and special) in the country. There are also
privileges for import under baggage rules.

9.5.2. Excise:

9.5.2.1. Excise duty is imposed on some items that are produced within Bangladesh.
Being an indirect tax, it is paid by the manufacturer who can pass its incidence to
consumers. This is guided by Excises and Salt Act, 1944 and Statutory Rules & Order of
1984. At present excise duty is charged on 'bidi' (local cigarette) @ 25 taka per thousand,
on cotton @ Tk. 1.50 per kilogram and cotton cloth @ Tk. 1.50 per metre. Excise duty is
also imposed on Banking services.

9.5.3 VAT

9.5.3.1. Value Added Tax is imposed on production, wholesaling and retailing when
value is added. This was introduced in 1991. Maximum limit of VAT is 15% on import
and home-made goods and services. The number of registered firms/companies under
VAT net is 100,000 (approx.).
9.5.4. Supplementary Duty

9.5.4.1. This is imposed on luxury items and services, like cigarette, cinema, alcohol,
etc. in addition to VAT. The rate varies from 5% to 350%.

9.5.5. Turnover Tax:

9.5.5.1. Those organisations whose annual sale is less than Taka 150,000,000 are to pay
turnover tax.

10. Non-NBR Taxes & Non-Tax Revenues:

10.1. In this section, taxes collected by bodies other than National Board of Revenue
(NBR) and non-tax revenues will be discussed.

I. Non-NBR Taxes

This includes Land Development Tax, Stamps (Non-Judicial), Registration, Narcotics

Duty and Taxes on Vehicles.

11. Non-Tax Revenues

Of the non-tax revenues, the following are the main:

a. Dividend And Profit From Public Financial Institutions:

This includes profit earned by Bangladesh Bank, Nationalised Commercial Banks,

Financial Institutions owned by the Government and other banks and financial
institutions in which Government has shares. The Bangladesh Bank contributes more
than 95% of the total.

b. Dividend And Profit From Non-Financial Public Enterprises:

The profits and dividends deposited by the public enterprises and corporations to the
national exchequer come under this category, [e.g. Bangladesh Oil, Gas & Minerals
Corporation (BOGMC), Civil Aviation, Bangladesh Petroleum Corporation, Mongla Port
Authority, Chittagong Port Authority, Bangladesh Biman (National airline), etc].

c. Interest Income:

Interest earning on loans of all kinds both domestic and foreign comes under this head.

d. Economic Services:
Fees realised under Import and Export Act, fees form registration of firms and
companies, Co-operative Society Registration and Renewal Fees, Fees under Insurance
Act and Audit Fees are included in this group.

e. General Administration and Services:

This includes receipts from Administration of Justice, Jails, Police, Civil Defence and
Fire Service, Education, Health and Population Control and Defence.

f. Agriculture and A Hied Services:

Sale proceeds of agricultural produce, livestock, fisheries and forest products are
included in this category.

g. Social And Community Services:

Receipts from Public Health and Sanitation, Water Supply, Rent from Government
Housing, Broadcasting, Press and Publication are included.

h. Transport and Communication:

Receipts from Roads, Bridges and Ferries, Ports, Light Houses and Shipping are included
under this group.

i. Other Non- Tax Revenue:

Other Non-Tax Revenue includes receipts from Passports and Visas, Audit Fees,
Examination Fees, Receipts under the Jute Act, Recoveries of over payment and various
other Miscellaneous receipts.

j. Capital Revenue:

This includes sale proceeds of Government assets, Receipts from Disinvested Industrial
Units and Receipts from Abandoned Units.

11. Landmark Judgement:

11.1. Major judicial pronouncements on different concepts of taxation, assessment and
collection procedures may be classified under different heads and subheads of taxation.
In the Board of Revenue, no such compilation is maintained, A private organisation
compiles tax decisions, known as Bangladesh Tax Decisions (BTD). The Directorate of
Local & Revenue Audit does not possess an updated and complete directory of case-laws
under each head of taxation for correct application of laws in audit observation. Efforts
are being made to enrich the directory at the revenue audit directorate.

12. Tax Expenditure

12.1. Tax expenditures consist in exemptions, deductions, credits, reduced tax rates or
tax deferrals. In Bangladesh, tax expenditures have not yet been quantified as such.
Revenue audit officers also do not embark upon this exercise. Because of loopholes in tax
laws or change of tax laws with the change of government, resultant tax payer induced
avoidance mechanism cannot be ruled out. But there is no such study by the Board of
Revenue, Audit has not yet pointed out anything of this sort.

12.2. Inter-departmental coordination in implementation of tax expenditures scheme

has not yet been spelt out. Nor has audit studied anything in that line. Board of Revenue
has worked out an administrative cost for direct and Indirect tax. In the year 1994-95,
administrative cost for realisation of 100 taka of direct tax has been worked out at 0.87
taka and for indirect tax. 0.61 taka. Out of 582, 662 income tax payers, the number of tax-
holiday cases are 2,334.

13. Tariff Classification & Valuation In Commodity Taxation:

13.1. Bangladesh Customs Tariff is contained in the first schedule to the Customs Act,
1969. This tariff was previously based on the schedules to the Tariff Act, 1934, which
was partially repealed in 1969 and fully repealed in 1980. By the Finance Act of 1980,
section 18 of the Customs Act was substituted to consolidate the provisions relating to the
tariff of customs duties.

13.2. Till June 1988, the customs tariff was based on the Customs Cooperation Council
Nomenclature (CCCN). From the 1st. of July 1988, this Nomenclature was replaced by
Harmonised System Nomenclature (HSN) commonly known as the Harmonised
Commodity Description and Coding System. Bangladesh customs tariff is based on this
universally recognised system of classification and coding of goods. Harmonised System
of Nomenclature has been developed by Customs Cooperation Council in Brussels to
serve as a systematic nomenclature which can be adopted for multifarious purposes like
customs tariff, domestic commodity taxation, trade statistics, freight movement,
economic analysis, determination of rules of origin etc.

13.3. The creation of the Harmonised Commodity Description and Coding System and
its worldwide acceptance within five years of its implementation is indeed a great
achievement. The nomenclature under this system comprises of 5,019 groups of goods
identified by an eight digit commodity code and is provided with necessary definitions
and rules to ensure a correct and uniform application of the same. For the purpose of
tariff classification, the Harmonised system provides a legal and logical structure within
which a total of 1,241 headings are grouped into 97 chapters arranged in 21 sections.
Each heading in the system is identified by a four digit code column entitled 'Heading
No.', the first two digits of which indicate the chapter in which the heading occurs, while
the latter two digits indicate the position of the heading in the chapter. Under the title 'HS
code', the first four digits correspond to the relevant heading number, the latter sub-
headings being indicated by one dash two digits and two-dash digits.
13.4. An ideal classification system associates each individual product with a sub-
heading to which the product can be simply and unequivocally assigned. Hence rules are
designed to ensure that a given product is always classified in one and the same heading
and sub-heading to the exclusion of any other which might seem to merit equal
consideration. The customs tariff under the Harmonised System incorporates preliminary
provisions codifying the principles on which the system is based and laying down general
rules to ensure uniform legal interpretation.

13.5. As a general rule, goods are arranged in order of their degree of manufacture, e.g.
raw materials unworked products, semi-finished products and finished products. For
example, live animals fall in chapter I, animal hides in chapter 41, leather footwear in
chapter 64. The same progression also exists within chapters and headings. However,
with millions of products to be classified in only 5,019 HS Categories, it is natural that
from time to time disputes about classification will arise between various users.
Fortunately the Harmonised System is well supported by its complementary publications
such as Explanatory Notes and the Compendium of Classification of Opinions as well as
the International Body for settlement of classification of disputes. The Harmonised
System Committee ensures that the system is applied uniformly.

14. Accountability:
14.1. Intra-departmental Accountability Through Internal Control
System:

14.1.1. Internal Control structure are defined as the plans of an organisation including
management's attitude, methods, procedures and measures that provide reasonable
assurance that management's objectives are being achieved. Internal control system may
be subdivided into pre- control and post control system. The pre- control system consists
of, among others, checking the accuracy and reliability of financial and management data
etc., responsibility of various levels of tax administration in assessment, collection and
credit to government revenues. The post-control system consists of internal audit.

14.1.2. There are Inspection Directorates for both direct tax and indirect tax under
N.B.R. They re-check assessment made by the respective commissioners of
taxes/customs. Additional or Joint Commissioner of Taxes of the respective zone
performs orthodox (intensive) inspection once a year. Short inspection is carried out
anytime. Orthodox inspection reports go to Director General, Inspection, National Board
of Revenue directly. In addition to these, there are intelligence and investigation
directorates dealing with complains and evasion of taxes.

14.1.3. There is no denying that statutory audit helps to improve the internal
control/internal audit systems of Revenue Departments. Internal audit is carried out by
respective inspectorate of taxes/customs. There is no separate or exclusive directorate for
internal audit.
14.1.4. In Bangladesh, statutory audit, as a matter of routine, does not specifically
comment on internal audit of revenue administration, although weaknesses in the over-all
system is directly/indirectly brought to light through audit reports. There is no bar from
the side of the statutory audit to comment on internal audit system. But to avoid
duplication of effort, SAI should coordinate its examination with internal audit, as per the
recommendations of the Bali Declaration.

14.2. Legislative Accountability:

14.2.1. It goes without saying that all the revenue departments are accountable to the
Parliament or Legislature. As per Article 132 of the Constitution, the Reports of the
Auditor General are submitted to the President who causes them to be laid before the
Parliament. Parliamentary control or supervision of receipt of revenues and its
expenditure in Bangladesh is exercised through a number of Parliamentary Committees.
The Committees are as follows:

i. Public Accounts Committee (PAC);

ii. Public Estimate Committee (For budgetary review);
iii. Action Taken Committee (For follow-up of PAC recommendations).

14.2.2. The effectiveness of these committees depends on the nature and quality of
information available through the reports of the revenue audit. The reports are discussed
threadbare in the Parliamentary Committees. In the Committee meetings the Auditor
General and the Secretary of the Internal Resources Division (as the Principal Accounting
Officer) remain present. The executive head of the Ministry has to account for the
irregularities or observations published in the audit reports. In other words, he is held
answerable to the people through their representative (i.e. members of parliament). The
parliamentary committees, after hearing the views of the executive on the audit findings,
recommend action to be taken by the government. Thus irregularities are brought to light
and executive performance is made transparent to the electorate through the audit reports.
In this way, SAI plays a dominant role in bringing accountability and transparency in
government operation with respect to revenue administration.

15. Collection & Accounting:

15.1. The National Board of Revenue, at present' is involved in separate

computerisation exercises for accounting of three types of taxes, viz.Customs, Income tax
and Value Added tax.

15.2. Through UNCTAD (United Nations Conference On Trade And Development),

Bangladesh Customs have introduced Automated System for Customs Data (known as
ASYCUDA). UNCTAD member countries have adapted ASYCUDA in the context of
their own systems. Accordingly, Board of Revenue has named the system as Special
Processing of Electronically Entered Declarations (or SPEED).
15.3. In respect of customs duties, statistical data based on information contained on
Bill of Entry/Export are collected at major custom houses (Dhaka and Chittagong) of the
country. The data include financial information on the value of goods imported/exported
and duty thereon. It may be mentioned that the forms of Bill of Entry/Export have been
designed in accordance with UN-directed system. A computerised Value Added tax
system using d-Base IV software came into existence in late 1991.

15.4. Computerisation of Income Tax is scheduled to start soon. Computerised monthly

returns are made of all income received by NBR to interested bodies including Finance
Ministry and Bangladesh Bank (i.e. Central Bank). Data are assimilated in Dhaka in the
Research and Statistics wing by physical transfer of disks from outlying stations. All the
above computer exercises are covered under an ambitious project known as ETAC Data
Computerization Programme under taken in 1987 (aided by ID using paradox software).
The project also aims at computerising inspection, training, and intelligence directorates.

15.5. Up to June 1995, 91 computers, 49 printers have been procured. Foreign and local
consultants have been working in the Computerization process. There are provisions for
53 programmers/ assistant programmers and 249 computer operators in the project. Till
today 500 officers and staff members have been trained in basics of computer operations
in Bangladesh University of Engineering & Technology (BUET), Bangladesh Institute of
Technology (BIT) and Institute of Business Administration (IBA) Up to June 1995, 15
officers have been trained on computer operations abroad. In the year 1995-96, 528
officers/staff are to be trained on computer for 2 weeks in the Computer Laboratory of
NBR.

15.6. Cost effectiveness or the degree of effectiveness of computerization of NBR vis-

a-vis manual system has not yet been studied by revenue audit. But assessment or
computation of tax is still done manually. In respect of computerisation, direct taxes lag
being indirect taxes. As the major earner of internal resources, expenditure of NBR on
computerization is not considered heavy. (Estimated cost of computerization is 245
million taka, up to 1997). Chief Accounts Officer, Internal Revenue Division will
compile the accounts of revenue receipts that will be included in the computerization net-
work very soon. But the Compilation of accounts of all types of revenues throughout
Bangladesh is done by Controller General of Accounts.

15.7. The estimated revenues of different kinds for the year 1996-97 are as follows: ---,.

(1) Taxes (NBR Portion) 130,400 million taka

(ii) Taxes (Non- NBR) 9,850 million taka

(iii) Non-tax revenue 30,950 million taka

Total 171,200 million taka

Arrears in tax collection due to default and due to demand under dispute have been
estimated at taka 17560 million by the Board of Revenue (1 US dollar = 42 Bangladesh
taka)