indebtedness of income tax system
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Indebtedness of income tax system: Bangladesh Perspective
HSH
July 2010
[ Indebtedness of income tax system: BangladeshPerspective]A Research Report on Indebtedness of income tax system: Bangladesh
perspective submitted to the School of Business in partial fulfillment of the
requirements of Research & Methodology course Summer 2010
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Indebtedness of income tax system: Bangladesh Perspective
Indebtedness of income tax
system: Bangladesh
Perspective
Submitted To:
Dr. Md. Taufiqul Islam
Associate Professor
Faculty of Arts and Social Science
American International University Bangladesh
Submitted By:
Hazra Sabbir Hossain (08-10241-1)
M. Hasib Uddin (08-10116-1)
Md. Yamin (08-10323-1)
July 20, 2010
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Indebtedness of income tax system: Bangladesh Perspective
1. Introduction
Taxes are primary sources if governmental revenue in Bangladesh.
Taxation means imposition of a non-penal yet compulsory levy for
transfer of resources from private to public sector, imposed by the
public representative based on pre-determined criteria and without
reference to any specific commitment, in order to accomplish some
nations economic and social objective. These are dues that we pay for
the privileges of membership in an organized civil society. Tax is
imposed in the assessment year based on income year. Tax is a internal
revenue, which collected through two types of tax in many countries.[1]
Those are direct tax and indirect tax, where direct tax deals with income
tax and indirect tax deals with Value Added Tax (VAT) and Custom
Duties.
In spite of the structure of taxation and the lack of unwillingness of
citizens to fulfilling its citizenry duties, it is indeed very inconvenient
task collecting taxes from tax payers in Bangladesh. [2] Bangladesh
inheritances a week economic infrastructure from British era and later
from Pakistan ruler although it nit posses a vast amount of natural
resources. [3] These limitations have caused slow growth in production,
saving, in capital formulation and in capital investments.[2] Moreover, the
economic activities outside the agricultural sector are disjointed and
fragmented, which has contributed the problem.
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1.1 Basics of the Study
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 change. Tax is a contribution exacted by the state. It is a
non-penal but compulsory and unrequited transfer of resources from the
private to the public sector, levied on the basis of predetermined
criteria. According to Article 152(1) of the Constitution of Bangladesh,
taxation includes the imposition of any tax, rate, duty or import, whether
general, local or special, and tax shell be constructed accordingly.
Taxes are the most important source of revenue of the modern
governments. It is a compulsory levy, to be paid by the citizens who are
liable to pay it, imposed by the government. Many economists like
Seligman, Adam Smith, Bastable, Taussig and Dalton hold the
unanimous opinion that tax is a compulsory payment to the government
by taxpayers without any expectations of some specified return. But
essence of the argument is this that the tax payer is not entitled to
claim return of his taxes though he may receive benefits of the service
which the State provides by means of the taxes collection from him and
many other like him.
According to P. E. Taylor, Taxes are compulsory payment to
government without expectation of direct return in benefit to the tax
payer.
According to Dalton, A tax is a compulsory contribution imposed by a
public authority irrespective of the exact amount of service rendered to
the tax payer in return and not imposed as a penalty for any legaloffence.
According to Section 2(62) of the ITO 1984, tax means the income tax
payable under the ordinance and includes any additional tax, excess
profit tax, penalty, interest, fees or other charges leviable or payable
under this ordinance.
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The above definitions make it clear about the tax, that it is a compulsory
contribution by the tax payers to the government. [11]
1.2 Background of the Study
Income tax concept was first introduced by Mauryan ruler Chandragupta
in 322BC. Maurya Empire converted the revenue producing economy of
Northern India to a predominant agrarian economy and large areas of
land were brought under cultivation. It was found that the land revenue
was the most important source of income for the government and
assessment at regular intervals brought about increase in land revenue.
Collection of taxes was a matter of concern for the administration during
the Mauryan rule. [4] After that in every civilization scholars found the
sign of taxation system in a moderate way that it was before. Income
tax laws ware first introduced in the year of 1860 in this subcontinent
and remained in force until the partition of India and Pakistan. The
present income tax law came into the new shape after passing three
eras from 1947. [2] Income tax in the Indian sub-continent had its origin
in 1886 via the Indian income Tax Act. In Bangladesh, this was further
streamlined by the Income Tax Act 1922 which was used, albeit with
modifications, until 1984, when the present Income Tax Ordinance was
introduced. A major reorganization and expansion of the Income Tax
Department (ITD) took place in 1992, with a further expansion in 2001.
The ITD acts as one of the two executive arms of the National Board of
Revenue for the collection of revenue. The ITD is divided into zones
headed by acommissioner. There are two types of zones, i.e. for making
assessments and collection of taxes (executive zone), and, for the
hearing for appeals (appeals zone). Besides these zones, there are
specialized offices (i.e. Directorates of Inspection) tasked with
conducting audits of selected cases and performing internal audits. In
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respect of the training of personnel, there is a separate Directorate of
Training or Tax Academy. There are also specialized zones used to
identify new taxpayers, and for selected large taxpayers (i.e. Large
Taxpayers Unit (LTU)). [8] The charge of tax of a person depends on its
residential status and income level.
Since 1984 income tax collection never reached the forecasted level of
Bangladesh government. Though there has a huge amount of high
income residents in Bangladesh, there has a very few amount of regular
tax payer. This problem is getting serious and uncontrollable by the
government.
Bangladesh is divided into 18 tax- collection zones where 10 zones are
located in Dhaka; 3 zones are in Chittagong and; 1 zone in each division
of Rajshahi, Sylhet, Khulna and Barishal and 1 zone in the district of
Rangpur. There have total 304 tax-offices under these tax zones in which 156 tax
offices are located in Dhaka city. [6] Though the tax collection is not satisfactory in the
present perspective and not sufficient for the growth in production, saving, capital
formulation and capital investments. Another research shown that,
revenue loses from 30 files in tax offices in Dhaka city, depicts that
revenue loses due to taxpayers noncompliance with laws of income taxis a growing problem in Bangladesh, where in the past five year period
(2000-2004). [2]
1.3Importance of the topic
One of the most commonly discussed issues in economics is collection
taxes relate to economic growth. The main source of revenue of
Bangladesh government is Income Tax. So, socio economic andinfrastructure development fully depends on the Income Tax. Where the
government could not collect the income taxes form those, who are
eligible to pay tax. Ultimately the economic, infrastructure and, overall
development is getting hampered. Taxation principles argued that
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paying tax is not a penalty to the citizens; its a willful contribution to
the overall development of the country. By paying tax a citizen can not
clime any benefit from that, but the benefit of the taxes will be provided
as commonly as the citizen facilities, such as, road, bridge, public
infrastructure constructions, poverty reduction, employment etc. In the
holly Quran (holly book of Muslims) has also the notification of paying
tax as it is a contribution of Zakzt (contribution to the poor). Although
there has a moderate industrial and cultural development in Bangladesh
as it is a developing country, there is a very insignificant infrastructure
development, huge unemployment, Population below poverty line:
36.3% (2008 EST.).[7] The main reason behind these situations is the less
revenue income and the losses of revenue of government. It is really
important to seek the reasons behind the less revenue income where
Bangladesh a large number of citizens who are eligible to pay tax, but
there has a few who are paying tax in respect to the total eligible
population, which leads to increase black money and corruption in
Bangladesh.
1.4 Literature Review
There are a few number of research reports and theoretical works on
Indebtedness of income tax and; noncompliance of income tax and its
laws. In many of them, research scholars have identified different views
on the issue of taxpayers noncompliance of income tax laws in
Bangladesh is a growing problem, which results a significant amount of
revenue loses each year. However, a very limited amount of empirical
work is available on this particular issue in the case of indebtedness ofIncome tax system of Bangladesh. Matiur (2007) analyzed six factors or
causes which are identified that might have contribution to the
magnitudes of revenue loses in each category of taxpayers, specially;
Public Ltd, Private Ltd, Financial Institutions, Rental, Professionals and
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Individuals, namely, Evasion (EV), Lack of awareness (LA), Official
Harassments (OH), Complexity of the Law(CL), Lack of Social
Benefits(LS), And other reasons including the rest of the reasons
mentioned above and involves high compliance cost, political pressure,
nepotism, not want to disclose income or assets, illegal and black money
earned, giving unlawful benefit to taxpayers by tax officials talking bribe
etc.
Sarker (2003) has identified as the main problems of the income tax
system in Bangladesh are (i) the narrowness of the tax base, (ii)
evasion and avoidance of tax, and, (iii) inadequate tax administration.
Thus setting up of a simple and road based tax system is crucial to the
development of a better tax administration. Studies have identified the
main impediments as the lack of tax education among the taxpayers
followed by poor public relation activities and inadequate penalty
provisions for errant taxpayers. The need to increase training and
improve the working environment of tax officials, as well as establish an
information management system are also seen as important factors to
be met for better tax administration.
He was trying to convince by his study that Self-Assessment Systems(SAS) can improve the compliance of income tax as the Japan
government does.
Japan adopted the SAS in 1947 and after more than five decades, the
system is firmly established as part of the tax regime. Bangladesh, if it
wants to improve its own SAS, it would be wise to study the public
relation activities undertaken by the Japanese tax authorities in relation
to the Japanese SAS. The Japanese use of tax counseling is also a crucial
element that could be AISA-PACIFIC TAX BULLETIN adopted in
developing countries. Sarker (2003) analyses the crucial measures to be
taken for better tax administration in Bangladesh and has found that the
adoption of an entire self-assessment would be a timely endeavor for
improved tax compliance.
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Sarker (2003) The present system of tax administration in Bangladesh
has failed to achieve a satisfactory level of compliance, since it first
came into effect almost thirty years ago. There has been a need to
change the system of administration from an official assessment system
to a fully-fledged SAS. The objective of this study is to highlight the
issues and problems associated with the official assessment system and
make recommendations on ways in which self-assessment can be
successfully implemented by interpreting the lessons from the Japanese
system.
The opportunity that the advantages of SAS as one of the ways in which
many countries have improved their tax administration system. One of
these advantages is that the taxpayers right is exercised democratically
resulting in the increased involvement of the taxpayers in tax affairs.
The taxpayers are given the opportunity to compute their income and
pay their tax to the national treasury voluntarily. The tax revenues are
paid in advance and hence improve the enforcement system and may
also reduce operational and administrative costs. Therefore, the study of
Sarker (2003) to find out methods to overcome difficulties in the
Bangladeshi, SAS is important.Though Sarker have found the opportunities is self assessment system,
its implementation in Bangladesh is really difficult task. Because most of
the people have a very minimum educational level, so they need to go
other place to assess their income tax. I have the consideration to find
out the reason of my argument to the failure of Self Assessment System.
According to Sarker (2006)
The heavy reliance on indirect taxation has been treated as one of the
main obstacles in attaining economic progress in developing countries.
The problem arises mainly due to the fact that only a few taxpayers
share the burden of taxes. Bangladesh is no exception which is also
trying to reform its tax structure for long time through structural
adjustment and growing demands have been placed on it to suggest
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towards a desirable tax system. A huge segment of the population living
in acute poverty and disparity is also evident in income distribution. Tax
burden is ultimately shared by a limited number of individual taxpayers
and corporations. Thus attaining a broad based and optimal taxation
system is a much desirable task for the government. This study tries to
keep forward such an endeavor by analyzing the distribution of burden
of income taxation in Bangladesh.
Taxes are the major source of mobilizing internal resources of an
economy. Bangladesh revenue structure has been burdened by taxes
from indirect sources for long time and usually characterized by heavy
import and excise duties. To cope with the challenge due to
globalization, government of many such countries has to cut down such
duties and levies.
NBR annual reports (1997-2000) shows that from 1991 to 2001 there
has a stable situation of revenue collection though there has a
significant change in economic and industrial development. It shows
that income tax first started increasing in early nineties but sharply
declined in the middle and still trying to get its way back. A major reform
of tax administration in the history of Bangladesh happened that timeand a democratic government took over the paddle of the economy
after a long military rule.
Previous findings have reported mostly results that are based on purely
theoretical considerations. Given the circumstances, the present study
takes the initiative to conduct an empirical investigation based on a new
approach that evaluates the reasons of indebtedness of Income tax
system in Bangladesh. The findings from this study are valuable in
guiding professionals and policy-makers to further formulate effective
compliance of income tax.
1.5 Objectives of the study
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I have done this research as the course requirement of Research and
Methodology for the partial fulfillment of Bachelor of Business
Administration. Thus the main purpose and objective of this study was to
find out the relationship among the causes of the indebtedness of
taxation system and the revenue income as well as the economic
development. Over this the objectives are given below:
Tax payers perception around the taxation system (Income tax).
Convenience ness of taxation system.
Moral Values toward paying tax.
Individual perception toward other tax payers.
Measuring the efficiency level of taxation system.
Overall obligations of taxation system etc.
Toward conducting this research, Instead of rushing to conclusions
about the relationships, we developed our hypotheses (s) on the
relationships of independent variables with dependent variables and
then statistically taste them.
Independent Variables (A): Time Lose, documentation, complexity,
corrupted system, unfriendly, big line, harassment, inattention of
authority, helplessness etc.
Dependent Variables (A): Problems facing to pay tax.
Independent Variables (B): Lack of awareness, lack of social benefit,
complexity of law, huge burden, having bribe money, official
harassment, illegal Income, bureaucratic policy, etc.
Dependent Variables (B): Citizens intention to escape the tax liability.
Independent Variables (C): Individual Value, Taxation System
Dependent Variables (C): Reason of Indebtedness.
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Null Hypothesis (Ho): No relationship exists between independent and
dependent variables.
Alternative Hypothesis (Ha): No relationship exists between
independent and dependent variables.
Hypotheses:
HoA: No relationship exists between time lose, documentation,
complexity, corrupted system, unfriendly, big line, harassment,
inattention of authority, helplessness etc.; and problems facing to pay
tax.
HaA: A relationship exists between Time Lose, documentation,
complexity, corrupted system, unfriendly, big line, harassment,
inattention of authority, helplessness etc.; and problems facing to pay
tax.
HoB: No relationship exists between Lack of awareness, lack of social
benefit, complexity of law, huge burden, having bribe money, official
harassment, illegal Income, bureaucratic policy, etc.; and Citizens
intention to escape the tax liability.HaB: A relationship exists Lack of awareness, lack of social benefit,
complexity of law, huge burden, having bribe money, official
harassment, illegal Income, bureaucratic policy, etc.; and Citizens
intention to escape the tax liability.
HoC: No relationship exists between Individual Value and Taxation
System; and Reason of Indebtedness.
HaC: A relationship exists between Individual Value and Taxation System;
and Reason of Indebtedness.
In the discussion, result and findings part we have discussed and tried to
incorporate all the hypotheses as they are tasted.
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2. Operational Definition
2.1 Study Material
The main source of data used was a field-level survey conducted during
the summer session of 2010 on some actual tax payers. Those who havepaid tax on the income year 2009- 2010 and tax assessment year 2010-
2011.
In order to measure results in different perspective, the weighted
average method was applied. The scale was converted 6 to .40 , 5 to .
30, 4 to .20, 3 to .10 , 2 to .00; and 1 to .10. The computed weighted
average value for the particular variable would indicate the particular
level of significance. As per this method, a higher value is assigned for
greater weight. Thus most of the scale was individually identical,
therefore individual analysis has been done over them.
Therefore, doing this research I used some general statistical and
graphical tools such as, MS Excel.
2.2 Methods of collecting data
2.2.1 Techniques of selecting samples
The samples are randomly selected from 4 categories namely Teachers,
Government service holders, Private Service holders and Businessmen.
Data were collected from 80 tax payers . Among them, 20 tax payers
were Teachers, 20 ware Businessmen, 20 were Private service holders
and 20 were Government service holders.
2.2.2 Methods of survey
A structured questionnaire was used in the survey, which has been
attached in the Appendix- 1 of this article. The respondents (tax payers)
were asked to what degree the obligations of taxation system with
respect to the 47 variables related to the 12 dimensions problems
considering individual perceptions and knowledge. For this
measurement, a score of 1 on the scale indicates No comment and a
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collect and consider a large amount of sample, which always making a
question mark on the accuracy of the results of the analyzed data. The
collection of primary data is hard to ensure the authenticity of the data
due to a small sample. While working for this report I found it very
difficult to get assistance from the internets, books, articles, research
papers. As a result, it took a lot of time to gather information from
various sources and enclosed them to create the report.
3.Result, Discussion & Findings
As my sample were 80. Among them, 25% tax payers were Teachers,
25% ware Businessmen, 25% were Private service holders and 25%
were Government service holders (Graph- 1). We found that means 100%
respondents are regular tax payer. From the all sample 15% are 25-30
years, 18% are 31-35 years, 22% are 36-40 years, 15% are 41-45 years
9 are 46-50 years, 13% are 51-55 years, 5% are 56-60 years and 3% are
above 60 years old (Graph-2). Among all my sample 76% is male and 24 %
is female (Graph-3).The samples are paying tax for different time horizons.
29% of them are paying for 1-5, 36% of them are paying for 6-10, 19%
of them are paying for 11-15, 10% of them are paying for 16-20, and 6%
of them are paying for 21-25 years (Graph- 4). From the total, 55%
populations highest tax rate 10%, 18.25% populations highest tax rate
15%, 15% populations highest tax rate 20% and 11.25% populations
highest tax rate 25% (Graph- 5).
Most of the tax payers of Bangladesh think that the tax rate is so satisfy
able in which rate they are paying.
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Convinced55%
Not Convinced44%
No Comment
1%
Convinced with the tax Rate by the total sample
Convinced
NotConvinced
NoComment
Graph-6: Convinced with the tax Rate by the total sample
Graph-6 shows that 55% tax payers are convinced with their rate, they
are paying. Another 44% are not convinced and 1% did not give any
comment, that shows, they dont think about the rate. Among all the
teachers, 50% convinced and rest of them not convinced (Graph- 7).
Research shows that teachers who are paying lowest rate they are
convinced and who are paying at a high rate, they are not convinced.
Convinced rate among the businessmen and the private service holders
are same, 55% (Graph- 8 & 10), where the 45% population are not
convinced. This rate among the government service holders can not be
matched, because the convinced rate is highest of all, 60%, not
convinced 35%, which is lowest; and another 5% didnt do any comment
(Graph- 9).
A large no. of population think that tax rate is not equally justified and
need more further modification. The graph shows that 80% of total
population think that tax rate are not equally justified, 17% think its
justified , and 3% didnt make any comment (Graph-11).
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Justified
17%
Not Justified80%
No comment3%
Justification of Tax Rate by total Sam
Justified Not Justified No comment
Graph-11: Justification of Tax Rates by total Sample
The most interesting thing is that who are paying at the highest tax rate,
most of them think that tax rate is equally justified and who pay at low
rates they think its not equally justified. So actually Bangladesh Income
tax system is not considering the canon of equality defined by
economist Adam Smith. Among the all responses 45% teachers think its
justified and others think not justified (Graph- 12). Businessmen and privateservice holders perception about the justification is almost same. 100%
businessmen think tax rate is not equally justified, where 95% private
service holders think as not justified (Graph-13-15). But 20% government
service holders think that tax rate is equally justified and 70% think not
equally justified (Graph-14).
The overall taxation system is so so familiar to most of the respondents
as 61% is familiar with it, 21% knows very few about it and 18% is
totally unfamiliar with it (Graph-16).
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Taxation System Familiarity by Total Sample
Familiar
61%
Unfamiliar
18%
Very Few
Familiarity21%
Graph-16: Taxation System Familiarity by Total Sample
So, it can be said that Bangladesh taxation system is about to meet the
canon of certainty, that every body should know about the taxation
system, defined by Adam Smith. Among all 50% teachers, 50%
businessmen, 70% government service holders and 75% private service
holders have a clear understanding about the taxation system. On the
other hand 15% teachers, 30% businessmen, 25% government service
holders and 15% private service holders know very few about it where
35% teachers, 20% businessmen, 5% government service holders and
10% private service holders dont know about the system at all (Graph- 17,
18, 19, 20). This shows that teachers and businessmens understanding
about the taxation system is comparatively less than the government
and private service holders.
Perception about the taxation system is mixed and identical (Graph- 21- 25).
Most of the respondents think that taxation system is problematic,
where most of the businessmen think that, then government and private
service holders and then the teachers.
Table- 1: Perception about the taxation system
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Perceptions Teachers Businessmen
Government Service
holder
Private Service
holder
Tot
al
Efficient 1 0 1 0 2
Friendly 1 0 1 1 3
Problematic 8 18 14 14 54
Effective 0 10 1 0 11
Unfriendly 10 1 13 14 38
No Problem 0 0 0 0 0
Complex 12 12 12 12 48
Easy 0 0 1 1 2No
comment 2 2 0 0 4
Sources: A survey conducted for this research in July, 2010
Perception of Taxation System by Total Sample
2 3
54
11
38
0
48
2
4
0
10
20
30
40
50
60
1
Perspectives
Responses
Efficient
Friendly
Problematic
Effective
Unfriendly
No Problem
Complex
EasyNo comment
Graph-21: Perception of Taxation System by Total Sample
The second most perception is that the taxation system is very complex,
where teachers, businessmen, government and private service holders
have equally rated perception. Very few businessmen and government
service holders think taxation system is effective for the economy, but
no teachers and private service holders think that it is effective. The
third most rated perception is unfriendly. Most of the respondents think
that the taxation system is not user friendly. Different types of problem
they face, when they entered into the system. Most problem faced as
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unfriendly system by the private and government service holders and
then the teachers. Here the businessmens perception is not identical.
Very few have, who think taxation system is friendly, efficient and easy,
but they are less than 1% of total population. 1% teachers and
businessmen didnt do any comment.
Income tax law defined that tax is a willful contribution, but 80% of total
population think, paying tax in Bangladesh is not a willful contribution, it
is one kind of pressure to them (Graph-36).
Thinking on Paying Tax by Total Population
Willful contribution/
Not Pressure
20%
Not willful
contribution/
Pressure
80%
Graph-36: Thinking on Paying Tax by Total Population
In respect to this tax is a huge burden to 46% population, where 45%
teachers, 60% businessmen, 45% government service holders and 35%
private service holders think tax is a huge burden to them (Graph- 26-30). It
mainly shows that the businessmen feel much burden to pay tax than
others.
As I found earlier the taxation system is problematic and unfriendly, themost of the times the tax payers face a various types of problems to pay
tax (Graph 31-35).
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Problems face to pay tax, total population
53
24
47
33
14
41
37
52
33
7
0
10
20
30
40
50
60
Problems
Respondents
Time Lose
Unfriendly
Inattention of authority
Documentation
Big line
Helplessness
Complexity
Harassment
Corrupted System
None
Graph-31: Problems face to pay tax, total population
The first most faced problem is tome lose, more than 66% people face a
serious time lose to pay. Some times they loosed a entire day or
sometimes a week even. Among all the businessmen face this problem
most then the private service holders, then government service holders
and teachers. The second most problem is unnecessary harassment by
the authority, 65% respondents has been harassed during paying tax,
among all mostly harassed population is private service holders and
businessmen. More than 58% population faced the inattention of the
authority. Some times they ware waiting for several hours, but the
authority didnt pay attention to them. This time also businessmen faced
this problem most. In this situation the tax payers feel helpless, and
dont get any help from anybody there. More than 50% of total
population face helplessness during pay tax, where government service
holders and businessmen face this most. Then the most rated problem is
complexity of the system. Around 50% respondents of all category ofsample faced the complexity if law and the system.
Corruption is a very familiar term in Bangladesh, specially in the
government offices. To get earlier services and avoid harassment tax
payers sometimes have to pay bribe to the authoritative officials and
peons. More than 41% of total population have to give bribe to pay
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income tax and get return. Among all specially the businessmen faced
most corruption in the system.
Table- 2: Problems face to pay tax
Faced Problems
Teacher
s
Businessm
en
Governmen
t Service
holder
Private
Service
holder
Tota
l
Time Lose 10 16 13 14 53
Unfriendly 9 7 6 2 24Inattentio
n of
authority 9 14 12 12 47
Documentation 11 11 5 6 33
Big line 5 7 1 1 14
Helplessness 9 11 14 7 41
Complexity 8 12 9 8 37
Harassment 10 13 12 17 52Corrupted
System 9 11 7 6 33
None 2 1 1 3 7Sources: A survey conducted for this research in July, 2010
Same as corrupted system 41% of the population faced problems in
documentation. Although they have proper documentation, the faced
the rejection by the authority. The businessmen and teachers most face
that documentation is a major problem. Among all population 33% faced
unfriendly system and about 9% of total population did not do any
comment and the majority ware private service holders and teachers.
In most cases, Tax payers want to escape their tax liability as they tried
to find out the maximum way of tax exemption, so sometimes they tried
to collect documents in a wrong way, which may cause of tax
exemption. In this study maximum think that people have the intention
to escape the tax liability and the rate is 96% (Graph- 41).
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Indebtedness of income tax system: Bangladesh Perspective
Intention to escape tax liability
Yes
96%
No
4%
Graph-41: Intention to escape tax liability
There have a several reasons behind this intention, which are identical
in Table-3.
Table-3: Reasons to escape the tax liabilities.
Reasons
Teacher
s
Businessme
n
Government
Service
holder
Private
Service
holder TotalLack of
awareness 13 10 10 11 44Lack of social
benefit 16 15 11 7 49Complexity of
Law 8 12 9 10 39
Huge burden 8 9 10 5 32Having bribe
money 7 15 11 12 45Official
Harassment 14 11 17 14 56
Illegal Income 10 17 15 13 55Bureaucratic
policy 5 5 5 6 21
No Comment 0 1 0 0 1
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Indebtedness of income tax system: Bangladesh Perspective
Sources: A survey conducted for this research in July, 2010
Official harassment is the top most reason of escaping the tax liability,
total 70% of the population rated this. As their perspective, due to
probability of official harassment most of the people do not pay tax, who
are eligible. Illegal income is the second most rated, about 70%,
specially by the businessmen and government service holders. They
think people who have illegal income, if they went to pay tax, they can
be identified as illegal earner. Then the lack of social benefit is rated
most, more than 61%, almost equally rated. Everybody think that, their
tax is increasing governments revenue, but no improvement in
governance and citizen facilities. So, if they pay tax it would be usedproperly and also in return they will not get anything except harassment
by the authority. Tax is a contribution to the government to operate the
country. One is paying his or her a part of income, so if he or she have
to give bribe, it is unacceptable to the tax payer. But in our revenue
governance they face this unacceptable situation. Most then think not to
pay tax. 55% of all population and more than 65% teachers think that
people is not aware about paying tax, about its necessity and
importance, which cause escaping the tax liability. Almost 50%
respondents think Bangladesh income tax law is very complex. To avoid
complexity they have to do, what the tax authority wish or not to pay
tax. So, in most cases they do not pay tax as long as it is not a
necessity. About 40% tax payers think, tax and unjustified tax rate is a
huge burden to the people, among the 40% tax payers most of them are
government service holders. There are 26%, who think people escape
tax liability due to problematic bureaucratic policy. (Graph 42-46)
To find the main obligation of tax revenue generation, considering all
views I found the individual values and the taxation system. Most of the
respondents think that the taxation system is the main obligation of
generation income tax revenue, about 55%. Other 32% think individual
HSH 24
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Indebtedness of income tax system: Bangladesh Perspective
value is the main obligation behind that, and 13% of total population is
fully neutral to make recommend the obligation that I found (Graph- 47).
Obligations of Tax Revenue
Individual
Value
33%
No comment
13%
Taxation
System
54%
Graph-47: Obligations of Tax Revenue
Overall the taxation system is not efficient, depending on the majority
dont agree that taxation system of Bangladesh is efficient, then the
second majority neutrally agree considering on the execution of the
governance. 10% among all think taxation system is efficient, 11%didnt do any comment and 6% strongly disagree on this comment
(Graph- 48).
System Efficiency
11%
6%
39%
4%
10% 0%
No comment
Strongly Disagree
Do not agree
Moderately Agree
Agree
Strongly Agree
Graph-48: System Efficiency
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Indebtedness of income tax system: Bangladesh Perspective
[All the related charts and graphs shown in the Appendix-2, which are
discussed above mentioning the graph no.]
4. Conclusion
In the end it can be concluded that, this research has found a lots of
significant issues that is directly against the revenue generation.
Indebtedness of income tax is a growing problem, which can results a
significant amount of revenue losses every year in Bangladesh.
Bangladesh is a country with little over 140 million population; however,
little over one percent of the population pays their taxes [10]. Moreover,
this population has no adequate tax education. As a result, these
taxpayers are not aware of the moral and legal aspects of payment of
taxes that requires running an independent government and sustaining
development efforts. As a result tax payers do not comply with tax laws,
especially, income tax law that causes substantial amount of revenue
losses in Bangladesh. Relying on the out comes of the survey,
intentionally conducted in this study of this thesis identified the causes
of indebtedness from Bangladesh point of view and then categorized
then into main two parts, one is centralized and another is
decentralized. The centralized one is namely; Individual Value and TheTaxation System and the decentralized one are namely; Official
harassment, Illegal income, lack of social benefit, complexity of law,
huge burden, bureaucratic policy and other reasons.
Obviously, the results of this research may help the policy makers, that
how much changes should be included in crafting tax regulations and
effectiveness of the Tax Administration in their practice.
In Bangladesh perspective, since it is the one of very few and one way
concentration on the issue of indebtedness, I hope that this thesis
contains the groundwork of further research, which may find useful tools
to Bangladesh Tax Administration for designing effective policy
measures or tax regulations considering the probable solutions of the
problem in the long run.
HSH 26
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Indebtedness of income tax system: Bangladesh Perspective
No study has been done to measure the effect of democratic
environment on the revenue administration and governance for
Bangladesh; however it could be inferred that the sudden increase was
due to the result of a transition towards good governance and major
extension of income tax department. The analysis of revenue structure
of Bangladesh shows that direct taxes contribute the lions share in the
overall revenue earnings. In other words, income taxes are still one of
the primary sources of generating internal resources for Bangladesh.
However, for doing this research we used our best analysis and learned
knowledge. The work has undoubtedly simulated the practicing of
brainstorming for the members to a never-before-imagined extent. We
acknowledge that we tried to make the research as full proof but due to
a short sample, we can not recommend it is full proof and also
recommend for require further modification as we believe that
research is a never ending process.
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Indebtedness of income tax system: Bangladesh Perspective
5.1 Appendix-1Survey Form
Dear Sir,
We are doing a research on the perceptive of the tax payers on indebtedness
of income tax system in Bangladesh. We are very hopeful for your kind
cooperation towards completing the research. (As your understanding indebtedness in
the easy way is the obligations of tax system)
1. Are you regular tax payer?
2. Your current age? (Such as 30yr)
3. Your gender?
4. What is your residential location or tax paying zone (location)? ( Present)
5. What is your home district?
6. How many years you are paying tax?
7. Do you know the existing tax rates?
If yes,
8. What is your current tax rate?
HSH
Annual income Rate (%)
165000- 440000 10%
440001- 765000 15%
765001- 1140000 20%
More than 114000 25%
28
Yes No
1-5 years
10-15 years
5-10 years
15-20 years
More than 20
years
Yes No
10%
15%
20%
25%
None
Male Female
If no
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Indebtedness of income tax system: Bangladesh Perspective
9. Are you convinced with your tax rate you are paying?
10. Is the tax rates are equally justified?
11. Do you familiar with the taxation system?
12. Can you calculate taxable income by yourself?
13. What do you think about Bangladesh taxation system?
(Can be more than one answer)
14. Do you think paying tax is a huge burden for you?
15. Do you think tax authority is cooperative?
16. If no, what types of problem you face to pay tax?
(Can be more than one answer)
HSH
Yes No
Yes No Very few
Yes No
29
Time Lose
Documentation
Complexity
Corrupted System
Unfriendly
Big line
Harassment
Other(specify)_______________________________
Efficient
Effective
Complex
Other(specify) ______________________________________________
Yes No
Yes No
Yes No
Friendly
Unfriendly
No Comment
Problematic
No Problem
Easy
Inattention of authority
Helplessness
None
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Indebtedness of income tax system: Bangladesh Perspective
17. Do you think tax payers pay tax as willful contribution?
18. If not, is it a pressure?
19. What do you think that people have the intention to escape the tax liability?
20. Why people have the intention to escape the tax liability?
(Can be more than one answer)
21.What is the main reason of this obligation?
22. Overall the Bangladeshi taxation system is efficient?
HSH
1.No
comment
2.Strongly
Disagree
3.Do not
agree
4.Moderately
Agree
5.Agree
6.Strongly Agree
30
Yes No
Yes No
Lack of awareness
Lack of social benefit
Complexity of Law
Huge burden
Having bribe
money
Official
Harassment
Illegal Income
Bureaucratic policy
No Comment
Other(specify)________________________
Yes No
Thank you very much for your cooperation
Individual Value Taxation System No comment
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Indebtedness of income tax system: Bangladesh Perspective
Collected survey data are summarized in the Tables 1(a) 5(a), as it is used for empirical
test and graphical representation.
Table- 1(a) Data summary on convinced rate with tax rate
(Sample size= 80)
Category Convinced Not Convinced No Comment
Teachers 10 10
Businessmen 11 9
Government Service holder 12 7 1
Private Service holder 11 9
Total 44 35 1
Table- 1(b) Data summary on justification of tax rate
(Sample size= 80)
Category Justified Not Justified No comment
Teachers 9 11
Businessmen 0 20
Government Service holder 4 14 2
Private Service holder 1 19
Total 14 64 2
Table- 2(a) Data summary on familiarity of taxation system
(Sample size= 80)
Category Familiar UnfamiliarVery Few
Familiarity
Teachers 10 7 3
Businessmen 10 4 6Government Serviceholder 14 1 5
Private Service holder 15 2 3
Total 49 14 17
Table- 2(b) Data summary on thinking of taxation system(Sample size= 80)
IndividualThoughts Teachers
Businessmen
GovernmentServiceholder
PrivateServiceholder Total
Efficient 1 0 1 0 2
Friendly 1 0 1 1 3
Problematic 8 18 14 14 54
Effective 0 10 1 0 11
Unfriendly 10 1 13 14 38
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Indebtedness of income tax system: Bangladesh Perspective
No Problem 0 0 0 0
Complex 12 12 12 12 48
Easy 0 0 1 1 2
No comment 2 2 0 0 4
Table- 3(a) Data summary on liability of tax
(Sample size= 80)
Category Huge Not Huge
Teachers 9 11
Businessmen 12 8Government Serviceholder 9 11
Private Service holder 7 13
Total 37 43
Table- 3(b) Data summary on thinking on tax payment
(Sample size= 80)
CategoryWillful contribution/
Not PressureNot willful contribution/
Pressure
Teachers 3 17
Businessmen 4 16Government Serviceholder 4 16
Private Service holder 5 15Total 16 64
Table- 4(a) Data summary on problems to pay tax
(Sample size= 80)
Problems TeachersBusinessme
n
GovernmentServiceHolder
PrivateServiceholder Total
Time Lose 10 16 13 14 53Unfriendly 9 7 6 2 24Inattention ofauthority 9 14 12 12 47
Documentation 11 11 5 6 33
Big line 5 7 1 1 14
Helplessness 9 11 14 7 41
Complexity 8 12 9 8 37
HSH 32
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Indebtedness of income tax system: Bangladesh Perspective
Harassment 10 13 12 17 52
Corrupted System 9 11 7 6 33
None 2 1 1 3 7
Table- 5(a) Data summary on Reasons of Escaping tax liability
(Sample size= 80)
ReasonsTeacher
sBusinessm
en
GovernmentServiceholder
PrivateServiceholder Total
Lack of awareness 13 10 10 11 44Lack of socialbenefit 16 15 11 7 49
Complexity of Law 8 12 9 10 39
Huge burden 8 9 10 5 32Having bribe money 7 15 11 12 45
Official Harassment 14 11 17 14 56
Illegal Income 10 17 15 13 55
Bureaucratic policy 5 5 5 6 21
No Comment 0 1 0 0 1
Table- 5(a) Data summary on obligations of tax revenue
(Sample size= 80)
Category Individual ValueTaxationSystem No comment
Teachers 6 10 4
Businessmen 6 10 4Government Serviceholder 6 12 2
Private Service holder 8 12 0
Total 26 44 10
Table- 5(a) Data summary on efficiency of taxation system
(Sample size= 80)
CategoryNo
commentStronglyDisagree
Do notagree
ModeratelyAgree
AgreeStrongly
Agree
Teachers 3 2 8 6 1 0
Businessmen 3 1 9 5 2 0GovernmentService
1 1 7 8 3 0
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Indebtedness of income tax system: Bangladesh Perspective
holderPrivateService holder 2 1 7 8 2 0
Total 9 5 31 27 8 0
5.2 Appendix-2Graphs and Charts
Teacher
25%
Businessmen
25%
Private
Service
holder
25%
Government
Service
holder
25%
Disaggrigationof total sample
Graph 1: Dis-aggregation of Sample
25-30
15%
31-35
18%
36-40
22%
41-45
15%
51-55
13%
56-60
5%
Above 60
3%
46-50
9%
25-30
31-35
36-40
41-45
46-50
51-55
56-60
Above 60
Graph-2: Age group of total sample
HSH 34
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Indebtedness of income tax system: Bangladesh Perspective
Gender of total Sample
Male
76%
Female
24%
MaleFemale
Graph-3: Gender of the total sample
29%
36%
19%
10%
6%
01 to 05
6 to 10
11 to 15
16 to 20
21 to 25
Graph-4: Tax paying years
Highest Tax Rate
55%
18.75% 15%11.25%
0%
10%
20%
30%
40%
50%60%
10% Tax 15% Tax 20%Tax 25% Tax
Tax Rate Bases
No.ofResponde
nts
(%)
Graph-5: Highest Tax Rate
HSH 35
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Indebtedness of income tax system: Bangladesh Perspective
Convinced with the tax rate by the teachers
Convinced
50%
Not Convinced
50%
Convinced
Not Convinced
No Comment
Graph-7: Convinced with the tax rate by the teachers
Convinced with the tax rate by the Businessmen
Convinced
55%
Not Convinced
45%
Convinced
Not Convinced
Graph-8: Convinced with the tax rate by the Businessmen
Convinced with the tax rate by the Govt. service holders
Convinced
60%
Not Convinced
35%
No Comment
5%
Convinced
Not Convinced
No Comment
Graph-9: Convinced with the tax rate by the Govt. service holders
Convinced with the tax rate by the Private service holders
Convinced
55%
Not Convinced
45% Convinced
Not Convinced
Graph-10: Convinced with the tax rate by the Private Service holders
HSH 36
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Indebtedness of income tax system: Bangladesh Perspective
Justification of Tax Rate by Teachers
Justified
45%
Not Justified55%
Graph-12: Justification of Tax Rate by Teachers
Justification of Tax Rate by Businessmen
Justified
0%
Not Justified
100%
Graph-13: Justification of Tax Rate by Businessmen
Justification of Tax Rate by Govt. Service holders
Justified
20%
No comment
10%
Not Justified
70%
Graph-14: Justification of Tax Rate by Govt. Service holders
Justification of Tax Rate by Private Service holders
Justified
5%
Not Justified
95%
Graph-15: Justification of Tax Rate by Private Service holders
HSH 37
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Indebtedness of income tax system: Bangladesh Perspective
Taxation System Familiarity by Teachers
Familiar
50%
Unfamiliar
35%
Very Few Familiarity
15%
Graph-17: Taxation System Familiarity by Teachers
Taxation System Familiarity by Businessmen
Familiar50%
Unfamiliar
20%
Very Few Familiarity
30%
Graph-18: Taxation System Familiarity by Businessmen
Taxation System Familiarity by Govt. Service holder
Familiar
70%
Unfamiliar
5%
Very Few Familiarity
25%
Graph-19: Taxation System Familiarity by Govt. Service holder
Taxation System Familiarity by Private Service holders
Familiar
75%
Unfamiliar
10%
Very Few Familiarity
15%
Graph-20: Taxation System Familiarity by Private Service holders
HSH 38
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Indebtedness of income tax system: Bangladesh Perspective
Perception of Taxation by Teachers
1 1
8
0
10
0
12
0 2
0
2
4
68
10
12
14
Efficient
Friendly
Problem
atic
Effective
Unfriendly
NoProble
m
Complex
Easy
Nocomment
Perceptions
R
esponses
Graph-22: Perception of Taxation by Teachers
Perception of Taxation by Businessmen
0 0
18
10
1 0
12
0 20510
1520
Efficient
Friendly
Probl
...
Effective
Unfriendly
NoPr...
Complex
Easy
Noc...
Perceptions
Respo
nses
Graph-23: Perception of Taxation by Businessmen
Perception of Taxation by Govt. Service holders
1 1
14
1
13
0
12
10
0
5
10
15
Efficient Friendly Problematic Effective Unfriendly No Problem Complex Easy No comment
Perceptions
Respon
ses
Graph-24: Perception of Taxation by Govt. Service holders
Perception of Taxation by Private Service holders
0 1
14
0
14
0
12
1 00246810
121416
Efficient
Friendly
Proble
matic
Effective
Unfriendly
NoProble
m
Complex
Easy
Nocom
ment
Perceptions
Respon
ses
Graph-25
HSH 39
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Indebtedness of income tax system: Bangladesh Perspective
Graph-25: Perception of Taxation by Private Service holders
Tax Burden for total sample
Huge
46%Not Huge
54%
Graph-26: Tax Burden for total sample
Tax Burden for Teachers
Huge
45%Not Huge
55%
Graph-27: Tax Burden for Teachers
Tax Burden for Businessmen
Huge
60%
Not Huge
40%
Graph-28: Tax Burden for Businessmen
Tax Burden for Govt. Service holder
Huge
45%Not Huge
55%
Graph-29: Tax Burden for Govt. Service holder
HSH 40
-
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41/45
Indebtedness of income tax system: Bangladesh Perspective
Tax Burden for Private Service holder
Huge
35%
Not Huge
65%
Graph-30: Tax Burden for Private Service holder
Problems face to pay tax, teachers
10 9 911
5
9 810 9
2
02468
1012
TimeLos
e
Unfriend
ly
Inattentionofa.
..
Docum
entatio
n
Biglin
e
Helplessnes
s
Com
plexity
Harassme
nt
Corrupted
S...
None
Respondents
Graph-32: Problems face to pay tax, teachers
Problems face to pay tax, Businessmen
16
7
1411
711 12
1311
1
0
5
10
15
20
TimeLo
se
Unfriendly
Inattentionof
...
Documentatio
n
Big
line
Helplessness
Complexity
Harassment
Corrupted
...
None
R
espondents
Graph-33: Problems face to pay tax, Businessmen
Problems face to pay tax, Govt. Service holders
13
6
12
5
1
14
912
7
1024
68
10121416
Tim
eLo
se
Unfriendly
Inattentionof
a...
Documentatio
n
Big
line
Helplessness
Complexity
Harassment
Corrupted
S...
None
Res
pondents
Graph-34: Problems face to pay tax, Govt. Service holders
HSH 41
-
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Indebtedness of income tax system: Bangladesh Perspective
Problems face to pay tax, Private Service holders
14
2
12
6
1
7 8
17
63
0
2468
1012141618
Tim
eLo
se
Unf
riend
ly
Inat
tentio
nof
autho
...
Doc
umen
tatio
n
Big
line
Hel
ples
snes
s
Com
plex
ity
Har
assm
ent
Cor
rupt
edSys
tem
Non
e
Respondent
Graph-35: Problems face to pay tax, Private Service holders
Thinking on Paying Tax by TeachersWillful
contribution/ Not
Pressure
15%
Not willful
contribution/
Pressure
85%
Graph-37: Thinking on Paying Tax by Teachers
Thinking on Paying Tax by Businessmen
Willful
contribution/ Not
Pressure
20%
Not willful
contribution/
Pressure
80%
Graph-38: Thinking on Paying Tax by Businessmen
Thinking on Paying Tax by Govt. Service holders
Willful
contribution/ Not
Pressure
20%Not willfulcontribution/
Pressure
80%
Graph-39: Thinking on Paying Tax by Govt. Service holders
HSH 42
-
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Indebtedness of income tax system: Bangladesh Perspective
Thinking on Paying Tax by Private Service holders
Willful
contribution/ Not
Pressure
25%Not willful
contribution/
Pressure
75%
Graph-40: Thinking on Paying Tax by Private Service holders
Reasons of Evasion Evaluated by Teachers
1316
8 8 7
1410
5
05
10
15
20
Lack
ofa
wa...
Lack
ofs
ocia
...
Complexity
..
Huge
burden
Havingbrib
...
OfficialHar...
IllegalIncom
e
Bureaucratic.
..
Respondents
Graph-43: Reasons of Evasion Evaluated by Teachers
Reasons of Evasion Evaluated by Businessmen
10
1512
9
15
11
17
5
02468
1012141618
Lackofawarene
Lackofsocialben.
ComplexityofL
Hugeburde
Havingbribemon
OfficialHarassm
IllegalIncom
Bureaucraticpoli
Responde
Graph-44: Reasons of Evasion Evaluated by Businessmen
HSH 43
-
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44/45
Indebtedness of income tax system: Bangladesh Perspective
Reasons of Evasion Evaluated by Govt. Service Holders
10 11 9 1011
1715
5
0246
81012141618
Lack
ofa
war
ene
Lack
ofs
ocialb
en
Com
plexity
ofL
a
Hug
ebu
rde
Hav
ingbrib
em
on
Offi
cial
Haras
sme
Illegal
Incom
Bur
eauc
ratic
poli
Res
ponde
Graph-45: Reasons of Evasion Evaluated by Govt. Service Holders
Reasons of Evasion Evaluated by Private Service Holders
11
7
10
5
12 14 13
6
02468
10121416
Lack
ofa
war
enes
Lack
ofs
ocialb
enef
Compl
exity
ofL
a
Hug
eburd
en
Havingbribem
one
Official
Harassm
en
IllegalInc
ome
Bureau
craticpolicy
Responden
Graph-46: Reasons of Evasion Evaluated by Private Service Holders
[Here have all the graphs except those, what are already used in the
main body]
6. References
1. The Annual Statistical Report- 2000-2001, NBR, Dhaka, Bangladesh.
2. Dr. A K M Matiur Rahman (2007), Noncompliance of Income Tax Laws
in Bangladesh: Challenges and Remedies, 13, 32, 38, 77, 79, 71-73,
100.
3. Mustafa Tariq Hossain, Shafket Prokshoni, Dhaka, Bangladesh (1997),
Direct Taxes in Bangladesh.
4. http://www.indianetzone.com/43/economy_maurya_empire.htm
HSH 44
http://www.indianetzone.com/43/economy_maurya_empire.htmhttp://www.indianetzone.com/43/economy_maurya_empire.htm -
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Indebtedness of income tax system: Bangladesh Perspective
5. Md. Syedur Rahman, Parvez Akhter Linkon (2006), Direct Taxes in
Bangladesh, 2 & 3.
6. Government of Bangladesh (1984), The Income Tax Manual, Part-1,
The income Tax Ordinance- 1984.
7. http://www.indexmundi.com/bangladesh/population_below_poverty_li
ne.html
8. Tapan K. Sarker (2003) ,Improving Tax Compliance in Developing
Countries via Self-Assessment Systems - What Could Bangladesh
Learn from Japan?, Internet Addition, 1-5.
9. Tapan K Sarker (2006), Incidence of income taxation in
Bangladesh, Internet Addition.
10. The statistical report-2004, The National Board of Revenue,
Dhaka, Bangladesh.
11. Nikhil Chandra Shil, Mohammad Zakaria Masud, Mohammad
Faridul Alam (2007), Bangladesh Income Tax: Theory and Practice,
1.
12. Muhammad Anwarul Islam, The Bangladesh Development Studies
(1979), Tax Effort in Bangladesh: Some Empirical Observation,
Volume VII, No. 1.13. Nuimuddin Chowdhury, The Bangladesh Development
Studies(September 1988), Income Tax Incidence in Bangladesh,
1980-84, Volume XVI, No.3.
http://www.indexmundi.com/bangladesh/population_below_poverty_line.htmlhttp://www.indexmundi.com/bangladesh/population_below_poverty_line.htmlhttp://www.indexmundi.com/bangladesh/population_below_poverty_line.htmlhttp://www.indexmundi.com/bangladesh/population_below_poverty_line.htmlhttp://www.indexmundi.com/bangladesh/population_below_poverty_line.html
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