Assignment on Taxation

Inadequate and stagnant revenue yield relative to GDP: We can see the status of the ratio of tax revenue to GDP of Bangladesh in the following table for last 7years (Source: Bangladesh Economic Review-2010).

Revenue as % of GDP| 2003-04| 2004-05| 2005-06| 2006-07| 2007-08| 2008-2009| 2009-2010| Total Revenue| 10.6| 10.6| 10.8| 10.5| 11.1| 11.2| 11.5| Tax Revenue| 8.5| 8.6| 8.7| 8.3| 8.8| 9.0| 9.3|

Non-tax Revenue| 2.1| 2.0| 2.1| 2.2| 2.3| 2.2| 2.2|

Analysis: The ratio of tax revenue to GDP is very low comparing to other developing countries.

High-ratio of indirect to direct tax revenue: Most of the tax revenue is from indirect taxes which are clear from the following table (Source: Bangladesh Economic Review-2010). Revenue (TK. In crore)| 2003-04| 2004-05| 2005-06| 2006-07| 2007-08| 2008-09| 2009-10| Total revenue| 35400| 39200| 44868| 49472| 60539| 69180| 79484| Tax revenue| 28300| 31950| 36175| 39247| 48012| 55526| 63956| Non-tax revenue| 7100| 7250| 8693| 10225| 12527| 13654| 15528| % of tax to revenue| 79.94%| 81.51%| 80.63%| 79.33%| 79.31%| 80.26%| 80.46%| Direct Tax(DT)| 6239| 6988| 8303| 10275| 12502| 15462| 19516| % of DT to total tax| 22.05%| 21.87%| 22.95%| 26.18%| 26.04%| 27.85%| 30.51%| Indirect Tax(IT)| 22061| 24962| 27872| 28972| 35510| 40064| 44440| % of IT to total tax| 77.95%| 78.13%| 77.05%| 73.82%| 37.96%| 72.15%| 69.49%|.

Analysis: An analysis of the revenue from the existing taxes shows that the indirect taxes predominate the revenue yield of the country. More than 70% of the tax revenue are from indirect taxes.

Dominance of VAT and Import duty: From the following table we can see the dominance of VAT and Import duty (Source: Bangladesh Economic review-2010).

Item wise collection| 2004-05| 2005-06| 2006-07| 2007-08| 2008-09| 2009-10| VAT| 33.2%| 34.3%| 34.9%| 35.4%| 36.2%| 35.6%| Import duty| 25.0%| 22.8%| 21.1%| 19.3%| 17.2%| 16.3%| Income Tax| 18.3%| 19.2%| 22.7%| 22.9%| 24.4%| 25.9%| Supplementary duty| 17.5%| 17.7%| 15.5%| 16.6%| 16.4%| 16.4%| Other Taxes and duties| 0.9%| 0.8%| 0.8%| 1.0%| 0.8%| 0.7%| Excise duty| 0.5%| 0.5%| 0.5%| 0.4%| 0.4%| 0.4%|

Analysis: It has been seen that the dominance of VAT and import duty in tax revenue sector is increasing day by day. Moreover, in order to increase revenue collection from domestic sources, VAT network has been widened in recent years.

Recommendation: From the above discussion it’s clear that attaining an optimal tax structure is one of the most important issues for the government to increase the revenue generation from taxes for accelerating growth and to improve the quality of life of the citizens. A long term sustainable solution to enhance transparency, promote growth, improve tax compliance and thus to increase tax to GDP ratio is much desirable issue in the context of Bangladesh.