Chapter - 3

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.

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 :-

  1. Large volume but small money value (hospital, police receipts, etc.)
  2. Contractual (but outside the parameters of statutes e.g. forest receipts) and
  3. 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:

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
& Services
Taxes From
International Trade
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):

Heads of Taxation Total Amount
(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:

  1. Framing of rules and regulations relating to different direct and indirect taxes.
  2. Supervision and Administration of Customs, Value Added Tax, Supplementary Duty, Excise and Income Taxes.
  3. Assisting government in processing revenue policy, preparation of revenue budget, entering into international treaty relating to taxes etc.
  4. Settlement of revision cases under different tax laws and approval of exemption cases.
  5. 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:    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.    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:    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:

Category Rate
(i) Income of Publicly Traded Company 35%
(ii) Income of non-Publicly Traded Company 40%
(iii) Bank, Insurance or Investment Companies, nonşresident 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    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%    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:    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:    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.    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.    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:    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    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    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:    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:

  1. Public Accounts Committee (PAC);
  2. Public Estimate Committee (For budgetary review);
  3. 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)