Taxation in Bangladesh: Income Tax

Income from Agriculture

Md. Abul Hasnat

Contents

Introduction....................................................3

Income from Agriculture................................4

Scope of agricultural income..........................4

Characteristics of Agricultural Income...........5

Classification of Agricultural income..............6

Admissible Expenses......................................8

Non- Assessable Agricultural Income.............8

Conclusion......................................................9

IntroductionA tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state. Taxes consist of direct taxes and indirect taxes. “Pecuniary burden laid upon individuals or property to support the government a payment exacted by legislative authority”. Tax is not a voluntary payment or donation but an enforced contribution, exacted pursuant to legislative authority and is any contribution imposed by government whether under the name of VAT, Custom, Excise, or other name. 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 nation’s 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. Total taxes in Bangladesh are divided into direct and indirect taxes. Direct taxes in Bangladesh consist of taxes on income (income tax, corporation tax, agricultural income tax) and taxes on property (wealth tax, gift tax, estate duty, capital gains tax, urban property tax, house rent, land revenue, registration and non-judicial stamp). Table 2 shows that the direct taxes in general accounted for less than a fifth of the total tax revenue of the country in the recent years and the rest is accounted for by indirect taxes.

According to section 20 of the income tax ordinance 1984, agricultural income is the fourth head among the seven heads of income. It is the most important sector in the economy of Bangladesh, whereas the contribution of tax from this sector is very

insignificant. In Bangladesh, agricultural income was non-assessable up to 1976. It has brought under the tax net through the finance act 1976.

Income from AgricultureGenerally the term of agriculture refers to the production of goods through the growing of plants, animals and other life forms. It also refers to field cultivation or cultivation of the ground, which involves a combination of both basic and subsequent operation. Any receipts out of cultivation of land and the use of buildings, premises, and land appurtenant thereto shall be considered as the income from agriculture after some considerations. The allowable deductions under agriculture are given below.

Agricultural income shall be determined after allowing a deduction of 60% from receipt from agriculture as agricultural expenses to avoid the no acceptable evidences of the production cost of cultivation.

If the agriculturist does not have any other income source other than the agriculture then he or she will get exemption of more taka 50000 after the deduction of 60% of the receipts as the agricultural expense.

There are some agricultural incomes which are also considered as the business income. As for example- income from tea garden is bifurcated between agricultural income and business income at the ratio of 60% and 40% consecutively. Income from rubber cultivation is also bifurcated at the same ratio.

Scope of agricultural incomeAccording to Section 2(1) of the income tax ordinance, 1984, ‘agricultural income’ means

1. Any income derived from any land in Bangladesh and used for agricultural purposes-

a. By means of agricultureb. By the performance of any processes ordinarily employed by a cultivator to

render marketable the produce of such landc. By the sale of the produce of the land raised by the cultivator in respect of which

no process, other than that to render the produce marketable, has been performed

d. By granting a right to any person to use the land for any period

2. Any income from any building which-a. Is occupied by the cultivator of any such land as is referred to in sub-clause

i. In which any process is carried on to render marketable any such produce aforesaid

b. Is on, or in the immediate vicinity of such landc. Is required by the cultivator as the dwelling house or store-house or other out-

house by the reason of his connection with such land.

From the above discussion it can be said that any income derived from any land or building in Bangladesh that is used for agricultural purposes will be considered under the head “Agricultural Income”. There are some other scopes of agricultural income under the considerations of income process. These are:

Gain from the sale of the machinery or plant exclusively used for agricultural purposes (Capital Gain)

Compensation money received against demolished machinery or plant exclusively used for agricultural purposes (Equipment insurance)

Income from sale of partly agricultural goods ( Tea, Sugarcane, Jute) Other agricultural income by notifications

Characteristics of Agricultural IncomeFrom the various provisions of the ITO, 1984, various definitions mentioned in dictionaries and case decisions, the following characteristics are relevant to agricultural income:

i. It must derive from any agricultural land situated in Bangladesh. Land is located outside the country, it will be considered as foreign income.

ii. It must come from fundamental agricultural work like field cultivation or cultivation of the ground, in the sense of tilling of the land, sowing seeds, planting and similar basic and subsequent operation on the field.

iii. Marketing of the agricultural goods should be through the ordinary process.iv. Income may come from any building situated in the agricultural land or

adjacent vacant agricultural landv. Income may come from gain or sale or discarded value of the of machinery

or plant used for agricultural purposevi. Some income may partially be considered as agricultural income such as sale

of tea, jute, rubber tobacco etc.

Classification of Agricultural incomeConsidering the provisions of the ITO, 1984, agricultural income can be classified into following categories:

1. Fully Agricultural income2. Partially Agricultural income3. Other Agricultural income

Fully Agricultural income

According to the provisions under Section 2(1), 26(1), 19(17), & 19(19) of the ITO, 1984, the following incomes Fully Taxable:

i. Any income derived from any land or building situated in Bangladesh and used for agricultural purposes

ii. Gain from the sale of the machinery or plant exclusively used for agricultural purposes (Capital Gain)

iii. Compensation money received against demolished machinery or plant exclusively used for agricultural purposes (Equipment insurance)

Partly Agricultural Income

According the Provision under Section 26(2) & 26(3) of ITO, 1984, The following incomes are partly considered as agricultural income with the standard proportionate rate:

Nature of partly auricular income

to be considered as agriculturalincome

to be considered as income from business or profession

Reference

Income from tea Garden 60% 40% Sec 26(2) rule 31

income from rubber garden

60% 40% Sec 26(3) rule 32

Income from Tobacco/ sugarcane/other similar products

60% (if further processing is done by the assessee)or,100% is sold directly after production

40% if further process is done or,nothing

Sec 26(3) rule 32

Other Agricultural income

In addition to above sources of incomes, the following incomes are also considered under the head of agricultural income:

Income from cattle rearing Income from sale of palm or date juice Income from sale of seeds of grass

Income from agro-co-operative society Income from land leased for agro work Income from sale of herbal or medical plants

There are also some non-agricultural incomes:

Income from ferry ghat Income from sale of produce that has no agricultural work like forest trees, wild grass,

fruit and flowers Income from salt production on flooded land Income from sale of water for irrigation Income from poultry firm (till 2011) Income from butter and cheese making Income from salary working in agro firm and a lot more indirect agricultural income.

Admissible ExpensesAs per Sec 27 ITO, 1984, in computing the taxable income under the head ‘agricultural income’ , some expenses are allowed to be deducted from the revenues under this head. Those allowable allowances and deductions are as follows:

Land Development Tax Local Tax (for agricultural operations) Production Cost

o Cultivating land or raising livestocko Processing cost of operation to produceo Transportation of the produceo Maintenance of machineries used for production

Up to 60% of the production cost is admissible.

Insurance premium Maintenance cost for irrigation plant Depreciation Interest on mortgage Interest on borrowed capital Losses for the sale of demolished machineries Losses on sale or exchange of machineries

Other expenses

Non- Assessable Agricultural IncomeAccording to the various provision of the ITO, 1984, the following agricultural incomes are non-assessable subject to some conditions:

1. Agricultural is not exceeding Tk. 50,000 is non-assessable for an individual assessee, where only source of his income is agriculture.

2. Any income thus including indigenous Hillman from agriculture of any district of Khagrachari, Bandarban, Rangamati hilltracks, which have been solely derived from economic activities undertaken within the above hill tracks.

3. Subject to the condition made hereunder any income from fisheries, poultry, cattle farming, floriculture, sericulture for the period from the first day of July, 2008, to the 30th day of June, 2011-

i. Exempted income level is Tk. 150,000 and 10% shall be invested in government bond

ii. The person should file return the incomeiii. No such income shall be transferred within five years from the end of the

income year.

Conclusion

Agricultural income is the most important sector in the economy of Bangladesh, whereas the contribution of tax from this sector is very insignificant. It is because of some lackness in infrastructure of NBR and local developmental issues. Following steps can be taken to make the agro- income more stable:

Influence local member to set fair price Provide special training to the farmer

Concern farmer to create crops insurance

Develop communication and distribution system

The heavy reliance on indirect taxation has been treated as one of the main obstacle 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 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 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.

Reference

Shil, Nikhil Chandra. (2010). Bangladesh Income Tax, Theory and Practice.

4th Edition, Income from Agriculture (pp216 – pp226). Dhaka: Shams Publications