1

SUPERVISED DISSERTATION

ON

Causes of Tax Evasion and its Impact on Development in

Bangladesh: A Legal Analysis
Course Title: Supervised Dissertation

Course Code: Law 406

Submitted By

Alvi Tabassum Rittika

ID: 2018-3-64-009

Submitted To

Mridul Bepari

Senior Lecturer

Department of Law East West University

Date of submission: 31.12.2023

 2

Consent From

The dissertation titled “Causes of Tax Evasion and its Impact on the development in Bangladesh:
A legal Analysis” prepared by Alvi Tabassum Rittika, Student ID: 2018-3-64-009 submitted to
the Department of Law for the fulfillment of the requirements of Course 406 (Supervised
Dissertation) for LL.B. (Hons.) degree offered by the Department of Law, East West University
is approved for submission.

...........................................

Signature of the Supervisor

Date: 11/01/24
 3

Acknowledgment

I'm grateful for having the chance to perform this study, and I'd want to thank Dr. Md. Mehedi
Hasan, (Assistant Professor and Chairperson of Department of Law at East West University) for
enrolling me in this course. I'm also thankful to my supervisor, Mridul Bepari (Senior Lecturer,
Department of Law, East West University) who helped me choose my thesis topic and supported
me in many facets of my research.

The possibility to more thoroughly study my topic has been provided by the research. And I have
no doubt that it will keep doing so in the future. I am also grateful to all of the respected faculty
members at the East West University, Department of Law gave me real guidance on how to
finish my research. In addition, I would want to thank my family. Id' like to take this opportunity
to thank everyone who helped me finish this research, whether directly or indirectly.

Finally, I give thanks to God for giving me the courage to carry out this research.
 4

Declaration

I, Alvi Tabassum Rittika , Student ID – 2018-3-64-009, declare that I am the author of the
dissertation “Causes of Tax Evasion and its Impact on the development in Bangladesh : A legal
Analysis.”. This is my original work, and all sources of information used in this paper have been
properly cited. This work has not been published in any journal, newspaper, or article.
 5

Table of Content

Consent From ............................................................................................................................................... 2

Acknowledgment ......................................................................................................................................... 3
Declaration ................................................................................................................................................... 4
Table of Content ........................................................................................................................................... 5
LIST OF ABBREVIATION ........................................................................................................................ 7
ABSTRACT ................................................................................................................................................. 8
Chapter 1 .................................................................................................................................................... 10
Introduction ................................................................................................................................................ 10
1.1 -Background of the Study............................................................................................................... 10
1.2- Hypothesis .......................................................................................................................................... 10
1.3- Research Question .............................................................................................................................. 11
1.4-Literature Review................................................................................................................................. 11
1.5-Research Methodology ........................................................................................................................ 12
1.6- Scope of the Study and Limitations ................................................................................................... 12
Chapter 2 .................................................................................................................................................... 13
Concept of Tax ........................................................................................................................................... 13
2.1-Introduction .......................................................................................................................................... 13
2.2- History of Tax ..................................................................................................................................... 13
2.3-Tax ....................................................................................................................................................... 14
2.4-Taxable Income ................................................................................................................................... 14
2.5-NBR ..................................................................................................................................................... 15
2.6-Conclusion ........................................................................................................................................... 16
Chapter 3 .................................................................................................................................................... 17
Tax Evasion and Tax Avoidance................................................................................................................ 17
3.1-Introduction .......................................................................................................................................... 17
3.2-Tax Evasion ......................................................................................................................................... 17
3.3-Tax Avoidance ..................................................................................................................................... 18
3.4-Diffrance between Tax evasion and Tax avoidance ............................................................................. 18
3.5-Conclusion ........................................................................................................................................... 19
 6

Chapter 4 .................................................................................................................................................... 20
Legal Framework ....................................................................................................................................... 20
4.1-Introduction .......................................................................................................................................... 20
4.2- Relevent Laws and Penalties In Bangladesh Regarding Tax Evasion................................................. 20
4.3- Relevent Laws and Penalties In India Regarding Tax Evasion ........................................................... 22
4.4- Relevent Laws and Penalties In US Regarding Tax Evasion .............................................................. 23
4.5-Notable cases regarding tax evasion .................................................................................................... 23
4.6-Effects of Tax evasion in Bangladesh .................................................................................................. 25
4.7-Conclusion ........................................................................................................................................... 27
Chapter 5 .................................................................................................................................................... 28
Findings ...................................................................................................................................................... 28
Causes of Tax Evasion ................................................................................................................................. 28
Chapter 6 .................................................................................................................................................... 31
Recommendations ...................................................................................................................................... 31
Conclusion.................................................................................................................................................. 32
Bibliography ............................................................................................................................................... 33
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LIST OF ABBREVIATION

NBR- National Board of Revenue

GDP- Gross Domestic Product

DCT- Deputy Commissioner of Tax

VAT-Value-added Tax

ITA-Income Tax Act

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ABSTRACT

Paying taxes is a responsibility imposed by the government on its citizens, serving as a major
financial source for public expenditure and development, and currently serving as an economic
policy instrument. Without boundaries, tax evasion is a problem. The economies in transition and
developing nations are the most severely affected by tax evasion. Bangladesh has a strong
informal economy, poor tax culture and low compliance rate. Within the context of Bangladesh's
legal system , this paper is a legal analysis of causes of tax evasion and its impact on the
development in Bangladesh.

Keyword- Tax, Tax Evasion, Income Tax, Bangladesh, NBR, Development

 9

Causes of Tax Evasion and its Impact on the development in

Bangladesh : A legal Analysis.
 10

Chapter 1

Introduction

1.1 -Background of the Study

Tax evasion is regarded as a widespread phenomenon. Bangladesh, a developing nation, it is a

major issue. The National Board of Revenue's (NBR) tireless efforts have not resulted in a
satisfactory reduction in tax evasion. People, companies, and corporate entities employ a variety
of strategies to avoid paying taxes by taking advantage of Bangladesh's present tax laws'
loopholes. The governments of most developing nations, including Bangladesh, have been
unable to increase the amount of their tax bases as a result of rising tax evasion used to finance
the easing of service delivery. Today's global taxation practices reveal significant variations
between countries, particularly between developed and developing countries. Specifically,
wealthy nations now collect taxes on a far higher percentage of their national output than do
developing nations, and they typically depend more on income taxation to do so. In contrast,
trade taxes and consumption taxes are more important in developing nations. Taxation is a vital
part of the government's financial sources. One of the major sources of financial support for
economic and social development of Bangladesh is tax revenue. Many developing countries' tax
systems are defined by tax structures that deviate from international norms, poor policy
management, low levels of compliance, and inadequate resources for tax administration. The
state of the economy also has an impact on the variation in revenue mobilization. To accelerate
economic development, it is crucial to stop tax evasion and avoidance. Governments need funds
to create infrastructure and invest in various sectors, but their revenue generation is insufficient
due to tax evasion and avoidance. The process of increasing tax revenue can be complex and
involve addressing various issues on both the taxpayer and tax collector's sides. Bangladesh's
low tax-to-GDP ratio is primarily due to its narrow tax base, widespread exemptions, and
administrative inefficiencies compared to neighboring countries. Therefore, addressing these
issues is crucial.NBR need to update and add more penalty or punishment to prevent tax evasion
and give some helpful way to pay tax.

1.2- Hypothesis

The existing law of Bangladesh is insufficient to ensure the prevention of tax evasion and the state is
bound to overcome the situation.
 11

1.3- Research Question

1. Whether tax evasion is on the rise in Bangladesh or not? If yes, whether the current legal framework is
sufficient to prevent tax evasion or not?

2. What are the effects of tax evasion on the development in Bangladesh?

1.4-Literature Review

Studies indicate that taxpayers' tax evasion behavior is influenced by various factors. Allingham
and Sandmo are pioneers in the field of tax evasion. According to Allingham and Sandmo article
the body of research on tax evasion has grown significantly in the literature. They acknowledged
the stale elements of tax evasion. They emphasized the connection between rewards for tax
evasion and rewards for exerting effort. They also revealed that the income declaration of the
taxpayers was dependent upon the real income of the taxpayers, the tax rate, the penalty rate, and
the likelihood of an audit. They explained in their explanation of their findings that "When actual
income varies, the fraction declared increases, stays constant, or decreases according to the
relative risk aversion, which is an increasing, constant, or decreasing function of income,". They
came to the conclusion that the rate of taxation and tax evasion have the opposite relationships.
A lower tax rate encourages taxpayers to pay their taxes, whereas an increase in the rate
increases the chance to evade additional taxes. On the other hand, taxpayers become less wealthy
if they pay more taxes. Their analysis also showed that people always have the option to disclose
their true income if a nation decides to raise the penalty for tax evasion. It may be possible to
declare the significant income if there is a greater probability of being discovered.1

In another article Alm did not capture any significant relationship between the likelihood of
detection, tax penalties, and tax evasion. He highlight that increasing the penalty rate may cause
taxpayers to evade taxes less frequently2. But in Allingham and Sandmo article they suggests
that tax evasion can be reduced by increasing penalties or administrative expenses, raising the
probability of tax evaders being caught. An extreme interpretation suggests that penalties should
be so high that at the limit, tax evaders caught should be hanged with a probability approaching
zero. This has significant implications for administration.

Based on the aforementioned discussion and research on causes of tax evasion, it can be assumed
that a number of common factors, such as high tax rates, the tax burden, income level, income
sources, chances of detection, fraud penalties, government spending, public services, tax

1
Michael G Allingham and Agnar Sandmo, ‘Income Tax Evasion: A Theoretical Analysis’ (1972) 1 Journal of
Public Economics 323.
2
James Alm, Gary H McClelland and William D Schulze, ‘Why Do People Pay Taxes?’ (1992) 48 Journal of Public
Economics 21.
 12

mentality, voluntary compliance, and tax morale are the reasons of tax evasion and people are
evading taxes because the penalties are not extreme.

1.5-Research Methodology

This thesis can be described as qualitative research. In conducting the research, resources like statutes,
international conventions are considered as a primary sources. For secondary resources, newspaper
articles, national and international journals, online journals and are websites considered. This research
paper looks at a range of challenges to find a solution to the research question. The research paper aims to
investigate and find out how far the existing law ensure the prevention of tax evasion. In addition, the
necessary materials related ot this issue were collected from websites, journals, scholars blogs and some
articles.

1.6- Scope of the Study and Limitations

In this research paper, I'm focusing on the legal analysis of causes of tax evasion and its impact
on the development in Bangladesh. Many restrictions were encountered while doing the research.
Because of my time limitations, I could not utilise many of my academic resources. There is a
shortage of current information on this research area. If there are no time constraints and if other
things are available for free on the internet, I will try to do more research and obtain more
results. This study would be more planned, spontaneous, and informative without this limitation.
 13

Chapter 2

Concept of Tax

2.1-Introduction

One of the most important ways that nations can create public revenues to fund infrastructure
projects, investments in human resources, and services for both citizens and corporations is
through the collection of taxes and fees.3 Tax revenues play a major role in the government
revenue of Bangladesh. Taxation is crucial for a sustainable state and economic growth, as an
improved tax system helps finance public services, reduce inequality, increase government
accountability, and enhance self-reliance by reducing government inefficiency.

2.2- History of Tax

The Indian Income Tax Act was enacted by the Indian government in 1886. It was amended and
consolidated in 1916. In 1922, the All-India Income Tax Committee recommended a broad-
based tax system, leading to the establishment of the Inland Revenue Board. Bangladesh
inherited the British-Indian tax system until 1971. However, during the Pakistani regime, land
ownership in Bengal changed significantly, with the Permanent Land Revenue Settlement
abolished and. Property rights were awarded by the Zamindars at a set percentage of land
revenue.4The Permanent Settlement in Bengal was implemented due to weak Company
administration, but the Zamindar system failed to improve Rayots' production and well-being.
The 'Peasants Uprising' led to the abolition of permanent settlements. The A.K. Fazlul Haque-led
Krishok Proja Party, formed the Bengal Provincial government in 1937 and passed the
Moneylenders Act of 1940, abolishing Zamindar fees and taxes. When the Land Revenue
Commission was established in 1938, its recommendations included doing away with permanent
settlements and paying land taxes to the government directly5. Bangladesh's Income Tax
Ordinance, 1984 (XXXVI of 1984), which went into effect on July 1st, 1984, replaced the 1922

3
‘Taxes & Government Revenue’ (World Bank) <https://www.worldbank.org/en/topic/taxes-and-government-
revenue> accessed 29 December 2023.
4
‘BD FTM Final Text.Pdf’ <https://maketaxfair.net/assets/wbb-
publications/1403/BD%20FTM%20final%20text.pdf> accessed 30 December 2023.
5
ibid.
 14

Income Tax Act.Regarding taxes and the tax system, Bangladesh maintains a relatively democratic
attitude. 6

2.3-Tax

Tax is a compulsory levy imposed by a Government under specific Acts on person or goods to
defray expenditure for common benefit of citizen.7 It is an obligatory payment made by
individuals or businesses to the government. Most important way of funding for the government
is taxation. It plays a crucial role in shaping the relationship between the state and its citizens8.
Revenue from taxes is one of the main sources of funding for social and economic advancement.
Taxation policy is crucial for the government to generate sustainable revenue for successful
public programs, ensuring efficient administration and collection systems for public goods and
services delivery9. There are two types of taxes in Bangladesh. They are- indirect tax and direct
tax. Income and profit taxes are examples of direct taxes and other taxes and duties, such as
VAT, import, export, excise, supplemental, and other charges, are examples of indirect taxes.10

2.4-Taxable Income

Taxable income, after deductions and exemptions, is the amount of income subject to tax for
individuals and corporations, which is less than gross income.11According to Bangladeshi tax
regulations, every income derived from Bangladeshi sources is taxable. Also, foreign income is
subject to taxation unless it is paid to a foreign nation with which Bangladesh has entered into a
double taxation agreement.12 According to the Income Tax Ordinance 1984 section 20 there are
seven types of income are there in Income Tax Law in Bangladesh, namely- agricultural income,
salaries, interest on securities, income from house property, capital gains, income from other
sources and income from business or profession,.13

6
ibid.
7
‘The Income-Tax Ordinance, 1984’ <http://bdlaws.minlaw.gov.bd/act-672.html> accessed 28 December 2023.
8
Michael Carnahan, ‘Taxation Challenges in Developing Countries’ (2015) 2 Asia & the Pacific Policy Studies 169.
9
‘Effective Ways to Raise Tax-GDP Ratio in Bangladesh’ (The Financial Express)
<https://thefinancialexpress.com.bd/views/opinions/effective-ways-to-raise-tax-gdp-ratio-in-bangladesh> accessed 6
January 2024.
10
‘Tackling Tax Evasion in Bangladesh’ (South Asia@LSE, 1 July 2019)
<https://blogs.lse.ac.uk/southasia/2019/07/01/tackling-tax-evasion-in-bangladesh/> accessed 28 December 2023.
11
‘What Is Taxable Income?’ (Tax Foundation, 24 October 2023)
<https://taxfoundation.org/taxedu/glossary/taxable-income/> accessed 30 December 2023.
12
‘Bangladesh Tax Laws: Personal Responsibility | Serviap ®’ (17 May 2022)
<https://www.serviapgroup.com/blog/bangladesh-tax-overview/> accessed 30 December 2023.
13
‘The Income-Tax Ordinance, 1984’ (n 7).
 15

Income tax is a progressive tax system based on taxpayer ability to pay, with the principle being
that the higher a taxpayer earns, the higher they should pay.

The following are the standard income tax slab rates for 2023-24 :

Based on whether an assesses is a non-resident or a resident, different tax rates and amounts of
taxable income applicable. The tax-free income threshold of male taxpayers is BDT 350,000,
resulting in the following brackets/rates:

o up to BDT 350,000 - Nil

o over BDT 350,000 up to 450,000 - 5%
o over BDT 450,000 up to 750,000 - 10%
o over BDT 750,000 up to 1,150,000 - 15%
o over BDT 1,150,000 up to 1,650,000 - 20%
o over BDT 1,650,000 - 25%

For female taxpayers and taxpayers over 65, the tax-free income limit is BDT 400,000 and the
0% surcharge bracket threshold for wealthy individuals is BDT 40 million. 14 In a nation of
about 17 crore people, the percentage of taxpayers who file income tax returns on a regular basis
is quite low. 15

Tax amount:

Individuals in Dhaka and Chattogram city corporations pay a minimum tax of Tk 5,000 if their
taxable income exceeds Tk 350,000, while those in other city corporations pay Tk 4,000 and
non-city corporation areas pay Tk 3,000.16

The deadline for submitting returns annually is from July 1 to November 30, but in assessment
year 2023-24 deadline extended to January.

2.5-NBR

The National Board of Revenue is the primary authority responsible for tax administration in
Bangladesh.17 In addition to collecting tax money, NBR is in responsible of developing and
reconsidering tax laws and policies. NBR field offices implement tax laws and policies,
identifying tax evasion and implementing enforcement actions to prevent such activities. Each
14
‘Bangladesh National Budget for 2023-24 Delivered Including Individual Income Tax Adjustments — Orbitax
Tax News & Alerts’ <https://orbitax.com/news/archive.php/Bangladesh-National-Budget-for-52889> accessed 28
December 2023.
15
Star Business Report, ‘Tax Evasion Costs Bangladesh up to Tk 223,000cr a Year: CPD’ (The Daily Star, 4 April
2023) <https://www.thedailystar.net/business/economy/news/tax-evasion-costs-bangladesh-tk-223000cr-year-cpd-
3288066> accessed 29 December 2023.
16
Taukir Aziz, ‘All You Need to Know about the New Income Tax Act’ (The Daily Star, 25 June 2023)
<https://www.thedailystar.net/opinion/views/news/all-you-need-know-about-the-new-income-tax-act-3355371>
accessed 7 January 2024.
17
‘National Board of Revenue (NBR), Bangladesh’ <https://nbr.gov.bd/> accessed 31 December 2023.
 16

territorial tax zone consists of 22 tax circles, each of which has a certain jurisdiction over
taxpayers that are separate legal entities. With a single DCT, his taxpayers and employees, each
circular office operates independently.

2.6-Conclusion

Bangladesh's progressive tax system, based on a person's financial capacity, is a key revenue
source. Taxes are based on income, with higher rates imposed based on earnings. The system
aims to maintain social fairness and equity, with rates also varying between male and female
individuals.
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Chapter 3

Tax Evasion and Tax Avoidance

3.1-Introduction

In every society, there are visible phenomena such as taxation and tax evasion. 18Every taxpayer
who owes taxes searches for different methods to lower their tax liability and evade paying taxes.
Tax evasion and tax avoidance are prevalent strategies employed by taxpayers to minimize their
tax obligations through both legal and illegal means.19

3.2-Tax Evasion

Tax evasion is a global occurrence. The purposeful and intentional breach of the law to avoid
paying taxes that are unquestionably required by the tax jurisdiction's laws is known as tax
evasion. 20It is a violation of the law when the taxpayer participates in unlawful activity and
exposes himself to administrative or legal action from the authorities when he fails to declare
income from labor or capital that is generally taxable. 21Usually, Tax evasion is a deliberate act
where taxpayers deceive or conceal their financial status to reduce their tax obligations. It also
covers dishonest tax reporting, which includes overstating deductions or disclosing lower
income, profits, or gains than were actually made. In addition to being immoral, tax evasion
violates the tax laws.22 Tax evasion is an illegal act where individuals or companies avoid paying
their tax liabilities, often leading to criminal charges and substantial penalties. This includes not
paying taxes or paying less than what is required, fabricating income, claiming deductions
without proof, and failing to declare cash transactions.23

18
Derartu Defar, ‘FACTORS INFLUENCING TAX EVASION’
<https://www.academia.edu/33159528/FACTORS_INFLUENCING_TAX_EVASION> accessed 30 December
2023.
19
‘Difference Between Tax Evasion and Tax Avoidance - ODINT Consulting’ (28 February 2022)
<https://ondemandint.com/blog/difference-between-tax-evasion-and-tax-avoidance/> accessed 30 December 2023.
20
American Journal of Humanities and Social Sciences, ‘Effect of Tax Avoidance and Tax Evasion on Personal
Income Tax Administration in Nigeria | American Journal of Humanities and Social Sciences’
<https://worldscholars.org/index.php/ajhss/article/view/328> accessed 29 December 2023.
21
Agnar Sandmo, ‘The Theory of Tax Evasion: A Retrospective View’ (2005) 58 National Tax Journal 643.
22
Md Mohabbat, Md Rahman and Md Darda, ‘Tax Avoidance and Evasion Practices in Bangladesh: A Study on
Dhaka City’.
23
‘Tax Evasion: What Is Tax Evasion, Methods and Penalties?’ <https://www.canarahsbclife.com/tax-
university/articles/tax-evasion-what-is-tax-evasion-methods-and-penalties> accessed 8 January 2024.
 18

3.3-Tax Avoidance

Tax avoidance means taking undue benefit of the loopholes, lacunae or drafting mistakes for
reducing tax liability and thus avoiding payment of tax which is lawfully payable. Tax
avoidance is the minimization of tax liability by the tax-payer or his agent by efficient tax
planning. It is possible by fully complying with the tax laws and meeting tax liabilities. Thus tax
avoidance takes the advantages of the loopholes in the existing fiscal laws. The avoider is just
smart taxpayer who exploits loopholes in the tax laws to reduce tax liability.24 It is completely
permissible to use the tax system for one's personal benefit in order to lower the amount of tax
that an individual is required to pay.25 Almost all taxpayers adopt the basic tax avoidance
strategy of claiming allowable tax deductions that they are qualified for depending on their
current financial situation.26 It is achieved by claiming allowable credits and deductions, but it
can also be accomplished by giving tax-advantaged investments top priority. The use of legal
strategies to lower taxable income or arrears is known as tax avoidance. Investing in tax-exempt
accounts is often done through approved tax deductions and tax credit claims.

3.4-Diffrance between Tax evasion and Tax avoidance

The Bangladeshi statutory law lacks a formal definition for tax evasion or tax avoidance.
Considering the concept of tax evasion, failing to declare all income earned will be considered
illegal and will be treated as tax evasion. Tax evasion also includes income from financial assets
kept in another nation but not reported to the local IRS. It goes without saying that manipulating
transactions to reduce one's tax liability will be considered tax evasion. 27Numerous judges have
discussed the legal differences between tax evasion and tax avoidance over time. As it is
considered illegal, many judges have concluded that tax evasion is ethically immoral. However,
the judges claim that since tax avoidance is accepted as lawful, there is no ethical
issue.28Realistically comparing legal interpretations to moral interpretations is not accurate as it
can lead to misunderstandings about tax evasion and avoidance because the fact that a taxpayer's

24
Nazib-E Zaman, ‘&quot;TAX EVASION &amp; AVOIDANCE - A REAL PROBLEM FOR
BANGLADESH&quot’;
<https://www.academia.edu/5307601/_TAX_EVASION_and_AVOIDANCE_A_REAL_PROBLEM_FOR_BANG
LADESH_> accessed 30 December 2023.
25
Mohabbat, Rahman and Darda (n 22).
26
‘The Difference Between Tax Avoidance and Tax Evasion’ (Herman Law, 16 July 2019)
<https://rhlawfl.com/white-collar-crime/whats-the-difference-between-tax-avoidance-and-tax-evasion/> accessed 30
December 2023.
27
Clemens Fuest and Nadine Riedel, ‘Tax Evasion, Tax Avoidance and Tax Expenditures in Developing Countries:
A Review of the Literature’.
28
Zoë M Prebble and John Prebble KC, ‘The Morality of Tax Avoidance’ (2010)
<https://papers.ssrn.com/abstract=1650363> accessed 30 December 2023.
 19

activities are legal doesn't mean they're ethically right.29 Tax avoidance involves structuring
transactions to maximize tax benefits, while tax evasion involves illegal measures to avoid
paying taxes. Tax avoidance is a legal method to find loopholes in taxation laws, while tax
evasion is a deliberate attempt to avoid paying taxes. Both methods lead to countries being short
in taxes and local people suffering.

Tax evasion is an illegal and unethical practice. Reducing tax liability through false statements,
hiding documents, improper record keeping or claiming personal expenses as business expenses
which is an unlawful act. that can result in imprisonment or penalties if proven guilty. On the
other hand tax avoidance, aims to reduce the tax burden by following the law, resulting in a
delay of tax payments and a strategy to lower tax burdens without violating the law, such as
using deductions for business expenses or delaying tax payments.

3.5-Conclusion

There is a significant difference between legally avoiding taxes through charitable contributions
and illegally evading taxes. It doesn't require much persuasion to convince someone that making
a charitable donation is morally right, but intentional tax cheating is wrong. 30

29
ibid.
30
ibid.
 20

Chapter 4

Legal Framework

4.1-Introduction

Tax evasion occurs in all countries, but it is a more severe issue in developing countries like
Bangladesh. Bangladesh is losing potential taxes each year, tax evasion by individuals and
corporations has a significant impact, approximately Tk 41,800 crore to Tk 223,000 crore.. To
maintain economic development, it's crucial to increase income tax collection and avoid tax
evasion. This is not a sign of self-evasion, but rather a government's attempt to collect revenue
through increased indirect tax, imposing equal burdens on the rich and poor.31 The Income Tax
Act 2023 in Bangladesh is a crucial legislation that regulates the taxation of income earned by
individuals, businesses, and other entities, and has been revised to adapt to the nation's evolving
economic landscape.

The NBR is the top authority responsible for managing indirect taxes like VAT and customs
duty, as well as direct taxes like income, gift, and travel tax. The Income Tax Ordinance, 1984
(XXXVI of 1984) and the Income Tax Rules, 1984 are the tax laws that govern income tax
administration in Bangladesh.32

4.2- Relevent Laws and Penalties In Bangladesh Regarding Tax Evasion

Income Tax Ordinance, 1984

Ø Section 93 states that, the evasion of tax can be effectively managed through the
following methods. -

1) The DCT may issue a notice to an assessee if they believe a sum payable has
escaped payment in an assessment year, requiring them to file a return of income
and pay the escaped payment before filing the return.
2) The DCT may issue a notice under section 82BB if the return for the relevant
assessment year was filed or completed under any other Ordinance provision,
requiring written approval from Inspecting officers.
3) The DCT can issue a notice if no assessment or return was filed for the relevant
year,or within six years if the assessment was finished but no return was filed.
4) Tax offices must implement four enforcement measures to combat tax evasion:
administrative penalty, raising risk points, criminal prosecution, and interruption.

31
‘Income Tax in State Coffers’ (New Age | The Most Popular Outspoken English Daily in Bangladesh)
<https://www.newagebd.net/article/188092/income-tax-in-state-coffers> accessed 7 January 2024.
32
‘National Board of Revenue (NBR), Bangladesh’ (n 17).
 21

If a court halts an assessment or proceedings, the time period is excluded. If a

taxpayer is identified for tax evasion, a fresh assessment is conducted, a taxpayer
hearing is held, and a new demand and assessment order is sent.

Ø Section 124A states that, a maximum penalty of Tk. 20,000 for the use of fake tax-payer's
identification numbers.
Ø Section 124AA states that, a penalty of Tk. 50,000 for non-refund of taxpayer's
identification number.
Ø Section 127 states that, failure to pay tax on the basis of return can result in a maximum
delinquent tax of 25% of the total tax or unpaid amount.
Ø Section 128(1) states that, if someone would have avoided paying taxes, the income tax
authorities will impose a 15% penalty. This penalty will increase by 15% for each
previous assessment year if concealment is discovered more than a year after the first tax
assessment. Thus, those who evade tax must pay the 15% penalty.
Ø Section 166 states that, individuals who conceal or intentionally provide inaccurate
income information are guilty of an offense punishable by imprisonment, fine, or both,
with a maximum sentence of five years.

Income Tax Act 2023

The Income Tax Act 2023 (ITA 2023) replaces the 1984 Income Tax Ordinance, modernizing
the taxation system to attract foreign direct investment. It expands the tax net, introduces tax
holidays for new industries, and strengthens revenue collection. It also includes provisions for
Taxpayers Identification Numbers.33The Income Tax Act 2023 aims to ensure fair tax
distribution, encourage voluntary tax compliance, discourage tax evasion, stimulate economic
growth and investment through incentives, and improve transparency and reduce tax law
complexities.34 In this Act to combat tax avoidance and evasion by allowing tax authorities to
investigate transactions and imposing penalties for non-compliance with tax laws. Following-

Ø Provision for whitening black money states that, black money can buy land, plots, and
flats, with taxes based on areas. Multiple land-flats require a 20% additional tax Black
money is tax-free when investing in high tech or economic zones. Black money can be
converted into white for stock market shares, renovations, modernization, and
industrialization.
Ø Punishment for tax evasion, concealment, late submission states that, A person who
intentionally evades tax can face imprisonment ranging from 6 months to maximum 5
years, a fine, or both.

Falsifying income, assets, liabilities, expenses, or omitting tax file information to reduce
taxes is punishable, and any attempt to avoid paying income tax will result in
punishment.

33
juralacuity, ‘Income Tax Act 2023 & Taxation: A Summary of Income Taxation in Bangladesh’ (Jural Acuity, 30
August 2023) <https://juralacuity.com/income-taxation-in-bangladesh/> accessed 8 January 2024.
34
ibid.
 22

4% of the tax due penalty , up from 2%, will be assessed for filing income tax returns
after the deadline. A fine of TK 1,000, or 10% of the last income due, will be assessed for
failure to file. The DTC may charge an extra Tk50 per day in penalties if the delay
continues.

Ø Penalty for finding wealth abroad states that, if a person with unreported assets abroad
can result in a significant penalty, including a fine equal to the property's fair market
value, and the DCT can investigate if necessary.
Ø Expanding scope of penalties states that, Tax authorities have increased penalties for non-
compliance with tax regulations. Businesses must provide proof of return submission at
the business center, with fines ranging from Tk5,000 to 20,000. Fake TINs and audit
reports can result in fines of Tk 20,000 to Tk 2 lakh. The DCT has the authority to levy
penalties equal to the amount owed if taxes are unpaid or in arrears. Obstructing income
tax authorities can result in imprisonment or fines.

Income Tax Act 2023 Bangladesh has been drafted in Bangla to improve accessibility and
comprehensibility, with new sections introduced to eliminate complexities and replace
interdependencies, aiming to enhance understanding and compliance with tax laws. The audit
process for tax files has been clarified and time-bound, allowing taxpayers to defend
themselves35.

4.3- Relevent Laws and Penalties In India Regarding Tax Evasion

The Income-tax Act, 1961, includes terms like tax planning, avoidance, and evasion. However, tax
evasion is illegal and penalties are outlined in Chapter XXII. The Act introduces penalties for individuals
attempting to evade paying income taxes. Here is a summary of several common types of tax evasion that,
according to the Income Tax Act of 1961, might result in penalties-

Income Tax Act 1961

Ø Section 139 states that, non-filing of income tax returns can result in a penalty of up to Rs
5,000.
Ø Section 271(C) states that, taxpayers who conceal original earnings or income face
penalties ranging from 100% to 300% of the tax evaded.
Ø Section 44AB states that, a taxpayer must undergo an audit or provide an audit report, or
face a penalty of 0.5% of total sales, turnover of gross receipts, or Rs 1,50,000.
Ø Section 93(E) states that, The taxpayer is required to submit an accountant's report, if no
which may result in a penalty of Rs 1,00,000 or more.

35
‘New Income Tax Law to Be Hard on Evaders, Simplifies Rules for Businesses’ (The Business Standard, 6 June
2023) <https://www.tbsnews.net/nbr/new-income-tax-law-be-hard-evaders-simplifies-rules-businesses-645202>
accessed 8 January 2024.
 23

Ø Section 276(C) states that, a taxpayer who willfully evades or under-reports income with
the amount exceeding Rs 25 lakh may face imprisonment for six months to seven years,
along with a fine.

Mid East Port Folio Management ... vs Deputy Commissioner Of Income Tax 36and Dillu Clive
Enterprises (P) Ltd. vs Addl. Cit37 are relevent tax evasion case in India where people are not
obeying the tax rules and laws, and continuously evade the tax.

4.4- Relevent Laws and Penalties In US Regarding Tax Evasion

Tax evasion is a serious offense that can result in substantial financial penalties, imprisonment,
or both in US.

Internal Revenue Code

Ø Section 7201 states that, if a person who willfully evades or defeats tax imposed by this
title or its payment will be guilty of a felony and may face a fine of $100,000 ($500,000
in corporation cases) or imprisonment of 5 years or both, along with prosecution costs.

In US, the projected gross tax gap for 2017-2019 is $41 billion for nonfiling, $433 billion for
underreporting, and $66 billion for underpayment.38

Walter Anderson, an American entrepreneur, was convicted of the largest tax evasion case in
U.S. history for evading over $200 million in taxes. In 1998, he paid $495 in taxes on $67,939 of
income, allegedly hiding $126 million using offshore corporations. Anderson was sentenced to
nine years in federal prison.39

4.5-Notable cases regarding tax evasion

Dr Muhammad Yunus Case

Nobel laureate Dr. Muhammad Yunus was ordered to pay the National Board of Revenue
approximately Tk12 crore after the High Court found him guilty of tax evasion.The NBR had
demanded around Tk15 crore tax on donations under the Donations Tax Act, 1990. Dr. Yunus

36
‘Mid East Port Folio Management ... vs Deputy Commissioner Of Income Tax ... on 14 August, 2003’
<https://indiankanoon.org/doc/935626/> accessed 8 January 2024.
37
‘Dillu Clive Enterprises (P) Ltd. vs Addl. Cit on 27 September, 2001’ <https://indiankanoon.org/doc/1346775/>
accessed 8 January 2024.
38
‘The Tax Gap | Internal Revenue Service’ <https://www.irs.gov/newsroom/the-tax-gap> accessed 9 January 2024.
39
‘UNITED STATES v. ANDERSON (2008)’ (Findlaw) <https://caselaw.findlaw.com/court/us-dc-
circuit/1021856.html> accessed 9 January 2024.
 24

contested the legality of these notifications, arguing that the NBR was not authorised to tax
donations. The High Court now ruled in favor of the NBR.40

A New Jersey man, Jonathan D. Michael case

Tax evasion and neglecting to file personal income tax returns have been found as convictions
for D. Michael. Michael made a fraudulent claim to be exempt from federal income tax
withholding from 2014 to 2018 while working as a mechanic at the Port Newark Container
Terminal. He lost almost $375,000 in taxes as a result of his failure to file tax returns. On
October 23, 2023, Michael is scheduled to get a punishment that includes a possible five-year jail
sentence for tax evasion and a one-year sentence for intentionally failing to file a tax return.41

Ai Capone Case

Alphonse Gabriel Capone, a notorious Chicago gangster, was convicted of murder, extortion,
and bootlegging in the early 20th century. He was later found guilty of tax evasion, serving 11
years in 1931 for not paying $215,000 in taxes. Capone retired in Florida42.

Currently, 13,000 foreign workers file tax returns, although this is less than the yearly amount of
external remittances paid to India from Bangladesh. This demonstrates the enormous amount of
money the nation is losing as a result of Indian workers evading taxes.43

After overview all the laws and cases of Bangladesh, India and US we find Bangladeshi laws as
well as India and US laws are not sufficient to prevent the tax evasion. All countries citizen
including Bangladeshi citizens are persistently evading tax through various means such as false
tax submission, donations, hiding interest, non-payment, and submitting fake documents, putting
themselves at risk of punishment. Increased penalties could boost tax compliance by reducing the
risk-reward concept of evaders. Higher stakes of being caught would discourage individuals and
companies from committing to tax evasion. Increased cases specific to foreign transactions
would diminish evasion effects. This also affects enforcement efforts, increasing the probability
of detecting evaders. However, the issue lies in government spending, as Bangladesh would have
to increase prosecuting tax offenders, which may not outweigh the benefits of prosecution.

40
‘HC Finds Dr Yunus Guilty of Tax Evasion, Orders Him to Pay over Tk12cr’ (The Business Standard, 31 May
2023) <https://www.tbsnews.net/bangladesh/court/dr-yunus-found-guilty-tax-evasion-ordered-pay-over-tk12cr-hc-
641274> accessed 31 December 2023.
41
‘Office of Public Affairs | New Jersey Man Found Guilty of Tax Evasion | United States Department of Justice’ (6
June 2023) <https://www.justice.gov/opa/pr/new-jersey-man-found-guilty-tax-evasion>.
42
‘Famous Tax Evasion Cases’ (Findlaw) <https://www.findlaw.com/tax/tax-problems-audits/famous-tax-evasion-
cases.html> accessed 31 December 2023.
43
‘Illegal Foreign Workers and Tax Evasion Hurting the Bangladesh Economy’ (Dhaka Tribune)
<https://www.dhakatribune.com/bangladesh/bangladesh-others/142399/illegal-foreign-workers-and-tax-evasion-
hurting> accessed 31 December 2023.
 25

4.6-Effects of Tax evasion in Bangladesh

In Bangladesh, an inefficient tax system can negatively impact the government's ability to spend
on public service delivery and development programs, as tax revenue is a significant portion of
the total revenue44. Tax evasion hinders development activities, social welfare, and economic
growth.The private sector in capitalist and mixed economies is crucial for investment and
development, but tax evasion and avoidance can hinder government funding. Effects of tax
evasions are-

Ø A significant portion of tax revenue is lost because of tax evasion. As a result, the
government is unable to meet the basic necessities of a large population.
Ø Tax evasion leads to illegal gains, resulting in the rich becoming wealthier and the poor
suffering due to inadequate government assistance due to insufficient tax collection,
resulting in significant losses for the poor.
Ø Tax evasion unfairly burdens taxpayers who consistently pay their taxes, leading to a bias
towards avoiding taxes.
Ø The government raises tax rates annually to increase income due to tax evasion, resulting
in a higher tax burden for those who pay taxes on time.
Ø Increases corruption.
Ø The government must take various plans for economic development, but lack of funds
prevents the implementation of these plans. Tax evasion also hampers structural
development, such as roads, bridges, transportation, and industrial development. Social
security cannot be fully provided by the government due to lack of funds.
Ø Tax evasion negatively impacts social welfare by forcing the government to borrow
loans, which in turn impacts economic development.
Ø The government is unable to provide employment opportunities due to tax evasion. since
tax evasion reduces the amount of money collected in taxes. Funding is required by the
government to develop job opportunities.
Ø Insufficient tax rules can lead to a culture of evasion, creating a vicious cycle of tax
evasion. Tax evaded incomes are used for conspicuous consumption, resulting in honest
taxpayers finding methods of evasion and tax avoidance. This can threaten society's
stability and weaken the economy.
Ø Economic growth is linked to a government's large budget, which can accelerate a
country's development. However, tax evasion can lead to a lack of revenue collection,
causing the government to shortcut the budget.
Ø Tax evasion results in a significant loss of tax revenue, preventing the government from
providing basic needs for mass people. Development expenses also fall due to tax
evasion, affecting the distribution function of wealth and adversely affecting a country's
economic development.
44
‘Effective Ways to Raise Tax-GDP Ratio in Bangladesh’ (n 9).
 26

Ø The lack of transparency and accountability in government spending in Bangladesh can

significantly impact taxpayers' morale, leading to a decrease in their willingness to pay
their taxes.45

Current Situation of Tax in Bangladesh

Bangladesh has the lowest tax-to-GDP ratio among every South Asian country, and only 33% of
taxpayers having taxpayer certificates submit their taxes appropriately46. Indirect taxes
disproportionately impact the poor, despite decreasing poverty rates. For fairness, equality and
income redistribution to lessen this burden, progressive tax distribution is essential..47 For
economic stability and social cohesion progressive taxation is essential. Bangladesh's income
tax system is regressive, increasing proportionally with income until reaching a stagnant 30%
rate, suggesting a more progressive structure with higher tax rates. The country's per capita
income is approximately BDT 200, with individuals earning around 2 USD. If their income falls
within this range, they must pay 15% VAT, affecting their earnings.48 A VAT is widely regarded
as the most economically efficient consumption tax.49 Tax policies aim to boost indirect tax
revenue, particularly through VAT collection, but digitizing the VAT system will be challenging
due to few people of the population paying income tax.50

The NBR achieved a 92% VAT collection in fiscal 2022-23, with the Value Added Tax (VAT)
division earning Tk1.25 lakh crore, a 17% growth from the previous year. The NBR's VAT
department reported a Tk17,004 crore increase in VAT collection compared to FY22.51

Bangladesh's tax-to-GDP ratio is among the lowest in South Asia, which caused economists and
international lenders to recommend raising revenue collection to improve the nation's ability to
finance spending. Current Bangladesh's tax-to-GDP ratio is 7.9%, considerably lower than the
recommended threshold of 15%. To increase the ratio to 12 percent, the nation must raise an
additional Tk 145,000 crore in tax income, and to reach 15 percent, an additional Tk 250,600
crore52.

45
ibid.
46
‘Progressive Taxation in Bangladesh Why and How?’ (The Daily Star, 16 June 2023)
<https://www.thedailystar.net/roundtables/news/progressive-taxation-bangladesh-why-and-how-3347631> accessed
31 December 2023.
47
ibid.
48
ibid.
49
Carnahan (n 8).
50
‘Effective Ways to Raise Tax-GDP Ratio in Bangladesh’ (n 9).
51
‘NBR Earned Highest Tk1.25 Lakh Crore from VAT in FY23’ (The Business Standard, 27 July 2023)
<https://www.tbsnews.net/nbr/nbr-earned-highest-tk125-lakh-crore-vat-fy23-672622> accessed 31 December 2023.
52
Report (n 15).
 27

4.7-Conclusion

Every country has its own tax laws and procedures, and every country has its own set of laws
governing taxes. Tax evasion significantly impacts a country's economic development, as a
significant amount of government income is collected through tax revenue. Tax evasion and
avoidance are common issues in developing countries' tax administrations. The current revenue
administration is aware of these issues and is committed to addressing them. The National Board
of Revenue (NBR) is expected to implement necessary reforms in domestic and international
taxation rules to combat these issues. Income tax is essential for enhancing dignity and
facilitating development. Previously, foreign grants were a significant part of the budget, but
now domestic revenue collection provides much of it. Many people try to pay as little as possible
but voluntary tax payment and timely return submission are crucial for ensuring proper tax
compliance.53 The Income Tax Act 2023 in Bangladesh governs income taxation, aiming to
foster economic growth, equitable tax burden distribution, and efficient revenue collection. It
requires taxpayers to understand its provisions for compliance and potential penalties.

53
‘Income Tax in State Coffers’ (n 31).
 28

Chapter 5

Findings

Causes of Tax Evasion

Understanding the various reasons behind tax evasion and avoidance is crucial for developing
effective methods and instruments to combat these issues effectively. Causes of tax evasion are
given below-

Poor service quality in exchange for taxes

Citizens expect advantages from taxes, but if the government doesn't deliver essential public
goods or services, they can be unwilling to pay, which could result in tax avoidance and evasion.

Poor enforcement

Poor enforcement refers to actions not implemented even when taxpayers pay less than their
actual obligations or do not file their income tax returns.54Tax compliance depends on tax
authority actions, and legal enforcement reduces tax evasion. In developing countries like
Bangladesh, political legacy may lead to failure to take legal action against tax evaders.55

The perception of justice and the tax system

As they raise taxes and reduce taxpayer discretionary income, high tax rates can encourage tax
evasion. However, people's decisions to pay taxes are also influenced by the way the tax system
is set up as a whole. For example, people may feel that a low corporate profit tax rate unfairly
imposes them with a high personal income tax burden, thus they decide to disclose just a small
portion of their income. Large companies may take advantage of tax breaks as well, which adds
to the system's apparent unfairness. As a result, tax rates and the overall design of the tax system
have a significant impact on the tendency to evade and avoid paying taxes.

The public institutions' lack of transparency and accountability

Tax evasion is more likely when there is a public mistrust of the government and the tax system
as a result of the lack of transparency and accountability in the use of public funds.

The level of corruption is high

54
Md Harun Ur Rashid, ‘Taxpayers’ Attitude towards Tax Evasion in a Developing Country: Do the Demographic
Characteristics Matter?’ (2020) 9 International Journal of Applied Behavioral Economics 1.
55
Md Harun Ur Rashid and Afzal Ahmad, ‘Business Students’ Perceptions of Tax Evasion: A Study in Bangladesh’
(2020) 10 International Journal of Accounting and Finance 233.
 29

High corruption levels can lead to citizens being less willing to pay taxes and more likely to
evade their tax liabilities. This is especially true if there is less potential gain from tax evasion
than there is from bribing a tax auditor.

Weak fiscal jurisdiction and a lack of the rule of law

To protect taxpayer rights and avoid arbitrariness, we need strong fiscal courts. Without rule of
law, citizens face fear of discrimination, unequal court attendance, and reduced transparency.
This distrust can lead to citizens avoiding tax financing and evading liabilities, thereby reducing
transparency and fostering distrust in the legal system.

Poor tax morale

Globally, taxpayers' tax-paying willingness varies, not only according to the amount of taxes
they must pay. Global taxpayers pay more in taxes than audits, penalties, and risk aversion are
responsible for, according to empirical studies. The strong tax morale in society, which promotes
self-enforcement, is the cause of this high tax compliance. Establishing tax morale, however, is
difficult, especially in nations without a strong tax culture.

High compliance costs

High compliance costs might result in tax avoidance and evasion since they require obtaining
relevant information and filling out tax forms. The 2008 World Development Indicator, released
by the World Bank, shows notable variations in the amount of time that nations have to prepare
and file their taxes. Because of this, companies are now more concerned with administrative than
with actual tax obligations. The likelihood of taxpayers complying with a wide range of taxes is
low, and compliance costs are considerable. Acquiring expertise in paperwork to adhere to tax
laws discourages businesses from making the proper tax payments.

Insufficiencies in tax collection

Bangladesh has difficulties in collecting taxes, especially in locating and managing the people
and businesses that must pay taxes. The organizational structure and the ministry of finance's
relationship could lead to insufficient capacity. It may be necessary to reorganize the tax
administration due to inefficiencies and tax losses caused by unclear roles. It is thought that an
organizational strategy centered on tax administration functions is more effective than one that
follows other tax and revenue kinds. Tax administration's capabilities affect how taxes are
implemented, and tax policy directly affects the organization and expenses of tax administration.
Tax administration as well as tax policy must be taken into consideration when designing
effective tax reforms. The tax system ought to conform to the administrative and legal
requirements of the nation. Tax officials that are qualified, motivated, and well-trained are
essential to both tax performance and collection. Income and other incentives should be taken
into consideration in order to incentivize tax authorities and reduce their attraction to corruption.
 30

Insufficient capacity to identify and prosecute unlawful tax schemes

Tax investigation is essential for identifying and combating tax fraud; yet, insufficient resources
in tax administrations lower the probability of detection, which affects taxpayer choices. A legal
structure is necessary for enforcement as penalties for tax evasion are correlated with compliance
with the law. There are opportunities for tax avoidance due to complex tax legislation and
constant modifications that confuse taxpayers and tax administrators. Although tax evasion may
not be intentional, it is unavoidable in extreme situations where tax law becomes too complicated
or contradictory to understand. As a result, efficient tax enforcement depends on an effective tax
investigative system.

According to the report, individual taxes, including business taxes, make up 36.8% of overall tax
income, whereas everyone pays the same 15% VAT amount, or 36.5% of total tax revenue. This
disparity results from the majority of people having to pay VAT, which raises the burden.56

Corruption can hinder tax revenue collection, making it crucial for Bangladesh to address
irregularities and maintain high morale to achieve comparable tax revenue levels. It is illegal to
evade taxes, and doing so can have serious financial repercussions. Working with professionals
to prepare your taxes can help you avoid more than just fines and jail time when it comes to
lowering your tax liability.

56
‘Progressive Taxation in Bangladesh Why and How?’ (n 46).
 31

Chapter 6

Recommendations

Tax is the primary financial source utilized for public expenditure and development. Tackling tax
evasion and harmful tax competition are particularly essential in the current context. After all our
discussion and research, we have come up with some steps that-

• The tax payment system should simplify.

• The Income Tax Ordinance should be amended and add some provision regarding tax
evasion.
• The penalty rate structure should be designed to be anti-evasive, with a progressively
higher penalty rate reflecting the amount of tax evaded and the current market conditions.
• Regular taxpayers should be rewarded for timely tax payments, with the highest
taxpayers receiving a tax card granting civilian VIP status in state programs and public
facilities.
• The government must intensify efforts to boost tax revenue and promote increased tax
compliance to bridge the projected and actual tax revenue gap.
• Corruption is prevalent in Bangladesh's government agencies, including the National
Board of Revenue (NBR). To ensure public compliance, the NBR must establish sincerity
and undergo capacity building. Bangladesh's over-reliance on trade taxes and VAT
necessitates increased direct taxes.
• The tax authority should conduct a thorough review and evaluation of their assessment
and collection procedures.
• There should be more cooperation from tax collectors.
• The tax authority is advised to review tax rates across various income categories and
sectors.
• Taxpayers should be informed that tax avoidance and evasion violate their moral
obligation to obey the law.57
• Implementing deterrence measures can prevent malpractices by making cheating costly
for taxpayers and collection agents, as shown by the following equation-
Rate of penalty * Probability of detection = cost of cheating.58

• The proposal aims to introduce a tax system that is both just and beneficial to the poor.
• The government should shift its focus to other taxation areas and consider reducing VAT
to prioritize the welfare of lower-income citizens.
• Increase direct taxes

57
Mohabbat, Rahman and Darda (n 22).
58
‘Why Is Bangladesh so Bad at Collecting Taxes?’ (The Business Standard, 11 February 2022)
<https://www.tbsnews.net/thoughts/why-bangladesh-so-bad-collecting-taxes-369271> accessed 8 January 2024.
 32

• The VAT system necessitates adequate invoicing, record-keeping, and rigorous tax
authority monitoring to prevent tax evasion.
• Make the process of filing taxes simple.
• Increase the NBR's capabilities.
• To show that taxpayer funds are being used appropriately, to encourage compliance, and
to build confidence in the tax system, transparency is essential.
• Parliamentary watchdogs are crucial in Bangladesh's tax policy formulation and
monitoring, but inadequate discussion and debates are needed, emphasizing the need for
enhanced capacity and empowerment of the Public Accounts Committee.
• The ITDB has held an annual income tax fair since 2010, promoting voluntary
compliance among taxpayers by facilitating easy submission and payment of returns
without harassment, resulting in positive reactions.

Conclusion

This thesis gives an overview of the causes of tax evasion and its impact on the development in
Bangladesh. In any nation, taxes are the main source of funding for the national budget.
However, tax evasion has had a major effect on Bangladesh's government revenue. Bangladesh
corporate taxpayers are more involved in tax evasion than individual taxpayers, leading to a
double-digit inflation rate. Despite government efforts to motivate tax payers to pay the correct
amount, unethical taxpayers continue to exploit loopholes in the current tax policy. The current
tax system, and the poor performance of governmental managers, such as NBR, The situation is
getting worse due to dishonest government personnel, a lack of audits, and a lack of
transparency. Raising penalties or lowering the tax rate won't be the only thing done to stop tax
evasion because some taxpayers will always attempt to avoid paying taxes, no matter how high
the rate. The government and NBR should work together to apply a comprehensive strategy that
will help people understand that paying taxes is part of their responsibilities for the nation's
economic progress. Given that the government has the ultimate control over how to use tax
money collected for the benefit of the population, they ought to be open, truthful, honest, and
law-abiding individuals. To increase tax collection, NBR must exercise extreme caution with
regard to tax rate, flexible tax structure and procedure, frequent audit facilities, and ethical
elements of officials. To reduce tax evasion in Bangladesh, it is finally advised that the the
government and NBR should assume their fair share of responsibility and be held accountable
for their actions. In exchange for collecting taxes from the public, this paper would like to
recommend that public administrators and NBR be extremely transparent and accountable for
their services. It also suggests they should take significant legal action against tax evaders and
the assessment and collection processes should be carefully reviewed and assessed by the tax
authority. Prosecution efforts and enforcement could be the best way to alleviate the damage
caused by tax evasion. This could be achieved by creating new laws or editing existing ones, and
imposing stricter penalties on evaders to reduce overall tax evasion.
 33

Bibliography

Legislation

1. Income Tax Ordinance, 1984

2. Income Tax Act 2023
3. Income Tax Act 1961
4. Internal Revenue Code
5. National Board of Revenue

Case

1. Dr Mohammad Yunus Case

2. ‘Mid East Port Folio Management ... vs Deputy Commissioner Of Income Tax
3. ‘Dillu Clive Enterprises (P) Ltd. vs Addl. Cit
4. ‘UNITED STATES v. ANDERSON (2008)’
5. Ai Capone Case
6. Jonathan D. Michael Case

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PROBLEM_FOR_BANGLADESH_> accessed 30 December 2023.
 34

9. Mohabbat, Rahman and Darda (n 22).

10. Clemens Fuest and Nadine Riedel, ‘Tax Evasion, Tax Avoidance and Tax Expenditures
in Developing Countries: A Review of the Literature’.
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Applied Behavioral Economics 1.
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A Study in Bangladesh’ (2020) 10 International Journal of Accounting and Finance 233.
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Newspaper Article

1. ‘Effective Ways to Raise Tax-GDP Ratio in Bangladesh’ (The Financial Express)

<https://thefinancialexpress.com.bd/views/opinions/effective-ways-to-raise-tax-gdp-ratio-
in-bangladesh> accessed 6 January 2024.
2. Star Business Report, ‘Tax Evasion Costs Bangladesh up to Tk 223,000cr a Year: CPD’
(The Daily Star, 4 April 2023)
<https://www.thedailystar.net/business/economy/news/tax-evasion-costs-bangladesh-tk-
223000cr-year-cpd-3288066> accessed 29 December 2023.
3. Taukir Aziz, ‘All You Need to Know about the New Income Tax Act’ (The Daily Star,
25 June 2023) <https://www.thedailystar.net/opinion/views/news/all-you-need-know-
about-the-new-income-tax-act-3355371> accessed 7 January 2024.
4. ‘Why Is Bangladesh so Bad at Collecting Taxes?’ (The Business Standard, 11 February
2022) <https://www.tbsnews.net/thoughts/why-bangladesh-so-bad-collecting-taxes-
369271> accessed 8 January 2024.
5. 1 ‘NBR Earned Highest Tk1.25 Lakh Crore from VAT in FY23’ (The Business Standard,
27 July 2023) <https://www.tbsnews.net/nbr/nbr-earned-highest-tk125-lakh-crore-vat-
fy23-672622> accessed 31 December 2023.
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7. Progressive Taxation in Bangladesh Why and How?’ (The Daily Star, 16 June 2023)
<https://www.thedailystar.net/roundtables/news/progressive-taxation-bangladesh-why-
and-how-3347631> accessed 31 December 2023.
8. ‘HC Finds Dr Yunus Guilty of Tax Evasion, Orders Him to Pay over Tk12cr’ (The
Business Standard, 31 May 2023) <https://www.tbsnews.net/bangladesh/court/dr-yunus-
found-guilty-tax-evasion-ordered-pay-over-tk12cr-hc-641274> accessed 31 December
2023.
9. ‘Illegal Foreign Workers and Tax Evasion Hurting the Bangladesh Economy’ (Dhaka
Tribune) <https://www.dhakatribune.com/bangladesh/bangladesh-others/142399/illegal-
foreign-workers-and-tax-evasion-hurting> accessed 31 December 2023.
10. ‘New Income Tax Law to Be Hard on Evaders, Simplifies Rules for Businesses’ (The
Business Standard, 6 June 2023) <https://www.tbsnews.net/nbr/new-income-tax-law-be-
hard-evaders-simplifies-rules-businesses-645202> accessed 8 January 2024.
 35

11. ‘Income Tax in State Coffers’ (New Age | The Most Popular Outspoken English Daily in
Bangladesh) <https://www.newagebd.net/article/188092/income-tax-in-state-coffers>
accessed 7 January 2024.

Blogs

1. ‘Tackling Tax Evasion in Bangladesh’ (South Asia@LSE, 1 July 2019)

<https://blogs.lse.ac.uk/southasia/2019/07/01/tackling-tax-evasion-in-bangladesh/>
accessed 28 December 2023.
2. ‘Difference Between Tax Evasion and Tax Avoidance - ODINT Consulting’ (28
February 2022) <https://ondemandint.com/blog/difference-between-tax-evasion-and-tax-
avoidance/> accessed 30 December 2023.

3. ‘Bangladesh Tax Laws: Personal Responsibility | Serviap ®’ (17 May 2022)

<https://www.serviapgroup.com/blog/bangladesh-tax-overview/> accessed 30 December
2023

Wedsites

1. ‘Bangladesh National Budget for 2023-24 Delivered Including Individual Income Tax
Adjustments — Orbitax Tax News & Alerts’
<https://orbitax.com/news/archive.php/Bangladesh-National-Budget-for-52889>
accessed 28 December 2023

2. ‘BD FTM Final Text.Pdf’ <https://maketaxfair.net/assets/wbb-

publications/1403/BD%20FTM%20final%20text.pdf> accessed 30 December 2023

3. ‘Dillu Clive Enterprises (P) Ltd. vs Addl. Cit on 27 September, 2001’

<https://indiankanoon.org/doc/1346775/> accessed 8 January 2024

4. ‘Famous Tax Evasion Cases’ (Findlaw) <https://www.findlaw.com/tax/tax-problems-

audits/famous-tax-evasion-cases.html> accessed 31 December 2023

5. juralacuity, ‘Income Tax Act 2023 & Taxation: A Summary of Income Taxation in
Bangladesh’ (Jural Acuity, 30 August 2023) <https://juralacuity.com/income-taxation-in-
bangladesh/> accessed 8 January 2024

6. ‘Mid East Port Folio Management ... vs Deputy Commissioner Of Income Tax ... on 14
August, 2003’ <https://indiankanoon.org/doc/935626/> accessed 8 January 2024

7. ‘National Board of Revenue (NBR), Bangladesh’ <https://nbr.gov.bd/> accessed 31

December 2023
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8. ‘Office of Public Affairs | New Jersey Man Found Guilty of Tax Evasion | United States
Department of Justice’ (6 June 2023) <https://www.justice.gov/opa/pr/new-jersey-man-
found-guilty-tax-evasion> accessed 31 December 2023

9. Prebble ZM and Prebble KC J, ‘The Morality of Tax Avoidance’ (2010)

<https://papers.ssrn.com/abstract=1650363> accessed 30 December 2023

10. ‘Taxes & Government Revenue’ (World Bank)

<https://www.worldbank.org/en/topic/taxes-and-government-revenue> accessed 29
December 2023

11. ‘The Difference Between Tax Avoidance and Tax Evasion’ (Herman Law, 16 July 2019)
<https://rhlawfl.com/white-collar-crime/whats-the-difference-between-tax-avoidance-
and-tax-evasion/> accessed 30 December 2023

12. ‘The Income-Tax Ordinance, 1984’ <http://bdlaws.minlaw.gov.bd/act-672.html>

accessed 28 December 2023

13. ‘The Tax Gap | Internal Revenue Service’ <https://www.irs.gov/newsroom/the-tax-gap>

accessed 9 January 2024

14. ‘UNITED STATES v. ANDERSON (2008)’ (Findlaw)

<https://caselaw.findlaw.com/court/us-dc-circuit/1021856.html> accessed 9 January 2024

15. ‘What Is Taxable Income?’ (Tax Foundation, 24 October 2023)

<https://taxfoundation.org/taxedu/glossary/taxable-income/> accessed 30 December 2023