2. BACKGROUND of TAXATION
2
Incomprehensible & Complexity increases the cost of
compliance of marginal tax payers and administration
Intractable conflicting rulings by different courts
Range of exemptions broadened every time
Share of indirect tax is high in total tax revenue
Debt & Aid is high in comparison to tax revenue of Govt
Regional economic federations misused to avoid customs/
import duty
International taxation/ double taxation avoidance
agreements misused to avoid tax on profit-Treaty shopping
Transfer pricing round tripping to accommodating parties
Rent seeking & Avoidance by Experts- subsidizing rich–
inequitable
Lack of Transparency of Tax Administration and Policy
3. Tactics Adopted for Tax Avoidance
3
Under invoicing of Import & Over invoicing of
exports
Transactions modifying classification of Income
Changing Constitution and Shareholding
Mis-classification of Commodity and Services
Cash outflow as black money through hawala
Treaty Shopping and Conduit/ chain of Associated
Entities to benefit from chain of tax relief
agreements between different nations
4. STRATEGY
4
Efficient, Equitable and Effective Tax Policy and Process
Remove ambiguity in law to minimize tax avoidance,
simplify language
Keep pace with aggressive tax planning & court ruling
on interpretation of ambiguous provisions
Technology & process reengineering to reduce cost,
become citizens friendly & eliminate corruption
Tax policy to encourage self assessment and penalize
evasion
Marginal tax rates to be lowered, Base further
broadened to achieve horizontal equity
Progressive income tax and consumption tax to achieve
vertical equity
5. STRATEGY
5
Minimize exemptions residence/ non-residence
Review tax treaties with tax havens
Stringent Anti-Avoidance Rules
Arrest paper transaction from across the border Vs real
Transaction- Create agency like Interpol
Timely watch and review all regional and bilateral direct
and indirect tax agreements
Sensitize public & build Citizen Tax Police Force
UN Model of Source precedence over Territory/ Residence
Tax Research to bring out Tax Avoidance outflow Vs Aid
Tax Gain by developed countries for export of high cost
defence machinery and aircrafts etc and its burden on
poorer nations
6. Principles of Taxation
6
Equity/ Fairness
Horizontal- equal tax for same income in similar condition
Vertical- Progressively increasing tax for higher income
Convenience-Place, medium, mode, manner & time should
not be an extra burden
Certainty- Provisions in Tax laws on time, reason and amount
of tax due understood equally by tax payer and collector
Economic- Cost of compliance and administration
Simplicity- Understood by marginal tax payers and does not
lead to litigation
Ability to Pay-
7. Characteristics of Taxes
7
Progressive- Tax increases with income-vertical
equity
Regressive- effective tax decreases with income
Proportional- effective tax rate remains same with
increasing income- kind of regressive tax
8. Role of Taxation
8
Finance Govt. expenditure- recurrent revenue
(salary) and capital (development)
Regulate demand & supply in economy in inflation,
control import to manage CAD and FOREX
Improve competitiveness of local industries, small
entrepreneurs, disadvantageous geography and
sectors
Protects society from harmful products
Reduce in-equality by progressive tax
9. Consumption Taxation
9
Consumption Tax is neutral on savings, inflation and
time of spending & efficient
Complication of Income Accounting (capitalization,
depreciation, amortization, inventory accounting,
market discount, original issue discount, etc.)
Pure consumption tax is regressive
Progressive consumption tax can be suitable
replacement of income tax
10. Progressive Consumption Tax
10
Personal Expenditure Tax (PET)
Income-Savings(including changes in past savings, loans & assets)=Expenditure to
be taxed on progressivity
all financial flows must be listed
Tax credit for low consumption households
Top PET @40% to achieve RNR
Two Part Consumption Tax
Households on Wages
Business on Cash Flow as in VAT & deduct all expenses including wages & capital
expenses
Current VAT is disaggregated to tax paid by business and households
Wage and Investment from wage to purchase machinery is deducted by business,
setting off tax paid on wage
Economy wide no tax liability on wage not consumed, no further household tax on
earning on investment
Unexpected burden on past savings-fairness concern
11. Progressive Consumption Tax
11
Hall-Rabushka Flat Tax
Firms are taxed at a single flat rate on business cash flow
Workers taxed @ same rate on wages above a substantial
exemption, progressivity for high-paid workers
Lowers the overall tax rate on wages
Bradford X Tax
Set of graduated rates on wages and refundable tax credits for
low wage earners-progressivity
Highest wage tax rate applicable as single flat rate for business
Progressivity by imposing highest tax on business owners
Top X Tax @ 35% to achieve RNR
Capital Gain on home not taxed unlike in PET
Two tax profiling wage and business unlike one tax of PET
Treatment of negative cash flow
12. PET Vs X Tax
12
Capital levy at the beginning
PET imposes tax on bond & equity holders
X Tax imposes tax on equity holder for the entire capital, spares
bond holder
Destination and Origin Based
PET- destination- consumption by domestic residents
X Tax- origin- domestic production
To make X Tax destination based- impose tax on import and refund
tax in lieu of export- two new tax system
Transfer Pricing
Problem remains on origin based X Tax
Discourage investment in the country if product is exported
Encourages investment outside USA, understate the value of idea
paid to American, pay less tax, make more profit and later transfer
dividend to American
13. Flawed Analysis
13
The United States, like other industrialized countries,
has experienced a rise in inequality during recent
decades. The Congressional Budget Office (2011)
reports that the top 20 percent of households
received 59.9 percent of national income before
taxes and transfers in 2007, up from 49.6 percent
in 1979, and that the share received by the top 1
percent rose from about 10 percent to about 20
percent.
14. Main cognations of Democratic Budget
14
Direct participation of general people in budget formulation
Strategically formulation of district budget gradually moving towards local government
Avoid sector wise budget formulation and allocation of budget. Budget allocation should be
district or areas wise where sectors will be included within
Sectors of National, Concurrent and Local budget be separate-Education, health, women,
children, agriculture for local; Industry, Infrastructure, Mining, Disaster Mgt as Concurrent,
Taxation, Defence, Aviation, S&T, Information & Broadcasting as National
The complementary sector of national and local budget needs to be identified
Increase capital and investment according to the demand and characteristics of local areas
Allocation of budget in district, upazilla/block, union/village should be according justified tax
earnings
To ensure balanced national development more priorities to the relatively poorer areas
Local and national disparity should be considered
Efficient participation of members of the parliament
Detailed financial statement of districts should be placed in national parliament
15. Participatory Development
15
give the poor a part in initiatives designed for their benefit-
alternative to mainstream “top-down” development
Social Movement Perspective
eliminate unjust hierarchies of knowledge, power, and economic
distribution
empowering process for people to handle challenges and influence
the direction of their own lives
Outsiders and primary stakeholders equal partners to initiate
process, take part in analysis, make joint decision of targets, plans
and mode of achievements
Ownership and control of the process with primary stakeholders
Institutional Perspective
16. Participatory Development
16
Institutional/Project-Based Perspective
Inputs and opinions of relevant groups, or stakeholders in a
community, as a tool to achieve a pre-established goal defined
by someone external to the community involved
Four key stages of a development project: Research, Design,
Implementation & Evaluation
participation as “process of empowerment” Vs “an end in
itself” -intrinsic rather than instrumental
bottom-up approach extensive discussions, conversations,
and decision-making with the target community
UNESCO’s Finding a Voice Project employs ICT for
development initiatives-community creates content
17. Forms of Participatory Development
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Passive Participation- intimated about decisions,
feedback minimal
Participation by Consultation- answer to questions of
experts, feedback are used by experts, but decision
making by experts
Participation by Collaboration- participate in the
discussion and analysis of predetermined objectives set by
the project- does not influence much-horizontal
communication and capacity building among all
stakeholders
Empowerment Participation-primary stakeholders are
capable and willing to initiate the process and take part
in the analysis
18. Variations of Participatory Development
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Manifestations
GTZ describes participation as “co-determination and power
sharing throughout the program cycle”
Enabling "mutual learning" is another way-communication, respect,
listening and learning between development workers and those they
serve
local communities making, rather than only contributing to, important
decisions
Invited Vs claimed spaces for PD
Benefits
Ownership
high start up costs, they will be less expensive and more sustainable
in the long run
better address local needs and more relevant to local populations
