Qus 1. What do you mean by public
finance? Write down Elements and Importance of Public
Finance. Describe The similarities and dissimilarities between public finance
and private finance.
Meaning of Public Finance: Public finance is the branch of economics. It is made of two
words public and finance. The term public
means government and finance mean the science of management of money. So literally
public finance means the study of the allocation of economic resources for achieving the goals of public affairs. However, literally, it seems to have a narrow meaning but its scope and definition have been widening and changing
through time.
Definition public Finance: Actually,
to know the answer to the questions like, what is public finance? Which
dimension and scope does it include? it is necessary to analyze the view and
opinions of some economists.
- 1. “public finance is one of those subjects which lie on the borderline between economics and politics. It is concerned with the income and expenditure to the public authorities and with the adjustment of one to the other”. Accordingly, the effects of taxation, Government expenditure, public borrowing, and deficit financing on the economy constitute the subject matter of public finance. -By Dalton
- 2. “Public finance is the science which is concerned with the matter in which public authorities obtain their income and spend it.”- Findlay Sierras and C.F. Bastable:
- 3. “Public finance is the science which deals with the activity of the statesman in obtaining and applying of the materials means necessary for fulfilling the proper functions of the states.”- C.C. Plehm:
There are more economists who put their opinion on public
finance. Through the change course of time, changing nature of government and
its activities, the definition of public finance is also keeps on changing and modifying.
Importance of Public finance: Thus, it is evident Public finance is very important for the growth
and development of a country. It is obvious that the government of a country
can push up the industrial and economic development of the country, provide
more employment opportunities, encourage investments and savings in the desired
direction and increase social benefits through public expenditure. The major
importance of public finance are listed below as:
1. Steady-state
economic growth: Public finance is important to achieve a sustainable high
economic growth rate. The government uses fiscal tools in order to bring an increase in both aggregate demand and aggregate supply. The tools are taxes,
public debt, and public expenditure, and so on.
2. Price stability:
The government uses public finance in order to overcome form inflation and
deflation. During inflation, reduces the indirect taxes and general
expenditures but increases direct taxes and capital expenditure. It collects
internal public debt and mobilizes for investment. In case of deflation, the policy
is just reversed.
4. Equitable
distribution: The government uses its revenues and expenditures of itself
in order to reduce inequality. If there is high disparity it imposes more taxes
on income, profit, and properties of rich people and on the goods they consume.
The money collected is used for the benefit of poor people through subsidies, allowance,
and other types of direct and indirect benefits to them.
5. Proper allocation
of resources: Government finance is important for the proper utilization of
natural, manmade, and human resources. For it, on the production and sales of
less desirable goods, the government imposes more taxes and provides subsidies
or imposes taxes lightly on more desirable goods.
6. Balanced
development: In the Article “Public Finance: Concept, Definition, and Importance
for Country’s Development” The government uses the revenues and expenditures in
order to erase the gap between urban and rural and agricultural and industrial
sectors. For it, the government allocates the budget for infrastructural
development in rural areas and direct economic benefits to the rural people.
7. Promotion of
export: The government promotes export by imposing less tax or exempting
from taxes or providing subsidies to export-oriented goods. It may
supply the inputs at subsidized prices. It imposes more taxes on imports
and so on.
8. Infrastructural
development: The government collects revenues and spends on the
construction of infrastructures. It has to keep the peace, justice, and security
too. It has to bring socio-economic reformation too. For all these things it
uses the revenues and expenditures as fiscal tools.
Elements of Public Finance
- Public Revenue: Otherwise called as Government revenue, it covers revenue generated or received by the government from various sources – Tax Revenue and Non-Tax---Revenue.
- Tax Revenue covers income from income tax, corporate tax, taxes levied on imports and exports, excise duty, goods and services tax, etc. On the other hand non-tax revenue includes income from fees, a surplus of Public Sector Undertakings, capital receipts, fines and penalties, grants and gifts, central bank revenue, etc.
- Public Expenditure: As the name itself signifies, public expenditure refers to the expenses incurred by public bodies in order to fulfill the overall needs of the general public.
- Public Debt: Also referred to as Government Debt, it indicates the total outstanding liabilities, i.e. amount which a country owes to creditors, which can be individuals, undertakings, and other governments.
- Financial Administration: Financial Administration is that portion of public finance that focuses on administrative control techniques and issues concerning the preparation of the budget. It is a tool through which financial operations of the countries are performed.
- Economic Stabilization: The basic objective of the economic system is the stability of the economy. It refers to the state, wherein the fluctuations in the economy due to political, legal, or monetary policies of the government, are very less and so the inflation rate is quite low.
- Economic Growth: Economic growth is when there is a rise in the production of goods and supply of services, in comparison to the previous years. Many experts are of the view that the problem of economic growth lies in developing countries only.
The similarities and dissimilarities
between public finance and private finance.
Public finance deals with the study of income, expenditure, borrowing, and financial administration of the government. Private finance is the study of
income, expenditure, borrowing, and financial administration of individual or
private companies. Both public and private finance are fundamentally similar in
nature but different from each other in various operational aspects. The
similarities and differences between public and private finance have been
explained below.
SIMILARITIES:
- 1. Objective satisfaction of human wants is the main objective of both public and private finance. The main aim of public finance is to satisfy social wants and that of private finance is to satisfy individual wants
- 2. Principles The principle of maximum social benefits is the guiding principle followed by the government while spending its income. Individuals also follow the principle of maximum satisfaction when spending out their given income.
- 3. Income, Expenditure, and borrowing The resources or the income for both government and the individuals are limited. In case of shortage, borrowing can be done for both and both are under obligation to repay the borrowed money.
- 4. Policies Both the private and public finances adopt policies for maximizing welfare. In Private finances as well as in public finance only sound policies will enable the maximization of welfare and benefits.
- 5. Administration The effectiveness and success of measures adopted by the private and public sectors depend on the administrative machinery. If the administrative machinery is inefficient and corrupt it will lead to losses and wastage.
Dissimilarities:
- 1. Magnitude: The most significant difference between the two types of finances is in terms of size and magnitude. Households and businesses have relatively smaller amounts of resources available to them and hence their budgets are smaller in size as compared to those of governments.
- 2. Public Scrutiny: Personal budgets of households are a private affair and not made public. In the case of business finance, the budget is made known to the stakeholders and the General public for information and scrutiny. In the case of public finance, every budgetary decision has to be made known to the people of the nation.
- 3. Source of revenue: Private economic units earn their income by using assets owned by them. Their sources of income are salaries, wages, interest, rent and profits which arise out of transactions. In the case of governments, the sources of income are taxes and non tax revenues. In case of taxes, fees, fines, fines there in an element of compulsion
- 4, Sources of borrowing: Private economic units may borrow from informal sources like friends, relatives, and moneylenders as well as from formal sources like banks and financial institutions. Public bodies can borrow almost on a continuous basis from internal and external sources. They can borrow from the people, the central bank, Commercial banks and other financial institutions as well from external sources.
- 5. Motive: Incase of public finance, the decisions are reached through the political and administrative procedure and based on common social objectives. A private finance is governed by profit motive for businesses or satisfaction of wants of individuals and households.
- 6. Time dimension: Both private and public financial activities try to balance between the immediate objectives and future goals. But private economic units, especially households, are primarily focused on the fulfillment of present and immediate wants. In case of public authorities, the focus is on both present and future
- 7. Income Expenditure adjustment: Generally, while a private economic unit adjusts its expenditure to income, public bodies adjust income to expenditure. Private finance will try and adjust expenditure according to income and in order to do so may even forego fulfillment of certain wants. On the other hand, Government are guided by welfare and growth consideration for which expenditure have to be predetermined. Since they have the power to raise fund through taxation, borrowing, deficit financing, they try to adjust their revenues to the predetermined expenditure requirements.
- 8. Assessment of outcomes: It is much easier to measure and evaluate the outcome of private financial activities than the outcome of public financial activities. In case of private economic units, the outcome may be measured by profits of business, fulfillments of wants of households. In case of public finance, the outcome has to measured and evaluated in terms of multiple parameters. These are social welfare, economic growth, security, Productivity and efficiency.
- 9. Nature of the budget: Private economic units aim at surplus budget. Having a surplus is considered economically prudent. This is not the case with government budgets. In countries that need to grow and develop rapidly, deficit budgets need to be followed. A long term surplus budget indicates that the government may not be fulfilling some of its obligation.
Qus: 2. Define income year and assessment year. Discuss the importance of both for the assessment of tax. Write the exceptional rules to determine the assessment year.
INCOME YEAR The
general rule of taxability is that the tax is levied in each financial year
commencing on 1st July (known as assessment year in the scheme of the Income
tax Ordinance, 1984) in respect of income earned in the "income
year". Section 2(35) of the ITO, 1984 indicates income year as the period
for which the total income of an assessee for (bank, insurance or financial
institution January to December, and for other assessee's July to June) is
calculated. The income tax amount is paid in the next fiscal year of the income
year and is known as the assessment year. Thus, if the income year is 2014-15, the assessment year will be 2015 - 16.
ASSESSMENT YEAR
According
to Section 2(9) of the ITO, 1984; the term "Assessment Year" means
the period of twelve months
commencing on the first day of July every year. Thus, the assessment year
always begins on 1- July and ends on
30 June every year. This period is also known as the financial year. Accordingly, it is the current
financial year in which the income of the immediately preceding year is known as income year) is assessed.
Importance of income Year:
- 1. Computation of Total Income: An assessee has to pay tax on total income earned in the income year. Income earned in the previous or subsequent years to the income year will not be considered to compute the total income of an income year.
- 2. Investment Allowance: An assessee will avail of tax credit facilities for an income year only on the amount invested in that income year.
- 3. Residential status: Residential status of an assessee is determined on the basis of hisstay in the income year, not in the assessment year.
- 4. Submission of accounts: The date of submitting the accounts of an assessee is determined on the basis of the income year.
Importance of Assessment year: 1. Computation of Tax Liability: The tax liability of an income year is computed on the basis of the rates applicable in the assessment year.
2. Tax exemption and tax credit facilities: Tax exemption and
tax credit facilities are to be
considered on the basis of the provisions applicable for an assessment year.
So, from the above discussion, it is clear that the concept
of the income year and assessment year is very significant to compute the correct
amount of tax.
Exceptions to the rules of Assessment Year:
Generally, income is taxed in the subsequent year to the income year. But, in certain cases, to protect the interests of revenue, the income is taxed in the year of earning itself. Thus, in those cases the assessment year and the income year are the same. The exceptions to the normal rule of the assessment year are discussed as under:
- 1. Income
of discontinued business [Section 89(2): Where any business or profession is discontinued in any
assessment year, the income of the period from the expiry of the last income year up to the
date of such discontinuance may be charged to tax in that assessment year.
- 2. Persons leaving Bangladesh (Section 91(2) (b)): When it appears to the Assessing Officer that an individual may leave Bangladesh and has no intention to return, the total income of such individual for the period from the expiry of the income year in relation to the current assessment year up to the probable date of his departure from Bangladesh is chargeable to tax in current assessment year itself.
- 3. Income of non-resident shipping companies [Section 102(2)): Section 102(2) of the ITO, 1984, provides for the taxation of income of non-resident shipping companies in the year in which they earn their income in Bangladesh, provided that such companies do not have any representative here.
Qus: 3. Who are the
income tax authorities? Discuss their powers and functions. Can a civil court
deal with income tax authority?
Definition of tax
authorities.
1, Tax Authority means any Governmental Authority having
jurisdiction over the assessment, determination, collection or imposition of
any Tax.
2, Tax Authority means the Internal Revenue Service and any
other domestic or foreign governmental authority responsible for the
administration of any Taxes.
3, Tax Authority means, with respect to any Tax, the
governmental entity or political subdivision thereof that imposes such Tax, and
the agency (if any) charged with the collection of such Tax for such entity or
subdivision.
Who is the Authorities of tax :
There are two types of tax authorities. That is
1,
Administrative. 2.
Judicial.
Now the administrative are 14 kinds, that are 1, National Board of Revenue 2, Chief Commissioner of Taxes 3, Directors-General of Inspection (Taxes) 4, Commissioner of Taxes (Large Taxpayer Unit) 5, Director General (Training) 6, Director General (Central Intelligence Cell) 7, Commissioner of Taxes 8, Additional Commissioners of Taxes (inspecting) 9, Joint Commissioner of Taxes (inspecting) 10, Deputy Commissioners of Taxes 11, Tax Recovery Officer 12, Assistant Commissioners of Taxes 13, Extra Assistant Commissioners of Taxes 14, Inspectors of Taxes
There are four types of Judicial.
- 1, Appellate Tribunal
- 2, Commissioner of Taxes (appeal)
- 3, Appellate Additional Commissioners of Taxes
- 4, Appellate Joint Commissioner of Taxes
Power and functions of income Tax Authorities.
- Sections 2(5a) To give approval of gratuity fund in accordance with the provisions of Part C of the First Schedule.
- Sections 1(6) To give approval of superannuation fund or pension fund in accordance with the provisions of Part A of the First Schedule.
- Sections 2(20)(c) Power to declare any unincorporated foreign association or body to be a company by general or special order for the purpose of IT Ordinance.
- Sections 1(35)(e) Power to declare any such period determined as income year in the case of the power to appoint as many CCT, DGIS, Commissioners, Commissioners any person.
- Sections 4 power to appoint as many CCT, DGIs, commissioners, commissioners (Appeals), JCT, DCT, TRO, ACT, and other executive or ministerial officers and staff as it may think fit.
- Sections 4a. To delegate powers of certain authorities by notification in the official gazette.
- Sections 6, To determine the functions of the DG of Inspection, the Commissioners (appeals), the Appellate JCT, the Commissioner (LTU), and the Inspecting Joint Commissioner and to determine the jurisdiction of income tax authorities.
- Sections 8. Power to issue orders, directions, and instructions from time to time for discharging the functions of all officers and other persons engaged in the performance of any functions under the IT ordinance.
- Sections 9. To authorize any person for assisting, guiding, or instructing the Deputy Commissioner of Taxes in the course of any proceedings under this ordinance:
- Sections 35(2) Power to prescribe any manner or form to keep accounts for any business professional or for any other sources of income, to record payment Commercial transactions.
- Sections 44,45.46A,46B,47. To allow allowances, tax exemption or tax holiday to approved industrial undertakings, physical infrastructure facilities, income of a tourist industry, and income of co-operative societies.
- Sections 59. Direct to pay the amount deducted or collected as tax to the credit of the Government with in specified time.
- Sections 170. To compound offences.
- Sections 173A. To determine place of assessment when jurisdiction of an assessee falls in more than one zone.
- Sections 174. To set the qualification and disqualification criteria of persons to be authorized representative of an assessee.
- Sections 184D.To reward an officer or employee of tax department or any other persons for furnishing information to detect tax evasion.
- Sections 185. Power to make rules for carrying out the purposes of this ordinance.
Can a civil court deal with an income tax case?
NO only those who can deal with income tax cases have been given power under the income tax
Ordinance and they are the judicial authority regarding income tax. Their
activities is to receive complaints, protest and appeals regarding tax assessment
and arrange for its hearing. The judicial authority is discussed below.
Judicial
Authorities If
an assessee is not satisfied with the decisions of the administrative
authority, he can move for appeal to the appropriate judicial authority. The
status, power and functions of various judicial authorities are enumerated
below:
- 1. Appellate Joint Commissioner of
Taxes (AJCT): According to section 2(4), "Appellate Joint
Commissioner" means a person appointed to be an AJCT under section 3 and
includes an Appellate Additional Commissioner of Taxes and also a person
appointed to hold the current charge of an Appellate Joint Commissioner of Taxes. This authority is
appointed by the Board and performs functions regarding specific judicial
activities associated to the person, income, case or area; assigned by the Board.
- 2. Appellate Additional Commissioner
of Taxes: They are appointed by the Board and work under the direct control
of the Board. They may be directed by the Board to perform their functions in
respect of specified areas, persons or classes of persons or income. Although
they are appointed by and work under the Board, their appellate powers and
functions cannot be interfered by the Board.
- 3. Commissioner of Taxes (Appeals):
According to section 2(19A), "Commissioner (Appeals)" means a person
appointed to be a Commissioner of Taxes (Appeals) under section 3 and includes
a person appointed to hold current charge of a Commissioner of Taxes (Appeals).
They are appointed by the Board and work under the direct control of the Board.
They are directed by the Board to perform their judicial functions in respect
of specified areas, persons or classes of persons or income. The aggrieved
assessee may appeal to him against the decisions of Appellate Joint
Commissioner of Taxes. Moreover, he is also entrusted with the same powers and
functions of the Appellate JCT as per sections 122, 128, 132, 153, 154, 155 and
156.
- 4. Tax appellate tribunal According to section 2(5), "Appellate Tribunal" means
the Taxes Appellate Tribunal established under section 11. As per section 3, it
is not a part of the income tax authority. But in order to facilitate the aggrieved
assessee and the DCT with allowing them to file an appeal against the order
of an Appellate Joint Commissioner or the Commissioner (Appeals), the government
forms the "Taxes Appellate Tribunal" under section 11 of ITO – 1984
as a judicial body.
- So we can say that a civil court can’t deal with income tax cases. Only the judiciary of income tax can judge the income tax cases. However, the complaints of legal review or interpretation can be referred to the high court division for resolution.
Definition of assess.
- 1. Assessee", means a person by whom any tax or other sum of money is payable under income tax Ordinance,
- 2. Assesse is a person who is liable to pay any sum under the income tax Ordinance 1984. Or in respect of whom the proceedings have been initiated under this Ordinance. according to Section 2(7) of the ITO 1984. the term ‘assesse’ includes.
- (a) every person in respect of whom any proceeding under this Ordinance has been taken for the assessment of his income or the income of any other person in respect of which he is assessable, or of the amount of refund due to him or to such other person;
- (b) every person who is required to file a return under section 75, section 89 or section 91;
- (c) every person who desires to be assessed and submits his return of income under this Ordinance; and
- (d) every person who is deemed to be an assesse, or an assessee in default, under any provision of this Ordinance;
Classification of assesse. According to Section 2(46) of the ITO 1984. Assess can be classified into two broad categories.
- 1, On the basis of person
- 2, On the basis of residential status.
- Classification of assesse on the basis of person. According to the provision of the ITO 1984. The 7 categories of assesse mentioned:
- 1, Individual
- 2, Hindu Undivided Family
- 3, Partnership Firm
- 4,Company
- 5, Association of Persons (AOP) or Body of Individuals (BOI
- 6, Local Authority
- 7, Artificial Judicial Body(not covered under any of the above-mentioned categories)
Classification of assesse on the basis of residential status: firstly there are two kinds of assesse 1,Resident. 2, Non-resident
Resident: An individual will be
a resident in any income year if he fulfills any of the conditions stated in
section 255 of the ITO 1984 such as she should a stay for a period of 182 days
or more in that year.
Non-resident:
An individual will be declared on non-resident as per section 242 in any income
year if he does not fulfill any of the conditions is stated in section 255 of
the IOT 1984.
now the resident are two types. 1, Resident
and ordinary resident. 2, resident but not ordinarily resident.
Condition to be a Resident assessee According to Section 2(55) of the ITO 1984 A assessee would qualify as a resident of Bangladesh if he satisfies one of the following two conditions: 1. Stay in Bangladesh for a year is 182 days or more or
2. Stay in Bangladesh for the immediately 4 preceding years is 365 days
or more and 90 days or more in the relevant financial year
Effect of
residential status in determining tax liabilities: determination of the residential
status of an assessee has a significant bearing on the text liability as the incidence of income tax varies according to the residential status of an
assessee in this regard poet. We can consider the following issue.
1.To determine the amount of total income: Determination of
total income is different for residents and non-residents. A resident considers
global income as his total income but a non-resident doesn't consider income from
other countries in his total income.
2. To determine the minimum limit of taxable income: A resident
and non-resident Bangladeshi has to pay tax if his taxable income is more than
Tk. 250,000 as per the ITO, 1984 (in case of women, elderly citizens being more
than 65 years old the limit is Tk. 300,000, for disabled persons the limit is
Tk. 375,000 and for gazetted wounded Freedom fighters the limit is Tk.
425,000). But for a non-resident foreigner such minimum limit is not
applicable.
3. Tax rate: For a resident and non-resident Bangladeshi tax
is calculated using the rates applicable for various levels of income. Such as,
for first Tk. 250,000 @ 0%, for next Tk. 400,000 @ 10%. But a non-resident
foreigner has to pay at a maximum rate (@ 30%}-
4. Income tax rebate: A resident and non-resident Bangladeshi
assessee get an income tax rebate on investment allowance and on tax exempted
income from gross tax liability. But, for a non-resident foreigner, no tax
rebate is applicable.
5. Tax liability: The average tax rate applicable for a
resident and nonresident Bangladeshi is less than that of a non-resident
foreigner since tax is calculated using different lower tax rates (such as 10%,
15%, 20%, 25% & 30%). But a non-resident foreigner has to pay tax at
maximum rate i.e. @ 30%.
Thus, Determination of residential status of an assessee has
a significant bearing on the tax liability as total income, taxable income and
tax rate are found to vary according to the residential status of an assessee
Effects of
Residential Status in Assessing Income: Determination
of the residential status of an assessee has a significant bearing on the tax
liability as the incidence of income tax varies according to the residential status
of an assessee as per Section 17 of the ITO, 1984. Therefore, the scope of
total income varies according to the residential status of an assessee. These
provisions may be summarized as under:
 in Bangladesh full note.){kind=link}
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