Are taxpayers aware of advance payment of tax?

| Updated: April 28, 2022 21:02:00

Are taxpayers aware of advance payment of tax?

In modern economies, taxes are the most important sources of government revenue. Mostly, the objective of taxation is to raise resources for the government to deliver essential public services. In Bangladesh, to determine the income tax on the income of an assessee The Income Tax Ordinance 1984, Income Tax Rule 1984, Finance Act of every fiscal year and SRO (Statutory Regulatory Orders) have been used as legal framework for the assessment of an assessee. The general principle of taxation is based on PAYE which means pay as you earn. Hence, income of an income year is assessed in the assessment year to calculate the taxable income and the tax liability. However, an exception to this general principle is provided in the Income Tax Ordinance 1984 under chapter VII wherein an assessee is liable to pay advance tax before final assessment (under sections 64 to 73).

PERSON LIABLE TO PAY ADVANCE TAX: As per the provisions of Income Tax Ordinance 1984, if the total income of an assessee for the latest income year, who has been assessed provisionally or by way of regular assessment, exceeds Tk 600,000 excluding agricultural income and capital gain, is liable to pay advance tax (section 64). For the new taxpayer if it ( total income) exceeds Tk 600,000 for the period of the latest assessed income year excluding the income head of capital gain and agricultural income and who has not previously been assessed by regular way of assessment is liable to pay the advance tax (section 68). Now it can be a bone of contention to decide which income can be considered as the latest assessed income? For having an overall clear idea about it, let us presume Mr Akter needs to determine the latest assessed income as a base of advance tax for the assessment year (AY) 2021-2022. His study of various assessments done on previous years express that income of 2020-21 has not been assessed yet, but the income of 2019-20 has been assessed on  March 31, 2021 and income of 2018-19 has been reassessed on May 26 , 2021 due to appeal. In such a case, the latest assessed income for Mr Akter will be that of the income year 2018-19 for calculating advance tax.

HOW TO COMPUTE ADVANCE TAX: Before going to compute the amount of advance payment of tax, it should be determined whether the taxpayer is old or new. For old taxpayers there are two ways to decide the amount of advance tax under the Income Tax Ordinance:

  1. As per the latest assessed income ( u/s 65) and
  2. As per the estimated income for the year ( u/s 67).

As per the latest assessed income, the taxpayer may pay the amount of advance tax considering the total income of latest assessed income, as assessed on regular basis or provisionally, as the case may be, reduced by the amount of tax required to be deducted or collected at source, if any. As per the estimated income for the year, the taxpayer may pay the own estimated amount of advance tax  in any time before the last installment has been paid after giving the estimation to the deputy commissioner of taxes, as reduced by the amount, if any, already paid, in equal installments on the due dates of payment. This kind of estimation which is usually used may cause the taxpayers income to be not constant and may not be equal to the latest assessed income year. Now, for the new taxpayers, the computation of advance payment of tax has to be decided by the estimation of total income by the assessee excluding the income head of capital gain and the agricultural income applied at regular rates and this amount of advance tax must be sent to deputy commissioner before the 15th day of June in each financial year (section 68).

METHOD OF PAYMENT: Advance payment of tax must be paid in four equal installments on the 15th day of September, December, March, and June of the financial year for which the tax is payable. An assessment of assessee in an assessment year if completed before 15th May of the year, then later than that on the basis of which the advance tax was computed, the assessee shall pay in one installment on the specified date or in equal installments on the specified dates.

CONSEQUENCE OF NON-PAYMENT: If it happens that an assessee who needs to pay advance tax and he fails to pay any installment of such tax on the due date, he shall be considered an assessee in default in respect of such installment (section 69). Where, it is found that any assessee in default who didn't pay the actual amount of advance tax accordingly, there shall be added to the tax as determined on the basis of regular assessment, simple interest thereon calculated at the rate of 10 per cent and for the period from the 1st July on which the advance tax was not paid to the date of regular assessment in respect of the income of that year or a period of two years from the said July 1 of the year in which the advance tax was paid to the date of regular assessment in respect of the income of that year or a period of two years from the said  July 1, whichever is shorter (section 70). In addition to these punishment, if the deputy commissioner is satisfied that an assessee without reasonable cause, failed to pay advance tax as required by section 64 or furnished under section 67 any estimate of tax payable by him which he knew, or had reason to believe, to be untrue, he may impose upon such person a penalty of a sum not exceeding the amount by which the tax actually paid by him falls short of the amount that should have been paid (section 125).

CONCLUSION: Income tax is one of the main resources of revenue to the government.  As a citizen of the country every person who is liable to pay advance tax should pay the regular basis of tax. But in reality, it is seen that a maximum number of earners eligible for paying the advance tax do not pay the tax properly which causes a huge amount of damage to the economy of the country. The government should create more awareness programmes to make people aware of the advance payment of tax. If needed, the digitised process of the payment system should be introduced to make the system easier to provide and collect the right amount of payment of advance tax.


Riad Arefin and Soeb Aktar are students at Law, University of Dhaka.

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