Jehangir Hussain :
It’s high time for the authorities to review and reform the country’s system of taxation.
It’s strange and unbelievable that in Bangladesh about 88 per cent shop owners do not even have Value Added Tax (VAT) registration numbers.
This is a pointer to the flawed taxation system for Bangladesh with a chronic problem with its system of tax collection.
Even worse is the failure to reform and widen the country’s base of taxation though newspapers pointed this deficiency in reports and editorials time and time again.
This is also quite painfully true that in this country paying taxes could be not only complicated, but honest tax-payers face harassment and tax dodgers get away without any punishment.
The question is, why citizens, whatever their profession, tax payers should not feel it a privilege to pay taxes? And why one would be harassed for opting to pay taxes and thereby expand the tax base?
Actually, those who are eager to pay taxes are discouraged by the authorities instead of providing incentives to do so.
Bangladesh Shop Owners Association president Helal Uddin correctly pointed out, if shop owners were provided with Electronic Fiscal Devices (EFDs), they would feel encouraged to pay VAT.
There is virtually no incentive to citizens to come forward to pay their taxes.
It’s the responsibility of the authorities to provide a safe, encouraging environment for tax-payment and at the same time put in place a flawless system to punish tax evaders.
Without these simple reforms Bangladesh will continue to fail to fully collect revenue and in that scenario the country would never achieve its economic potential.
The country’s personal income tax, is a tax collected from individuals and is imposed on different sources of income including labour, pensions, interest and dividends at the rate of 25 per cent.Revenue from personal income tax continues to be an important source of income for the government.
Personal income tax rate in Bangladesh has been reduced to 25 per cent from 30 per cent, corporate tax to 25 per cent from 32 per cent while sales tax remains unchanged at 15 per cent.
In the budget for 2020-21, the government announced that there would be no income tax for individuals with annual income below Tk three lakh.
In Bangladesh, the principal taxes are customs duties, Value-Added-Tax, supplementary duty, income tax and corporate tax.
In 1860, income tax in Bangladesh was introduced by the British Raj under the title Income Tax Act.
Since then, of course, changes have taken place. Finance Bill 2017 made no changes to tax holidays for: industries established in export processing zones (5 to 7 years, depending on location) investment in economic zones (10 years) and development of economic zones (12 years) industrial undertakings (5 to 10 years, depending on location) physical infrastructure (10 years) coal-based private power generation companies (15 years) non-coal-based power generation companies (10 years).
The tax holiday (until 2024) for companies engaged in “information technology enabled services” also remains unchanged, although Finance Bill 2017 includes specifically defines these services.
Tax systems in Bangladesh suffer from weaknesses in both tax administration and policy. The weaknesses in the tax system and tax administration have contributed to the very low tax collection in the country.
On November 13, 2018 at the inaugural programme of the weeklong Income Tax Fair, the then finance minister AMA Muhith wondered why only one crore people pay taxes when the number could easily be four crore.
Bangladesh has one of the lowest tax-to-GDP ratios in the region. In fiscal 2016-17, the tax-to-GDP ratio was 9.1 percent, which is far below the developing country average.
According to National Board of Revenue in June 2018, there were about 35 lakh tax identification number (TIN) holders, of whom about 19.5 lakh submitted tax returns. However, this does not mean that those who have paid tax have not evaded tax. Tax evasion can have many forms. In Bangladesh, businessmen who collect value added tax from consumers also evade tax by under-reporting their collection. Importers avoid tax by under-invoicing. Tax avoidance is a major problem in Bangladesh.
Throughout the world, responsible governments follow the policy of a progressive income tax. Those with higher incomes are expected to pay a higher percentage of their income in tax than those with lower incomes. But the policymakers of Bangladesh should think about this independently rather than compare tax rates with neighbouring countries. Considering our socioeconomic conditions, the present tax structure is not suitable to attract enough people to pay taxes and as such the government should focus on devising a long-term plan to increase income tax revenue. The tax rate needs to be brought down to a level where everybody with taxable income feels comfortable to pay income tax; the tax net would then be wider.
Investment in property is a common means of parking money unaccounted for and a large number of transactions in real estate are not reported or are under-reported. This is mainly on account of very high levels of property transaction taxes, commonly in the form of stamp duty. In order to prevent tax avoidance, property transaction tax needs to be reformed.
Another problem in our tax policy is the extensive use of tax exemptions. The extensive use of tax exemptions, incentives and special provisions also limits revenue collection as the effective tax base becomes much narrower than that of the standard tax regime. Generally, it is argued that widespread exemption encourages tax evasion, erodes tax equity and creates distortions in the economy. Various other tax breaks legally keep many more people off the tax roll.
It has been noted that we are practising too much of the “infant-industry theory. Forty-seven years have passed since independence, and our industry by now should have been “adult” enough not to be shielded from global competition. It’s time to withdraw all sorts of tax holidays and tax exemptions.
For the NBR to collect taxes effectively, it needs to be fully equipped with modern ICT instruments to collect enough information to assess individuals’ or organisations’ tax liabilities.
The tax base needs to be widened to achieve the required tax-GDP ratio.
The tax regime in Bangladesh is largely marked by low tax revenue and very widespread evasion. The tax/Gross Domestic Product ratio stood at 11.17 per cent of GDP in 2016-17, one of the lowest in the world.
Then there is a famous saying “paying taxes and death are the two unavoidable facts of life”.
Weak tax collection leads to budget deficits and the government has been going through periods of budget deficits, averaging 3.4 per cent of GDP from 1991 to 2017. These deficits have been financed by the Government through borrowing from domestic and foreign sources.
In view of this country’s rising income inequality the whole tax policy of Bangladesh should be reviewed to make it fair and equitable.
(Jehangir Hussain is a senior journalist.
Email: [email protected]).
