Dil Afrose Duetee :
Taxation is one of the major sources of public revenue to meet the revenue and development expenditures with a view to accomplishing some economic and social objectives, such as redistribution of income, price stabilization and discouraging harmful consumption. It supplements other sources of public finance such as issuance of currency notes and coins, charging for public goods and services and borrowings. Tax is a contribution exacted by the state. It is a nonpenal but compulsory and unrequited transfer of resources from the private to the public sector, levied on the basis of predetermined criteria.
Bangladesh inherited a system of taxation from the former British and Pakistani regimes. During the Pakistani regime, there was a significant change in Bengal’s land ownership: the abolition of the Permanent Land Revenue Settlement. The system, however, developed on the basis of generally accepted canons and there had been efforts towards rationalizing the tax administration for optimizing revenue collection, reducing tax evasion and preventing revenue leakage through system loss. Nevertheless, Bangladesh upholds a very democratic proposition on tax and the tax system. Article 83 of the Constitution of Bangladesh says that “no tax shall be levied or collected except by or under the authority of an Act of Parliament”.
According to Article 152(1) of the Constitution of Bangladesh, taxation includes the imposition of any tax, rate, duty or impost, whether general, local or special, and tax shall be construed accordingly. Rate is a local tax imposed by local government on its residents or the property owners of the locality, a duty is a tax levied on a commodity, and an impost is a tax imposed for an entry into a country.
The current fiscal regime of Bangladesh consists of direct and indirect taxation. It is governed by the National Board of Revenue (NBR). Revenue is also generated from non-NBR sectors and under the laws and acts of related ministries. The NBR taxes include Customs Duty, Value Added Tax (VAT), Supplementary Duty (SD), Personal Income Taxes (PIT) and Corporate Income Taxes (CIT). Personal and Corporate Income Tax, the single largest source of direct tax, is governed by the Income Tax Ordinance, 1984 (XXXVI of 1984). Besides fiscal income from direct sources (e.g. income tax) Bangladesh generates a substantial share of its revenue from indirect sources through import and excise duties (customs duties).
The customs duties were the biggest contributors to the tax revenue until the late 1980s. That is when their decline started, due to reduced rates and levies to comply with the demands of global and globalized trade and the fiscal policies of market liberalization, and also for shifting of economy from trading to local manufacturing. It then became necessary to think of other options for revenue generation. Given the context, in 1986 the World Bank suggested to introduce VAT in Bangladesh. With the aim of greater revenue generation for the government and stimulating economic growth, the VAT Bill 1991 was proposed in the National Parliament on 1st June 1991 and a month later the Bill was passed and made into the VAT Act 1991.
Tax reforms are complex undertakings due to both political economy and technical considerations. Key issues have been much talked about for a long time here in Bangladesh with the business community, influential in their own right, often pleading for such reform.
Setting up an efficient, integrated national tax accounting network that will correctly account for, reconcile and record tax payment information at a transactional level for all the three taxes and make visible this information in real-time basis to taxpayers and to all stakeholders, including the government, the National Board of Revenue (NBR), tax officers, Bangladesh Bank and taxpayers, is essential. In order to augment revenue mobilization as well as to create a comfortable trade environment along with transparency and accountability, NBR has been implementing a wide range of reform initiatives. Included among are:
· The VAT Act and its rules have been simplified for automated and transparent environment
· Online VAT registration, online return submission and online e-payment systems have already been implemented.
· Use of Electronic Fiscal Device (EFD)/Sales Data Controller (SDC) for some business entities has been made mandatory. Installation of EFD/SDC has already been started.
· NBR approved software use has been made mandatory for companies with annual turnover of more than Tk. 5 crore.
In recent years much simplification and rationalization has been introduced to reform the taxation system. Tax assessments were made less complicated and an attempt of attracting more taxpayers into the tax net was made. The automation of tax collection was begun, and compliance with the standards and systems introduced by WCO has increased. The practice of honoring the taxpayers and recognizing their contribution received institutional shape in the NBR.
The objectives of the tax system should not be just to collect and meet revenue targets. It should aim to increase the positive effect of the tax system on economic efficiency and growth. It should consider the impact of current taxation on future economic activity, and it should consider the impact of current taxation on future tax revenue generation. All of this also needs to be informed by the implications of international trade policies, as well as the taxation and trade policies specifically of our competitor countries.
(Dil Afrose Duetee is a development activist. E-mail: [email protected])
