Editorial Desk :
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 (NBR) data, as of June 2018, there are about 3.5 million tax identification number (TIN) holders out of eight million taxable income people, of which about 1.95 million 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 the same. Importers avoid tax by under-invoicing. Tax avoidance is thus a major problem.
Corruption is likely to have an adverse effect on the willingness of citizens to pay taxes. Citizens perceive government officials as being corrupt and so think their hard-earned tax money is being used for corrupt purposes rather than to finance development projects or social programs. Furthermore, many taxes, such as income taxes, are evadable particularly in developing countries, where the government has low capacity to observe citizens’ income.
Many individuals with taxable income are not interested in paying taxes because they think there is no level playing field when it comes to paying taxes. Some get demoralised seeing rich people and big companies not pay taxes properly. Individuals are more likely to evade income taxes when they think their tax money will be used for corrupt purposes instead of being properly used. The effect that corruption perception can have on tax revenue collection is interesting, since citizens might find a moral ground to evade taxes. Studies have found that a one-point increase in corruption perception index is associated with a 2.7% point decline in tax-GDP ratio. Similarly an increase in press freedom index by 1 (on a scale of 0 to 100), lowers corruption perception by 0.35% on a scale (of 0 to 100) and this effect is statistically significant.
Moreover, we have seen in the past that all successive governments offered the scope for legalising “undisclosed money” and most of the time, rates were lower than the normal tax rate. Honest taxpayers, who pay taxes on a regular basis, become frustrated seeing such unfair government policies. Also, this encourages many individuals and companies to abstain from paying taxes because they can in future take advantage of a low tax rate when such an amnesty is offered.
Tax compliance depends on how the government perceives the social contract between the government and the taxpayers. Normally, when citizens realise that the services they get from the government are less than what they pay for they tend to reduce their tax compliance by evading or avoiding paying income tax. This results in serious inadequacy in government funds to provide public utility services such as water supply, electricity, maintenance of roads and highways, health care, among others. These services cannot be provided privately; hence, the government has to collect funds from citizens in the form of tax. Therefore, there is a crucial need for the government to make sure that this contract is honoured and public services are well-provided.
As income tax is one of the major sources of the NBR’s revenue, the policy of tax collection requires a complete overhaul to induce higher revenue mobilisation. The government should come up with pro-people policy measures and create awareness on developing a culture of paying taxes. The main thrust of tax policy reform is to boost revenue mobilisation by expanding the tax base. There are ample opportunities to increase tax revenue collection as under the current practices, the burden of tax lies on a limited number of persons/companies with higher marginal income tax rates. Moreover, currently, the bulk of those paying income tax are salaried employees whose companies are responsible for making their tax payments and around 62 percent of income tax revenue comes from tax withheld at source.
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 comparing tax rates with neighbouring countries. Considering our socio-economic 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.
What the authorities do not care to understand that under the present sinking economy, broken banking and joblessness, the people are struggling to make both ends meet. The corrupt politics has made many lucky ones super rich and the people in general are suffering in dire poverty.
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 (NBR) data, as of June 2018, there are about 3.5 million tax identification number (TIN) holders out of eight million taxable income people, of which about 1.95 million 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 the same. Importers avoid tax by under-invoicing. Tax avoidance is thus a major problem.
Corruption is likely to have an adverse effect on the willingness of citizens to pay taxes. Citizens perceive government officials as being corrupt and so think their hard-earned tax money is being used for corrupt purposes rather than to finance development projects or social programs. Furthermore, many taxes, such as income taxes, are evadable particularly in developing countries, where the government has low capacity to observe citizens’ income.
Many individuals with taxable income are not interested in paying taxes because they think there is no level playing field when it comes to paying taxes. Some get demoralised seeing rich people and big companies not pay taxes properly. Individuals are more likely to evade income taxes when they think their tax money will be used for corrupt purposes instead of being properly used. The effect that corruption perception can have on tax revenue collection is interesting, since citizens might find a moral ground to evade taxes. Studies have found that a one-point increase in corruption perception index is associated with a 2.7% point decline in tax-GDP ratio. Similarly an increase in press freedom index by 1 (on a scale of 0 to 100), lowers corruption perception by 0.35% on a scale (of 0 to 100) and this effect is statistically significant.
Moreover, we have seen in the past that all successive governments offered the scope for legalising “undisclosed money” and most of the time, rates were lower than the normal tax rate. Honest taxpayers, who pay taxes on a regular basis, become frustrated seeing such unfair government policies. Also, this encourages many individuals and companies to abstain from paying taxes because they can in future take advantage of a low tax rate when such an amnesty is offered.
Tax compliance depends on how the government perceives the social contract between the government and the taxpayers. Normally, when citizens realise that the services they get from the government are less than what they pay for they tend to reduce their tax compliance by evading or avoiding paying income tax. This results in serious inadequacy in government funds to provide public utility services such as water supply, electricity, maintenance of roads and highways, health care, among others. These services cannot be provided privately; hence, the government has to collect funds from citizens in the form of tax. Therefore, there is a crucial need for the government to make sure that this contract is honoured and public services are well-provided.
As income tax is one of the major sources of the NBR’s revenue, the policy of tax collection requires a complete overhaul to induce higher revenue mobilisation. The government should come up with pro-people policy measures and create awareness on developing a culture of paying taxes. The main thrust of tax policy reform is to boost revenue mobilisation by expanding the tax base. There are ample opportunities to increase tax revenue collection as under the current practices, the burden of tax lies on a limited number of persons/companies with higher marginal income tax rates. Moreover, currently, the bulk of those paying income tax are salaried employees whose companies are responsible for making their tax payments and around 62 percent of income tax revenue comes from tax withheld at source.
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 comparing tax rates with neighbouring countries. Considering our socio-economic 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.
What the authorities do not care to understand that under the present sinking economy, broken banking and joblessness, the people are struggling to make both ends meet. The corrupt politics has made many lucky ones super rich and the people in general are suffering in dire poverty.
