The National Board of Revenue (NBR) is losing significant amounts of tax revenue as tax officials are struggling to settle audit files due to procedural complications, according to sources within the agency.
They said that the Income Tax Act-2023 has created a major obstacle in resolving selected audit files, describing the law as unrealistic, time-consuming, and costly.
An audit involves the selection of certain tax return files to scrutinise whether tax has been deducted or collected in compliance with tax regulations.
To safeguard tax collection, the process of settling audit files needs to be simplified, they added.
Audit settlements
The officials further explained that audit settlements are one of the major sources of tax collection for the NBR, as they help ensure compliance among taxpayers and facilitate tax deduction at source.
According to NBR’s income tax return audit data, the tax administration generated Tk 450.58 crore by resolving 21,698 audit cases in the fiscal year 2019-20, Tk 340.69 crore from 23,161 cases in FY 2020-21 and Tk 278.43 crore by settling 9,435 cases in FY 2021-22.
Additionally, tax officials created tax demands amounting to Tk 2,256.44 crore, Tk 3,739.07 crore and Tk 905.03 crore during the respective fiscal years by resolving those audit files.
Procedural challenges
However, due to procedural complications, tax officials are unable to settle the audit files in the current fiscal year in accordance with the new tax law, despite the NBR having already approved 16,019 audit cases, officials said.
They explained that under the new audit system, a taxpayer must go through nine separate officials, phase by phase, to resolve an audit file, making the process time-consuming and difficult for taxpayers.
Furthermore, the involvement of multiple officials in the process raises the risk of sensitive taxpayer information being disclosed and necessary documents being lost, they warned.
Experts call for reform
Speaking to The Business Post, Syed Md Aminul Karim, former NBR member (Tax Policy), said, “The newly incorporated provision related to audit settlement is completely unrealistic, impractical, and prone to causing harassment.”
The provision is also encouraging taxpayers to evade taxes, he added.
Previously, a deputy commissioner of taxes, with the approval of the commissioner, would select a number of returns and conduct audits to ensure that taxes were deducted or collected at the rates prescribed by law.
Broader role of audits
An audit goes beyond merely examining whether taxpayers have correctly assessed and reported their tax liabilities and fulfilled other obligations.
It plays a broader role in supporting tax compliance, deterring non-compliance, and enhancing taxpayers' trust in the fairness and effectiveness of the tax system.
Tax audits serve as a deterrent to tax evasion and discourage entities from misrepresenting income or inflating expenses to reduce their tax liabilities.
Typically, the NBR selects 10 to 12 per cent of total returns submitted under Article 182 of the Income Tax Act-2023 for audit each year.
Task force formed
Commenting on the issue, NBR Member (Tax Policy) AKM Badiul Alam acknowledged that there are some unrealistic provisions in the new tax law.
In response, the NBR has formed a task force to reform the income tax law, with the goal of making the regulations more people- and business-friendly, he added.
He further said that the seven-member committee, led by Tax Commissioner Iqtiaruddin Mamun, will analyse the income tax law, rules, and statutory regulatory orders and propose reforms.
The team will also assess the impact of enforcing the provisions and rules of the income tax law, he added.
