The government has been beating the drum enthusiastically on raising the number of taxpayers and returns filings, but despite sincere efforts, taxation through return submissions occupied only 5.6 per cent or Tk 6,347 crore of total income tax revenue stream of FY23.
In a bid to boost return submissions, the National Board of Revenue (NBR) has been mostly focusing on organising events, opening new tax offices, and issuing tax cards to top taxpayers. But the lion’s share of income tax revenue is still being collected by third parties such as banks.
Latest statistics show that the NBR collected Tk 1,13,346 crore income tax in FY23, of which more than 94 per cent came through outstanding taxes, advance income taxes, travel taxes and source taxes.
Source taxes accounted for Tk 77,738 crore or 68.58 per cent of the figure in FY23, and the country depends heavily on this revenue stream. This tax is deducted by government entities and private firms.
Insiders say, other than making policies, the NBR has little involvement in source tax collection. It should be noted that companies and firms keep their tax information in their respective accounting systems, and pay what is owed to the national exchequer.
The board however does not scrutinise or audit income tax filings and source tax payments on a regular basis.
On this issue, Policy Research Institute (PRI) executive director Ahsan H Mansur said, “The NBR is not working to boost returns through efforts, as they are too busy serving their own agenda, instead of serving public interest.
“The agency does not properly focus on source tax. A large number of companies do not submit returns because they consider source tax as their income tax. Many firms also do not deduct tax on wages.”
He pointed out that the board needs a separate department on source tax, which will perform data collection and analysis to determine any possibility of tax evasion. “The NBR also needs updated IT and management systems.”
The effective tax rate is 47 per cent for goods suppliers and 50 per cent for service providers due the high amount of tax deducted at sources (TDS), insiders say. Meanwhile, the maximum corporate tax was set at 27.5 per cent in FY23.
In a recent event, Bangladesh Competition Commission Adviser MS Siddiqui said, “The current income tax policy is discouraging to the small and medium enterprises (SMEs). The NBR should address the advance income tax issue.
The NBR collected Tk 21,560 crore, the second highest earning source in income taxes, from advance taxes during last FY.
39% e-TIN holders filed returns
There were 90,03,206 e-TIN holders in the country till June this year, which is an year-on-year increase of 12,37,357. However, only 39 per cent of them filed their income tax returns in FY23.
According to NBR data, 35,29,263 individuals and companies had submitted income tax returns in the last fiscal year, posting a 36 per cent year-on-year growth. Of the figure, 34,95,358 individuals and 33,905 companies paid Tk 4,688 crore and Tk 1,516 crore respectively.
There are around 2,84,058 public and private companies registered with the Registrar of Joint Stock Companies and Firms (RJSC) – which operates under the commerce ministry. This indicates only around 12 per cent of the registered companies paid taxes in FY23.
Though this number is still far away from expectations, the NBR is mostly satisfied after seeing the 36% growth in return submissions, sources say.
Mandatory return submission has caused a boost in this figure, a tax official said on condition of anonymity, adding that the initiative would definitely play a pivotal role in strengthening revenue collection and reducing the gap between tax and GDP.
At present, Bangladesh has the lowest tax-GDP ratio in the South Asia region. To raise the tax net, submission of tax returns has been made mandatory in the budget FY23, for people who want to avail around 37 services.
The government added another 5 services to the list in FY24.
In FY23, the government had also given a budgetary amnesty for those people who have tax identification numbers (TIN), but have never filed tax returns. Such people will be exempted from paying fines for the previous years if they file their returns by the year.
Under previous regulations, e-TIN holders had to pay a minimum fine of Tk 5,000 for not submitting returns. The decision is also causing a growth, NBR sources say.
According to a recent survey conducted by the Centre for Policy Dialogue (CPD), nearly 68 per cent of people with taxable income do not pay taxes.
Making the same observation, Finance Minister AHM Mustafa Kamal said in his budget speech, “The number of population belonging to the middle class and above is about 40 million in our country, but most of them are not paying income tax.”
