Home ›› 06 Apr 2022 ›› Editorial
To boost economic activities and social progress, revenue generation in Bangladesh needs dynamic transformation to promote internal resource mobilisation without burdening the already enlisted taxpayers. Bangladesh’s tax to GDP ratio of 7.7 per cent is still far below the global average. Tax to GDP ratio in Bangladesh is the lowest in South Asia.
Both domestic and foreign investors ranked the taxation system and administration as one of the major roadblocks to increasing investment in Bangladesh. The honest taxpayers are repeatedly taxed, while the tax-evaders are often incentivised.
Sometimes the lack of communication across different government entities could cost huge taxes for businesses. Tax exemption certificates from bodies like BEZA and BEPZA fail to hold power in front of the tax authorities. For example, in one particular case, the HS (Harmonised System) code of a particular imported product being exempted from tax because the company had a factory in an export processing zone was missing in the customs record. The company had to pay huge taxes even though it should not have been required.
Bangladesh should set up an efficient, integrated national tax accounting network. This network will correctly account for, reconcile, and record tax payment information at a transactional level for all the taxes and make this information visible to taxpayers and to all stakeholders, including the government, NBR, tax officials, Bangladesh Bank, and taxpayers. Moreover, some of the digitalized systems are also not properly used. Bangladesh Bank has developed a platform for import, letter of credit, and revenue collection databases. The National Board of Revenue, commercial banks, and other stakeholders have access to the platform. It has been reported that the Bangladesh Bank audit department still insists on submitting a hard copy of the bill of exchange to the commercial bank by the importers.
There is no standard policy for auditing already settled income tax files. Tax official seems to select the cases arbitrarily. The authorities concerned must consider shifting tax compliance management from the traditional subjective audit selection approach to technology-assisted intelligent selection approach based on efficient data mining and revenue risk management tools.
Revenue strategy must move away from a sales-based tax system to profit or income-based income tax. The deduction at source and advance tax needs to be rationalized so that the final incidence of such a tax cannot be more than what the assessed tax on profits would be. The incidence of the inefficiency of tax administration should not fall on the taxpayer.
Tax deduction at source and minimum tax regimes are totally against the spirit of income tax principles. Companies may incur a loss in one year and make profits the next year. However, they are paying more taxes the current year than the previous one. There are more regressive policies of AIT and VAT. For example, indentors (agent of overseas suppliers) are exporting service to other countries. They are registered as exporter with Chief Controller of Import and Export under Ministry of Commerce. Still, NBR don’t recognized indentors as an exporter. NBR has imposed 15 per cent VAT and 6-10 per cent advance income tax on total commission earned and repatriated to the country through official channels. The Supreme Court has given a stay order on VAT on indenting service. The rate of AIT on gross receipt at six to eight per cent is very high and may discourage honest taxpayers. It is essential to look into fair and equitable tax assessment, not only to raise revenue.
The work of the Internal Resources Division (IRD) and the NBR is contradictory. Still, a secretary is the head of these two organizations. We believe that this needs to be changed. The policymakers should not be revenue collectors. These two activities must be done by different organisations. The customs duty should be determined by the Bangladesh Tariff Commission. Policy should be famed by the Internal Resources division of Ministry of Finance instead of NBR. Setting policies and collecting taxes through the same institution creates a conflict of interest. It also makes it impossible to have objective revenue targeting and necessary adjustments reflecting evolving economic conditions and enforcing tax compliance.
The present economic activities are allowed through cash transactions. The income tax and VAT laws have some encouraging policies of cash transactions. Some major transactions such as purchase of real estate is fully on cash basis. Such cash transactions are should be allowed through banking channels so that the NBR can ascertain source of money and payment of actual tax on income of the transacted amount.
NBR has an easy-going policy of being a gatekeeper on export and import entry point at the port to collect AIR and advance VAT. These easy collection policies made the NBR of customs duty, AIT, and Advance VAT hold back the reform of tax department. The historical role of AIT and customs duty is always regressive on economic development.
There should be accountability of NBR. The relevant authorities have to decide whether the burden should only be carried by NBR or a holistic approach where the government, the taxpayers and the tax collectors should all be held equally accountable. The government should form fully autonomous/semi-autonomous revenue authorities to reduce discretion and discrimination, formation of a tax ombudsman and ensure private sector representation in non-executive revenue governance bodies.
NBR should undertake several potential reform measures, including the segmentation of taxpayers, forming semi-autonomous revenue authorities, forming a tax ombudsman, ensuring private sector representation in non-executive revenue governance bodies, etc. A sound tax system should be simple, equitable, transparent, and accountable, and Bangladesh could only benefit from implementing this. The VAT and income tax departments are two wings of NBR, but all taxpayers have two different registrations for income tax and VAT. All the taxpayers may be given a single tax registration for income tax and VAT.
The efficiency of tax audit strategies should be increased while reducing the risk of leakage. Income tax and VAT collection would be the primary focus of the tax department using technology. Digitalization of the overall tax system in a systematic manner is a must. Records should be maintained in such a way to reduce intermediaries that lessen the chances of human error.
NBR should establish a data bank and collect third-party information for efficient revenue forecast. Reliance should be increased on Information Technology – big data, real time analytics, mobile apps, social media, etc. Self-assessment of taxes should be promoted. Paying taxes should be made simple and not allowed to become a headache. Electronic tax payment facilities should be allowed to greater degrees.
Tax collectors’ mindsets are the key barriers to the National Board of Revenue (NBR) reform. Reforming the tax administration will be possible only if taxmen change their orthodox mindsets and view taxpayers as clients.
The current revenue policy and administration structure require a review to align with global best practices. Revenue generation is not a collection-focused exercise, but rather a policy and practice-focused system centred on the economic and other growth-related policies.
The writer is a legal economist. He can be contacted at mssiddiqui2035@gmail.com
