Home ›› 17 May 2023 ›› Editorial
Tax collection is an inherent function of government, and the relevant department is National Board of Revenue (NBR). Under the provision of article 83 of the Constitution, “no tax shall be levied or collected except by or under the authority of an Act of Parliament”. Bangladesh inherited a system of taxation from its past British and Pakistani rulers.
Income tax was first introduced in the subcontinent by the British in 1860 to makeup the revenue deficit caused by the sepoy revolt, 1857. After independence of Bangladesh, income tax was made effective under the Income Tax Act 1922 passed on the basis of the recommendations of the Income Tax Committee appointed in 1921.
NBR was constituted in 1972 under the National Board of Revenue Order 1972, which repealed and replaced the Central Board of Revenue Act 1924. The National Board of Revenue (NBR) is the central authority for tax administration in Bangladesh. The main responsibility of NBR is to collect domestic revenue such as Import Duties and Taxes, VAT and Income Tax) for the government. Other responsibilities include administration of all matters related to taxes, duties and other tax producing fees.
Some other taxes are collected by different departments which include narcotics duty (collected by the Department of Narcotics Control, Ministry of Home Affairs), land revenue (administered by the Ministry of Land and collected at local Tahsil offices numbered on average, one in every two Union Parishads), non-judicial stamp (collected under the Ministry of Finance), registration fee (collected by the Registration Directorate of the Ministry of Law, Justice and Parliamentary Affairs) and motor vehicle tax (collected under the Ministry of Communication).
Currently, income tax has been imposed under the Income Tax Ordinance 1984 (ITO) promulgated on the basis of recommendations of the Final Report of the Taxation Enquiry Commission submitted in April 1979. Income taxpayer’s are classified as individuals, partnership firms, Hindu undivided families (HUF), associations of persons (AOP), companies (publicly traded and private), local authorities, and other artificial juridical persons. Tax rates and scope of taxable income differ based on residential status of an assesses (resident or non-resident).
Despite being under the same board, the different wings of the NBR (Income Tax, Value Added Tax (VAT) and Customs) operate almost independently providing little support to each other in combating tax evasion and providing a unified front to taxpayers.
For the purpose of computation of total income and charging tax thereon, sources of income can be classified into 7 categories, which are as follows (1) Salaries (2) Interest on securities (3) Income from house property (4) Income from agriculture (5) Income from business or profession (6) Capital gains (7) Income from other sources.
The land tax and income from agriculture is two different tax imposed and collected by two different departments. Prior to the introduction of a comprehensive bureaucracy, governments commonly contracted with private agencies, known as “Zamindar,” were entrusted with land tax collection. The Zamindars were middlemen who collected income from the peasants. During the agrarian system of South Asia during Mughal era, divided the Zamindars into two categories: the autonomous chiefs, who enjoyed “sovereign power” over their territories, and the ordinary Zamindars, who exercised superior rights to land and collected land seizures. They were typically hereditary, and held the right to collect tax on behalf of imperial courts or for military purposes. During the 19th century, the use of tax farmers declined with the institutionalization of the administrative bureaucracy.
The East India Company under Lord Cornwallis, recognizing this, made a permanent settlement with the Zamindars in 1793 and made them owners of their lands in exchange for a fixed annual rent, leaving them independent for the internal affairs of their lands.
The British generally adopted the existing zamindari system of tax collection and recognized the Zamindars as landowners and landowners as opposed to the Mughal government. Although some zamindars were present in the south, they were not as numerous and British administrators used the ryotwari (herders) method of collection, in which some farmers were selected as landowners and asked to pay their taxes directly.
Emperor Shah Alam II at Delhi granted the Diwani rights of Bengal in the year 1765 to East India Company. It was originally chartered as the “Governor and Company of Merchants of London trading into the East Indies. Diwani rights mean the right to collect the land revenue.
The East Bengal State Acquisition and Leasing Act of 1950 had a similar effect in ending the Zamindar system and present land revenue system of Bangladesh has its base in the East Bengal state acquisition and tenancy act 1950 which established a direct contract between the taxpayer and the government. The most important tax on the value of transferred property is the nonjudicial stamp tax (levied under the Stamp Act 1899), which has been in existence since January 1899.
Despite this good achievement, a lot remains to be done. Bangladesh’s tax-GDP ratio at less than 7% remains quite low when compared with other similarly placed countries in South Asia. Although there are more than 8.8 lakh tax identification number (TIN) holders, only 2.9 lakh taxpayers have submitted returns in the current fiscal year.
The corruption, inefficiency of tax officials, narrow tax base, widespread exemptions, and administrative inefficiencies are the main factors behind the low tax to GDP ratio in Bangladesh compared to the neighbouring or comparative countries. This also implies why tax reforms over the last decades have not brought about significant changes in Bangladesh’s tax efficiency and productivity. The most basic challenge has been the overall weakness of the policy framework, which is characterized by an enormous range of exemptions, incentives and special regimes.
At this point the government is considering employing private tax collection agents up to the union levels from the forthcoming fiscal year 2023-24 to boost tax revenue, given the country’s tax-to-GDP ratio of below 8%, a low number despite the economic growth over the past two decades. At the same time, tax agents will also help new taxpayers or those who have e-TIN but have not yet submitted their returns to prepare their tax returns.
If approved, the upcoming budget will incorporate the finance bill, which includes a new rule named “Income Tax Preparer (ITP),” that has already been developed as a draft. In the USA, tax preparers can prepare, file, or assist with general tax forms and can also represent taxpayers to the Internal revenue service (IRS) – which is responsible for collecting US federal taxes.
The sources also mentioned that the tax agents will work similar to life insurance company agents and will receive a commission of 10% of the tax collected, excluding tax at source, with a significant portion going to the tax return preparers.
The commission rate will be determined by the appointed agents of the NBR, and the revenue board plans to pay commissions to agents for the next five years in exchange for finding new taxpayers.
The implementation of private tax collection agents is modelled after countries like the United States, Australia, and the United Kingdom, according to Finance Ministry officials.
Experts have the opinion that the move to appoint private agents might lead to the creation of a “broker class”, causing the initiative to backfire. Since commissions from tax collection are their only income, the agents will try to pressurize taxpayers to pay higher amounts of taxes than the payable, or take bribes from them to reduce the amount. This system may not function properly since the entire society has a tendency of corruption practice.
The writer is Non-Government Adviser, Bangladesh Competition Commission. He can be contacted at [email protected]
