Tax return submissions lowest among neighbours

The percentage of tax return submissions in Bangladesh is the lowest compared to neighbouring Pakistan, Bhutan, Nepal, Sri Lanka and India, and the fact remains true to this day despite the country’s ongoing struggle to meet budget deficit amid economic headwinds.

This low volume of return submissions against the number of electronic tax identification number (e-TIN) holders is a key indicator, and it is holding back Bangladesh’s efforts to maintain economic growth and complete major development projects, experts say at an event on Saturday.

They point out that if the taxpayers contribute to the national revenue collection by building up a habit of paying taxes regularly, living standard in the country will certainly improve in the coming days.

The government too should adopt a friendlier approach for collecting taxes, and simplify relevant laws to boost the country’s tax to GDP ratio.

Speakers made the observations at a seminar on “100 years of Income Tax Law of Bangladesh-Expectation & Achievements” organised by International Business Forum of Bangladesh (IBFB) in capital’s Gulshan Club.

Planning Minister MA Mannan attended the programme as the chief guest.

Only 31% e-TIN holders submit returns

Presenting the keynote at the event, Chartered Accountant Snehasish Barua, FCA said, “Bangladesh had 7.4 million e-TIN holders in 2021, and among them, 2.3 million or 31 per cent submitted their income tax returns.

“This figure was 33 per cent in Pakistan, 44 per cent in Bhutan, 71 per cent in India, 72 per cent in Nepal and 88 per cent in Sri Lanka – which is the highest in this region.”

Barua, also a faculty member of the Institute of Chartered Accountants of Bangladesh (ICAB), continued, “The mandatory proof of return submission for some services will surely improve the number of tax return filling. Besides, the income tax revenue had dropped by 11.4 per cent in per e-TIN, while the number of taxpayers increased by 31 per cent in just two years.

“The National Board of Revenue (NBR) collected Tk 1,43,942 per e-TIN on average in FY19, and Tk 1,12,975 in FY21. The gap between e-TIN holders and those who are submitting returns might widen further in the coming days.”

The NBR collected Tk 301,634 crore as revenue in FY22 with a healthy growth of 16.09 per cent. Of which, NBR collected Tk 103,791.81 crore in revenue from income tax and travel tax with a growth of 21.79 per cent.

The revenue collection target for FY23 was set at Tk 3,70,000 crore, while a goal of Tk 3,30,000 crore was set in the last financial year.

Effective tax rate higher due to TDS, affecting SMEs

Presenting his keynote, Barua showed that the effective tax rate increased to 47 per cent in supplying goods and 50 per cent for service providers due to high tax deducted at source (TDS). Meanwhile, the maximum corporate tax was set at 27.5 per cent in FY23.

Commenting of the matter, he said, “Currently, the revenue collection is very much dependent on TDS. The actual business income of Tk 20 crore is being perceived by the regulators as Tk 33.33 crore to trade off the impact of source tax.

Echoing the same, Bangladesh Competition Commission adviser MS Siddiqui said, “The current income tax policy discourages SMEs. Please address the advance income tax issue in the next fiscal year, as it is negatively impacting the small and medium enterprises (SMEs).

“I am also urging the government to withdraw the opportunity to whiten black money, because this particular facility is fueled by the criminal income.”

Muhammad Abdul Majid, a former chairman of NBR, said, “The revenue being collected by Bangladesh is not a proper reflection of the country’s growth. The introduction of more prudent tax laws will help free the economy from discrimination.”

Dhaka, Chattogram pay 90% of taxes

Currently, the NBR is heavily dependent on Dhaka and Chittagong for tax revenue. The board collected 74 per cent revenue from Dhaka and 16 per cent from Chittagong in 2021. Only 10 per cent revenue was collected from the other 62 districts, according to Barua’s study.

He further said, “Presently, the industrialisation is drastically shifted to different regions from these two districts, and the employment, economy and earnings are too increased in these areas.

“So, the tax offices should be spread over at thana or union levels for more collections of revenue from growth centers.”

Experts’ recommendations

Providing some recommendations, Barua said, “Investment for designing comprehensive IT systems, automation of tax administration, and capacity building of tax officials are required to boost the tax to GDP ratio and income tax revenue collection.

“The income tax law should be simple and precise for the taxpayers. The existing laws are a bit too complicated.”

He continued, “The government should strengthen the capacity of tax officials by providing training with the professional bodies such as The Institute of Chartered Accountants of Bangladesh (ICAB) for holistic learning.

“Because the tax officials are mostly coming from non-accounting background and the training for the officials are not sufficient enough.”

Speaking as the chief guest at the event, Planning Minister MA Mannan echoed Barua, saying, “A reform in professional cadre service is required, because the tax cadres coming from Bangla, History, English, Physics, Chemistry and other backgrounds are facing practical difficulties.”

“The practice of tax exemptions should be abolished right now for the greater interest of the country. Why the tax exemptions are on the rise in the country is totally unknown to me.”

Barua added that a company has to file 29 tax return submissions in a year, and this process must the streamlines and digitised to boost revenue from this key segment. International Business Forum of Bangladesh (IBFB) President Humayun Rashid, who is also the managing director & CEO of Energypac Power Generation Ltd, chaired the programme.