Home ›› 27 Dec 2022 ›› Front
Rampant tax evasion from a segment of individual and corporate taxpayers, including multinational corporations (MNCs), banks and other government and private companies, is causing the National Board of Revenue (NBR) to suffer revenue shortfall every financial year.
This shortfall is prompting the government to borrow from banks in bid to meet budget deficits, even amid the ongoing economic crisis.
Latest provisional statistics from the NBR show that the board is yet to recover Tk 74,539 crore in taxes and duties until FY22, out of Tk 94,607 crore – as claimed by the audit of the tax, VAT and customs offices.
Of these dues, the NBR claims Tk 28,209 as income tax, Tk 40,406 as customs duties and Tk 5,924 crore as VAT from individual taxpayers and companies. Outstanding dues claimed by the revenue board stood at Tk 61,846 crore until FY18.
On the issue, former lead economist of World Bank Dhaka Office Zahid Hussain said, “Policy reform is a must to reduce leakage for minimising tax evasion. The government must drop rebates and exemptions down to a rational level, which is an IMF recommendation too.
“Rebates and exemptions are also the key factors behind rampant tax evasion. Some companies also go to the higher courts to avail facilities and settle tax evasion cases, contributing to the growing outstanding dues.”
He continued, “Human involvement during tax functions – including registration, return filling, assessment and audit – has to be minimised through strengthening of the administration with automation and modernisation.
“Such initiatives would help reduce leakages, and exploitation of loopholes through personal meetings between taxpayers and NBR officials.”
Pointing out that the implementation of the automation in every NBR function is currently possible, Hussain said, “There are many such NBR projects, but those are yet to run effectively or function fully.
“Tax evasion and outstanding dues will continue to increase without an effective system and proper maintenance.”
Economists say the ongoing situation can be improved by creating a friendlier environment for taxpayers, simplifying relevant laws, and ending harassment of duty depositors, such moves in turn will help boost taxes and duties significantly.
Digitisation is the key
A number of NBR officials also said some individual taxpayers and companies go to the higher courts, including the Appellate Division, after feeling dissatisfied with the tax offices’ settlements.
Lengthy litigations are a key factor behind the gradual increase in outstanding dues. Besides, the Alternative Dispute Resolution (ADR) is not yet that popular, and this is yet another reason behind this crisis.
In most cases, NBR’s audit and investigation found gaps between income and profits shown in the return fillings through falsification by the individuals and companies.
The collected income tax from audit claims proves the evasion, through the mismatch of return submission and actual income, NBR sources say.
According to the income-tax ordinance, at first, the deputy commissioner of taxes compute and assess the arithmetic errors or incorrect claim in the return, and notify the taxpayers to submit the amended return under 88BB (2) while the return is considered to be audited under 88BB (7), if income shown in the return is inconsistent compared to previous year and lack of proper documents and other required papers.
Usually, when tax officials are in doubt about a particular return, they select it for audit.
NBR’s Tax Information Management & Services Member Mohammad Jahid Hasan said, “The revenue board is gradually trying to shift from manual to digitalised work so that human involvement in the process can be reduced and compliance can be increased.”
Echoing the same, NBR’s Tax Audit Intelligence & Investigation Member Pradyut Kumar Sarkar said, “Even in India, a lot of things, including audit selection and document verification, are being processed through automation.
“We are currently working on an office management system, which finds the errors and anomalies in returns and directs the taxpayers to submit the required documents digitally.”
A return is taken into consideration for audit based on contexts that are fully addressed in the ordinance and Income Tax Paripatra 2017-18, such as previously paid income tax, social status, any lack of required documentation, NBR sources say.
Meanwhile, VAT officials say if Electronic Fiscal Devices (EFD) are adopted in every corner of the country and consumers’ become more aware regarding NBR issued challans, the rampant VAT evasion will drastically go down.
Evasion ups revenue shortfall
Widespread tax evasion is increasing revenue shortfall. According to the NBR, the board collected Tk 3,01,634 crore as revenue in FY22, against the target of Tk 3,30,000 crore.
Meanwhile, the government’s bank borrowings increased by 263 per cent to Tk 68,652 crore in FY22 from Tk 26,078 crore in FY21, according to the Bangladesh Bank.
The government’s bank borrowing is surging this year as well. Latest data from the central bank shows that the government borrowed Tk 31,038 crore from banks between July and November this FY, up from Tk 17,828 crore in the same period last year.
The government has set a Tk 106,334 crore borrowing target from the banking system to meet the budget deficit in FY23. The NBR has collected a total of Tk 1,15,620 crore during the July to November period against a target of Tk 1,25,334 crore.
It achieved 92.25 per cent of the actual target for FY23 during this period.
