Tk2,92,500cr lost from tax evasion annually

The government is losing as much as Tk 2,92,500 crore in potential revenue annually due to tax avoidance and evasion, which in turn is putting the country under more and more fiscal pressure.

Many corporations are evading taxes using a variety of methods, such as showing less income, soliciting unethical support from tax practitioners, showing more investment allowances, individual intentions to show less income, and high informal transactions – such as cash.

Tax avoidance is action taken to lessen tax liability and maximize after-tax income, while tax evasion is the failure to pay or a deliberate underpayment of taxes.

The Centre for Policy Dialogue (CPD) revealed findings of the study – jointly conducted with Christian Aid – in a media briefing at its premises in the capital on Monday.

CPD Research Director Khondaker Golam Moazzem said, “Establishing an integrated financial transaction system, cashless transaction, improvement of tax efficiency, addressing corruption of tax officials to cut evasion, and avoiding promotion of facilities that promote such behaviour, such as allowing the whitening of black money, are keys to improving tax transparency and increasing revenue collection.

“If the government curbs the total amount of tax evasion, it can help increase the social safety net and welfare expenditure by 8 times compared to the ongoing expenditure. The government can also increase health expenditure by 200 per cent if the existing tax avoidance is curbed.”

Moazzem continued, “Bangladesh, in 2021 alone, lost Tk 84,200 crore due to the shadow economy or informal sector, which accounts for 30.2 per cent of the total GDP. This figure is close to one-third of the total tax revenue collected that year.

Stressing the need to formalise the informal economy, gradually strengthen banking, mobile financial services, and online and digital transactions, Moazzem said, “The government must take initiatives for establishing an integrated financial transaction system, so that they can track tax evasion.”

The CPD recommended setting an annual target of reducing tax avoidance through a gradual phase-out of tax incentives, tax breaks and other concessions for established sectors, adding that tax exemptions should also be withdrawn from various sectors to boost revenue.

In LDCs, tax exemptions are being mostly provided based on political decision, and after its LDC graduation, Bangladesh will have to answer for these facilities, regarding why such facilities are being provided, and what is the impact of such a move. Moazzem added that the government can relocate tax incentives to boost sectors with potential to enhance diversification of exports.

The think tank recommended introducing mandatory sustainability reporting which is a useful tool for greater disclosure and transparency. Several developing countries introduced mandatory sustainability reporting such as Argentina, Brazil and India to improve transparency.

1 of 5 registered cos pays tax

According to the NBR, out of 213,505 companies registered under the Registrar of Joint Stock Companies and Firms (RJSC), only 45,000 submit tax returns, meaning only 1 out of 5 registered businesses pay tax.

In this context, Moazzem said the corporate tax rate in Bangladesh is higher than the global, Asian and South-Asian average, and considering our socio-economic culture, the present tax structure is not suitable for attracting enough people to pay taxes.

Informal economy decrease, evasion increase According to estimation by the World Economics, the size of informal economy in Bangladesh is decreasing steadily over time, dropping from 36 per cent in 2002 to 30.2 per cent in 2021.

Over the ten years, due to the shadow economy, tax losses rose by four times, from Tk 22,200 crore in 2010 to Tk 84,200 crore in 2021.

Moazzem pointed out that the existing tax policy allows extensive level of tax exemptions, incentives and special provisions, which in turn is limiting the tax revenue and making the effective tax base narrower.

CPD Executive Director Fahmida Khatun said, “If the government can develop, modernise and rationalise the taxation system, the ongoing fiscal imbalance will mostly be reduced. Stressing on addressing the matter as quickly as possible, Fahmida Khatun said, “Bangladesh will lose some facilities in the global market after its LDC graduation.

“The government has to address loopholes and leakages so that tax avoidance and evasion can be reduced, and boost facilities in sectors that need them in bid to increase export diversification.”