There are three major sources of revenue collection in Bangladesh economy: value-added tax (VAT), customs duty and income tax. Among the three, income tax is direct tax and the rest are indirect tax. Revenue collection in Bangladesh hugely relies on indirect taxes, according to the National Board of Revenue (NBR). The NBR has taken various initiatives to raise the income tax for a flourishing economy.
Over the last five years, 64.73% of total revenue comes from indirect tax while income tax accounts for 35.17% and VAT at 36.07%.Presently there are 3.1 million people holding tax identification number (TIN) and only 57% submit tax return. According to the research of Centre for Policy Dialogue, there are eight million people under the tax net in the whole of Bangladesh. A recent Finance Ministry Survey reports that 45.65% of the income remains untaxed. In the current fiscal year tax revenue was estimated to cover 62% of the national budget and a recent study of Policy Research Institute of Bangladesh shows current tax to Gross Domestic Product (GDP) is at roughly 10%, which is behind its regional neighbour such as India and Nepal where current tax stood at 17% of their GDP. In some Western European countries citizens pay over 40% of their income in tax. In the last year’s income tax fair 2, 69,000 taxpayers paid Tk 1,790 crore along with tax returns.
Leading experts and economists attributes the problem of poor structure of revenue collection due to the revenue board’s shortage of institutional capacity and lack of coordination among stakeholders. People from middle class who largely contribute to income tax while their upper counterparts are hiding their actual wealth and these all together contribute the poor scenario of the present tax system in Bangladesh.
Another worrying thing is that the revenue officials create pressure on the people who are paying tax while the untaxed remain beyond any kind of reach.
If the system is not changed, income tax collection cannot be extended. Additionally the income tax submission process should be easy and the internal transparency of the income tax department has to be made certain. If the government achieves more transparency and accountability with its expenditure, taxpayer would be more motivated to pay direct tax from their earnings and they would be encouraged to pay if the money is spent ensuring good governance and more on concrete development work.
Despite income tax collection is on an upward swing, the country’s tax to gross domestic product (GDP) is inadequately low.
For this, the tax net needs to be expanded. The country’s economy is expanding and the growth has reached the rural corners of the areas. Many rural businesses have been brought under the tax net.Already the NBR has taken initiative to pay income tax return submission process online and has given due recognition to those paying regular tax by presenting them awards and certificates.
In the last year November’s Income Tax fair, 269,000 taxpayers paid Tk 1791 crore in income tax and filed tax returns while 944,000 people received various other services. In the fair, it was found that people are prone to pay tax at the fair rather than in the sluggish condition of the income tax offices. If the taxpayers are interested to pay at the fair, why are they not going to the income tax office instead?
Many people in the tax fairs opined that the miserable atmosphere of the tax offices needs improvement and that the NBR should organise fairs at rural areas only to incorporate the untaxed people into the tax net. To increase the number of income taxpayers as well as the amount, the government has to address both tax evasion and tax avoidance. In order to solve the problem, the institutional capacity of NBR has to be enhanced, use of modern technology in transfer pricing and other works and more coordination among NBR, Bangladesh Bank and export-import agencies are also required.
It is hoped that Bangladesh will be an upper middle class economy country within next 2030 if we become sincere and devoted to pay and collect revenue for the greater benefit of our nation.
The writer is an income tax consultant at Abbasuddin & Associates.