Efficient use of public money and access to improved public services encourage people to pay taxes, according to a study carried out by Centre for Policy Dialogue (CPD).
Some 68 per cent eligible taxpayers don’t pay income tax, the study suggests.The independent think-tank conducted the survey earlier this year among 1,200 people from 21 districts.
In view of this, CPD recommended for investing more in public services, including education, health, infrastructure and social protection and establishing a public expenditure review commission.
“While conducting the survey, we’ve found that people have a common perception that improved public service and the quality public may encourage more people to pay taxes,” commented Towfiqul Islam Khan, CPD’s senior research fellow.
However, former finance adviser to the last caretaker government Dr AB Mirza Azizul Islam said he did not see any logical link between improvement in public service and more tax payment.
“I don’t think that tax collection doesn’t depend on the quality of public services. There are various reasons for low tax base in the country,” he commented.
The survey suggests that only 32 per cent people pay income tax and 29 per cent submit income tax returns.More interestingly, one-third of the top income group did not pay income tax last year. It does not necessarily mean that those who paid income tax have not evaded tax, the report added.
75 per cent of respondents felt that the tax system inherently favours the elite, half of the respondents consider the tax system to be overly complex.
65 per cent believe that corruption is prevalent in the taxation system. The belief is higher at 69 per cent among the richer people. 78 per cent respondents said incidents of VAT avoidance is occurring regularly.
At present, the country’s tax-GDP ratio is one the world’s lowest at 9 per cent in contrast to 15 per cent developing countries’ average.
The 7th five-year plan seeks to raise tax-GDP ratio to 14.1 per cent and revenue-GDP ratio to 16.1 per cent from current 10.2 per cent by 2020 with growing significance of income tax collection that is expected to rise to 5.4 per cent by 2020.
Analysing household income data, CPD said the burden of taxation is largely stemming from income tax.
The report added that the number of individual taxpayers has grown steadily during FY12-16. However, the pace in identifying new taxpayers appears to be slowing down.
“Personal income tax collection is not only critical for mobilizing government revenue but also to establish a more equitable economy,” Towfiqul commented.