Integrated tax profile offers hope

A media report said that a parliamentary standing committee, with the finance minister, NBR chairman, ERD secretary, Bangladesh Bank governor and parliamentary secretariat officials, has decided to establish an “automated integrated profile” to boost tax collection and raise the tax-to-GDP ratio to 15 percent by 2035. The database will include credit card use, spending on education and health, foreign travel, bank transactions, car purchases, share market investment, and the purchase and sale of movable and immovable property. A risk-based tax structure has been proposed, covering declared turnover and profit, gross profit ratio, related-party transactions, interest expenses, management fees, royalties, commissions, depreciation, bad debt, related-party loans, directors’ remuneration, import value against local sales, and VAT turnover against tax turnover.

This is a positive move and demonstrates the government’s political will to curb tax evasion and raise revenue. In the same meeting, faceless assessment and faceless audit were under consideration, which should streamline the taxation system.

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The initiative is encouraging, but in some cases it seems to be reinventing the wheel, while the real problem areas remain unattended.

The integrated tax profile is encouraging, but Bangladesh must address weak NBR capacity, corruption and outdated tax practices if it wants to raise revenue and meet its target

Another point is the target of raising the tax-to-GDP ratio to 15 percent by 2035. Online tax returns have taken more than 15 years and are still incomplete. NBR’s capacity needs to be expanded, particularly when many officers come from non-business academic backgrounds and have weak financial literacy. There is also the problem of corruption among a section of assessing officers.

During assessments, tax officers often resort to traditional systems and follow precedent. They estimate sales regardless of whether financial statements are reliable, and verify other information and documents. Arbitrary disallowances, failure to give credit for tax payments and withholding taxes on unconvincing grounds, inappropriate queries, and demands for irrelevant documents ultimately impose additional taxes. This creates harassment and suffering for genuine taxpayers, distorting the relationship between taxpayers and the tax department.

Corruption is another critical factor. Some tax officials do not support transparent taxation systems. As a result, even good systems take a long time to implement. Some systems and procedures used by Large Taxpayers’ Units (LTUs) have been discontinued. Digitalisation has been given importance, but there is no apparent move towards a cashless society, which is a tool for curbing tax evasion, as neighbouring countries have demonstrated.

SMEs contribute 25 percent to 35 percent of GDP in Bangladesh. Expansion of the trade sector is visible in cities and upcountry areas. The financial conditions of people outside the tax net have improved considerably. Yet tax collections from these areas remain low. A bright side, however, is that salaried taxpayers are well captured and contribute regularly.

Customs attaches in foreign missions are being considered to verify import prices and prevent over-invoicing. It is not clear why customs attachés are needed if transfer pricing audits are already provided for in tax laws. If this provision is not effective, why should the law not be amended? NBR initially gave the process greater importance but later did not focus adequately on transfer pricing. This is another inconsistency and policy deviation.

The critical point is to stop tax evasion or bring it down to a tolerable level.

There should be a clear timeline dividing tasks into immediate, short-term and long-term measures. Immediate and short-term steps should not be placed under a long-term agenda. The committee should follow up and make strategic changes for phased implementation, so that the 15 percent tax-to-GDP ratio can be achieved by 2030, not 2035.

The writer is a senior partner of Hoda Vasi Chowdhury & Co and past president of ICAB