Audit overload in tax system of Bangladesh

A well-functioning tax system rests on three foundational pillars: fairness, predictability and finality. While Bangladesh has made progress in expanding the tax base and modernising legislation, the lived experience of corporate taxpayers shows a persistent failure on the last two counts. Nowhere is this more evident than in the country’s regressive and repetitive tax audit practices.

Once a company files its income tax return, the assessment is conducted by the Deputy Commissioner of Taxes (DCT). In theory, this is the stage at which tax liability is determined based on audited financial statements, supporting documents and applicable law. In practice, assessments are often arbitrary. Sales figures supported by statutory audit reports are frequently rejected without credible justification, while large portions of routine business expenditure are disallowed on vague grounds of “lack of documentation”, even when such documentation meets established accounting and audit standards.

The predictable outcome is a surge in appeals. Taxpayers, confident in the integrity of their audited accounts, have little choice but to seek redress at higher appellate levels. This process consumes valuable time and resources for both businesses and tax administration, diverting attention from genuinely high-risk cases.

Yet even completion of an assessment does not bring closure. A significant number of cases are later selected for audit by teams of tax officials from other circles within the same tax zone. The selection criteria remain largely opaque. These teams routinely re-examine matters already scrutinised during assessment and often revise the tax position, reopening issues that taxpayers reasonably believed were settled.

The process becomes even more regressive with the involvement of two other wings under the National Board of Revenue: the Department of Inspection and the Central Intelligence Cell. Both conduct independent audits of returns that have already been assessed and re-audited. Each stage introduces new interpretations, new objections and fresh exposure to additional tax demands.

Section 212 of the Income Tax Act 2023 adds another layer of uncertainty. It grants tax authorities the power to select any return they believe involves tax evasion. While such a provision is understandable in principle, its application has often been capricious. When returns have already passed through multiple layers of assessment and audit, a reasonable question arises: how does income continue to “escape” assessment after so many reviews?

The cumulative effect is deep uncertainty. Taxpayers have no clear point at which tax liabilities can be regarded as final. From an accounting and financial reporting perspective, this creates hidden and unpredictable contingent liabilities, complicating balance sheets, investor disclosures and long-term business planning.

At the core of this problem lies a deeper structural weakness: inadequate accounting and financial analysis capacity within tax administration. Many disputes do not come from deliberate non-compliance, but from limited understanding of modern accounting principles, industry-specific cost structures and the distinction between aggressive tax planning and legitimate commercial transactions.

Strengthening accounting competence within tax offices would improve the quality of initial assessments. Properly trained officials would be better equipped to identify genuinely spurious financial statements early, while compliant taxpayers would be spared years of repetitive scrutiny. Such competence would also act as a natural deterrent against fraudulent reporting.

Equally important is the strategic use of artificial intelligence and data analytics. AI-driven tools can analyse large datasets, benchmark financial ratios across industries, identify anomalies and prioritise high-risk cases with greater accuracy than manual selection. This would reduce subjectivity, limit harassment of compliant taxpayers and improve revenue outcomes.

A tax system that repeatedly audits the same compliant taxpayers is not only inefficient; it undermines trust and discourages formalisation. If Bangladesh is to broaden the tax base and improve voluntary compliance, it must replace regressive audit practices with competence, consistency and closure. That is the cornerstone of a credible and modern tax regime. 

The writer is chairman of Unilever Consumer Care Ltd