Digitization of global trade has simplified business processes, ushering in speeds and newer dimensions. The digital-era businesses are constantly adopting advanced technology and paperless trade procedures to stay competitive amid this paradigm shift. As such, how to match the taxation techniques with these novelties remains the moot question.
Corporate taxpayers, especially multinationals, have started accessing crypto- currencies, decentralized ledger like bitcoin, block-chain technology, going for mergers and acquisitions and frequently updating accounts- maintenance techniques in line with the technological upgradation. Latest versions of technologies and accounts-maintenance software help them monitor daily financial transactions to improve corporate efficiencies.
Addressing changing business models, assessing tax potentiality from e-commerce, adopting intellectual property rights (IPR) issues, implications of carbon tax considering global concerns of climate change are utmost needed and should be prioritized in the digital era.
Questions can be raised how Bangladesh's tax department is getting prepared to tap the tax potential in digitized operations. Is the tax authority well-equipped to track the hi-tech business dealings and accounts-maintaining process of the corporate taxpayers? What progress Bangladesh has made towards being a trade-facilitation agreement (TFA)-ratified member-country of the World Trade Organisation (WTO)?
Bangladesh ratified to facilitate trade and make it paperless: Bangladesh has ratified the World Trade Organisation's (WTO) Trade Facilitation Agreement (TFA) aiming to make export and import of goods hassle-free with the accelerating implementation of digital trade-facilitation measures.
It has been alleged that in least- developed countries bureaucratic red tape sometimes delays trade activities, increases trade costs and consumers have to shoulder the increased cost paying higher prices of goods.
At the 2013 Bali Ministerial Conference, the WTO members concluded negotiations on the landmark TFA, which came into force on February 22, 2017 following its ratification by two-thirds of the WTO membership. The TFA is an outcome of the WTO's Doha Development Agenda (DDA).
At the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), in 2016, member- states adopted the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific to accelerate trade digitalization. It aims to facilitate electronic exchange of trade-related data across borders. According to a study by UNESCAP, Bangladesh could reduce its trade cost by 33 per cent through proper implementation of the WTO TFA together with cross-border paperless trade measures.
This amounts to potential trade- transaction-cost savings of more than $0.7 billion per year. Unfortunately, the target of paperless trade could not make any visible progresses yet due to absence of holistic approach to integration of other relevant stakeholders.
Tapping tax potentiality from cross-border transactions: Tax evasion through cross-border transaction is one of the major concerns in recent times. Transfer pricing through concealment of actual transaction by multinational companies is practiced globally to evade tax. By shifting profits to other countries, known as low-tax regime or tax haven, MNCs avoid payment of high-rated corporate taxes. Bangladesh is a vulnerable country for such tax evasion as it has high rates of corporate tax, ranging from 22.5 per cent to 45 per cent.
Corporate tax is the main source of revenue collection of the government of Bangladesh, like most of the countries across the globe. Tax authority has found out some 281 corporate taxpayers, who are considered large taxpayers, to monitor and supervise them under a unit known as Large Taxpayers Unit (LTU). The unit contributes around 40 per cent of the direct tax collection by the National Board of Revenue (NBR).
It is unfortunate that the LTU under the income-tax unit has supervised the large taxpayers manually since its inception in 2003, thereby leaving scope for leaks. MNCs who have cross-border transactions are filing tax returns regularly to the unit under manual system too. The unit, a brainchild of the International Monetary Fund (IMF), has been operating amid constraints of manpower and lack of advanced technologies. The NBR earlier had launched an automated system--Income Tax Management System (ITMS)--to automate large taxpayers' file. But it could not see the light reportedly for want of sufficient funding.
The NBR has a transfer-pricing cell to check concealment of information on cross-border transactions. The TP cell is yet to perform as per expectations of the economists, since its inception in 2014.
Previous initiatives prove futile: It is true that the NBR tried to automate its tax administration talking several projects earlier, but, unfortunately, most of those are of 'piece meal' type and could not sustain due to lack of integration with other wings.
Checking tax evasion needs coordination and integration with all other stakeholders to follow where the money is going. Without digitization, it's difficult to track the path of financial transaction.
In 2017, the NBR joined hands with the a2i programme of the ICT Division. Under the signed Memorandum of Understanding (MoU), some 8000 digital centers are now providing tax related services along with other major public services.
The tax administration has yet to have even a forensic lab or central database of its taxpayers to know who they are or how their business process could be monitored using advanced technologies.
Question raised on willingness of taxmen to automate: It has been alleged that unwillingness of a section of tax officials is one of the major reasons for slow pace of automation of tax department. Underhand dealings, bribing to provide taxpayers' services are still blamed by a number of businesses. Taxpayers found visiting tax offices a troublesome and time-consuming task as bureaucratic red tape makes the service delivery slower.
In the digital era, taxpayers want service at their doorstep with a click on their mobile phone--like in many cases of utility-bill payments and monetary transactions. Complex processes of tax payment and submission of tax returns discourage even tax-compliant citizens.
Hassle in speedy delivery of import products also increases the cost of doing business in Bangladesh. It has been alleged that importers need to carry some additional cost or 'speed money' to get products released within a short time. Such irregularities would be minimized once the customs would be fully automated with the integration of other departments.
Poor investment for revenue authority: The returns on investments for tax authority are enormous. The revenue board estimates that every additional Tk 0.66 of expenditures on the NBR results in additional Tk 100 in revenues. Investment to develop the automated tax system or build capacities of the taxmen remained insignificant. The government could not prioratise its investment or allocation of funds on the basis of returns. A nominal investment on capacity building and digitization of tax department could have multiplied returns to the public exchequer.
The NBR has carried out most of its automation moves with the funds of development partners. A number of such projects did not see success, and failed to sustain. TACTS, MIST, RIRA, BItax are the projects that failed to pay off as per expectations. Steps taken under those projects faced blow as those were either not well-designed or made service delivery more complex rather than simplify it.
Tax injustice for lack of digital database: With the international tax- collection method, the government is giving increased focus on collection of withholding or source tax. However, people not having taxable income also are subject to paying tax at source at the time of availing different services. Thus, they cannot enjoy the tax-free threshold meant for them in government's fiscal policy. In a developed country, tax authority has digital database of taxpayers to refund their excess paid tax. Lack of such effective refund mechanism, both individual and corporate taxpayers, effective tax rate goes up than that of the actual payable tax rate for them. Such tax injustice could be checked by automating tax administration.
Corporate taxpayers often also blamed double taxation and disallowance of claimed expenditures by taxmen. Digitized system can minimize mistrust between taxpayers and taxmen too and ensure tax justice for people.
Progress towards digitized tax system: We can, however, be optimistic about seeing the recent developments of tax departments to digitize tax payment and return submission. On October 10, 2021, the NBR launched online tax-return-filing system on a limited scale on pilot basis. However, e-return filing faced several headwinds earlier as taxpayers found the system not friendly or simplified for them.
VAT-return submission, VAT and income tax registration, payment of taxes online, electronic tax deduction at source, post-clearance audit, advance ruling, authorized economic operators are some of the significant steps taken by the NBR, of late, in the process digitizing the revenue department.
Two major digitization projects, with the fund support of develoment partners, are going on currently. One is for automation of bonded- warehouse facilities and another is National Single Window (NSW) to integrate all of the relevant departments' services under one portal managed by customs authority. Asycuda world system of customs is also a landmark initiative with the support of UNCTAD. It has developed interconnectivity with all customs houses and some of the service-providing entities.
Such developments spark the light of hope that the country would not be left behind of this digital transformation of business processes. Coordinated move between the relevant public and private entities can make a successful 'Digital Tax Administration'. A slip, thus far, could get you to miss the bus on the superhighway the current world has boarded.
The writer is a special correspondent at the FE.
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