Although no exact figures exist on how much money finds its way out of Bangladesh by way of tax evasion, one estimate puts it at around $355 million annually, as multinational corporations and business tycoons have for many decades, been parking funds in tax havens abroad. It is not just tax havens that are allowing for this tax evasion. Corporations, groups of companies and individual millionaires / billionaires employ armies of accountants and lawyers to effectively underpay taxes. All this has come to light in a report by the State of Justice in its 2024 edition.
The report titled 'The State of Tax Justice' outlines the issue in Asia. Tax evasion in this country is further compounded by the fact that billions of dollars' worth of assets has actually flown into the coop. Indeed, according to the report, about $1.2 billion has been siphoned off, which would have carried around $100 million in tax incidence, had the funds remained in the country. Of course, economists have been quick to point out that these estimates are those that have been tracked and the actual, vast sums of money that have flown out of the country are much higher.
This is revealed recently by both economists and Bangladesh Bank (central bank) that around $150 - $170 billion may have left the country over the last 15 years. Yet, the Bangladesh Bank governor has stated that authorities have been able to pinpoint around $17 billion in offshore accounts. That means that nearly 80 to 90 per cent of estimated illicit outflow of funds are yet to be tracked. As pointed out by Professor Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), the actual amount of tax loss is much higher than that of the reported one as it is difficult to trace the assets siphoned off.
Vast sums of money are simply no longer present in the financial sector. The country's most profitable financial institute, the Islami Bank for instance, has been subjected to brutal and systematic bleeding whereby, nearly 80 per cent of its liquid assets have left the country. This was done in connivance with officials and functionaries at both state and banking levels. The extent of the destruction of the financial system is now slowly coming to light.
Going back to the report, it is clear that corporate-tax abuse and parking in offshore tax havens is a regionwide problem. According to a report in The Financial Express, "Of the amount of tax loss, $335.9 has been lost due to corporate-tax abuse while $ 19.1 million for tax abuse due to offshore wealth. The network has found the South Asian countries are losing US$492 billion in taxes a year to multinational corporations and wealthy individuals using tax havens to underpay tax. "Nearly half the losses (43 per cent) are enabled by the eight countries that remain, as of writing, opposed to a UN tax convention: Australia, Canada, Israel, Japan, New Zealand, South Korea, the UK and the US," the report reads."
Each country faces its own demons, but things are perhaps beginning to change very slowly in Bangladesh. For years, the national board of revenue (NBR) had remained "offline" when it came to submission of tax returns. That could be explained by the resistance of a class of officials who benefitted greatly from the opacity of having lax laws related to taxation, which in turn helped both large tax payers to evade taxes, and millions of taxable individuals to get away without submitting tax returns.
The end result of such lax mindset is obvious to everyone. The largescale infrastructure development that the country has witnessed over the last 15 years had largely been paid for by foreign loans. This is so because domestic revenue mobilisation for the government had largely been left to indirect and not direct taxation. The net result of this nonchalant approach towards tax revenue collection has caught up with us and the country now has a huge foreign debt.
Digitalization of taxation services has faced immense opposition but is now slowly being adopted. Slow adoption needs to be fast-tracked and obviously private sector entities, corporates and foreign-owned enterprises won't be happy. But the system has to be rectified in the interest of the nation. There cannot be sustainable development in the country if the government is forced to continuously borrow from the banking system to sustain its development budget. Again, a country like Bangladesh cannot afford to keep big loopholes in the policy regime that allow for widespread siphoning money off to foreign lands. A step in the right direction would involve signing on to international conventions / treaties on tax evasion and making sure that policy directives are followed through by the revenue authority. Only then can one see some changes taking place.
© 2024 - All Rights with The Financial Express
