None would dispute the fact that where there is payment of tax there will be evasion. However, what is considered important is the degree of such evasion. In developed economies, the scale of evasion is far less than what is generally witnessed in developing and least developed countries (LDCs). The tax payment situation in the developed economies is otherwise better mainly due to the prevalence of a built-in tax payment culture among the citizens and the existence of very efficient tax monitoring and recovery systems. Most developing and least developed economies suffer from inadequacies in those areas.
Bangladesh, an LDC, is no exception. Rather its weaknesses are even greater. And that is evident from its current tax-GDP (gross domestic product) ratio, one of the lowest in the region. The main problem in the case of this country is that a very large section of the population, which is eligible for tax payment, has remained out of the tax net. The tax administration has not been successful in bringing them into the tax net despite launching of various measures from time to time. Lax follow-up measures and other flaws in the taxmen's drives are blamed for not being able to rope in the potential taxpayers. On top of all this, tax evasion has been seriously undermining the tax administration's efforts to boost its revenue earning.
There is no denying that earnings of revenues from income tax and value added tax (VAT) have increased notably in recent years. But the real earnings have remained far short of their actual potential. The systemic inadequacies and the problem of graft taking are held responsible for large-scale tax evasion, particularly in the case of collection of direct taxes. The National Board of Revenue (NBR) has now decided to employ a mechanism known as 'third-party information system' to check tax evasion. The system is supposed to enable the taxmen to cross-check the information furnished in the tax returns. Under the proposed system, agencies to be selected by the NBR would gather information on large expenditures made by the taxpayers and make available the same to the taxmen. The taxmen again would check whether the money thus spent is tax-paid or not.
One of the major weaknesses of the tax administration has been the slow automation of tax collection system. Tax files are still maintained manually in different tax zones. Moreover, without a national networking system, which is meant for putting all the relevant information of individual national identity card holders only a click away, the bid to have information on large expenditures by taxpayers is likely to remain unsuccessful. Until such a system is put in place and the NBR transforms the tax administration into a fully automated one, the move to employ private sector agencies to help detect tax evasion might deliver dividends only temporarily. However, it should not hinder the implementation of the ongoing project to beef up the tax administration's capacity.
Checking tax evasion
FE Team | Published: February 08, 2015 00:00:00 | Updated: November 30, 2026 06:01:00
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