Dealing with the problem of fake financials

FE Team | Published: September 19, 2020 17:23:54

It is no secret that taxpayers, both individual and corporate, are prone to evading payment of tax. The bad habit on the part of a section of the corporate taxpayers causes more harm to the state coffer than that to individuals. Statistics available with the Registrar of Joint Stock Companies and Firms (RJSC&F), the National Board of Revenue (NBR) and the Institute of Chartered Accountant, Bangladesh (ICAB) highlight the fact that a large number of otherwise eligible corporate taxpayers have been depriving the government of a substantial volume of tax revenues every year.
A sizeable number of companies registered with the RJSC do not file tax returns and many others submit with their tax returns the financial reports prepared by fake audit firms. The latter group of companies do comply with the mandatory requirement while taking recourse to some illegal means. Both non-submission of tax returns by registered firms and submission of fake financials by some others have the same goal--- tax evasion.
The evil design, however, has been known to all concerned for decades. Yet remedial measures have been few and far between. Among all the relevant agencies, the NBR should have taken the lead in addressing the evasion issue that hurts it solely. But for reasons of lack of manpower and logistics--- the scrutiny of financials submitted with thousands of tax returns does require expert hands--- the tax authorities, possibly, could not do its job properly. However, irregular practices by a section of unscrupulous taxmen cannot be ruled out.
Though belated, a solution to the problem is in sight. The ICAB has introduced a process called 'Document Verification System (DVS) lately and the NBR will be able to examine the authenticity of the financial reports through its application. Not just, NBR, other regulatory bodies in the financial sector, including the Bangladesh Bank, the Financial Reporting Council and the Bangladesh Securities and Exchange Commission (BSEC), will also be able to examine the genuineness of financial reports by following certain procedures.
The NBR is now thinking loudly to make the submission of DVS-authenticated financial reports by the companies and firms mandatory. The Board is unlikely to face any legal complexities while doing so as a provision favouring it was incorporated in the Income Tax law in 2018. If the mandatory provision is complied with by the companies and the audit firms remain true to their professional honesty and integrity, the corporate tax revenue receipt for the government is bound to go up, substantially.
The mandatory annual return submission to the RJSC&F remains yet another weak point. Only a small percentage of companies and firms do usually submit their annual returns. What is more distressing is that the financial reports that accompany the returns, in most cases, are fake or doctored ones. The regulatory body concerned is aware of all these, but it is yet to devise any means to stop it.
Country's tax-GDP ratio, annoyingly, has been one of the lowest in the region for many years. There has to be a notable change in the situation to help reduce its dependence on the outsiders' money for its development.