On forming an independent revenue commission

Atiqul Kabir Tuhin | Published: January 15, 2025 20:06:31

Since its establishment in 1972, the National Board of Revenue (NBR) has been tasked with the dual responsibility of formulating revenue policy and enforcing its implementation. This inherent conflict of interest has led to various limitations, distortions, and shortcomings in revenue administration. Recognising these challenges, the NBR Reform Committee, formed by the interim government, recommended separating these two critical functions. To this end, it has been proposed that an independent revenue commission under the Ministry of Finance be formed to assume the responsibility for policymaking in consultation with stakeholders, while the NBR will solely focus on revenue collection.
Bangladesh's current revenue policy is not considered to be in line with international best practices, particularly in terms of attracting foreign investment, augmenting revenue collection, and ensuring socio-economic justice. A good tax system is characterised by low tax rates, minimal exemptions and waivers, a broad tax base, low commercial and consumption taxes, a progressive income tax structure, and the avoidance of double taxation. Significant shortcomings are evident in Bangladesh's current tax system when compared to the international standards.
Revenue policy and revenue collection have crucial roles to play in ensuring macroeconomic stability and sustainable development. However, Bangladesh has long been struggling to optimise revenue collection and ensure hassle-free tax-related services for taxpayers. Allegations abound that the NBR, tasked with both policymaking and policy enforcement, faces inherent conflicts of interest. These conflicts have reportedly led to compromises in policy formulation and enforcement, fostering an environment where corruption and various irregularities rule the roost.
For example, income tax officers of the NBR are responsible for tax assessments according to the Income Tax Act 2023. They are the primary implementing authority of the Income Tax Act. Meanwhile, formulation of this law was also undertaken by income tax officers themselves, presenting an inherent conflict of interest. Conflict arises from the fact that the very individuals tasked with implementing the policy are also the architects of the policy itself! This dynamic raises concerns about the likelihood of policy decisions being influenced by self-interest rather than an objective assessment of what is in the best interest of the general public and the nation. There are widespread allegations that a significant number of income tax officers exploit their authority in tax assessment for personal benefit. The absence of a robust system of checks and balances allows and encourages these officers to engage in questionable practices without accountability.
It is worth noting that in 2008, the then caretaker government had issued a directive to separate tax administration from policymaking. But, unfortunately, it was not implemented by the subsequent Awami League government. Before that, in 1979, steps were taken to separate tax administration from policymaking with the establishment of the Internal Resources Division (IRD). It was anticipated that, as per the government's allocation of business-1976, the tasks of tax collection, policy formulation and providing hassle-free public services to taxpayers would be carried out seamlessly under the division. However, this initiative fell short of its intended goals when the secretary of the IRD was concurrently appointed as Chairman of the NBR.
The NBR Reform Committee has recommended that the NBR be established as a separate department, headed by an officer of the rank of Secretary. The Chairman of the NBR will be appointed from within the NBR's senior officer cadre. The NBR's primary function will be to focus solely on revenue collection activities. And the NBR Chairman would directly report to the Finance Minister.
Meanwhile, the responsibility for formulating tax policy, including Income Tax, Value Added Tax (VAT), and Customs duties, will be transferred to an independent Revenue Policy Commission. Overall, the proposed revenue commission will help formulate revenue policy in light of the government's development policy, stakeholders' recommendations and international best practices. This Commission will be led by a Secretary-level officer and will be manned by skilled and experienced personnel from various revenue-related disciplines, including customs, VAT, and income tax.
To ensure comprehensive policy formulation, a Permanent Advisory Council will be established, comprising representatives from the Ministry of Finance, Ministry of Commerce, Ministry of Industry, the NBR, major business organisations, and reputed research institutions. This Council will meet at least four times a year to provide expert advice on fiscal policy matters.
Moreover, the NBR Reform Committee suggested that any fiscal policy adopted by the proposed Revenue Commission must be approved by the Standing Committee. It is noteworthy that, historically, the NBR has been responsible for making changes to the budget related to duties and taxes. The Reform Committee has recommended that this responsibility be transferred to the commission, which will also formulate the money bill.
Furthermore, the customs and taxation tribunals, currently under the NBR, will be transferred to the jurisdiction of the commission. As the taxation tribunals are operated under the NBR, there have been widespread concerns regarding the potential bias when revenue collectors are responsible for resolving revenue-related disputes. Separating tax and customs-related appellate tribunals from the NBR is expected to enhance the fairness and impartiality of the dispute-resolution process.
Overall, the separation of revenue collection from policymaking is expected to enhance the efficiency of both tax policy and revenue collection by reducing harassment and ensuring fairness. Experts, however, have cautioned that the proposed revenue commission should be headed not by a revenue official, but by someone who has good knowledge of the economy as well as experience in administration. And the commission head so appointed should take effective measures to enhance the NBR's capacity to utilise resources efficiently and increase the tax-to-GDP ratio.
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