Tax burden unevenly distributed

FE Team | Published: August 04, 2024 21:57:31

Tax evasion has been a chronic malaise severely affecting Bangladesh's economy. Despite numerous attempts to address the issue of tax avoidance and evasion, the problem persists stubbornly. The gravity of the situation is evident from a study by the Centre for Policy Dialogue (CPD), which estimates that annual tax evasion and avoidance in the corporate sector alone cost the national exchequer a staggering Tk 2,930 billion. Additionally, the burden of widespread tax dodging disproportionately falls on honest taxpayers. Those who comply with tax regulations and pay their fair share find themselves shouldering an ever-increasing tax burden. The recently released annual report from the National Board of Revenue (NBR) for the fiscal year 2020-21 shows that a mere 2.8 per cent of total individual taxpayers are responsible for a staggering 30.6 per cent of direct income taxes. This shows that 89,290 taxpayers are responsible for one-third of the individual taxes, each paying an average of Tk 220,000 annually. Most of these taxpayers fall within the highest tax bracket of 25 per cent.
NBR data further reveal that people with annual incomes above Tk 1.6 million pay taxes at the rate of 25 per cent, while those earning around Tk 30,000 per month are required to pay taxes at the minimum rate. This progressive tax structure is intended to ensure that higher earners pay a larger share of their income in taxes. However, the effectiveness of this system is undermined by widespread tax evasion and underreporting of income. As the NBR study surprisingly shows, contractors, who have their taxes automatically deducted, are currently the top taxpayers. This is indicative of the broader issue of tax evasion in professions where payments are made in cash, allowing for significant underreporting of income. Salaried employees, whose taxes are also deducted at source, have limited scopes to evade taxes. Their income is accurately reported and taxed, leaving little room for manipulation. In stark contrast, professionals such as doctors, lawyers, politicians, YouTubers, TikTokers, traders, and social media influencers often manage to evade taxes despite earning fat amounts. These individuals typically receive income through various channels, including cash payments, digital transactions, and direct transfers, which can be more easily concealed or underreported.
Moreover, Bangladesh has a narrow tax base, which is particularly evident in the disproportionately small number of direct taxpayers relative to its population of 170 million. There are over 10 million registered taxpayers, but nearly 59 per cent of these individuals did not file tax returns in the just-concluded fiscal year of 2023-24. Moreover, taxpayers are primarily concentrated in urban centres like Dhaka and Chattogram, leaving vast segments of sub-urban and rural businesses unaccounted for in tax collections. Against this backdrop, it is imperative for the government to develop effective measures to combat tax evasion and widen the tax net.
Dr. Ahsan H Mansur, Executive Director of the Policy Research Institute, has rightly observed that the tax administration needs to be strengthened through digitisation, automation, and capacity building. Presently, tax collection heavily relies on traditional methods, involving face-to-face interactions between taxpayers and revenue officers. This antiquated method must be done away with in favour of a modernised system found in developed countries, which facilitates tax payment via electronic means by eliminating manipulation and corruption. By ensuring that all eligible individuals and entities pay their fair share, the tax system can become more equitable and effective, benefiting society as a whole.