The avoidance of double taxation agreements (DTAs) of Bangladesh do not sufficiently empower the taxmen to seek information on capital flight and owners of 'second homes' from relevant foreign countries.
The section 'Exchange of Information' of the agreements needs necessary revision enabling the government to seek required information from the countries identified as potential zones for flight of undisclosed money from Bangladesh, taxmen said.
Bangladesh has so far signed DTAs with 32 countries.
"The DTA is a deal between two countries seeking to avoid double taxation by defining the taxing rights of each country with regard to cross-border flows of income and providing for tax credits or exemptions to eliminate double taxation," according to the Income Tax Policy.
The DTA mainly focuses on protecting the citizens of a country from paying tax twice in their home country or the other country. The DTA also has provisions on 'exchange of information' between treaty partners regarding evasion of tax.
After a scrutiny of the existing agreements, this correspondent found most of the DTAs at least one or two decades old.
Among the countries, Malaysia, Canada, the UAE and Switzerland have been identified as vulnerable zone for the flight of undisclosed money from Bangladesh.
Bangladesh signed DTA with Malaysia in 1982.
According to an unofficial source, there are more than 10,000 Bangladeshi 'second home' owners in Malaysia.
The DTA with Canada came into effect in 1983. Canada has also been marked as the most popular destination for transferring undisclosed funds by Bangladeshis.
Bangladesh signed DTA with Switzerland in 2007 while with the UAE in 2012, the USA in 2006, the KSA in 2011, Singapore in 1980 and India 1992.
Tax officials said the agreements need to be updated following the trend of recent years in shifting undisclosed money from Bangladesh. They said the trend of capital flight got a boost following the crackdown by the caretaker regime in 2007-08 periods.
A senior tax official said the agreements need a thorough revision in line with the recent trends on illegal transfer of a large volume of money to other countries.
Many countries have signed 'tax information sharing agreements' with each other to know details of their respective taxpayers investing or working in other countries, he said.
The USA has a law named 'Foreign Account Tax Compliance Act' through which its revenue department can get US taxpayers' information from banks in other countries. Recently, the National Board of Revenue (NBR) formed a four-member committee to find out persons who have transferred their undisclosed money in other countries and owned 'second homes'.
The committee is scheduled to submit a work plan on how to prepare a list of such persons by one month.
Earlier, the NBR Chairman also vowed to trace the taxpayers who have investment or 'second homes' in other countries. He asked for scrutinising tax payment status of those persons in Bangladesh.
Former income tax policy member Syed Aminul Karim, said, under the existing DTA, taxmen can seek information of a particular taxpayer or person from other country.
"Taxmen, however, cannot seek detailed information or know the class of persons from other countries under the agreement," he said.
He said neigbouring country India has already revised its agreements relating to information-sharing under the DTAs.
Mr Karim said the existing DTAs need amendment to seek detailed information to trace persons involved in capital flight.
He, however, said exchange of information on terrorist financing is easier under the current agreements.
Tax officials said amendment of DTA is a time-consuming task that needs bilateral discussion with the countries concerned.
They said foreign countries are unlikely to share the required information on a 'class of people' or 'second home' owners with the taxmen under the existing agreements.
There is no official figure on volume of capital flight from Bangladesh. A United Nations Development Programme (UNDP) study, however, claimed that Bangladesh lost on an average US$800 million annually in capital flight during the last four decades, driven by balance of payment leakages, dubious trade invoicing and unreported remittances.
Also, a recent report of the Swiss National Bank revealed that Bangladeshis have around Tk 30 billion deposit in Swiss banks.
Bank deposits by the Bangladeshi nationals in Swiss banks recorded a 62 per cent increase in 2013.
Bangladesh signed with Switzerland a DTA in 2007 under which a section titled 'exchange of information,' Article 25, says Bangladesh can seek information on a specific person which would be kept confidential.
"In no case shall the provisions of this Article be construed as imposing upon either contracting state the obligation to carry out administrative measures at variance with the regulations and practice of either contracting state or which would be contrary to its sovereignty, security or public policy or to supply particulars which are not procurable under its own laws or those of the state making the application," the DTA with Switzerland said.
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