Augmenting tax revenues, promoting transparency in public expenditure

The findings of a study by Transparency International, Bangladesh (TIB) about the extent of tax evasion or defalcation of tax-related fund, serve as a useful indicator of the state of affairs about the tax administration in Bangladesh. These are not startling by themselves but are, nonetheless, important to gauge the depth of the problem. Thus, according to the TIB, an amount of Taka 210 billion -- about 2.8 per cent of the national income and one-third of the tax revenues collected in fiscal 2009-10 -- was lost from tax evasion or defalcation activities. The findings of the related TIB study were disclosed at a roundtable discussion in the capital city last Wednesday. The amount would otherwise show the extent of the loss to the public exchequer from such evasive and defalcating activities. There are several factors - which are neither unknown to most people - that have been contributing to this process of tax evasion and defalcation since long. In-built institutional weaknesses in the taxation machinery are largely responsible for this. In this connection, the example of the value added tax (VAT) that has emerged as a major source of revenues during the last two decades, can be cited here. The VAT offices are present only in about half of the country's districts; it means that government is losing so much revenues from the sheer lack of the presence of its taxation officials over vast areas where various income-earning enterprises have cropped up. Even in the areas where the taxation departments have an existence, there is noted a serious dearth of personnel to run the same. The National Board of Revenue (NBR) could not recruit competent and qualified new hands until recently for any post for a considerable period of time due to court cases. Notwithstanding all its claims about moving forward with its programmes for automation and e-governance, the NBR has not yet made much progress on this count. There are some reasons to doubt NBR's real intention about doing such things at the desired speed because of the vested interests within this organisation who fear that automation and e-governance would not conform to their long-practised 'palm-greasing' habit. An appropriate reward structure to motivate the well-intentioned employees has not also been put in place. The incentive measures that are now there, are alleged only to harass the genuine tax-payers in many cases. Furthermore, a well-functioning mechanism to find tax dodgers and bring them under the taxation net without undue harassments, is still largely absent. As a result, government's tax revenue collections have not been increasing at least to the extent that matches its rising expenditures for administrative and developmental activities. And the tax: gross domestic product (GDP) ratio remains in Bangladesh at one of the lowest levels not only in South Asia but also among the comparable developing countries across the world. Under such circumstances, government does hardly have any option other than gearing up its taxation drive to garner enough domestic resources in support of its budget-making activities and plans for expenditures, both of recurring and developmental nature. The quality of public expenditure and also that of public service delivery arrangements as much as the efficiency of development spending, are different matters here, though these cannot be relegated to the background, if the government is to make a strong and convincing case for stepping up its drive for tax revenue collections. Both actual and potential tax payers will be more encouraged to pay taxes properly when they can see for themselves that the tax revenues, collected by the government through the sacrifices made by them, are being spent well for their benefits. A culture of tax-compliance also develops from a hassle-free environment. Therefore, the government needs to pay proper attention to all such areas, while making unflagging efforts for raising tax revenue collections.