Budgetary measures that require re-think

The national budget for the fiscal year 2014-15 and the Finance Bill 2014 placed recently by the finance minister are now the main topics of discussion for all stakeholders, especially the taxpayers all over the country. No doubt, certain proposals are realistic in the context of Bangladesh and these are: a) increasing individual tax threshold for women, physically and mentally challenged, wounded freedom fighters, b) maximum tax rate increased for individual to 30 per cent having income exceeding Tk 4.42 million (44.20 lakh), c) introducing 4 levels of rates in wealth surcharge, d) re-fixing turnover tax at 0.30 per cent, e) introduction of compliance with BAS (Bangladesh Auditing Standard) and BFRS (Bangladesh Financial Reporting Standard), f) collection of rent through bank account and, similarly, payment of rent through banks, g) extending time limit for tax holiday for certain industries to September 2019, h) introduction of tax on capital gain exceeding Tk 1.0 million (10 lakh) from transfer of shares by an individual, i) increasing and re-fixing withholding tax on transfer of immovable properties, j) increasing the limit of allowable perquisite to Tk 350,000, k) expanding the area of tax withholding, l) reintroducing exclusion of an assessee from an audit having an income higher by 20 per cent than that of the previous year, m) imposing penalty for false certification of financial statements, and n) making the transfer pricing cell of the National Board of Revenue (NBR) functional from July next. Although these steps were not enough, but still encouraging when it comes to simplification of tax systems, increase in revenue, equity concept and creation of a business-friendly environment.
On the other hand, certification of financial statements and specifically the turnover of an assessee not being a company is a good step but inclusion of cost and management accountants (CMAs) for conducting audit and certifying financial statements is absolutely a wrong step and not commensurate with any regional and global practice. The Institute of Chartered Accountants of Bangladesh (ICAB) was established in 1973 under a presidential order to regulate accounting and audit profession in the country while the Institute of Cost and Management Accountants of Bangladesh (ICMAB) was established in 1977 to regulate cost and management accounting profession. It is very important that objectives of the ICMAB Ordinance do not include any audit function. In addition, the syllabuses and, most importantly, the practical mandatory training of 3 years and many other areas are completely different from each other in the two institutes. It is well-recognised that the three-year articleship or practical auditing experience is a unique feature of CA profession as recognised worldwide. Cost accountants are allowed to do the cost audit but it should be kept in mind that cost audit and certifying financial statements are not the same thing. It will not be out of place to mention that a vested quarter is trying hard to involve CMAs in auditing. However, the area of certification by chartered accountants can be expanded to withholding tax, foreign and extraordinary payments, transactions among directors and group entities etc. This issue needs to be reviewed dispassionately.
Any kind of false certification of financial statements or any other documents obviously calls for imposition of penalty. A new clause has been introduced imposing penalty on any chartered accountant certifying any false statement. The preparation of a financial statement is the main responsibility of the management of the entity or the assessee. In such a situation, similar penalty should also be imposed on the management of the entity or assessee, apart from realisation of the due amount of tax.
Tax on insurance money: A new clause has been there imposing withholding tax at the rate of 5.0 per cent on an amount paid for any life insurance policy in excess of the accumulated premium paid. This is a discouraging step. The middle and limited income group people will not go for savings and investment. Furthermore, the people have apathy towards life insurance. Currently the life insurance coverage for people is far low than expected. In such a situation, such a measure will obviously discourage small savers and investors to hold any life insurance policy and resultantly the life insurance companies will be affected.
No steps appear to have been taken to reduce the discretionary powers of assessing officers and, as a result, corruption by the assessing officers and the hassle facing taxpayers will remain as usual. Very often the assessing officers reject the audited accounts on one pretext or other without any justification and determine the taxable income at an arbitrary and excessive level. Selection of files for audit is not a methodical or scientific process and, as a result, the assessing officers pick up the files as they wish leaving a scope for corruption and harassment of targeted persons. Bank accounts are very often attached without completing the due process and proving the assessee a defaulter as the tax laws. Similarly, very often files are reopened at the will of the assessing officers without applying the due process of selection. This should not be allowed to continue. Any action taken by the assessing officers must be supported by clear-cut evidence, strong justification and reasons.
The appointment of a judicial member in each bench of the tribunal in the tax department has not been considered. It is a long standing demand of the taxpayers and consultants, who favour more judicious and transparent practices. Tribunal members are appointed mostly from the commissioners of taxes raising the question about their independence. In such a situation, a fair judgment can hardly be expected. Furthermore, the tribunal being the highest authority and a quasi-judicial body in the tax department, the matters raised to them should be of legal nature than fact-finding ones. But unfortunately, many decisions issued by the tribunal are almost similar in nature and basically in line with decisions given by the tax authority. In essence, to ensure its neutrality and fairness, the tribunal should include one independent person from outside the tax department and especially a judicial member having legal expertise.
In view of the bottlenecks in our taxation system, people's apathy towards payment of tax, poor tax-GDP ratio, reducing corruption and sufferings of the genuine taxpayers, developing a good relationship between the taxpayers and collectors (as opposed to existence of mistrust in many cases), lack of adequate manpower with required expertise, a weak tax administration structure in terms of close monitoring and application of fair judgment and many other related issues, the budget proposals need further review, not to speak of total reforms of the taxation system.
The writer is a chartered              accountant and partner of Hoda Vasi Chowdhury & Co.                         abutaher011@gmail.com