Expanding the taxation base
Saturday, 20 September 2008
The national income tax day was observed recently. The National Board of Revenue (NBR) honoured, for the first time, 316 top taxpayers of the country, on the occasion. This has been a refreshing move aimed to inspire all categories of taxpayers that they can feel good about themselves from fulfilling their national duty of paying taxes. The collection of such taxes can, of course, be translated into economic benefits for the nation, if the amounts thereof are properly spent by the government. This is a country of 150 million people with a fairly large number of them belonging to the very rich and rich class and also with a upper middle class of a sizeable proportion. But not many of those, despite having the ability to pay income tax, do presently pay such taxes or even if they pay, they do so in many cases not proportionately compared to their wealth or income. Indeed, a very large number of those, enjoying income far above the tax-exempted limit, do not have any Tax Identification Number (TIN) at all.
Under such circumstances, there is, indeed, some strong justification for carrying out an effective drive in a persuasive but determined way while avoiding extreme coercive methods, as far as practicable, for bringing those people not paying taxes, despite having taxable income, under the tax network, and also inducing those, who pay taxes very leniently, to make due and proper payments thereof. This whole process needs to be largely one of psychological motivation. Of course, arm-twisting can lead to tax dodgers taking a fright and paying off their dues out of fear, as was witnessed last year. But squeezing cannot be considered a regular activity; it is unlikely to yield sustainable results either. The best results in taxation can be obtained when the economy is invigorated by appropriate policies and measures of the government and the potential taxpayers are rightly motivated and not unnecessarily coerced to pay their taxes from their free will to do so.
The other side to expanding the taxation base in the Bangladesh context involves the setting up of institutional capacities of all tax-related developments like those of value added tax, customs etc. Both those departments do require a shot in the arm to help streamline the overall tax administration. In matters of direct taxes that mostly relate to income, the drive for collecting such taxes has to be carried in a consistent manner, making all concerned fully aware of the benefits of making use of the tax-paid amount of their income in an uninhibited way for accumulation of wealth, making of investments and addition of assets. Undisclosed money, even though not otherwise tainted by corruption, carries the risks of facing difficulties in finding outlets for making investments and accumulating wealth in legitimate ways. This has to be understood by all concerned. If that is appreciated in right earnest, there will be more inducements for tax compliance.
Meanwhile, the taxation departments should concentrate their activities on the big tax dodgers, for fairness and economic and social justice. Having stated this, it is also important to note here that many people will probably not mind paying their taxes when they see that government uses their tax money well or provides proportionate services to justify the taxation. As it is, the spectacles of misuse, abuse and waste of public resources are not helping to establish the perception of taxation leading to improvements in the services delivery of the government. People are likely to feel more persuaded or morally troubled -- if they do not pay taxes -- to go ahead and pay the same, when they would find the government bodies spending the resources obtained from taxation truly efficiently and scrupulously.
Under such circumstances, there is, indeed, some strong justification for carrying out an effective drive in a persuasive but determined way while avoiding extreme coercive methods, as far as practicable, for bringing those people not paying taxes, despite having taxable income, under the tax network, and also inducing those, who pay taxes very leniently, to make due and proper payments thereof. This whole process needs to be largely one of psychological motivation. Of course, arm-twisting can lead to tax dodgers taking a fright and paying off their dues out of fear, as was witnessed last year. But squeezing cannot be considered a regular activity; it is unlikely to yield sustainable results either. The best results in taxation can be obtained when the economy is invigorated by appropriate policies and measures of the government and the potential taxpayers are rightly motivated and not unnecessarily coerced to pay their taxes from their free will to do so.
The other side to expanding the taxation base in the Bangladesh context involves the setting up of institutional capacities of all tax-related developments like those of value added tax, customs etc. Both those departments do require a shot in the arm to help streamline the overall tax administration. In matters of direct taxes that mostly relate to income, the drive for collecting such taxes has to be carried in a consistent manner, making all concerned fully aware of the benefits of making use of the tax-paid amount of their income in an uninhibited way for accumulation of wealth, making of investments and addition of assets. Undisclosed money, even though not otherwise tainted by corruption, carries the risks of facing difficulties in finding outlets for making investments and accumulating wealth in legitimate ways. This has to be understood by all concerned. If that is appreciated in right earnest, there will be more inducements for tax compliance.
Meanwhile, the taxation departments should concentrate their activities on the big tax dodgers, for fairness and economic and social justice. Having stated this, it is also important to note here that many people will probably not mind paying their taxes when they see that government uses their tax money well or provides proportionate services to justify the taxation. As it is, the spectacles of misuse, abuse and waste of public resources are not helping to establish the perception of taxation leading to improvements in the services delivery of the government. People are likely to feel more persuaded or morally troubled -- if they do not pay taxes -- to go ahead and pay the same, when they would find the government bodies spending the resources obtained from taxation truly efficiently and scrupulously.