Expansion of source tax net: A trap for the non-taxable

Tax deducted at source (TDS) is a means of collection of income tax. It is gaining popularity across the world amid rising concern over tax evasion.  In the budget for the current fiscal year (FY) the National Board of Revenue (NBR) has expanded its TDS net on a large scale.
It remained a major source of revenue during the last few years. Intensified monitoring by the tax authorities also added pace to the growth of TDS, known as withholding tax in the taxmen's jargons.
The government has adopted strategies to cast wide the net of source tax to cover all the potential avenues to maximize collection of direct tax. AIT on interest amount of bank depositors, private car owners, and import bills has been among the major sources of direct tax in recent times. Tax authorities in Bangladesh adopted the strategies to boost tax revenue from tax at source following international best practices.
In the fiscal measures for 2014-15, the government has laid more focus on source-tax collection instead of bringing new taxpayers onto tax net through field visit. Such measures are deemed as an easy way of revenue collection with less effort.

This mode of advance income tax was first imposed on a small scale in 1922, when income tax came into force in this land. Back then, TDS was on two items only.
Thereafter, one more item was added in 1956 and two more in 1959. In 1984, an income-tax ordinance was enacted. It imposed tax at source on seven items. By July 1, 2014, more than 55 items had been brought under tax at source by the NBR.
There are 16 variable rates of tax at source, ranging from 0.10 to 25 per cent, in the income-tax ordinance.
In FY 2014-15, the NBR has imposed tax at source on life-insurance premium, increased it by two per cent on quick rentals, imposed at three per cent on commission and incentive bonus of travel agencies, one per cent on bills of oil refinery dealers (excluding petrol pump), three per cent on oil-refinery companies' bills, five per cent on interest of securities, three per cent on base-value of band-roll of VAT for bottled water, mobile-phone set, gold and silver imports.
In FY 2011-12, the government received Tk 94.71 billion as tax at source while the amount was Tk 24.50 billion collected from tax returns. In 2009-10, tax at source was Tk 88.12 billion.
Tax at source has been contributing around 53 per cent of the direct tax collection. It is increasing sharply with the innovative fiscal measures of the government. Tax officials target to collect the lion's share of taxes from source to minimise risk-factor on revenue leakage.  
A major part of source tax comes from different state-owned and private entities, banks and other commercial organisations. The government has empowered the entities to collect the tax from the taxpayers and deposit it with the national exchequer. In case of failure in depositing the tax-at-source money within the stipulated time, the NBR can impose penal taxes on them.
Under the existing income tax-rules, people having annual income below Tk 220,000 are exempt from payment of income tax. However, many of those people are forced to pay tax at sources which they cannot claim refund. Despite several commitments, the NBR is yet to ensure proper refund of the taxes paid in advance by those whose incomes are not taxable.
According to the income-tax law, the taxpayers should also get refund an excess part of their paid tax that was deducted at source. It is widely practised all over the world where net of tax at source is wide. Taxpayers get refund cheque, known as 'refund voucher', at their home from the government in a developed country.
Amid the existing mistrust between the taxpayers and taxmen, none of the marginal taxpayers does dare to seek refund of their paid taxes in fear of being harassed by taxmen. Taxpayers usually try to avoid tax offices. We can realise the fact when we see a huge rush of taxpayers in the annual tax-fair for submission of tax returns. Many of taxpayers do not feel comfortable to visit tax offices for seeking tax refund due to several evidences of harassment by the officials of the tax offices.
With the expansion of the net of tax at source it becomes imperative to introduce an effective refund system. Taxing at source seems regressive for the poor. Both poor and rich people, irrespective of taxpayers and non-taxpayers, have to pay it. Retired persons, senior citizens and housewives are also subject to paying the source tax with the bank deposits and saving instruments. Majority of them do not have taxable income or tax files to seek refund of the paid tax.
It is true that tax culture is yet to develop in Bangladesh with a poor tax-GDP growth at 10 per cent. But, a section of well-off people remained out of reach of the taxmen. Corrupt practice and nexus between taxmen and taxpayers are the major reasons for this. Innocent people are paying toll for the irregularities.
According to NBR estimates, around 64 per cent of the total AIT comes from import of products, contractors' bills and bank deposits and saving tools. There are more than 50 million bank depositors who are paying tax at source at 10 per cent or 15 per cent rate. All of the bank depositors do not have the taxable income. To ensure justice to them, there is no alternative to introduction of tax-refund system. Last year, an influential quarter of people, around 300 salaried taxpayers, got refund of their paid income tax. The collection of advance tax would be popular and gain pace if such refund system can be made available for general people.    
The writer is Special Correspondent at the FE. She can  be reached at:
[email protected]