Flaws in our revenue collection system
Sunday, 1 January 2012
Banks did not do well in 2011 due to various reasons. So there must be short-fall of government revenue collection from the banking sector. We do not know what will be the government's strategy to fulfill this shortfall. Like every other sectors, our revenue collection method is not flawless. We are yet to tap various sectors and there are gross flaws in our system. We believe the government is losing a huge amount of revenue every year due to such flaws.
We would like to put some light on some of the flaws and draw the attention of the government to remove the same so that the collections can be increased.
Tax on Rent Income: Everybody knows that in Bangladesh certain individuals/institutions do have a huge amount of rental income. We do not know whether the government has any data regarding how much rentals are being collected each year by certain individuals/institutions. Still cash is the preferred method of transaction by the lessor (owner) as by taking cash they can partially or fully hide this income from his tax statement. So, first of all, appropriate price of legislation should be enacted to restrict cash transaction in case of payment and receiving of rentals. Payment and receiving of rentals must be through account payee cheques.
It is also to be made mandatory to attach proofs of all rent payments through production of receipts (the government can also draft a standard format for that which may be the part of the act) from appropriate authority (owner/lessor). This way owner who denies issuing a receipt will be bound to issue the receipt. The receipt will have two parts where both parties (receiver and payer should sign).
It is also to be made mandatory to execute rental agreement in case of each such arrangement (rental) by law and this must be registered with the local authority (Commissioner's Office) with relevant information such as name of the parties to the agreement, lease period, monthly rent, date of payment, method of payment (this must be by account payee cheques by act and the bank particulars (bank name, branch name, address, account number of both the lessee and lessor etc). The relevant tax executive must cross-check both accounts (lessee and lessor). To catch hold of the tax evaders from rental receipts, this method would be very effective.
Tax identification number (TIN) must be made mandatory for each national irrespective of age. We have seen that in the developed counties social security number or social insurance number is given to every national immediately after birth. We are of the opinion that our tax identification numbers also must be made available upon birth. National Identity (ID) may also be tagged with this. This number may be renamed suitably and this unique number would be used for each administrative purpose. Be it school admission, tax payment, job application or casting votes everywhere this number must be used. So thereby in a digital Bangladesh we can tag all the accounts of an individual in different banks and financial institutions.
Currently, the people who want to start a business need to apply for trade licence. Immediately after getting the trade licences the person or company starts business. Now it is next to impossible to catch the person if he invades tax. Because he will never report his business transactions until he makes considerable amount of profit or he is tracked by the tax officer. So tax identification number has to be made mandatory before even issuance of a trade licence. In fact it should be a prerequisite to attach copy of TIN certificates for applying for trade license in the name of the proposed business concerns.
Tax return to be made mandatory for each individual of age 18: It should be made mandatory by law to have tax return filed for every individual of, and above, the age of 18. Even if he does not have any income he should also submit a statement of receipt and payment. We have seen there are various business concerns that do business under the very nose of the tax people but they do not file tax return or give any tax. No proper assessment is also done against them. If these businesses are brought within the purview of taxation, the government would not need foreign fund to finance the Padma Bridge.
Campaign against cash transaction: The government should, by law, restrict certain cash transaction. Because the root of corruption lies with cash transaction. Cash transaction is risky even. Potential risk of theft, hijacking etc., is associated with it. Apart from that, the general people should be banking-oriented and should develop savings habit. Therefore, transactions above a certain amount must be made through account payee cheques / pay orders/or demand drafts. It is often seen that garments owners pay salaries to their employees by cash. For this they need to carry cash to factory premises. This is the age of online banking. Most Bangladeshi banks are on-line now. The garments owners can advise their employees to open accounts with banks and at the time of salary payment, they can instruct the respective bank to transfer the amount to their employees' account. Some banks have already started this service to their clients under cash management services.
Money Receipt to be made mandatory: Money receipts against every payment / receipt to be made mandatory by law. Not only that to effectively implement this, vigilance by the tax authority to be enhanced. Sudden raids, verification of the compliance status and rigorous punishment for the defaulters have to be ensured. The cash register to be made mandatory in the shops, malls and other business houses where huge cash transactions are made. The use of debit card has also to be encouraged. Certain rebate for use of debit card can be given.
The writer can be reached at e-mail: nasim15@gmail.com
We would like to put some light on some of the flaws and draw the attention of the government to remove the same so that the collections can be increased.
Tax on Rent Income: Everybody knows that in Bangladesh certain individuals/institutions do have a huge amount of rental income. We do not know whether the government has any data regarding how much rentals are being collected each year by certain individuals/institutions. Still cash is the preferred method of transaction by the lessor (owner) as by taking cash they can partially or fully hide this income from his tax statement. So, first of all, appropriate price of legislation should be enacted to restrict cash transaction in case of payment and receiving of rentals. Payment and receiving of rentals must be through account payee cheques.
It is also to be made mandatory to attach proofs of all rent payments through production of receipts (the government can also draft a standard format for that which may be the part of the act) from appropriate authority (owner/lessor). This way owner who denies issuing a receipt will be bound to issue the receipt. The receipt will have two parts where both parties (receiver and payer should sign).
It is also to be made mandatory to execute rental agreement in case of each such arrangement (rental) by law and this must be registered with the local authority (Commissioner's Office) with relevant information such as name of the parties to the agreement, lease period, monthly rent, date of payment, method of payment (this must be by account payee cheques by act and the bank particulars (bank name, branch name, address, account number of both the lessee and lessor etc). The relevant tax executive must cross-check both accounts (lessee and lessor). To catch hold of the tax evaders from rental receipts, this method would be very effective.
Tax identification number (TIN) must be made mandatory for each national irrespective of age. We have seen that in the developed counties social security number or social insurance number is given to every national immediately after birth. We are of the opinion that our tax identification numbers also must be made available upon birth. National Identity (ID) may also be tagged with this. This number may be renamed suitably and this unique number would be used for each administrative purpose. Be it school admission, tax payment, job application or casting votes everywhere this number must be used. So thereby in a digital Bangladesh we can tag all the accounts of an individual in different banks and financial institutions.
Currently, the people who want to start a business need to apply for trade licence. Immediately after getting the trade licences the person or company starts business. Now it is next to impossible to catch the person if he invades tax. Because he will never report his business transactions until he makes considerable amount of profit or he is tracked by the tax officer. So tax identification number has to be made mandatory before even issuance of a trade licence. In fact it should be a prerequisite to attach copy of TIN certificates for applying for trade license in the name of the proposed business concerns.
Tax return to be made mandatory for each individual of age 18: It should be made mandatory by law to have tax return filed for every individual of, and above, the age of 18. Even if he does not have any income he should also submit a statement of receipt and payment. We have seen there are various business concerns that do business under the very nose of the tax people but they do not file tax return or give any tax. No proper assessment is also done against them. If these businesses are brought within the purview of taxation, the government would not need foreign fund to finance the Padma Bridge.
Campaign against cash transaction: The government should, by law, restrict certain cash transaction. Because the root of corruption lies with cash transaction. Cash transaction is risky even. Potential risk of theft, hijacking etc., is associated with it. Apart from that, the general people should be banking-oriented and should develop savings habit. Therefore, transactions above a certain amount must be made through account payee cheques / pay orders/or demand drafts. It is often seen that garments owners pay salaries to their employees by cash. For this they need to carry cash to factory premises. This is the age of online banking. Most Bangladeshi banks are on-line now. The garments owners can advise their employees to open accounts with banks and at the time of salary payment, they can instruct the respective bank to transfer the amount to their employees' account. Some banks have already started this service to their clients under cash management services.
Money Receipt to be made mandatory: Money receipts against every payment / receipt to be made mandatory by law. Not only that to effectively implement this, vigilance by the tax authority to be enhanced. Sudden raids, verification of the compliance status and rigorous punishment for the defaulters have to be ensured. The cash register to be made mandatory in the shops, malls and other business houses where huge cash transactions are made. The use of debit card has also to be encouraged. Certain rebate for use of debit card can be given.
The writer can be reached at e-mail: nasim15@gmail.com