Injudicious use of discretionary power
Monday, 8 February 2010
Shamsul Huq Zahid
In Bangladesh conditions, giving someone the discretionary power tends to create more problems than resolving the same. This has again been proved in the area of taxation.
The taxpayers for long had been grumbling about the discretionary powers given to some tax officials, who were widely accused of abusing such power to harass the former. Such allegation was not unfounded. Riding on their discretionary power, mid-level tax officials in many cases used to create lots of hassles for the taxpayers.
In the face of demand from the trade bodies to reduce the discretionary powers, basically enjoyed by the deputy commissioner of taxes (DCTs), the government in 2007 introduced the universal self-assessment system replacing the self-assessed submission of returns to encourage voluntary filing of actual taxable income. The then chairman of the National Board of Revenue (NBR) had made a promise that such tax returns would be accepted without question.
While curtailing the discretionary power of the tax officials concerned under the universal self-assessment system, the government decided to leave the filing of returns at the discretion of the taxpayers. If not in the case of small taxpayers, the generous offer of the NBR has backfired as far as large taxpayers are concerned.
Not many taxpayers had availed themselves of the new system in 2007 when it was introduced mainly because of lack of understanding. The situation, however, changed radically in the next two assessment years. Almost all the individual tax returns, nearly 90 per cent, were submitted under new system.
But tax officials detected widespread abuse of the new system, particularly by some of the large taxpayers. Many of these taxpayers in their returns showed either abnormal decline in income or no taxable income, compared to the previous years without any logical reasons. Being assured that that their returns would be accepted without any question, these taxpayers reported unreasonable losses in annual income, higher investments making no logical explanation on source of funds etc.
For instance, nearly 60 directors of banks, insurance companies and leasing companies filed 'nil' tax returns in the fiscal 2008-09, showing their income below the taxable limit of Tk. 0.165 million (165,000)!
This is how even the wealthy people make the best use of every opportunity to conceal facts and deprive the government of even a minimum amount of tax. How can banks and insurance company directors do not have taxable income when investigation would reveal that even their car drivers-some of the large taxpayers have even more than one car-- do have taxable income?
Alarmed by such deliberate tax evasion, particularly by large taxpayers, according to a report published in the FE last week, the NBR had issued a letter to all tax offices to provide a list of suspected tax evaders. But in the face of resistance from the taxpayers, the Board had to withdraw the letter. The taxpayers reminded the government of its promise that it would accept the returns without any question.
In such a situation the NBR has decided to avail itself of a provision in the tax ordinance of 1984 to examine the tax returns of some big fishes, who have tried to evade taxes taking advantage of a system designed to encourage honest disclosure by the assesses.
The clause 88bb(3) of the said ordinance provides for auditing of selective returns filed under the universal self-assessment system.
Under the provision, the NBR has decided to scrutinize tax returns of some selected assesses who are suspected to have evaded tax. The NBR does need to conduct necessary investigation into these tax returns and punish the taxpayers concerned according to the law. They should not succumb to any kind of pressure from influential quarters. And the finance ministry must see to it that these tax evaders who are wealthy enough to contribute to the public exchequer are punished adequately. If the government fails to ensure that it would be doing injustice to mid-level officials serving in corporate houses and banks, insurance companies and other private offices. Their management deducts tax from their salary every month. Injustice would also be done to other honest taxpayers.
Bangladesh, in fact, has the lowest tax-GDP ratio in South Asia region. In the year 2008, against the South Asian average of 13.5 per cent tax-GDP ratio, Bangladesh had ratio of 8.5 per cent. Even Bhutan and Nepal had higher ratios of 10.7 and 10.9.
The number of individual taxpayers is very low in Bangladesh compared to its large population. Of the total 1502706 assesses in 2007-08, there were 2,99,751 salaried and 1161,295 other assesses. Only 41,660 corporate entities representing only 2.8 per cent of the total assesses contributed nearly 60 per cent of the income tax in the year 2007-08. There remains vast scope to increase the number of both individual and corporate taxpayers. Side by side with the efforts for raising the number of taxpayers, there is a strong need for changing the mind set of both taxmen and taxpayers.
The tax officials do need to understand that the taxpayers are paying their hard earned money as his/her obligation to the State. Collectively, they might be getting some benefit out of such payment. But, at the individual level, he would not be getting anything from the State. Moreover, there are lots of questions about the efficient use of the taxpayers' money by the government. The resentment is quite strong among the taxpayers who have moderate level of earnings. But unfortunately, the rate of tax evasion is far greater among the corporate entities, generally the unlisted ones, and affluent sections of the taxpayers. So, transparent and efficient use of taxpayers' money is an important issue that needs to be addressed by whoever remains at the helm of the statecraft.
.............................................
Zahidmar10@yahoo.com
In Bangladesh conditions, giving someone the discretionary power tends to create more problems than resolving the same. This has again been proved in the area of taxation.
The taxpayers for long had been grumbling about the discretionary powers given to some tax officials, who were widely accused of abusing such power to harass the former. Such allegation was not unfounded. Riding on their discretionary power, mid-level tax officials in many cases used to create lots of hassles for the taxpayers.
In the face of demand from the trade bodies to reduce the discretionary powers, basically enjoyed by the deputy commissioner of taxes (DCTs), the government in 2007 introduced the universal self-assessment system replacing the self-assessed submission of returns to encourage voluntary filing of actual taxable income. The then chairman of the National Board of Revenue (NBR) had made a promise that such tax returns would be accepted without question.
While curtailing the discretionary power of the tax officials concerned under the universal self-assessment system, the government decided to leave the filing of returns at the discretion of the taxpayers. If not in the case of small taxpayers, the generous offer of the NBR has backfired as far as large taxpayers are concerned.
Not many taxpayers had availed themselves of the new system in 2007 when it was introduced mainly because of lack of understanding. The situation, however, changed radically in the next two assessment years. Almost all the individual tax returns, nearly 90 per cent, were submitted under new system.
But tax officials detected widespread abuse of the new system, particularly by some of the large taxpayers. Many of these taxpayers in their returns showed either abnormal decline in income or no taxable income, compared to the previous years without any logical reasons. Being assured that that their returns would be accepted without any question, these taxpayers reported unreasonable losses in annual income, higher investments making no logical explanation on source of funds etc.
For instance, nearly 60 directors of banks, insurance companies and leasing companies filed 'nil' tax returns in the fiscal 2008-09, showing their income below the taxable limit of Tk. 0.165 million (165,000)!
This is how even the wealthy people make the best use of every opportunity to conceal facts and deprive the government of even a minimum amount of tax. How can banks and insurance company directors do not have taxable income when investigation would reveal that even their car drivers-some of the large taxpayers have even more than one car-- do have taxable income?
Alarmed by such deliberate tax evasion, particularly by large taxpayers, according to a report published in the FE last week, the NBR had issued a letter to all tax offices to provide a list of suspected tax evaders. But in the face of resistance from the taxpayers, the Board had to withdraw the letter. The taxpayers reminded the government of its promise that it would accept the returns without any question.
In such a situation the NBR has decided to avail itself of a provision in the tax ordinance of 1984 to examine the tax returns of some big fishes, who have tried to evade taxes taking advantage of a system designed to encourage honest disclosure by the assesses.
The clause 88bb(3) of the said ordinance provides for auditing of selective returns filed under the universal self-assessment system.
Under the provision, the NBR has decided to scrutinize tax returns of some selected assesses who are suspected to have evaded tax. The NBR does need to conduct necessary investigation into these tax returns and punish the taxpayers concerned according to the law. They should not succumb to any kind of pressure from influential quarters. And the finance ministry must see to it that these tax evaders who are wealthy enough to contribute to the public exchequer are punished adequately. If the government fails to ensure that it would be doing injustice to mid-level officials serving in corporate houses and banks, insurance companies and other private offices. Their management deducts tax from their salary every month. Injustice would also be done to other honest taxpayers.
Bangladesh, in fact, has the lowest tax-GDP ratio in South Asia region. In the year 2008, against the South Asian average of 13.5 per cent tax-GDP ratio, Bangladesh had ratio of 8.5 per cent. Even Bhutan and Nepal had higher ratios of 10.7 and 10.9.
The number of individual taxpayers is very low in Bangladesh compared to its large population. Of the total 1502706 assesses in 2007-08, there were 2,99,751 salaried and 1161,295 other assesses. Only 41,660 corporate entities representing only 2.8 per cent of the total assesses contributed nearly 60 per cent of the income tax in the year 2007-08. There remains vast scope to increase the number of both individual and corporate taxpayers. Side by side with the efforts for raising the number of taxpayers, there is a strong need for changing the mind set of both taxmen and taxpayers.
The tax officials do need to understand that the taxpayers are paying their hard earned money as his/her obligation to the State. Collectively, they might be getting some benefit out of such payment. But, at the individual level, he would not be getting anything from the State. Moreover, there are lots of questions about the efficient use of the taxpayers' money by the government. The resentment is quite strong among the taxpayers who have moderate level of earnings. But unfortunately, the rate of tax evasion is far greater among the corporate entities, generally the unlisted ones, and affluent sections of the taxpayers. So, transparent and efficient use of taxpayers' money is an important issue that needs to be addressed by whoever remains at the helm of the statecraft.
.............................................
Zahidmar10@yahoo.com