Introducing a pro-taxpayer revenue regime

Establishing a pro-taxpayer environment in an emerging economy like Bangladesh, where tax-GDP ratio is hovering at around 10-11 point, requires a very close review of existing rules and regulations one by one, if not word for word. If these regulations have to be effectively enforceable, prudently practised, impartially implemented in a free and democratic environment unlike in past colonial regime, it has to be under a fitting public law. Appropriate ownership has to be established for each item of law. The reform should not be limited to reducing or introducing new taxes, but geared to making the tax code simpler, fairer and better equipped to promote economic growth.
Any proposal would have to be revenue-neutral. Rules should not be framed only for the 'ruled' and also not to harass the innocent and ignorant, should not be a tool for applying discretionary power by the enforcement officials, but be applicable to all indiscriminately. Global good practices should not only be incorporated in the reorganised law, but suggestions have also to be taken from the stakeholders. It has been appropriately argued that the reorganisation proposals be made in stakeholders' vernacular (in Bangla) for their better comprehension and suggestion for modifications.  It has to be simple, comprehensible, leaving no scope for misinterpretation but enough scope for adequate remedy. The mindsets of tax collector and payer must be pro-revenue and provisions of tax law should be digestible and implementable across the board.
A sound tax system is one that removes complexity, limiting collection points for taxation,  making the system more transparent and encouraging the public so much that everyone pays what they owe and feel at ease under the system. An economically neutral tax is unbiased across the spectrum of economic activities. A tax system is transparent to taxpayers if it is clear how much the government is costing them and who is paying for what. Without transparency, the public are not able to accurately asses how their money is being spent and thus are not able to hold their representatives appropriately responsible. Equal opportunity, not equality of outcomes, should be the linchpin of any tax system. The tax system shouldn't be manipulated into an instrument of wealth redistribution or social engineering. A tax system shouldn't be gratuitously complicated beyond what is required.
To be sound, a tax system must be economically efficient, logistically economical and inflicting as little damage as possible to the economy. Every tax system distorts economic decisions and leads to less economic activity than otherwise would occur, resulting in what economists call "deadweight loss." A sound tax system should be designed to minimise these losses. It should impose the smallest possible compliance costs on taxpayers otherwise people will not be encouraged to pay tax, rather they will be inclined to evade tax. Every tax system imposes direct costs on taxpayers in terms of time devoted to tax preparation or money to buy the services of CPA's. Ultimately, every tax system diverts a portion of tax revenues raised to pay the cost of administering and collecting tax and enforcing its provisions. A sound tax system would minimise these costs.
A nation's tax system is often a reflection of its communal values or the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of tax burden-who will pay taxes and how much they will pay-and how the taxes collected will be spent. In democratic nations where the public elect those in charge of establishing the tax system, these choices reflect the type of community that the public wishes to create. In countries where the public do not have a significant amount of influence over the system of taxation, that system may be more of a reflection on the values of those in power.
Debates about taxes usually devolve into "the wealthy can afford it" or "it is unfair to be taxed so harshly". Neither argument has merit. Tax the wealthy too harshly, and they will stop creating wealth. Tax them too leniently, society will either be unable to govern itself, or the rest of society will be so harshly taxed that it will rebel. It is entirely a matter of practicality. Fairness never enters into it. As pundits of the past have put it "If you know the position a person takes on taxes, you can tell their whole philosophy.  The tax code, once you get to know it, embodies all the essence of life:  greed, politics, power, goodness and charity."
A sound tax system should rest on four principles: first, pay what you owe. An economically neutral tax regime is unbiased across the spectrum of economic activities. Removing complexity and limiting the collection points for taxation also make the system more transparent, making the public more certain that everyone is paying what they owe, and more comfortable with the fairness of the system. Second, a tax system is transparent to the taxpayers if it is clear how much the government is costing them (and who is paying for what). Without transparency, the public are not able to accurately asses how their money is being spent. Third, equality of opportunity should be the linchpin of our tax system. The tax system shouldn't be manipulated into an instrument of wealth redistribution or social engineering and or political vengeance. Fourth, a tax system shouldn't be gratuitously complicated beyond what is required.
To be sure, the most visible, fluid tax systems are the most neutral and simple. Just a little bit effort by the citizens should be required in paying taxes. This is a necessary evil. Otherwise, the government could do and take whatever it wanted. Citizens or voters have a minimal responsibility, if not civic duty, to participate in this, a fundamental component of democratic society.
Dr Muhammad Abdul Mazid, former Secretary to the Government of Bangladesh and former Chairman, NBR.
[email protected]