New budget: A few proposals
Friday, 14 May 2010
Abu Sayed Md. Shaykhul Islam
The National Board of Revenue (NBR) is possibly now in the last stage of finalizing the tax proposals of the the national budget for the next fiscal. In order to feel the pulse of the business community, professionals and experts, it has organised several pre-budget discussions as usual. In the pre-budget discussions, a number of proposals and demands have been placed. The business associations and expert groups have also spoken up to protect their own interests but it is the responsibility of the government to ensure overall public interest.
The national budget reflects the economic philosophy of a government. It is well understood that a political government will not meet any demand which is contrary to its political ideology. As such, it will be good for the government if it does not entirely depend on the bureaucrats who do not have any accountability to the people. In this regard a political government may have a dedicated think tank under the leadership of the Finance Minister to fix up the main tax policies in line with its own economic targets and development agenda. But it appears that the fiscal policies are mainly being prepared by taxmen and due to obvious reasons, the exercise does not reflect the hopes and aspirations of the grassroots leaders and workers of the ruling party. Under the changed democratic environment, efforts may be taken to gradually change this practice.
The government servants often say that Bangladeshi taxpayers pay less taxes; but in reality, Bangladesh taxpayers pay more compared to the neighbouring countries including India and Pakistan. Statistics show that the commodity prices in India is much lower than Bangladesh and even then the personal tax in India is applicable when the income of an individual exceeds an amount equivalent to Bangladesh Taka 264,000. Under the present price situation, this should be considered as an urgent issue and addressed by the government to make the budget people-oriented.
National economy cannot move forward without creating enough jobs and increasing the purchasing power of the vast majority of the population. If the real income of the common people decreases how will the tax revenue increase? The democratic government may undertake meaningful researches by its own political wing and give directions to the NBR to prepare tax policies and techniques very tactfully so that the government's overall revenue earning increases on the one hand and, on the other, the majority people remain satisfied.
Nowhere in the world, people love to pay taxes. It is the law that compels the citizens to pay taxes. But the tax policies are made keeping in view the real public expenditure need as well as the welfare of the people. A people's government collects tax revenue keeping public interest in mind. It is true that the Government of Bangladesh now needs substantial amount of money for providing the desired public services and infrastructure developments. And under the changed global economic scenario, this money shall be raised internally. For this purpose, the democratic government may give more emphasis on indirect taxes and overall revenue income without putting extra pressure on the existing taxpayers. However, pragmatic steps may be taken to bring those citizens under tax net who do not pay taxes in spite of having taxable income.
Middle class is the driving force for both politics and economy and as such, it will not be wise to take any step that discourages the earning spirit of this segment of the population. In this regard the Finance Minister may look at the recent budget of India which aims to give more money in the hands of the common people to boost domestic consumption which in turn will increase indirect as well as overall tax collections. People of upper class normally travel abroad and spend money there for recreation and shopping but the common people spend their money in the domestic market and pay VAT and source taxes. But the mid income group is the worst sufferer of the present complex tax assessment and appeal system because their financial ability does not allow them to go to the court for filing writ petition. In this regard the government may play the role of the guardian for the middle class taxpayers and take steps to simplify the tax return submission and assessment system. Efforts may also be taken to facilitate the common taxpayers to prepare and submit their tax returns on their own without the help of the tax lawyers.
The present government seems very serious to make a transparent and efficient tax administration and for this purpose, NBR may find out ways to stop taxmen from intentionally misinterpreting the tax and VAT laws in the name of revenue collection because this frustrates taxpayers and compels them to go to the court. Transparent and efficient tax administration means less hassle for taxpayers and higher tax revenue for the government.
There is news that NBR is thinking to reintroduce wealth tax. This is again a matter of political decision of the present government because it has a link with the economic interest of the grassroots level party leaders and workers. It is not yet clear whether this matter will be accepted by the grassroots level leaders who do not have any remarkable source of income other than the wealth. So, it will be good, if such decision comes from the parliamentary standing committee on finance.
Advance Income Tax (AIT) is a very good technique for raising tax revenue and taxpayers also feel comfort to pay AIT because this is simple and hassle-free. But it becomes complicated and gives chances to a section of taxmen to harass the taxpayers when the AIT is subject to adjustment with final tax assessment. There are allegations that taxpayers face unnecessary harassment in the name of submission of documents of AIT. The government is trying to make the tax assessment system simple but the AIT adjustments make things difficult. In view of this, the government may think to discontinue the system of paying AIT at the time of car registration. Similarly, AIT collections at source from the interest earned from savings instruments may also be treated as final for the sake of simplicity. For increasing tax revenue, the scope of source taxes, stamp duties and section 82© may be widened but adequate care may be taken so that things are not made complicated.
However, there are scopes for the misuse of section 82©. Taking advantage of this section the real estate developers in Bangladesh do not pay any income tax. Tax on their income is being illegally collected from the buyers. For the sake of justice, necessary changes in the tax payment system under section 53 FF for real estate developers may be made because as the guardian of the consumers the government should not allow such dishonest and illegal practices.
The basic definition of Value Added Tax (VAT) is the tax to be paid for every value addition; but a rented commercial floor space does not ensure that it has added value until and unless it starts revenue generation. So, the government may have a rethinking on this issue because it will frustrate the new entrepreneurs. However, scope of VAT may be expanded further but things should be done under law and not by administrative fiat.
The year 2010-11 will be the second fiscal year for the present government and as such, this is the right time to reexamine the effectiveness of the present tax collection system for the purpose of increasing the government's earnings, decreasing public sufferings, and minimising underground and informal economy. For this purpose, a consistent tax policy may be declared on which citizens can base their long-term investment plans. All circulars regarding tax, VAT and customs may be issued by the NBR alone for the purpose of uniformity. It is also necessary to create an on-line system to link the tax, VAT and customs and excise departments for getting quick and accurate information which will stop the accounting frauds and plug the loopholes in revenue collections.
Underground economy is the root cause of all misdeeds. A recent NBR study says that this grew by 38 per cent in 2005 which is alarming. Pakistan is the worst sufferer of the underground economy. Under the present tension of global terrorism, Bangladesh should be very careful of this unwanted situation and may give an effective declaration in the next budget about a plan to bring down the size of the underground economy. The study also says that a section of taxpayers conceal annual income using fake accounts and showing less sales. In this way they collect VAT from the consumers but do not deposit the same with the government exchequer which amounts to corruption. In order to overcome such problems, the NBR may develop a software for the electronic cash registers on its own which does not allow the users to delete or hide sales information. A high-powered inspection team may also be formed to keep a close eye on VAT inspectors and bonded ware houses. Tax collection drive in suburban areas may be strengthened to expand the tax net.
Today, tax cut by the popular governments around the world is a common scenario. Due to obvious reasons the taxmen do not agree to this but the government may not forget that it has to work for the welfare of the people, get public support and ensure social justice. An investment-friendly tax policy may be declared for creating more employment and reducing poverty in line with the vision '21 of the present government.
The main duty of the tax intelligence department is to find out incidents of tax evasion and ensure that the government gets its due taxes. But in reality, there are allegations that this department often creates panic among the taxpayers. It is time for the NBR to create a clean image of this department and do a cost-benefit analysis for getting optimum results and restoring public confidence on tax department. Discretionary powers of taxmen may be removed because taxpayers will be encouraged to disclose every thing honestly if they are convinced that the taxmen are not above law and they are accountable for their misdeeds. For this purpose, specific declaration in the budget is necessary on punitive measures against the taxmen for unnecessarily harassing the taxpayers. The words "in the opinion of DCT" in the tax law may be deleted because government servants do not make any law; they are to work under a set of rules and procedures.
As the global economy is now recovering from a recession, experts do not rule out the possibility of price hike of food and essential commodities. Mere increase and decrease of duties on certain items will not fulfill the expectations of the mass people. Things may be done targeting new jobs and private investments as well as keeping the commodity prices at a reasonable level in the next fiscal.
In view of the changed outlook, a group of economists and experts loyal to ruling party may be involved to monitor the price situation. The group should be engaged to conduct surveys on the people's actual needs. Based on the findings of their survey the present democratic government may consider some basic principles while preparing the budget. These are: 1) Budget targets and policies will be determined by the think tank of the ruling party in line with the party's ideology and election manifesto. 2) The government's total revenue earnings will be increased making the tax administration effective and efficient. 3) More emphasis will be placed on VAT and indirect taxes. 4) The agriculture sector will get top priority in budgetary allocation. 5) Short, mid and long-term plans will be made for power generation. 6) Clear declaration on the withdrawal of taxes, duties etc. will be made for encouraging private investment in the power sector. 7) Special incentives will be given for setting up solar power industries, 8) Separate tax structure will be introduced on income from house property while showing sympathy to the senior citizens, widow and fixed income group. 9) Senior citizens, who do not have taxable income, will be exempted from submission of tax returns.
Abu Sayed Md. Shaykhul Islam, FCMA is a fellow member of the Institute of Cost Management Accounts of Bangladesh and a freelance financial and management consultant. He can be reached at e-mail: shaykhul@radiancegroup-bd.com
The National Board of Revenue (NBR) is possibly now in the last stage of finalizing the tax proposals of the the national budget for the next fiscal. In order to feel the pulse of the business community, professionals and experts, it has organised several pre-budget discussions as usual. In the pre-budget discussions, a number of proposals and demands have been placed. The business associations and expert groups have also spoken up to protect their own interests but it is the responsibility of the government to ensure overall public interest.
The national budget reflects the economic philosophy of a government. It is well understood that a political government will not meet any demand which is contrary to its political ideology. As such, it will be good for the government if it does not entirely depend on the bureaucrats who do not have any accountability to the people. In this regard a political government may have a dedicated think tank under the leadership of the Finance Minister to fix up the main tax policies in line with its own economic targets and development agenda. But it appears that the fiscal policies are mainly being prepared by taxmen and due to obvious reasons, the exercise does not reflect the hopes and aspirations of the grassroots leaders and workers of the ruling party. Under the changed democratic environment, efforts may be taken to gradually change this practice.
The government servants often say that Bangladeshi taxpayers pay less taxes; but in reality, Bangladesh taxpayers pay more compared to the neighbouring countries including India and Pakistan. Statistics show that the commodity prices in India is much lower than Bangladesh and even then the personal tax in India is applicable when the income of an individual exceeds an amount equivalent to Bangladesh Taka 264,000. Under the present price situation, this should be considered as an urgent issue and addressed by the government to make the budget people-oriented.
National economy cannot move forward without creating enough jobs and increasing the purchasing power of the vast majority of the population. If the real income of the common people decreases how will the tax revenue increase? The democratic government may undertake meaningful researches by its own political wing and give directions to the NBR to prepare tax policies and techniques very tactfully so that the government's overall revenue earning increases on the one hand and, on the other, the majority people remain satisfied.
Nowhere in the world, people love to pay taxes. It is the law that compels the citizens to pay taxes. But the tax policies are made keeping in view the real public expenditure need as well as the welfare of the people. A people's government collects tax revenue keeping public interest in mind. It is true that the Government of Bangladesh now needs substantial amount of money for providing the desired public services and infrastructure developments. And under the changed global economic scenario, this money shall be raised internally. For this purpose, the democratic government may give more emphasis on indirect taxes and overall revenue income without putting extra pressure on the existing taxpayers. However, pragmatic steps may be taken to bring those citizens under tax net who do not pay taxes in spite of having taxable income.
Middle class is the driving force for both politics and economy and as such, it will not be wise to take any step that discourages the earning spirit of this segment of the population. In this regard the Finance Minister may look at the recent budget of India which aims to give more money in the hands of the common people to boost domestic consumption which in turn will increase indirect as well as overall tax collections. People of upper class normally travel abroad and spend money there for recreation and shopping but the common people spend their money in the domestic market and pay VAT and source taxes. But the mid income group is the worst sufferer of the present complex tax assessment and appeal system because their financial ability does not allow them to go to the court for filing writ petition. In this regard the government may play the role of the guardian for the middle class taxpayers and take steps to simplify the tax return submission and assessment system. Efforts may also be taken to facilitate the common taxpayers to prepare and submit their tax returns on their own without the help of the tax lawyers.
The present government seems very serious to make a transparent and efficient tax administration and for this purpose, NBR may find out ways to stop taxmen from intentionally misinterpreting the tax and VAT laws in the name of revenue collection because this frustrates taxpayers and compels them to go to the court. Transparent and efficient tax administration means less hassle for taxpayers and higher tax revenue for the government.
There is news that NBR is thinking to reintroduce wealth tax. This is again a matter of political decision of the present government because it has a link with the economic interest of the grassroots level party leaders and workers. It is not yet clear whether this matter will be accepted by the grassroots level leaders who do not have any remarkable source of income other than the wealth. So, it will be good, if such decision comes from the parliamentary standing committee on finance.
Advance Income Tax (AIT) is a very good technique for raising tax revenue and taxpayers also feel comfort to pay AIT because this is simple and hassle-free. But it becomes complicated and gives chances to a section of taxmen to harass the taxpayers when the AIT is subject to adjustment with final tax assessment. There are allegations that taxpayers face unnecessary harassment in the name of submission of documents of AIT. The government is trying to make the tax assessment system simple but the AIT adjustments make things difficult. In view of this, the government may think to discontinue the system of paying AIT at the time of car registration. Similarly, AIT collections at source from the interest earned from savings instruments may also be treated as final for the sake of simplicity. For increasing tax revenue, the scope of source taxes, stamp duties and section 82© may be widened but adequate care may be taken so that things are not made complicated.
However, there are scopes for the misuse of section 82©. Taking advantage of this section the real estate developers in Bangladesh do not pay any income tax. Tax on their income is being illegally collected from the buyers. For the sake of justice, necessary changes in the tax payment system under section 53 FF for real estate developers may be made because as the guardian of the consumers the government should not allow such dishonest and illegal practices.
The basic definition of Value Added Tax (VAT) is the tax to be paid for every value addition; but a rented commercial floor space does not ensure that it has added value until and unless it starts revenue generation. So, the government may have a rethinking on this issue because it will frustrate the new entrepreneurs. However, scope of VAT may be expanded further but things should be done under law and not by administrative fiat.
The year 2010-11 will be the second fiscal year for the present government and as such, this is the right time to reexamine the effectiveness of the present tax collection system for the purpose of increasing the government's earnings, decreasing public sufferings, and minimising underground and informal economy. For this purpose, a consistent tax policy may be declared on which citizens can base their long-term investment plans. All circulars regarding tax, VAT and customs may be issued by the NBR alone for the purpose of uniformity. It is also necessary to create an on-line system to link the tax, VAT and customs and excise departments for getting quick and accurate information which will stop the accounting frauds and plug the loopholes in revenue collections.
Underground economy is the root cause of all misdeeds. A recent NBR study says that this grew by 38 per cent in 2005 which is alarming. Pakistan is the worst sufferer of the underground economy. Under the present tension of global terrorism, Bangladesh should be very careful of this unwanted situation and may give an effective declaration in the next budget about a plan to bring down the size of the underground economy. The study also says that a section of taxpayers conceal annual income using fake accounts and showing less sales. In this way they collect VAT from the consumers but do not deposit the same with the government exchequer which amounts to corruption. In order to overcome such problems, the NBR may develop a software for the electronic cash registers on its own which does not allow the users to delete or hide sales information. A high-powered inspection team may also be formed to keep a close eye on VAT inspectors and bonded ware houses. Tax collection drive in suburban areas may be strengthened to expand the tax net.
Today, tax cut by the popular governments around the world is a common scenario. Due to obvious reasons the taxmen do not agree to this but the government may not forget that it has to work for the welfare of the people, get public support and ensure social justice. An investment-friendly tax policy may be declared for creating more employment and reducing poverty in line with the vision '21 of the present government.
The main duty of the tax intelligence department is to find out incidents of tax evasion and ensure that the government gets its due taxes. But in reality, there are allegations that this department often creates panic among the taxpayers. It is time for the NBR to create a clean image of this department and do a cost-benefit analysis for getting optimum results and restoring public confidence on tax department. Discretionary powers of taxmen may be removed because taxpayers will be encouraged to disclose every thing honestly if they are convinced that the taxmen are not above law and they are accountable for their misdeeds. For this purpose, specific declaration in the budget is necessary on punitive measures against the taxmen for unnecessarily harassing the taxpayers. The words "in the opinion of DCT" in the tax law may be deleted because government servants do not make any law; they are to work under a set of rules and procedures.
As the global economy is now recovering from a recession, experts do not rule out the possibility of price hike of food and essential commodities. Mere increase and decrease of duties on certain items will not fulfill the expectations of the mass people. Things may be done targeting new jobs and private investments as well as keeping the commodity prices at a reasonable level in the next fiscal.
In view of the changed outlook, a group of economists and experts loyal to ruling party may be involved to monitor the price situation. The group should be engaged to conduct surveys on the people's actual needs. Based on the findings of their survey the present democratic government may consider some basic principles while preparing the budget. These are: 1) Budget targets and policies will be determined by the think tank of the ruling party in line with the party's ideology and election manifesto. 2) The government's total revenue earnings will be increased making the tax administration effective and efficient. 3) More emphasis will be placed on VAT and indirect taxes. 4) The agriculture sector will get top priority in budgetary allocation. 5) Short, mid and long-term plans will be made for power generation. 6) Clear declaration on the withdrawal of taxes, duties etc. will be made for encouraging private investment in the power sector. 7) Special incentives will be given for setting up solar power industries, 8) Separate tax structure will be introduced on income from house property while showing sympathy to the senior citizens, widow and fixed income group. 9) Senior citizens, who do not have taxable income, will be exempted from submission of tax returns.
Abu Sayed Md. Shaykhul Islam, FCMA is a fellow member of the Institute of Cost Management Accounts of Bangladesh and a freelance financial and management consultant. He can be reached at e-mail: shaykhul@radiancegroup-bd.com