Rampant tax dodging must be curbed

Widespread evasion of income tax has reached an alarming level in recent years and it must be curtailed. In a country of nearly 160 million people, only about 0.9 million file their income tax returns annually. More importantly, a sizeable percentage of the people who file their returns do not pay the actual amount of income tax. Even if we assume that 5.0 per cent of the population belongs to the rich and upper middle-class segment, the estimate perhaps is a bit conservative, at least 8.0 million people should be eligible to pay their income tax. Thus, tax evasion appears to be endemic in Bangladesh. The tax revenue to gross domestic product (GDP) ratio at around 10 per cent is the lowest in South Asia. In contrast, India's tax-GDP ratio is around 18 per cent and Pakistan's around 11 per cent. The pervasive culture of tax evasion, which also extends to the corporate and business sectors, has spawned a large shadow economy. According to a recent official survey quoted by the finance minister, the extent of undeclared wealth is between 45-81 per cent of the GDP. Even if we consider the lower range, it is still nearly half of the country's GDP of around US$110 billion. And that is an enormous amount by any account! What is worse, the finance ministry survey indicates that the size of the shadow economy is growing. The large volume of black money may have a link with the skyrocketing land prices, particularly in and around Dhaka city, in recent years and the unsustainable stock market bubble created preceding the December 2010 crash. Land along the Gulshan Avenue are said to be one of the most expensive in the world, with the selling price starting at Tk100 million or more per katha. Land prices in other areas have also gone up substantially in recent years. How much of this windfall profit from land sales is being taxed? In all probability, very little. The land price is always heavily underreported by a large margin in the land transfer documents. And what has happened to the huge amount of money which was withdrawn from the stock market by the "big players", allegedly operating as part of syndicates? Where did all that money go? It appears that a large portion of the undeclared wealth is being stashed in foreign banks and invested in foreign assets. It is not unusual to hear well-to-do people buying properties in the US, Canada, Singapore, or Malaysia, under its "second home" programme. Over the years, according to a study, the government has provided opportunities, eleven times so far, to legalise black or undeclared money by paying a fixed amount of income tax. It is estimated that about Tk 180 billion were whitened, with the government earning only Tk 14 billion in taxes over the past 40 odd years. Such incentives have clearly failed to work and proved to be counterproductive as genuine taxpayers feel cheated and the actual holders of black money, with all their financial clout, will continue to lobby for more such opportunities in the future. An inefficient tax administration system, corruption, cumbersome process, very little incentives, lack of public awareness, absence of a tax paying culture and inadequate deterrence to tax dodging are said to be the main bottlenecks in the government's effort to increase collection of tax revenue. The poor tax paying culture is reflected in the fact that the members of parliament have started filing income tax returns only from this year. Although the tax revenue collection has increased substantially in recent years, judging by the rapid growth of undeclared wealth, much more needs to be done and can be done in this area. According to the National Board of Revenue, the tax-GDP ratio can be increased by 5.0 percentage points through curbing tax evasion and streamlining the incentives alone. Thus, the government must take immediate steps to stop any further growth of undeclared wealth and reduce its presence in the economy by withdrawing any incentive to whiten black money and cracking down on all violators. In addition, the tax administration should be substantially improved, related corruption must be reduced, additional incentives for the taxpayers may be considered, a mass awareness campaign should be continued and the entire process of filing of tax returns should be simplified and made hassle-free. Endemic tax evasion is depriving the government of a huge amount of revenue which in turn is slowing down the pace of economic growth and the much needed investment in different social sectors. It is high time that the government launched a social campaign against tax evaders. Email: yaminbakht 58@gmail.com