Role of income tax in revenue administration
Monday, 15 November 2010
Faruq Ahmad Siddiqi
Income tax has never been a talked-about subject at the national level. Even in the context of revenue administration, it had a low priority as it contributed a sluggish 15% or so of the collection made by the National Board of Revenue. As in any other import dependent low-income level country, import duty has been the major source of revenue. Therefore, attention of all the successive governments was concentrated in customs administration. No government had the vision to realise that as the country develops and income level goes up, income tax can emerge as a major source of revenue. This has started happening now. For the last few years income tax collection is improving significantly and in the year 2009-2010 it contributed about 27% of the revenue collected by the NBR. It appears that the government has started noticing the immense potentiality of income tax as a source of much-needed revenue. But tax administration has remained where it was without any meaningful reform or modernisation. Very little has been invested by the government in the last forty years for strengthening and upgrading the taxes department. As a result, capacity of the department is now hopelessly inadequate to meet the challenges of the new opportunities that are visible now.
It now seems that the government is gradually recognising the need for a little more attention to the taxes department than it received before. As any country develops, import duty is likely to recede into background while income tax and VAT will emerge as the source of future revenue. The process has started and is likely to continue, if the country is on the right track of growth. In this backdrop, it was encouraging to see the government celebrating September 15 as income-tax day and organising income tax fair for the first time. Reportedly, public response to the fair was extremely positive indicating willingness of many people to pay tax, if a hassle free environment could be ensured. It may not happen overnight. It takes time to motivate people to pay tax especially in an environment where they can get away without paying. There is a general perception that registering with tax authority may mean long-term harassment. It will need sustained effort of the authorities to dispel this perception, which is not without any basis. There is no denying the fact that tax officials, especially at the lower level, are not forward looking, they lack skill, training and concept of modern management. Often, there are allegations of corruption. However, the environment in which they work is deplorable. We find all kinds of government bhabans scattered all over the capital. But income tax offices are located in shabby rented houses in numerous lanes and alleys around the city. It is not possible to rent a decent accommodation due to government ceiling on admissible rent. It is difficult to motivate any decent tax-payer to visit these miserable tax offices and they are happy to leave the tax matters to their employees and tax advisers. As a result, most of the tax-payers are forming their impression about the tax offices through others. For the last thirty years proposal for constructing a central tax office in Dhaka could not materialise due to low priority attached to it by all the past governments. After all these fanfare about income tax day and fair, I felt encouraged to visit my tax office after about ten years to submit my tax return. To my utter disappointment, the situation did not improve at all. It was the same unfriendly environment, the narrow crowded stairs and passage, piles of dusty files in dimly lighted rooms, crowd of tax-payers wrestling to submit their returns, the helpless assessing officer sitting in an untidy room.
In spite of government indifference, growth of income tax revenue in recent years has been impressive as the following figures clearly demonstrate:
Financial year income-collection (in billion taka) as % or NBR revenue
2003-04 47.07 17.97
2004-05 55.77 18.65
2005-06 71.62 21.06
2006-07 87.21 23.43
2007-08 117.44 24.76
2008-09 138.12 not available
2009-10 170.82 27
Above figures present a healthy growth. Collection from income tax is growing fast and its share in overall NBR collection has risen from 17.97% to nearly 27% in just six years. In the same period, income tax to GDP ratio improved from 1.41% to 2.17%. This is an impressive performance. However, a closer scrutiny reveals serious structural weaknesses and imbalances. Growth of number of tax-payers has not been very impressive. Even after extensive publicity and holding income tax fairs, only nine hundred thousand persons submitted tax returns (including two hundred twenty six thousand time petitions). Tax collected with these returns was less than Tk 10 billion. Tax officials seem to be happy even with that and reportedly boasted a 19% growth of returns. There have been wild talks from responsible quarters about raising number of tax-payers to 5 million within the next three years. It has to be understood that raising number of TIN certificate holders means nothing. At present, out of about 3 million TIN certificate holders, less than one million persons are submitting tax returns. Perhaps even lesser number of persons is actually paying tax. NBR appears to be helpless and cannot enforce submission of tax returns from others. That being so, NBR should talk about number of returns rather than number of certificate holders. Realistically, a target of two million returns in next three years may be fixed and strategy worked out for that.
E-mail: faruqasiddiqi@yahoo.com
Income tax has never been a talked-about subject at the national level. Even in the context of revenue administration, it had a low priority as it contributed a sluggish 15% or so of the collection made by the National Board of Revenue. As in any other import dependent low-income level country, import duty has been the major source of revenue. Therefore, attention of all the successive governments was concentrated in customs administration. No government had the vision to realise that as the country develops and income level goes up, income tax can emerge as a major source of revenue. This has started happening now. For the last few years income tax collection is improving significantly and in the year 2009-2010 it contributed about 27% of the revenue collected by the NBR. It appears that the government has started noticing the immense potentiality of income tax as a source of much-needed revenue. But tax administration has remained where it was without any meaningful reform or modernisation. Very little has been invested by the government in the last forty years for strengthening and upgrading the taxes department. As a result, capacity of the department is now hopelessly inadequate to meet the challenges of the new opportunities that are visible now.
It now seems that the government is gradually recognising the need for a little more attention to the taxes department than it received before. As any country develops, import duty is likely to recede into background while income tax and VAT will emerge as the source of future revenue. The process has started and is likely to continue, if the country is on the right track of growth. In this backdrop, it was encouraging to see the government celebrating September 15 as income-tax day and organising income tax fair for the first time. Reportedly, public response to the fair was extremely positive indicating willingness of many people to pay tax, if a hassle free environment could be ensured. It may not happen overnight. It takes time to motivate people to pay tax especially in an environment where they can get away without paying. There is a general perception that registering with tax authority may mean long-term harassment. It will need sustained effort of the authorities to dispel this perception, which is not without any basis. There is no denying the fact that tax officials, especially at the lower level, are not forward looking, they lack skill, training and concept of modern management. Often, there are allegations of corruption. However, the environment in which they work is deplorable. We find all kinds of government bhabans scattered all over the capital. But income tax offices are located in shabby rented houses in numerous lanes and alleys around the city. It is not possible to rent a decent accommodation due to government ceiling on admissible rent. It is difficult to motivate any decent tax-payer to visit these miserable tax offices and they are happy to leave the tax matters to their employees and tax advisers. As a result, most of the tax-payers are forming their impression about the tax offices through others. For the last thirty years proposal for constructing a central tax office in Dhaka could not materialise due to low priority attached to it by all the past governments. After all these fanfare about income tax day and fair, I felt encouraged to visit my tax office after about ten years to submit my tax return. To my utter disappointment, the situation did not improve at all. It was the same unfriendly environment, the narrow crowded stairs and passage, piles of dusty files in dimly lighted rooms, crowd of tax-payers wrestling to submit their returns, the helpless assessing officer sitting in an untidy room.
In spite of government indifference, growth of income tax revenue in recent years has been impressive as the following figures clearly demonstrate:
Financial year income-collection (in billion taka) as % or NBR revenue
2003-04 47.07 17.97
2004-05 55.77 18.65
2005-06 71.62 21.06
2006-07 87.21 23.43
2007-08 117.44 24.76
2008-09 138.12 not available
2009-10 170.82 27
Above figures present a healthy growth. Collection from income tax is growing fast and its share in overall NBR collection has risen from 17.97% to nearly 27% in just six years. In the same period, income tax to GDP ratio improved from 1.41% to 2.17%. This is an impressive performance. However, a closer scrutiny reveals serious structural weaknesses and imbalances. Growth of number of tax-payers has not been very impressive. Even after extensive publicity and holding income tax fairs, only nine hundred thousand persons submitted tax returns (including two hundred twenty six thousand time petitions). Tax collected with these returns was less than Tk 10 billion. Tax officials seem to be happy even with that and reportedly boasted a 19% growth of returns. There have been wild talks from responsible quarters about raising number of tax-payers to 5 million within the next three years. It has to be understood that raising number of TIN certificate holders means nothing. At present, out of about 3 million TIN certificate holders, less than one million persons are submitting tax returns. Perhaps even lesser number of persons is actually paying tax. NBR appears to be helpless and cannot enforce submission of tax returns from others. That being so, NBR should talk about number of returns rather than number of certificate holders. Realistically, a target of two million returns in next three years may be fixed and strategy worked out for that.
E-mail: faruqasiddiqi@yahoo.com