Tax evasion by companies

Notwithstanding some improvements in the mobilization of income tax in recent years Bangladesh still has one of the lowest tax-GDP (gross domestic product) ratios in the region. Both deliberate evasion and non-compliance out of ignorance at individual and organisational levels have been mainly responsible for the unsatisfactory mobilization of tax revenue over the years. The number of tax returns-less than 1.0 million-- submitted by individuals annually speaks of the state of tax compliance by the eligible taxpayers. The situation with the company taxpayers however has not been anyway better. A former high official of tax department in the keynote paper presented at a seminar held last Thursday showed that nearly 58 per cent of over 100,000 companies, local and foreign, submitted tax returns annually. However, more than 98 per cent of these companies belong to the private sector. The non-submission of tax returns by such a large percentage of companies, in fact, speaks of both poor tax compliance culture and inefficiency of the tax administration. One cannot expect all the people, eligible for paying tax in a country like Bangladesh would pay tax voluntarily. The tax offices are, however, meant for making the eligible taxpayers aware of their duties to pay tax and ensuring collection of taxes from both individuals and companies at an optimum level. There is no denying that netting all the taxpayers in a country with more than 150 million people is not an easy task on the part of an organization like the National Board of Revenue (NBR), which is deficient in both modern technology and competent and efficient manpower. But tax non-compliance by more than 42 per cent of the companies is rather high when it is not that difficult a job for the taxmen to locate and compel the companies to pay tax regularly. If the tax officials mean business, tax evasion by such a large number of companies is not possible. One can hardly overlook the general propensity among individuals and companies to evade tax payment. But there are certain issues that act as disincentives to payment of tax and deserve to be corrected for the sake of beefing up tax collection. A case in point is the assessment of tax on the basis of 20 per cent growth of profit of a company annually. The NBR is not ready to accept the fact that a company's annual growth of profit could be less than 20 per cent or even it could suffer loss due to internal or external factors. The reason for the NBR taking such a stance is very much understandable. Yet the method is very much coercive. In fact, the weaknesses of audit firms, who often dish out cooked-up financial statements and balance sheets in collusion with company owners, have forced the tax administration to follow such an unacceptable method of profit estimation that tends to discourage many companies from paying the right amount of tax to the state. The unscrupulous auditing practices have emerged as a major hurdle to the growth of a clean private sector and strong capital market and collection of genuine amount of tax revenue by the government. But there is no official entity or regulator to oversee the activities of the audit firms and take necessary remedial measures. The Institute of Chartered Accountants of Bangladesh (ICAB), a professional body, has been trying to encourage its members to uphold the best professional and ethical standards but it has its own limitations. The government must think loudly to create an independent regulatory body for the audit firms that play a very important role in the country's economy. Once all concerned, including the taxmen, start putting their faith in audited accounts of companies, much of the tax-related disputes would be resolved.