Taxation ought not to be a one way street
Saturday, 6 October 2007
Humayun Kabir
A government needs resources to take up various projects and programmes in the social and developmental sectors. The resources in large measures are supposed to be mobilised as taxes given by people and organisations. But as everyone concerned probably knows it in Bangladesh, the taxes collected by the government in different areas are pitiably low compared to the potential. But citizens also have points to raise about government not spending their tax money as efficiently as it should or the hardships it may create on sections of people from the move to extend the net for taxation.
Nonetheless, the fact remains that the base of taxation remains rather narrow and enlargement of it is very important and would be justified to augment tax collection. More significantly, the augmentation requires revamping, modernisation and reforms of the tax administration.
Plans should be on the drawing board and their execution need to be early to modernise the entire tax administration. The same is necessary for the obvious reasons of securing revenue collection on a long lasting basis. But the expected upgradation of the taxation machinery and the contemplated actions to expand the taxation base, are yet not seen though these measures would be vital for the government to maintain the high level of its desired spending in various social and developmental programmes.
But before engaging in any reforms in taxation, it appears very necessary that people or institutions should be made aware of the need to pay taxes. There are many people and businesses who are able to pay taxes but do not pay or pay in proportion as they feel no guilt associated to non payment or insufficient payment of taxes. Furthermore, the present system has for long deliberately kept many gaps to facilitate tax evasion, though lately there are some healthy signs about a growing awareness, particularly among middle-income groups, about the need for tax compliance. This awareness is welcome, and efforts must be made painstakingly to make all others conscious the same way about the imperatives for making payments of taxes in a proper and fair manner. Here sticks will not serve the purpose. Rather, carrots can deliver better results. Meanwhile, a truly informative and persuasive campaign should precede any move to impose new taxes or purposefully increase the number of new taxpayers. People must be convinced first of the merit of paying taxes and they would also require some assurance that their tax money would be well spent. Only then their motivation to pay taxes can rise.
The efficiency of the taxation machinery depends considerably on retraining the taxmen on modern lines. They can be trained in countries where the tax administrations are efficient. But there should be also recognition that without a substantial follow-up revamping of organisations, procedures and methods of administration, much of the training would be wasted. Specially, the tax administration needs to acquire real capacity in the intelligence and enforcement areas.
Besides, there has to be realisation also that stepped-up activities to collect more taxes can prove to be successful in a setting where new investment operations are taking place in the economy, the established enterprises are running well or the general health of the economy is a sound one. In such a situation of accelerated economic activities leading to wealth and income creation, taxmen may not have difficulty in finding taxable enterprises or individuals. Individuals and organisations in such a setting are also found more cooperative or willing to pay taxes from their having adequate resources to do so.
But the opposite is the prevailing economic situation in Bangladesh today with all the vital indicators about the health of the economy showing negative trends. The economy is currently in a slowdown mood. How can there be expectation to collect more taxes in this scenario ? People can of course be arm-twisted into paying more taxes. But that would mean a form of repression. Instead of sending out taxmen to squeeze out more taxes from individuals and institutions , government should rather adopt policies that would restore the confidence of businesses leading to the invigoration of the economy. Collecting more taxes then would not prove to be either an oppressive exercise or face lack of cooperation from the potential taxpayers. Until such an invigoration becomes possible, government should aim to fill budget deficits from static or less tax collection through receiving of greater foreign aid.
A government needs resources to take up various projects and programmes in the social and developmental sectors. The resources in large measures are supposed to be mobilised as taxes given by people and organisations. But as everyone concerned probably knows it in Bangladesh, the taxes collected by the government in different areas are pitiably low compared to the potential. But citizens also have points to raise about government not spending their tax money as efficiently as it should or the hardships it may create on sections of people from the move to extend the net for taxation.
Nonetheless, the fact remains that the base of taxation remains rather narrow and enlargement of it is very important and would be justified to augment tax collection. More significantly, the augmentation requires revamping, modernisation and reforms of the tax administration.
Plans should be on the drawing board and their execution need to be early to modernise the entire tax administration. The same is necessary for the obvious reasons of securing revenue collection on a long lasting basis. But the expected upgradation of the taxation machinery and the contemplated actions to expand the taxation base, are yet not seen though these measures would be vital for the government to maintain the high level of its desired spending in various social and developmental programmes.
But before engaging in any reforms in taxation, it appears very necessary that people or institutions should be made aware of the need to pay taxes. There are many people and businesses who are able to pay taxes but do not pay or pay in proportion as they feel no guilt associated to non payment or insufficient payment of taxes. Furthermore, the present system has for long deliberately kept many gaps to facilitate tax evasion, though lately there are some healthy signs about a growing awareness, particularly among middle-income groups, about the need for tax compliance. This awareness is welcome, and efforts must be made painstakingly to make all others conscious the same way about the imperatives for making payments of taxes in a proper and fair manner. Here sticks will not serve the purpose. Rather, carrots can deliver better results. Meanwhile, a truly informative and persuasive campaign should precede any move to impose new taxes or purposefully increase the number of new taxpayers. People must be convinced first of the merit of paying taxes and they would also require some assurance that their tax money would be well spent. Only then their motivation to pay taxes can rise.
The efficiency of the taxation machinery depends considerably on retraining the taxmen on modern lines. They can be trained in countries where the tax administrations are efficient. But there should be also recognition that without a substantial follow-up revamping of organisations, procedures and methods of administration, much of the training would be wasted. Specially, the tax administration needs to acquire real capacity in the intelligence and enforcement areas.
Besides, there has to be realisation also that stepped-up activities to collect more taxes can prove to be successful in a setting where new investment operations are taking place in the economy, the established enterprises are running well or the general health of the economy is a sound one. In such a situation of accelerated economic activities leading to wealth and income creation, taxmen may not have difficulty in finding taxable enterprises or individuals. Individuals and organisations in such a setting are also found more cooperative or willing to pay taxes from their having adequate resources to do so.
But the opposite is the prevailing economic situation in Bangladesh today with all the vital indicators about the health of the economy showing negative trends. The economy is currently in a slowdown mood. How can there be expectation to collect more taxes in this scenario ? People can of course be arm-twisted into paying more taxes. But that would mean a form of repression. Instead of sending out taxmen to squeeze out more taxes from individuals and institutions , government should rather adopt policies that would restore the confidence of businesses leading to the invigoration of the economy. Collecting more taxes then would not prove to be either an oppressive exercise or face lack of cooperation from the potential taxpayers. Until such an invigoration becomes possible, government should aim to fill budget deficits from static or less tax collection through receiving of greater foreign aid.