Taxing undisclosed money: Panic and two-way deficiencies
Wednesday, 1 August 2007
Shamsul Huq Zahid
The National Board of Revenue (NBR) has extended the time for legalising 'undisclosed' income by another two months, following a directive coming from higher authorities.
But the question remains: Will the time-extension help the government attain its objective of mopping up tax revenues from the target group of people owning huge yet unspecified amount of untaxed money? The experience of the NBR between June 04 and July 31 in this respect was not encouraging at all.
The government, it seems, has launched the ongoing drive to legalise undisclosed income earned through not by foul means and also to generate more revenue in one-go. But it remains debatable whether the move will really make the people tax-compliant. However, it has, rightly or wrongly, stirred panic and confusion among eligible taxpayers, particularly those belonging to the middle class.
The concern of the middle class and that of the relatively affluent class are of different nature. The undisclosed yet legal income of the most middleclass taxpayers, who, presumably, are not the targets of the NBR, have unfortunately been big, at least this time. That is why they are to part, at great pains, with a sizeable chunk of their money in the form of tax to the NBR.
Many eligible taxpayers have had reasons for avoiding, what they consider the hassles of paying taxes. The taxation system had otherwise been not compliance-friendly to most of them.
One would like to note here that many middle class taxpayers have undisclosed fixed deposits and savings certificates. The amounts thus invested might have been accumulated over the years and holders of the same may not be in a position to show necessary documents in support of their incomes, even though they are genuine ones. The NBR, according to the notification issued for legalising undisclosed money, is not supposed to ask the sources of money declared. Yet the taxpayers, in most cases, are found to be tentative.
The NBR chairman the other day blamed the timing for less-than- desired success of the drive relating to undisclosed income, meaning that the ongoing anti-corruption drive had discouraged many taxpayers to come out in the open. In reality, the situation could have been otherwise.
Until 31st July last, the NBR collected Tk. 3.0 billion as tax from the declared undisclosed income amounting to Tk 16.22 billion. Had the current offer to legalise the undisclosed income been made during normal time, to be precise, under a political government, the response, in all probability, would have been less. The experience with opportunities offered to whiten black money with the payment of nominal tax rates between 7.5 per cent and 10 per cent is a pointer to that fact.
There is no denying that most of the eligible taxpayers are still out of the tax net and those who are on the tax-roll, in most cases, submit their annual tax returns without incorporating their wealth statements faithfully. This situation needs to be changed. For, the government needs more revenue to meet its annual current as well capital expenditures.
However, there is another side of the coin. The citizens feel encouraged to pay taxes only when their money is well-spent and the huge administrative machinery does work for their welfare. But as far as Bangladesh is concerned, the situation was far from the ideal, taking into consideration the behaviour pattern of the government officials and service providers and also the cases of misuse or misappropriation of a big chunk of the development funds.
So, both taxpayers and the government have been at fault, failing to do what is right. Under the circumstances, the government needs to take the right steps for dispelling panic among the tax-payers and to undertake confidence-building measures so that more and more people feel encouraged to be in the tax net and pay the right amount of tax at the end of the year. The ground-level realities about many things like sales of land and property and the difference between actual receipts or payments and the registered deed value thereof should not be ignored by the tax-officials. One major source of undisclosed money relates to such transactions in Bangladesh. There are many other areas which the revenue authorities can ill afford to ignore. Rather than rigid stance or going alone by the letter of the law overlooking the substances thereof, the government should look at hard realities of the country's socio-economic situation.
The government, no doubt, does need to boost revenue from income tax in the backdrop of near stagnation in earning from customs duty because of falling duty rates. But it cannot expect things to improve overnight. The recent NBR moves, to a large extent, have been able to raise awareness among the taxpayers to be tax-compliant. But any drastic measure running afoul of the ground-level realities, if taken in the future, might prove to be counterproductive.
The National Board of Revenue (NBR) has extended the time for legalising 'undisclosed' income by another two months, following a directive coming from higher authorities.
But the question remains: Will the time-extension help the government attain its objective of mopping up tax revenues from the target group of people owning huge yet unspecified amount of untaxed money? The experience of the NBR between June 04 and July 31 in this respect was not encouraging at all.
The government, it seems, has launched the ongoing drive to legalise undisclosed income earned through not by foul means and also to generate more revenue in one-go. But it remains debatable whether the move will really make the people tax-compliant. However, it has, rightly or wrongly, stirred panic and confusion among eligible taxpayers, particularly those belonging to the middle class.
The concern of the middle class and that of the relatively affluent class are of different nature. The undisclosed yet legal income of the most middleclass taxpayers, who, presumably, are not the targets of the NBR, have unfortunately been big, at least this time. That is why they are to part, at great pains, with a sizeable chunk of their money in the form of tax to the NBR.
Many eligible taxpayers have had reasons for avoiding, what they consider the hassles of paying taxes. The taxation system had otherwise been not compliance-friendly to most of them.
One would like to note here that many middle class taxpayers have undisclosed fixed deposits and savings certificates. The amounts thus invested might have been accumulated over the years and holders of the same may not be in a position to show necessary documents in support of their incomes, even though they are genuine ones. The NBR, according to the notification issued for legalising undisclosed money, is not supposed to ask the sources of money declared. Yet the taxpayers, in most cases, are found to be tentative.
The NBR chairman the other day blamed the timing for less-than- desired success of the drive relating to undisclosed income, meaning that the ongoing anti-corruption drive had discouraged many taxpayers to come out in the open. In reality, the situation could have been otherwise.
Until 31st July last, the NBR collected Tk. 3.0 billion as tax from the declared undisclosed income amounting to Tk 16.22 billion. Had the current offer to legalise the undisclosed income been made during normal time, to be precise, under a political government, the response, in all probability, would have been less. The experience with opportunities offered to whiten black money with the payment of nominal tax rates between 7.5 per cent and 10 per cent is a pointer to that fact.
There is no denying that most of the eligible taxpayers are still out of the tax net and those who are on the tax-roll, in most cases, submit their annual tax returns without incorporating their wealth statements faithfully. This situation needs to be changed. For, the government needs more revenue to meet its annual current as well capital expenditures.
However, there is another side of the coin. The citizens feel encouraged to pay taxes only when their money is well-spent and the huge administrative machinery does work for their welfare. But as far as Bangladesh is concerned, the situation was far from the ideal, taking into consideration the behaviour pattern of the government officials and service providers and also the cases of misuse or misappropriation of a big chunk of the development funds.
So, both taxpayers and the government have been at fault, failing to do what is right. Under the circumstances, the government needs to take the right steps for dispelling panic among the tax-payers and to undertake confidence-building measures so that more and more people feel encouraged to be in the tax net and pay the right amount of tax at the end of the year. The ground-level realities about many things like sales of land and property and the difference between actual receipts or payments and the registered deed value thereof should not be ignored by the tax-officials. One major source of undisclosed money relates to such transactions in Bangladesh. There are many other areas which the revenue authorities can ill afford to ignore. Rather than rigid stance or going alone by the letter of the law overlooking the substances thereof, the government should look at hard realities of the country's socio-economic situation.
The government, no doubt, does need to boost revenue from income tax in the backdrop of near stagnation in earning from customs duty because of falling duty rates. But it cannot expect things to improve overnight. The recent NBR moves, to a large extent, have been able to raise awareness among the taxpayers to be tax-compliant. But any drastic measure running afoul of the ground-level realities, if taken in the future, might prove to be counterproductive.