Towards a people-friendly tax regime
Saturday, 21 July 2007
Abdul Hai
THE chief source of the government's income is revenue. Income tax occupies a sizeable portion of it. But in Bangladesh, income tax so far has not enjoyed the good position it does in the developed and many developing countries as a major source of government income. However, of late, the attitude has changed. With the volume of foreign aid tapering off, the government is finding it more and more difficult to finance its development activities and meeting budgetary deficits. As a way out, the government's revenue wing, the National Board of Revenue (NBR) has recently decided to tap the latent source of government's income in the form of income tax. Understandably, it has intensified its drive to expand the income tax base across the country.
According to reports, the NBR has a plan to bring 164,000 new taxpayers under the tax net during July-December period from all the city corporations and the Rangpur municipality. Of these targeted new taxpayers, it is hoped that 72,000 will come from the Dhaka City Corporation, while the rest 92,000 from other city corporations including the Rangpur municipality. Some 48 tax collection teams of the government are carrying out the survey with manpower strength of 104 persons. It has been found that even in the capital city it has been found that, of the business persons and professionals surveyed, 63 per cent people do not have any Tax Identification Numbers (TINs). The common explanation is that it is an attitudinal problem of the people regarding payment of income tax. The survey has found that some unscrupulous business operators would rather spend a large amount of money, ranging from Taka 5,000 to Taka 50,000, for procuring fake TINs from forgers rather than face the NBR and procure genuine ones. Such attitude on the part of the potential taxpayers does certainly throw a spanner in the works of collecting taxes.
While one cannot support the attitude of those who resort faking TINs, the entire community cannot be blamed for the said cultural bias against paying taxes. The tax dodgers are arguably predisposed to think that the government by demanding a part of their hard-earned income is being unfair and, therefore, there is no vice in evading it. Hence, the conclusion -- the people here are naturally tax shy. A deeper look into the problem will, however, show that, if anything, it is totally a wrong premise on which the argument of cultural bias against paying income tax by the people stands. The problem in fact does not lie in the minds of the people. It is the mechanism of tax collection that is at fault.
People everywhere, not just in Bangladesh, are not interested to give away a part of their income when they see no prospect of gain in such payment. Moreover, they become averse to making such payment, if there is no motivation or campaign thereof on a sustained basis to encourage them to make such payment. Hence, it is imperative that the concerned authorities should take effective steps for bringing about change in attitude of the people towards paying of income taxes. Encouragement, not coercion, should be considered the means for the purpose.
One thing is important here to note: tax compliance becomes easier in a situation where the rates thereof are reasonably acceptable. For this purpose, widening the tax network is necessary because, in that event, the lowering of the tax rate will not entail much of any revenue loss in aggregate tax. It is heartening to note that there is, of late, a change in the attitudes of both the administration and the people towards collection and payment of taxes.
This change is welcome and should lead to other pro-active policy measures and actions for encouraging tax compliance on a voluntary basis. The authorities concerned do need to pursue a pragmatic course of action to deal with tax-related issues. Harsh measures in an across-the-board way will not serve the desired purpose. That will cause panic which is in no way desirable.
THE chief source of the government's income is revenue. Income tax occupies a sizeable portion of it. But in Bangladesh, income tax so far has not enjoyed the good position it does in the developed and many developing countries as a major source of government income. However, of late, the attitude has changed. With the volume of foreign aid tapering off, the government is finding it more and more difficult to finance its development activities and meeting budgetary deficits. As a way out, the government's revenue wing, the National Board of Revenue (NBR) has recently decided to tap the latent source of government's income in the form of income tax. Understandably, it has intensified its drive to expand the income tax base across the country.
According to reports, the NBR has a plan to bring 164,000 new taxpayers under the tax net during July-December period from all the city corporations and the Rangpur municipality. Of these targeted new taxpayers, it is hoped that 72,000 will come from the Dhaka City Corporation, while the rest 92,000 from other city corporations including the Rangpur municipality. Some 48 tax collection teams of the government are carrying out the survey with manpower strength of 104 persons. It has been found that even in the capital city it has been found that, of the business persons and professionals surveyed, 63 per cent people do not have any Tax Identification Numbers (TINs). The common explanation is that it is an attitudinal problem of the people regarding payment of income tax. The survey has found that some unscrupulous business operators would rather spend a large amount of money, ranging from Taka 5,000 to Taka 50,000, for procuring fake TINs from forgers rather than face the NBR and procure genuine ones. Such attitude on the part of the potential taxpayers does certainly throw a spanner in the works of collecting taxes.
While one cannot support the attitude of those who resort faking TINs, the entire community cannot be blamed for the said cultural bias against paying taxes. The tax dodgers are arguably predisposed to think that the government by demanding a part of their hard-earned income is being unfair and, therefore, there is no vice in evading it. Hence, the conclusion -- the people here are naturally tax shy. A deeper look into the problem will, however, show that, if anything, it is totally a wrong premise on which the argument of cultural bias against paying income tax by the people stands. The problem in fact does not lie in the minds of the people. It is the mechanism of tax collection that is at fault.
People everywhere, not just in Bangladesh, are not interested to give away a part of their income when they see no prospect of gain in such payment. Moreover, they become averse to making such payment, if there is no motivation or campaign thereof on a sustained basis to encourage them to make such payment. Hence, it is imperative that the concerned authorities should take effective steps for bringing about change in attitude of the people towards paying of income taxes. Encouragement, not coercion, should be considered the means for the purpose.
One thing is important here to note: tax compliance becomes easier in a situation where the rates thereof are reasonably acceptable. For this purpose, widening the tax network is necessary because, in that event, the lowering of the tax rate will not entail much of any revenue loss in aggregate tax. It is heartening to note that there is, of late, a change in the attitudes of both the administration and the people towards collection and payment of taxes.
This change is welcome and should lead to other pro-active policy measures and actions for encouraging tax compliance on a voluntary basis. The authorities concerned do need to pursue a pragmatic course of action to deal with tax-related issues. Harsh measures in an across-the-board way will not serve the desired purpose. That will cause panic which is in no way desirable.