Widening tax-net for mobilising internal resources efficiently
Thursday, 23 April 2009
Jahangir Bin Alam
IT is needless to say that mobilisation of internal resources of any country, irrespective of its development status, is the sine quo non for achievement of its economic objectives and to improve the living condition of the people. The universally recognised process pursued for the purpose is -- through mobilisation of internal revenue in the form of direct taxes i.e. individual income tax and corporate income tax and indirect taxes in the form of import/export duties, VAT/excise duty and income from other non-tax sources.
However, too much dependence on indirect taxes is not a healthy sign. This, in fact, burdens the consumers thereby negatively impacting their purchasing capacity and, in the ultimate analysis, stagnates the development and growth of products and services in the marketplace.
Various governmental and non-governmental studies reveal that a vast majority of the people of Bangladesh still remains out of the tax net. A country with 150 million people, the tax-GDP ratio is merely around ten per cent, which is at a dismal low.
As the information goes, around six and a half million people submit annual tax returns, out of which roughly four to five million actually pay income tax on a regular basis. Hence, it is impossible on the part of the government to reduce its dependence on indirect taxes. This is an obnoxious and a totally unacceptable scenario. It may be noted that, out of those who pay their taxes on a regular basis, the majority belong to salaried group. However, a significant section of this group including the government employees (who's income tax from their salaries only and not from other sources is supposed to be paid by the government) still remains out of the tax net.
Major cities and townships of the country are awash with big/medium/small shopping malls, retail outlets, business establishments, bazaars, commercial and apartment blocks, sleek restaurants and various other service outlets. Are all the owners of such establishments within the net?
Furthermore, hordes of automobiles are seen plying on the streets. Number of cell phone users throughout the country has also grown significantly. Besides, innumerable private schools, colleges, universities and coaching centers and the like charging high tuition fees are operating inside the country. How many of these are within the tax net? A good number of people living in the suburban and rural areas of the country nowadays use modern amenities of life which reflect upon their improved lifestyle. Do all of them pay taxes? The answer would be a big no. If people falling under above categories could be brought within the net, the tax-GDP ratio is bound to go up.
It may be noted here that the Awami League government that was in power from 1996 to 2001 imposed Taka 300.00 as advanced income tax on the motor vehicle owners at the time of annual renewal of their respective vehicle license. This mechanism helped the government in collecting substantial revenue annually. But, the next BNP-led four-party alliance government discontinued it for no good reason.
Apathy of eligible taxpayers to pay tax may be attributed to complicated tax filing procedure, corruption of the tax officials and too much discretionary power at the lower tiers of the tax administration. However, it cannot be denied that there is a prevailing tendency among the eligible taxpayers to dodge tax payment which is responsible for the alarming growth of untaxed money, otherwise called 'black money' that keep on creating distortion in the national economy. Unfortunately, almost all the governments in power during the last three decades or so rewarded dishonesty by allowing the tax dodgers to whiten their black money after making a nominal tax payment. This is practice is definitely immoral and detrimental to the interest of honest tax payers.
Under the said circumstances, it is imperative on the part of the government to raise public awareness in order to bring maximum people under the tax umbrella. But, government alone cannot do the job. Responsible and enlightened section of the citizenry should come forward to assist the government in this regard. We see the members of our civil society to raise their voices on various important national issues day in and day out. But, we are yet to see them speaking on widespread culture of tax evasion.
Way forward: In order to improve the situation, this scribe feels that the government should immediately take up an effective action plan for bringing maximum number of people under the tax umbrella. The National Board of Revenue (NBR) should spread its offices up to the Upazila (sub-district) level and, in addition, undertake a massive countrywide awareness programme if necessary taking the civil society and the media on board.
The NBR should seriously monitor the activities of the tax officials and advise them to fulfill given collection targets. Lethargy and non-compliance should be severely dealt with. However, there should be provision for rewarding good performance.
Tax return and other related forms should be simplified to allay the fears in minds of the taxpayers and to encourage them to come forward to pay income tax without any hesitation. A vigorous drive should be undertaken to bring all business activities at all locations of the country within the net. To start with shops, retail and service outlets etc., should be persuaded to pay minimum income tax fixed in the budget by filling in a simple one-page return form.
However, those doing business in posh city areas should allowed paying minimum Taka 5,000.00 for at least two to three years which could be enhanced gradually until such time they could be persuaded to pay due taxes in compliance with rates fixed in the budget. Further, it is suggested that the government should consider re-imposition of advanced income tax on motor vehicles discontinued in 2001. However, the tax rate should be re-fixed at Taka 5000.00 for vehicles with 1500 c.c. engine capacity and Taka 10,000.00 for engine capacity above 1500 c.c.
Serious drive should be undertaken to identify tax evaders/dodgers and to bring them to books if persuasion fails.
It is also suggested that considering the cost of living and rate of inflation, the personal income tax exemption threshold could be raised to Taka 200,000 in the ensuing national budget.
The writer is former Secretary, Foreign Investors' Chamber of Commerce and Industry (FICCI). He can be reached at
e-mail: jbalam44@yahoo.com and
jbalam44@hotmail.com
IT is needless to say that mobilisation of internal resources of any country, irrespective of its development status, is the sine quo non for achievement of its economic objectives and to improve the living condition of the people. The universally recognised process pursued for the purpose is -- through mobilisation of internal revenue in the form of direct taxes i.e. individual income tax and corporate income tax and indirect taxes in the form of import/export duties, VAT/excise duty and income from other non-tax sources.
However, too much dependence on indirect taxes is not a healthy sign. This, in fact, burdens the consumers thereby negatively impacting their purchasing capacity and, in the ultimate analysis, stagnates the development and growth of products and services in the marketplace.
Various governmental and non-governmental studies reveal that a vast majority of the people of Bangladesh still remains out of the tax net. A country with 150 million people, the tax-GDP ratio is merely around ten per cent, which is at a dismal low.
As the information goes, around six and a half million people submit annual tax returns, out of which roughly four to five million actually pay income tax on a regular basis. Hence, it is impossible on the part of the government to reduce its dependence on indirect taxes. This is an obnoxious and a totally unacceptable scenario. It may be noted that, out of those who pay their taxes on a regular basis, the majority belong to salaried group. However, a significant section of this group including the government employees (who's income tax from their salaries only and not from other sources is supposed to be paid by the government) still remains out of the tax net.
Major cities and townships of the country are awash with big/medium/small shopping malls, retail outlets, business establishments, bazaars, commercial and apartment blocks, sleek restaurants and various other service outlets. Are all the owners of such establishments within the net?
Furthermore, hordes of automobiles are seen plying on the streets. Number of cell phone users throughout the country has also grown significantly. Besides, innumerable private schools, colleges, universities and coaching centers and the like charging high tuition fees are operating inside the country. How many of these are within the tax net? A good number of people living in the suburban and rural areas of the country nowadays use modern amenities of life which reflect upon their improved lifestyle. Do all of them pay taxes? The answer would be a big no. If people falling under above categories could be brought within the net, the tax-GDP ratio is bound to go up.
It may be noted here that the Awami League government that was in power from 1996 to 2001 imposed Taka 300.00 as advanced income tax on the motor vehicle owners at the time of annual renewal of their respective vehicle license. This mechanism helped the government in collecting substantial revenue annually. But, the next BNP-led four-party alliance government discontinued it for no good reason.
Apathy of eligible taxpayers to pay tax may be attributed to complicated tax filing procedure, corruption of the tax officials and too much discretionary power at the lower tiers of the tax administration. However, it cannot be denied that there is a prevailing tendency among the eligible taxpayers to dodge tax payment which is responsible for the alarming growth of untaxed money, otherwise called 'black money' that keep on creating distortion in the national economy. Unfortunately, almost all the governments in power during the last three decades or so rewarded dishonesty by allowing the tax dodgers to whiten their black money after making a nominal tax payment. This is practice is definitely immoral and detrimental to the interest of honest tax payers.
Under the said circumstances, it is imperative on the part of the government to raise public awareness in order to bring maximum people under the tax umbrella. But, government alone cannot do the job. Responsible and enlightened section of the citizenry should come forward to assist the government in this regard. We see the members of our civil society to raise their voices on various important national issues day in and day out. But, we are yet to see them speaking on widespread culture of tax evasion.
Way forward: In order to improve the situation, this scribe feels that the government should immediately take up an effective action plan for bringing maximum number of people under the tax umbrella. The National Board of Revenue (NBR) should spread its offices up to the Upazila (sub-district) level and, in addition, undertake a massive countrywide awareness programme if necessary taking the civil society and the media on board.
The NBR should seriously monitor the activities of the tax officials and advise them to fulfill given collection targets. Lethargy and non-compliance should be severely dealt with. However, there should be provision for rewarding good performance.
Tax return and other related forms should be simplified to allay the fears in minds of the taxpayers and to encourage them to come forward to pay income tax without any hesitation. A vigorous drive should be undertaken to bring all business activities at all locations of the country within the net. To start with shops, retail and service outlets etc., should be persuaded to pay minimum income tax fixed in the budget by filling in a simple one-page return form.
However, those doing business in posh city areas should allowed paying minimum Taka 5,000.00 for at least two to three years which could be enhanced gradually until such time they could be persuaded to pay due taxes in compliance with rates fixed in the budget. Further, it is suggested that the government should consider re-imposition of advanced income tax on motor vehicles discontinued in 2001. However, the tax rate should be re-fixed at Taka 5000.00 for vehicles with 1500 c.c. engine capacity and Taka 10,000.00 for engine capacity above 1500 c.c.
Serious drive should be undertaken to identify tax evaders/dodgers and to bring them to books if persuasion fails.
It is also suggested that considering the cost of living and rate of inflation, the personal income tax exemption threshold could be raised to Taka 200,000 in the ensuing national budget.
The writer is former Secretary, Foreign Investors' Chamber of Commerce and Industry (FICCI). He can be reached at
e-mail: jbalam44@yahoo.com and
jbalam44@hotmail.com