Farid, from Bangladesh, and Prashanta, from India, work at a pizza store on Veirs Mill Road at Wheaton in Maryland. They work almost every day; both of them get hefty overtime pay as they work for more than 40 hours a week. Farid used to get his weekly payment always in cash, but Prashanta got his payment in cheques. I once asked Farid why he preferred cash to cheques and cautioned him that he was missing some benefits of tax refunds. Paying no heed to my cautionary advice he informed me that the employer 'pays a little less when he has to pay in cheque as tax has to be deducted from both the employer and the employee'. After about two years, Farid in a saddened voice said, "Uncle, I did a blunder by not taking note of your advice. Prashanta got a 'tax refund' of $ 3,500, whereas I got nothing after submitting my tax returns. Now, of course, I get my pay in cheque".
A tax refund is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim.
In the USA, almost all the citizens and permanent residents file their tax returns by April 15 each year. Every single taxpayer gets some incentives, in one form or another, on the taxes he or she pays to the government. Taxpayers, especially those who belong to the lower-income groups, look for tax credits, on various grounds, that translate into cash receivables.
The beauty of the U.S. tax system is in the way the tax code is structured to provide assistance to lower-income taxpayers. As a low-income tax filer, one may be entitled to various credits and deductions for which other taxpayers do not qualify. Tax payers with certain characteristics, such as having children, are rewarded. However, these incentives phase out when taxpayers reach a higher income level. More than 75 per cent of tax filers in the USA receive tax refund every year in the month of April.
Like in USA, unless the Bangladesh government offers taxpayers enough incentives, in real value, Bangladeshis would remain as apathetic as they traditionally are in paying any form of tax.
It is widely known that very few people even among the registered taxpayers pay tax in the form of income taxes in Bangladesh. Of course, a small segment of Bangladesh population merely files income tax returns under pressure when they are required to submit their tax status with Tax Identification Number (TIN) while, for an instance, renewing the 'fitness certificate' of their cars. They will never voluntarily disclose their real income; neither would they budge for fear of punishment as long as hands of those low-paid tax inspectors can be greased.
Currently, according to National Board of Revenue (NBR), there are 2.25 million -- some reporters say only 1.2 million -- registered taxpayers including individuals and business concerns. Given the NBR figure, the number of taxpayers stands at approximately 2 per cent of the total population of 160 million, meaning tax per GDP ratio at 8.7 per cent. The number of actual tax returns submitted is historically far less than hoped or estimated. Not more than half a per cent of the entire population of Bangladesh actually pays tax.
The government intends to bring more people in the tax net and raise its Tax/GDP ratio from 8.7 to 18 per cent. How? The answer from the government is simplistic: enhance tax rates in the budget, use more punitive measures for not paying tax and set higher targets for the tax collectors. Such a strategy is myopic in character and has not yielded a positive result in the past. This is an ad-hoc measure that will punish the law-abiding regular taxpayers more than the tax-evaders.
The National Board of Revenue (NBR) should think about a longer-term goal to educate and incentivise people so that they volunteer to get themselves registered as taxpayers, pay all kinds of taxes and also check whether every shop or business which is supposed to pay tax (VAT) against every sale of goods and services does so. The same incentive should motivate the existing taxpayers to report their real income.
People know tax goes to the state that spends it for the country's development. People also know that taxes they pay or loans the country procures from various sources are not always well-spent. So, a taxpaying citizen is interested to know what personal benefit he would derive from being a genuine taxpayer. And NBR should as such declare in clearer terms what are the benefits a taxpayer would enjoy directly from taxes paid, both Income Tax and Value Added Tax (VAT).
I had a bitter experience while buying a big-sized pizza along with other snacks from Domino Pizza at Kamal Ataturk Avenue at Banani on the last day of a month, perhaps in December, 2013. The Domino Pizza Receipt I was given said an amount added to the price of my purchase as VAT. Out of curiosity I asked the cashier how I could be sure that the VAT paid by me would go to VAT authority. A little puzzled, he showed me a fat block of receipts issued by NBR and was obliged to give me a separate receipt on "VAT paid" taken from the block. The cashier was kind to hand the NBR-issued block for me to see and I was surprised to discover that only three pieces of VAT receipts were issued during the whole month. The Domino Pizza at Banani is a very popular eatery and I guess not less than one thousand customers had their meals at the shop in the whole month before I visited. That means, not even half a percentage of customers were given the VAT receipts, depriving NBR of the amount of money already paid by the customers.
Let us now imagine how you and I would be motivated to pay tax and VAT and at the end get some incentives the way Farid of the Pizza Store at Wheaton in Maryland was encouraged. Why not NBR evolves a system that would encourage all the people of Bangladesh to rush to their respective income tax offices to file their returns with a hope to get back something like cash?
As a pilot project, NBR may experiment with a new discount system to see how things work in increasing VAT remittances by offering buyers a new incentive to demand VAT-receipts from the sellers each time they buy anything and sellers a different incentive to issue VAT-receipts to their each and every customer.
Buyers may be encouraged to get a kind of a 'discount card' at a nominal price from NBR, as a part of loyalty programme, offering discounts to an income tax filer. The discount card embedded with the purchaser's information in its magnetic strip has to be swiped every time a purchase is made and NBR is automatically informed online about the VAT amount the purchaser paid. At the end of the year, while filing income tax returns the NBR-issued Discount Card holder may be given pecuniary incentives like tax refund or rebate as a loyal VAT payer.
But all the sellers of all the goods and services in Bangladesh are not equipped with the latest electronic cash registers and card-reading terminals. But, if enough and attractive financial incentives are offered to sellers as well for providing such online electronic service, even a small grocery shop-owner in a village market may be motivated to equip his shop with the same electronic service through his mobile phone. Think about the loyalty programmes being advertised by different mobile phone operators in Bangladesh!
Well, if whizz-bang technology of electronic cash registers and card readers sounds weird, just turn those VAT-receipts into pure cash which can be sold to NBR at a reasonably attractive price. Just save all those VAT-receipts, the way we save our old newspapers for selling to hawkers, and at the end of the year sell those off to anybody, like to an old newspaper hawker, for instant cash or to NBR for tax rebate. But make sure the original VAT-receipts with its security features cannot be tampered. And also make sure Bangladeshi enterprising people don't start printing those NBR-receipts for wholesale, inviting the famous "Cobra Effect".
The term "Cobra Effect' stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the increase of venomous cobra snakes in Delhi. The government, therefore, offered a bounty for every dead cobra. Initially, this was a successful strategy as large numbers of snakes were killed for the reward. Eventually, however, enterprising persons began to breed cobras for the income. When the government became aware of this, the reward programme was scrapped, causing the cobra breeders to set the now-worthless snakes free. As a result, the wild cobra population further increased. The apparent solution for the problem made the situation even worse.
maswood@hotmail.com
Netting more taxpayers: Thinking out of box
Maswood Alam Khan from Cockeysville, Maryland, USA | Published: May 31, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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