Tax is the main source of government revenue in Bangladesh like any other country which does not have major mineral and similar other resources. Three major taxes are customs duty, income tax and VAT (Value Added tax) and are administered by the National Board of Revenue (NBR). Of these, only income tax is treated as a direct tax while both customs duty and VAT are categorised as indirect tax although in many countries, VAT is considered a direct tax.
Traditionally, customs duty has been the single largest contributor to our tax revenue. But recently, there has been notable changes in the composition of our revenue collection. Contribution of customs duty is gradually declining. It is largely due to trade liberalisation and re-structuring of import duties following WTO guidelines.
On the other hand, contribution of income tax is steadily rising. During the 1990s, income tax was contributing around 20 per cent of the NBR's total collection. Even in financial year 2010-2011, its contribution was less than 30 per cent. But in FY 2013-2014, income tax had contributed 36 per cent of tax revenue while contribution of customs duty had declined to 28 per cent.
In the budget proposals for FY 2014-2015, income tax was treated as the single largest contributor of tax revenue. Out of the total collection target of Tk. 1,497.20 billion, income tax was projected to be collected by 38.4 per cent, VAT 37.7 per cent and customs duty 23.9 per cent. During the last few years, the quantum of collection from income tax, in absolute terms also, increased significantly. During financial year 2010-2011, the total collection from income tax was Tk. 230.11 billion whereas during FY 2013-2014, it rose to Tk. 429.16 billion. This is no doubt a positive indication towards minimising the gap between the rich and the poor.
In fact, the government has been making constant efforts to attain a position where income tax would become the main source for collection of tax revenue. In the present article, our focus will be mainly on various aspects of income tax in Bangladesh. In recent years, the government has taken several policy decisions and timely steps with regard to tax laws and tax administration which deserve appreciation.
Introduction of universal self-assessment system has brought significant relief to taxpayers, particularly small taxpayers. Now, after filing the income tax returns, they do not need to go through the hassle of appearance and hearing before the assessing authority (DCT/ACT) for assessment unless the case is picked up for audit. And, in fact, not more than 5 to 10 per cent of the returns are selected for audit. Small and fixed-income taxpayers are normally kept out of audit.
The income tax department underwent a large-scale expansion in 2012. The number of tax circles has more than doubled covering, among others, many smaller towns. Consequently, tax offices have been more easily accessible and services more easily available to taxpayers. The government is also taking other steps to increase taxpayer awareness. 'Income Tax Day' is observed all over the country on September 15 every year. Colourful rallies are brought out and other events held to mark the day. And then the Income Tax Fair is held from September 16 to 22 where direct assistance is given to the taxpayers for filling up and submitting tax returns. These obviously have generated awareness and encouragement among taxpayers. During this period, both print and electronic media play a very positive and supportive role. They give wide coverage to the events during the whole week and air discussions/talk shows on various issues related to income tax.
The government has also set up taxpayer information and service centres in all major cities in the country. They provide necessary service to the taxpayers throughout the year. Award of CIP (Commercially Important Persons) status to 10 individuals and 10 corporate taxpayers each year on national level has been in practice over last several years. In addition, 3 top taxpayers and 3 longest time taxpayers are given recognition at district level through formal presentation of a crest and a certificate.
Another taxpayer-friendly move was introduced in 2013, encouraging on-line registration (e-TIN) system for taxpayers. This has been welcomed in every circle. Another project for on-line submission and processing of tax returns is now underway. It is expected to be operative by the middle of 2016.
We have so far discussed some positive and encouraging features of our tax administration. But naturally there are some limitations and bottlenecks also in our taxation system. It is a recognised fact that in spite of all these efforts, Bangladesh has a very narrow tax base. It has a population of more than 160 million out of which the number of regular taxpayers is around one million only. It is generally believed that the number of potential taxpayers in Bangladesh would be much higher than one million. Somehow a large portion of these potential taxpayers are outside the tax net.
The NBR has to take effective measures to improve this situation. The main focus would be to inspire and motivate potential taxpayers to declare their true income and file tax returns. The media can also make a positive contribution in this regard by assisting the NBR to reach its message to the people. Moreover, the corporate tax rate in Bangladesh is quite high compared to many other countries of the region. Arbitrary use of discretionary powers by tax officials is still quite rampant and there is an apparent lack of accountability.
Neutrality and independence of the Taxes Appellate Tribunal are practically compromised to a large extent since almost all members of the Tribunal are Tax Commissioners working on deputation. There are some of the shortcomings of our tax administration which need to be addressed as well.
Over the last few years, we have attained significant progress in many areas of tax-administration, particularly with regard to tax collection. But, as noted above, there are also many areas where improvement is urgently called for. Reforms in the tax administration are primarily a responsibility of the National Board of Revenue. But as conscious citizens of the country we all have the moral responsibility to perform our roles in this regard with honesty and diligently. Taxpayers in particular should act with sincerity and responsibility regarding compliance with tax laws. Tax officials, on the other hand, must give due respect and recognition to taxpayers so that they do not feel harassed. They must always bear in mind that their attitude towards taxpayers should be friendly and helpful. Media, both print and electronic, now plays quite a significant role in almost every sphere of our social life. Therefore, media can also play an effective role on this issue by generating awareness and sense of responsibility among taxpayers and a sense of equity and fairness among tax officials. In fact, we all should sincerely contribute towards achieving the common goal of having an efficient, effective and taxpayers' friendly tax administration in Bangladesh.
The writer is a practising Chartered Accountant, Vice President, the ICAB and a partner of Hoda Vasi Chowdhury & Co.
Email:sds@icab.org.bd
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