Published in The Daily Star on Wednesday, 28 December 2016
Stop illicit capital flight: analysts
Star Business Report
Growing informal sector, illegal capital flight and poorly designed tax incentives system are the major factors behind tax avoidance and evasion in Bangladesh, according to a study by ActionAid Bangladesh.
Low tax morale and weak enforcement of the tax law are the other factors.
Enforcement should be strengthened, said Asgar Ali Sabri, director of programme, policy and campaigns of ActionAid, while presenting the findings of the Bangladesh Tax Landscape Study at a programme held at The Daily Star Centre yesterday.
In a draft report based on the study, ActionAid said the number of eligible taxpayers is around 69 lakh in Bangladesh.
This number implies that more than 4 percent of the total population has taxable income, it said in the draft report. But not all of them are paying taxes.
Bangladesh was able to collect 74.9 percent of its revenue potential.
“Moreover, tax effort level has been in decline in the past five years, which corresponds to the recent downtrend in the tax revenue and accomplishment of collection targets,” Sabri said.
A comparison among the peer economies reveals that the revenue raising potential is consistently underutilised.
Taxation is a big tool to ensure equity, said Towfiqul Islam Khan, research fellow of the Centre for Policy Dialogue. Citing a CPD study, he said half of the potential taxpayers pay taxes. “Tax evasion also exists in corporate tax.” Referring to illicit capital flight out of the country, he said huge amounts of funds are transferred from Bangladesh through trade mispricing by local businesses. Multinational companies should not be seen as the only source of fund outflow through transfer mispricing. Khan suggested imposition of property tax to ensure equity in the society. On the government’s plan to implement the new VAT law in July next year, he said common people should be made aware and be engaged to ensure smooth implementation of the law.
Bangladesh’s per capita debt is $378 and the debt burden would be low if it could curb illegal capital flight, said Rezaul Karim Chowdhury, executive director of Coastal Association for Transformation Trust, referring to the illicit capital flight figure between 2004 and 2013.
Many Bangladeshis have accounts in Swiss banks, while names of some Bangladeshis came in the recently leaked Panama papers. Subsequently, he called for investigation by the authorities.
“It will be an injustice if we cannot prevent illicit capital flow out of the country,” Chowdhury added.
Amit Kumar Das, second secretary of income tax of the National Board of Revenue, said the tax authority is focused on increasing tax compliance, citing the simplification of the tax return form as one of the measures to boost collections.
Subsequently, the number of tax return submission would rise to over 15 lakh by the end of fiscal 2016-17, he added.
“People want to pay tax. An enabling environment is necessary for this,” said Ferdauos Ara Begum, chief executive of Business Initiative Leading Development.
When the value-added tax system was introduced, it was told that the rate will decline automatically in line with expansion of VAT net.
Subsequently, she demanded cuts in the VAT rate.
Published in The Financial Express on Wednesday, 28 December 2016
Call to revise VAT rate as it hurts impoverished, SMEs
Indirect taxation eats up 12pc income of poor: ActionAid
FE Report
Speakers at a programme Tuesday urged the government to revise the rate of value added tax (VAT), saying it was among the highest in the world and it mostly hurt the poor section of the society.
They said that the confidence level is very low among the tax payers and it is weird that they feel comfortable of paying tax in the tax fairs organised by National Board of Revenue (NBR), but not willing to visit the tax circles.
The NBR should not play the roles of policymaker and tax collector at the same time, which makes it difficult to have confidence in the revenue board, they added.
They were discussing the issues at the national validation on Bangladesh Tax Landscape Study at the Daily Star building in the city. ActionAid Bangladesh organised the programme.
The draft study report was shared in the programme, which is part of a global study conducted in five countries, which will be published in March 2017. Other four countries are Zambia, Sierra Leone, Zimbabwe, and Tanzania.
The draft study prepared on the basis of secondary data was presented by ActionAid Bangladesh’s programme, policy and campaigns director Asgar Ali Sabri. The study titled Tax Landscape: Understanding Justice-Injustice focused on VAT.
In his presentation, Mr Sabri said VAT was regressive to the poor as it took away bigger portion of the poor’s income than that of the well-off segment.
VAT burden is 12.1 per cent of the income of the poor, which is only 5.9 per cent for the rich. The incidence of indirect taxation on the poorest of the urban income groups is higher than that of the middle-income groups. The incidence rises as income increases for the people living in rural areas.
The draft study suggested broadening tax base and simplifying tax structure, strengthening tax administration, and improving compliance, careful structuring of tax incentives, improving tax morale among present and future tax payers and incentivisation of tax-paying process.
Chief executive officer of Business Initiative Leading Development (BUILD) Ferdaus Ara Begum said VAT is a burden for the poor and the existing policy had been harming mostly the SMEs. The tax payment system is very difficult for them and they are deprived of various benefits due to the existing turnover tax payment system for the SMEs, she added.
She referred to the turnover tax payers who are not counted as registered VAT payers depriving them of getting tax credit facilities, direct import and so on. The small entrepreneurs are not enjoying the benefits as enjoyed by registered VAT payers.
There is a Tk 32 trillion outlay of the 7th five year plan and 78 per cent of which will come from the private sector. It has become a “fear factor” for them due to the lack of confidence, she said.
The NBR forces those who have the TIN number and who regularly pay taxes, she said, the informal sector must be brought under formal sector by simplifying the tax payment system, while making the administration more efficient.
Only 0.7 per cent of the total population pays tax, although as many as 7.0 million people have the capacity to pay it, she said.
At least 60 per cent of this 7.0 million should be brought under tax net and an enabling environment is needed to do that, she said, adding the people wanted to pay tax.
Speakers said the government had failed to achieve the target of revenue earning in the past three years due to high target. The revenue earning target should be fixed, which is achievable. The refund process should be spontaneous and the integration between Bangladesh Bank and NBR should be established.
Centre for Policy Dialogue (CPD) research fellow Towfiqul Islam Khan said that 85 per cent of the 50 million labour force is in the informal sector, which is outside the tax net.
Besides, tax is exempted from some of the agricultural income, where 40-45 per cent are far, labour. The government should rethink these sectors.
Regarding enforcement of the VAT law, he said the businesses should ensure the use of electronic cash register (ECR) and complete accounting system before enforcing the law.
At present, the institutional structure is very much centralised. The local government earns almost nothing and there is no tax office at the upazila level, he said.