Published in The Daily Star on Sunday, 1 May 2016
Half of potential tax eludes govt: CPD
Sohel Parvez
About half of potential tax does not come to the state coffers due to a lack of compliance by taxpayers and poor efforts by taxmen, according to a study by the Centre for Policy Dialogue.
Some Tk 9,893.24 crore was collected as income tax in 2010 against the potential of Tk 19,700 crore, said the independent think-tank.
“It appears that not all people who have taxable incomes are fully complying with the tax rules. They are not fully paying the taxable amount against their incomes,” said CPD Research Fellow Towfiqul Islam Khan.
In 2010, only 27.3 percent of all potential 70 lakh income taxpayers declared their income tax. The major reasons include a complex tax payment procedure and the presence of informal economic activities.
The CPD has come up with the findings by using data from the Household Income and Expenditure Surveys between 2005 and 2010.
It said the income taxpayer base and tax collections almost doubled and quadrupled respectively between 2005 and 2010. “However, low compliance rates can be observed.”
Bangladesh’s position in terms of the tax‐GDP ratio, an indicator of the state’s capacity to finance expenditure, is one of the lowest in the world.
The CPD said the average tax-GDP ratio is 15 percent for developing nations, whereas it was 8.5 percent in fiscal 2014-15 for Bangladesh.
The CPD blamed the low ratio partly on a lack of efforts by taxmen.
The tax effort here is 43 percent whereas it is 53 percent to 55 percent in other South Asian countries, except Pakistan, it added.
A major source of income tax is forgone because of the largely informal arrangements in the labour market, the CPD said, citing the Labour Force Survey 2013, which shows that 87 percent of the employed people work in informal sectors.
The think-tank said the number of income taxpayers could be increased by raising the share of formal employment.
“There is a need for a plan to raise this share,” it said, adding that the government should push for an increased provision of formalisation of employment through labour law revisions where possible.
The independent research organisation also raised the issue of plugging in the loopholes of withholding tax or tax deducted at source.
Until now, the advance income tax (AIT) withholding entities do not require getting any registration with the National Board of Revenue in relation with AIT deduction.
In absence of such a system, it remains unclear whether the tax deducted by an entity on the income of a person is properly deposited to the exchequer.
There are 250,000 organisations, agencies and firms that are responsible for withholding tax at source of income and depositing them to the state coffers, according to NBR. “There is tax leakage in this area,” Khan said.
The CPD suggested establishing an online system that links all aspects of the taxpayer’s finances by way of e‐TIN and national ID or business identification number.
In so doing, the NBR would thus have information on the salaries, financial transactions and taxes for employees and business entities, CPD said.