Tax and non-tax revenues constitute the major segments of domestic resources in any country. Domestically available resources in Bangladesh have been historically insufficient for enabling the government to play its due role in governance. Consequently, heavy dependence on foreign aid initially became necessary for supporting the development programmes of the country. However, the external resources could not be utilised properly in many instances due to non-availability of complementary domestic funds. The supply of external resources has also declined substantially in recent times due to shifts in geopolitical as well as domestic priorities. It has therefore become necessary to gear up the mobilisation of domestic resources.
Historically, the major reasons for low tax yield in Bangladesh has been a narrow tax base, higher exemptions, various concessions, as well as a generally corrupt and inefficient tax administration. Side by side with huge exemptions, a large and significant part of the economy remains outside the purview of the tax regime. Tax holiday in many forms in the case of direct taxes, zero rates of customs duties in numerous cases and multifarious exemptions from Value Added Tax (VAT) coupled with unethical practices by the taxmen have played a major part in the erosion and stagnation of the tax base in Bangladesh.
As reported by the media recently, the Anti-Corruption Commission (ACC) has claimed in a letter sent to the Cabinet Division that additional revenue of TK 1,120 billion could be generated if tax evasion and exemptions could be eliminated. The anti-corruption watchdog opined that the facility given for investing undisclosed money by their owners might have encouraged the tendency to accumulate illegal or unearned incomes. The ACC also pointed out that less than 1.0 per cent of the country's population pay taxes and tax collection is only 11.47 per cent of gross domestic product (GDP), one of the lowest ratios in the world. The Tax-GDP ratio could be enhanced by 5.0 per cent by putting an end to tax evasion and exemptions, it opined. The ACC letter has highlighted different features and drawbacks in the administration of income tax, value added tax and customs duty.
The ACC has pinpointed 13 sources of corruption and irregularity in the country's income tax regime. The first identified source is manual and paper-based submission-cum-receipt of income tax returns. The information is stored in such a way that there remains scope for irregularities or manipulations. The accountability of employees cannot be ensured as there is no deadline for disposal of files. Again, the officials enjoy discretionary powers in matters of tax incentives and exemptions. ACC also observed that some officials of the income tax department served as unofficial advisers of income tax-paying individuals and organisations by violating relevant laws and rules. On the other hand, there is no scope for the professionals to register with the National Board of Revenue (NBR), as is the case with regard to chartered accountants (CAs) and income tax lawyers. The audit reports are often manipulated through collusions between the CA firms and tax-paying entities. Besides, corruption is encouraged due to laxity of NBR in taking actions against administrative corruption in postings and transfers.
The ACC has identified 15 sources of corruption in import duties. A common irregularity is false declarations with regard to quality and quantity of commodities, under-invoicing and over-invoicing of products etc. The data on imported and unloaded products are frequently not adjusted within stipulated time. Timely auctions are also not held despite delays in unloading. Although ASYCUDA (automated system for customs data) is applied throughout the world for maintaining customs-related database, the customs department in Bangladesh has not yet been able to make it fully operational. The tasks of this department are still run in a non-transparent manual manner. Low quality of bonded warehouse management also provides scope for corruption. The department lacks institutional and logistic capacities. Besides, the audits of bodies under Bond Commissionerate are not performed regularly.
With regard to VAT-related corruption, the ACC has identified four critical areas. These include, lower base of different exemptions, prices and tariffs, and their non-conformity with international standards. Besides, proper documents and evidences are often not submitted in case of exemptions. The authorities sometimes do not bother to verify whether VAT has been paid against raw materials. The existing VAT procedure and relevant administrative structure still follow traditional methods. Corruption is often encouraged in the absence of clear-cut policies on appointments, transfers and promotions of staffs.
The ACC holds the view that there is no alternative to automation for making the workings of NBR transparent, accountable and taxpayer-friendly. For this, the submission of returns by wealthy citizens should be made mandatory, the e-taxation system should be introduced fully, payments of taxes at source should be automated, the NBR website should be made more user-friendly, and specific procedures should be put in place for evaluating the authenticity of non-existent business incomes.
In the area of duties and VAT, the ACC recommendations include reducing the discretionary powers of the customs department, assigning important responsibilities to honest and efficient officials, strengthening the customs intelligence work, bringing transparency to the process of granting incentives and rewards, transferring the declarations on imports and exports to the databases of Bangladesh Bank and NBR through online method, stopping delays in the assessment process, installation of electronic cash registers for collecting VAT, etc.
Whether direct or indirect, a good taxation system should have low rates and broad base. The exemptions and exclusions as well as items subjected to special systems or incentives should be as less as possible. Overall, the tax system should be simple, and the taxes should be easy to pay, administer and monitor. It should be elastic, non-distortional and neutral. The most important tasks are administration, monitoring, evaluation and control. Alongside transparency in operations, there should be constant flow of information and complete accountability. The important management issues include: ascertaining the correct legal basis; identifying areas of leakages, evasions and non-compliance; raising collections to as close as possible to the potential base by streamlining administration; enhancing transparency and accountability in operations; modernising the rate structure and identifying new sources; and modernising the collection, supervision, monitoring and flow of information.
Dr. Helal Uddin Ahmed is a retired Additional Secretary and former Editor of Bangladesh Quarterly. [email protected]