MOST businesses coming to find the tax system complex, burdensome and prone to corruption speaks of the sorry state of the system. A Centre for Policy Dialogue study shows that 57.1 per cent of businesses perceive bribery as commonplace in tax-related interactions while 59.4 per cent of them find difficulties in compliance. Most businesses also find the system complex and troublesome. The report says that the National Board of Revenue is faced with a range of challenges related to management, organisation and capacity, contributing to issues such as tax fraud and avoidance. The report says that the current value-added tax management processes are largely manual and administratively intensive, which has led to corrupt practices. Unless proper modernisation is done, the tax regime will fail to ensure compliance, transparency and efficiency. The report suggests that measures such as a digital payment system, the financial disclosure of individuals and their relatives involved in the tax collection process and strengthening financial reporting for both corporate houses and personal income taxpayers can improve the system. The report highlighted the need for increasing the tax net, applying tools to identify tax avoidance and evasion and introducing an integrated financial or document-related transaction or transfer system.
Corruption and irregularities are believed to be main reasons for tax evasion by companies and corporate TIN holders. About 40 per cent of registered companies do not have a taxpayer identification number, which is a violation of the Companies Act. According to the Registrar of Joint Stock Companies and Firms, there are 2,75,460 registered public and private limited companies, but only 1,67,100 companies hold TINs and 1,08,360 companies run without TINs. Bangladesh loses, as an earlier report by the London-based Tax Justice Network said, more than $144 million in tax revenue each year, mainly because of corporate tax abuse and offshore tax evasion. The situation with individual taxpayers is also tellingly poor. Over a fourth of the people able to pay taxes are, as the National Board of Revenue says, outside the tax net. About 60 per cent of tax identification number holders have remained non-compliant for years. Although the number of TIN holders has increased significantly 鈥� from 5 million in the 2021 financial year to 8.8 million in the 2023 financial year 鈥� the income tax return submission compliance has remained poor. All this has resulted in a poor tax-to-GDP ratio, which has remained static at about 8 per cent, one of the lowest even among South Asian countries, for the past decade.
The government should, therefore, attend to the issues that have held back the tax regime. Corrupt practices in the tax system not only lead to tax evasion and fraud but also negatively impact the business environment. The authorities need to digitise the tax systems and make the tax submission process simple. The authorities should also go tough to stop corruption and bribery.
