The government鈥檚 performance is tellingly poor when it comes to the tax-to-GDP ratio. The ratio has remained static at about 8 per cent, one of the lowest even in South Asia, for the past decade as proposals and initiatives for augmenting revenue generation and taxation system reforms have been partially implemented. By 2023, the tax revenue was 7.8 per cent of the gross domestic product. More than a fourth of the people who have the ability 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. Although the number of TIN holders has increased significantly, from five million in the 2021 financial year to 8.8 million in the 2023 financial year, the income tax return submission compliance has been poor. Only 3.5 million TIN holders, out of a total of 8.8 million, submitted income tax returns in the 2023 financial year. The government鈥檚 efforts to make tax return submission mandatory for a number of services appear not to have yielded the desired results.
Another major concern of the taxation system is an over-reliance on indirect, or regressive, tax. The contribution of direct taxes to the revenue volume stands at less than 30 per cent. An over-reliance on regressive indirect taxes such as the value-added tax adds to inequality in society as it disproportionately burdens the poor. Tax evasion by companies and corporate TIN holders is yet another concern. About 40 per cent of registered companies do not have a taxpayer identification number, which is a violation of the Companies Act. There are, as the Office of the Registrar of Joint Stock Companies and Firms says, 2,75,460 registered public and private limited companies, but only 1,67,100 hold TINs and 1,08,360 run without TINs. Bangladesh loses, as a report by the London-based Tax Justice Network says, more than $144 million in tax revenue each year, mainly due to corporate tax abuse and offshore tax evasion. The tax-to-GDP ratio is a significant factor as it reflects a country鈥檚 ability to properly use available resources to ensure sustainable economic growth and reduce income inequality. A lower tax-to-GDP ratio also means a higher deficit budget, which forces the government to borrow from domestic and foreign sources, which, in turn, adds to the public debt.
Flawed policies, an absence of automation in tax administration, a lack of monitoring and corruption are to blame for the situation where many either remain outside the tax net or evade tax. The revenue board must, therefore, address the issues and be stringent about making all TIN holders, individuals and companies with taxable income, comply with the laws. The government must strengthen the tax management system to increase the tax-to-GDP ratio.