img 1SUPRO, in collaboration with Oxfam and the “Capacity for Research and Advocacy for Fair Taxation (CRAFT)” consortium recently conducted a study on ‘Fair Tax Monitor Bangladesh’ in line with two African countries: Senegal and Uganda and one from South Asia: Pakistan with the objectives to identify main bottlenecks in Bangladesh’s tax system, provide strong evidence-based support for country-level advocacy work, and create a framework to compare tax systems of selected countries over time. The findings were shared on 15 December 2015 at a meeting with the Media, Development Partners and CSOs at the Daily Star Building, Dhaka.

Ahmed Swapan Mahmud, Chairperson of SUPRO, chaired the meeting while Alison Subrata Baroi, Director of SUPRO, presented the findings and recommendations of. Dr. Mohammad Abdul Mazid, former Chairman of NBR and Towfiqul Islam Khan, Senior Research Fellow of CPD, were present as discussants.  
Baroi said tax system in Bangladesh is gradually improving, raising more revenue and reducing aid dependency. Share of personal income tax in total tax revenue has steadily increased over the years but collection remains below potential especially considering the number of eligible taxpayers in Bangladesh. The same can be said about revenue from wealth taxes. According to NBR, less than 1% of the taxpayers have assets worth over Tk 20 million, which is unrealistic and unbelievable.

img 2VAT remains the single-largest source of revenue for the Bangladesh government. VAT burden for the lowest income group is 6.92% — extremely high, given the fact that VAT burden of the highest-income group is only 4.56% whereas the average effective VAT rate is 6.01%. According to NBR survey 2014, 79% businessmen are out of tax net. In a country of around 160 million, there are only around 1.2 million income taxpayers.
Tax evasion cases lodged by the Anti-Corruption Commission (ACC) are seldom resolved and often politically motivated. The absence of a strong tax mechanism, loopholes and complexities of tax laws give rise to tax evasion. Lack of transparency at NBR, for example, there is no information available on the amount of foregone revenue due to tax exemption. There is no solid estimate of forgone revenues when considering tax exemptions, incentives and other fiscal measures. NBR is yet to become digital. Filing of tax return online is still a distant dream.

img 3img 4Tax officials enjoy undue discretion and need to be supervised more closely to ensure a more efficient and sincere tax administration. The NBR’s three autonomous divisions — direct tax, VAT and customs — rarely share data creating fertile ground for collusion and extra cost for tax payers. The NBR often struggles with lack of human resources. Total NBR positions are about 22,136, but only 11,831 are employed. Among them 3,750 are first and second class officers directly involved in tax collection

Education expenditure is represented as ‘Education and Technology’ where the government allocates money to the military run universities and technical colleges. This is presumably because the government does not want to show that the defense expenditure is much bigger than what it is. Education and health expenditure have declined as percentage of GDP, as well as, budgetary outlay.

Tax administration does not seem to be accountable to the citizens because tax administration does entail any dialogue with the general people. The Comptroller and Auditor General’s audits are not debated in the parliament. Nor are they available publicly. There is no grievance mechanism for citizens regarding misconduct of tax authorities.

Major Recommendations:

  1. The tax system must be fairly enforced. Tax revenues must also translate into public services.
  2. Broadening taxpayers’ base will require monitoring assets and determining the income thereof.
  3. Wealth accumulation is primarily happening through accumulation of urban land, tax evasion, RMG, and relatively low income tax through financial instruments. This must change.
  4. The simplistic manner of imposing Wealth Tax in the form of an Income Tax surcharge of 10% should be abandoned and NBR should develop a proper “Wealth Tax” or “Property Tax”.
  5. VAT in Bangladesh could be made less regressive by making a distinction between luxury goods and necessity goods. Supplementary taxes can be imposed on luxury goods.
  6. VAT exemptions in Bangladesh should be limited only to basic health services, public transport, agriculture and agro-based industries and government education.
  7. Undertake reform measures to determine the true value of property and apply property tax.
  8. The NBR should ensure a tax-payer friendly environment to bring more people under the tax net.
  9. While bringing the informal businesses under the tax net, it is important to ensure that the new tax payers are treated without hassle. Make strong political decisions not to allow the whitening of “black money”.
  10. To curb illicit financial flow, along with the ongoing reforms actions need to be implemented according to the plan.
  11. Curbing tax exemptions and ensuring that all exemptions are approved by Parliament and open to public scrutiny is feasible and necessary.
  12. VAT exemptions and zero tax amount to the same foregone taxes. There needs to be explicit criteria for determining what goods and services are exempted or have zero taxes.
  13. Development of a central NBR database would help streamline tax administration.
  14. Tax laws are often complex. It is important to simplify them and make them easier to understand for the average taxpayer.
  15. Formulation of progressive tax policies should be backed by evidence based research and thorough consultation.
  16. Enabling members of parliament as regards tax policy and practices and empowerment of Public Accounts Committee.
  17. Strengthen, facilitate and enrich NBR with human resources, equipment, logistics and funds.
  18. Government must raise budget for essential services like health, education, social safety, food security etc.
  19. Civil society must generate political pressure for reform by actively engaging a large section of the citizens, while the government must be willing to adopt fair tax policies and practices.

FBCCI Adviser Monjur Ahmed said the research findings were unique. But there needs to be a more comprehensive analysis and study for accelerating fair tax movement in Bangladesh. Civil society organizations like SUPRO and business forums like FBCCI should jointly exert effort to attain a fairer tax system.

He vehemently opposed the government measure to impose VAT on education institutions formed through a trustee board. He indicated that it was not merely an ethical matter but one of legal impossibility.

Eminent Educationist Kazi Faruk Ahmed raised a number of pertinent questions. He wondered out aloud, “What services do I get in return for the taxes I pay? Who is getting tax exemption? What are the corporations doing in the name of CSR?”

International Business Forum Director MS Siddiqui said there should be a differentiation between illegally earned money and wealth accrued because a citizen was not able to pay taxes due to ignorance. He said there should be a mechanism to address this ‘grey money’.

Dr. Towfiqul Islam said tax exemption through statutory regulatory orders is not clearly disclosed or discussed at the parliament. There is a question of transparency and accountability. That’s why we are not getting proper information about the tax net and who are getting tax holidays. The tax officials have to be enabled adequately for better tax administration.

Mohammad Abdul Mazid said the research has some weaknesses especially its perception, interpretation and recommendation but it’s an important beginning for fair tax monitor movement and SUPRO has started the initiative at a right time.

He also said the supplementary budget is approved without any discussion in the parliament. He stressed on the fact that the MP could raise questions about supplementary budget and increase transparency. He also said that the general colonial mindset was one of the obstacles keeping Bangladesh from attaining a fair and equitable taxation system.

Civil society members, journalists, businessmen, academicians, SUPRO national council members were also present.

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