Reforming the taxation system

It was quite a befitting observation a noted economist made early this week
about the National Board of Revenue (NBR). Taking part in a seminar on
tax policy and public finance in Dhaka, the economist, who is one of the
key figures in a private think-tank, likened the Board to a graveyard
'littered with tombstones of reforms'. The comparison might appear a bit
harsh, but it does represent facts.

Despite some amendments made to tax laws and rules and improvements
achieved in tax administration, country's taxation system, when compared
with that in many countries, is archaic and unfriendly to taxpayers, to a
large degree. The scope for indulging in irregularities and harassing
taxpayers is there and the efficiency level of taxmen is yet to be up to the
mark. The deficiencies, obviously, take a toll on the government's tax
revenue collection; the actual collection of revenues, in most financial
years, falls far short of the targets set in the national budgets. However, the
administration, for reasons best known to it, tends to be ambitious while
setting tax revenue targets.

Introduction of value added tax (VAT) in 1991 was a watershed in the

country's taxation system. Barring that nothing notable has happened
though there were lots of promises to make the system efficient and
taxpayer-friendly. That actual achievements were far short of
promises is amply reflected on the country's poor tax-GDP
(gross domestic production) ratio.  The ratio is one of the lowest in
the region. However, it would be unfair to say there were no reform
initiatives on the part of the government. In fact, there was a plenty of
them. But most of the initiatives have remained half-done or
shelved because of resistance and subtle non-cooperation from
different vested interest groups . ( আসলে, তাদের প্রচু র ছিল। তবে বেশিরভাগ
উদ্যোগই বিভিন্ন স্বার্থপর সুদ গ্রুপের প্রতিরোধ ও সুস্পষ্ট সহযোগিতা কারণে অর্ধেক বা ছু টি
কাটানো হয়েছে।)

Automation is a part of donor-driven reform initiative aimed at making the

service delivery on the part of taxmen fast and transparent. Besides, an
automated system helps reduce irregular practices. However, the progress
in areas of automation is far short of the target. The government, in line
with the desire expressed by the multilateral donors, tried to
reform VAT which is now the largest revenue earner. The
government passed in 2012 a law in parliament introducing a few major
changes in the VAT law, including introduction of a uniform rate of VAT.
But it had to backtrack following resistance from the
businesses and now the new law in a diluted form is set to be
enforced from July next.
Undeniably, the tax revenue earning potential in Bangladesh is much higher
than what is fetched now. The rate of tax evasion is high among the
existing taxpayers and many individual taxpayers and companies that have
taxable income, consciously avoid paying tax. However, motivation is an
issue that cannot be overlooked as far taxation is concerned. More and
more people would be encouraged to pay tax if they see their money being
utilized in a fair and transparent manner by the government. Taxpayers do
also expect some benefits, including health-related ones, particularly during
their old age.

Reform is demanding and unsettling for certain quarters. That is why

reform initiatives do face opposition from various vested interests. But
should it go on like this? Should poor and low income people continue to
shoulder the tax burden of others because of the government's lukewarm
attitude towards the need for reforming the tax system? Under the
circumstances, the policymakers should actively consider the experts'
suggestion to form a tax reform commission that would overhaul the tax
regime.