Absence of monitoring and failure to extract information have allowed multinational corporations to take supernormal profits back home, particularly from less affluent countries.
These, coupled with relaxed taxation treaties between MNCs and governments, have deprived the poorer home countries of much needed revenue, economists say.
Renowned economist AB Mirza Azizul Islam said multinational companies evade tax mainly through manipulation of accounts and transfer pricing.
“They [MNCs] resort to under-invoicing and over-invoicing to transfer money back to their countries through tax evasion. The government [of Bangladesh] should immediately monitor the matter properly. Although the job is challenging, but the government should give it a try,” he said.
According to a report, titled “Mistreated,” published by ActionAid, Bangladesh is at the receiving end of 18 such treaties – the highest in the world, closely followed by Mongolia 15, Pakistan 14 and Ethiopia 13.
Sri Lanka is the only other South Asian neighbour of Bangladesh to feature at the top of that list with 11 such treaties.
Relaxed deals restrict governments’ power to properly tax global companies, limiting any country’s potential to utilise revenue and ensure corporate cash flow from poorer to richer countries, worsening inequality and poverty.
If the multinational corporations (MNCs) could be properly taxed by the governments of the lesser affluent countries, the money thus realised could have used to improve key public services and reduce poverty, the study says.
Among the treaties, a single clause on restricting imposition of withholding taxes on dividend payments costs around $85m losses every year in Bangladesh.
With an annual total health expenditure of approximately $25 per capita, remedying this alone could pay for health services for 3.4 million people, the study prescribes.
However, as the Bangladeshi experts said, there are more to it for the MNCs than the study reveals.
According to officials of the National Board of Revenue (NBR), MNCs evade taxes by abusing transfer pricing in different ways including capital flight, transfer of dividend and profit to its permanent establishments or parent companies, over-invoicing and under-invoicing during transactions of goods and services within their associated enterprises.
Officials also said that the government cannot deal with this mostly due to unavailability of information.
“Authorities challenge the companies based on assumed information. But without concrete data, it is not easy,” said an NBR officials, requesting anonymity.
Former NBR chairman Muhammad Abdul Majid said: “They, in many cases, do not pay tax in the home country saying that tax had been paid in the other country.”
The authorities cannot verify the information due to the MNCs’ reluctance to cooperate and share information and an absence of monitoring mechanism, he said.
Officials also said that they now have a transfer pricing cell which is working to prevent money laundering and tax evasion by MNCs.
At present, there are around 200 foreign companies operating in Bangladesh in different sectors, including consumer goods, telecommunication, energy, beverage, cement, readymade garment and banks.
The ActionAid study identifies the tax collected by Bangladesh’s revenue authority NBR among the smallest in the world if the size of the economy is considered.
Thirty different countries have negotiated dividend tax breaks for direct investment in treaties with Bangladesh, each making small savings for its multinationals, the study says.
ActionAid Bangladesh Country Director Farah Kabir said women and children in poverty pay the price when crumbling public services like schools and hospitals are starved of possible funding.
“It is time for our government to make tax fair and urgently revise very restrictive treaties that we have. Multinational companies should be paying their fair share in Bangladesh,” she said.
Currently, 66 million people in Bangladesh live in extreme poverty with less than $1.9 a day.
“Mistreated” was prepared based on a research that examined over 500 international tax treaties, revealing which ones most take away poorer countries’ ability to raise taxes on multinational companies.
It analysed tax treaties from low- and lower-middle income countries in sub-Saharan Africa and Asia that were signed since 1970.
