Tax officials of Bangladesh allegedly demanded bribes from about 45% of companies surveyed in FY23, when the country lost an estimated Tk226,236 crore in revenue due to tax evasion, a study by the Centre for Policy Dialogue (CPD) revealed on Monday.
In 2012, this amount of tax evasion was Tk96,503 crore. This means that the amount of tax evasion in the country has risen almost 2 and a half times (2.3) in the last 11 years.
The think tank estimated that 50% of this figure corresponded to corporate tax evasion (reflecting the corporate tax share in total tax revenue); the estimated corporate tax evasion in 2023 would amount to roughly Tk113,118 crore.
The study, titled “Corporate Income Tax Reform for Graduating Bangladesh: The Justice Perspective,” was unveiled at a press briefing at the CPD office in the capital.
For the study on corporate income tax, CPD collected data from a total of 123 companies, both listed and unlisted, in the Dhaka and Chittagong stock exchanges.
In addition, opinions were taken from business leaders in five sectors: ready-made garments, plastics, information technology, banking, and leather. The survey was conducted in December last year.
Findings
According to the study, around 40% of the surveyed companies reported facing problems while adjusting their tax refunds, indicating inefficiencies and delays in the refund process.
In terms of time, the survey finds that it takes an average of 34.2 days for a company to prepare the necessary tax-related documents.
It also showed that on average, a company in Bangladesh spent 5.27% of its total tax paid on preparing tax return-related materials and completing the submission process.
On the other hand, resolving a tax dispute in Bangladesh takes an average of 93.2 days, with some cases being resolved in as little as three days and others taking up to 600 days.
Khondaker Golam Moazzem, research director at the CPD, said: “Due to incentives and tax evasion, the government is losing a huge amount of revenue every year. In the name of investment, various sector-based tax exemptions are being given. These should be completely stopped.”
In his opinion, incentives or tax exemptions cannot be the basis for investment.
Moazzem alleged that the incentive structure of Bangladesh is completely made for political considerations. In his opinion, we need to come out of this structure.
“This situation is a big challenge for Bangladesh, which is in the process of graduating from the LDC list. It is expected that investment by multinational companies will increase after graduation from LDC, which will also increase the risk of tax evasion and tax avoidance.”
To address this challenge, the CPD has recommended increasing institutional capacity, developing the digital infrastructure of the tax system, and policy reforms.
Tamim Ahmed, senior research associate at CPD, delivered the keynote presentation.
He said that tax evasion in Bangladesh was driven by high tax rates, weak enforcement, complex laws, and widespread corruption within the tax system.
Recommendations
The report stated that to curb corruption, including bribery by dishonest officials, the CPD suggested installing CCTV cameras in all rooms of tax officials at the NBR building to enhance transparency and accountability and to deter illegal transactions.
Furthermore, the CPD study also found that 65% of businesses reported persistent disputes with tax officials regarding the calculation of their payable tax amounts.
Tamim also informed: “Since Bangladesh has the lowest tax revenue GDP ratio (8.50% of GDP in FY24) in South Asia except Afghanistan, one of the most critical concerns in the post-LDC era could be the mobilization of domestic resources to meet rising financial demands, particularly as concessional finance diminishes and commercial financing from external sources increases.”
