If people refuse to pay taxes, then we've a useful indication that the tax rate is too high.
It's not conclusive proof, this tax strike, but it is still useful information.
If people smuggle and then dodge import taxation, then this is useful information that import taxes are too high.
That's a useful starting point from which to think about the complaint from the Mobile Phone Industry Owners Association. According to them, at least some 20% of high-end phones sold in the country are smuggled across borders -- or, at best, are part of the “grey” industry (in the jargon, “black” market is illegal things, grey is legal but not paying tax).
We can see how this might be true, too, as there's a 43% tax on the import of decent smartphones. This then leads to loss of tax revenue amounting to about Tk10,000 crore.
And, well, yes, OK, we can see their point. They are the people obeying the law and then these other people just flaunt that law and make money by not paying taxes.
We can see why they'd be upset.
On the other hand, we need to think about the existence of the 43% tax in the first place. Is this actually a sensible idea?
That 20% of the market simply ignores the very idea itself would indicate that perhaps that tax rate is too high. But if it is, then why do we have it at all?
Ah, well, that's because the people who make phones -- OK, high-end smartphones -- in Bangladesh are much more expensive than people outside Bangladesh.
The government thinks that making phones here is a good idea so those imports should be heavily taxed therefore. The government is wrong on this.
There is no good reason why phones should be made in Bangladesh. Therefore we should not protect -- with these import tariffs -- the companies that try to do that.
Now, I admit that I'm an extremist in matters of trade so you could dismiss my views on that basis. But economists desperately insist upon a difference between intermediate goods and final consumption goods.
Intermediates are those that are then used to make other things, and the general insistence is that import taxes and duties upon them are a really, really, bad idea.
Because if we push up the price of the things we make things from, then we push up the costs of those things being made.
And those things being made from the imports might well be worth very much more than either the tax revenue being collected from the imports or whatever might be the value of the domestic production of those intermediate goods.
Which is where we are with smartphones. They're the very foundation of “Digital Bangladesh” -- we're not going to do that on personal computers for everyone, this is something that's going to happen on phones.
We all also know that the whole country going digital is one of those things that is going to enrich us all. Hugely and vastly enrich us all.
So, we want smartphones -- the intermediate good -- to be as cheap as possible.
We really want smartphones to be as cheap as possible, they're the tool that will enable us to meet that larger goal of an efficient society all around us.
Manufacturing them in Bangladesh, well, if they're cheap then that's great. If they're expensive then we want to buy them from foreigners.
Because we want cheap smartphones much more than we want either tax revenue or a few jobs.
We also know that Bangladesh-made smartphones are expensive which is why there is a 43% tax upon imports -- if there was no such tax, there would be no domestic production.
That people dodge the 43% tax tells us that the tax is too high anyway.
But taxing cheaper methods of gaining an intermediate technology like smartphones is a silly thing to do anyway.
So, the correct thing to do is abolish the import tax. Not that anyone will but that is what should be done.
People dodging taxes is an indication -- it's information. But sometimes the correct answer from consideration of that data is to abolish the tax.
