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Why NBR is on the wrong target?

  • Published at 07:47 pm May 10th, 2014
Why NBR is on the wrong target?

This year the National Board of Revenue has set a revenue target of Tk1,250bn, downsized from the original target of Tk1,361bn, a 22% increase from that of the previous year. For the next year, the target is going to be Tk1,490bn; again, about 19% higher than this year’s target, which the tax boss is planning to realise through “aggressive tax drives.” NBR sets the revenue target in a similar fashion every year, increasing by a convenient percentage over the previous year’s.

Before you read on, can you make an educated guess about what percentage of Bangladeshis actually pay income tax? In a country of 160 million people, there are only 1.2 million taxpayers registered in the system, and the number of actual tax returns submitted will be far less, around 0.8 million, including both individual taxpayers and businesses. This means, only half a percent or so of the entire population really pay tax, which is probably the lowest taxpayer ratio in the world.

This miserable tax scenario, even 42 years past independence, is largely because the revenue target that the NBR sets each year is always on the wrong footing, which does little to improve the tax situation. Let me elaborate what is wrong with the target.

Short-term goals: First, the NBR should set long term goals, for at least three to five years rather than setting mere incremental targets for every year. There are many factors that affect tax payment. Some factors may have immediate effects while others have slower but more lasting impact in the long run. Short-term targets will allow the NBR to focus only on short-term actions, like the use of punitive measures for not paying tax and using other aggressive tax drives, while overlooking more important steps that need to be taken to improve the overall tax situation.

Hence, important steps like taxpayer education, making companies deduct income tax at source from employees, or conducting proper research on tax and using the research findings to devise tax policies, are neglected. This is obvious as every incumbent NBR chairman tries to continue with similar percentage of increase in taxes compared to previous years’ and will fear being axed if revenue collection falls short in a given year due to long-term policy.

Wrong target: As explained, the NBR always targets to increase revenue collection by certain percentage and pays little attention to bringing more people under the tax net. That is why the number of taxpayers has not crossed a half percent over all these years. Imagine if only 5% of the people paid tax, what would the size of the revenue be today, even if each paid one-third of what is being paid now? But targeting to increase the number of taxpayers is difficult because of the short-term target. Beside other steps, you will need to reduce tax to make more people be willing to pay tax, which might reduce revenue in the immediate period, though will increase many-fold after a few years.

Targeting the taxed: Like every other previous year, the NBR has again pledged “aggressive tax drives,” mainly targeting those who are already paying tax, to meet the revenue target. I will not be surprised if these aggressive drives leave many taxpayers tense, feeling harassed, or even arrested and jailed. Well, while collecting tax from taxpayers properly is fine, bringing the untaxed population under the tax net is more important.

Individuals are more affected: The current tax structure is too heavy on the individual taxpayers, especially compared to the citizen facilities they enjoy. However, they hardly have a voice to raise their concerns to the authorities, and hence are the silent victims. On the other hand, businesses have many ways and avenues to lobby for various kinds of tax waiver facilities. This year alone, the NBR has received 5000 proposals for facilities from different sectors, 4050 of them are for duty cuts. The largest industry in the country is RMG, but given the long tax holiday, and many other duty waivers, how much tax is actually collected from this industry? A huge amount of IT equipment is imported at almost no tax, but you can’t do anything to increase tax from RMG or IT because most of the policymakers are the owners in these industries.

The NBR has to go after the poor individuals who have been nice enough to open tax files, for meeting the revenue targets, and they have to quietly accept whatever tax is slapped on them. A consultant, for example, has to pay a straight 25% of the fees as tax and VAT, and goes home with only 75% of the income to fight with the rising price of commodities and cost of living.

More well thought-out, rational, and long-term revenue collection goals need to be set that will bring sustainable changes to the tax scenario in the country and reduce out dependency on foreign aid. Bringing 5% of the population under the tax net in “X” number of years can be a starting target. 

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