Will the new tax law make tax filing easier?

Bangladesh's graduation from an LDC to a developing country is happening at a time when the country is facing a formidable challenge to improve revenue mobilisation in an efficient, fair and consensual way.

Poor tax culture, a narrow tax base, tax evasion and data deficiency are the major factors of such a challenge.

Responding to the aforementioned concerns, the government finally has taken an initiative to draft a comprehensive tax law. After a decade-long wait, the National Board of Revenue (NBR) last month placed a draft of the much-anticipated new income tax law to simplify the taxation with the hope of including more taxpayers.

The draft of the proposed law was published on the NBR website. It will be submitted to the Cabinet for approval in the coming month after taking recommendations from various stakeholders.

After reviewing the draft, some professionals have said that the new law is going to be 'simple' and 'taxpayer-friendly.' Most importantly, they are appreciating the initiative as saying the existing income tax law, which is in force under the Income Tax Ordinance 1984, needs to be shaped as an act.

Syed Md Aminul Karim, a former member of NBR, has accepted the draft law as a 'good' initiative. Recently, he said, "We should have done this earlier. This law will be a clear and simple guideline for the taxpayers, particularly the ordinary ones."

The existing law has been changed by statutory orders from time to time. Due to the changes, the law as a whole becomes very complex to implement.

Karim finds the proposed draft brings many scattered provisions - covering tax exemption and penalties - into some well-organised sections. "This will make the jobs of taxmen easier," Karim said.

Unlike the existing income tax law, the proposed law includes separate chapters and sections that incorporate all matters related to determining taxpayers' income in a particular sector.

In addition, the draft law includes various provisions to ensure transparency in tax file audit, make the rules of tax deduction and collection at source more clear and precise to avoid ambiguity in the calculation of taxpayers' income.

Bangladesh is going to be a developing country by 2026. The country's economy is booming followed by steady gross domestic product (GDP) growth.

However, the country is still struggling with the 9 percent tax to GDP ratio which is one of the lowest in the world.

For steady economic growth, economists have long been pushing the government to strengthen internal or domestic resources mobilisation in terms of tax revenue. And this is now an urgent need as Bangladesh braces for a drastic fall in concessional foreign grants after it graduates from the LDC group.

Taxation is the main source of internal resource mobilisation and the government of a developing country cannot depend as much on any other avenue than it can on taxation to fund public goods and pay for development work.

Business leaders have long been stressing the need for reforms in the tax system, such as policies that do not require frequent changes, as well as waiving advance tax in order to boost both domestic and foreign investment in Bangladesh.

Due to poor tax culture and the tax evasion of the wealthy, the tax base cannot be widened in the country. Several studies suggest that a majority of the people feel our tax system is unnecessarily complicated.

The provisions for tax exemptions as well as penalties are not sorted in an organised way. Fortunately, the new law is drafted to address the issues, reviewers found.

According to NBR officials, the NBR has kept all tax rates, with some exceptions, in the rules considering the complexities of amending the tax rates on different occasions. They said tax rates will be flexible for the sake of taxpayers. They added that the new law would cut the discretionary powers of the taxmen to ensure a taxpayer-friendly environment.

In the existing law, there is no provision for amortising the pre-commencement expenditures of a business. The draft has incorporated a provision for that.

According to international best practices, income tax law should carry some special features. Former NBR member Karim found that the new draft of law complies with the international best practices as well.

In developed countries, tax collectors and taxpayers do not see each other and the whole thing is done online. Karim also appraised the scope for taking the tax system online through the new law.

"Offline tax systems often harass the taxpayers. The potential taxpayers seldom understand the procedures and tax calculations. That is why they feel less interested in tax payments. A simplified tax system will now motivate them to pay tax," he explained.  

Economist Towfiqul Islam Khan, the senior research fellow at the Centre for Policy Dialogue, also labelled the draft law a good one. Recently he said that a broader stakeholders' consultation involving individual people and professionals is a key to fine-tuning the draft.

"The important thing is for the government to run a tax system incorporating different activities and issues so that the revenue body can verify the amount of income reported by taxpayers in their filings and identify potential discrepancies and non-filers," Khan said.

He also said that using information technology, which is an important part of the new law, will be a key to achieving the goals. However, he notes that the measures should not only be concerned about collecting higher tax revenue but also simplifying the process so that people can pay tax in a justified way.

"The target should be curbing tax evasion which will inevitably lead to higher tax mobilisation," he said.

There are some other recommendations as experts believe that Bangladesh needs to limit the tax exemption for local investors as much as possible to broaden the taxation coverage.

"The existing tax provisions allow so many facilities in terms of tax holiday and exemption. Developed nations have stopped allowing such facilities a long time ago. We should follow suit," former NBR member Karim said.

The new law will include some business activities including agriculture to fall under the tax system. Such inclusion was a necessity.

But there are other potential sectors too. Given the rural development, there are many growth centres where different types of business are mushrooming.

Big entrepreneurs are cashing in on the industry expansions but the revenue body can hardly bring them under taxation because of data deficiencies.

In Bangladesh, the wealthiest individuals, who make up a small proportion of the total population, often avoid paying their fair share of tax and denying the government of much-needed revenue.

"Big entrepreneurs are escaping NBR surveillance. In many of the pocket areas, there is no tax office. NBR needs to increase the number of tax circles and staff members," Karim recommended, adding that a comprehensive measure including NBR's access to the voter list and banking information can increase the flow of tax revenue.

Here, the promotion of information about the tax system is important. But the common scenario suggests that the database on taxpayers is not cross-checked and reviewed regularly.

Economist Khan, in that regard, thought that the strengthening of local tax offices is crucial and that the non-filers must be served a reminder. 

"Nonetheless, I would recommend that the new tax law is implemented in a justified way rather than prioritising a target-oriented revenue mobilisation," Khan said.

Sadiqur Rahman. Illustration: TBS

Sadiqur Rahman is a journalist