Tax reforms can help economy recover quickly

While talking about desired tax policy adjustments in the pandemic situation in an earlier write-up of this author, only four possible areas were highlighted. One significant issue that was left out is the digitalisation of the taxation platform.

It was left out on purpose for two reasons: first, while Covid-19 pandemic has pointedly brought home the importance of digitalisation, attempts at digitalisation of tax platform have been there for at least a decade and, two, it is so important that it requires attention and space that cannot be allotted in a mere point of a long list of doable.

When we talk about tax reforms, we normally talk about changing tax policy or existing tax structure or their composition or changing relative weight assigned to different items of the tax-mix in the national taxation strategy and so on. We don't hear much about tax administration or reengineering of business processes of taxation.

One IMF official once acknowledged to this author in the early 1990s that this is true and it is because they are basically trained in technical and theoretical aspects of taxation and they normally assume the existence of a reasonably efficient administration at a particular point in time. Today if anybody has any knowledge of taxation in Bangladesh, (s)he would agree that it is an automated taxation platform rather than tax policy as such that should be the number one priority in any tax reform agenda.

Although automation got the first shot in the form of a Large Taxpayer Unit (LTU), a supposedly automated tax office, in around 2003, computerisation on a large scale came as a big issue in around 2009 to expand the activities of the taxes department.

The first element of the two-pronged larger plan was to enhance public awareness of taxation activities and the second element was the automation of the tax platform for creating an automated interface between the tax department and the taxpayers. On the understanding that automation will take a longer time to materialise, awareness campaign began with the novel twin-idea of "self-motivated taxpayer program" (SMTP) and "tax fair" which was started from 2010 as a first step to familiarise the taxpayers with the tax filing procedure.

Purpose of both the programs was to create an informed taxpayer class inclusively to make them voluntarily compliant. SMTP was primarily concentrated at the suburban and rural areas and tax fair at the city areas. With the progress of the program, it appeared that both the ideas revolutionised taxpayer compliance programs as well as the age-old tax survey programs undertaken for new taxpayer registration purposes.

If automation and service delivery could have been better combined, LTU could have become by now a role model for automation of tax platform in Bangladesh. It began its journey to deliver high-class tax service delivery to a finite and smaller number of bigger taxpayers both corporate and non-corporate based on what is called a functional model of management.

Every officer and staff work with an automated work-station and the office in terms of equipment and aesthetics is better managed and is unique compared to any other tax office in the country. It collects more than one-third of the yearly income tax revenue of NBR.

Although it has provided stellar services to its largely satisfied taxpayers from the very beginning, its software has not been able to keep pace with time which was envisaged in its launching charter and the database has still much to develop. It appears that this has been caused principally by the ambivalence of the decisionmakers. 

As the two programmes mentioned above progressed with encouraging response from the taxpayers, need for an automated taxation platform began to be intensely felt to consolidate the gains of the twin-programmes which helped in the expansion of the tax net with a significant taxation inroad made into fledgeling rural Bangladesh.

Toward that end, an automation program called Management Information System for Taxation (MIST) was undertaken with the lead role being played by a Bangladeshi firm. In 2011 the software was tested, almost all officers and staff were provided training and necessary hardware was procured and installed in all tax offices. During training and feedback, some shortcomings and incompleteness of the software were detected which were found easily amendable. But for some unknown reasons, the project was aborted.

Afterwards, a few more initiatives were taken including one with World Bank financing and but all went in vain for reasons best known to the authorities. Only one smaller component, E-Tin Generation, was successfully launched and is still working relatively well. Making of tax payment through bKash from last tax fair has also been a very good initiative.

These smaller components have reduced a huge repetitive workload of the department and established a system of taxpayer registration, certificate generation and tax payment without the human input of the respective tax offices and speak very well of what may come with full-fledged automation.

Tax Day 2020 (November 30 next), the return filing deadline, is approaching and the pandemic situation this year has rendered the idea of tax fair fanfare unadvisable. Every year since 2010, a huge number of taxpayers wait for this tax fair to complete their usual ritual of yearly return filing and tax payment formalities in an inclusive and festive one-stop service environment. Pandemic situation this year has brought home the usefulness of a universal digital platform.

Taxpayers who have become accustomed through SMTP programs during the last ten years have to visit tax offices this year and, given the congested state of the tax offices in the rented houses in the congested residential areas, the situation will be well-nigh impossible to manage (Despite the tax offices earning every 100 takas with a government spending of less than one taka, tax offices are yet to have their dedicated office buildings).

This year a rebate of taka 2000 has been announced as an incentive for online return filing. But taxpayers are wary of the fragmented system's capabilities to file returns with all the attendant papers and documents and payment of tax online. And, with both physical and online filing options available they appear to favour the former.

During 2012-2013 automation attempts, a much-talked-about issue suggested by donor agency experts was to contract out the repetitive non-technical parts of the tax activities as return filing and processing works to private management firms.

 Launching of any such program could have been an effective channel for SMTP and tax fair dependent tax filers during this pandemic. Also, it could have saved a huge workload of tax officials thus releasing them for other more productive, investigative, audit and other revenue-yielding technical works.

The current NID database linked E-TIN registry can be easily integrated with such a channel to administer taxpayer registration, return filing & processing and tax payment counter simultaneously.

Lack of an automated tax system has seriously handicapped NBR in managing finances for the attainment of Bangladesh's SDG goals. When some foreign tax jurisdictions are contemplating of upgrading their tax database system to blockchain technology to enhance speed, security and efficiency, we still don't have even the databased automated platform despite repeated attempts in the last one decade.

Many observers believe that such incapacitated state of the tax authorities emanate from its structural shortcomings ab initio. NBR has never followed the mandated management structure which Bangabandhu envisaged for it in his order of 1972 that created NBR. This has jeopardised development of human resources, organisational infrastructures as well as appropriate tax policies.

"Tax administration is tax policy"; if administration suffers, policy implementation will suffer. Tax administration suffers if an appropriate technology-driven tax infrastructure allowing tax officials working seamlessly does not exist on their table. Net result: a low tax effort.

Therefore, go digital.

Ramendra Basak is a retired Commissioner of Taxes. He can be reached at [email protected].