Wider authority for tax officials, bigger fines: Businesses fear harassment

Businesspeople are concerned that a wider range of power for customs officials and bigger fines for irregularities in paying income tax, value added tax and various customs duties proposed in the next fiscal budget may lead to their harassment and increased abuse of power.

Officials at the National Board of Revenue (NBR), however, say the provisions were necessary to prevent fraud and ensure compliance.

Other than tightened measures, the proposed finance bill also includes reducing fines to make business easier.

The Income Tax Act has 16 source tax deducting entities, both government and non-government companies, and four new have been given the authority.

Failure to deduct or leniency in deducting the source tax carries a penalty of 2% per month in addition to the tax amount. If the money is not paid, the deducting authority will have to pay a fine of up to Tk10 lakh. The finance bill also empowers the tax officers to look into the documents and computerised accounts of the institutions in question. In this case, any kind of obstruction or non-cooperation will lead to a fine of up to a maximum of Tk 50 lakh.

Tax officers will now also have the authority to disconnect gas, electricity and water connections from businesses to collect undisputed taxes. For this, the officers will get support from the relevant utility service provider.

Similarly, if the arrears of VAT are not paid, the VAT officers can also disconnect the services of the business establishment. Besides, certain powers in determining VAT were proposed to be expanded up to assistant commissioner level. Currently only the commissioners have the authority to determine VAT

Business leaders say if the proposal is passed, there is a strong possibility that it may be misused and lead to harassment.

The government's source tax sector generates a massive amount of revenue.

According to the NBR, about 60% of the total tax is collected from this sector.

Mostafa Azad Chowdhury Babu, senior vice-president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), demanded that the finance bill be amended, terming some such proposals "oppressive".

"Otherwise we will consider going through the legal process," he told The Business Standard.

For irregularities, he said, the measures are supposed to begin with serving a notice, then the company in question will respond to that notice or a fine will be imposed through the legal procedures that also allows the defendant to appeal.

"But when a deputy commissioner gets the authority to impose a massive fine, say Tk50 lakh. This simply cannot happen in a civilised society," he said, adding that giving so much power in their hands will lead to more corruption and incidents of harassment.

He also said, "There is also the possibility that in such a scenario both parties will agree on an amount to settle the matter in violation and bypassing the legal framework. Should it happen, it essentially means the government gets no penny while more corruption and harassment will take place."

However, on the condition of anonymity, an NBR field deputy commissioner of taxation, said that they often get non-cooperation from source tax deduction authorities.

"No action can be taken against them due to lack of legal authority. If the new proposal is approved, the environment for compliance with tax collection will be ensured," added the official.

Md Alamgir Hossain, former NBR member, who also engaged with last fiscal year's finance bill preparation, told The Business Standard that he had bitter experiences with many source tax deducting companies.

"Many do not deduct taxes, deduct less, do not submit on time, do not assist in audits and do not submit required documents on time. The list includes both non-government as well as government entities that deduct source tax," he said.

"The proposal appears to be part of an effort to bring companies into tax compliance rather than revenue collection. However, in case of application, the officials should be careful so that it is not misused," added the former NBR official.

However, economists voiced their stance against affording so much power to tax officials in the case of fines.

Dr Ahsan H Mansur, executive director at the Policy Research Institute (PRI) told The Business Standard, "Officials of the revenue department are already given more power than they should be. Legislation, enforcement and judicial powers cannot simply be at the hand of one person. There is no such system anywhere in the world.

He cautioned that if the added power is given, massive scope of irregularities and harassment will be created.

"The proposed VAT Act of 2012 was supposed to reduce the authority of the officials. But, in reality their authority only increased eventually," he added.