NBR plans to send private agents for tax collection

Soon income tax agents may appear at your door regularly to collect your taxes. 

The government is considering employing private tax collection agents up to the union levels from the forthcoming fiscal year 2023-24 to boost tax revenue, given the country's tax-to-GDP ratio of below 8%, a low number despite the economic growth over the past two decades.

This move is a part of the revenue boards' strategy to achieve its Tk4,30,000 crore revenue collection target in the upcoming fiscal year, which is 16.2% higher than the current fiscal, according to finance ministry sources.

Corporate tax rates are likely to remain the same in the new budget despite a demand for cuts, while the tax-free income threshold for individuals might be increased to Tk3,50,000-4,00,000 from Tk3,00,000.

According to top officials in the finance ministry, the National Board of Revenue (NBR) has proposed the appointment of tax agents to expand the tax net across the country and persuade persons with taxable income to pay taxes.

At the same time, tax agents will also help new taxpayers or those who have e-TIN but have not yet submitted their returns to prepare their tax returns.

Ministry officials have stated the proposal was discussed in a recent meeting with Finance Minister AHM Mustafa Kamal and will be presented to Prime Minister Sheikh Hasina on 14 May for her approval.

Infographic: TBS

If approved, the upcoming budget will incorporate the finance bill, which includes a new rule named "Income Tax Preparer (ITP)," that has already been developed as a draft.

The implementation of private tax collection agents is modelled after countries like the United States, Australia, and the United Kingdom, according to Finance Ministry officials.

In the USA, tax preparers can prepare, file, or assist with general tax forms and can also represent taxpayers to the Internal revenue service (IRS) – which is responsible for collecting US federal taxes – during audits and tax court issues.

However, former NBR chairman Muhammad Abdul Mazid suggested that the implementation of tax agents should initially be piloted to ensure its effectiveness.

He also expressed hope that the initiative would help reduce fear among taxpayers of tax officials and that the NBR would improve its attitude toward auditing tax returns.

Mazid also noted that the appointment of tax agents would create a significant number of new jobs.

Finance ministry officials explained that in Bangladesh, tax agents would be companies that register with the NBR and appoint income tax preparers. These agents will be trained and monitored to find new taxpayers and help them file their returns, which must be submitted online.

The sources also mentioned that the tax agents will work similar to life insurance company agents and will receive a commission of 10% of the tax collected, excluding tax at source, with a significant portion going to the tax return preparers.

The commission rate will be determined by the appointed agents of the NBR, and the revenue board plans to pay commissions to agents for the next five years in exchange for finding new taxpayers.

Despite having taxable income, many people in the upazila-municipal level of the country are not paying taxes, according to NBR officials. Although there are more than 8.8 lakh tax identification number (TIN) holders, only 2.9 lakh taxpayers have submitted returns in the current fiscal year. 

Ahsan H Mansur, executive director of the Policy Research Institute, however, warned that the NBR's move to appoint private agents might lead to the creation of a "broker class", causing the initiative to backfire. Since commissions from tax collection are their only income, the agents will try to pressurise taxpayers to pay higher amounts of taxes than the payable, or take bribes from them to reduce the amount, he explained.

Alamgir Hossain, a former member of the NBR (tax policy), feels that appointments of private agents in tax collection might be done on an experimental basis to increase the number of taxpayers.

He, however, declined to make further statements on the matter without knowing fully as to how much authority the tax agents will be given.
 
Which countries have private agents for tax collections?

In Australia, the Australian Taxation Office (ATO) has engaged private debt collection agencies to assist in the collection of certain tax debts. These agencies work on behalf of the ATO to recover outstanding tax liabilities.

In the United Kingdom, the government has outsourced the collection of some tax debts to private companies. These companies are responsible for recovering unpaid taxes, such as income tax and national insurance contributions.

Greece has also utilised private debt collection agencies for the collection of certain tax debts. These agencies operate under the supervision of the Ministry of Finance.

In Brazil, private companies can be hired by local municipalities or state governments to handle tax collection. These companies work alongside the government tax authorities to ensure the proper collection of taxes.

The Internal Revenue Service (IRS) in the United States has used private collection agencies in the past to collect certain overdue tax debts. However, the program has been controversial and has undergone changes over the years.
 
Individual tax-free income limit will be higher

The NBR has decided to increase the tax-free income limit for individuals after two fiscal years, taking into account the current inflation.

The limit may be raised to Tk3,50,000-4,00,000, pending a final decision by Prime Minister Sheikh Hasina in the meeting scheduled for 14 May. However, the NBR is in favour of maintaining the tax-free income limit at Tk3,50,000, as raising it to Tk4,00,000 could result in many taxpayers falling out of the tax net, ultimately reducing tax collection.

Over the last ten fiscal years, the tax-free income limit has gradually increased from Tk220,000 in FY14-15 to Tk2,50,000 in FY16 and Tk3,00,000 in FY21. The NBR did not increase the tax-free income limit in the last two years in response to demands from various businessmen, economists, and social organisations.

According to a senior NBR official who spoke on condition of anonymity to TBS, increasing or decreasing the tax-free income limit for individuals is primarily a political decision. Therefore, the ultimate decision on the tax-free income limit will be made by the highest level of the government.

Nonetheless, the NBR prefers the limit to be set at Tk3,50,000, as this decision would benefit both taxpayers and the NBR, said the official.
 
Corporate tax rates to remain unchanged

The corporate tax rates for listed and non-listed and one-person companies are likely to remain unchanged in the upcoming budget, although the rates were slashed in the last three consecutive budgets, according to the sources.

Currently, the corporate tax rate is 20% for listed companies, 27.5% for non-listed companies, and 22.5% for one-person companies.
 
NBR revenue target Tk4,30,000cr for FY24

Sources suggest that the total revenue collection target for the upcoming fiscal year would be Tk5,00,000 crore, which is 15% higher than the current fiscal year's target and is equivalent to 10% of the country's GDP.

The NBR has been assigned the task of collecting Tk4,30,000 crore, which is 16.2% higher than the current fiscal year.

In addition to the NBR's target, the non-NBR revenue collection target has been set at Tk20,000 crore, and the non-tax revenue (NTR) collection target at Tk50,000 crore.

Former NBR Chairman Muhammad Abdul Mazid stated that while the current fiscal year's revenue target may not be achievable, a high target is not necessarily a bad thing if the government does not increase its revenue expenditure based on it. If the government does so, it may result in increased bank borrowings.

He also suggested that expanding the tax net should be a priority to meet revenue targets, as setting such a high target may put pressure on revenue officers to meet their targets, which could negatively affect taxpayers.