Adopting an inclusive approach to tax net expansion

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In a recent paper published in the Journal of Australian Taxation, the authors studied the determinants of small business owners' (SBOs) performace with three parameters: knowledge of financial statements, computer accounting software, and business tax matters in the Australian context. 

They concluded that SBOs' lack of literacy in these three subjects is responsible for their performance, and, among the three, their lack of knowledge of business tax was the worst, which resulted, they argued, principally from the ever-changing nature of tax legislation and their tax advisors' lack of consciousness regarding this aspect of their clients [SBOs]. 

They recommended, among other things, special tax measures on the part of the taxation authorities in dealing with small business owners and raising the consciousness of the tax advisors to get pro-actively involved in raising the tax consciousness of their SBO clients. 

As far as tax matters are concerned, SBOs in Bangladesh are in a worse situation because they have very low or no literacy at all, and this 'tax illiteracy' not only determines their own business's tax performance but also acts as the biggest hurdle in overall national tax literacy and hence, national tax compliance. Ultimately, all these lead to a very narrow taxpayer base that Bangladesh suffers from as well as a greater-than-expected social deadweight loss of tax.

Regarding the second recommendation, namely, raising the consciousness of the SBOs' tax advisors, Bangladesh tax authorities do not have much of a handle on this issue. Only a tiny part of this group of tax-advising people requires attestation from NBR (National Board of Revenue) to engage in tax practice, and once awarded the initial authorisation, they can go about their business as usual without caring for NBR's advice because after the initial authorisation, nothing takes place like a periodic review of their activities, a renewal requirement of the authorisation etc.

As such, there is no effective mechanism through which NBR can use tax practitioners to provide targeted tax services to their SBO clients. It is, therefore, up to the tax authorities to devise some mechanism to enhance the SBOs' tax literacy level to come out of this impasse.

We often lament that only about 30% of the 8.5 million TIN (Taxpayer Identification Number)-holders filed tax returns in Bangladesh in the current tax year 2022–23, in spite of the PSR (Proof of Submission of Return) being made mandatory for accessing many services. Almost all of these non-filers are small and marginal 'taxpayers'. 

They don't and can't file returns because of a lack of tax literacy, a lack of information on where to go, what to do, and how to do it, a lack of confidence, future uncertainty, and, above all, the cost of compliance. 

These are also the very factors responsible for tax compliance problems for SBOs in the Australian context, the researchers found in the paper mentioned above, in spite of the fact that many guides like the Cashflow Coaching Kit, a full-fledged website, a call centre, etc have been made available to aid them. 

The weight of these issues in the relatively undeveloped Bangladesh context is, therefore, understandable, which was well manifested by the overwhelming popularity of the tax fairs, which were being regularly organised by the tax authorities from 2010 before the onslaught of the Covid-19 pandemic in the last quarter of FY 2019-2020. 

Bangladesh tax authorities have also made available many tax-related services like online and offline return filing guides, websites for various segments of tax services, fair-like atmospheres in tax circles during return-filing seasons etc. But filing compliance still remains unsatisfactory. Experiences appear to show that a more inclusive taxing approach may be helpful.

In the last decade or so, farm and non-farm activities in the rural sector have increased and given a massive boost to economic activities in rural Bangladesh. Accordingly, as part of horizontal expansion, there are now tax offices in many upazilas and many more are going to be established in the coming days. 

These upazila tax offices can act as a big catalyst in tax compliance matters by tapping the growth centres in their respective jurisdictions and they can collectively help SBOs in tax compliance matters, including return filing. This has to be done under a nationwide 'Integrated survey and spot assessment programme' and under the strictest guidance of senior supervisory officers.

To do this, supervisory tax officers, with the aid of the local upazila tax office, have to first identify the growth centres in their respective jurisdictions and then chalk out a programme to involve local-level business chambers, administration officials, police officials, and local public representatives by enlisting their support in motivational tax campaigns in those growth centres. 

This has to be done by formally inviting and involving them in motivational campaign meetings and explaining to them the importance of such campaigns given the government's need for financial resources for development activities. 

The senior officers of the administrative office (Taxes Zone) have to take up a guiding role in this programme. Prominent social leaders in the area can be invited to these meetings to support the campaign themes publicly. 

The principal theme of the campaign could be a survey-on-the-spot assessment of small and marginal taxpayers. Along with the awareness campaign in general, tax officials can explain to the people basic tax-compliance ideas and the fact that they will be able to file returns in the camp office set nearby and that the tax officials will provide them with all necessary help in preparing returns and filing them. 

For this purpose, a one-page return form has to be made available in appropriate quantities. It may take three to four weeks for this critical stage of the campaign. This alliance-building stage is essential to the success of the entire programme.

In the second stage, a temporary local camp office of the tax circle having jurisdiction over that area may be established right in the growth centre. Then, one or more teams of tax officials will conduct a quick physical survey of potential taxpayers in the growth centres and record the information on pre-determined forms under the guidance of a supervisory officer.

 In the process, the teams should assuage the potential taxpayers that they can file a return and pay tax right there in the camp office, and the tax officials will be available to provide them with any help they need for compliance. 

At the end of each day's work, the supervisor should send a copy of all information collected to the supervisor in the zonal office, who should keep strict vigilance over the work of the field officers. 

This should not take long because in the process of consultations with the local business chambers, the first list of their members will already be in hand. This may take around two weeks to complete.

In the third stage, a temporary camp office will start collecting tax returns from the taxpayers and deliver the PSR right there. Such camp offices will be set up in an open space, maybe even in front of the market compounds. 

They will be simple and may require two people, one or two tables with a few chairs, a laptop with an internet connection, preferably connected to a server in the zonal office, and a register to record the returns. Local business chambers could provide the table and chairs.

In this scheme of things, we envisage the upazila tax office as a mobile one. It will have a yearly tax calendar showing the dates of field visits for the 'Integrated survey and spot assessment programme' to make small and marginal taxpayers tax-literate and collect yearly returns from them. 

Such camp-based programmes will be more frequent in the first half of the year (July to December) before Tax Day and less frequent in the second half. These will be coordinated and monitored by a team in the head office reporting to the commissioner.

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

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.