We should look at Malaysia, Thailand, Indonesia, and the Philippines, who have shown progress
As an emerging economy worth $137bn showing massive improvements in purchasing power, and growing at a rate of more than 6% for almost a decade, Bangladesh should focus more on both corporate and individual taxation. However, between them, individual taxation should arrest more attention because the rate of corporatisation is pretty slow in Bangladesh.
As we lag behind in ensuring good governance and global management practices in the Bangladeshi corporations, a huge portion of the tax does not get deposited to the government’s exchequer. A large portion of high net worth individuals somehow remains out of the taxation process.
A preliminary survey done by a leading bank in North America contemplating launching consumer banking in Bangladesh revealed that though the per capita income of Bangladesh in 2002 was around $450, per capita incomes of Dhaka and Chittagong were almost $2,000 and $1,600 respectively. The survey also revealed that almost 1.5 million people in Dhaka earn more than $15,000 per year, while more than half a million people in Chittagong earn more than $12,000 per year.
So, if we consider people with similar incomes in places other than Dhaka and Chittagong, it can be said that the per capita income of 3 million people in Bangladesh is above $12,000, which is almost equivalent to the per capita income of Dubai!
We are possibly hoodwinked by the myth that people of Bangladesh are poor and cannot pay taxes. When we talk about the per capita income of $1,190, we have to understand that this counts the incomes of people who earn no more than $40 a month as well as the multi-millionaires.
The former makes up about 25% of the total population while the latter includes more than 50,000 people. There are even individuals who have more than $30m, and their number is also increasing. These figures should paint a rosy picture in terms of the government’s revenue-earning potential, but that is not happening. Many individuals pass on all their expenses to the company account to show their incomes as much lower.
Corporate tax rates should be lowered, because in most of the countries, corporate tax rates are lower than individual tax rates. This helps new corporate houses emerge. Likewise, a high corporate tax rate is demotivating to the corporations who try to ensure good governance.
On the individual level, people should be motivated to bring themselves under the tax net, even if their taxable income is small; everyone should have TIN numbers whether they pay taxes or not.
Our government should focus more on broadening the tax net and bringing more people under the tax bracket. However, I think the individual tax rate should be a bit lower, and some respite should be given to the new entrepreneurs. In the past, people could establish a bank with Tk10cr only, and they were not required to submit any tax returns. With the present taxation structure, how can we expect different professionals in various countries to come back to run entrepreneurial ventures in Bangladesh?
In the context of Bangladesh, the ideal corporate tax rate should be around 30%. But lowering tax rates all of a sudden may reduce tax collection. Hence, NBR should come up with stringent measures like hefty penalties for hiding profits or wealth concentration. Ensuring good governance, accountability, non-interference from the political hierarchy should be ensured before we try to lower the tax rates.
We should look at Malaysia, Thailand, Indonesia, and the Philippines, who have shown remarkable progress in revenue collection and ensuring more transparency in revenue management. We should also make sure our accountants and internal auditors are doing their jobs in an ethical manner.
There should be no bar between listed companies and non-listed companies when talking about corporate taxation because a preliminary review by NBR revealed that the tax advantage for listed companies did not help Dhaka and Chittagong bourses in seeing more companies being listed.
This means there are other barriers which make it challenging for companies to list themselves in the stock exchanges. But I support the tax rebate for the listed companies who are giving good dividends, because this will encourage the other companies to share more profits with the public.
CSR activities are another area where tax exemptions are provided. Though I support tax exemption facilities for CSR activities, I do have serious reservations about what are reported as CSR activities. I feel that in a poor country like Bangladesh, more money should flow to the protection of the disabled community to develop a proper and effective curriculum for special children.
We need development in fields like scientific and agricultural research, education, and rural health infrastructure. CSR money should be channelled to these sectors. NBR must crosscheck where the CSR investments are going and impact studies should be done at frequent intervals by an independent agency.
There is also a serious need for audit firms to be disciplined. Since charted accountants in every country play a significant role in ensuring corporate governance, their roles should be properly recognised.
Automation of the NBR is crucial. It will not only help in reaching out to the target market but will also assist in determining the target market and linking bank accounts of the tax payers to the NBR database. It will reduce corruption to a great extent.
Political governance is another factor which needs attention. We can never ensure adequate tax collection unless tax evaders are punished. We saw the highest ever tax collection in the years 2007 and 2008. This was because at that time, people knew they could not escape taxes. This is the single most important message that should be given to the people.
I am very happy to see that Bangladesh Bank, while processing applications for establishing financial institutions, have embedded the submission of certified IT 10B copies as a requirement. This could have been done long ago. Thus, good governance and no encouragement to tax evaders are extremely important.
Moreover, all those tax-free cars for the members of the parliament are unacceptable and I would like to congratulate the five or six good ministers who have not enjoyed this benefit. If the public representatives are allowed to evade taxes, then how can we ensure collection of taxes from young professionals?