Curbing tax evasion

Tax evasion has remained extensive and a large number of professionals and businesses feel no qualms about resorting to this malpractice responsible for crippling the country's fiscal stability. According to the National Board of Revenue (NBR), merely 4.6 million of the 10 million registered taxpayers have filed their returns for the fiscal year 2022-23. Even though the NBR claims that tax return submission has increased significantly - from 2.1 million in June 2020 to 4.6 million in April 2024, the compliance rate is still deplorably low. To further improve the compliance rate, the NBR has made it mandatory to show proof of tax return submission for availing of 45 services and introduced electronic platforms for filing returns with the assistance of Tax Return Preparers (TRPs). Despite this, tax evasion remains rampant among professionals, including lawmakers, high officials, lawyers, doctors, teachers, technicians, and service providers.

Not only are professionals evading taxes, but businesses are also extensively involved in such wrongdoing. To evade paying taxes, it is alleged, businesses often maintain two sets of ledger books--- one for showing to the tax authority and another for recording their actual income and expenses. This practice allows them to underreport their earnings and overstate their expenses, thereby reducing their taxable income and the amount of payable taxes. The impact of the widespread tax evasion is multifaceted. On the one hand, it deprives the state exchequer of the critical revenue needed for development and public services. On the other, it places an unfair burden on those who do comply, fostering a sense of injustice and eroding public trust in the tax system.

To address these challenges, the government must undertake a rigorous taxpayer census and implement robust enforcement mechanisms. This can ensure bringing all eligible taxpayers into the fold augmenting revenue generation and promoting a culture of compliance. Additionally, targeted education and outreach programmes can help simplify the tax process and encourage voluntary compliance among professionals and businesses. Shifting from traditional enforcement methods to user-friendly and automated technology can significantly enhance tax compliance. For example, through extensive data sharing among different government organisations and departments, the government can, by and large, pinpoint tax evasion. As technology advances, secure data exchange is becoming increasingly easier, allowing for a more automated tax assessment process. This system could pre-populate tax return forms with income information gathered from various sources, reducing manual entry and streamlining the filing process.

The effectiveness of this approach, however, hinges on the increase in electronic transactions. The less cash used in a country, the more accurate and efficient such a system can be. The potential for improving the effectiveness of the at-source deduction system (known as TDS) should also be exploited in order to ensure more accurate income reporting. Obviously, expanding e-TDS to encompass more sectors and transactions would broaden the tax base. Additionally, implementing real-time deduction and electronic deposit of TDS would prevent misappropriation and guarantee that collected taxes reach the government.  With pre-populated tax returns reflecting all income and TDS information, tax compliance would significantly improve. As Bangladesh moves forward, a transparent, fair, equitable, and efficient tax system is the need of the hour. By tackling tax evasion head-on and broadening the tax base, the government can secure the revenue needed for sustainable development and economic growth.