From analogue to digital taxation regime

To switch from the existing analogue to digital taxation mode, the requirement for the government will be to invest substantially in the process

When the middle-income people are increasingly becoming tax-compliant, the same is not seen to be happening, especially, among the big earners including the multinational companies (MNCs). In its effort to figure out why, a report carried by the Wednesday's issue of this paper has pointed to the failure of the traditional manual and paper-based system of tax collection to make big companies compliant. While the apathy towards paying tax has always been chronic among the big businesses, the modern technology-enabled financial transactions have only further widened the scope of their evading tax. Not surprisingly, the slow progress on the part of the tax department in catching up with the emerging financial technology has contributed to significant lowering of the country's tax-to-gross domestic product (GDP) ratio. Notably, Bangladesh, save Pakistan, is lagging behind its many South and Southeast Asian neighbours such as India and Sri Lanka, let alone, Thailand or Malaysia in this regard. Definitely, the latter's timely move to introduce more efficient tax collection system empowered by technology has paid them dividends.

In the case of Bangladesh, on the other hand, it not only could not earn substantial amount of revenue from wilful tax-dodgers, but also failed to address the systemic lacunae that help capital to fly out of the country. The Global Financial Integrity (GFI)'s recent report, for example, says between 2009 and 2018, every year Bangladesh lost to the tune of USD8.7 billion. Needless to say, it was through the well-known malpractices such as the so-called under- or over- invoicing, outright money laundering, tax evasion and so on that such a large sum of capital could leave the country unchecked. Since the loopholes in the tax regime are yet to be fixed, there is no doubt that the illegal cross-border transfer of money is going on unabated.

But such bleeding of the economy is to a large extent avoidable. Bangladesh did indeed take steps about a decade ago to bring under scrutiny such illegal tax-avoidance practice including cross-border money transfer. As expected, it was done by way of adopting transfer pricing regulation through incorporating a chapter on transfer pricing in its Income Tax Ordinance in the spirit of the Finance Act 2012. For the purpose, a Transfer Pricing Cell (TPC) was also established to audit transactions carried out by companies. Sadly, TPC has so far remained inoperative, both digitally and otherwise, for reasons best known to the authorities concerned. However, it is better late than never. Now, the government should focus more on strengthening the capacity of the country's tax authority, the National Board of Revenue (NBR). And in the present context, another term for such strengthening is to go all out for digitising Bangladesh's entire tax regime and not shy away from earmarking generous allocation in the budget for the purpose.

Thankfully, to this end, the NBR has meanwhile taken some positive moves like introducing e-TDS, or transparent digitised system, e-Return and e-payment. What is now left to be done is to integrate these separate modules into an integrated whole to make the most of the system. Once that is done, all potential tax-evaders including the e-businesses and the MNCs could be brought under direct taxation from one point. Finally, to switch from the existing analogue to digital taxation mode, the requirement for the government will be to invest substantially in the process.