Bangladesh is losing potential corporate tax from the digital economy as the existing taxation system -- mostly analogue -- is ill-equipped to track all types of technology-enabled transactions.
Despite having potential for revenue augmentation, economists say, the country has one of the lowest tax-GDP ratios, below 8.0 per cent, in Southeast Asia.
One reason why so is that there has been no significant investment in direct taxation made so far aligning with global business-model change to introduce paperless system.
Experts suggest focusing on investment in direct taxation, keeping few factors in mind, including expansion of e-commerce business in Bangladesh and graduation of Bangladesh from the Least Developed Country (LDC) club in 2026.
Although some 1,600 e-commerce businesses have taxpayer- identification number (TIN), less than two dozen of them submitted tax returns last year, official data showed.
The transfer-pricing law framed to check tax evasion through cross-border transactions could not be implemented properly since 2012 as the enforcement cell blissfully remained digitally unprepared.
"Analogue tax-management system in Bangladesh is encouraging aggressive tax planning of corporate taxpayers to shift profit to tax havens," says a senior tax official, indicating much-talked-about capital flight.
With comparatively high rates of corporate tax, ranging from 25 to 45 per cent, in South Asia, Bangladesh is one of the vulnerable countries regarding transfer pricing by multinational companies (MNCs), he adds.
According to a recent report of Global Financial Integrity (GFI), Bangladesh lost approximately USD 8.27 billion on average annually between 2009 and 2018 through trade misinvoicing, tax evasion and siphoning off money.
Distinguished fellow of the Centre for Policy Dialogue (CPD) Prof Dr Mustafizur Rahman says the government needs to invest on digitization of the transfer-pricing cell and deploy manpower.
"Data mining, forensic lab and exploring real-time data to check siphoning off money would be required for the transfer-pricing cell," adds Dr Rahman, who was involved with the formation of the cell.
He cited several global studies that show manifold higher returns on investment in such areas, integral to fast socioeconomic transformation concomitant with technological advances.
In recent years, the National Board of Revenue (NBR) has taken some digitization steps to automate direct tax, including e-TDS, eReturn, e-payment, and e-TIN. But all of these innovations have yet to pay off as those are not interlinked with one another.
The revenue board introduced e-TDS on October 6, 2021, for corporate taxpayers.
However, some corporate taxpayers said the system is not working properly yet while taxmen alleged lack of taxpayers' willingness to use the transparent digitized system.
NBR officials said the tax department is working on e-TDS to make it effective soon through integration with eReturn.
TIM Nurul Kabir, Executive Director of Foreign Investors' Chamber of Commerce and Industry (FICCI), says tracking bank, mobile banking and other modes of transactions to check tax-dodging can reduce pressure on the existing corporate taxpayers through mobilizing higher taxes.
"There are inherent limitations in analogue system and our existing tax system is not out of those limitations."
He finds the overall tax-management system not efficient compared to neighbouring or developed countries. "And that has been reflected in our very poor tax-GDP ratio," he says.
Snehasish Barua, council member of the Institute of Chartered Accountants of Bangladesh (ICAB), feels that tax-return filing should be digitized so that companies can file their return on their own-instead of hiring consultants and lawyers.
Jasim Uddin Rasel, a tax consultant and member of the ICAB, said taxmen should be aware of ensuring corporate-tax compliance as currently, MNCs are mostly following.
Automating withholding tax (e-TDS) is a prime step that can be prioritised in the first phase as most corporate taxpayers pay advance or source tax, he added.
Former income-tax member Aminur Rahman says global technological giants are exempted from payment of income tax as per double-taxation-avoidance treaty with 34 countries.
He, however, sees digitisation of the tax department as important but observes that existing data and resources remained to be utilized to check tax tricks.
"The tax department can take help of the Asycuda world of customs to check import data, VAT returns," he says.
The tax department so far remained dependent on voluntary declaration of unpaid or left-out taxes of MNCs for not having technological expertise to detect the cross-border tax evasion.
The NBR received additional taxes worth Tk 100 million from MNCs in the 2017-18 tax-assessment year that they paid through re-adjustment of their tax files following the transfer-pricing guidelines.
In South Asia, India was first to formulate transfer-pricing regulations in 2001. It became fully operational in 2005-06.
Sri Lanka is the second nation in the region that introduced such regulations in 2008. However, the law was not fully operational until 2015.
At present, about 75 countries have adopted the transfer-pricing regime, in keeping with businesses and investments increasingly going global in the free-market economy.