The Financial Express

Nonstarter startups, delinquent companies create corporate tax gaps

| Updated: January 05, 2022 20:45:32

Nonstarter startups, delinquent companies create corporate tax gaps

A perpetual gap between the number of registered companies and corporate taxpayers is now bridged, but through an unsparing measure that some experts worry would raise the cost of doing business.

Sources say there had been inherent inconsistencies between the Registrar of Joint Stock Companies and Firms (RJSC)-listed companies and the number of corporate taxpayers since independence, due mainly to dormant companies and dodging tax compliance by good many others.

The number of tax-registered corporate taxpayers, finally, reached the level of RJSC ones, according to tax authority's data for the fiscal year 2020-21.

However, there is a minor gap as some defunct RJSC companies are there who failed to start operation after obtaining registration.

Corporate taxpayers having TIN stood at around 167,047 while RJSC- listed companies are 178,000.

The data, compiled by the income-tax wing of the National Board of Revenue (NBR), raised hope among the tax officials of collecting an additional Tk 30-40 billion in direct taxes within this year.

A taskforce of the NBR worked on corporate-tax compliance to bring down the gap between RJSC-registered companies and TIN-holding corporate taxpayers.

Md Atiqur Rahman Khan, former registrar of the RJSC, says the gap between RJSC-and NBR-registered corporates was there as TIN was not mandatory for start-up companies earlier.

"Earlier, the concept of taxation was to collect tax on income. So start-up companies were not liable to pay tax just after its formation," he adds to explain the lacuna.

Later, he mentions, the NBR made Taxpayer Identification Number (TIN) and return submission mandatory for all corporate entities.

There are some companies who could not go into operation after getting registered with the RJSC.

The ex-registrar, however, feels that imposing tax-compliance obligation on startups raises cost of doing business.

Obtaining TIN would require mandatory submission of tax returns, too, he says.

In the drive to enhance corporate-tax compliance in the country, taxmen collected data from 146 tax-circle offices, and identified non-compliant companies without TIN and not filing tax returns.

Field-level tax officials found some groups of companies took RJSC registration for 40 to 50 companies but were submitting tax returns for only two or three.

The number of TIN-holding corporate taxpayers was 78,000 until June, 30, 2020 while the RJSC had registered around 176,400 companies, NBR data showed.

However, the number of TIN-holder companies was 63,853 in June 30, 2018 while some 27,862 submitted tax returns in fiscal year 2018-19.

Until August 2020, some 55 per cent or 98,400 registered companies had not come under the purview income tax.

Also, 145,800 or 84 per cent of the companies refrained from submission of tax returns to the NBR.

Following the gross non-compliance, the NBR formed the taskforce on August 19, 2020 to ensure corporate-tax compliance, says a senior tax official.

For the first time, companies' return database for FY 2018-19 and 2019-20 has been prepared and the taskforce worked jointly with the Institute of Chartered Accountants of Bangladesh (ICAB) for Document Verification System (DVS).

On November 8, 2020, the taskforce handed over digital files to the field-level tax offices for follow-up action.

The tax official says the database would help in monitoring the corporate taxpayers and find out those escaping payment of taxes or submission of tax returns.

"Excepting sick and dormant companies, other corporates would be regular taxpayers from this year," he adds.

Tax expert and former income-tax member of the NBR Aminur Rahman thinks that long process of winding up dormant companies discourages many from formally shutting down their registered firms.

"It's true corporate culture has yet to develop in Bangladesh that also needs to be taken care of," he says.

Md Humayun Kabir, senior council member of the ICAB and also its former president, noted that all concerns of a group of companies sometimes cannot come into operation, resulting in piled-up number of registered companies.

He suggests simplifying the exit policy for companies if they fail to survive so that they can get rid of existing regulatory compliance obligations.

Snehasish Barua, council member of the ICAB, says the NBR needs to ask City Corporation to collect acknowledgement receipt of tax return at the time of renewal of trade licence.

"Returns of the compliant taxpayers should not be selected for tax audit by excluding them from the selection criteria of audit," he adds.

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