The Financial Express

Bringing foreign employees under tax net  

Bringing foreign employees under tax net   

For quite sometime the issue of tax evasion by foreign employees has been in discussion, particularly in the media. Although lack of proper documentation, monitoring and legal enforcement by relevant agencies are often blamed for not taking effective measures to set things right, there is clearly a sense of disorderliness, if not outright indifference to, in going about the task.

One may recall that there were quite a few moves by the National Board of Revenue (NBR) and the Bangladesh Investment Development Authority (BIDA) to put in place mechanisms to identify employees legally working in the country and bring them under documentation while making sure that no undocumented workers are employed by any business or industrial enterprise. But the moves did not materialise. It has been found that the bulk of these foreign employees -- some quite highly paid -- are not enrolled with the BIDA-- a mandatory requirement, prior to their employment. Being unaccounted for, these people merrily spend their time here without being asked the legitimacy of their stay or their income.

Rough estimate says the number of such illegal workers in various capacities might well exceed half a million, residing mostly in the cities of Dhaka and Chottogram.  A local daily quoting its reliable sources says foreign employees working in Bangladesh remit around $5.0 billion annually. Some of them who are registered with the BIDA do not disclose actual salary, and if at all, not in the foreign currency they are paid but in local currency-- as a ploy to evade higher taxes. Of the half a million foreign employees, only one-fifth are reportedly registered with the BIDA.

The magnitude of the situation can be understood from a study by the Transparency International Bangladesh in February 2020 which said workers legally or illegally employed in the country were draining out at least $3.15 billion or Tk 26,400 crore each year.

The influx of undocumented migrant workers into Bangladesh is largely demand-driven, particularly in the export-oriented garment factories. However, it is the lax official procedures and absence of vigilance and monitoring that result in their growing numbers.

There is nothing wrong in legal employment of foreign workers, and in certain sectors including garment and high-tech manufacturing, Bangladesh does need skilled workers. But a majority of these workers including mid-level supervisors and managers get employed without legal documents. Reports have it that most of them from neighbouring countries enter Bangladesh on tourist visa or multiple entry visa with prior arrangement for employment in local business enterprises dodging the law of the land.

Picking up employment on such visas is grossly irregular and punishable under the law. The concerned authorities, including the immigration department, haven't done anything noticeable to ensure that only the authorised persons are employed. It is also often alleged that taking advantage of the lax or no vigilance, a large number of unauthorised foreigners are currently engaged in private hospitals, even elementary schools. Not all of them overstay, they go back and enter with fresh visas to continue with what they were doing. Their employers, for the most part, are the main facilitators in their illegal activities.

The media have been reporting the illegal practice for long. The main point being that when unauthorised persons get employed by local business and manufacturing houses, they take their earnings through unofficial channels, that too in foreign currency. Over and above, taxes liable to be paid are evaded.

Clearly, it is the local employers who are to blame. The prevailing law regarding employing foreigners should be well known to all who hire foreigners. Besides, the BIDA also sends circulars to chambers and businesses reminding them time and again that the mandatory requirement of getting registered with it was strictly followed.

As things stand now, this area of employing foreigners is largely outside the purview of any effective regulatory regime of the government. According to the income tax law, an employer will face penalty amounting to as much as 50 per cent of his or her total payable tax or taka half a million for employing even a single foreign national without work permit from the competent authorities. The NBR is also competent to scrap tax benefits including tax holiday facility for the export-oriented companies, if found guilty of conniving with foreign workers in tax evasion.

Years ago, a government taskforce for prevention of tax evasion by illegal foreign workers was set up. In March 2016, the National Board of Revenue formed another taskforce and two regional taskforces for Dhaka and Chottogram to carry out inspection in factories to detect illegal foreign workers. Though much drummed up, the taskforce hasn't come up with any success to its credit.

Observers feel that even for legal employment, there is the need for the authorities to check whether the type of job for which a foreigner has been sponsored/employed by a local company is one for which services of an expatriate is absolutely necessary. If the relevant authorities are alert, chances are high that many work permit applications will fail to address this important issue. There should have been a database of foreigners legally working in the country. This, on the one hand, would have facilitated the NBR to remain apprised of their tax payment status, and on the other, ensure their legal stay in the country. It appears that no such database exists. Records of work permit are available with the BIDA, but these are perhaps not meant for policing.

Given the failure of previous moves, it is high time the authorities moved in a more coordinated manner to resolve the longstanding problem without delay.   

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