How Bangladesh can meet its revenue targets

The income tax law in Bangladesh is strict, some might even say, excessively so. It makes provisions for aggressive measures such as disconnecting gas, electricity and water services for taxpayers who fail to pay their dues. If taxpayers miss the deadline for filing returns, even their non-taxable income shall be treated as taxable. The law is rigid but despite its rigidity, revenue collection remains stubbornly below target.

The numbers speak for themselves. According to a report carried in the FE, in the first six months of the current fiscal year, the target for income tax collection was Tk 766.7 billion (Tk 76,670 crore). However, only Tk 521.62 billion (Tk 52,162 crore) was collected which is just 68 per cent of the target. This shortfall underscores the widening gap between ambition and reality. In a nation with an expansionary budget and mounting debt obligations, the government's reliance on income tax revenue is vital. Failing to meet targets creates a significant fiscal strain.

The problem, however, is not a lack of intent. The National Board of Revenue (NBR) has tried to widen the tax net by linking return submissions to essential services. Proof of Submission of Return (PSR) is now mandatory for accessing 43 essential services, including bank loans exceeding Tk 20 lakh and trade licence renewals in city corporations and municipal areas. But the results of this requirement have been underwhelming. This year, only 3,973,757 returns were filed. The fact that the country's 12 million Tax Identification Number (TIN) holders are mandatorily required to submit returns, but two-thirds of them do not do so points to a systemic problem.

A significant portion of the non-filingTIN holders earn well above the tax-free threshold. However, the NBR's efforts to identify such taxpayers have historically been fragmented. Several years ago, in an attempt to address this, NBR initiated a data-sharing programme with other government organisations. This initiative aimed to cross-reference existing databases to obtain relevant financial and asset-related information. Consequently, they secured access to the Bangladesh Road Transport Authority (BRTA) database and the Dhaka Power Distribution Company (DPDC) database. Through BRTA's database, the NBR is able to retrieve records of individuals who own or had previously owned motor vehicles, thereby gaining insights into their financial capacity. Similarly, access to the DPDC's database allows them to collect data on a portion of electricity consumers residing within the jurisdiction of the Dhaka City Corporation. This yielded partial information on approximately 1.02 million individuals with electricity connections and 1.5 million individuals who own or have owned motor vehicles. However, this is merely scratching the surface. Despite the success of this initiative, the NBR has yet to extend its access to other crucial government databases that could significantly enhance its ability to expand the tax base.

Apart from DPDC, five other power distribution companies in the country --DESCO, NESCO, WZPDCL, REB, and PDB -- along with six major gas distribution companies -- TITAS, KGDCL, Jalalabad Gas, Bakhrabad Gas, PGCL, and SGCL --hold valuable records of millions of consumers. These databases could provide crucial insights into consumer spending patterns, revealing not only who is utilising electricity and gas connections, but also the annual expenditure on these essential services. Such information could serve as a strong indicator for potential taxable income and would allow for targeted enforcement.

This is particularly relevant in city corporation areas, where tens or even hundreds of thousands of property owners collect rental income. Many of them are TIN holders who fail to submit returns, while others operate without a TIN altogether. It follows that analysing these datasets would enable the tax authorities to identify those underreporting income or evading taxes.  

As it stands, salaried individuals are less likely to evade taxes on their salary income compared to those whose income does not come in the form of a paycheque. This is because employers maintain databases containing salary information and are legally obligated to withhold a portion of their employees' earnings as income tax. Accessing utility service databases could create a similar level of transparency for many other taxpayers. For example, using these databases tax officials can gather crucial usage information during investigation or assessment stages. Multiple gas and electricity connections for a single taxpayer may indicate property ownership, suggesting one or more buildings or multiple units, potentially generating rental income. Conversely, a single connection may imply apartment ownership. Furthermore, for businesses where gas or electricity is essential to operations, inconsistencies between utility usage and reported earnings would provide strong evidence of potential income concealment.

At some point the NBR can utilise advanced analytics to process data from these databases. While manual audits offer certain advantages in discrepancy detection, automation would complement these efforts, minimising resource strain and the risk of oversights.

With accurate data in hand, the NBR can then enforce the law's stringent measures more effectively. The threat of utility disconnection becomes a credible deterrent when backed by solid evidence of non-compliance. This closes loopholes that allow tax dodgers to slip through the cracks. For the system to gain public credibility, however, penalties must be applied consistently -- prioritising habitual offenders who defy tax responsibilities despite clear capacity to pay.

Bangladesh's income tax law is relatively new. It replaced the decades-old 1984 ordinance in 2023 with the promise of higher revenue and a more effective system. Strengthening data-driven enforcement would be a positive step towards making that promise a reality. But demanding compliance alone is not enough, ensuring the availability of appropriate data to identify non-compliance is just as vital. Without this, even the strictest laws will remain ineffective, and revenue targets will continue to elude attainment.

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