Tax filing stands digital test

In a bold leap forward for automation, the National Board of Revenue (NBR) has mandated that nearly all individual taxpayers must file their income-tax returns online beginning this year. Only the elderly, individuals with disabilities, expatriates and those filing on behalf of the deceased are exempt from this new requirement. Obviously, this move aims to capitalise on the public's growing familiarity and comfort with digital tools to simplify return submission and improve transparency. This is undoubtedly a welcome change from the old, paper-based system. However, as with any great leap, the devil is in the implementation; and several challenges must be addressed to ensure a smooth transition for all taxpayers.

The good parts of this move are easy to see. For the average taxpayer, it eliminates the need to physically visit a tax circle and wait in long, intimidating queues. Given the longstanding allegations of harassment associated with many tax offices, taxpayers who become adept at using the online system stand to gain benefit from this change immensely. It also serves as a powerful blow against corruption. Specifically, it ends the deliberate practice where unscrupulous taxpayers would bribe some tax office employees to hide their physical files. This tactic ensured that when those files were later needed for scrutiny, they could not be found, thus preventing any legal action. Now, with records preserved in a secure digital format that is easily retrievable and far less susceptible to manipulation or loss, that avenue of corruption is closed. This ensures a level of transparency and safety that was once unthinkable, positioning the income tax department as the digital revenue authority matching modern economy demands.

Despite these considerable benefits, the new system is not without its shortcomings. The most obvious one is its inability to allow taxpayers to upload supporting documents at the time of filing. Some NBR officials stated this omission is intentional, arguing that attachments only complicate the process and it is non-standard. While this approach may work for certain verifiable assets like savings certificates, it fails for numerous other categories. Critical information such as the salary of non-government employees, their Tax Deducted at Source (TDS) details or transactions involving land and property cannot be verified in real-time through the current system. Consequently, a taxpayer is forced to input data on good faith all the while facing the risk that any mismatch could trigger an audit and a demand for the very documents under the system would not let them submit those in the first place.

Furthermore, this procedural gap creates a perverse incentive for non-compliance. When taxpayers are asked to submit information without supporting evidence, the temptation to misreport becomes hard to ignore. Stories of people inputting false numbers and boasting about it are already circulating from last year's filing season. Tax officials are government employees with limited capacity and they cannot reasonably be expected to detect every carefully constructed false return without the ability to cross-check documents. Even when irregularities are suspected, how many physical notices can realistically be issued? Sending a notice only to discover that everything is in order wastes time for both sides. Worse still, some taxpayers may ignore notices altogether, leaving officials to chase down information through letters to employers or manual follow-ups. In practice, this undermines the very efficiency the online system is meant to deliver. Hence, the NBR must recognise that, in its current form, the system is an open invitation to a new kind of digital tax evasion because it allows people to enter whatever numbers they please. These inefficiencies could be largely eliminated by incorporating an option to upload documents at the time of filing, which is a simple task for most taxpayers in today's digital age.

Another major weakness of the current system is its lack of integration with banking data. At present, taxpayers manually enter information such as account balances, interest income and tax deducted at source, with no way for the system to verify accuracy. The NBR is aware of this flaw and has already asked the Bangladesh Bank and the finance division to enable a mechanism where this information flows directly from bank servers into the online return form. Such integration would spare taxpayers the hassle of collecting statements and certificates and, more importantly, grant the NBR the enhanced ability to instantly cross-check taxpayer submissions, thereby making tax evasion far harder.

Unsurprisingly, this idea has met resistance from the banking sector which expressed fears that sharing customer data could compromise privacy and discourage people from keeping their money in banks. These concerns are not without merit, but they do not outweigh the benefits as well. For a country with a vast informal economy and a tax base that remains stubbornly narrow, connecting the tax system to banking data is less a matter of choice than of necessity. Without it, automation will remain partial and the ambition of a truly transparent revenue system will continue to fall short.

The push to implement these solutions is also a matter of political timing. The country is currently under an interim government, a period often more conducive to passing difficult reforms. Once an elected government assumes power, influential groups with vested interests may again exert greater pressure, making it significantly harder to enact changes that threaten the status quo. This window of political will must not be wasted. Unless the gaps in the current system are closed, the online return mechanism will remain riddled with loopholes large enough to invite widespread abuse.

Nevertheless, there are positive indications that the NBR is committed to improving the system. In a welcome move, recently it has centrally determined which tax files require audit and disseminated these lists to circle offices, removing the discretion previously held by individual officials. This is a significant step. This should curb the longstanding practice where corrupt tax office employees could threaten taxpayers with audits to extort bribes. Taken together, these efforts mark a commendable beginning. The first step has been taken, but it is the next steps that will decide if this change truly works for everyone.

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