Shortfall in revenue collection: Simplifying the tax law

Akhter Zamil | Published: May 26, 2019 21:11:59 | Updated: June 01, 2019 21:20:45

The national budget for the fiscal 2019-2020 is expected to be announced in Parliament on June 11, 2019. This is the first budget of the present Finance Minister, and it is expected to be a realistic and attainable one given his experience as Planning Minister during the last term of the ruling party.

It has been learnt that the total outlay of the budget will cross over Tk. 25 trillion this time. This is undoubtedly a big and ambitious budget with the objective of achieving gross domestic product (GDP) growth rate at 13 per cent in 2019-2020. However, donor agencies like World Bank, Asian Development Bank (ADB) and International Monetary Fund (IMF) have expressed their doubts over the expected growth rate, estimating the same to be around at 8.15 to 9 per cent. In order that the budget is rendered balanced and attainable, concerned quarters hope that it would envisage projections, both in respect of resource mobilisation and expenditure, in a realistic manner.  

At the moment economic activities in the country are in severe pressure due to:

(a) Non- inflow of big investment from foreign countries.

(b) Sluggish trend in employment

(c) Slow recovery of defaulted loan in banking sector

(d) Steady fall of price in share market

(e) Fall in remittance inflow

(f) Rising inflation

(g) Shortfall in revenue collection

In view of the above, the proposed budget should be framed keeping in mind the flow of investment for development budget and revenue collections from local resources.

Development budget needs huge resources but its benefits are not available immediately. Big projects need huge money and time. The Padma bridge project is a glaring example. It was set to be completed at the end of December, 2018. Now, according to reports, it would require further time with revised target for completion by 2021. Some Export Processing Zones have also been undertaken by the government which may need more fund but benefits may not be available as expected. It will be wise for the government if mega project are taken in consideration of their size, volume, involvement of time etc. At present, a number of other mega projects are critically fraught with time and cost over-run. Some of these are:

n LNG terminal station started in 2010 but due to management snags, it could not be completed.

n Deep Sea Port suffered a delay of five years. Originally, it was estimated to be complete by 2013.

n Metro Rail project was delayed by five years and is expected to be completed by the year 2020.

There are few other mega projects such as 2400 MW Ruppoor Nuclear Power project, Rampal Power Plant which also warrant cost and time over-run.

Resource backed proposals are desirable for vibrant economic activities of the country. Some proposals were given by renowned economists of the country which deserve attention. Dr. Mohmmad Farashuddin, former Governor of Bangladesh Bank recently said that the capital market, finance and pension funds are the major sources of long term financing in most countries around the world. But we still depend overwhelmingly on banks for long term funding. As an alternative, he called for strengthening the capital market, particularly its bond market segment, as reported in The Financial Express on April 6, 2019. Currently, a significant amount of money is lying idle with Insurance Fund. Such insurance fund as well as pension fund can be used as alternative sources for long term financing to overcome the strain of the economy.

It would be pertinent here to turn to tax matters. Every year, we note that in the budget proposals, the government is more interested in raising tax but not in removing incongruous sections in the Tax Ordinance. The ambiguous, unclear and non-transparent sections in the Tax Ordinance do cause a lot of hassles and thus need immediate amendment. We cite few examples as under:

SECTION 28(3) RELATED TO INTEREST SUSPENSE ON DEFAULTED ADVANCE: This section is introduced by the NBR through the Finance Act, 1996 relating to treatment of "Interest Suspense" on defaulted loan under the tax law. Initially, Bangladesh Shilpa Bank, Bangladesh Shilpa Rin Sangstha were included in the section in the year 1996, subsequently, Bangladesh Development Bank and Investment Corporation of Bangladesh were included in 2014. Later on, commercial banks including Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank and Financial Institution, Karma Sangsthan Bank were included in 2015 in respect of treatment of "Interest Suspense" in the hands of assessee under tax law.

Inclusion of new banks in the law from time to time had created problems for its applications by the tax authority under different situations. Some times, existing law is acceptable to tax authority in case of old banks but in case of banks which were introduced after 2015, the claims of tax on  "Interest Suspense" are being refused.

As such tax officers ignore the law and taxes are being charged on the assessee unlawfully. This law has given an option to assessee either to treat "Interest Suspense" as accrued income for the year or it may be credited to P/L account on actual realisation, whichever is earlier. But tax officers are not following the law and arbitrarily imposing tax on the assessee. This is great harassment for the new bank-assessee. Charging of tax on "Interest Suspense" can not reasonably be applied and is being disputed because of the claims of different banks under the present law. The law remains silent about its effectiveness whether it is a prospective or retrospective law.

SECTION-35- METHOD OF ACCOUNTING: The method of accounting suggests that computation of profit of a company be drawn to show correct and completeness of accounts so that profit can be deduced from the accounts under sections-35. The tax returns of income are required to be filed under the Tax Ordinance following Audit Report based on Bangladesh Accounting Standard (BAS) and Bangladesh Financial Reporting Standard (BFRS). Audit should also be completed in accordance with Bangladesh Standard on Auditing (BSA).

According to BAS, BFRS and BSA, a company is required to make provision on various items of expenditures say, provision for loss of shares capital by debiting P/L account and crediting provisions account. But provision for expenditure is not allowed by tax authority being estimated expenses and tax is charged to assessee on the provision. Lots of complications are seen when tax assessment are drawn out by the tax authority. Neither the auditors nor the tax officers pinpoint their reasons for non-acceptance of the accounts in the assessment order. This leads to undesirable tax demand.

Therefore, we feel section 35 should be modified and amended in consideration of the effect of the provision in accounting which creates unnecessary tax demand. Auditors and tax officers must be careful about their Audit Report and assessment order by tax officers on clear understanding of the law. There are a lot of areas which require careful calculation of the method of depreciation accounting, closing stocks, valuation, provision for bad and doubtful debts, valuation of inventories, non-provision of interest, valuation of investments, translation of foreign currency, treatment of employee of retirement benefits. Auditors and tax officers should make their comments in report assessment order more elaborately, if profit is found otherwise.

SECTION 40- CARRY FORWARD OF CAPITAL LOSS: Under Section 40, the capital loss of shares is adjustable against capital gain. In respect of any assessment year, the net result of computation of income from any source under the heads "Capital Gain" is a loss, it shall be set off only against income from any other source falling under the head "Capital Gain" and assessable for that year.  In case any loss computed under the head "Capital Gain" could not be wholly set off, the amount of loss not so set off shall be carried forward to the next assessment year and so on for not more than six successive assessment years.

But assessing officers are found to be confused and disallow the claim of capital loss of the assessee under different pretexts, saying assessee failed to submit the required documents, the claim loss can not be established etc. As a result, assessees' are being deprived of their legitimate claim of capital loss. Therefore, we feel, the law should be modified and framed in a more simplified way.

SECTION 146- ENTITLEMENT OF REFUND: Our attention has been drawn to a news item in The Financial Express dated April 21, 2019 regarding refund of tax to assessee. Recently, Chairman of the NBR instructed tax officers to allow refund of tax up to Tk. 25,000/- to the assessee as soon as it becomes due and within 7 days of the receipt of application. No doubt, it is a good move. The Chairman also sent instructions to taxmen to simplify the tax refund procedure for small tax payers and reduce harassment. In case of delay in issuing refund cheque, the tax payer is also entitled to interest @ 7.5 per cent as per section 151. Because of clear-cut provision in the existing ordinance, u/s 146, section 135 read with sub-section (1A), (1B) and 135(C), regarding expeditious payment of refund, no new law is necessary in this regard. No application for refund is necessary from the client. Unwillingness of the field officers is the main reason for non-implementation of the provision so far. There should not be any demarcation between big claimant and small claimant of tax refund. Big claimant may be paid refund on installment basis.

We apprehend, if the existing section 135(1C) is not strictly applied, no improvement in payment of refund of tax can be accelerated. Therefore, the existing law needs to be modified. The word "misconduct" of an officer mentioned in section 135(1C) of the I. T. Ordinance, 1984 can not be helpful unless some severe actions are considered leading to postponement of promotion and holding up increment of the offender.

APPEAL & REVISION UNDER CHAPTER -XIX: It is observed that Deputy Commissioner of Tax (DCT) takes a lot of time to issue revised order on the basis of appeal order, Tribunal order to assessee u/s 156(3) and 159(4) in the ordinance. The procedures for framing revised order by DCT shall be on the basis of the points for determination the decision thereon and the reasons discussed by the Commissioner of Appeal. The time limit for communicating the revised order to assessee is not stated in the section. So, the DCT takes the advantage of communicating the revised order at his will. It will be helpful for the assessee if a provision is incorporated in the Tax Ordinance directing the DCT to issue the revised order to the assessee within 30 days of the receipt of the appeal order from Joint Commissioner of Taxes or Commissioner of Appeal.

SECTION -178 - SERVICE OF NOTICE: Previously, this section was changed on several occasions but without any effective result. Tax office claims issue of notice served properly and in time but assessee sometimes denies receipt of the said notice. There should be a proof of record of sending the notice by DCT and there should not be any avoidance of the receipt by assessee. Now a days, there are many devices to record such proof like mobiles phone, message through e-mail etc. A provision should be suitably incorporated in the law. 

Therefore, the word "misconduct" of an officer mentioned in section 135(1C) of the I. T. Ordinance, 1984 can not be helpful unless some severe actions are considered leading to postponement of next promotion and held up of increment for the offender.


Akhter Zamil FCA is Senior Partner, Akhter Abbas Khan & Co., Chartered Accountants & Tax Adviser of Sonali Bank Ltd.


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