VOL 23 NO 276 REGD NO DA 1589 | Dhaka, Monday, August 22 2016

http://print.thefinancialexpress-bd.com/2016/08/22/149777

Discretionarypolicyhinderscollectionoftaxes
M S Siddiqui
ThetaxGDPratioinBangladeshisverylowatabout10percent,butitisslowlyimproving.Bothtaxand
nontaxrevenuesasapercentageofgrossdomesticproduct(GDP)havebeenincreasingovertheyears.
ButthestatusistheworstinthecountryinthecontextofSouthAsia.BothtaxGDPratiosandrevenue
GDPratiosarethelowestinBangladeshamongtheeightmembercountriesoftheSouthAsian
AssociationforRegionalCooperation(SAARC).TheaverageSAARCtaxGDPratioisabout15percent.

Corporatetaxpayerspaythehighestincometax.Ofthetotalincometax,theshareofcorporateincome
taxwasthehighest(72.1percent)duringtheperiodfrom198182to198586,whilein200708,itwas
around59.1percent.

Personalincometaxesshowthatonly13percenttaxpayersarepayingaround73percentoftax
revenuecollectedthroughpersonalincometaxesandinterestingly,about53percenttaxpayerspay
only0.08percenttaxes.Theburdenisunevenlydistributedamongtheregisteredtaxpayers.Inreality,a
majorportionoftaxesispaidbyasmallgroupofpeoplewithhighermarginalrates.

TheTaxationInquiryCommissionReport,1979,presentedtherelativetaxburdenofthetwosectors
fromdirecttaxes.Bangladesh'staxstructureisbiasedagainstthepoorerclass,especiallyinruralareas.
Ontheotherhand,thereisalsotheviewoftenexpressedbyasectionofthecommunity,particularlyin
theurbansector,thatthepresenttaxstructureweighsheavilyagainstbusinessandentrepreneurclass.
Itisduetothefactthattheeffectivetaxrateishigherintheurbansectorthanintheruralareas
becauseofthedifferenceinthenatureoftaxandtheintensityatwhichsuchtaxisimposedonthetwo
sectors,andthestructureofconsumptionandincomebetweenurbanandruralsectors.

IncometaxinSouthAsianregionhaditsoriginintheyear1860whenJamesWilson,thefirstFinance
MemberinBritishIndia,introducedtheIncomeTaxBilltitled"AnActforimposingDutiesonProfits
arisingfromProperty,Professions,TradesandOffices".In1886,thegovernmentofIndiaenactedthe
IndianIncomeTaxAct,1886.TheIncomeTaxOrdinance,1984(XXXVIof1984)cameintoforceonthe
July01,1984,toconsolidateandamendthelawrelatingtoincometax.

Thecomplexitiesintaxlawsarecostincurring.Therearehugeresourcecostsintermsofadministrative
costs(taxcollectioncosts)andcompliancecosts(taxpayers'costs)intermsofoutofpocketcostsand
nonmonetarycosts.However,manyofthesecomplexitiesarebeneficialforthosewhocanexploit
them.Thelivelihoodoftaxlawyersandcorruptionoftaxofficialsaredependentonthiscomplicationof
thetaxcode.

Thecomplexitiesinthetaxlawsarealsocostincurring.Hugeresourcecostsintermsofadministrative
costsareinvolvedinthese.TheadministrativecostsoftheNationalBoardofRevenue(NBR)wereTk.
5,705.2millionin200708.Thus,averageannualtaxcollectioncosts(perTaka100oftax)in200708

wasTk.0.51forindirecttaxandTk.0.60fordirecttaxandhenceatotalofTk.1.20foroveralltax
(includingtheNBR'sHeadOfficecosts).

Fromtheperspectiveoftaxpayers,thecostsofcomplexitiesaremainlyrelatedtocompliance,which
includesdirectmonetaryoutlaysforprofessionalguidance,expensesforrecordkeepingand'supplies'
(stationeries,files,etc.),expensesforbuyinglatesttaxpublications,costofaudits,appealsandlawsuits.
Timespentbythetaxpayersontheirtaxaffairsforpreparingreturnandactivitiessuchasresearching
thetaxlaw,meetingwithanadvisor,orarrangingfinancialaffairstominimisetaxesareaddedtothe
cost,whichishardlyassessableintermsofmoney.

Salaryisthemainsourceforgovernmentemployees.Itincludesallkindsofpay,dearnessallowance,
overtimeallowance,bonus,leavesalary,advancepay,allallowances,paymentforrentfree
accommodation,pension,interimrelief,houserentallowanceandcontributionofnationalpension
scheme(NPS).Children'seducationallowance,hostelsubsidyandtransportallowancearenotincluded.
InIncomeTaxOrdinance,1984,anexclusivedefinitionisgiveninSection2(58)whereinitissaidthat
salaryincludes:(a)anywages,(b)anyannuity,pensionorgratuity,(c)anyfees,commissions,
allowances,perquisitesorprofitinlienofinadditiontosalaryandwages,(d)anyadvancesalary;and(e)
anyleaveencashment.

TheIndianincometaxlawhassimilarprovision.SalaryearnedinIndiaistaxablenomatterwhetherit
hasbeenreceivedassalaryproperorasleavesalary.Salaryincomeincludingleavesalaryisearned
wheretheserviceisrenderedwhilefamilypensionisassessableas'othersources'income,subjectto
thedeductionandgratuityreceivedbyagovernmentemployeeisfullyexempt.Basedonthisdefinition
ofsalaryandpracticalsituation,elementsofsalarycanbeidentifiedasincomeofanygovernmentor
privateofficials.

TheIncomeTaxOrdinance,1984,hasallowedthegovernmentofficials,havingtaxableincome,topay
incometaxontheirbasicsalaryandenjoyexemptiononotherallowances.Butformanyyears,income
taxforgovernmentemployeesisdeemedpaidbytheiremployerthatisthegovernment.However,ifa
privateemployerpaysincometaxforitsemployees,suchpaymentsareconsideredincome,which
createsadditionaltaxburdenfortheemployeeoftheprivatefirm.

Since2010,officialsofallthegovernmentofficesarepayingtaxontheirbasicsalarywhileofficialsof
privatecompaniesarepayingtaxonbothbasicsalariesandotherallowances.Butanother
discriminationcreatedbyanorderoftheMinistryofFinanceandcomplexitiesovercollectionofincome
taxonallowancesandotherincomeoftheofficialsofstateownedenterprises(SoEs)andautonomous
bodieshavecreatedconfusionamongthetaxmeninthecurrentfiscalyear.AccordingtotheIncomeTax
rules,theofficialsandemployeesofthestateownedenterprises(SoEs)andautonomousbodies,who
havetaxableincome,havetopayincometaxonboththeirallowancesandbasicsalarieswhilethe
financeministry'sorderhasallowedthemtopaytaxonlyontheirbasicsalariesthatfullgovernment
officialsareenjoying,taxofficialssaid.

Taxmenarepuzzledovertwocontradictoryrulesofthegovernmentoncollectionofincometaxfrom
theofficialsofSoEsandautonomousbodies.Duetotheorder,thetaxofemployeesofSOEsisthesame
asofemployeesofprivatecompanies.

Anationaldailyrecentlypublishedacoverstoryrevealingthat75percentofthegovernmentofficials
donotsubmitincometaxreturn.Accordingtothecomprehensivereport,NBRdeductsthetaxatsource

fromsalariesdrawnbygovernmentofficials.AvailabledatashowsthattheNBRreceivesmorethan
50,000taxreturnseveryyearoutofmorethan1.0milliongovernmentofficials.Thetaxofficialssay,the
governmentwouldearnadditionalTk4.0billiontaxbyimposingtaxonallowancesoftheofficialsofthe
stateownedbodies.

Contractionandcomplexitiesforemployeesamonggovernment,autonomousandprivateorganisations
havecreatedfrustrationamongthetaxpayers.Thisseemsdiscriminatorythatencouragesemployeesof
privatefirmstoavoidorevadetaxesandfrustratetheSOEemployees.Suchdiscriminationsare
responsibletocreatesocialinequalityanddistortioninthetaxsystemofthecountrywithnegative
impactonitstaxGDPratioandhinderingtheexpansionoftaxbaseaswell.Thecontractionoflawand
ruleshouldbecorrectedassoonaspossible.

Inthefinancialyear201617,thegovernmentmadeTINmandatoryforemployeesinmanagementand
supervisorylevelinprivatecompaniesandallgovernmentofficialswhoaredrawingminimumTk16,000
monthlysalary.TheemployersmustsubmitthelistofemployeesandtheirTINnumbersforemployers
andtheemployerwillalsohavetogivealistofemployeesofthecompanywhodonothavetaxpayers
identificationnumber(TIN).Theemployerwillalsohavetofurnishdetailsoftheamountofcash
reimbursementperemployeeinthesalarystatement.Companieswillhavetodepositthetaxdeducted
atsourcefromsalariesoftheiremployeeswithintwoweekstothetaxdepartmentbutthetimeperiod
wasthreemonthsinthepreviousyears.

AlbertEinsteinwasreportedtohavesaidthatthehardestthingsintheworldtounderstandwerethe
incometax.Butsincetaxissopervasivelyrelatedtoourlife,thetaxpayersshouldnotbeavictimof
complexityofthetaxlaws.Thesituationworsensifthelawsandrulesofthegovernmentcreatefurther
confusionandcontraction.

Thewriterisalegaleconomist.
mssiddiqui2035@gmail.com