Tax return filing fails to keep pace with growing economy

The number of registered taxpayers is gradually increasing in Bangladesh but return submission is low relative to the size and growth of the economy, which has expanded significantly in the past decade.

According to data from the National Board of Revenue (NBR), the number of registered taxpayers stood at 16.51 lakh in fiscal 2015-16, when some 10.92 lakh submitted returns.

The number then sprinted to 63.74 lakh in fiscal 2021-22, reaching the highest in South Asia after India. Of them, 25.90 lakh submitted returns that year.

Between July 1 and November 29 this year, the tax authorities received 22 lakh tax returns, up 46 per cent from 15.5 lakh during the same period a year ago.

But the rate of taxpayers in a country of 17 crore people is just over 4 per cent, a figure that creates doubts about the efficacy of the tax authorities.

Bangladesh has one of the lowest tax-to-GDP ratios in the world even though it posted higher economic growth in the last decade, maintaining an average annual GDP expansion of 6.4 per cent.

The economy even displayed resilience amid the coronavirus pandemic, when most economies in the world had contracted.

The lower revenue generation persists even though Bangladesh, driven by a rapidly expanding middle and affluent class, has one of the largest consumer markets in the world.

The local consumer market is set to become the ninth-largest in the world, which is projected to grow from about 19 million in 2020 to about 34 million by 2025, according to global consulting firm Boston Consulting Group.

Per capita income rose by 9 per cent year-on-year to $2,824 in 2021-22. It was $781 in 2009-10.

The government also admits that it is essential to raise the tax-GDP ratio significantly in order to support the country's graduation to a developed country.

Amid lower tax collection, the NBR made it mandatory for TIN-holders to turn in income and expenditure returns in 2020-2021. But in the last fiscal year, about 26 lakh taxpayers filed annual income tax returns.

Sams Uddin Ahmed, member of tax policy at the NBR, said in many cases, there is a culture in Bangladesh that one does not move to carry out a task until he or she is compelled to.

"The same goes when it comes to paying taxes. The culture of tax payment needs to be developed gradually."

So, the NBR has initiated various steps to motivate taxpayers, said Ahmed, who hoped that interest among taxpayers in paying taxes would go up in the coming days.

The official is also aware of the challenges facing the NBR in expanding the tax net.

There is less understanding among tax officials about new digitised and innovative business models and there is a lack of information and complexity in collecting information related to taxpayers from various authorities, he said.

Besides, there are tax exemptions and an absence of a complete database of taxpayers with taxable income, a lack of research on improving the effectiveness of the tax system and necessary reforms.

Currently, a Taxpayer Identification Number (TIN) is required for availing 38 services, so many people secure it but they do not submit returns, said an official of the NBR.

"The trend is seen not only in Bangladesh, but also other countries."

Analysts blame inadequate monitoring and enforcement, the absence of regular taxpayer surveys by independent agencies, and the slow pace of automation of the tax system for the lower return submission.

There is no alternative to local resource mobilisation as the country aims to become a developed nation, said NBR Chairman Abu Hena Md Rahmatul Muneem at a discussion at the NBR headquarters yesterday.

"For that, a big change should be made to the traditional method that is being practised now. Without major reforms, resource mobilisation will be very difficult."

"Therefore, one of the things that needs to be done is simplification and we are working in this area," he said.

The collection target for the NBR has been set at Tk 370,000 crore for FY23.

The NBR collected Tk 65,737 crore in the form of income tax, value-added tax and customs tariffs between July and September, down 12.63 per cent year-on-year owing to the cost-of-living crisis at home and abroad, according to provisional data of the tax administration.

The NBR generated more than Tk 300,000 crore in the last fiscal year, which ended in June.