The dilemma of small taxpayers

There are just 21.35 lakh registered income taxpayers in the country, as per the latest annual report of the National Board of Revenue.

Total income tax collected from them stood at Tk 37,120 crore, the NBR said.

Currently, the lowest personal income tax rate is 10 percent, which becomes applicable to income in excess of Tk 5.20 lakh.

In Bangladesh, 80 percent of individual taxpayers are small, and their contribution accounts for just 8.73 percent of the total collections from individuals.

According to NBR statistics, the total expenditure in increasing direct tax collection was Tk 216 crore, with average cost per taxpayer standing at Tk 1,012. This is probably the reason behind introducing the minimum tax for individual taxpayers.

Thus, it becomes a huge challenge for taxmen to engage a majority of their resources to small taxpayers, especially in the face of such minimalistic revenue. 

Small taxpayers face several problems, including perceived complications in filing tax returns, as well as difficulty in maintaining or having formal accounts and records required by the tax law. This makes the compliance cost much higher than the actual tax payment.

Besides, the tax authority is unwilling to accept actual reduction of profit or loss. The profit margin assessed by the tax authority is far too high in comparison to real profit margins.

Again, many taxpayers feel that officials impose taxes arbitrarily, but many of the small taxpayers cannot afford legal and other expenses to address their grievances through appeals and other dispute resolution mechanisms.

The tax authority also faces some problems in collection of taxes properly. For example, some taxpayers falsely present themselves as small taxpayers to evade proper taxation, and some others do not declare a change in status even if they graduate to being medium taxpayers from small ones.

However, this creates further problems for small taxpayers as they are unable to produce valid accounts or records to support their claims.

The rate of non-filing of tax returns or noncompliance on other tax obligations is also high for many small taxpayers.

Small business taxpayers are generally clustered in a locality or market. To reduce the fear factor and discomfort of small taxpayers, the tax policy makers introduced spot assessment in 1999.

This was designed as a one-stop service to taxpayers. Under the system, the taxpayers are not required to visit tax office. Rather, all activities are done at the doorstep of the taxpayers.

Tax officials are supposed to go to the market and help taxpayers fill up tax return forms, which bank representatives are then supposed to collect. The acknowledgement of tax payment is also supposed to be given immediately.

There are also salaried taxpayers in the country. Their number stands at 411,605. Of them, 74.32 percent are small and they account for 25 percent of the revenue. 

Considering the population of 16 crore and 60 percent people remaining above the poverty line, the number of small taxpayers is far too low. It can be presumed that many small taxpayers, in both salaried and business categories, have remained outside the tax net.

Many of them like to remain unregistered by bribing tax surveyors rather than facing the hassle of tax proceedings each year.

Thus, the challenge for the tax department is to gain confidence of small taxpayers and effectively find the non-filers and unregistered persons.

The writer is a former member of National Board of Revenue. He can be reached at amin_iba_tax@hotmail.com.