Cover Story
TAX DON'T LOSE SLEEP OVER IT
“Don't let the tax tail wag the dog.” If you have never heard the canine reference to taxes, hopefully the visual will stick with you and aid you in understanding the central tenet of this article—taxes, like a dog's tail, are extremely important, but it is a mere appendage of your life and the taxman is not necessarily always the villain.
Photo: Amran Hossain
You need some convincing though.
You do not know how much tax you are supposed to pay and when. You are afraid that if the tax office knows how much you are worth, you are going to be in trouble. You nervously laugh when someone tells you this joke: Behind every successful man stands a woman and the department of tax—one takes the credit, and the other takes the cash. The 1966 Beatles song Taxman keeps invading your head: If you drive a car, I'll tax the street/If you try to sit, I'll tax your seat/If you get too cold I'll tax the heat/If you take a walk, I'll tax your feet.
Nothing makes you more modest about your income than filling out a tax form. You are not alone. The average man knows as much about the atomic bomb as he does about his income tax. Albert Einstein once said that the hardest thing to understand in the world is income tax.
Income tax is one of the main sources of national revenue. Around 27 percent of the total revenue comes from income tax. Photo: Amran Hossain
Is it really though?
Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. The whole rationale behind paying tax is for the state to provide basic amenities and services to citizens in return. You may argue that the state has failed to provide you with security. You cannot drive on roads that are free of congestion. You do not get running water at home and your garbage does not get picked up on time.
Why then should you pay taxes?
Dr Mahmood Osman Imam, professor, department of Finance, University of Dhaka says, “It is necessary to pay tax for supporting government's development efforts. In other words, paying tax is a source of revenue for financing the annual development programme (ADP).” Through ADP resources are allocated to execute programmes and projects in sectors such as power, agriculture, education and training, health, and social welfare.
According to A T M Saiful Islam, Joint Commissioner of Taxes, Inspecting Range-3, Taxes Zone-7, Dhaka, whoever has a taxable income is supposed to pay tax. Income may be from salaries, securities, property, agriculture, business, capital gains or other sources. You need a TIN (Tax Identification Number) to buy an apartment, a piece of land or apply for a bank loan. If you take a loan from the bank, they will charge you 15 percent interest. You pay only 10 percent if you have a TIN.
The paralysing fear of paying taxes afflicts people who function well in other facets of their lives. The symptoms include failing to file tax returns for years on end and squirreling away unopened envelopes that may carry notices from the tax department.
Dr Imam says, “They are scared of encountering problems and even harassment when they submit tax returns.”
At the tax fair, there are sufficient numbers of tax officials and staff to help citizens file their tax returns in a cordial environment. Photo: Amran Hossain
Take a taxpayer whom we will call X. He has a good job and he owns shares in two companies. He has raised two children. He saves for retirement. Since taxes are regularly withheld from his paychecks, there are perhaps no big tax debts he is hiding from. But he has not really updated the tax department the changes in his income for 15 years.
“I do intend to file,” he says. “But I am scared that they are going to harass me and I am going to have to pay a heavy fine.”
Accountants and tax lawyers can recount similar tales. Kamrul Alam Chowdhury, ex-secretary general, Bangladesh Tax Lawyers' Association says, “A lot of people want to pay tax. But they are afraid. They do not believe that if undue taxes are imposed on them, they will get justice.”
Two years ago, X received a notice under section 93 of the income tax ordinance from the tax department. It was “a punch in the stomach,” he says — but not hard enough to compel him to file the following year.
For people like X, filing a tax return is as pleasurable as going to the dentist. When it comes to taxes, procrastination is the best policy.
According to Islam, if someone who has underreported or never reported his income wants to make it right, the tax department will cooperate with him. “He may have to pay a fine that varies from one case to another,” says Saiful Islam.
Minhaz Hussein, a school teacher, went to the local tax office in order to file his tax return. He was shocked to see that his file had been transferred to another tax zone. “It took some time to locate it.”
“Like most people, I opted for self-assessment, but the clerks did not want to give me an acknowledgement slip. For a clearance certificate a staff asked for a kickback. But officers are always helpful and efficient,” says Hussein.
There are 15 assessing zones in Dhaka now as opposed to 8 before.
About 10 to 12 lakh people file tax returns every year. There has been a consistent growth in the number of taxpayers in recent years. Photo: Amran Hossain
Islam says, “Within a year, everyone will know which office, circle and zone they have to go to. We have issued letters to taxpayers about the expansion of the department. We are also trying to inform people via television and radio.”
Income tax is one of the main sources of national revenue. Dr Imam says, “Around 27.42 percent of the total revenue comes from income tax and the contribution of indirect tax is much higher than that of direct tax (income tax). Bangladesh's tax-GDP ratio at 10.53 percent remains quite low when compared with other similarly placed countries in South Asia.”
Increasing revenue may be one way of reducing the budget deficit. “Last year our total collection from tax, VAT and customs was about Tk. 96,000 crore,” says Islam. “From tax alone it was about 30,000 Tk. crore. Our collection has been growing at a rate of 15 percent for the last several years. Now our national budget does not have a lot of deficit. If we can be a bit more conscious, we will be able to become self-sufficient.”
If tax is set low, the number of taxpayers would increase, thereby increasing the total volume of revenue. Chowdhury says, “People who make more than Tk 10 lakh per annum should pay 35 percent income tax instead of the current rate of 25 percent. And those who are paying 10 percent may pay 5 percent.
An initiative such as this has paid off significantly to raise awareness about paying tax. Photo: Prabir Das
Taxation of raw materials and capital goods is a barrier to doing business in Bangladesh. The World Bank in a 1989 report observed that the structure of taxation in Bangladesh discriminates against exports, undermines efficiency in production and investment.
Dr Imam says, “Our tax policy is not investment friendly at all. Tax on capital gain arising from the investment of financial assets in stock market is exempted at an individual level in one hand and dividend is completely taxed on the other. This treatment makes a discrimination against capital gain (CG) versus dividend. One can argue that by selling the stock at a price before ex-dividend date, one can realise capital gain and therefore avoid tax on dividend. Another argument is that dividend income is double taxed. The company pays tax on their earnings and the distributable earnings as dividend is again taxed at the shareholders level. The current discrimination tax policy regarding CG vs. Dividend allures the investors to be trader/speculator rather than long-term investors, which makes the market less stabilized.”
Getting justice is another concern of the taxpayers. “The Taxes Appellate Tribunal must have a member of the judiciary in order to gain people's trust,” says Chowdhury. “When an unfair amount is imposed on them, in order to get justice, they often have to go to High Court where it may take years for a case to be resolved.”
If people are able to file tax returns online, there will be a significant increase in the number of taxpayers. Photo: Amran Hossain
Although there are improvements in raising public awareness about paying taxes, much more needs to be done. “If NBR's budget is raised we can reach more people. Tax fairs may be taken to the district level. 'Income Tax' week may be organised. More coverage in the media is needed. There may be provision for acknowledging regular taxpayers on their national identification cards,” says Saiful Islam, the Joint Tax Commissioner.
The income tax umbrella should be broadened. Professor Imam says, “The tax base in Bangladesh is very narrow with fewer than one million income tax filers. Non-reporting and under-reporting of taxes afflict all the three taxes-income tax, VAT and export/import duty…the taxes that get paid are what the taxpayer chooses to pay and not what he/she is obliged to pay under law.”
In addition to contributing to the national revenue, there is another aspect of increasing the number of taxpayers. This may change the voting patterns in the national elections. Most of the citizens do not pay direct income tax and therefore do not feel responsible while voting for a candidate. Inefficient people often get elected. Once people start to pay direct income taxes, they will think twice before voting any candidate into power. It will always come into the consideration of the voter as to what the candidate is going to do with the taxpayer's money. As a result we can expect a responsible government being elected by a responsible electorate...
***
If total income of any individual other than female taxpayers, senior male taxpayers of 65 years and above and physically disabled taxpayers during the income year exceeds Tk. 1, 80,000, he has to pay tax. For female taxpayers and senior citizens aged 65 or above the threshold is Tk. 2, 00,000.
So how much taxes are you supposed to pay if you make Tk. 5, 00,000 a year? “Up to 1, 80,000 you pay no tax,” says the Joint Tax Commissioner. “For the next 3, 00,000, tax is 10 percent which in this case is Tk. 30,000. You will pay 15 percent on the remaining amount of 20,000 which comes out to be 3,000. Therefore, the total tax you will pay on an annual income of 5, 00,000 is 33,000 (30,000+3,000).
***
In order to file a tax return, you need a TIN. If you submit a copy of your national identification card and a photo; if you are a businessman, a copy of your trade licence, NBR will issue your TIN number in 24 hours. Then you will have to file your return according to the jurisdiction of your tax zone. If your income comes from salary, you have to submit your salary statement. If you are a businessman, you will submit income and expense report, balance sheet and audit report. You can collect the form from any circle office in your zone. There are two ways you can file your return—self-assessment and 'normal'. For the former you yourself will declare your income and assets and pay tax accordingly. And for the latter you will be assessed by a tax official. You can either file your return at the tax fair which is held every year in September or you can go to the circle office in your zone. Tax Fair is the best place to file your return. Or you can go to the tax office. NBR has offices even at the district levels. In some zones, you can pay online. Online processing in all zones will be available soon. NBR also does spot assessment. Their teams go to rural areas and live there for a week to motivate people to join the tax net. The government has issued about 32 lakh TIN numbers.
The NBR website http://www.nbr-bd.org/ incometax.html has an online income tax calculator, an income tax preparation tool and other information that are very useful.
For all latest news, follow The Daily Star's Google News channel.
Comments