Fair ir Tax ax Mon onitor in n Ban Bangladesh 201 2018 an an - - PowerPoint PPT Presentation

Fair ir Tax ax Mon

• nitor in

n Ban Bangladesh 201 2018 – an an Over Overview

Sushashoner Jonny Procharvijan (SUPRO) CIRDAP Auditorium, Dhaka 16 September 2019 www.supro.org

• Mohammad Shahid Ullah

Kn.shahid@gmail.com, +8801731-802395

FAIR IR TAX IN IN BANGLADESH : : CONTEXT

• Tax to GDP ratio is lowest among the neighboring South Asian countries; though

tax to GDP ratio has increased from 7.8% to 10.39% from FY 2009 to FY 2018; it is lower than Nepal (14%); where Bangladesh per capita income is almost double that of Nepal.

• Dependency on indirect taxes(VAT)
• Challenge of increasing inequality: The latest Household Income and Expenditure

Survey released by the Bangladesh Bureau of Statistics (BBS) found that the income share of the poorest five percent of the population was 0.23% of overall income, a sharp fall from 2010 when it was 0.78%. In contrast, the share of the richest 5% grew to 27.89% of all income, up from 24.61% in 2010. While the BBS survey mainly sheds light on growing income inequality, wealth inequality is even worse.

• The Gini stands coefficient for wealth inequality is 0.74, and for income inequality

is 0.48.

FAIR IR TAX IN IN BANGLADESH : : CONTEXT

• A recent report by Wealth-X says Bangladesh has had the highest rise

in its ultra-wealthy population, surpassing any other country in the

• world. In other words, the number of super-rich more than doubled

in just five years (2012-17). And high income individuals and

• rganizations do not pay their taxes.
• The tax reform policies guided by IFIs is anti-poor . Tax reforms in

Bangladesh over the past decades could not bring about significant changes in tax efficiency, productivity or fairness.

• Capital flight

Gove vernment Inc Income, , Budget 2018-19 19

Tax Revenue (NBR), 63.7% Tax Revenue (Non-NBR), 2.1% Non Tax Revenue, 7.2% Domestic Loan, 15.3% Foreign Loan, 10.8% Foreign Grants, 0.9%

Sh Share of f Tax x and Non-Tax x Reve venue in Total l Revenue (% (%)

80.26 80.46 83.05 80.96 83.64 83.09 86.11 87.60 88.58 89.61 19.74 19.54 16.95 19.04 16.36 16.91 13.89 12.40 11.42 10.39 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 2009 FY2010 FY 2011 FY 2012 FY 2013 FY2014 FY 2015 FY 2016 FY 2017 FY 2018 Share of Tax Revenue in Total Revenue (%) Share of Non-Tax Revenue in Total Revenue (%)

Gro rowth ra rate of f tax x coll llect ctio ion in in perc ercentage

14.17% 13.70% 9.46% 27.45% 10.73% 18.11% 27.98% 19.72% 14.83% 10.69% 12.32% 14.60% 18.96% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

FY0 5 FY0 6 FY0 7 FY0 8 FY0 9 FY1 0 FY1 1 FY1 2 FY1 3 FY1 4 FY1 5 FY1 6 FY 1 7

Sh Share of f dire irect and in indire rect tax (% (%) under NBR BR tax

72.83 71.91 70.51 69.67 65.45 63.86 63.87 65.12 65.52 70.02 27.17 28.09 29.49 30.33 34.55 36.14 36.13 34.88 34.48 29.98 10 20 30 40 50 60 70 80 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018*

Percentage (%) Axis Title

Share of indirect tax (%) Share of direct tax (%)

Sh Share of

• f diff

fferent taxes/d /duties under NBR NBR (%), (%), FY 2013 to

• 2018

37.76 36.98 36.55 35.65 37.98 38.32 12.12 11.24 11.22 11.58 12.34 12.74 14.83 14.93 15.37 16.84 18.14 18.2 34.01 35.61 35.49 34.29 29.5 29 1.08 1.24 1.22 2.09 2.04 1.7 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018* VAT (%) Import Duty (%) Supplementary Duty (%) Income Tax (%) Others (%)

Sh Share of

• f CI

CIT T and PI PIT T in income tax x (%), (%), FY 2009-14 14

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 55.61 55.66 57 56.5 54.98 72.52 44.39 44.34 43 43.5 45.02 27.48 Share of CIT (%) Share of PIT (%)

Pot

• tentia

ials of

• f Per

ersonal l Inc Income Tax x

• According to NBR data, as of December 2018, there are about 3.7 million

TIN holders, of which around 2 million people submit tax returns. However, this does not mean that those who have paid tax have not evaded tax.

• About 1% of people pay income tax in Bangladesh;
• The NBR has no statistics about the number of people having taxable

income.

• Some 68% of the people do not pay tax despite having taxable income.

There is an assumption that the total number of people who should be paying taxes exceeds one crore.

• The high income individuals and organizations do not pay their taxes. There

may be as many as 100 people who pay a personal tax over Tk1 crore, whereas at least 50,000 owe that amount or more.

PROBLEMS AND POTENTIALS OF CORPORATE TAX

• Tax dodging and tax avoidance by MNCs is one of the major cause of the low tax-GDP

ratio in Bangladesh.

• ActionAid estimates in a recent study titled ‘Mistreated’ that the country has 18 treaties

which give opportunities for tax avoidance. ‘Mistreated’ has estimated that Bangladesh has lost US$85 million in 2013 alone, due to a single rule in the country’s tax treaties.

• According to NBR, eight insurance companies have allegedly avoided around Tk345 crore

in Value Added Tax (VAT) in four years, 2013 to 2016, in five ways: presenting low insurance tariffs, reporting false tariff codes, issuing partial coverage against single bonds, and VAT dodging on agent commissions and reinsurance commissions.

• Due to pending cases in court, 10 MNCs operating in Bangladesh, including three

telecom giants, have outstanding taxes in the amount of 13 thousand crore taka.

• For corporate taxation, the auditing system in Bangladesh is problematic. Companies and

their auditing firms manipulate real scenarios of income and dodge or evade taxes.

• There are huge tax exemptions, including zero tax rate for export processing zones (EPZ)

and special economic zones. There is no reliable estimate or study of the revenues foregone due to tax exemptions. At the time of preparing tax incentives, the actual cost- benefit accounting is not prepared. NBR does not publish the list of companies benefiting from tax exemptions and such incentives and are not subject to parliamentary oversight.

PROBLEMS AND POTENTIALS OF F WEALTH TAX

• There is no systematic wealth tax mechanism in Bangladesh; NBR

introduced a wealth surcharge in FY 2011-2012 as an alternative to a wealth tax

• Under the present surcharge system there are complexities and disparities

in determining the value of assets. The cost of acquisition is the basis of surcharge.

• In general, people own assets mostly from inheritance, but there is no tax
• n inherited property.
• The value of assets could be determined every 3-5 years; this would

increase the amount of tax on wealth. Through this process the proposed amount of taxation on wealth will be 25000 crore taka, according to the Bangladesh Economic Association.

Prob

• blems wit

ith VAT

• VAT is injustice against the poor people; the poor have no idea that

they are paying tax every day and getting less public services.

• A large portion of poor people are out of social protection / safety net

programs; the public expenditure in Bangladesh is not pro-poor.

• There is VAT on mobile phone bill, medicine, and essential goods

(soybean oil, sugar, sanitary napkin) and other essential services.

• Secondly, VAT is not being deposited properly by the business

community, what they collect from customers.

• The new VAT law was drafted almost secretly without any impact

evaluation study.

Co Components of

• f Go

Government t Sp Spendin ing, Bu Budget t 201 2018-19 19

Education & Technology, 14.6% Interest, 11.1% Transport & Communication, 12.2% Local Gov. & Rural Development, 7.0% Energy & Power, 5.4% Health, 5.0% Agriculture, 5.7% Defence, 6.3% Public Administration, 18.0% Public Order & Safety, 5.7% Social Security & Welfare, 5.8% Housing, 1.1% Recreation, Culture & Religion, 0.9% Industrial & Economic Services, 0.7% Miscellanious, 0.5%

Sh Share of

• f educatio

ion expendit iture in term rms of

• f tot
• tal

l budget and GDP GDP

14.1 14.1 11.6 11 11.6 11.7 14.3 16.1 12.6 11.4 1.95 2.01 1.78 1.73 1.87 1.85 2.18 2.19 2.09 2.09 2 4 6 8 10 12 14 16 18 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 RBFY 2018 BFY 2019 Share of total budget (%) Share of GDP (%)

Sh Share of f hea ealt lth exp xpendit iture in ter erms of f total l budget and GDP

5.67 5.6 4.76 4.52 4.34 4.35 4.76 2.46 5.39 5.03 0.79 0.8 0.73 0.71 0.7 0.69 0.73 0.34 0.89 0.92 1 2 3 4 5 6 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 RBFY 2018 BFY 2019 Share of total budget (%) Share of GDP (%)

Percentage of

• f alloc
• cation in agri

ricultu ture in term rms of

• f tot
• tal budget

10.9% 9.8% 9.6% 11.3% 9.2% 7.8% 7.0% 6.7% 6.1% 5.7% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

FY 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 1 3 FY 2 0 1 4 FY 2 0 1 5 FY 2 0 1 6 FY 2 0 1 7 FY 2 0 1 8 FY 2 0 1 9

% of allocation in agri. In terms of total budget

Allo llocati tion for

• r wom
• men in

n terms of

• f total

l bu budget t and and GDP GDP

24.65% 26.32% 26.15% 28.68% 27.64% 26.74% 27.17% 27.25% 27.99% 29.65% 3.95% 4.36% 4.61% 5.23% 5.06% 4.23% 5.06% 4.16% 5.04% 5.43% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

FY 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 1 3 FY 2 0 1 4 FY 2 0 1 5 FY 2 0 1 6 FY 2 0 1 7 FY 2 0 1 8 FY 2 0 1 9

% of allocation for women in terms of total budget % of allocation for women in terms of GDP

Social Protection /Safety net

24.65% 26.32% 26.15% 28.68% 27.64% 26.74% 27.17% 27.25% 27.99% 29.65% 3.95% 4.36% 4.61% 5.23% 5.06% 4.23% 5.06% 4.16% 5.04% 5.43% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

FY 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 1 3 FY 2 0 1 4 FY 2 0 1 5 FY 2 0 1 6 FY 2 0 1 7 FY 2 0 1 8 FY 2 0 1 9

% of allocation for women in terms of total budget % of allocation for women in terms of GDP

Rec ecommendatio ions

• Government should develop progressive tax system as a means of redistribution and

efficient use of resources to address inequality and promote efficiency and innovation.

• The VAT and taxes on essential commodities like sugar, soybean oil, mobile phone bill and

medicine sanitary pads, should be ‘zero’. NBR should move to develop a proper “Wealth Tax” or “Property Tax”.

• To increase the tax net and revenue, NBR surveys need to be strengthened. There should

have regular survey and assessment of the ownership of all sizable physical and financial assets of taxpayers and determining the income generation out of those assets.

• NBR should develop strong database on potential tax payers. It needs to be fully equipped

with modern ICT tools and techniques to collect real information to assess individuals'/companies’/organizations' tax liabilities.

• In order to address the problems of capital flight or illicit financial flow, there should have

strong policy and legal measures.

• The capacity of tax administration needs to be enhanced and all kind of irregularities in tax

administration needs to be eliminated.

Recommendations

• Poor quality of public services and harassment of citizens in government
• ffices are the major causes of reluctance of not paying taxes properly. The

government offices should be service oriented and poor friendly; the mindset of bureaucracy as a master of the citizens /taxpayers needs to be changed.

• For quality expenditure of the tax paying money, government needs to

formulate pro-poor and inclusive budget with greater allocations for health, education, social security and agriculture sector.

• For participatory budget formulation, Parliamentary Standing Committee
• f the concerned ministries needs to be engaged with the budget

formulation process.

• The updated audit report conducted by Comptroller and Auditor General

needs to be published annually and should be available for the tax payers citizen of the country.