‘Nothing is certain but death and taxes,’ said Benjamin Franklin in a letter in 1789. This does not seem to be entirely true, at least when it comes to the tax system in Bangladesh.
Today, large companies remain in the tax net even after they have made a profit, violating the basic principle of taxation – equality. The term ‘tax exemption’, which refers to the application of the protection of income, income, or taxpayers from taxes, is becoming more and more a violation of this basic principle.
Bangladesh is designated as a developing country by 2026 as it has fulfilled most of the criteria. But the country fared worse in one area in particular: tax-GDP ratio. The International Monetary Fund (IMF) has expressed concern about tax rates and GDP growth, while negotiating the $4.5 billion loan sought by Bangladesh from the International Monetary Fund. (IMF).
Among the hundreds of questions the IMF posed to nearly a dozen government offices and agencies in a recent visit to Dhaka, most were devoted to the National Board of Revenue (NBR ), which received 38 questions. The IMF recommended warnings about corporate income tax incentives, exemptions and holiday systems. The IMF had similar problems during previous visits.
There should be a systematic estimate of how much we’re getting from this tax exemption, whether it’s a complete tax break, a reduction in fees, or a tax on certain items, but we don’t have that. To determine how much loss in the public purse is due to this charity work, we have to rely on the 16-year-old policy notes of the Bangladesh Bank, or on newspaper articles about the study. Internal tax exemptions made by the NBR during the period. the preparation of the budget for FY21.
Tax exemptions in Bangladesh seem to be very high. An analysis by the Bangladesh Bank in 2006 estimated that the tax exemption in FY05 was Tk 9,375 crore, 2.52% of the GDP, and according to the latest internal survey conducted by the NBR while preparing the budget for the financial year 2020-21, Around Tk. 250,000 crore, which is 7.88% of GDP in FY20.
Tax exemptions seem to be at odds with our country’s economic development. According to Global Tax Expenditure Database (GTED) report, India’s tax expenditure was 4.81% of GDP in 2006 and .40% in 2020. In in fourteen years, the tax exemption-GDP ratio decreased by 11.02%. India is doing very well – it has surpassed Bangladesh in key economic indicators – it is limiting the tax paid!
According to NBR estimates, the tax-GDP ratio would have been 17.81% if the government had not given tax exemptions.
Tax exemptions do not completely destroy a country. It stimulates the growth of the Gross Domestic Product by encouraging more investment. They help attract capital to desired locations and sectors of the economy or participate in specific investment activities.
Now the question that needs to be answered today is that the companies enjoying these tax exemptions through the various executive orders (SRO) – subordinate laws of the people or groups of people that the Parliament has proposed to some of the law enforcement authorities – need it. of these benefits or are these exemptions just a way to avoid taxes and transfer money to tax haven countries?
According to recent reports, a popular online delivery company has been accused of falsifying service codes. The company was registered under code 99.10 for services, which allowed them to avoid paying VAT (Added Tax) on the rent, although it is clear that it does not apply to the company’s circumstances the clause.
An investigation by the Income Tax wing shows that around 34 SROs have been released to provide tax exemptions during the year 2018-2019, following the adoption of the budget. Why is such a big incentive, which comes with a lot of income, given through the issuance of SRO instead of the budget?
Each order granting leave must state the amount of income, in order to determine the amount of tax incentives. Policy makers should not propose tax incentives without considering the positive and negative effects. All tax exemptions should be granted through parliamentary debate, the budget and the opinion of economists, as opposed to issuing SRO after the budget is passed. In order to offer or renew tax exemptions for companies or industries, a strategic approach is needed, not on an ad hoc basis.
One of Bangladesh’s largest electronics manufacturers has been exempt from income tax for 12 years, starting FY21, when it was designated as a special Hi-tech Park. In FY20, the company paid $215 million in taxes. Why are companies allowed to enter a tax-free period of more than ten years when they can make profits and pay taxes? Doesn’t this contradict the canon of taxation established by Adam Smith? Wouldn’t that encourage businesses to avoid taxes?
According to a survey conducted by NBR, 88% of shops in Savar, Narayanganj, and the capital do not pay VAT. Why aren’t small businesses tempted to avoid VAT and taxation when large corporations with money are allowed to do so? Our sector is in turmoil because of the tax exemption measures. The many provisions regarding tax exemptions, and the extension of the period in which tax exemptions can be claimed, have become a financial burden for our country.
The benefits of tax exemption should be given specially to those with special needs. Tax incentives should be a set of political weapons used by governments to achieve political economic and social goals, not a set of policies used to build states in haven countries.
Amenda Philomina Purification works as a Program Associate at the Center for Policy Dialogue (CPD)
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of The Business Standard.