Stop illicit capital flight: analysts

Growing informal sector, illegal capital flight and poorly designed tax incentives system are the major factors behind tax avoidance and evasion in Bangladesh, according to a study by ActionAid Bangladesh.

Low tax morale and weak enforcement of the tax law are the other factors.

Enforcement should be strengthened, said Asgar Ali Sabri, director of programme, policy and campaigns of ActionAid, while presenting the findings of the Bangladesh Tax Landscape Study at a programme held at The Daily Star Centre yesterday.

In a draft report based on the study, ActionAid said the number of eligible taxpayers is around 69 lakh in Bangladesh.

This number implies that more than 4 percent of the total population has taxable income, it said in the draft report. But not all of them are paying taxes.

Bangladesh was able to collect 74.9 percent of its revenue potential.

“Moreover, tax effort level has been in decline in the past five years, which corresponds to the recent downtrend in the tax revenue and accomplishment of collection targets,” Sabri said.

A comparison among the peer economies reveals that the revenue raising potential is consistently underutilised.

Taxation is a big tool to ensure equity, said Towfiqul Islam Khan, research fellow of the Centre for Policy Dialogue.

Citing a CPD study, he said half of the potential taxpayers pay taxes.  “Tax evasion also exists in corporate tax.”

Referring to illicit capital flight out of the country, he said huge amounts of funds are transferred from Bangladesh through trade mispricing by local businesses.

Multinational companies should not be seen as the only source of fund outflow through transfer mispricing.

Khan suggested imposition of property tax to ensure equity in the society.

On the government's plan to implement the new VAT law in July next year, he said common people should be made aware and be engaged to ensure smooth implementation of the law.

Bangladesh's per capita debt is $378 and the debt burden would be low if it could curb illegal capital flight, said Rezaul Karim Chowdhury, executive director of Coastal Association for Transformation Trust, referring to the illicit capital flight figure between 2004 and 2013.

Many Bangladeshis have accounts in Swiss banks, while names of some Bangladeshis came in the recently leaked Panama papers. Subsequently, he called for investigation by the authorities.

“It will be an injustice if we cannot prevent illicit capital flow out of the country,” Chowdhury added.

Amit Kumar Das, second secretary of income tax of the National Board of Revenue, said the tax authority is focused on increasing tax compliance, citing the simplification of the tax return form as one of the measures to boost collections.

Subsequently, the number of tax return submission would rise to over 15 lakh by the end of fiscal 2016-17, he added.

“People want to pay tax. An enabling environment is necessary for this,” said Ferdauos Ara Begum, chief executive of Business Initiative Leading Development.

When the value-added tax system was introduced, it was told that the rate will decline automatically in line with expansion of VAT net.

Subsequently, she demanded cuts in the VAT rate.