Higher penalty for noncompliance

Corporate taxpayers will have to pay more in fine from the next fiscal year for noncompliance, which includes non-submission of return on withholding tax and a statement on employees' filing, according to a proposal of the National Board of Revenue.

The tax authority is seeking to raise the fine by 10 times to Tk 5,000, or 10 percent of the tax imposed on last assessed income if a company, cooperative or NGO does not submit the return of withholding tax and statement or provide information.

The fine has also been hiked four times to Tk 1,000 per month for the delay in compliance, according to the proposal by the NBR.

Until the outgoing fiscal year, companies face penalty of Tk 500 for noncompliance regarding the statement on payment of salary, issuance of certificate on tax deduction and information on payment of interest and dividend.

In case of the continuation of default, the amount of fine was Tk 250 per month.

“We have sought to increase the penalty for noncompliance as the existing penalty is not creating any bite. Companies are not taking the issue of compliance seriously because of the low fine amount,” said a senior tax official yesterday.

The penalty was introduced in 1984 and since then the rate has not changed, he said.

An analyst, however, said the increase in fine will not be instrumental in raising tax collection unless the system is automated.  

The tax authority's move to hike the penalty and expand the coverage of the fine came after it found that only 5 percent companies submit returns on withholding tax, which accounted for 62 percent of the total income tax collected in 2015-16.

Tax officials said the collection of withholding tax would be higher if compliance is ensured.

“We have found that there are companies and agencies that don't collect withholding tax at all,” said the senior tax official.

“Some of them collect withholding tax but don't deposit it to the exchequer, while some deposit less than the amount collected.”

He said there are companies that issue fake certificates on withholding tax deduction without deducting the tax.

Until now, the penalty for the non-submission of withholding tax return has not been clearly spelt in the rules. The NBR has proposed to slap the fine in the Finance Bill 2018 in order to combat tax evasion and increase collection.

“We are not increasing corporate tax rates. Instead, we are reducing the rates gradually. So, the withholding tax is going to be a thrust area to increase revenue collection,” said the NBR official. He said the tax authority has taken some measures to boost source tax collection and is receiving good result.

From 2018-19, a taxpayer's file will face audit if they don't submit withholding tax return and furnish statements or returns on salaries and allowances of their employees, according to the budget speech of Finance Minister AMA Muhith on June 7.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the increase in the fine is logical.

“But it would also increase harassment for taxpayers unless an automated system is put in place to facilitate submission of documents,” he said.

Mansur said in absence of automation, the new provision will increase the piling of papers at tax offices and tax officials are unlikely to examine all of the documents.

So, taxpayers will have to bribe field officials to obtain a receipt of document submission. As a result, compliance will increase the cost of doing business, he said.

The former economist of the International Monetary Fund also touched upon the requirement for companies to furnish statement on their employees return filing.

He said various countries have rules where employers give one wage declaration form to employees and one to revenue authorities.

After that it becomes the duty of tax collectors to see if all the employees have submitted returns. If anyone ignores, the revenue administration can go after the individual, he said.