The unit has been given the special jurisdiction for assessment of all high taxpayers or potentially high taxpayers, including banks, insurance and leasing companies, mobile operators, pharmaceutical companies and all directors of the companies. It currently accounts for roughly 30 percent of the total collection of income tax.
The unit is working mainly with tax returns submitted under the self-assessment scheme. Auditing is very important in handling self-assessment returns. In the process of auditing, audit selection is the first step.
In the first few years of the LTU, the audit selection was done on a sample basis applying objective criteria. During the process of actual auditing, officers would take up specific issues for auditing and build up audit findings on substantial evidence and analysis. The assessee was also given adequate opportunities to controvert the findings and present views which were duly considered. An assessment made under such a procedure would be, to a large extent, objective and reasonable.
But over the years the situation has changed significantly. Now, like a normal circle, a large number of returns are selected every year mainly based on subjective choice of the officials concerned.
The notice containing audit issues do not mention specific points as before. It gives a long list of requisitions in a general manner similar to the list given in notices for hearing issued from tax circles in a traditional way. A stereotyped hearing takes place which clearly lacks the objective and effective interaction that tax officials used to have with audit subjects previously in the LTU. When a tax assessment is made following this process, it turns out to be quite similar to the assessments ordinarily made in the tax circles of traditional tax zones.
There are substantial disallowances and add-backs for alleged lack of evidence for expenses or alleged failure to deduct at source as per law. But in most cases these allegations are quite general in nature and they do not point out instances of default specifically. Moreover, in many cases these allegations are brought in the assessment order itself. Before that the assessee is neither informed nor given adequate opportunity to controvert the allegations specifically.
It is also quite common these days that LTU officials resort to estimate of sales or receipts on weak and unacceptable grounds ignoring audited accounts. As a result, these assessments from the LTU necessarily lack rationality and objectivity which were previously distinctive marks of an LTU assessment. They become unjust and irrational, causing harassment to assessees and forcing them to go for litigation.
All the points indicate a trend that the LTU is gradually drifting away from its original principles of rationality and objectivity with regard to tax assessment. There is also slackness in the process of meaningful interaction with taxpayers. Thus, the unit is actually deviating from its intended role of being the pioneer of modern tax administration. In fact, it is becoming more and more like a traditional tax zone. This is not at all encouraging in view of the present government’s declared policy of maintaining a forward-looking and taxpayer-friendly environment in the field of tax administration.
Over the last one decade, in spite of so many efforts, the National Board of Revenue has not been successful to expand the tax network. The main reasons are: taxpayers are identified by tax inspectors who probably compromise at field level and help tax evaders remain outside the tax network; and inadequate follow-up with new taxpayers for a lack of intension and resources and more attention is given to existing taxpayers, sometimes overdoing resulting harassment of taxpayers.
If the tax assessment in general is to be completed, the audited accounts are to be relied upon unless any gross lapses are identified. If any gross lapses are identified where audited accounts are rejected, the conclusion should obviously be done based on another extensive audit conducted by tax officials, with or without external support. Based on the audit report, the assessing officer may conclude the assessment giving adequate opportunity in writing for requisition of information and documents in specific, not in general and impractical.
In essence, in order to reform the present tax systems, every circle should have a dedicated audit team comprising specialists, findings of audit team should be discussed with taxpayers, and the concluding findings should be the basis of fresh assessment. Mere completion of assessment following a bureaucratic attitude without any basis and a logical conclusion will rather increase hassles for taxpayers and existence of corrupt practices. Such a situation will never help grow a transparent and taxpayer-friendly environment. In order to take Bangladesh’s economy to a middle-income category, such a reform is now overdue and the government should look it at very seriously.
The author is a chartered accountant and a senior partner of Hoda Vasi Chowdhury & Co.