There are as many as six reasons including high tax evasion behind Bangladesh's low tax to GDP ratio, said an economist yesterday.
“High tax rates, multiple tax rates, complexity of tax laws, corruption among tax collectors and inefficient tax authorities are the main causes of tax evasion,” said Zahid Hussain, lead economist of the World Bank's Dhaka office.
Hussain's comments came during his presentation on public revenue and expenditure management at a seminar styled 'Standard operating procedures for budget discussions'.
All-Party Parliamentary Group organised the event at the capital's Pan Pacific Sonargaon hotel for members of the parliament.
Bangladesh's tax-GDP ratio is one of the lowest in the world, he said, adding that less than one percent of the population pays income tax.
As many as two-thirds of the eligible taxpayers evade taxes, he said.
Tax evasion occurs when individuals deliberately do not comply with their tax obligation, Hussain said, adding that cuts in tax rates, simplifications of tax laws, removing loopholes in the tax system and proper processing of information available under the annual information return can be the best tools for improving tax compliance.
“Therefore, there is a need for creating a transparent, friendlier and non-discriminatory administrative system.”
There is also a need to educate the people and their elected representatives about the tax law and create taxpayer-friendly environment such that they pay their due taxes, do not evade the tax and feel proud in making a financial contribution to nation-building, he added.
About the informal economy, the economist said the size of the informal economy remains large despite structural transformation from agriculture towards more formal industry and services.
For instance, over 85 percent of total employment is informal employment. Income generated by the operators in the sector, in many cases, is not officially captured in the tax net of the NBR. Informal sector forms a greater percentage of tax defaulters, increasing cases of tax evasions.
The revenue potential from the informal sector comes with significant administrative costs due to a large number of informal firms and entrepreneurs and the difficulties in monitoring them. Also, many firms often prefer to remain informal to avoid the regulatory complexities that come with formalisation, Hussain added.
The MPs emphasised on the quality expenditure of annual development programme instead of its size.
They called for more discussions on the revised budget and distributions of the budget documents prior to the budget presentation in order to ensure their participation.
Discussions on budget in Bangladesh are higher than in other countries, said MA Mannan, planning minister. Shirin Sharmin Chaudhury, speaker of the parliament, also spoke.