Reform tax regulations, modify mindset
The general perception about revenue regulations in Bangladesh is that these are British by birth, too intricate and too cumbersome for enforcement. Taxation, as an instrument for revenue income for the state, was very much there in ancient and medieval India in different form and style, but the income tax system as we know it today was first introduced by the British government in India. After the Mutiny in 1857 the country was in a bad state financially when the British government took over power.
James Wilson (1805-1860), the first finance minister in India, introduced a Bill in the Indian Legislature to restructure tariff laws. Not just that, he also introduced the budgetary system and paper currency, and stood for floating the Income Tax Act in India in his first budget speech on April l7, 1860. There were many who felt that the novelty of the tax and the inquisitorial methods which its administration would require, would go a long way in making the tax a failure.
Though the modern income tax was introduced in 1860, the first formal tax law was promulgated in 1882. The Indian Income Tax Law, which anthologised all the annual amendments thus far, came into being in 1922. The Income Tax Law of 1922 was adopted by India and Pakistan in 1947, and later by Bangladesh in 1972, just by replacing the word "India" by "Pakistan" and "Pakistan" by "Bangladesh," respectively. Republic of India reformed its own income tax law in 1961, and Bangladesh in 1984 as an ordinance as there was no parliament in session at that time. To fulfill a long-standing demand a new income tax law is now in the making, and it is hoped that it will be enacted by the lawmakers in the parliament. The national income tax-reform panel proposed changes to the tax breaks people have come to expect -- as well as to the complexity and costs of filing that many have come to loathe.
Reformation of tax regulations deserves a very close review of existing rules and regulations one by one, if not word by word, in accordance with present day demand of social norms and business practices. If these regulations have to be effectively enforceable, prudently practiced, impartially implemented in a free and democratic environment they have to be framed by the lawmakers, who should also be within jurisdiction of the regulations. Appropriate ownership has to be established for each item of law equally on every footing. The reform should not be limited to reducing or introducing new taxes, but should also make the tax code simpler, fairer and better equipped to promote economic growth. Any proposal would have to be revenue neutral.
Rules should not be framed only for the "ruled," or to harass the innocent and ignorant. They should not be a tool for application of discretionary power by the enforcement officials, but be applicable for all without discrimination. Global good practices should not only be incorporated in the reorganised law, but suggestions should also be taken from the stakeholders. It has been correctly argued that the reorganisation proposals should be made in stakeholders' language (Bangla) for their better comprehension. They have to be simple, comprehendible, unambiguous in meaning and interpretation, delegable and assertive, but with adequate relieving and remedial provisions. Mindset of the tax collector and payer must be pro-revenue, and rules of tax law should be comprehensible and implementable across the board, and be applied without fear or favour.
To be sound, a tax system must be economically efficient and logistically economical, and inflict as little damage as possible on the economy. Every tax system distorts economic decisions and leads to less economic activity than would otherwise occur, resulting in what economists call "deadweight loss." A sound tax system should be designed to minimise these losses. It should impose the smallest possible compliance costs on taxpayers otherwise people will not be encouraged to pay tax, rather they will be inclined to evade it. Every tax system imposes direct costs on taxpayers in terms of time devoted to tax preparation or money to buy the services of CPAs. Ultimately, every tax system diverts a portion of tax revenues raised by the tax to pay the cost of administering and collecting the tax and enforcing its provisions. A sound tax system would minimise these costs.
It should not be felt that there is no fairness in taxation. No one is going to say that taxes are unfair but, on the contrary, it is often observed that fairness does not enter into the matter. A sound tax system removes complexity and limits the collection points for taxation, making the system more transparent, and ensuring the public that everyone is paying what they owe, and are comfortable with the fairness of the system. An economically neutral tax is unbiased across the spectrum of economic activities.
A tax system is transparent to the taxpayers if it is clear how much the government is costing them (and who is paying for what). Without transparency, the people cannot accurately asses how their money is being spent and thus cannot hold their representatives responsible. Equality of opportunity should be the linchpin to any tax system, not equality of outcomes. The tax system shouldn't be manipulated as an instrument of wealth redistribution or social engineering. A tax system shouldn't be gratuitously complicated beyond what is required. Simplicity is the best sort of medicine for the tax-inflicted headache.