Foreign workers' tax evasion
The National Board of Revenue (NBR) has declared its intention to go after both the companies hiring foreign nationals and individual foreign nationals working in the country on the issue of tax evasion. October 15 is the NBR deadline for employer-companies and individuals to submit their respective payrolls to the revenue authority. In light of what has been published in the media, we understand that a taskforce has been set up by NBR that will conduct random visits to chosen companies to detect any unlawful activities related to tax and also take punitive actions against the guilty parties. It is hoped that these spot checks will have the desired effect on curbing the widespread misuse that currently exists with regard to payment of taxes by foreign employees.
The issue of foreign workers' tax evasion has been brewing for some time now. Back in 2015, the NBR prioritised dealing with foreign workers' tax evasion, and with good reason. By NBR's estimate back then, many foreigners were working without valid work permits. This has been going on for some time now. The largest concentration of foreigners working in the country are employed by the readymade garments sector, followed by NGOs, the hospitality industry, educational institutions, hospitals and various other industries. Today, it is estimated that there are some 450,000 foreign nationals, mostly from India, Pakistan, Sri Lanka, China, Taiwan, and South Korea, followed by some European and African countries, who are employed in the country. Reportedly, most are thought to be working illegally as only about 11,000 of them are paying taxes regularly.
According to tax laws, any foreign individual working in any industry for a period of less than 6 months is subject to 30 percent tax on their income. In case of employment over 6 months, they must pay taxes in the same manner as Bangladeshi tax payers. The fact that so many hundreds of thousands of foreigners are working in the country without being under the tax regime is ludicrous, especially when one contends with the fact that revenue collection by NBR forms a cornerstone of our national budget. It makes sense for vigilance to be tightened in this area.
"At the end of the day, one can only hope that the NBR will get the political backing it needs to clamp down on this illegal practice which, if checked, could increase income tax revenue manifold per annum.
The law states that every foreign national appointed to work in a company must have prior permission from Bangladesh Investment Development Authority and Board of Investment. But the reality is quite different. Most companies are bringing in foreign nationals on tourist visas or short-term work visas (usually 3 months). These people go back to their home countries before their visas expire, and then re-apply for visas, and this routine works very well for short-stay technicians who do not need to be here for extended periods of time. As regards the issuing of work permits, there exists a nexus between unscrupulous officials in these institutions that are supposed to hand out work permits and companies that employ foreign workers. Quite frankly, unless the authorities are willing to tackle the systemic graft that has become entrenched in these government entities, NBR vigilance alone will not have the desired effect.
The other issue, of course, is to what extent NBR will be allowed to do its job when it comes to punitive action. As per Income Tax Ordinance 1984, any foreign worker employed without approval is punishable. It has been stated that NBR can technically withdraw tax-holiday facility and other exemptions enjoyed by companies and/or impose a Tk 500,000 fine or 50 percent of payable tax (whichever is higher) on the companies found to be guilty. What has changed in the course of the last two years, of course, is the introduction of the Finance Act 2015, which allows for the provision of imprisonment for up to three years for such offence.
From a legal point of view, the revenue authority has ample tools at its disposal to go after foreign tax evaders. However, evading companies are not lagging behind. What has perhaps not been written about in detail is the fact that it is standard practice in many sectors to simply not declare foreign nationals working in their business ventures. These foreign nationals are paid a fraction of the owed salaries in local currency. The situation becomes clearer through an example: A foreign technician or management employee working in a local company is hired for, say, Tk 200,000 per month. The person is often housed in a dormitory-style apartment block with many other foreign nationals and his transportation is taken care of by the company. The person ideally requires no more than Tk 20,000-30,000 per month to live comfortably in the country (accommodation is usually taken care of by the company). The remaining Tk 170,000-180,000 is deposited to an account of his choosing in his home country via hundi (The Reserve Bank of India describes the Hundi as "an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order."). This suits both the employer and the employee, and the national exchequer loses out on precious tax revenue in a big way. In fact, this is how unscrupulous companies with foreign workers conduct their business. While the NBR can, and will, undoubtedly have some success in hunting down paperless foreign nationals, precisely what it will or can do to tackle the issue of hundi is altogether another matter.
That notwithstanding, the NBR can make life difficult for employer-companies if vigilance is stepped up at main points of entry. There are special income tax cells already operating at the three international airports in the country and at Benapole Land Port. However, again, the fact is that there are allegations that some members of law enforcement are working in cahoots with unethical business houses to look the other way when it comes to foreign nationals passing through these points of entry and exit. Hence, we come full circle on the question of systemic graft that will have to be addressed before we can expect to catch foreign tax dodgers in large numbers.
But, should the authorities get serious about punishing companies with punitive damages and jail sentences, then it will become uneconomical for the various sectors in our economy employing foreign nationals to skirt the system and avoid paying taxes. At the end of the day, one can only hope that the NBR will get the political backing it needs to clamp down on this illegal practice which, if checked, could increase income tax revenue manifold per annum.
Syed Mansur Hashim is Assistant Editor, The Daily Star.