Despite positive economic growth over the recent years, a significant rise in tax evasion has become a matter of concern for the National Board of Revenue (NBR).
The NBR is now struggling to recover around Tk 25,230 crore in unpaid income tax due mainly to a prolonged legal snag.
Multinational companies, mobile operators, top banks, insurance companies and senior executives working in financial institutions have evaded Tk 25,230 either by hiding real income or showing business losses in the last nine tax years (2011-12 to October 2019-20).
The NBR has divulged the tax evasion after auditing the returns of taxpayers.
According to the NBR, taxpayers, especially the large business houses, take legal shelter to avoid payment of taxes by filing appeals with tribunals and courts against the assessments of tax returns by NBR officials concerned, resulting in the rise of unrealized tax amounts.
As the legal battle takes a long time to solve tax disputes, NBR officials and experts familiar with the situation have suggested taking steps to solve such tax disputes through Alternative Dispute Resolution (ADR), an out of court negotiation system that the government introduced in fiscal year 2011-12.
According to the latest data of the NBR, tax officials uncovered tax evasion of Tk 27,262 crore through return audits submitted from tax years 2010-11 to October 2018-19.
Of the amount, Tk 2,901 crore has been realized and the remaining Tk 24,360 crore has remained unpaid.
The highest number of returns was audited in the tax year 2013-14 which was Tk 32,344 crore. In that tax year, Tk 5440 crore tax was sought as tax.
In the tax years from 2011-12 to 2019-20, the tax evasion of Tk 1,000 crore was revealed by auditing the returns submitted in the universal self-assessment system (returns submitted at the income tax fair).
Of the amount, Tk 131 crore has been recovered and the remaining Tk 870 crore has still remained unrealized.
The NBR scrutinizes a return in two ways. First, the concerned Deputy Commissioner checks the mathematical errors of the return as per Section 82BB (2). If any discrepancy is found in the account, the taxpayer is informed and a letter is given to submit the amended return.
The returns of the individuals submitted to the Income Tax Fair are audited in this manner.
Secondly, with the approval of the NBR, the audit was carried out in accordance with Section 82BB (7). Generally, the type of audit is selected for large returns. If tax officials have any doubts about a return, they are asked to approve it for audit.
Talking to Bangladesh Post, ADR Facilitator, Syed Md. Aminul Karim said ADR is a very effective system for revenue dispute solution, especially in developing countries where the number of such disputes is very high. As ADR settles the revenue disputes with the involvement of both parties-taxpayer and government through a win-win situation, it is an acceptable platform for all, he added.
Dr Ahsan H Mansur, Executive Director of Policy Research Institute of Bangladesh (PRI), said that in most cases, the tax officials are forced to do their own assessments that actually create such a situation in payment of taxes.
In some cases 'assessments for harassment' are also done, he said, adding that due to these reasons the tax becomes unpaid and the amounts of unrealized amounts are increasing every year.
He said in order to collect the unpaid taxes, ADR activities should be strengthened and taxpayers should be encouraged to come to ADR for an amicable solution for both the NBR and taxpayers.
Dhaka Taxes Bar Association General Secretary, Sufi Mohammad Al Mamun said the amount of unpaid taxes is increasing because the tax returns are not assessed properly in many cases.
If a claim is raised in the audit, the taxpayer faces a problem to solve it as he has to go door to door to settle it, he said, adding that so the taxpayer concerned prefers to take legal shelter to avoid harassment by tax officials.
"When the taxpayers seek help in the court, realization of tax becomes complicated and as a result, the taxes have become unpaid," he added.
The returns of the individuals submitted to the Income Tax Fair are audited in this manner.
Sufi Mamun further said that the NBR had introduced ADR in the collection of unpaid taxes and cases but could not implement it.
This is because senior tax officers of the NBR are appointed as their mediators after retirement.
In a word, the officers are being rehabilitated through ADR. Those officers did not speak on behalf of the taxpayer going beyond his or her department.
However, income tax officials say different things in this regard.
On condition of anonymity, multiple officials said the return was selected for audit by certain criterions.
In this case, the taxpayer's previous year's tax, socio-economic status, confidential information obtained from reliable sources are considered.
The taxpayer's documents were later revealed with the approval of the NBR.
In most cases, actual income information has been found to be concealed.
Officials say the demand has arisen due to the submission of income tax returns without proper calculation. Many of the individual taxpayers are paying or promising to pay the claimed income tax. Again, many are suing before the appellate tribunal or court. Due to this, the collection of that tax is being delayed. In this case, the taxpayers are being encouraged to settle disputes through the ADR system.