R & D Division in NBR

Recurrent assessment methodology of the income tax assessing officers who are DCTs or ACTs shows that similar trade entities are taxed in different modes by the same assessing officer. The DCT/ACT would compute profit for say, a hospital in a year and loss for it in preceding or succeeding year. S/ he would follow any mode of assessment to compute income of the hospital. They most often take resort of guess disallowances from revenue expenses while the audited accounts are furnished. They despite submission of bank statement and some cost elements like bills for utilities, gas, fuel, telephone, lease rental deeds impose disallowances on these on surmise basis. In some cases these officers refer to parallel assessments in different line of business while in some, the same tax paying entity is differently taxed by the same officer in consecutive years. These officers are neither informed about general trend, nor are given cost, price, marketing information of the product of the business.

It is very often found that a hospital or clinic would be treated as parallel to a diagnostic centre while a property developer would be treated as Real Estate Business. The developer would submit sale deed of land and tripartite deeds of land owner, buyers of flats and itself. The price set, the construction cost are known to DCT/ACT as per PWD schedule. Despite all this DCT/ACT would refer to projection of income, cost estimation and disallowances, reject land and sale deed of flats, leaving aside other papers like bank statements etc. It may be true that cost/sft. of these flats is much higher than PWD rate. But it is done at the cost of the buyers while the developer offers a nominal standard only. The same DCT/ACT would apply gross profit, mark up and projection of sale, unabated disallowances and many a means only to raise the taxable income.

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These illogical assessments done but assessees are not fools to pay the tax demanded. On the contrary they file appeals in higher axis, and get rid of these irrational demands. They go on along their way while revenue department's time lost for these assessments turn to be futile for the over all revenue. If the relationship between the revenue department and assessee was commercial and amenable for business, the situation would not have been so.

Same office, it is often seen, does the same assessment in two years in two ways -- all on whims, guess or estimate. The officers do not mostly have the proper accounting perception to relate the items of account to Profit & Loss Accounts. Nor they call upon the assessee to represent the accounts and the books thereto.

The problems are large in number but not unabsolvable indeed. The NBR does not have an R & D division or section. This R & D may be headed by a member and manned with income tax and VAT personnel of excellence in profession. A few persons may work on this divisions, sections earmarked for various classes of business. The business classification can be made as per classes of assessees. Or else on the nature of business like Hospital, Garments, Clinics, Cement, NGO, IT, Property Developer, Land & Real Estate, professions like Lawyers, Doctors, Engineers and CA's, Industries, Salaries, Banks, Insurance etc, the R & D can classify the assessees. Also the costs of raw materials, conversion costs, S & D costs, VAT payments, advance income tax payment clues and all other related income tax matters could be assessed by R & D.

The age old system of gross profit is still referred to by the DCT/ACT. Indeed this basis could be different for various kinds of business. The GP in industries, banks, insurance, trading, profession, contractors, garments and other manufacturing sectors is unlikely to be the same in all years. Also one business may have been buoyant in one year but worse in another.

Raw materials and managerial skill, cost of utilities, sagacity of entrepreneurs are not uniform in all businesses. Nor business means only profit. The basic element is acumen and procurement of raw material at competitive price. In various assessments of same business in different years the deviation of assessment process and the modus operandi of the statements of DCT in the assessment order will be different. But S/he might have not even been on a visit to such assessee's business, all this S/he does on a surmise and historical basis. The R & D division can evolve approaches and methodology for the DCTs/ ACTs. These officers are to be trained on respective impacts on revenue, business and sales. It is found that when telephone, gas & electricity tariffs are raised by government, the bills claimed in one year compare to another when tariff was less and cheaper. This ridiculous and unprofessional attitude stem from their lack of knowledge, resulting from uncoordinated revenue drives by imposition from above. A bottom up approach may be evolved by the R & D on the operational procedure of NBR.

In order to attract FDI, our liberal income tax regime needs some publicity. R & D can do things like this. Impact of new policies need to be worked upon. Let us take tax holiday as an example. It is on the verge of extinction. But why? It is revealed that over Tk. 1500 crores have been lost due to tax holiday of units. But similar business outside the tax holiday regime should be studied, their performance evaluated, contribution to economy considered. Also the employment generated, contribution by way of customers and import duty, value added, employment to related and linkage sector of the Tax Holiday units etc are all relevant factors to decide upon this matter. Let us share the burden of development needs with citizens. The donors cannot be the sole agents to ensure resources for development. NBR with its R & D can embark upon new ideas and innovations for development. Living amidst WTO, we must adapt to it while FDI should replace foreign aid and domestic resources must play more vital role away from the dictum of donors.

ih Malik Chowhdury FCA is Senior Partner, Masih Muhith Haque & Co.,

Chartered Accountants.