Beneath The Surface
"Tax tablets" vs. sleeping pills
In a corner of our club at Jahangirnagar University (JU), some of us sit together to gossip. This informal meeting takes place almost everyday from 7 pm to 10 pm, covering all aspects of our lives and the society that we live in.
Lately, I have noticed with surprise that "tax tablet" -- a metaphor recently used by the chief of the National Board of Revenue (NBR)
-- is increasingly occupying much of our conversations these days. The metaphor seems to have invigorated my colleagues, who are running after lawyers to calculate their taxable income.
It may be mentioned, however, that the university authority generally pays the taxes of teachers, and there is no reason as to why they should not have a sound sleep. But the cautious move apparently arises for those who have been engaged in consultancy works, serving private universities as part-time teachers, or could not possibly declare earlier income due to engagements abroad.
Anyway, the message is that awareness has apparently been created among all strata, as I gathered from my associations with various segments of the society.
Why should people not talk about taxes? Bangladesh has one of the lowest tax/GDP ratios, along with one of the highest per capita debt liabilities. Quite obviously, in a regime where we do not want to shed a share of our earned income for developmental works, the dependence on foreign assistance would run rampant.
And wherever there is dependence, there is dictation and conditionality. Therefore, to get rid of the clutches of foreign aid and conditionality, we need to contribute to the exchequer in terms of paying taxes. The crux of a welfare state is that income should be transferred from the rich to the poor to keep everyone on an even keel. And that is done through taxes.
Why is our tax base low? Low per capita income is one of the factors, but that does not seem to be the whole story. To me, the top-most important reason is the lack of a "tax culture."
It is being alleged that most of the governments in under-developed countries -- including Bangladesh -- used foreign aid as a substitute for domestic taxes. The reasons are not far to seek.
The former option appears fanciful, as it breeds "extra income" for the politicians and policy makers. The latter option is politically more expensive than the former option. Thus, till now, we are not sure whether the number of car owners in Bangladesh equals the number of TIN holders. Nor are we sure that those living in posh areas regularly pay taxes.
Thus, the recent happenings in Bangladesh -- evasion of taxes by the rich and powerful, as revealed by the NBR -- go to reinforce the argument that those able to pay taxes mostly tend to evade taxes.
Of course, these groups tend to pay "informal taxes" to their masters, but abstain from paying the formal tax to the government. The existence of a big under-ground economy also points to this sordid scenario. The tax evaders are high-ups in the society, with strong connections and political clout.
In this context, we note with shame that our former prime minister and finance minister had to pay penalties for not having declared their past incomes regularly. However, the low tax GDP is also partly the result of complexities in the process, that tend to constrain the efforts of many taxpayers to pay taxes.
What are the costs of tax evasion to the society? A simple (but not accurate) example would possibly provide an impression about the cost of tax evasion. To lift 8 lakh households out of extreme poverty, you need to spend roughly Tk.1300 crores/year on various pro-poor projects.
If NBR has already realised that amount of money through its drive so far, the government could -- at least temporarily -- spend it for the economic uplift of those groaning under extreme poverty. Take the words of the World Bank president who reportedly said that if $100 million could be recouped from the corrupt, the tax evaders and other sinners, it could provide immunisation to 40 lakh babies every year and help 2.5 lakh families with pure water!
In other words, we will not have to rely on donors to help us; rather, we can easily help ourselves with our money. But that needs institutional back-up. Remember the adage: "God helps those who help themselves."
Those who are corrupt, evade tax, and engage in anti-social activities for making a fortune rarely have a good sleep without sleeping pills. They are always on the run -- both physically and mentally -- although they have been ruining the economy.
The recent punishment given to some ministers and MPs of the last cabinet for accumulation of illegal wealth and non-payment of taxes indicates that even sleeping pills are not powerful enough to guarantee a good sleep.
But those who have already been paying taxes regularly are sleeping well without the pills. Therefore, the recent initiatives of the NBR for increasing domestic resources through expanding the tax net should be considered as a welcome move.
But, there are a few points to ponder on, which I got from the discussions that I had with the rank and file. First, the NBR should see that its efforts do not result in panic among communities.
As I said before in this column, panic is the worst enemy of any economy. The NBR should distinguish between advertent and in-advertent tax evaders. The latter originates from the ignorance about the tax rules, the transaction costs of paying taxes, the existing complexities in tax rules etc.
The minimum punishment in terms of penalties can be imposed on them. The evaders should also be judged from the type of profession. Say, petty government servants who live on pensions but, for whatever reasons, could not declare their income should be separated from corporate managers who have defaulted in paying taxes.
That would, probably, help in recovering a larger amount of unpaid taxes compared to claiming the other way round. The advertent tax-evaders are those who have not obtained TIN number, even though they have been earning crores of Takas over the years, or have not declared their accumulated wealth to the NBR. Severe punishment may be imposed on them.
Second, the NBR should see that a tax culture is created in the society so that taxpayers hail the move and embrace the culture. The mechanism should also see that evaders are easily detected and taken to task. The mechanism should be such that even political patronage will find it hard to stand by the side of the sinners.
Third, the awareness should be injected through media publicity with specific guidelines to tax payers. And finally, the NBR itself should be endowed with high-level professionals and logistic support to facing the challenges waiting ahead. In the meantime, however, arrangements should be such that honest taxpayers are not subjected to "informal taxes" from the tax officials.
We are in favour of "tax tablets" to swallow every year. But make sure that the tensions built around those tablets do not lead to swallowing more sleeping pills! The NBR has to see that the tablets it discovered are less terrifying and very easy to comply with, and that people become tax-friendly because of the benefits they derive from paying taxes regularly.
As a stitch in time saves nine, so does payment of taxes regularly save several sleepless nights.
Abdul Bayes is a Professor of Economics at Jahangirnagar University.
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