NBR specialised unit to boost revenue, curb trade frauds

The National Board of Revenue (NBR) has drafted a revenue strategy up to 2032, aiming at broadening the tax base and making the tax admin more efficient as revenue collection is under stress. The draft includes setting up a specialised unit to curb trade frauds and mis-invoicing reported to syphon off billions annually, according to officials.

The action plan, titled "Medium & Long-Term Revenue Strategy", also seeks an improved fiscal management, and more transparency and accountability to improve public perception of the tax system.

The draft categorises the to-do list in three slabs – short, medium and long term.

Infographic: TBS

The NBR puts tasks like addressing the trust gap between the taxmen and the taxpayers, developing voluntary compliance to reduce collection costs and pre-budget talks between the policymakers and top taxpayers in the short-term – which is by 2024, according to the plan.

Other short-term topics include periodic updating of the VAT and SD Act, enactment of the new Customs Act and assessing the effectiveness of the existing tariff policy.

Revenue officials said this would help drive up the tax-to-GDP ratio – which is below 8% and the lowest in South Asia – to 12.3% by 2025 and 17% by 2031. The tax-to-GDP ratio is the ratio of the tax revenue of a country compared to the country's gross domestic product (GDP). This ratio is used as a measure of how well the government controls a country's economic resources.

The revenue board's mid-term duties to be completed by 2027 include setting up a specialised unit to curb trade frauds and mis-invoicing, which according to Washington-based Global Financial Integrity, syphoned off around $8.27 billion annually on average between 2009-2018.

Syed Mushfequr Rahman, commissioner of Customs, Excise & VAT Commissionerate Chattogram who led the formulation of the draft, said the revenue plan is tailored to cushion challenges stemming from Bangladesh's graduation from the least developed country to a developing one.

"The entire plan stresses on boosting the revenue. If it is implemented properly and the global economic situation normalises, the tax-GDP ratio will be 12.3% by 2025," he told The Business Standard on Tuesday.

The draft of the revenue plan has already been submitted to the NBR chairman, as the board is scheduled to launch it on 26 March 2023.

The revenue board logged more than 16% growth in revenue collection in FY22. But this year's collection growth looks dull so far.

According to the latest revenue data, revenue collection grew only 7% and 10% respectively in September and October this year as officials do not see the possibility of any major rise in collection in the coming months.

To revitalise the collection, the revenue board has taken several measures including more use of the electronic fiscal device in business establishments, mandating the business identification number for businesses at grassroots, mandating return submissions for all tax identification number (TIN) holders and increasing the penalties.

Specialised unit to check money laundering

The draft recommends formation of a special unit to check duty dodging, trade-based money laundering and terror financing. It also advocates for creating customs attaché posts in foreign missions.

The above two coordinated goals, according to the revenue board, are to be achieved in the next ten years.

False declaration or mis-invoicing under the guise of external trades is a widely discussed topic in Bangladesh. A large chunk of Bangladesh's money laundering, estimated roughly around 80%, is trade based.

Speaking in the first week of December at a programme about mis-invoicing,  Central bank Governor Abdur Rouf Talukder said that they have suspended 100 Letter of Credits (LC) for imports recently for over-invoicing up to 200%.

He commented that trade-based money laundering would stop if mis-invoicing could be checked.

Economists have long been pointing to mis-invoicing, in which product prices are shown higher or lower to launder money. Unscrupulous importers show higher prices of goods and collect the extra money from the exporters abroad by using over-invoicing.

In under-invoicing, some exporters show lower prices of goods and collect the extra money from the importers in the recipient country.

Shahidul Islam, a member of the revenue board, believes mis-invoicing and money laundering could be reduced substantially if there are region-based customs officer abroad who can promptly investigate the accurate information on a consignment.

He said the revenue officials came up with such a proposal in 2011 but it did not get traction. Shahidul Islam said foreign missions of India, Pakistan, China and Japan have such posts and Bangladesh can introduce it too.

Strategic pillars for long-term revenue plan

The action plan consists of four pillars. Those are developing effective policy and legal environment; simplifying, integrating and modernising NBR administration; developing human capacity; and enhancing taxpayer services for voluntary compliance.

Each of the pillars have multiple subsections as the job is distributed to different phases.

The long-term plan includes reorganising the NBR with a view to ensuring comprehensive digital integration and coordination among various functional units.

In the long-run, the revenue board also looks to upgrade the NBR's status to a full Revenue Division where officials from Customs, VAT and Income Tax services will run policy and analysis wings, according to official documents.

Muhammad Abdul Majid, a former chairman of the revenue board, said the action plan will minimise scopes for tax evasion and augment the collection eventually. But the success of the new playbook would require efficient and skilled taxmen.

He pointed at frequent changes to the core tax administration and labelled it as the major challenge for implementation. "If the new incumbents are not interested in it, there will be zero benefit."

To plug the loopholes, the master plan talks about tax policy reforms mentioned in the Eighth Five-Year Plan that stipulates professional selection of revenue board chairman and Tax Policy Unit chief with a 5-year fixed term appointment.

The government's Eighth Five-Year Plan also mentions providing adequate resources and autonomy to the NBR chair and Tax Policy Unit chief in modernising their offices, staffing professionally and making policies.