Tk2,26,236cr lost in tax evasion in 2023: CPD study

Tax evasion in Bangladesh reached approximately Tk2,26,236 crore in 2023, found a study conducted by the Centre for Policy Dialogue (CPD).

High tax rate, weak enforcement, complex laws and widespread corruption, large informal economy and low taxpayer trust undermine compliance and encourage tax evasion practices, according to the study report unveiled today (21 April).

The study said tax evasion rose by about twofold in a decade and only 9% of 2,88,000 registered companies submitted income tax returns, which doubled the tax burden on the tax-paying companies.

It also found widespread corruption allegations against tax officials.

"Around 45% of companies stated that they were asked for a bribe by tax officials in FY23, highlighting a lack of transparency and corruption within the tax administration," a separate survey on 123 companies revealed.

On the other hand, 82% of the businesses believe that the country's tax rate is unfair, which is one of the major challenges for them.

The study, titled "Corporate Income Tax Reform for Graduating Bangladesh: The Justice Perspective," was unveiled at a press briefing at the CPD office in Dhaka today.

Of the total tax evasion, corporate tax evasion accounted for an estimated Tk1,13,118 crore, which is half of the total amount, according to the study.

Tax evasion began rising notably in 2011, with estimates climbing to Tk96,503 crore in 2012 and more than doubling to Tk1,33,673 crore by 2015, the study finds.

"Tax injustice is not just a matter of tax rates. Tax justice can be ensured by lowering tax rates, reducing tax evasion and broadening the tax base," said Dr Khondaker Golam Moazzem, research director of CPD, while conducting the programme.

He proposed introducing a unified digital system for all types of transactions to prevent existing tax evasion and ensure compliance.

Questioning the validity of Tk71,000 crore in tax exemptions given to the corporate sector alone in the FY2021-22, Dr Moazzem said they were not properly assessed.

He further noted that tax exemptions and incentives in the country are granted under political considerations, and said, "We must move away from the sector-based incentive system."

While presenting the keynote, Tamim Ahmed, senior research associate at CPD, said, "There is no justification for the reduced tax rate benefits being given to garment exporters. It is time to reconsider these facilities."

Widespread non-compliance

The study also found that currently there are 2,88,000 registered companies under Joint Stock Companies and Firms (RJSC), out of which only 9% companies submitted income tax returns, indicating widespread non-compliance or ineffective enforcement.

In a decade, the tax burden on the individual companies has nearly doubled, averaged from Tk1.09 crore to Tk1.94 crore, according to the CPD estimate.

According to the estimate, if the tax authorities aimed to collect the same amount of total corporate tax revenue from all eligible corporate taxpayers, the per-company tax burden could be reduced by as much as 75%.

Given the current number of registered companies, about 59% of them will need to comply with tax filing provisions to achieve the revenue goal for 2030, the report read.

Tax officials asked for bribes

Around 45% of companies stated that they were asked for a bribe by tax officials in FY23, highlighting a lack of transparency and corruption within the tax administration.

The study also found that some NBR officials discouraged businesses from using digital platforms for tax submissions, as "these systems reduce opportunities for tax avoidance and limit the potential for bribery."

According to the study, only 25% of the surveyed companies submitted their full tax returns digitally.

It said 82% of the surveyed businesses believe that the current tax rates imposed on them are unfair, identifying this as one of their major challenges.

Among them, 79% believe there is a lack of accountability of tax officials, 72% think corruption is widespread, and 70% believe that there is a lack of full digitisation.

Furthermore, 65% of businesses reported persistent disputes with tax officials regarding the calculation of their payable tax amounts.

Many business leaders echoed that tax officials often impose arbitrary tax assessments without proper justification or prior communication. Such practices, they argued, create a burden that often outweighs the tax itself, making the overall tax practice unfair.

Moreover, there is a prevailing sense of distrust among the surveyed business entities regarding the extent to which their paid taxes will be utilised in ways that benefit their businesses.

Criminal charges for non-submission of returns proposed

The CPD has proposed that if a company consistently fails to submit tax returns, the individuals associated with that company should be brought under criminal charges.

The research institute also recommended that the tax system be redesigned to progressive structure and effective tax rate be reduced by 10% by 2030.

It also proposed gradual withdrawal of direct cash incentive for export, more transparent tax expenditure report, establishing a dedicated entity for managing tax refund, and addressing inefficiencies and delays of tax refund process.

It underscored digitisation as the key to combat tax evasion.

The CPD suggested installing CCTV cameras in all the rooms of tax officials at the NBR building to enhance transparency and accountability, and to deter illegal transactions.

"By reducing 40% of tax evasion, an additional Tk56,559 crore can be collected," it read.