Tax revenue loss: Bangladesh 3rd highest in South Asia

Bangladesh is losing more than $703.40 million in taxes per year, causing it to experience the third highest revenue loss in South Asia. 

The loss amount is 3.5% of the collected tax revenue of Bangladesh, which is 0.9 percentage points higher than the global average (2.6%) and two percentage points higher than the Asian average (1.5%), read a report titled "The State of Tax Justice 2020."

Corporate tax abuse causes 95.85% of the tax losses in Bangladesh per year, and the rest (14.14%) is due to private offshore tax evasion.

The report – published by the independent international organisation Tax Justice Network on Friday – also revealed that the highest amount of tax loss in South Asia is faced by India ($10.32 billion) and Pakistan ($2.53 billion).

Bhutan ($0.09 million) experienced the lowest amount of tax revenue loss per year in the region, followed by the Maldives ($0.69 million) and Nepal ($9.26 million). Sri Lanka and Afghanistan – the other two nations of the region – are losing $104.81 million and $2.89 million, respectively.

Bhutan, the Maldives and Nepal do not experience any corporate tax abuse. 

This is the very first edition of the report, which has shown how much tax each country in the world loses to international corporate tax abuse and private tax evasion.

'Just the tip of the iceberg'

The tax revenue loss amount in Bangladesh is equivalent to 61.89% of public health expenditure, which is the second highest in South Asia under this criterion. The country is only behind Pakistan (127.45%) that experienced more tax revenue loss than the public health expenditure.

The report also mentions that the tax loss in Bangladesh can provide salaries for 0.39 million nurses. Moreover, the revenue loss is 13.95% of the public educational expenditure, and each Bangladeshi is facing a loss of $4.

Commenting on the issue, Transparency International Bangladesh's Executive Director Dr Iftekharuzzaman said, "Although this estimate by the Tax Justice Network is just the tip of the iceberg, much larger amounts are being systematically lost to illicit transfers through misinvoicing in external trade." 

"The report shows the potential gain for Bangladesh if the relevant authorities are vigilant enough," he added.

"Given the appropriate skills and courage to enforce laws and regulations without fear or favour, it is well within their reach to prevent such loss and hold the perpetrators accountable, the real value of which would be many times more than such estimated loss," he continued. 

Vulnerability to illicit financial flow

The report also has estimated each country's most vulnerable illicit financial flows channel. 

Bangladesh is most exposed through foreign direct investment, as this channel has acquired a score of 60 out of 100. 

With a responsibility of 23.4%, the United States is creating the highest vulnerability for Bangladesh, followed by the United Kingdom (7.7%) and Singapore (7.0%).

Surprisingly, Bangladesh (18.9%) is creating the highest vulnerability for Benin's illicit financial flow through export. Moreover, Bangladesh is the second highest vulnerability-creating country for Pakistan and Sri Lanka's illicit financial flow through outward foreign direct investment.

Overall, Bangladesh is responsible for $0.89 million of other countries' corporate tax abuse.

Globally, over $427 billion of tax are lost due to corporate tax abuse and private tax evasion by individuals. Although higher income countries lose more tax than lower income countries, the tax losses are equivalent to more than 50% in lower income countries compared to around 8% in higher income countries.

Moreover, higher income countries were 98% responsible for global tax loss.