An early morning call from the National Board of Revenue (NBR) is usually not the most desirable way to start one’s day. Indeed it was with a sense of dread that I answered the call from an Assistant Commissioner of Taxes, Mr. Zakir Hossain, on March 16. What could this possibly be about? Curiosity replaced my foreboding when Mr. Hossain informed me he had called to invite me to a consultative meeting for my tax zone, Dhaka-8. He said the Commissioner wanted to seek feedback from taxpayers like me in order to strengthen service delivery.
I am thankful I decided that the discussion would be worth the trek across town to Shegunbagicha. Had I not gone, I would have missed an invaluable opportunity to witness a well-organized attempt to make income tax collection a more sustainable, transparent, accountable, and responsive service for citizens. The Commissioner of Tax Zone Dhaka-8, Mr. Abu Taher Chowdhury, chaired the meeting, in which the Zone’s Deputy Commissioners of Taxes and several taxpayers participated. The Commissioner came across as a model bureaucrat at the meeting: knowledgeable, articulate, inclusive, and responsive. After inviting a round of introductions, he solicited comments from taxpayers about their experiences with filing returns. He, along with other officers, then addressed the taxpayers’ concerns and responded to their questions.
It was heartening to see such a vibrant and thoughtful discussion between taxpayers and tax officers. Taxpayers’ excitement about this opportunity was palpable: they were eager to share their experiences and concerns with the Commissioner. They momentarily suspended their bureaucracy-generated cynicism and fatigue to express confidence that additional support and guidance from the NBR would enable them to fulfill their duties as taxpayers and responsible citizens with greater ease and accuracy.
Taxpayers’ key recommendations, as well as tax officers’ responses, could be summarized as follows:
1) Focus on Taxpayer Education
The NBR could bolster the accuracy of tax calculations and returns by publicizing important rules and guidelines more extensively. Income tax manuals,annual guidelines (poripotro), and citizen charters are available in print and online, but new or inexperienced taxpayers may not have access to these resources or the skills necessary to make sense of them. The NBR could identify regularly occurring problems in tax returns (such as documentation for monetary gifts and unexplained decreases in income) and address themon its website or through articles and info-graphics in the media to educate taxpayers and help them avoid such common mistakes. Such measures would encourage taxpayers to be more self-reliant and proactive in preparing tax returns accurately.
Tax education would also boost taxpayer morale and compliance. At the meeting, taxpayers emphasized that they want to support the government’s efforts to provide citizens with the education, health care, and infrastructure they need to fulfill their potential and contribute to the country’s development. Programs that highlight how taxpayer money is used are not only important for transparency, but would also bolster accountability and thereby motivate citizens to support the NBR’s efforts to increase revenue.
The Commissioner enthusiastically recognized the importance of taxpayer education and highlighted two important initiatives already underway:
i) The NBR chairperson, Mr. Nojibur Rahman, has called for the integration of tax education into the national educational curriculum, so that primary and secondary school students can develop an understanding of tax calculations and procedures. Math problems could teach students to calculate income tax dues and investment rebates. Social science courses could familiarize students with the income tax code and return filing procedures. Such educational measures would help de-mystify taxation and promote responsible and informed citizenship.
ii) The Commissioner, Mr. Abu Taher Chowdhury, plans to launch a help desk in the lobby of the Zone 8 Commissioner’s Office,so that taxpayers can consult a knowledgeable officer about any concerns or questions they may have. This would be an invaluable service for taxpayers confused by the tax code, updates, and complex procedures for certain transactions. Years of training in research, even at the doctoral level at Harvard, seem to have failed to adequately prepare me for the trials and tribulations of researching tax rules and completing tax returns in Bangladesh. I am therefore overjoyed that there will soon be an officer responsible for addressing my queries. As with well-intended initiatives in general, the NBR will have to pay attention to quality assurance and continue seeking feedback from taxpayers about such help desks to ensure that they fulfill their intended objectives.
Well-informed taxpayers are indispensable to the country’s efforts to widen the tax base and increase revenue generation. If citizens gain a deeper understanding of procedural requirements and avoid common mistakes in calculating taxes and filing returns, costs associated with dedicating resources towards taxpayer education are likely to be generously offset by gains generated by increasingly accurate tax payments and returns. This would also shift power away from those who seek to profit from the lack of tax education among citizens.
2) Make Audits Less Harrowing
A number of taxpayers mentioned the hassles they encounter during audits. For those blissfully unaware of what audits entail, I should mention that a small percentage of tax returns submitted under the self-assessment provision are selected for scrutiny each year. If investigating officers find inadequate documentation, miscalculations, or apparent discrepancies, they send letters with a list of objections to taxpayers, who are then required to schedule a hearing with an Assistant Commissioner to provide explanations with supporting documentation or if warranted, make corrections.
At the meeting, a taxpayer recognized the necessity of audits, given the possibility of errors in returns, but highlighted the atonko or distress that the yellow envelopes bearing audit letters inspire in their recipients. He said auditees sometimes feel as if they are in a thana or police station for an interrogation, rather than the tax office for the audit of a tax return that they completed in good faith and to the best of their abilities. Another taxpayer started taking anti-anxiety medications after receiving the audit notice. Addressing objections may require the time-consuming collection of affidavits from lawyers and supporting documents from financial institutions. Some taxpayers also find themselves selected for audits in consecutive years. While some have lawyers and accountants to handle the hassle for them, those who endeavor to manage their own returns have to bear the burden of investing the time and effort necessary to prepare for and attend the hearings.
The Commissioner thanked taxpayers for understanding the necessity of audits. He said he would meet with his officers to figure out ways to minimize waiting times for hearings. He will also urge officers to review returns and send out audit letters earlier so that taxpayers can integrate valid corrections into the return preparations for the subsequent year.
3) Widen the Tax Base
Several taxpayers at the meeting expressed frustration regarding the fact that those who file returns and pay taxes have to undergo audits periodically, whereas many high-earning and wealthy citizens skillfully engage in tax avoidance or evasion. According to Mohammad Shahid Ullah’s article “Tax System in Bangladesh: Efficiency and Fairness” (2016), only 1% of the population pays income tax (as cited in BIGD, State of Governance: Bangladesh 2016). A narrow tax base tends to have a negative impact on taxpayer morale and compliance. At the meeting, taxpayers urged authorities to investigate and levy taxes on wealthy citizens who do not file tax returns or understate their income. One attendee asked the Commissioner to request Parliament to reinstate a wealth tax.
The Commissioner acknowledged that tax avoidance and evasion are major problems that the NBR has endeavored to address for years. According to Shahid Ullah, a 2014 NBR survey reported that 79% of business people are outside the tax net. Initiatives such as the self-assessment option, e-TIN deployment, and annual tax fair have bolstered voluntary compliance. To some extent, tax evasion is related to human resource constraints at the NBR. The Commissioner noted that several inspectors have recently been hired in an effort to crack down on evasion and widen the tax base. The government also has to develop mechanisms to deter inspectors from engaging in discretionary behavior that undermines the NBR’s efforts to expand the tax base (see Mirza Hassan and Wilson Prichard, “The Political Economy of Tax Reform in Bangladesh.” ICTD: 2013).
4) Ease the Advance Income Tax Requirement
Taxpayers with anannual income of more than BDT 4 lakhs are required to pay advance income tax in four installments during the year (September 15, December 15, March 15, and June 15) and submit proof of advance tax payment with their next return. At the meeting, an attendee asked why taxpayers with a track record of fully paying their tax dues with their returns are required to pay advance income tax. He also asked whether the NBR could remove the 10% penalty for nonpayment of advance tax.
The Commissioner explained that collecting advance income tax makes planning and budgeting easier for the government. He mentioned that taxpayers will soon have the option of making advance payments online after they collect their login credentials from their tax circle. This will decrease the hassle currently associated with physically going to the circle to make the payment and subsequently collecting a receipt as proof of payment. The automation of payments will in turn make record keeping more accurate, so taxpayers will be less likely to receive reminders for advance tax payments they have already made.
Bridging the Gap
Over the past two years, I have spent considerable time trying to understand and follow tax procedures in Bangladesh. There have been times when I have been frustrated by the complexity and intrusiveness of the procedures – why do citizens need to provide bank statements and details about their expenditures, when there is no guarantee their information will be kept secure and confidential? What measures have tax offices taken to prevent corruption, aside from the long promised and long delayed automation of tax filing? Why, given human resource constraints, do officers spend so much time auditing and investigating compliant citizens, rather than using that time and energy to pursue tax evaders?
I have, however, also witnessed concerted efforts by officials at the NBR to treat taxpayers as partners rather than cash cows or ATMs and to translate the jargon of good governance into actual services for citizens. The NBR has taken concrete steps to make filing procedures more responsive to citizens’ needs. The launch of e-filing and e-payment options, the execution of a public perception survey in 2013, the annual tax week and tax fair, the availability of fillable forms on the NBR website, and promises to crack down on staff who ask for honoraria (shommani) and money for office expenses (office khoroch) or profit from mistakes on returns are all examples of important efforts the NBR leadership has made to strengthen the revenue collection system and thereby bolster sustainable development in the country.
Initiated by Mr. Nojibur Rahman, the chairperson of the NBR, consultative meetings such as the one I attended on March 16 can play an important role in constructing feedback mechanisms that will benefit citizens and the country as a whole. Bureaucrats such as Mr. Abu Taher Chowdhury are playing a crucial role in decreasing the information gap and mistrust between tax officers and taxpayers. No concerns were dismissed as frivolous at the meeting. No lofty promises were made. The Commissioner provided a clear picture of what his office can and cannot do. He specified the concrete steps he and his officers will take in response to the taxpayers’ recommendations. I hope the NBR will continue to engage in such service-oriented leadership, give taxpayers a consequential voice (not just an opportunity to blow off steam and subsequently be ignored) through such innovative initiatives, and translate constructive recommendations into practices that will improve the lives of taxpayers and citizens in general.