Rethinking Tax Collection

Sajjad Zohir
15 June 2023

[This is a paper that was published in the New Age almost two decades back. Some of the suggestions appear to have been implemented, thus, the background rationale is worth revisiting. More importantly, the original paper had proposed tax-returns submission by all in the payroll of organizations, irrespective of whether they have taxable income or not. It was however suggested that, “in order to get that first step moving, the government needs to abstain from imposing a minimum tax on all those who submit returns”. It is unfortunate that inertia to bring about changes in work culture within the tax administration, often leads to wrong choices! The paper is posted here for its relevance in current discourse on Bangladesh Government’s Budget 2023-24. The author was a Director of the Economic Research Group when the paper was first published.]

There has been much clamour about widening the tax net and increasing government revenue from direct taxes. It is commonly acknowledged that current practices in tax collections are flawed with
presence of tax evasion by agencies as well as by individuals, often in collusion with the tax collecting authority. Yet, efforts during the past two decades of parliamentary governments had largely been on expanding the net of individual taxpayers through making taxpayer identification
number (and/or paying advance income tax) mandatory during annual car registration, opening of bank accounts, and during registration of land transfers. Furthermore, incentives have reportedly been introduced to the very tax collectors who are allegedly part of the ‘problem’. In the absence
of inter-linked database and real-time access to various data sources, payments (such as advance income tax) from individuals often eloped, and the individual taxpayers at times failed to establish claims on such payments. Yet, expansions of the tax administration are proposed in terms of
increased manpower operating within the same system. And various proposals are being tabled, including that of re-introducing wealth tax that will enhance the power of ‘individual tax collectors’ vis-à-vis ‘individual taxpayers’. This paper proposes an agency-centric tax collection policy which, if implemented, will widen the net of individual tax- payers as well, raise the size of revenue from direct taxes, curtail rent-seeking behaviour, and help developing a responsible and accountable governance. In order to appreciate the need for a viable tax collection policy that achieves these, one needs to recognise that the tax collection authority may act independent of the very government (policymakers) whose policies it implements. It is also important to understand the behaviour of taxpayers, and not treat them merely as evaders. As an onlooker, questions are therefore posed to find ways so that all three parties may cooperate in pursuing a common goal of social progress.

 

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