Many Bangladeshi businesses ignore ‘costly’ tax compliance

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Bangladesh’s corporate tax returns submitted annually have only exceeded 30,000 over the past seven years, although its economy has nearly tripled in size during the period as many companies ignore costly compliance , according to sources.

Official statistics show that the size of the country’s economy increased from Tk 13.44 billion to Tk 34.44 billion during the period, but corporate tax returns were blocked.

The tax return is mandatory for all businesses, showing their annual income, expenses, assets and other details.

Although the number of registered businesses as well as the collection of corporate tax have increased sharply since 2013, the trend of filing returns has remained low, showing a dismal state of corporate tax compliance in Bangladesh compared to to many countries.

The mismatch was made clear through an analysis of FE reporting data from the past seven years to determine what went wrong in the corporate world when it comes to taxation.

Of the 167,047 corporate taxpayers holding a TIN (tax identification number), only 29,785 had submitted their tax returns until June 30, 2021.

Based on the data available since FY 2013-2014, the FE correspondent discovered that this low-rate corporate tax return submission has been going on for years.

However, the number of companies holding a TIN increased by 114.66% in the previous fiscal year, but the submission of returns did not show this leap forward.

The TIN is a versatile tool, necessary to benefit from many official services, but the submission of returns and overall tax compliance is a cumbersome process for many accounts.

Business insiders say the high cost of corporate tax compliance, the complex manual process, and the hassle of submitting huge documents with tax returns discourage them from submitting tax returns.

Currently, corporate taxpayers are required to submit 26 types of documents, mostly in manual form, per year to the tax office.

Speaking to FE, some of the corporate taxpayers regretted having to stay busy with tax-related work all year round to meet compliance requirements.

Bangladesh Institute of Chartered Accountants (ICAB) tax advisor and member Jasim Uddin Rasel says the cost of corporate tax compliance is high in Bangladesh as a mid-level business has to spend around one million taka in additional expenses for tax advisers and others each year for filing tax returns.

Responding to a question, ICAB Board Member Md Humayun Kabir, who was also the former President of the Institute and Chairman of the Tax Sub-Committee of the Bangladesh Federation of Chambers of Commerce and Industry ( FBCCI), said many businesses get registration but refrain from submitting tax returns because they don’t start formal operations.

“However, all corporate taxpayers pay some form of withholding income tax, so the tax administration should take the lead in simplifying the process of submitting returns to encourage them,” he adds.

Additionally, many businesses have gone inactive while some have fallen ill in the midst of this shattering COVID-19 pandemic.

Abul Kasem Khan, President of Business Initiative Leading Development (BUILD), observes that taxpayers place a burden on honest taxpayers to save tax evaders, preventing many businesses from falling into the tax net.

He says start-ups prefer not to be subject to tax due to the high burden of withholding tax and the cost of tax compliance.

“I have to appoint an auditor and a tax advisor for tax purposes. The cost of tax compliance is quite high in Bangladesh,” he laments.

Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said the NBR should grant start-up companies at least three to five years’ relief from the verification of their tax returns to encourage the filing of declarations.

It also suggests automating the submission of returns and reducing the higher cost of corporate tax compliance as well as tracking registered companies.

The executive director of the Foreign Chamber of Commerce and Industry (FICCI), TIM Nurul Kabir, believes that the overall tax management system is not effective compared to neighboring or developed countries, which was reflected in Bangladesh’s low tax-to-GDP ratio.

“Our low tax-to-GDP ratio also indicates that there is an extremely large number of eligible taxpayers who do not pay their taxes properly,” he said.

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