Investment is not growing because of frequent policy changes, failure to build a business-friendly tax structure
Shams Mahmud, president of the Dhaka Chamber of Commerce and Industry (DCCI), imported spare parts for machinery worth Tk20 lakh as raw material for factories in the export processing zones (EPZs).
When the raw materials were brought in by planes, customs officials in Dhaka imposed a duty of Tk11 lakh as they did not get any HS code of the paper. The HS (harmonised system) code is an internationally standardised system of names and numbers to classify traded products.
He could not get the spare parts for machinery released even after informing the officials concerned that the raw materials for factories in EPZs were free from import duty.
Customs officials made it clear that the spare parts for machinery would not be released if the prescribed duty was not paid.
He had to pay Tk11 lakh, worried that the machine would shut down if he could not have the raw material released.
Shams Mahmud was speaking at a webinar, "Towards a Conducive Tax System: The Reform Imperative and Priorities," organised by Resurgent Bangladesh – a platform jointly formed by Metropolitan Chamber (MCCI), Dhaka Chamber (DCCI), BUILD, Chittagong Stock Exchange and Policy Exchange.
The DCCI president said if the National Board of Revenue (NBR) played such a role, no matter how hard the Bangladesh Economic Zones Authority (Beza) and Bangladesh Investment Development Authority (Bida) tried, foreign investment would not come to the country.
"Therefore, Bida and Beza should be given the power to release raw materials and equipment imported by companies."
Referring to Shams Mahmud's comments, Salman F Rahman, private industry and investment adviser to the prime minister, assured him that arrangements would be made to get back the Tk11 lakh. "Tomorrow, I will talk to the customs commissioner of Dhaka and make arrangements to get the money back."
BSRM Chairman Ali Hossain Akbar Ali said that his firm paid Tk400 crore in advance tax, but it was not getting it back as the NBR's system had not been updated.
Speaking at the webinar, Abul Kasem Khan, chairman of Business Initiative Leading Development (BUILD), said his sister was harassed by NBR officials for losing a photocopy of the invoice after filing an income tax return.
"In this case, the main responsibility goes to the NBR official. However, if familiar faces like us are harassed so much, then it is conceivable how much harassment is being inflicted on others," he added.
Businessmen said that the decisions and policies the NBR was taking to increase revenue were not business-friendly. There had been no major reform in the revenue sector since 1991. The NBR itself adopted policies and implemented them itself.
Due to frequent policy changes and lack of a business-friendly tax structure, investment in the country had not been increasing. Even if the Prime Minister's Office, including Bida and Beza, undertook many initiatives to get foreign investment, it would not be of much use, they added.
To put an end to harassment of businessmen, the businessmen called for the formulation of long-term tax policies, separation of tax policy and tax administration and ensuring digitisation.
Participating in the webinar, Planning Minister MA Mannan and Prime Minister's Economic Affairs Adviser Dr Moshiur Rahman also expressed displeasure over the country's tax structure and revenue system.
The policymakers said that they would make recommendations at the highest level of the government on reforms of the revenue system.
In his remarks, the planning minister said, "The work of the Internal Resources Department and the NBR has been contradictory in nature. How does a secretary act as the head of these two organisations at the same time?
"A tax official is needed as chairman of the NBR, but the administration cadre is taking everything. People come one after another to the post of NBR chairman and then go. They are becoming NBR chairmen with their experience of working in the Ministry of Religious Affairs, the Ministry of Culture and Ministry of Agriculture."
He opined that there should be separate tax policy units under the Ministry of Finance and a fully autonomous revenue administration with a stable operational revenue policy and independent operational capacity for business and investment.
Dr Moshiur Rahman said that the NBR was still operating on a certificate-based tax system like the British-era zamindars.
"The NBR demands taxes from businessmen according to its own needs. If a company does not pay it, all the bank accounts of that company are confiscated. Then the company can't pay suppliers' bills and workers' salaries.
"Even if the company wins after a long lawsuit, it becomes unable to run its business. In this case, it is important to make arrangements to collect compensation from the NBR official who decides to seize bank accounts."
"Our tax rate is high, which is not good for investment," Dr Moshiur Rahman said. "It is important to have an identification number for everything, including taxes and value-added taxes."
Salman F Rahman said, "Our VAT rate is much higher. We have to reduce it to a uniform rate. NBR is interested in earning more from customs duty as it makes it possible to collect revenue easily. NBR has to come out of this trend. Income tax and non-tax revenue should be increased.
"Tax policy and tax administration are two different things. But the secretary of the internal resources department is becoming the chairman of the NBR. How is this possible? Why should the same person be the head of two offices?"
He emphasised the need to appoint an NBR chairman for at least five years after separating the tax administration.
"Chairmen leave within 2-3 years after their appointments. As a result, they are not interested in any kind of reforms."
Dr Nasiruddin Ahmed, former chairman of NBR, said the Alternative Dispute Resolution (ADR) could not be introduced although the new VAT law came into force seven years later. "The business environment is being disrupted in the absence of the ADR."
"When I was chairman, I tried to bring down the size of the income tax return forms to pages 1-2. I also told the prime minister about it at a function. But in the face of internal resistance it was not possible to implement it. We could not even impose a wealth tax, and then surcharge was introduced," he added.
Ahsan H Mansur, executive director of Policy Research Institute, said the tax-to-GDP ratio was lower now than it was 10 years ago.
"The government speaks of revenue sector reform in every five-year plan, but no reform takes place. Without tax structure reform, it is not possible for Bangladesh to become a middle or high income country."
He suggested setting up a high-level commission to reform the tax structure.
Mahtab Uddin Ahmed, managing director and chief executive officer of Robi, said, "We need a powerful database. It is important to adopt a policy based on information, not on estimation. Since the new VAT law came into force last year, a number of SROs have been issued, showing signs of returning to 1991.
"The appeal process is also a kind of NBR. Before filing an appeal, 30% of the amount claimed by NBR has to be submitted. If there is such a policy, foreign investors will not be attracted."
The President of the Metropolitan Chamber of Commerce and Industry, Nihad Kabir, pointed out in his keynote paper that taxpayers needed to be treated as customers.
"If we adopt and implement the best practices available in different countries, investment and revenue will increase."
Syed Nasim Manzur, managing director and co-founder of Apex Footwear Ltd and also the former president of MCCI delivered the welcome speech at the webinar that was chaired and moderated by Dr M Masrur Reaz, chairman of the Policy Exchange of Bangladesh.