The yearly tax evasion and avoidance and exemptions mostly in the corporate sector could amount to Tk2.93 lakh crore at its highest, which is about eight times the amount of social safety net and welfare expenditure in the country, according to a study by the Center for Policy Dialogue (CPD).
The tax evasion is also almost equal to the total revenue collection, the CPD said.
In the fiscal 2021-22, the National Board of Revenue collected slightly higher than Tk3 lakh crore in revenues.
The CPD has identified reserve and provision, showing less income, taking the help of legal advisors and tax practitioners, showing more investment allowances, individual intention, and high informal or cash-based transactions as the primary ways for tax avoidance and evasion.
Tax avoidance is any legal method used by a taxpayer to minimise the amount of income tax owed.
At the same time, the special scope to legalise undisclosed income is another reason behind this.
The report further reveals that in 2021, Bangladesh's tax loss was Tk84,200 crore due to the informal or shadow economy, which accounts for more than 30% of the country's gross domestic product (GDP) and stays almost completely beyond tax dragnet.
"Tax loss due to the informal economy was close to 300% of social safety and welfare expenditure," the report reads.
The research report, titled "Corporate Tax Transparency Issues and Concerns in Bangladesh: Its Implications on Tax Losses and Social Spending," was formally released on Monday at CPD's Dhanmondi office in the capital.
While presenting the report, CPD's Research Director Khondaker Golam Moazzem said, "A part of the evaded tax amount is being syphoned off, while some is being invested in the country, and some is in asset or cash form."
Apart from tax evasion, existing tax exemptions are also taken into account in tax avoidance.
"The decision of tax exemption is taken in consideration of the political economy. But it should be given on the basis of need," he said at the programme moderated by CPD's Executive Director Fahmida Khatun.
"For example, in the case of exports of ready-made garments, incentives are given at 1% in any market. But if it were given to the non-cotton sector, it would be much more effective," he added.
He thinks that this decision cannot be taken in the face of pressure from various groups.
The research report was prepared on the basis of a survey among 10 renowned chartered accountants and two officials of the NBR.
Khondaker Golam Moazzem told The Business Standard, "The tax evasion figure is an approximate estimate of CPD based on the data obtained from the survey."
Respondents to the survey suggested seven ways to ensure corporate tax transparency: decrease corruption; develop infrastructure; ensure cashless transactions; digitisation; increase the tax net; implement a proper document verification system for the company; and decrease the effective tax rate.
Fahmida Khatun said, "If the tax management can be made transparent, logical, and modern, the tax-to-GDP ratio will increase, and a large part of the government's budget expenditure will come from taxes."
She said this requires coordination with the parties concerned, sufficient human resources, and reforms at the NBR.
"Reforms happen when there is pressure from outside. A target for tax reform has been set to get loans from the International Monetary Fund (IMF). But it would have been better if the government had done this on its own," she added.
However, the CPD's executive director thinks that if this reform is done, the problem related to increasing tax collection will be greatly reduced. But for this, the existing loopholes must be closed.
Only 1 in 5 registered businesses pay tax
The report shows that, according to NBR, out of 213,505 companies registered under the Register of Joint Stock Companies and Firms, only 45,000 submit tax returns. This implies that the corporate income tax compliance rate is only 21%, which means only 1 in 5 registered businesses pays tax.
According to the survey, the volume of tax evasion or avoidance ranges from 5% to 80%.
In addition, financial statements of the selected listed companies from the pharmaceutical, cement, and banking industries were gathered. It was observed that the tax amounts of companies vary widely even after having similar levels of sales or assets.
Corporate tax is 30% in Bangladesh, compared to 19.5% in Asian average
According to the CPD report, the corporate tax rate in Asian countries is 19.5% on average, while in Bangladesh it is 30%. Not only that, the personal income tax rate is also below 20% in Asian countries, while it is 25% in Bangladesh.
The report shows that between 2003 and 2021, the corporate tax rate increased only in Bangladesh among the eight countries in Asia and South Asia. Even this rate has decreased in the rest of the countries. During this period, the tax rate in Vietnam was reduced from 30% to 20%, but in Bangladesh it rose above 30%.
Nuzhat Jabin, a representative of Christian Aid in Bangladesh, told TBS, "Tax-to-GDP should be increased. But it should not be done by increasing inequality."