Doing business environment has been very critical in the economic context of Bangladesh. Economy of Bangladesh has been doing well backed by consistent growth and resilience. Despite pandemic effect, our economy outshined many other developed and developing economies during the Covid times recording 5.47% growth and project to be 7.20% in the next year. The recovery dynamics is working well backed by international trade, foreign remittance and local market development. All factors of economy have not equally done well likewise trade and remittance. The important economic factor- private investment combining foreign and local private investment also has recorded downward. The economic atmosphere has not fully recovered as of now. The recovery process is delayed due to dysfunctional global economic system. All economies are not equally reviving to contribute to aggregate economic environment of the country. The doing business environment needs to be restrengthened to ensure better economic atmosphere considering local business environment recovery and economic competitiveness. Our doing business environment is associated with various economic factors. Above all, our enabling business environment can act as the catalyst of our desired economic growth. To improve the doing business index position, the core 10 criteria of the index need to be improved as well undoubtedly. The existing business environment is often featured as complex and critical due to various cross-cutting issues and challenges that sometimes hold back the improvement in doing business index. Paying tax is an important factor having manifold impacts on local business and industrial ecosystem of the country. Bangladesh does not have an advanced and state of the art taxation system. The taxation system featured by higher tax rate, lengthy and complex return system and procedural hassle has hot created enough confidence among the businesses and tax payers in Bangladesh as a result there has been a substantial gap between tax authority and tax payers. The existing Income tax ordinance 1984 is not a full-fledged law which fails to large extent to meet the growing need of industry and economy as multiplicity of businesses operation and nature have been evident in the country. However, the current law has been often reformed with frequent SRO and finance bill. As a whole, the current law fails to meet the comprehensive and changing business context of Bangladesh invariably. Amidst this state, endeavour of new tax act is to address the tax related challenges faced by the business community for an efficient tax structure with holistic approach to ensure greater interests of its stakeholders. Apparently, it is a good move however we have witnessed some issues and features in the proposed Act 2022 which need attention by the concerned authority prior to finalization of the act. The act should also keep some provisions that trigger the needs in context of doing business index through improvement of paying tax criteria so that both of our tax stream and net become strengthened. The overall act should be predictable taking into account the futuristic business and investment development.
- The language of the act needs to be easy and communicable and friendly for clarification and understanding. The easy and understandable version keeping the concise theme of the act that inspires people to pay tax as well the act should be concise reducing 353 clauses.
- Different slabs of tax for different nature of businesses like MSMEs and large business may be inserted.
- The perquisite is a non-cash facility and perquisite items need to be updated and its calculation need to be easy.
- Full-fledged automation of tax payment system is essential to avoid hassle, process and undeserving problems in settling tax matters to leverage businesses and NBR.
- The tax file audit should be held through a systematic process rather than random selection. The audit may be applicable for selectively tax credit, return and refund cases but not for all cases. The frequent random audit raises concern of harassment and hassles.
- Clause 130 states the provision of 50% source tax imposition on cottage and micro and small businesses if they do not have any TIN. Therefore, this provision increases cost burden of business and needs to be amended.
- 189, 198, 205 clauses of the income tax act allow and authorize tax officials to exercise and enforce frequent inspection, visit and unplanned intrusion into businesses, seizure of property, business valuables, evidence check and verification that causes unsolicited and undeserving hassles in businesses and affect business course of action. Therefore, to balance these tasks, a pre-notification of visit may be inserted to overcome all sort of hassles.
- Clause 195 allows tax officials to cease and hold the necessary business documents, record and files, on suspicion ground and unsettled audit ground, upto 160 days. This provision severely affects general business course of actions and operations therefore this provision should be optional and time length can be reduced to 30 days otherwise MSMEs will be badly affected.
- C&F agents, freight forwarders and customs agents’ fees and renewal fee of trade license should be charged lowest tax rate so that these marginalized business and Small and micro business remain safeguarded from the rising business cost trend.
- The tax exemption limit needs to be increased from current threshold as cost of living is on the rise. To allow people and employees to afford sizable amount of disposable money for spending. On the other hand, to balance the tax incidence on different type of businesses, from MSME to large, more slabs with higher tax rate are needed in addition to existing structure thus a significant difference in tax payment can be ensured between large and medium business tax payers with rational tax treatment.
- Wide-ranging industrial implications should be minimum so that industries can grow easily and generate tax revenue.
Revision of proposed Tax act and quick implementation can ease and steer our target to make substantial improvement in tax structure, style and culture to balance among revenue generation, resource mobilization and business growth. This nexus must be firm and smooth to function an ideal and result-oriented business ecosystem. If a progressive and improved tax culture can be held this would not only secure better result in doing business index but also some significant changes in the national tax revenue collection, mobilization which results into proper operation of government and end of deficit revenue and budget culture. Since improved doing business has multiplier economic crowd out effects, we need to be aware in step forward in the proposed act prior to finalization of the act. Since changes in act is very lengthy and hectic, finalization of the law must be participatory and thoughtful reflecting the needs of various stakeholders so that it caters the interests of wide-ranging groups aiming at escalation of much needed doing business environment. We need to consider and work to reduce the processes to make the proposed act very effective for its beneficiaries and stakeholders impacting overall improvement of Ease of doing Business context to sustain the competitiveness of economy in the days to come. Economy is in graduation led massive transition towards the journey of developing and developed economy by 2041 for huge economic transformation. Taking these game-changing milestones into account, this proposed act must be reshaped as a critical catalyst and guide us down the road towards the long-cherished trajectory.
Written by: AKM Asaduzzaman Patwary, Doctoral fellow in Economics.