Our country's tax structure is very much dependent on indirect taxes. This ends up weighing heavily on regular consumers. Especially at a time when income, wealth and asset disparity is increasing, this reliance on indirect tax increases the disparities further. What we need is to increase our reliance on direct taxes. The disparity in income in the first stage will come down after imposition of tax as people with higher income will pay higher tax. So, we had hoped that, indirect taxes would reduce and reliance on direct taxes will increase.

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Whitening black money, raising taxes won’t fix our economic ails

For this, we had hoped that this time there would be some initiatives about increasing NBR's powers, digitalisation of NBR and tagging expenditure with income. The highest taxation rate has been raised to 30 percent again from 25 percent. This is a positive step. This will ensure that later on if the wealth surcharge taxes are implemented even if the rate doesn't increase, the surcharge collection will increase. These are the things that we should focus on.

Bank defaulters or tax evaders receive a number of amnesty and benefits for whitening black money. So, giving them more options to get out of the problems of not paying taxes on time should not have been a focus. Rather the focus should have been on bringing them back under the tax system instead of giving them an opportunity to legalise their undeclared money by paying a lower tax rate.

One way of increasing the tax collections is to increase the rate of taxation. The other is to increase the tax base. Then there are also those who are evading tax. The NBR chairman himself has said in a presentation that around one crore people should be under the tax bracket, whereas only 35 lakh people have submitted tax return last year. So, instead of harassing those who are already giving taxes properly, taking legal action against tax evaders, would warn others from doing the same.

A wrong signal is being sent in terms of morality, economics and politics by offering different types of tax amnesty. It could have been acceptable if tax evaders had to pay a 7-10 percent penalty on top of their tax amount. It is not acceptable that all taxpayers should pay 30 percent, but those who don't pay tax can hide their money and then pay 15 percent and legalise their money.

As told to Monorom Polok of The Daily Star

Dr Mustafizur Rahman is distinguished fellow at the Centre for Policy Dialogue (CPD).

Views expressed in this article are the author's own.

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