Driving tax revenue using technology
My son has his own studio and content creation platform where many influencers record their programmes. Last week, a very successful entrepreneur was interviewed. He explained that during the pandemic, he created an online marketplace that became highly successful.
When asked what his USP (Unique Selling Proposition) was, he startled us, saying it was honesty. He added that this segment has no competition and less stress as rules are followed. If all our taxpayers and collectors had followed this USP in their business and personal lives, Bangladesh's tax revenue would have been one of the best in the region. Today, Bangladesh has one of the lowest tax-GDP ratios in the world.
Our revenue collector's easiest route is increasing rates on the existing taxpayers rather than expanding the tax net, albeit some feeble efforts otherwise. With advancements in digitalisation, the focus could shift to how technology and existing data points can be used to widen the tax net. The National Board of Revenue (NBR) may consider connecting its core system with the databases of telecommunication firms, banks, corporates, and ministries to extract personal and business details.
Using cloud computing and artificial intelligence, the NBR can collect information from various sources. For example, telecom companies can provide data on mobile users aged 18 years and above with their movements and spending habits. Banking, mobile financial service and fintech transactions can be used to derive information on a wealth of individuals and businesses.
The land ministry database can help with the list of apartments and landowners and the Bangladesh Road Transport Authority can help list vehicles on the road with personal details.
Cross-matching all these data, the system can calculate an individual and company's wealth and ability to pay taxes. Presently, banks and fintech companies provide loans based on virtual credit rating tools using less data than those mentioned above. Why can't NBR do the same and demand accurate tax submissions? If the above data is simulated well, the number of identified taxpayers can be several times more than 26 lakh in 2020-21.
In developed countries, in the calculations of personal and company tax assessment, data like tax payments, interest statements, land tax payments and AIT for vehicle registration are used, leaving little room for manipulation.
Based on the simulation of the past year's transactions and the current condition, the authority can advise paying next year's taxes in accordance with the financial condition of taxpayers, allowing even quarterly instalments.
The NBR or the government have considerable untapped pockets of revenue hidden behind opaque internal processes, high operational costs, and misallocated labour costs. Technology can access these hidden potentials for revenue with a more effective and faster means of revenue collection.
Every factory and warehouse has surveillance cameras. By accessing them, the NBR may calculate the goods coming in and going out, their value and estimated VATs. With advanced digitalisation, the government can be more efficient and address the existing human resource shortage at the NBR. Tech-driven revenue management can generate windfalls without requiring unpopular tax hikes or additional fees.
With major financial setbacks triggered by multiple factors, including the pandemic and the Ukraine war, the aim should be catering to public needs and sentiments by emphasising more on better revenue management rather than additional outside revenue sources.
If we want a corruption-free tax ecosystem through adequate use of technology, then this is the right time to act.
The author is founder and managing director of BuildCon Consultancies Ltd