Informal firms say no TIN means no tax
Formal business firms rated the National Board of Revenue officials lowest for honesty while informal businesses said that they were not interested in getting registered with the NBR to avoid taxes, according to a survey report. The survey titled ‘Tax Perception and Compliance Cost of the Formal Sector and Perception of Taxation by the Informal Sector’, conducted by International Finance Corporation with support from Org-Quest Research Limited, also showed that taxpayers’ perception on different attributes about the NBR officials was below average.
For formal firms, it takes 304 hours for completing tax procedures to become tax compliance.
Rating of the NBR by the formal sector was done with respect to 6 selected attributes such as competency and expertise, helpfulness, politeness, honesty, fairness in assessment and overall efficiency of NBR officials on 0-100 scale.
According to the findings that the NBR released last week showed that the lowest score the NBR officials achieved on honesty is 39, the highest 57 on competency and expertise, 53 for overall efficiency, 50 for politeness, 49 for helpfulness and 46 for fairness in assessment.
According to the survey, most of the informal businesses cited that no TIN means no tax and no compliance cost. The biggest advantage cited by informal businesses was that not obtaining a TIN means ‘no compliance cost associated with paying taxes, no harassment by tax officials and no hassle of tax return.’
Majority of informal businesses perceived that it cost more to be tax compliant than to avoid paying taxes.
Nearly 45 per cent opined that cost of paying tax was more than the cost to avoid them.
The survey was conducted between April 2012 and June 2012 covering 1,000 formal and 800 informal firms in Dhaka and Chittagong.
The study defined formal firms as those that were registered with the NBR with taxpayer identification number (TIN) and filed tax returns at least once in the last three years while informal firms were those that were primarily not registered with the NBR. They may or may not have a trade license.
In the study, tax compliance costs includes any cost related to tax accounting (such as preparing tax return, submission, settlement, dispute resolution covering both in-house, outsourcing and unofficial costs) as well as time costs for book-keeping.
According to the survey report, the average cost of compliance in Bangladesh is higher for smaller firms considering their turnover. Smaller firms have to spend 0.24 per cent of their turnover as compliance cost while the percentage for large firms is 0.01 per cent.
However, in absolute terms, larger businesses have higher compliance cost at Tk 2.91 lakh (excluding book-keeping costs) while smaller firms have to spend Tk 39,887 and medium firms to Tk 1,11,168. The average tax compliance cost is Tk 1,04,649.
It takes overall 304 hours for a medium-sized firm to become tax compliant. Tax compliance takes 161 hours for paying corporate income tax and 103 hours for paying VAT.
Companies have to wait on an average 339 days to resolve tax disputes with the tax officials and every dispute costs on an average Tk 2,85,083. Firms have also to spend unofficial payment or outsourcing fee to resolve the disputes.
The survey showed that only around 6 per cent of informal firms were TIN registered though none had filed returns in the last 3 years.
The survey recommended that the first and most important recommendation would be to improve communications with taxpayers.
For informal businesses, the top priority for NBR should be to reach them and educate them on the issues taxation.
The survey results can be used as a benchmark for conducting reforms in NBR and improve communication efforts with the taxpayer in the coming years, NBR officials said.
They said that the findings provided crucial insights into the cost of tax compliance, reasons for non-compliance and perceptions about taxation and the NBR.
-With New Age input
