The absurdity of taxing wedding ceremonies

The Institute of Cost and Management Accountants of Bangladesh (ICMAB) recently made a proposal for the government to impose a Tk50 tax per guest for social events, including weddings, which host more than 100 guests and are held outside one's house. 

The news stirred controversy across social media platforms and raised questions about the effectiveness and fairness of tax policies. 

Facebook users jokingly posted "Does this mean the end of a bachelors' trip before the wedding [because of the extra cost]?" Others have made more serious observations: "Weddings are expensive as it is. This extra cost is simply uncalled for!" 

The primary objective of ICMAB's proposal, however, was to broaden the tax base by encompassing a larger segment of the population participating in social events, thereby bolstering overall tax collection efforts.

Bangladesh's tax collection has long been a concern. The country maintains a low tax-GDP ratio of 8%, ranking as the second-lowest in South Asia, and lagging behind lower-middle-income countries by nearly 5%. 

Despite efforts by the National Board of Revenue (NBR) to boost revenue generation, challenges persist. 

Flawed logic

Nonetheless, this proposal to tax social events is both ridiculous and ironic. It overlooks the fundamental principle of taxation. According to 'The Income Tax Ordinance, 1984 (XXXVI OF 1984) and Income Tax Rules, 1984', income tax is imposed based on ability to pay. 

"The more a taxpayer earns the more s/he should pay'"- is the basic principle of charging income tax.  Thus, taxation should be tied to the benefits provided by the government, not arbitrary expenditures made by individuals. 

But what benefits will the country receive from individuals hosting social events? It is incumbent upon the state to offer benefits to the citizens to justify tax imposition. 

Additionally, taxing social events would not only fail to significantly boost revenue, but could also disrupt economic activities and discourage spending.

Why not focus on event management companies?

Implementing such a tax could introduce complexities regarding its classification and administration. Moreover, it could discourage individuals from spending on special occasions, thereby negatively impacting industries like event management. 

Instead of targeting individuals, a more effective approach would be to incentivise event management companies' registrations and tax filings, tapping into significant revenue potential.

Currently, Bangladesh boasts a total of 1,383 event management companies. The profitability of such companies cannot be overlooked.

By targeting this sector, substantial revenue gains can be accumulated as the wedding industry alone has a remarkable market worth Tk2,000 crore. 

A modest 5% tax collection from this industry could translate to a noteworthy addition of Tk100 crore to government coffers. 

A more advantageous approach for the NBR would be to prioritise the tax compliance of these entities. Offering incentives for event management companies to register and fulfill tax obligations could contribute to revenue increase and fortify the industry's resilience. 

Compelling companies to adhere to tax filing procedures is inherently a better approach than targeting individual taxpayers, especially considering the dismal tax return filing rate. Over 63% of Taxpayer Identification Number (TIN) holders failed to fulfill their obligations in the current fiscal year anyways.

Rationality in tax policy formation

According to provisional data by the NBR, the tax collector logged Tk165,630 crore in total revenue in the July-December period of the current fiscal year, surpassing the IMF's indicative target of Tk143,640 crore for the same period. 

While this achievement reflects commendable efforts by the NBR in revenue generation, there remains a gap, as the tax collector fell short of its own target by over Tk23,200 crore. 

As analysts suggest, achieving this target would enable the government to curtail bank borrowing, thereby meeting public expenditure needs more effectively. Amidst these challenges, it's good to witness the NBR's dedication to enhancing the nation's revenue streams. 

However, the NBR must ensure that its taxation efforts do not impede economic growth or dampen the spirit of development among people.  

Much like its decision to implement a uniform tax rate for all exporters to promote various industries beyond the ready-made garment sector, the NBR must adopt other innovative strategies in policy formulation.

Sectors like freelancing and wedding planning offer good chances for the NBR to get more taxes. 

However, before imposing taxes, the NBR should think about what benefits they can give to freelancers and event managers who pay taxes. 

If the NBR can offer extra services that show the difference between taxpayers and non-taxpayers, then the industry will see more taxes coming in. This will help increase tax revenue while also supporting the growth of these industries.

As Bangladesh seeks to reduce reliance on external funds and increase domestic revenue generation, tax policies must be carefully crafted to promote equity, economic growth, and compliance. 

The recent proposal to tax social events highlights the need for greater rationality and innovation in tax policy formulation. 

By prioritising incentives for tax compliance among businesses and individuals, Bangladesh can unlock its full revenue potential while fostering a conducive environment for economic development.

Anik Dey completed his BBA and MBA from the Department of Finance, University of Dhaka and is currently working as an independent researcher.