‘Policy formulation by the implementing organisation does not produce an inclusive policy’

illustration: TBS

In 2026, Bangladesh will come out of a least developed country status, which will negate benefits - such as various international support measures and duty-free market access to many developed countries. Bangladesh will need to find ways to maintain the country's competitiveness in the global market despite losing such benefits.

Recently, a Prime Minister's Office sub-committee on internal resource mobilisation and tariff rationalisation recommended that the National Board of Revenue's (NBR) policy formulation and implementation be separated into two functions. This recommendation comes as a suggestion to tackle the new realities that will come on the heels of LDC graduation. 

Afterall, to make up for revenue losses caused by tariff rationalisation, boosting mobilisation from direct taxes is a possible way forward; so is improving internal resource management, say experts. For this, strengthening the NBR - the central authority for tax administration in Bangladesh - seems to be one of the urgent measures to implement, to make the country self-reliant.  

The Business Standard spoke to former Chairman of NBR, Dr Muhammad Abdul Mazid, for his take on the PMO subcommittee's recommendation for a structural change in the NBR. 

Do you agree with the recommendation that the National Board of Revenue's policy formulation and implementation need to be separated into two functions? 

After Bangladesh's graduation from the group of Least Developed Country (LDC) to a developing country, accessing financial aid from international organisations will be difficult. A middle-income country should not beg. That's why self-reliance is crucial for a developing country for sustainability. 

The sub-committee under the Finance Ministry, thus, has recommended three steps so that the internal resource management system is reformed according to the demands of the time. 

Separating the policy formulation and implementation roles of the NBR is one of the recommendations. Why is this important? In the last five decades, even since the end of the Pakistan period, the same authorities handling both policymaking and implementation have remained a big concern.

A policymaker should not be an implementer, and vice versa. Policy formulation by the implementing organisation does not produce an inclusive policy. 

[For instance], if police officials are assigned to formulate the rules of firearms for police personnel, they will make the security aspect a priority. On the other hand, when a non-police body makes the same policy, the policy formulation would involve an assessment of the rationality of the use of firearms and they would consider the impact of firearms usage. Human rights will be considered as well. 

During the Caretaker Government rule in 2007, some selected officials were deployed at the Finance Ministry only to look after the NBR-related policy formulation, as part of separating policy-making and implementation process. So the idea of separating the two roles is not new. But the objective of this idea is still relevant. 

Why? NBR is an autonomous regulatory body under the internal resources division of the Finance Ministry. The secretary of the ministry works as the NBR Chairman. That means, the NBR Chairman plays a dual role: policymaker and implementer. If conflict of interest arises, how does the Chairman formulate neutral policies? 

Let me explain further. We do know that parliament members are the top policymakers. As the business community dominates the parliament, how do they make policies free from their own vested interests? They cannot. And this is happening in the country. 

Another example is - the Public Administration Ministry approves the budget of the Finance Division. If the Finance Division approves its own budget, it may avail itself excess money to manage its expenses. That is why, there exists the rule that the organisation that formulates financial and budgetary policies cannot approve its own budget.   

Do you think that dealing with post-LDC challenges will be difficult without reformation of customs, tax and declaration management? 

Indeed. The requirement of such reforms is not a new idea as well. 

There are three laws: the Customs Act 1969, Value Added Tax Act 1991 and Income-tax Ordinance 1984, which was shaped by the Income-tax Act 1922 of British India. 

Except the VAT Act, the two are colonial period laws. Although the VAT Act was formulated in independent Bangladesh, it was not done with multi-sector feedback. 

Overall, the laws were formulated from a colonial mindset. As a result, revenue collectors come across as negative entities to taxpayers due to mistrust, misconceptions and broadly, a very complex taxation system. 

Why is there the requirement for customs declaration, return of income tax and so on? The provisions create bottlenecks and widen the gap between taxpayers and revenue collectors. I am not saying that there is no logic behind the provisions of declaration or return. The taxpayers may try to evade tax and so, the laws are this strict. But I think both the parties (regulatory bodies and the persons filing the documents) should deal with a simplified process. 

Currently, the processes are so complicated that an income taxpayer hires a lawyer to fill up the form. If there are any mistakes, the taxpayers go under audit. There are provisions for submitting terminal reports and defaulters can be fined. This scares the taxpayers. 

Several attempts were taken previously to simplify the process. Many complex terms in the income tax form have been removed. Online options are there. But, still, the taxpayers feel confused. They need to go to lawyers or clearance agents [to deal with custom declaration]. 

To make the processes simple, the customs, taxation and VAT collection system needs to be reformed drastically so that taxpayers willingly submit the documents. If there is automation, they would not need third parties.  

How can NBR's capacity of direct tax collection be increased? 

A rough calculation suggests that sometimes, NBR spends 60% while collecting Tk100 in revenues. This is due to inefficiency. NBR does not have the manpower required to cope with the ever-expanding economy and taxpayer base of Bangladesh. 

In 2006, NBR surveyed around 96,000 taxpayers. When I became the NBR chairman, I enquired about the individual files of the surveyed taxpayers. I didn't find any. 

Currently there are 70 lakh TIN holders but only half of them show income tax returns. NBR does not have capacity to make the rest of the TIN holders accountable. 

NBR also lacks skilled manpower. Skill is crucial in a NBR job. Why? The taxpayers tend to minimise the tax imposed upon them. This is natural because they are paying tax from their hard-earned income. He or she may appoint intelligent chartered accountants to minimise the tax burden. So, NBR needs skilled and adequate manpower to overpower the taxpayers. This is a merit-based job. 

Making NBR efficient is the responsibility of the state, not of the government because NBR is a state organisation while the government is also a taxpayer. 

I can say that the government will not show commitment to strengthen NBR because this will clash with vested interests. Let me give an example. In 2008, Tk140 crore budget was allocated for building the NBR Headquarters at Agargaon, Dhaka. The building is yet to be completed in 2022. Still, NBR does not have offices in all the district headquarters when many other departments operate their regional offices at the grassroots. I think there is a lack of commitment from the government. 

The state should invest more to make NBR efficient. The NBR officials must work without fear.