Tax Evasion and Avoidance Crimes

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Tax Evasion and Avoidance Crimes – A Study on Some Corporate Firms of Bangladesh
Dr. Md. Jahirul Hoque, Mohammad Zahid Hossain Bhuiyan and Afzal Ahmad
Tax Evasion and Avoidance Crimes-A Study on Some Corporate Firms of Bangladesh is based on a total number of 6 (six) tax appeal cases and opinions of a total number of 16(sixteen) respondents belonging to relevant tax officials and tax practitioners. The main reason of selecting the topic is the large scale prevalence of the tax evasion and avoidance crimes in Bangladesh which adversely affect both the volume and nature of Government finance. This study highlights the main reasons for tax evasion and tax avoidance, major techniques/modes adopted by the corporate firms in evading and avoiding corporate taxes, authorities responsible for detecting tax evasion and avoidance crimes and the techniques followed thereof, authorities empowered for disposal of the crime cases and their main functions of responsibilities in such respects, impact of tax evasion and avoidance crimes on the revenue of the Government in particular and the economy of the country, as a whole and ways and means of preventing tax evasion and avoidance crimes. In order to curb widespread tax evasion and avoidance crimes, the study suggests some preventive measures. Of these, effective implementation of tax rules and provisions, creating awareness of the tax payers for paying reasonable taxes, arranging more and more publicity for paying taxes, appointing adequate trained tax officials, ensuring access of the tax officials to the bank accounts and relevant software of the tax payers are the major preventive measures.

Field of Research: Tax Management

Introduction 1.1. Statement of the Problem
Tax evasion and avoidance are both phenomena that are probably as old as taxation _________________
Dr. Md. Jahirul Hoque, Professor, Faculty of Business Administration, Eastern University, Bangladesh, Email: [email protected]

Mohammad Zahid Hossain Bhuiyan, Lecturer in Management, Department of Business Administration, International Islamic University Chittagong, Bangladesh,Email:[email protected] Afzal Ahmad, Lecturer in Accounting, Department of Business Administration, International Islamic University Chittagong, Bangladesh, E-mail:[email protected]

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itself. Wherever and whenever authorities decide to levy taxes, individuals and firms try to avoid paying them. Though this problem has always been present, it becomes more pressing in the course of globalization as this process extends the range of opportunities to circumvent taxation while simultaneously reducing the risk of being detected (GIZ Sector Programme Public Finance, Administrative Reform; 2010). Tax evasion and fiscal corruption have been universal and persistent problems throughout history with manifold economic consequences. Two thousand five hundred years ago, Plato was writing about tax evasion, and the Ducal Palace of Venice has a stone with a hole in it, through which people once informed the Republic about tax evaders (Tanzi, 2000a). The five year plans of the Government of the People’s Republic of Bangladesh (As for example The First Five Years Plan of Bangladesh, 1973) have indicated that a sizeable number of persons especially the businessmen evade & avoid taxes. As a result, the yield of income tax is very low in Bangladesh as a percentage of Gross Domestic Product. The following Table 01 presents the picture in this regards. Table 01: Collection of Tax Revenue in Bangladesh (in core Taka)
Sources of Tax Revenue Total Tax Revenue (in absolute Figure) T.T. R of % of GDP Direct Taxes Taxes on Income & Profit (in absolute Figure) Taxes on Income & Profit ( as % of T.T.R) FY 03-04 28,300 8.50 5270 18.62 FY 04-05 31,950 8.62 5850 18.30 FY 05-06 36,175 8.70 6960 19.24 FY 06-07 39,247 8.40 8924 22.47 FY-07-08 48,012 8.86 11005 22.92 FY 08-09 55,526 9.02 13538 24.38 FY-09-10 63,956 9.2 16560 25.89 Average 43,309 8.75 9729 21.69

Source: Bangladesh Economic Review 2010

The Table 01 indicates that the average total tax revenue as percentage of GDP during FY 03 to 10 was 8.75 only which seems to be meagre as compared to SAARC countries mainly India, Pakistan and Srilanka. In India, Pakistan & Srilanka, tax GDP ratio was 16.58%, 10.01%, 14.82% respectively during FY 05. The main reason of such a state of affairs was large scale tax evasion and avoidance practices in Bangladesh especially by the businessman e.g. corporate firm’s individuals and partnership firms. The businessmen are just depriving Government exchequer causing much hardship to the Government and its citizens. The escaped burden of tax is inevitably passed on to indirect tax payers’ causing price hiking in the country. Therefore, in Bangladesh, tax evasion & avoidance pose to be a serious problem which stimulates the researchers to undertake a mini research on tax evasion & avoidance crimes.

1.2. Objective of the study
The main objective of the study is to critically analyze tax evasion and avoidance crimes committed by selected corporate firms operating in Bangladesh.

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To achieve the main objective, the study highlights the following specific objectives: 1. To point out the main reasons for tax evasion and tax avoidance. 2. To find out the techniques/modes adopted by the corporate firms in evading and avoiding corporate taxes. 3. To identify the authorities responsible for detecting tax evasion and avoidance crimes and the techniques followed thereof. 4. To identify the authorities empowered for disposal of the crime cases and their main functions of responsibilities in such respects. 5. To examine the impact of tax evasion and avoidance crimes on the revenue of the Government in particular and the economy of the country, as a whole. 6. To find out ways and means of preventing tax evasion and avoidance crimes.

1.3. Limitation of the study
The main limitation of the study is the limited coverage of the samples e.g. only 07 (seven) appeal cases and only 16 respondents of two categories such as Tax practitioners and Tax officials. This is because of time and money constraints at the disposal of the researchers, on one hand, and the unwillingness and the busy schedule of the Tax officials, in the other, in order to provide us with more appeal cases and their valued opinions. However, we had to convince the respondents by giving gentlemen word that the names of the corporate firms would not be disclosed in our study and the materials would be used for this study purpose only. However, the analysis of the appeal cases and valued opinions of the learned respondents definitely reflect the picture of tax evasion and avoidance practices in the country.

2. Literature review
The existing literature on this issue is scanty especially in Bangladesh. So far we know, no worth mentioning study was made previously on the issue of tax evasion and tax avoidance crimes in Bangladesh. However, in this section, we may mention the following studies done on tax evasion and tax avoidance practices & its related topics. 1. “Tax Planning of Banks Operating in Jordan”, Joummah, 1993. The study aimed to find standards to measure the extent of using tax planning by the banks operating in Jordan, and to determine the impact of including a department specialized in tax issues in these banks and also the impact of the bank’s nationality. 2. “Tax Planning of Jordan Industrial Companies” Hassen, 1996. The main aims of the study were (i) measuring the extent of conducting tax planning and (ii) measuring the extent of following financial and accounting policies tax planning. 3. “Factors Controlling the Pricing Way of the Spent Stock”, Shihatta, 1997. The study dealt with the factors that help the administration to choose the right way to price the stock and the impact of tax incentives on choosing the right way of pricing.

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4. “Tax Planning In Jordan Joint Stock Companies Working in Service sector”. Noor and Ibrahem, 1999. The study aimed to recognize the process of tax planning generally and to study the extent of applying it in the companies working particularly in service sector in Jordan. 5. “Income Tax Monitoring Means in Yemen Republic”, Omer, 1999. The study dealt with tax monitoring in Yemen republic to figure out its weakness points and suggest some means necessary to develop it in order to maintain the rights of public treasury and, on the other, implement tax justice. 6. “Addressing tax evasion and tax avoidance in developing countries”, GIZ Sector Programme Public Finance, Administrative Reform; 2010. The findings suggest that there are various reasons and facilitating factors for tax evasion and tax avoidance. In order to develop methods and instruments for fighting tax evasion and avoidance, it is important to establish a broad understanding of the different reasons underlying these problems.

3. Methodology and Research Design
Two kinds of data were used in this study: 1. Primary data: They were obtained from collecting necessary data throughout the questionnaire designed especially for this study and containing a group of questions covering the study objectives. The questionnaire was distributed to a study sample of sixteen (16) respondents of two groups’ namely top level tax officials and 8 persons engaged as tax practitioners especially in the area of company assessment. Of the top level tax officials 4 (four) are of the rank and status of DCT (Deputy Commissioner of Taxes) from administrative tax authority and 4 (four) are of the rank and status of joint commissioner of tax (Appeal division). All the respondents of both the groups were selected purposively in order to having easy access to the requisite data and information. 2. Secondary data: Secondary data included a total number of 06 (Six) appellate cases belonging to the assessees of corporate firms operating in Bangladesh. These cases were collected by the researchers themselves from the relevant tax officials assuring them that the names of the corporate firms would not be disclosed in the study and these would be used only for this research study. It is to be mentioned here that originally these cases were in Bengali version in a detailed way. But these cases were translated into English version and also summarized under some headings for the study purpose. The collected primary and secondary data and information were critically analyzed and interpreted by the researchers themselves in order to make the study more informative and useful to the readers. The findings of the study may be useful to the prospective researchers desiring to make further study on this vital national issue, in one hand, and to the tax planners, on the other, for reforming existing tax laws provisions with a view to alleviating tax evasion and avoidance practices to a great extent.

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4. Discussion on Findings
The whole discussion on the findings has been divided into two parts. Part one deals with presentation of the collected appeal cases and the second part deals with the opinions of the learned respondents.

4.1. Part 1: Presentation of Appeal Cases
Appeal Case-I 1. Assessee and Assessment Year: The assessee was a company engaged in the manufacture of vegetable oil. The appeal case was related to the assessment year 2005-2006. 2. Facts of the Case: The relevant DCT added back to the net profit of the company a sum of TK. 65,690 as excessive depreciation in the name of extra shift allowance for double shift only for 100 days. DCT disallowed the amount as excessive depreciation. 3. Appeal and Disposal: The company made an appeal to Appellate Joint Commissioner of Taxes (AJCT) against the decision passed by DCT. After giving necessary hearing to the assessee; the AJCT maintained DCT’s addition of TK 65,690 to the net profit of the company for tax purpose. 4. Conclusion: In this case, the assessee tried to evade taxes by charging excessive depreciation in the form of extra shift allowance. Appeal Case-II 1. Assessee and Assessment Year: The assessee was a company engaged in the manufacture of jute goods. The appeal case was related to the assessment year 2006-2007. 2. Facts of the Case: The said company received a sum of Tk 5,45,000 (Tk4,00,000 for replacing and repairing the machinery and the balance against the consequential loss of profit) from a Bima Company in the previous year as a claim for damages and loss incurred by the company owing to divesting fire in the factory. But the company treated the whole amount as capital income instead of revenue income thereby showing lower taxable income. The relevant DCT added back TK 45,000 as revenue income. 3. Appeal and Disposal: The company made an appeal to the relevant AJCT against the decision of the DCT. The AJCT maintained the decision of DCT of adding back TK 1, 45,000 to the net profit of the company as revenue income. 4. Conclusion: In this case, the assessee tried to evade taxes by showing revenue income as capital income.

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Appeal Case-III 1. Assessee and Assessment Year: The assessee was a company engaged in the manufacture of textiles. The appeal case was related to the assessment year 2005-2006. 2. Facts of the Case: In the concerned previous year, the company showed excessive wastage @ 7% of raw materials used. But the concerned DCT allowed the wastage @3% only as being reasonable and added back the difference to the net profit of the company. 3. Appeal and Disposal: The company made an appeal before the relevant AJCT against the decision of DCT of adding back excessive wastage of raw material to the net profit of the company. But, the AJCT considering all the circumstances relating to volume and nature of the production, however, opined that it would be fair and justice to allow wastage @5% instead of 3% as allowed by DCT. 4. Conclusion: In this case, the assessee tried to evade taxes by charging excessive wasted of raw materials. Appeal Case-IV 1. Assessee and Assessment Year: The assessee was a company engaged in the Telecommunication business. The appeal case was related to the assessment year 2007-2008. 2. Facts of the Case: The said company showed lower gross profit to the extent of TK 2, 21,510 by way of charging excessive manufacturing depreciation as well as entertainment allowance which was inadmissible as per ITO 1984. The concerned DCT added back the said amount to the net profit of the company. 3. Appeal and Disposal: The said company made an appeal to the relevant AJCT against the decision of DCT of adding back TK 2, 21,510 to the gross profit of the company and reassessed the tax liability of the company. The concerned AJCT after giving necessary hearings to the company maintained the decision of DCT. 4. Conclusion: In this case, the assessee tried to evade taxes by way of charging manufacturing depreciation and entertainment allowance. Appeal Case-V 1. Assessee and Assessment Year: The assessee was a company engaged in the Telecommunication business. The appeal case was related to the assessment year 2007-2008. 2. Facts of the Case: The said company showed lower amount of import purchase worth TK 6, 83, 60,520. But the actual amount of import purchase was worth TK79, 72,

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10,984. Thus the company evaded huge amount of tax by underinvoicing import purchase to the extent of TK 72,88,50,464 (TK79,72,10,984-TK 6,83,60,520). The relevant DCT after proper investigation of invoicing the import purchase of the company added back the underinvoiced amount of TK72, 88, 50,464 to the amount of total income of the company and then reassessed the tax liability of the company. 3. Appeal and Disposal: The aggrieved company made an appeal to the relevant AJCT against the decision of the DCT of adding back the underinvoiced amount. The AJCT after proper scrutiny of the import purchase of the company maintained the decision of DCT of adding back the underinvoiced amount of import purchases and the determination of the new tax liability of the company. 4. Conclusion: In this case, the assessee tried to evade a large amount of taxes by underinvoicing the import purchases. Appeal Case-VI 1. Assessee and Assessment Year: The assessee was a company engaged in the shipping agency business. The appeal case was related to the assessment year 2008-09. 2. Facts of the Case: The said company charged against its profit some inadmissible expenses during the previous 2007-08. The examples of such expenses are: printing & stationary expenses of which VAT was deducted at source but not supported by copy of treasury chalan, consultant and legal fee of which tax was deducted at source but not supported by treasury chalan, audit and legal fees of which tax was deducted at source but not supported by treasury chalan and excessive entertainment expenses not reasonable and approved by income tax rule. The relevant DCT added back all such inadmissible expenses worth TK. 138, 20,527 with the taxable income of the assessee and reassessed its tax liability. 3. Appeal and Disposal: The aggrieved company made an appeal to the concerned AJCT against the decision of the DCT of adding back the amount of inadmissible expenses amounting taka 138, 20,527 with taxable income. But the AJCT maintained the decision of DCT after proper scrutiny of the vouchers and copy of Chalan of VAT/Tax deducted at source. 4. Conclusion: In this case, the company tried to evade huge amount of taxes by showing some inadmissible expenses as admissible under the Income Tax Ordinance.

4.2. Techniques adopted by the tax payers in evading and avoiding Taxes
The analysis of the appeal case studies as highlighted above reveals that the selected corporate firms adopted the following techniques in evading and avoiding corporate taxes.

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i.

ii. iii. iv. v. vi.

vii.

Charging deprecation at higher rates than permissible under Income Tax Ordinance, 1984 which, in turn, reduces the net profit as well as tax liability of the company. Showing revenue income as capital income thereby reducing net profit and hence tax liability of the firm. Charging inadmissible expenses as admissible under ITO, 1984 thereby reducing net profit and hence tax liability of the firms. Recognizing capital expenditures as revenues expenditure and charging the same against net profit thereby reducing tax liability of the firms. Charging personal expenses as business expenses thereby reducing net profit and hence tax liability of the firms. Showing low rates of gross profit than the actual ones by charging excess manufacturing depreciation, under valuing closing inventory etc., which, in turn, reduces taxable income of the assessee. Showing excessive wastage of raw materials in the course of production by the manufacturing industries thereby showing low net profit than the actual one which in turn reduces taxable income of the assessee.

Part 2: Analysis of Respondents Opinions 4.3. Techniques and modes adopted by the tax payers in evading and avoiding Taxes as opined by the respondents
The analysis of the selected respondents’ opinions reveals the following techniques and modes by adopting which the assessees of all types whether individuals, partnership firms, sole-trader business, companies and corporations try to evade and avoid income taxes. The responses of our respondents have been tabulated in Appendix 1. Table 1 presented in Appendix reveals that techniques namely showing benami transaction, showing inadmissible expenses as admissible, making wrong classification of business expenditure, low quality of service provided in return for taxes have been the mostly used as opined by the 100% respondents. Again, 75% respondents opined that showing excessive depreciation, claiming excessive tax deduction, tax exemption and tax credits have also been used as the most important techniques. Again, 68.75% respondents opined in favor of lack of compliance of tax laws and provisions in full which has been used as the most important techniques. Moreover, 62.5% respondents opined the techniques namely not recording cash transactions, showing excessive wastage of raw materials in production process, low ability of tax authority, both administration and appellate to enforce tax liability and low tax morale of the tax payers which have been widely used as the techniques. Lastly, the remaining techniques, namely showing revenue income as capital income, under invoicing by importers and exporters, showing cash credit, showing personal expenses as business expenses, showing bogus bad debts, creating reserve and provision for bad debts, bribing the low morale tax officials, high compliance costs, weak capacity on the part of tax administration in detecting and prosecuting tax evasion and avoidance practices of the tax payers have also been used by 50% to 56.25% respondents.

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4.4. Reasons for tax evasion and tax avoidance crimes
There are various reasons for tax evasion and tax avoidance. These reasons can be filed in two categories. The first category comprises factors that negatively affect taxpayers’ compliance with tax legislation. These factors can be subsumed either contributing to a low willingness to pay taxes (low tax morale) or to high costs to comply with tax laws. The second category contains reasons for the low ability of tax administration and fiscal courts to enforce tax liabilities. These factors can be summarized as resulting from insufficiencies in the administration and collection of taxes as well as weak capacity in auditing and monitoring tax payments which limit the possibility to detect and prosecute violators. However, the learned respondents of the study have pointed out the following reasons for tax evasion and avoidance crimes: i. Low tax morale ii. Low quality of the service in return for taxes iii. Tax system and perception of fairness iv. Low transparency and accountability of public institutions v. High level of corruption vi. Lack of rule of law and weak fiscal jurisdiction vii. High compliance costs viii. Weak enforcement of tax laws ix. Insufficiencies in tax collection x. Weak capacity in detecting and prosecuting inappropriate tax practices xi. No trust in the government xii. High tax rates xiii. Weak tax administration

4.5. Authorities empowered for detecting tax evasion and tax avoidance cases & techniques adopted
Before identifying the specific authority empowered for detecting tax evasion and tax avoidance cases, it is essential to focus on the Tax Authorities in Bangladesh. In Appendix 1, the Tax Authority in Bangladesh has been shown under the title “Organogram of Tax Authority in Bangladesh” The Deputy Commissioners of Bangladesh have been empowered under the provisions of ITO, 1984.There main functions and responsibilities are: assessing various types of assesses for determining taxable income and tax liabilities, asking for any type of evidences and documents from the assesses in support of their tax return, giving circulars and notices etc. Therefore, the DCTs have been empowered to detect evasion and tax avoidance cases while assessing the tax liabilities of the tax payers. Techniques followed by DCT in detecting tax evasion and avoidance crimes: The learned respondents of the study have pointed out that the following techniques have been adopted by the DCT in detecting tax evasion and avoidance crimes: i. Gathering relevant information

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ii. iii. iv. v. vi. vii.

Remaining constant vigilant of the DCT while assessing any assesses’s taxable income and tax liability Making thorough bank search of the respective tax payers Intelligent inspections of the books of accounts and others relevant documents of the tax payers Critically examining the audit reports of the tax payers Critically examining the Cash Book, Sales Register, Purchase Register, Profit and lose account, Balance Sheet and other relevant documents thereto Critically examining the Import-Export invoices, Latter of Credit and other relevant document thereto.

4.6. Authorities empowered for settlement of tax evasion and tax avoidance cases
It is the Appellate and Inspecting Division under the National Board of Revenue which deals with appeal cases of the assessees whether individuals, partnership firms and corporate firms. In the Appellate and Inspecting Division, Commissioner of Taxes, Additional Commissioner of Taxes, Joint Commissioner of Taxes are the authorities empowered for settlement of tax evasion and tax avoidance cases. The aggrieved assessees make an appeal to the Appellate Joint Commissioners of Taxes (AJCT). The AJCTs settle the appeal cases after giving necessary hearing to the respective assessees.

4.7. Adverse impact of tax evasion and tax avoidance
Tax evasion and tax avoidance are important insofar as they affect both the volume and nature of government finances. Today, corruption and tax evasion seem to take place in practically every country in the world, and should be considered a potential problem everywhere. Still, evasion and fraud in tax administration are phenomena which hit developing countries hardest (Klitgaard, 1994). Firm evidence on the extent of such illegal practices is naturally hard to come by. But anecdotal evidence from different developing countries indicate that half or more of the taxes that should be collected cannot be traced by the government treasuries due to corruption and tax evasion (Mann, 2004). This erosion of the tax base has several detrimental fiscal effects. The consequences of lost revenue to the funding of public services are of special concern (Tanzi, 2000a). In addition, corruption and tax evasion may have harmful effects on economic efficiency in general (Chand and Moene, 1999; Tanzi, 2000b), and income distribution in particular because the effective tax rates faced by individuals and firms may differ due to different opportunities for evasion (Hindriks et al, 1999). Thus, tax evasion and corruption can make the real effects of the tax system very different from those that the formal system would have if honestly implemented. Transparency International, Bangladesh (TIB) said that an amount of Tk 210 billion in taxes were “evaded” or “defalcated” in fiscal 2009-10 which was 2.8 per cent of the country’s national income and one-third of tax revenues collected during the year. The TIB, in its research findings noted, the National Board of Revenue (NBR) could have collected 34 per cent more revenues than what it did in fiscal 2009-10 if it realized the above-noted ‘tax-evaded’ or ‘defalcated’ amount of money. In the

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study report, the TIB identified tax evasion as a major reason for the country’s poor tax-GDP ratio as indicated in Table 1 of the study. (The Financial Express, 2011)

4.8. Ways and means of prevention of tax evasion and tax avoidance
The learned respondents of the study pointed out that the followings are the major ways and means of prevention of tax evasion and tax avoidance: i. Creating awareness of paying taxes for the welfare of the state and its citizens ii. More and more publicity of paying taxes through media about the socioeconomic responsibility of the citizens. iii. Effective implementation of the tax rules and provisions iv. Making stringent rules and provisions of the tax v. Appointing adequate trained and experienced tax officials vi. Empowering tax officials to take necessary panel actions vii. Imposing physical punishment to the tax evaders and avoiders under sections 164 and 165 of ITO, 1984 viii. Imposing high monetary penalty in the form of fines ix. Ensuring access of the tax officials to the bank accounts and relevant software of the tax payers x. Strengthening collection of the requisite data and information from the respective tax payers xi. Measures improving tax compliance by properly educating the tax payers and addressing tax compliance costs and administrative costs. For solving complexities in tax appeal process, the TIB report-2010 suggested for appointment of judges, income tax lawyers and Chartered Accountants as members of appellate tribunals. The TIB study also strongly pleaded for full automation of tax collection system and facilitating e-governance. TIB said the NBR will have to be cautious about maintaining privacy of the taxpayers so that they feel encouraged to show the actual earning. TIB recommended to the NBR to ensure efficiency, transparency and accountability in the revenue board to help boost tax collection. (ibid)

5. Conclusion and Policy Implication
This study provides critical analyses of tax evasion and tax avoidance crimes in Bangladesh. The findings of the study have been analyzed under two main parts. The first part gives an analysis of appeal cases and the second part gives an analysis of the opinions of the respondents. The study reveals the main techniques and modes adopted by the tax payers in tax evasions and tax avoidances; the main techniques adopted by the relevant tax officials in detecting tax evasion and tax avoidance cases; major reasons for evading and avoiding taxes by the tax payers; adverse impact of tax evasion and tax avoidance and preventive measures of tax evasion and tax avoidance. The preventive measures suggested by the learned respondents as mentioned in the study should be implemented as far as practicable. However, the following policy implications are relevant for the study. i. Reforming tax policies and strengthening tax administrations is crucial to establish a ‘level playing field’ in tax matters. Reforming needs to be made

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removing loopholes of the existing tax provisions. ii. Training facilities of the tax personnel needs to be improved covering the professional as well as Islamic ethics of the tax officials. In this regards, the existing Tax Academy has a great role to play. The successful top level administration of the Tax Authority namely Chairman and other members of NBR need to be nationally awarded by providing both financial and non-financial incentives. In this respect, one of the important criteria may be increase in the collection of tax revenues by curving tax evasion and tax avoidance crimes. The successful key tax officials namely Deputy Commissioner of Taxes from the Administrative Divisions and Appellate Joint Commissioner of Taxes from Appellate and Inspecting Divisions also need to be awarded locally with financial and non-financial incentives. One of the most important criteria of the successful Tax Officials may be detecting the tax fraud cases as much as possible during the fiscal year. The top officials of the NBR must supervise and monitor the activities of the key tax officials on a regular basis with a view to curving Tax evasion and Tax avoidance crimes, in one hand, and control of unnecessary tax compliance as well as administrative costs, on the other. Quality of the service to the tax payers in return for their tax payment needs to be improved so that tax payers’ feeling become positive to the Government. Transparency and accountability of NBR need to be improved in order to increase public confidence in Government activities. The appointment of Judges, Income Tax Lawyers and Chartered Accountants as members of the appellate tribunal needs to be ensured.

iii.

iv.

v.

vi.

vii.

viii.

References:
Chand, S.K. and K.O. Moene. 1999. ‘Controlling fiscal corruption.’ World Development 27(7), pp. 1129-1140. GIZ Sector Programme Public Finance, Administrative Reform (2010), ‘Addressing tax evasion and tax avoidance in developing countries’, Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH on behalf of Federal Ministry for Economic Cooperation and Development (BMZ), Eschborn. GIZ Sector Programme Public Finance, Administrative Reform; 2010, “Addressing tax evasion and tax avoidance in developing countries”, Op.Cit. Hassen, 1996. “Tax Planning in Jordan Industrial Companies”, Master’s thesis. Hindriks, J, M. Keen and A. Muthoo. 1999. ‘Corruption, extortion and evasion.’ Journal of Public Economics 74, pp. 395-430.

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Joummah, 1993,“Tax planning in Banks Operating in Jordan”, Master’s thesis, University of Jordan. Klitgaard, R. 1994. ‘A framework for a country program against corruption.’ Occasional Working Paper No. 4 (1994). Berlin: Transparency International. Mann, A. 2004. Are semi-autonomous revenue authorities the answer to tax administration problems in developing countries? A practical guide. Washington DC: USAID. Ministry of Finance, Finance Division, Government of the People’s Republic of Bangladesh, Bangladesh Economic Review 2010, Noor and Ibrahem; 1999, “Tax Planning In Jordan Joint Stock Companies Working in Service sector”. Omer and Abdullah Ahmad, 1996, ‘Income Tax Monitoring Means in Yemen Republic”, Master’s thesis, University of Bagdad. Planning Commission, Government of the Peoples Republic of Bangladesh, The First Five Year Plan, 1973-78, Nov. 1973, p-42. Shihattah and Mohammad, 1997, “Factors Controlling Pricing the Spent Stock”, Magazine for Economy and Trade, Ain Shams University. Tanzi, V. 2000a. ‘A primer on tax evasion.’ Chapter 10 in V. Tanzi Policies, institutions and the dark side of economics. Edward Elgar: Cheltenham, pp. 171-185. Tanzi, V. 2000a. ‘A primer on tax evasion.’ Chapter 10 in V. Tanzi Policies, institutions and the dark side of economics. Edward Elgar: Cheltenham, pp. 171-185, Op.Cit Tanzi V. 2000b. ‘Corruption, governmental activities, and markets.’ Chapter 6 in V. Tanzi Policies, institutions and the dark side of economics. Edward Elgar: Cheltenham, 88-106. The Financial Express; 2011, “The National Board of Revenue: Challenges in transparency and accountability and its way out”, Vol. 18, No-142

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APPENDIX Table 1: Showing responses as regards techniques and modes adopted in evading and avoiding taxes
Sl. No. Specific technique and mode
No. of respondens

% of respondents

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

17 18 19 20

21

Not recording cash transactions Under invoicing by importers and exporters Showing benami transactions Showing cash credit Showing excessive depreciation Showing personal expenses as business expenses Showing excessive wastage of raw materials in production process Showing bogus bad debts Creating reserve and provision for bad debts Making wrong classification of business expenditures as capital and revenue Showing inadmissible expenses as allowable Claiming excessive tax deduction, tax exemption and tax credits Bribing the low morale tax officials Claiming tax holidays which is not genuine in nature Lack of compliance of tax laws and provisions in full Low ability of tax authority, both administration and appellate to enforce tax liability Low tax morale of the tax payers Low quality of service provided in return for taxes High compliance costs Weak capacity on the part of tax administration in detecting and prosecuting tax evasion and avoidance practices of the tax payers Showing revenue income as capital income Source: Field survey

10 8 16 8 12 8 10 8 8 16 16 12 8 6 11 11

62.5 50.0 100.0 50.0 75.0 50.0 62.5 50.0 50.0 100.0 100.0 75.0 50.0 37.5 68.75 62.5

10 16 8 8

62.5 100.0 50.0 50.0

9

56.25

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Figure: 1 Organogram of Tax Authority in Bangladesh

National Board of Revenue

Tax Administration
Tax Appeal and Inspecting
Commissioner of Taxes Additional Commissioner of Joint Commissioner of Taxes Deputy Commissioner of DG Central Intelligence Cell Commissioner of Taxes

DG Inspection DG Training

Additional Commissioner of

Assistant Commissioner of Assistant Extra Commissioner of

Joint Commissioner of Taxes

Tax Recovery Officer

Inspectors of Taxes

Source: Organization Manual for NBR

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