Non-starter startups, backlogged companies create tax gaps on companies


| Update:
04 January 2022 12:25:01

A perpetual gap between the number of registered companies and the number of taxpaying companies is now closed, but thanks to a ruthless measure that some experts say would increase the cost of doing business.

Sources claim there had been inherent inconsistencies between the Registrar of Joint Stock Companies and Firms (RJSC) and the number of taxpaying companies since independence, mostly due to dormant companies and tax compliance evasion. by many others.

The number of taxable companies has finally reached the level of those of the RJSC, according to data from the tax administration for the fiscal year 2020-21.

However, there is a minor discrepancy as some defunct RJSC companies are there and failed to start operations after getting the registration.

Taxpayer companies with a TIN numbered around 167,047, while RJSC-listed companies numbered 178,000.

The data, compiled by the income tax wing of the National Board of Revenue (NBR), raised hopes among tax officials to collect an additional Tk 30-40 billion in direct taxes over the course of the year. This year.

An NBR working group worked on corporate tax compliance to narrow the gap between companies registered with the RJSC and taxpaying companies holding a TIN.

Former RJSC Registrar Md Atiqur Rahman Khan said the gap between RJSC and NBR registered companies was there because the TIN was not required for start-ups before.

“Previously, the concept of taxation was to collect income tax. Thus, start-ups were not subject to tax immediately after its creation,” he adds to explain the gap.

Later, he mentions, the NBR made the tax identification number (TIN) and the submission of the declaration mandatory for all legal persons.

Some businesses have not been able to start operations after registering with the RJSC.

The ex-registrar, however, believes that imposing a tax compliance obligation on startups increases the cost of doing business.

Obtaining a TIN would also require mandatory submission of tax returns, he said.

In an effort to improve corporate tax compliance in the country, tax officials collected data from 146 tax circle offices and identified non-compliant businesses without TINs and not filing tax returns.

Tax officials on the ground found that some business groups registered with the RJSC for 40 to 50 businesses, but only submitted tax returns for two or three.

The number of taxpaying companies with a TIN was 78,000 until June 30, 2020, while the RJSC had registered around 176,400 companies, according to NBR data.

However, the number of companies holding a TIN was 63,853 as of June 30, 2018, while 27,862 submitted tax returns in the 2018-2019 fiscal year.

Until August 2020, some 55% or 98,400 registered companies were not subject to income tax.

In addition, 145,800 or 84 percent of companies refrained from submitting tax returns to the BNR.

Following the blatant non-compliance, the BNR formed the task force to ensure corporate tax compliance on August 19, 2020, a senior tax official said.

For the first time, the Business Feedback Database for fiscal years 2018-19 and 2019-2020 was prepared and the working group worked jointly with the Bangladesh Institute of Chartered Accountants (ICAB) for the system of document verification (DVS).

On November 8, 2020, the working group handed over the digital files to tax offices in the field for follow-up action.

The tax official said the database would help monitor corporate taxpayers and uncover those that escape paying taxes or submitting tax returns.

“With the exception of sick and inactive businesses, other businesses would be ordinary taxpayers from this year,” he adds.

Tax expert and former NBR income tax member Aminur Rahman believes that the lengthy process of liquidating inactive companies discourages many from officially shutting down their registered businesses.

“It’s a real corporate culture that has not yet been developed in Bangladesh and must also be taken into account,” he says.

Md Humayun Kabir, senior board member of ICAB and also its former chairman, noted that sometimes not all companies in a group of companies can go into operation, resulting in a stacked number of registered companies.

He suggests simplifying the exit policy for companies if they don’t survive so they can get rid of existing regulatory compliance obligations.

ICAB board member Snehasish Barua said the NBR should ask City Corporation to collect an acknowledgment of receipt of the tax return upon renewal of the business license.

“Compliant taxpayer returns should not be selected for the tax audit by excluding them from the audit selection criteria,” he adds.

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