Tax authority demand more documents during tax assessment and the supply of documents sometimes happened several times without any reason.
The copying of documents is a huge task if the demand of requirements increased by the tax authority. The tax challan, bill, voucher and supporting documents are the most common requirements to resolve tax disputes.
Why the tax authority approaches in such a manner?
The answer is, government need more tax.
There is a large budget deficit in each year and this gap is increasing year after year. Therefore, they need more money to narrow down the deficit.
This challenge is not only faced by the government of Bangladesh. There is also budget deficit in other countries in the world. And they are also creating pressure to taxpayers for collecting more tax revenue.
But now the question is, whether it is the appropriate approach? Or is there any other way to increase the tax revenue?
Digital transformation of tax administration is a best solution to ease of tax function as well as increase of government tax revenue.
In Russia, the taxpayers require to submit Value Added Tax (VAT) transactional data along with online VAT return submission. And the initiative helps to increase the domestic VAT revenue by 12%, equivalent of around USD 4 billion.
In Mexico, tax revenue increased by 38% without increasing corporate tax rate and in Brazil, tax revenue increased by 42% after implementing a series of new digital reporting requirement.
Online tax filing and automation of several tax administration works are the primary stage of digitalization. Few nations in the world has the revolutionary achievements and they are far ahead. Data match, data analytics and e-invoicing are the remarkable achievement by the tax administration.
In some cases, the technology of tax administration is so advanced that they are more equipped than corporate. In some cases, tax administration require data before the transaction is approved.
While the world is changing so rapidly due to digital technology then in Bangladesh the taxpayer requires to run from one tax circle to another tax circle with hard copies of documents for tax assessment.
So, what is the solution in Bangladesh?
Online tax filing
General holiday has been started from 26 March 2020 and we do not know when the offices will re-open. To reduce the spread of coronavirus, people are encouraged to stay home and to work from home.
But the taxpayer surprised when the VAT authority issued a notice to remain open their VAT offices to collect monthly VAT return. Business body has requested to extend the tax filing deadline due to coronavirus pandemic, but no positive response taken by the VAT authority.
Yes, there is an option to submit online VAT return in Bangladesh but yet most of the taxpayers are not getting this benefit. So, they were worried about the decision that in this crisis they have to go outside for filing VAT return.
But there are other several tax filing across the year. Some are due on monthly, some are half-yearly and some of are yearly. And all of these tax filings require to submit manually in the respective tax circle. Thousands of individual taxpayers gathered in the ‘Tax Fair’ during November each year for tax filing.
Considering the social distance during the spread of coronavirus, the gathering of people in a place is high risky and no one can predict, in future, such type of situation will not create again. In that case, online tax return submission is the most important way to collect tax by the government as well as keep compliance by the taxpayer.
As the National Board of Revenue (NBR) yet has no progress about online tax filing which involve huge task to develop then the government may go agreement with private organization.
In US and Canada, TurboTax and Taxprep are more popular online platform for tax filing by the taxpayer.
After implementing the online tax filing, the NBR may go for advanced digital technology for more accountability, more revenue collection and transparent tax administration work.
Data match and data analytics
Data match and data analytics is advanced digital technology.
When the taxpayers will submit their tax return through online platform then the information will be matched with the data centre stored in the NBR server. If the data stored in the NBR server matched with the data provided by the taxpayer in the return, then automatically the return submission will be approved and the taxpayer will get system generated tax certificate.
This will reduce the taxpayer hassle significantly and the people will encourage to file return using the online facility from their home or anywhere else which will help to increase the tax revenue of the government.
Data analytics will help to reduce lots of tax queries and tax audit as each transaction of all taxpayers will be captured by the NBR and the large volume of data will help the NBR to analyse when they require to prevent fraud and evasion.
Electronic invoicing or e-invoicing system is another step to advanced digital technology.
As discussed earlier, taxpayers require to submit huge hard copy documents to the tax authority in each stage to complete the tax assessment. Even, tax challan also demanded by the tax authority where he could check it through online if he has the tax challan number. In this situation, only the summary of tax challan is enough to check the authenticity of tax deposited by the taxpayers.
Providing supporting bills and vouchers against several heads of accounts sometimes become difficult as there are thousands of financial transactions occurred in a year.
So, in this case, the NBR may fix a ceiling to the business enterprises to maintain accounting records in a software. The invoice will be auto generated from the software which will be linked with NBR server. Then it will help to reduce the hard copy documents submission from taxpayer as the tax authority has the access to acquire the required invoice from the server.
Online return submission or automation of tax administration is not a new to other jurisdictions. In some jurisdictions, the technology of tax administration is so advanced that tax administration has the real or near real time data and based on that they are able to assess tax liability instead of relying on historical financial information.
Coronavirus forced us to stay at home and maintain social distance. No one can guarantee that this situation will not create again. In that situation, we have to keep doing our operation and digital transformation is the best way of doing work from any place.