Corruption in Bangladesh is making it harder to obtain the resources to establish itself politically through economic growth. The tax-to-GDP ratio is also going down due to the ongoing corruption.
Many countries agree that direct and secondary taxes bring the most money to the government. That’s why it’s quite common to see tax administration corruption.
It means the tax money is not being appropriately used!
Also, in Bangladesh, it would be hard to collect taxes because most business deals are done in cash. We’ve seen low earnings as a share of GDP, which means Bangladesh needs to change its tax system. So, here, we’ll talk about how corruption in Bangladesh affects tax revenue collection.
The Scope of Corruption in Bangladesh
Bangladesh’s government and tax system are both corrupt. It has become a common issue that affects a country’s economic growth and prosperity.
For instance, the Rooppur Nuclear Power Plant project is a top-level corruption example of Bangladesh’s government. It has taken a negative turn, lowering the overall revenue and tax-to-GDP ratio.
Since unfair tax management is a significant problem, many bribery incidents and thefts have occurred. Citizens are now less interested in paying taxes, as the government does not fulfil their infrastructural needs and other services.
How Corruption Undermines Tax Revenue Collection?
In Bangladesh, corruption has become an essential factor affecting total revenue collection. Not only that, in South Asia, Bangladesh’s tax administration system is relatively weak when it comes to dealing with tax fraud.
Bangladesh’s tax-to-GDP ratio is the lowest right now among other South Asian countries at 7.5% to 9%.
Let’s discuss these in detail here:
Mechanisms of Corruption in Tax Administration
Corruption in Bangladesh affects tax collection in so many ways.
It has become easy to avoid paying taxes because there are too many corrupt tax officials. So, if you pay them money, you can avoid paying your taxes.
These officials also take bribes, and in return, they reduce companies’ tax amounts. Because of all these, the tax system loses a huge amount of money, and the lower tax-to-GDP ratio is the result of people not paying their taxes properly.
Ultimately, the government doesn’t get enough money to pay for things like social services, investments in growth, etc.
Corruption and Tax-to-GDP Ratio
The tax-to-GDP ratio is still one of the best ways to tell if an economy is healthy. This ratio usually compares a country’s tax system to GDP to check how well it brings in money. So, in that case, Bangladesh isn’t doing so well.
The low ratio also means taxes aren’t being collected properly, and the overall tax system is not working.
We already know that Bangladesh has the lowest tax-to-GDP ratio in South Asia. The amount of money sent back to Bhutan and Pakistan is more than 10% of Bangladesh’s GDP. This means Bangladesh’s government needs to make structural changes and systematic reforms to catch corrupt officials.
Effects of Corruption on Public Trust and Compliance
In Bangladesh, because of corruption in tax administration, people are losing faith in the government. That’s why the tax-to-GDP ratio is at its lowest!
To solve these issues and have a fair tax system, you must understand how corruption affects the public’s trust. Then, you’ll know how to stop people from not paying taxes and reward those with high incomes.
Public Trust and Tax Compliance
Corruption is enough to break the public’s trust in the government. When people see corruption and unfair things happening around us, they cannot help but blame the government for not doing what they need to do.
Tax compliance and revenues suffer greatly because of this mistrust in the government. Because of this loss of faith in the system, more and more people are not paying taxes, which is why Bangladesh’s tax-to-GDP ratio is getting lower.
Bangladesh will not see any economic growth or structural development if this cycle continues. Why? Because the government won’t be able to fund them.
Tax Policy and Administrative Challenges
Tax policies and the administrative sector face significant challenges because of ongoing corruption in Bangladesh. Because of weak tax administration, people are breaking more tax rules these days, and the country is losing a lot of revenue.
According to data, the National Board of Revenue (NBR) has failed to collect taxes. Why? Because dishonest officials take bribes that are not recorded.
That’s why Bangladesh needs to make some big changes in the tax sector to increase the tax-to-GDP ratio. With strict rules and necessary steps, the country can have an improved tax management system.
When the public sees these positive changes, they will trust the system again and pay their taxes correctly.
Conclusion
Because of corruption in Bangladesh, tax revenues and economic growth are not happening. That’s why anti-corruption measures should be taken by the country so that you can have better tax compliance and the public’s trust in the system.
Bangladesh can simplify the tax administration and close loopholes through many leakages with the necessary steps. So, while figuring out how the corruption is going on, Bangladesh needs to implement the required ways to stop it from happening.
Frequently Asked Questions
Why is the tax-to-GDP ratio important?
The tax-GDP ratio is important because the tax/GDP also measures how efficiently a country’s revenue system generates income based on its national product.
How does corruption impact public trust in the tax system?
Corruption diminishes confidence in the tax system when people are convinced that some of their money goes to corrupt officials.
How does corruption affect Bangladesh’s economic development?
Corruption also undermines Bangladesh’s economic development by depleting public services and infrastructure funds.