Thomas Piketty has rocked the world by his monumental work 'Capital in the Twenty-First Century.' The book sheds light on income and wealth inequalities in the developed countries by using income tax data. He said that the work was possible due to availability of tax data in France and some other developed countries. The French economist argues that analysis of tax data is very important to understand the trend and nature of wealth concentration in a society.
Last January Mr Piketty had been to India to attend the Jaipur literary festival where the Hindi version of his best seller book was unveiled. In the session, Piketty talked about India's growth trend and urged the Indian government to regularly release income tax data. He pointed out that India used to release income tax statistics but discontinued the practice since 2000. India had first started publishing its income tax statistics in 1961. The finance ministry's chief economic adviser Arvind Subramanian, who was present at the event, responded positively to Piketty's suggestion, pledging to release the income tax data within a year.
Indian income tax authorities have since released income tax data of 15 years, from 2001 to 2015. They have also published detailed income tax return statistics for 2012-13. Though the released data are not very comprehensive, the move has been appreciated.
WHY INCOME TAX DATA: Piketty has a simple formula for development of a country: 'Spend more on health and education, finance this with taxes and publish as much data as possible.' His core argument is imposition of more tax on more wealthy people and spending the additional tax for poor and deprived people.
But wealthy people are powerful people and they have huge influence on the government. It is not easy to collect the appropriate amount of tax from them. Thus, to make people of the country aware about wealth accumulation, the best option for any government is to unveil detailed data of income tax. The more data is available, the more the people will be informed. It will also help to mobilise public opinion to curb wealth and income disparities.
Revealing detailed data on income tax, however, doesn't mean that tax authorities will unveil identities of the tax-payers and details of their wealth. Such information is legally protected. Detailed data on income tax actually means statistics of different categories of income tax and its trends. These include: yearly trend of direct tax collection, ratio of direct tax to Gross Domestic Products (GDP), cost of tax collection, contribution of income or direct tax to total tax revenue, number of tax returns submitted, types of income (i.e. salary, property), tax-payers on the basis of range of income slab, etc.
The latest release of Indian income tax data brings out some interesting facts. For example: around 2.5 per cent Indians filed tax returns in 2012-13, only 1.0 per cent of Indians pay income tax, 80 per cent of all income tax payments are made by only the top 11 per cent of individuals on the national level and only 0.1 per cent or only 1.4 million individuals, paid 80 per cent of the country's individual income tax.
Mr Piketty welcomed the Indian move but opined that the released data was too thin to draw significant conclusions about levels of inequality. He stressed on more data.
BANGLADESH SCENARIO: Tax scenario in Bangladesh is depressing. The country's tax-GDP ratio is still at single-digit level. The Sixth Five Year Plan (6FYP) fixed a target to increase the tax-GDP ratio to 12.4 per cent by the end of FY15. In reality, it increased to 9.3 per cent. Now, the Seventh Five Year Plan (7FYP) has set a target of 14.1 per cent tax-GDP ratio by the end of FY20.
The country's tax revenue is highly depended on indirect taxation. Around 33 per cent of tax revenue of the National Board of Revenue (NBR) originates from direct taxes (taxes on income and profit) while the ratio is 27 per cent in comparison with total revenue (both tax and non-tax).
A large number of tax-payers usually don't pay due taxes and a large number of potential tax-payers are outside the direct tax net. Due to inefficiency and irregularity, the tax authorities put more effort on collecting more income tax from regular income tax-payers. Most of them are salaried or fixed income people and easy to track. But the tax authorities have made little success on collecting due income taxes from different categories of professionals like lawyers and physicians.
As effort on collecting direct tax is painstaking, there is now an aggressive move to collect indirect tax, mostly through value added tax (VAT). The government is firm to impose 15 per cent VAT across the board to rely more on indirect taxation.
VAT is discriminatory as it is applicable for all who purchase a product or take a service. Indirect taxation doesn't consider income level of tax-payers.
Another discriminatory means is source tax on bank accounts. Following the advice of the International Monetary Fund (IMF), the government imposes 10 per cent source tax on all bank account holders who have Tax Identification Number (TIN). Those who don't have TIN are subject to 15 per cent tax at source for interest income. The government is actually increasing tax injustice on the citizens.
Against the backdrop, it is important to know the details of taxes. All tax-payers should know what they are actually paying - both as direct and indirect taxes. Again, they have the right to know whether or how they are being discriminated against whom. Here lies the importance of detailed tax data. For instance, NBR should disclose how much it has collected as source tax from the bank accounts and also how much of the collected amount is actually adjusted with final settlement. At the time of imposing source tax on bank accounts, it was declared that the deducted amount would be adjusted with TIN holders' final income tax calculation.
Income tax data is also important to know how much higher income people are paying taxes compared to lower income people, or how much wealthy people are paying taxes and whether all wealthy people are taxed properly. In January this year, finance minister AMA Muhith disclosed in parliament that the number of millionaires in the country reached at 0.114 million at the end of 2015. He drew the figure on the basis of bank accounts as number of bank accounts having minimum Tk 10 million stood at 114,265 at the end of 2015.
On the other hand, the number of tax returns submitted was 10.92 million in 2015. If it is assumed that all the millionaires submitted their income tax return properly, they would account for 10.46 per cent of the total income tax returns. The immediate question is, what is the amount of income tax the country's millionaires pay? This can be learnt only from detailed data.
Again, the Knight Frank Wealth Report 2016 mentioned that the number of different level of millionaires in Bangladesh stood at 500 in 2015 (Table-1). It also projected that the number will reach 972 by the end of 2025. Knight Frank Wealth Report categorises four types of millionaires on the basis of holding wealth in million dollars. To become a millionaire, one has to own wealth equivalent to $1.0 million. Having minimum wealth worth $10 million qualifies people to be multi-millionaires, minimum $30 million designates ultra-high-net-worth individuals (UHNWIs) and minimum $100 million centa-millionaires. To become a billionaire, one has to have minimum wealth worth $1,000 million ($1.0 billion). According to Knight Frank, there will be no billionaire in Bangladesh by 2025. Nevertheless, the estimation showed that the number of wealthy people is increasing in the country. Is it properly reflected in taxes? The answer is no and NBR needs to calculate data in this regard.
The government has set a target to increase the number of tax-payers to three million by FY19. Of these, some 0.32 million new tax-payers will be added in the current fiscal year. This may not be impossible. A note of caution is, however, required here. Tax authorities must show their teeth to the wealthy and high-income people many of whom do not pay required taxes. The authorities have also to track down the rich and powerful people who are stashing money outside the country. Targeting low- and middle-income people and forcing them to pay tax as much as possible may be helpful to attain the target. But, this will also be disturbing and unjust when the wealthy and the powerful manage to slip through.
Finally, the government should take a decision to release detailed income tax data and instruct NBR to start work on this. A formal announcement in this regard in the upcoming budget speech of the finance minister will be highly appreciated.
