The extension of the deadline for submitting income tax returns by one month is not surprising. Following the previous trend, the National Board of Revenue (NBR) made the official announcement of the one-month extension of the deadline in the evening of November 30, the regular deadline for submitting individual income tax returns. Only a week ago, NBR senior officials told news media that there would be no extension of the deadline. This is also a repetition of the past year when Covid-19 compelled the authorities to extend the deadline. Even after strongly asserting that there will be no extension, extending the deadline at the very last moment gives a wrong message. The question is what drives the tax authorities to repeat the same practice almost every year?
It appears that tax authorities use the trick to extend the deadline at the eleventh hour to keep pressure on individual taxpayers to submit their returns within the deadline. Any submission after the deadline is accepted with a penalty. To avoid penalties, taxpayers try to prepare and submit their tax returns by November 30 which is also the national tax day.
There is, however, a legal provisin to apply for a time extension. Any individual taxpayer can submit a written application to the deputy commissioner of taxes of the tax circle for an extension of time to submit his or her return. By showing a valid reason, he or she may get one or two months' time in this connection and avoid penalty. No doubt that many taxpayers have valid causes like a medical emergency to get extra time for preparing and submitting their tax returns and they can use the provision of time extension by application.
Nevertheless, a good number of taxpayers simply waste their time and make unnecessary delays in preparing tax returns within the stipulated period. Thus they have to rush for the last moment and seek time extension. Despite having five months in hand, after the ending of the fiscal year on June 30, they do not bother to utilise the time properly. Collecting necessary bank statements and gathering other documents need a few dedicated days. Some of the supporting documents (like medical spending, travel and purchasing products) are also available on a real-time basis. One needs to preserve the documents carefully so that he or she can furnish those during the submission of tax returns. Moreover, filling up the tax returns and calculating the tax becomes much easier now. So, there is no reason for delaying the preparation of tax returns except for some medical or unforeseen situations.
It is to be noted that even a decade ago, the deadline for submission of the income tax return was September 30. Even during the first decade of this century, September 15 was considered as the national tax day, although informally. At that time, an extension of the deadline was a regular phenomenon. It was the former finance minister AMA Muhith who introduced the formal tax day to make the deadline of tax return submission stick. Initially, the tax day was fixed on October 30 but later it was refixed on November 30 since 2017. The idea behind the tax day is to remind all the taxpayers that they have to submit their income returns by that day or face a penalty.
Meantime, to facilitate the submission of tax returns, NBR has also introduced tax fairs and tax service month. These help significantly to increase the return submission and tax collection. Awareness building of taxpayers through tax fairs also contributed to encouraging the taxpayers to file their taxes regularly. Slow but gradual automation of tax system and introduction of e-filing of tax returns is a big step forward though it needs to be expedited to make the automation meaningful.
Against this backdrop, it is important to stick to the tax day by not extending the deadline of return submission. This will enhance the credibility of tax authorities further and give a message that rules and norms would be applied duly. It will also bring more discipline to tax collection procedures.
Besides the existing mode of time petition by submitting a written application on paper, an e-application system may be introduced so that anyone can apply online and get an extension without going to the tax office. This will reduce some undue pressure on both the taxpayers and tax officials. Moreover, it will help the tax officials to track the non-submission of returns in due time easily.
Over the years, several steps have been taken to increase tax collection and bring more people under the tax net. Nevertheless, the outcome of the measures is still below the optimal level reflecting a lag in the tax efficiency. The tax-to-GDP ratio, a key indicator of tax efficiency, declined to 8.90 per cent in FY19 from 9.20 per cent in FY10 although the Seventh Five-Year Plan (7FYP) has projected to increase the ratio to 15 per cent by FY20. Thus, more work is needed to improve tax efficiency with reforms and effective automation.
Sticking to the tax day and not extending the deadline of return submission is a tough task but not impossible. Different pressure groups are there who compel the tax authorities to change their stance at the last moment. So, it requires a strong political will to stick to the official deadline. There were examples of non-extension of deadline in the past. It is now time to stick to the tax day and make it a norm for the sake of tax efficiency. After 50 years of independence, a fast moving developing nation that aspires to be a developed one by 2041 needs to do so.
