Tax authorities should find ways to collect property taxes by considering the actual transaction value of the assets, according to a study by the Centre for Policy Dialogue (CPD).

Property taxes on the actual transaction value will help the tax administrator receive more revenue, and the government is already planning to reintroduce property taxes.

In Bangladesh, the official land price list is not updated regularly and prices are shown lower than the actual transaction prices only to dodge tax and fees, according to the CPD study unveiled at a programme in Dhaka yesterday.

“Tax officials may find out the location specifics, real transaction value of real estate at regular intervals and update it regularly,” said Towfiqul Islam Khan, research fellow of CPD, while presenting the findings.

Property tax rates are low in Bangladesh and are collected in the form of 'land tax' or 'holding tax', according to the study.

Ahsan H Mansur, executive director of Policy Research Institute, said property tax is an untapped potential for Bangladesh. “A major overhaul in this area is needed.”

The money collected from property taxes should go to the local government for development, he added.

The CPD in collaboration with Governance Institutes Network International (GINI) organised the dialogue on 'SME development in South Asia: how conducive are the tax policies?'

M Syeduzzaman, former finance minister and a member of the CPD's trustee board, moderated the discussion.

Speakers at the dialogue said the forthcoming VAT (value added tax) policy should be friendly to small and medium enterprises to boost the thrust sector.

They also recommended setting a unique definition for SMEs, considering its financial criteria, instead of the number of employees.

“The tax law cannot be a burden on the SMEs,” Mansur said, emphasising a balanced relationship between SMEs and taxation policies.

There should be a standard threshold mechanism to determine the SMEs. “The definition criteria should be based on a small enterprise's turnover, not by the number of its employees,” he said.

He also suggested the government automate the VAT registration system and introduce electronic payment systems to avoid hassles and unauthorised intervention of tax officials.

Kazi Akram Uddin Ahmed, president of Federation of Bangladesh Chambers of Commerce and Industry, said he is confused by the upcoming VAT policy, especially on the issue of SMEs.

“I am fighting with the finance minister on VAT policies related to SMEs,” he said, recommending the introduction of multiple tax and VAT rates, as per the capacity of taxpayers.

Syed Nasim Manzur, president of Metropolitan Chamber of Commerce and Industry, said there are too many tax laws that are complicated and detrimental to SMEs.

Citing the provision of 0.3 percent tax on sales receipts, he said there should not be any tax on sales receipts as it is not an income or profit.

He also advised the government to provide tax incentives for those who will submit tax returns much earlier than the scheduled time.

Abdul Mazid, a former chairman of National Board of Revenue, also agreed that a single VAT rate is not appropriate. “The VAT rate should be different for different sectors of the economy.”

Mirza Azizul Islam, a former adviser to a caretaker government, said the tax-GDP ratio in Bangladesh is the lowest in South Asia and one of the lowest in the world. He however said the tax regime is not a serious impediment to investment. “Land availability, infrastructure, political stability and access to finance are the key factors for investment.”

Presenting the Bangladesh study findings on 'tax policy and enterprise development in South Asia: Bangladesh study findings', Khan of CPD said 70 percent of the surveyed firms are not interested in getting tax benefits, mainly to avoid hassles and the high costs related to compliance requirements.

The SMEs are not sincere about tax payment and compliance, as there is a lack of government initiative, he added.

Presenting a keynote paper on 'tax policy and enterprise development in South Asia: regional meta analysis', Sabieh Haider, research and development manager of GINI, said a broad consensus can be built to harmonise the sector-wise definitions of SMEs by public and private sector governing institutions.