Bangladesh: Rights groups want curbs on multinationals’ tax dodging

Daily Star, Bangladesh, 2 March 2014: Rights groups yesterday urged the government to immediately take punitive actions against the multinational companies that are dodging taxes through misuse of ‘transfer pricing’.Currently, multinational companies account for 10-15 percent of the government’s tax collections, while local companies provide around 34 percent, said Monower Mostafa, executive director of Development Synergy Institute.“It is clear that many foreign companies are dodging taxes in the country by misusing transfer pricing,” Mostafa said at a press conference called by 14 rights and civil society organisations to raise voice against illicit capital flight by multinational companies.

The appeal, however, comes at a time when the government has designed rules to check illicit capital transfer by foreign companies through misuse of a mechanism known as ‘transfer pricing’.  Transfer price is the price at which divisions of a company transact with each other for goods or services. engage in international trade with each other.

Sometimes, related entities of a multinational firm show artificially high prices for an imported product or service in an attempt to deflate profits for tax evasion. This practice is known as transfer mispricing—and is illegal.

Rezaul Karim Chowdhury, chief moderator of EquityBD, said most multinational companies are getting away with transfer mispricing due to lack of monitoring by the National Board of Revenue.

Citing a study of Tax Justice Network, a UK-based advocacy group, Ahsanul Karim, coordinator of Policy Research and Campaign at EquityBD, said Bangladesh lost around Tk 197,600 crore between 1976 and 2010 due to illicit capital flight.  As a result, Bangladesh has to borrow loans and seek aid from foreign sources for development works, he added.

The country’s tax-GDP ratio has been hovering around 10-11 percent over the last five years, said Mostafa.

But the amount can easily be increased to 17 percent in a couple of years if the NBR strengthens its auditing, he said.  The rights groups also called upon the government to bring multinational companies under the purview of the Right to Information Act 2009 in a bid to enhance transparency and accountability.

“People will be able to get Access to financial information of the foreign companies if the government makes the amendment to the RTI”, said Chowdhury, adding that rights groups, however, are not opposing foreign direct investment. ”

The rights groups also urged the government to engage the comptroller of auditor general to audit multinational companies as well.

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