Despite the tax offices being entrusted with a substantial revenue target for FY 2023-24, the National Board of Revenue (NBR) faces significant challenges in achieving the government's ambitious goal, hindered by outdated administrative processes.
Concerns have escalated as the NBR struggles to keep up with the International Monetary Fund's (IMF) target of $4.7 billion, falling short by Tk 29,500 crore compared to the government's target. The revenue board's inability to meet the target set by the IMF has raised doubts about its capacity to address the evolving economic landscape.
The revenue target for FY23, set by the IMF at Tk 3,35,500 crore which is Tk 35,000 crore less than the government-set target, was not met by the NBR. It collected Tk 3,25,272 crore, falling short of the government's Tk 3,70,000 crore target.
In an effort to secure the second tranche of the $4.7 billion loan from the IMF, the government introduced policy actions aligning with the global lender's recommendations until July this year. However, the anticipated benefits of these measures have not yet materialised, hindering the disbursement of the second instalment and the overall stabilisation of the macroeconomic situation.
NBR officials attribute the shortfall to economic headwinds triggered by the Russia-Ukraine war, coupled with challenges faced by corporations and businesses in recovering from the aftermath of the Covid-19 pandemic. A decrease in fund releases for government projects due to a forex crunch has further contributed to the revenue deficiency.
Assuring the IMF that tranches will not be contingent on revenue shortfalls, NBR officials remain optimistic despite acknowledging the impact of political unrest in the lead-up to the country's elections. NBR Chairman Abu Hena Md Rahmatul Muneem in a recent press conference said, "Attaining the revenue collection target is a big challenge in this election year, given the forex crunch, declining imports, and a slowdown in businesses."
During July-October, the NBR collected Tk 1,02,445 crore in income tax, customs duty, value-added tax, and other taxes against a target of Tk 1,16,294 crore, resulting in a shortfall of Tk 13,849 crore. Importantly, the shortfall spans three crucial sectors – imports, VAT, and income tax.
Notably, the VAT sector faces the highest shortfall of Tk 4,931 crore, with collections amounting to Tk 38,433 crore against a target of Tk 43,364 crore. Import and income tax sectors also exhibit shortfalls of Tk 4,115 crore and Tk 4,802 crore, respectively.
In meeting the conditions set by the IMF for the $4.7 billion loan, NBR is tasked with increasing the tax-to-GDP ratio by 0.5 percentage points in FY24.
However, concerns are raised by experts, such as Policy Research Institute (PRI) Executive Director Ahsan H Mansur, who emphasised the need for substantial reforms to avoid endangering the government's fiscal position. “The board needs heavy reform after the polls. No country across the globe can maintain macroeconomic stability at a 7.5 per cent to 8 per cent tax-to-GDP ratio. So, Bangladesh will be unable to do so as well,” he said.
“I’m not very optimistic about the NBR’s revenue collection achievement. The board could maintain growth in VAT collection due to inflation, but income tax and import revenue collection will decline due to low aggregate demand in the country.”Mansur added.
As potential solutions, the call for automation in tax collection gains prominence. Dhaka Chamber of Commerce & Industry (DCCI) President Md Sameer Sattar underscores the positive changes in the new Income Tax Act 2023, emphasising the need for digital processes to enhance taxpayer convenience and overall tax collection by NBR.
