Bangladesh’s revenue collection in the first quarter (Jul-September) of FY24 has gone up despite the decline in imports triggered by ongoing foreign exchange crunch, but this upward momentum was padded out by skyrocketing inflation.
Though the prices of nearly all essential and other commodities rose significantly when compared year-on-year, the National Board of Revenue (NBR) still failed to achieve its Q1 revenue collection target for FY24.
The NBR, responsible for getting the lion’s share of revenue, collected Tk 76,751.30 crore during the first quarter of this FY, a year-on-year increase of 14.34 per cent, show latest provisional data.
However, the board witnessed a Tk 8,195.63 crore shortfall against its Tk 84,946.93 crore target for the July-September period.
It should be noted that the country has been facing significant inflationary pressure since the previous FY, primarily attributed to the Russia-Ukraine war, which led to soaring global market prices, coupled with domestic USD supply challenges.
Although global prices have stabilised, Bangladesh still struggles with high inflation, which in turn helped increase revenue collection, experts say.
In July, the country’s inflation was at 9.69 per cent, which rose to 9.92 per cent in August, the second highest in this year. Inflation later dropped by 0.29 percentage points to 9.63 per cent in September, according to the Bangladesh Bureau of Statistics (BBS).
NBR officials say budgetary measures taken by the board, new income tax law, a declining trend in tax exemption offers and strict administrative scrutiny against evasion have helped increase revenue collection.
The customs wing collected Tk 24,127.90 crore in the July-September period, which is a year-on-year increase of 7.45 per cent, despite a slight dip in imports of luxury goods and non-essential goods.
Bangladesh’s inflation helped in posting a significant growth of 18 per cent in VAT collection. The VAT wing collected Tk 28,982.25 crore, the highest revenue in Q1 of this fiscal year.
The income tax wing collected Tk 23,641.15 crore with a 17.47 per cent growth due to the new income tax law, and fiscal measures such as tax increases in land registration, higher travel tax, tobacco tax, and introduction of environmental surcharge on multiple cars in the FY24 budget.
However, the wing saw the highest shortfall and collected the lowest among the three units during the period.
Policy Research Institute (PRI) Executive Director Ahsan H Mansur said, “Amid the ongoing economic crisis, the shortfall will increase more as holding a consistent growth of 15 per cent will be tougher due to a decline in imports and corporate profitability.
“I am not very optimistic about the NBR’s revenue collection achievement. The board could maintain a growth in VAT collection due to inflation, but income tax and import revenue collection will decline due to low aggregate demand in the country.”
The government has set a revenue collection target of Tk 430,000 crore for FY24 – Tk 1,59,100 crore from VAT, Tk 1,54,800 crore from income and travel tax, and Tk 1,16,100 crore from import and export duties.
Mansur further said, “The International Monetary Fund’s (IMF) target for revenue collection – as condition for the $4.7 billion loan – is quite soft. The NBR may put the government in a dangerous situation.
“The board needs heavy reform after the polls. No country across the globe can maintain macroeconomic stability at 7.5 per cent to 8 per cent tax-to-GDP ratio. So, Bangladesh will be unable to do so as well.”
The target set for the NBR was to adopt tax revenue measures yielding an additional 0.5 per cent of tax-to-GDP in the budget for FY24. In accordance with the target, the revenue board has taken some measures to boost tax collections and widen the VAT net.
These policies include – restructuring cigarette taxation, withdrawal of exemption and partial exemption on mobile phones, polypropylene staple fiber, ball point pen, software, LPG cylinders, and imposing taxes on cigarettes, zarda and gul, plastic products, aluminum products, sunglasses.
Changes in the rate of duties at the import stage, and recovering duties from Petrobangla are also key measures taken by the customs.
However, IMF delegates in a recent meeting with the NBR pointed out that there is a possibility that the board will not be able to recover duties from a government entity due to fund crunch, and stressed the need for other windows to hit the IMF target.
The government is working to pass the Customs Act soon in a bid to boost revenue collection.
"The Customs Bill of 2023" was placed in parliament on October 25, aiming to enhance fiscal discipline, increase accountability in customs revenue collection, as well as smoother trade facilitation.
Law Minister Anisul Huq placed the bill on behalf of Finance Minister AHM Mustafa Kamal. The bill was sent to the respective parliamentary standing committee for further scrutiny, and the committee plans to submit a report within seven days.
