If Bangladesh does not take any initiatives for reform and things go on as is, the country’s accumulated potential revenue loss will be around Tk 50 lakh crore by the end of FY41, which is almost equivalent to seven times the current budget size of the government.
Through more wholesale reforms, the government can prevent such losses – leading to a 60 per cent increase on the current tax base. Policy Research Institute of Bangladesh (PRI) Executive Director Ahsan H Mansur made the remarks at an event organised by PRI at a city hotel.
Addressing the fiscal space decline due to rising interest payment, Mansur said, “Interest payments have been growing at a very rapid pace in recent years, and are likely to accelerate further in the coming years.
“Interest on foreign debt in domestic currency rose by 654 per cent over 12 years through FY23, and interest payments on domestic debt also rose by 568 per cent over the same period. But the government’s revenue increased by 360 per cent, indicating a significant loss of fiscal space on account of mandatory interest payment. This creates a fiscal imbalance.”
He added, “The government has no space to move now due to fiscal pressure, and it has controlled its expenditure effectively to stabilise macroeconomy. But, for this reason, it is now bare bones as expenditure got reduced, no meat.
“Expenditure has to be controlled, but it has limitations, keep that in mind. It shrinks economic activity, and our expenditure is much less than the rest of the world.”
Mansur then pointed out, “Our tax rate is standard. At the existing rate, there is scope to raise revenue by three times by curing evasion. Due to low tax revenue, our repayment to debt capacity is very low compared to other countries, which is a matter of concern even though our debt to GDP is low.
“Gradually phasing out many of the exemptions over a period of 3-4 years has the potential to raise Tk 60,000 crore, while more extensive reform measures are designed and begin to be implemented.”
PRI chairman Zaidi Sattar said, “Protection undermines export performance now. More critical is the adverse impact of tariffs on export performance. High exporting countries have low import tariffs.
“Research findings of PRI show that apart from RMG products which are highly competitive, nearly 500 non-RMG products are also highly or moderately competitive in markets where 30-40 other suppliers compete.”
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) President Mahbubul Alam said, “Businessmen want to pay taxes but do not want to be harassed. The National Board of Revenue (NBR) should ensure automation so harassment can be reduced.
“The NBR should also widen the tax net. It should not only pressurize the existing taxpayers, rather it should focus on taxable income holders and businessmen outside Dhaka and Chattogram.”
NBR Chairman Abu Hena Md Rahmatul Munim said, “I look at the tax-GDP ratio differently. If you look at the tax-GDP ratio of Maldives, Nepal, Somalia, you will also have to look at other indicators of their economy.
“Our tax expenditure has increased as we focus on manufacturing, and local industry. We have focused on those which increase economic activity which improved our socioeconomic indicator. And our socioeconomic improvement is higher than our India. Our country is a role model in this regard.”
He then stressed, “Our borrowing margin is very high. More borrowing is good for the economy, and economic activity has increased. So, we do not need to be concerned.”
“The NBR is providing policy support towards industry and different sectors and those sectors are growing. Now, we are finding and supporting them so that middle income consumer goods can be produced locally.”
Munim added, “We say everyone wants to pay taxes; want to pay VAT. But it can be seen that some individuals do not really want to pay. Not only that, some corporations lobbied for exemption in various ways. If we want to graduate, then we have to break out of this mentality.”
Attending as chief guest, State Minister for Finance Waseqa Ayesha Khan said, “It is not just about revenue collection. Maximising its use is important here. Implementation is the key. In this regard, the private sector and the public partnership is a must.
“I think the exemption needs to be rationalised. One hundred and twenty types of exemptions have been given for the private sector in the last five years. This rationalisation will require the involvement of the private sector.”
She added, “Many industries sought exemptions 25 years ago, do they still need them? Do we give our children pocket money till 30 years? We have to come forward and must be mature.”
Mashiur Rahman, economic affairs adviser to the prime minister said, “I believe that the tax-to-GDP ratio should be increased and growth rate needs to be more sustained. We acknowledge them, but we have to make some concessions in this state of economy.”
Commenting on the separation of tax policy and administration, he said, “If tax policy and administration are to be separated, experience should be drawn from administration. Otherwise, just separating will not solve it.”
