Home ›› 26 Jun 2022 ›› Editorial
The budget proclamation for FY23 by the Finance Minister coincided with the publication of the World Inequality Report-2022 published by the World Inequality Lab, Paris depicts a grim picture of the size distribution of income in the South and South East Asian countries including Bangladesh.
The report manifests that the top 1 percent of the population holds 16. 33 percent, the top 10 percent of the population own 42.85 percent, and the bottom fifty percent holds only 17.06 percent of the GDP. A simple interpolation of the data shows that 40 per cent of the population in the middle bracket owns about 40 percent of GDP. Assuming Bangladesh's GDP to the tune of USD 490 billion, it is translated that only 1.7 million people own USD 82 billion and the per capita is 4.8 billion [Tk. 43, 000 crores], 17 million people own USD 210 billion, 68 million people own USD 196 billion, and the bottom 50 percent [85 million people] own about USD 84 billion. Surprisingly, the share of GDP of 1 percent of the population is equal to the GDP size of the bottom 50 percent of the population. An indirect method in justifying the findings of the report is manifested through the Bangladeshi deposit in Swiss banks in 2021 swelled by a record of the highest 55 per cent increase among the South Asian countries. The extent of capital flight through money laundering is another conspicuous example. Again, the country lost approximately USD 8.27 billion on an average annually between 2009 and 2018 from under-invoicing and over-invoicing of values of export-import goods by traders to evade taxes, and illegally move money across international borders.
The amount showed that the average loss of customs and taxes during the period was 17.3 percent of Bangladesh's trade with all its trading partners during 2009-2018. [GFI, "Trade-Related Illicit Financial Flows in 134 Developing Countries 2009-2018."]
The obvious conclusion is that the tax net failed to include thousands of eligible taxpayers and the friendly nature of the regressive tax structure for the top 10 percent. The total number of individual TIN and corporate holders was over 7.0 million till February 2022 and 2.9 million constituting about 41 percent submitted their annual income and tax returns till March 2022. The current 7.0 million holders constitute only 4 percent of the population. Given the population of 170 million, 50 percent of the total population may be exempted from the income tax net on the ground that they constitute the ultra-poor, poor, and marginal group.
The residual 85 million people constitute approximately 21 million households with an average of 4 people per household. Thus, even in a conservative estimate, the current tax net is about one-third of the eligible taxpayers. The staggering low tax to GDP ratio of 10 per cent in
comparison to many Asian countries is behind this poor tax net. The five years average tax to GDP ratio during 2017-2021 in Bangladesh was 10 percent in comparison to 20 per cent in India, Malaysia, and Thailand.
The tax to GDP ratio in Nepal is over 22 per cent and in Myanmar, it is 16 percent. The average tax to GDP ratio in the OECD countries is over 25 per cent. An ESCAP-sponsored study asserts that the potential revenue collection in Bangladesh may be augmented with an attainable tax to GDP ratio of 18 per cent. Given a conservative tax to GDP ratio of 15 percent, the revenue earnings could be projected at a minimum of USD 60 billion instead of USD 48 billion with the assumed tax to GDP ratio of 9.8 per cent.
This indicates substantial lapses on the part of tax administration in augmenting income tax with an enlarged and feasible income tax net. The size distribution of income may be a criterion in selecting the base for income tax and in designing a tax slab that would be more progressive in nature. The highest tax slab of 25 per cent cannot fetch enough revenue from the top 1.7 million people who own USD 82 billion GDP and the top 9 percent [15.3 million] of the population who own USD 128 billion GDP.
Indeed, there is an improvement in the enlargement of the tax net through various devices such as households survey, tagging National Identification Number [NID], and the Tax Identification Number [TIN] in various economic and financial transactions. There are still avalanches of lapses in the disclosure of illegal income. Unfortunately, certain measures work as an incentive through which ill-gotten money is whitened through payment of tax at a rate below the rate an honest taxpayer pays. It is encouraging that the government is introducing the submission of tax-return slips in restricting cashless transactions. There are 38 types of services such as applying for a credit card, a child’s admission to an English medium school could be an effective way to unearth the black money. The other areas are when applying for a loan over Tk. 5 lakh from a bank or a financial institution, becoming a director or a member shareholder of a company, or renewing a trade license in the area of a city corporation or a municipality. It is apprehended that the credit card business may suffer, yet it serves as an effective method of getting a wider tax net. Triangulation as a source of information gathering from various sources may be one of the effective ways of testing the convergence of income and expenditure streams.
The writer is the Treasurer and a Professor at the School of Business and Economics, United International University. He may be contacted at obaidur@ eco.uiu.ac.bd
