IMF against tax exemptions, NBR says no way

The International Monetary Fund (IMF) is seeking the withdrawal of tax and value-added tax (VAT) exemptions in all forms, an increase in existing tax rates imposed on marginal taxpayers, and a reduction in customs duty to boost revenue.

However, the National Board of Revenue (NBR) could not agree to the IMF recommendation citing the ongoing economic crises in Bangladesh – especially the soaring inflation and skyrocketing fuel prices.

The IMF mission had made these recommendations in three separate meetings with the NBR members from tax, VAT and customs policies at the board’s headquarters in the capital’s Segunbagicha area.

Bangladesh is seeking $4.5 billion in loans from the IMF, and the ongoing discussions are part of the process.

The team – led by IMF Bangladesh mission Chief Rahul Anand – also discussed matters regarding an increase in the tax to GDP ratio, taxes on tobacco, tariff reduction for international trade, digitalisation and relevant laws.

An NBR official who attended one of the meetings, said, “There is no scope to increase tax rates on the marginal taxpayers amid the economic strain and inflationary pressure, instead we are trying to expand the tax net to boost our tax-to-GDP ratio.

“We are also working on reducing loopholes that would minimise tax evasion and create a compliant environment so that taxpayers willingly pay taxes. The IMF is very happy to learn about our expansion policy, and how we are currently generating revenue.”

NBR emphasises building capacity

Following Sunday’s meetings, NBR officials say instead of complying with the IMF recommendations, the revenue board showcased how it is planning to increase the tax net and revenue growth.

The NBR ensured that it is on the right track as the board witnessed over 20 per cent revenue growth in FY23, against the finance ministry’s goal of 19 per cent set for that year.

During these meetings, the NBR highlighted its efforts to the IMF through data, showing increased collaboration with government entities to reach more potential taxpayers and curb tax evasion.

The revenue board however pointed out that it is crucial to enhance the capacity of NBR revenue administration, and expressed its interest to join hands with international agencies to keep on moving forward.

NBR against hiking tax on tobacco

Discussing taxation on tobacco, the IMF sought a reform. The NBR however told the IMF that at present, around 40 per cent to 65 per cent supplementary duty exists on tobacco, on top of 15 per cent VAT and 1 per cent surcharge.

So there is no scope of further increasing tax on tobacco.

The NBR expressed concerns that if the taxes of tobacco are hiked further, smuggling will go up significantly. According to revenue intelligence data, the smuggling of tobacco products has gone up in recent months, and the revenue has actually dropped even after a hike in tax rates.

According to NBR data shared with the IMF, Bangladesh earned Tk 2,577 crore per month on average last FY, compared to Tk 1,750 crore per month recorded in FY23.

Instead of hiking taxes, the NBR is now focused on automation and the utilisation of Electronic Fiscal Devices (EFD) to expand the VAT net. Presently, around 84 per cent VAT returns are submitted digitally.

Ninety-nine per cent of the large taxpayers are now submitting the returns digitally. The EFD will help Bangladesh boost revenue significantly, increase accountability and help assess incomes and customs duties.

IMF seeks tariff, customs reforms

The IMF mission has sought a decrease in the tariff rate, and time spent on loading and unloading of goods, which in turn would help Bangladesh increase international trade.

In response, the NBR said the average customs duty in the country is about 29 per cent, and amid the ongoing economic headwinds, there is little possibility to reduce this tax.

The revenue board is working to implement the National Single Window Project to decrease the import-export processing time. Meanwhile, the NBR has prepared final drafts of customs and income tax laws, which are waiting to be passed.

In 2012, the government enacted the VAT Act following IMF prescription for securing around $100 crore in loans under the Extended Credit Facility (ECF). The IMF executive board approved the loan shortly after Bangladesh enacted the act.