Personal tax revenue can be raised to 3.1% of GDP: Speakers

The authorities could increase revenue collection from personal income tax to 3.1 per cent of the gross domestic product (GDP) from the existing 1 per cent if all eligible individuals pay taxes according to their income tax slabs, experts told a seminar on Saturday.

The government should increase direct tax collection to reduce growing inequality and the number of registered taxpayers should be raised for that, they said while addressing the seminar jointly organised by Research and Policy Integration for Development (RAPID) and the Economic Reporters’ Forum (ERF) at the ERF office in the capital.

RAPID Chairman Dr Mohammad Abdur Razzaque presented the keynote, saying Bangladesh's tax-GDP ratio is 9 per cent, which is the lowest in the world.

The main reason behind this is the low proportion of direct tax, which should be increased, he said.

“Currently, 65 per cent of revenue comes from indirect tax and 35 per cent from direct tax. The government has taken initiatives to increase the proportion of direct tax to 70 per cent and reduce that of indirect tax to 30 per cent,” he explained. Razzaque pointed out that inequality and low government spending (budget) as a share of GDP are the major problems in the country. “The amount of direct tax is increasing, but in terms of the tax-GDP ratio, it is still the lowest in the world.”

He said many countries in the world, including India, Bhutan, and Malaysia, have more revenue income from direct tax than Bangladesh.

The RAPID chairman said revenue collection as a proportion of GDP should be increased to 17 per cent by 2030 and 21 per cent by 2041 if Bangladesh wants to achieve high growth and become a developed country.

“A significant part of this must come from direct tax. The tax net is not very wide as 7.6 million people have tax identification number (TIN) but only 2.4 million submit returns. The amount of paid taxes is also very low,” he said.

The economist said the government should increase the tax-free income limit of individual taxpayers because of the high inflationary pressure.

Even after that, it will be possible for the personal income tax proportion to be more than 3 per cent of GDP, he said.

Speaking about corporate tax, he said it contributes to only 1.4 per cent of GDP.

“Currently, there are 2.73 lakh registered companies. Of them, only 11 per cent or about 30,000 pay taxes. There are many problems in this area as well. Even though many have wealth, only 15,000 people pay surcharge, which should be increased,” Razzaque added.

Former chairman of the National Board of Revenue (NBR) Nasiruddin Ahmed said the new target to increase direct tax is an ambitious one and the government should allow a time frame to achieve it. He said the direct tax proportion should be 50 per cent instead of 70 per cent.

“Due to political economy, the NBR lags behind in increasing revenue income. Many sectors are getting tax holidays and special tax rebates.

“Moreover, as many parliamentarians are businessmen, they also want to enjoy tax exemptions. Because of these reasons, the NBR failed to realise Tk 2.5 lakh crore in tax income in the last financial year,” he explained.

Additional Secretary of the finance ministry Kabirul Ezdani Khan agreed with other speakers that the size of the budget in Bangladesh in proportion to GDP is small compared to many other countries.

He said the tax-GDP ratio is very low despite high revenue potential.

“The government has failed to earn expected revenue in many areas, such as real estate and businesses like Facebook, Amazon, and Foodpanda.”

To increase revenue income, he said tax collection should be automated, a taxpayer service wing should be established at the NBR, and there should be policy reforms.

Rapid Executive Director Dr M Abu Yusuf moderated the seminar while NBR Member Mahmudur Rahman, ERF President Sharmeen Rinvy, and its General Secretary SM Rashidul Islam were present.