Tax exemption culture continues amid crisis

Different types of business entities are overwhelming the National Board of Revenue (NBR) with tax and VAT exemption requests and it’s approving many of them, at a time when the government is under pressure to increase the tax-to-GDP ratio amid economic headwinds.

The situation is not getting better when Bangladesh, already battered by several crises including the global economic turmoil and rising dollar crunch, has received the green light for a $4.5 billion loan from the International Monetary Fund (IMF) which has recommended some measures including withdrawal of such exemptions and tax net expansion.

NBR repeatedly gives tax-VAT exemptions and extends such facilities for multiple national and international companies and organisations without following the recommendations of IMF and experts.

On top of this, general consumers have come under more pressure as the government has increased the oil, electricity and gas prices recently despite the inflationary pressure to meet IMF’s conditions for the loan.

However, IMF’s condition that the government should decrease subsidies in these sectors is yet to be met.

An Internal Resources Division notification issued on Thursday disclosed that the government has waived nearly Tk 1,024 crore on stamp duty to Barisal Electric Power Company Ltd, which is building a 307MW coal-based thermal power plant in Khottar Char at Taltoli, Barguna.

Recently, NBR’s VAT wing in a special order also waived all types of VAT on Islamic Development Bank (IsDB) regarding goods or services at the local level. The VAT was exempted in line with the agreement signed by the government and IsDB on November 26, 2015.

The order read that the exemption at the local level regarding services or goods is only meant for the IsDB Regional Hub in Dhaka according to Article VIII of the agreement.

Requests galore

Meanwhile, the board has been inundated with more applications seeking exemptions from paying VAT, tax and customs duties at the import and local levels.

The Business Post obtained copies of some of these applications that came from PRAN-RFL Group, RFL Electronics Limited and NOVOAIR, among others. NBR sources also said that Standard Chartered Bank has sought exemption from paying duties on around $5 million worth of goods it imported.

NBR has received similar applications from many other international companies and organisations seeking similar exemptions.

Economists have said that tax exemption is one of the major reasons behind the fall in GDP, the government losing an enormous amount of revenue every year and NBR facing a revenue shortfall. Such exemptions also fuel rampant corporate tax evasion.

The government is giving such facilities to companies on import and local levels for various goods and services to speed up industrialisation across the country, promote local industries and control the cost of big projects, according to NBR officials.

During a visit last year, regarding the $4.5 billion loan, an IMF delegation had urged the authorities concerned to ensure the reformation of the revenue administration as part of a set of recommendations that included drastically reducing tax exemptions.

Responding to the matter, however, NBR Chairman Abu Hena Md Rahmatul Muneem recently told the media that they cannot completely withdraw the tax exemptions all at once anytime soon but they plan to reduce them gradually.

Monetary value

Currently, there are no specific statistics on the financial value of tax exemption in the country. NBR plans to review the matter and has already formed a committee to find the monetary value of such facilities.

Mentioning these facilities are mostly given on political considerations, addressing an event recently, former NBR chairman Md Nasiruddin Ahmed recently said that tax exemptions, including income tax, VAT and customs duty, in the country account for about Tk 2.5 lakh crore every year.

At the same event, Research and Policy Integration for Development Chairman MA Razzaque said that the country’s tax-to-GDP ratio will rise by two percentage points if tax exemptions are taken off the board.

He added that currently, Bangladesh’s GDP at constant prices is Tk 30.39 lakh crore. Taking that into account, the amount of income tax exemption alone is about Tk 61,000 crore.

Regarding this issue, World Bank Dhaka Office’s former lead economist Zahid Hussain said, “The government must drop rebates and exemptions down to a rational level, which is an IMF recommendation too.

“Rebates and exemptions are also the key factors behind rampant tax evasion. Some companies also go to the higher courts to avail facilities and settle tax evasion cases too, contributing to the growing outstanding dues which are claimed by NBR.”

According to the latest NBR data, the board is yet to recover Tk 74,539 crore out of Tk 94,607 crore in taxes and duties until FY2021-22, as claimed by the audit of the tax, VAT and customs offices.

The exemptions and evasions have played a major role in leaving NBR behind its actual target. The board

collected Tk 3,01,634 crore as revenue in FY22, against the target of Tk 3,30,000 crore.