Threefold revenue growth required to meet IMF conditions: PRI

Bangladesh – under an International Monetary Fund (IMF) condition – will have to secure a 1.7 percentage point rise in the tax-GDP ratio over the next three fiscal years, but it will be difficult and challenging for the country to collect additional taxes in order to fulfill this goal.

The Policy Research Institute of Bangladesh (PRI), at a briefing on “IMF Loan Conditions on Domestic Revenue Mobilisation” held at its Banani office on Monday, further stated that Bangladesh will not be able to achieve this target if the usual scenario continues.

PRI Executive Director Dr Ahsan H Mansur and Research Director Dr MA Razzaque spoke at the event.

Razzaque said, “The IMF loan condition on domestic revenue mobilisation should be considered as part of a home-grown agenda, and the tax-GDP ratio needs to go much higher than what has been suggested.

“In order to meet the IMF conditions, Bangladesh will have to increase its revenue collection growth by three times in the next three fiscal years.”

He added, “Bangladesh should increase its revenue collection by Tk 65,000 crore in FY24 to fulfill the IMF condition. In FY25, this rise should be Tk 1,38,300 crore, and for FY26 the revenue should increase by Tk 2,34,000 crore, which is very challenging for Bangladesh.”

Ahsan H Mansur said, “This goal will not be achieved if business atmosphere goes on as usual, instead the tax-GDP ratio will decrease. Deviations in significant areas of the condition may lead to pauses in the IMF loan.

“There is no scope for raising tax rates to increase revenue. Tax rates are already high in the country. As a result, to achieve the target, tax collection has to be increased with much difficulty.”

He added, “There is no magic that can compel the number of taxpayers to suddenly rise to 3-4 crore. But tax collection from one crore people is not too ambitious. We can collect tax from up to 1.5 crore people.

“Only having TIN will not be enough. Out of 86 lakh TIN holders, only 26 lakh are currently under the tax net, which is only one-third of the figure. Bringing one crore people under taxation is a big task, and it is not easy.”

Mansoor then said, “The current state of revenue will not even come close to achieving this goal. This target cannot be achieved single-handedly. This feat will require an emphasis on reforms regarding relevant policies, administrative structure, and modernisation.

“Reducing tax exemptions is a must for increasing revenue. However, there is no comprehensive study on this. Tax exemptions should be kept in the export sector. A central bonded warehouse facility should be available to all exporters.

He continued, “It should be analysed how many tax exemptions are available in a particular sector. Tax exemptions should be gradually reduced to counter the loss of revenue due to tax deductions. Transparency and accountability should be brought into the tax exemptions.”

Meanwhile, Razzaque said, “The IMF announced a set of conditions in connection to a $4.5 billion loan package for Bangladesh. One of the key conditions is an increase in revenue mobilisation efforts of additional 0.5 per cent of GDP annually in FY24 and FY25 and 0.7 per cent of GDP in FY26.

“The IMF stipulates that Bangladesh’s tax-GDP ratio should rise from the current 7.8 per cent of GDP to 8.3 per cent in FY24, to 8.8 per cent in FY25 and finally to 9.5 per cent by FY26. The IMF also asked to put in place the NBR Compliance Risk Management Units in the customs and VAT wings by December this year for higher revenue mobilisation.”

He added, “The IMF conditions are actually a soft target, and thus its materialisation must not cause any complacency.

“Rather, this should be considered as part of achieving our home-grown policy target, as set out in the 8th Five-Year Plan, of raising the tax-GDP ratio to 12.3 per cent in FY25.”