NBR wants to change tax waiver narrative

Instead of lifting tax waiver given to different sectors and services, the National Board of Revenue (NBR) plans to raise the tax-to-GDP ratio by collecting taxes from ministries concerned to attain the revenue target set by the government to meet the demand for development funds.

NBR says that there is no relation with the International Monetary Fund’s (IMF) conditions attached with the recently approved $4.7 billion loan for Bangladesh.

At a recent meeting with Foreign Ministry, Health Services Division, Health Ministry, Education Ministry and Secondary and Higher Education Division, NBR urged them to adjust the taxes and duties in the budget that were exempted in the previous years for those sectors and organisations operating under their authorities.

It also asked the ministries to clear all sorts of future duties and taxes regarding the project related procurement and imports under them.

NBR officials in different meetings with many other ministries, divisions and departments have also made the same requests, aiming to boost tax collection.

As a result, the country will mainly benefit in different ways: tax to GDP and the accountability in the sectors which are getting benefits through exemptions and the number of applications for tax exemptions will decline, said officials concerned.

But experts say that it is a part of IMF conditions and the government’s ultimate goal is to fulfil the loan conditions. Bangladesh already received the loan’s first tranche of $476 million in the first week of February.      

IMF has tagged conditions to increase the tax-to-GDP ratio by 0.5 percentage points in FY2023-24, followed by 0.5 and 0.7 percentage points in FY2024-25 and FY2025-26, respectively.

With these 1.7 percentage points, NBR will have to collect an additional Tk 2,34,000 crore over the next three fiscal years.

According to a recent NBR study, the board gives exemption and tax waiver to different sectors which account for 2.28 per cent of the GDP. If NBR takes aforementioned issues into consideration and ends the tax exemption, the tax-to-GDP ratio will stand at 10.08 per cent.

The VAT wing alone lost Tk 44,329 crore in FY2021-22 due to exemption at import stage, which was around 1.2 per cent of GDP.

The wing’s data showed that if the exempted money is added to the national exchequer, the total revenue from the wing will reach Tk 1,52,684 crore, which is around 4 per cent of GDP. The wing collected Tk 1,08,355 crore, which was 2.84 per cent of GDP.

Besides, NBR said around half of the country’s GDP-contributing sectors remains out of VAT purview in the form of exemption.

Despite having the scope to raise the tax-to-GDP ratio as per the IMF’s conditions, the authorities continue rationalising exemptions every year as part of their regular work for the budget.

NBR Chairman Abu Hena Md Rahmatul Muneem at a pre-budget discussion recently said that the board does not bother about the IMF conditions.

“If necessary, NBR will show the financial value of exemptions and its tax ratio in terms of GDP to the lending agency so that IMF understands we are not lagging behind expected taxes,” he said.

“The exemptions may continue in a bid to enhance industrialisation that ultimately grows the macroeconomic indicators like GDP, increases employment and per capita income,” he added.

Former NBR chairman Abdul Majid said, “Ministries should adjust the taxes for their project implementations and organisations under their authorities. There is no alternative but to raise the tax-to-GDP ratio and fulfil IMF’s conditions.”

“NBR will have to ensure enforcement of rules and regulations. It will have to widen the tax net with collecting fair taxes from every taxpayer, create friendly environment and curb evasion.”

“It is not fair enough that someone gets confined by NBR and someone gets relieved while someone is under tax net and someone is not. Someone gets rewarded though he does not pay tax. In contrast, someone gets punished though pays tax regularly. NBR will have to address and prevent such discrimination,” he added.

If the ministries want allocation for clearing all sorts of duties and taxes, the budget for the ministries will be raised and the expert pinned the question, from where ministries get allocation as the revenue collection, domestic borrowing and foreign loan are vulnerable.