Home ›› 07 Mar 2023 ›› Front
The International Monetary Fund (IMF) wants the National Board of Revenue (NBR) to evaluate tax exemptions – also known as tax expenditure – currently being provided to individuals, companies, and other entities, so that Bangladesh’s tax-to-GDP ratio can be improved.
An improvement in this particular indicator is a condition for a recently approved $4.7 billion loan by the IMF.
The revenue board can evaluate the expenditure through the household survey data model to learn about their earnings, number of family members, and expenses, to reform the tax policy in the upcoming budget.
In a meeting on Monday with the NBR officials, the IMF mission showcased the previous experiences of the other nations such as Canada, who use this method to help reform fiscal policy support.
This move helped Canada in decreasing the tax burden, as well as increasing the tax-to-GDP ratio, sources say.
The meeting, held at the NBR office in the capital, is organised as part of the recent loan approval and the IMF’s capacity building support towards the NBR to increase Bangladesh’s tax-to-GDP ratio by 0.5 percentage points in FY24.
The IMF team will discuss the matter again today with NBR officials and the board chairman Abu Hena Md Rahmatul Muneem.
The lending agency, IMF, is mainly focusing on reformation in VAT and income tax where household surveys will help the revenue board to redistribute policy support and incentivise to the actual target group through tax expenditure.
At Monday’s meeting, the IMF shared that some countries have already introduced policy support for citizens above 60 years old, that they do not need to pay off any VAT.
The evaluation helps to change the design of tax expenditure, such as an improvement in the target demographic to reduce revenue leakage, help reduce the government’s costs, and thus increase the tax expenditure efficiency, according to the IMF.
The evaluation also helps to find potential for improvement such as any programme changes to reduce the compliance burden associated with tax expenditure, make the programme easier to administer and define in a way that maximises the tax expenditure’s effectiveness so that the taxpayers get more benefits from the support.
Bangladesh received the loan’s first tranche of $476 million in the first week of February.
To avail the remaining installments, the IMF tagged conditions to increase the tax-to-GDP ratio by 0.5 percentage points in FY24, followed by 0.5 and 0.7 percentage points in FY25 and FY26 respectively.
With these 1.7 percentage points, the 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 exemptions and tax waivers 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 FY22 due to exemptions at the import stage, which was around 1.2 per cent of the 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 the GDP. This wing collected Tk 1,08,355 crore, which was 2.84 per cent of GDP.
Besides, the NBR said around half of the country’s GDP-contributing sectors remain out of VAT purview in the form of exemptions.
