Home ›› 06 Apr 2023 ›› Front
Import level tax waivers – offered by the National Board of Revenue (NBR) – rose by 22.20 per cent to Tk 42,181 crore in the July-February period of FY23 when compared year-on-year, marking a staggering increase of Tk 7,665 crore.
Tax waivers are given to export-oriented companies, manufacturing industries, power grid companies and producers of essential commodities such as edible oil and poultry to keep the prices under consumers’ reach.
Such waivers triggered a revenue shortfall of Tk 22,978 crore, against the NBR’s target of Tk 2,19,015 crore for the period, show the revenue board data.
On the issue, Policy Research Institute (PRI) Executive Director Ahsan H Mansur said, “The tax exemption could have gone up as the local currency depreciated against USD by around 24 per cent compared to last year.
“There is no scope to further increase revenue and meet the International Monetary Fund’s (IMF) conditions without significant reforms in the NBR.”
It should be noted that with the IMF conditions attached with the recently approved $4.7 billion loan for Bangladesh, the NBR has to increase the country’s Tax-to-GDP ratio and decrease tax waivers in a bid to boost tax revenue.
The IMF has 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. To achieve the target, the NBR will have to collect an additional Tk 2,34,000 crore over the next three FYs.
Raising questions over the exemptions, a number of experts said most of the tax waivers are being provided on the basis of political consideration, and the NBR has to rationalise such waivers immediately.
Echoing the same, NBR officials say though the IMF wants to decrease tax waivers, some exemptions are being recommended by senior or government officials.
Under the circumstances, the NBR is under pressure as it does not want to abruptly reduce the lion’s share of waivers, because the move may severely affect industries and markets.
Moreover, rationalisation of the exemption is time consuming as waiver is increasing day by day, insiders told The Business Post.
During July-February period of this FY, the NBR provided Tk 6,710 crore tax exemptions to capital machinery imports, followed by Tk 6,137 crore waivers granted to designated product imports where all tax is withdrawn.
Due to the VAT cut on edible oil, introduced so that consumers can purchase the essential commodity at a lower price, the NBR lost Tk 2,873 crore. Poultry farms got Tk 603 crore exemption during the same period.
The tax exemptions rose mostly for the defense store. The NBR waived Tk 4,136 crore in this segment during the July-February period, up from Tk 1,458 crore when compared year-on-year.
Besides, the NBR is providing significant exemptions at the local stage as well.
The IMF, in multiple meetings with the NBR, had recommended an evaluation of tax exemptions – also known as tax expenditure – which is currently being provided at the local stage using data from household surveys or Bangladesh Bureau of Statistics (BBS).
NBR officials however informed the IMF delegation that the final consumption data cannot be calculated based on the BBS, because tax exemptions are granted at different levels and different rates.
Besides, around half of the country’s GDP-contributing sectors still remain out of VAT purview in the form of exemptions.
The NBR also provides waivers to micro and small enterprises as the VAT-free annual turnover limit is set at Tk 3 crore. So, it is not possible to calculate local exemption data. The NBR can easily evaluate import data as it is synchronised with ASYCUDA World, insiders say.
According to a recent NBR study, the board gives exemptions to different sectors that 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.
Commenting on the matter, Ahsan H Mansur said, “The NBR has to rationalise tax exemptions, as there is no scope to cut waivers fully because some are crucial for earning foreign currency and continuing economic growth, such as the back to back L/C facility.
“Some exemptions are provided as per international convention to ensure relief, education and healthcare for the country’s people.”
He continued, “The government can withdraw exemptions from mega projects such as Padma Multipurpose Bridge, Rooppur Nuclear Power Plant (RNPP) and so on. It will help calculate actual expenditure of the project and increase revenue.”
The NBR provided Tk 2,517 crore waiver to the RNPP in FY23. The Dhaka Mass Transit Company Ltd (DMTCL) has recently refused to pay VAT on metro rail fares as it is not possible for the company to operate metro rail profitably only with its income from passengers.
Stressing the need for a comprehensive study on income tax, VAT at local stage and customs, including property taxes to calculate the market value, Ahsan H Mansur said, “The government can increase revenue in FY24 through the study, and reduce tax burden from small businesses and marginal communities.”
To improve Tax-to-GDP ratio and meet IMF’s condition, the NBR is also seeking to reduce tax benefits on the import of goods that are also produced locally, in a move to extend support for the local industries.
At a pre-budget meeting held recently, NBR Chairman Abu Hena Md Rahmatul Muneem said, “We will review the facilities and squeeze them. We will not provide facilities for importing goods which are being produced locally.
“When the law was enacted (for EPZs), many benefits were given blindly. Because there was no local industries back then. Now the local industries have grown. I am calling upon the business community to pay taxes instead of seeking exemptions, to aid in Bangladesh’s industrialisation and development.”
The board provided Tk 784 crore tax exemptions to Bangladesh Economic Zones Authority (BEZA) in the July-February period of FY23, up from Tk 372 crore recorded in the same period last FY.
