Home ›› 30 Apr 2023 ›› Front
For a country, domestic resource mobilisation (DRM) is a fundamental process to raise and spend its own funds and it is a long-term path towards sustainable development finance and continuing the economic growth.
Even in a country like Bangladesh, internal or domestic resource mobilisation does not only provides the government with such funds needed to alleviate poverty, ensure social safety, and deliver public services, but it is also a pivotal step to phase out foreign aid and reduce loan dependence.
Bangladesh is, however, still dependent on foreign loan and budget support as the country is yet to become self-dependent in mobilising resources from all potential domestic sources.
Even revenue collection by the National Board of Revenue (NBR) or other agencies concerned does not fully match with the existing economic growth and development progress which, in turn, leads to seek support from developing partners to meet budget deficit and replenish the national exchequer.
Bangladesh, on the one hand, faces such pressure to take foreign loan for continuing the development programmes, and repay debt taken earlier from development partners, on the other hand, it is undated with financial secrecy or such enabling environment, causing tax evasion and avoidance.
According to country’s think-tank Centre for Policy Dialogue (CPD), financial secrecy facilitates tax abuse, enables money laundering and undermines human rights and secrecy index refers to the country’s overall situation that has become more secretive in helping individuals hide their finances.
Though Bangladesh has moved to two notches up to rank 52nd among 141 nations in the Financial Secrecy Index 2022 and its score is reasonably good as compared to developing and neighbouring countries, the problem is there is huge scope for financial secrecy especially evasion.
Based on Financial Secrecy Index Scores 2022, Bangladesh scored 90 out of 100 in secrecy score on ‘Avoids Promoting Tax Evasion’, indicating more scopes to hide income and thus avoid or evade tax while Pakistan, India and Sri Lanka have lesser scopes.
At the same time, Bangladesh scored 100 out of 100 in secrecy score on ‘Legal Entity Identifiers’ while neighbouring India scored only 50, meaning that Bangladesh has almost full scope to hide taxable income.
These indexes clearly indicate that Bangladesh has a “fertile land” to evade tax and revenue. CPD research findings also stated the same in the index data. It said that the government is losing as much as Tk 292,500 crore in potential revenue annually due to tax avoidance and evasion which, in turn, is putting the country under more fiscal pressure.
Many corporations are evading taxes, using a variety of methods, such as showing less income, soliciting unethical support from tax practitioners, showing more investment allowances, individual intention to show less income, and high informal transactions such as cash.
85% cos evaded corporate tax
Just a small number of companies registered in the country pay taxes to the revenue board while many registered taxpayers do not submit their tax returns, resulting in revenue shortages every year and putting pressure on the country’s overall economy.
The latest statistics of NBR as of January 17 this year showed that 199,030 companies have Taxpayer Identification Numbers (TINs) while 278,277 public and private companies are registered with the Registrar of Joint Stock Companies and Firms (RJSC) under the ministry of commerce.
Accordingly, about 71 per cent of the companies are under tax net while about 29 per cent are evading tax rampantly.
According to the NBR, only 31,000 companies submitted their tax returns in the FY 2021-22, meaning around 11 per cent out of total registered companies under RJSC or about 15 per cent companies having TINs paid their taxes.
As of the date, 7,608 companies filed their corporate tax returns. As per the law, every company has obligation to file returns, but 85 per cent companies evaded corporate taxes rampantly.
Out of the company TIN holders, there are 139,505 public and private companies and 59,525 firms as of January 17, the NBR system oriented data showed.
Less revenue leads to foreign debt
In line with them, it is sure that Bangladesh mostly faces financial strains for not to fully mobilise domestic or internal resources for a lack of resource.
In this context, the government witnesses revenue shortfall every year and then looks for domestic or foreign borrowing to reduce fiscal pressure.
But foreign aids or loans are mostly approved in line with some conditions. Sometimes the conditions or recommendations go against the mass, such as repeatedly price hikes of oil, gas and power, and curtailing subsidies for the energy sector may put consumers under more inflationary pressure.
This move is one of the IMF conditions attached with the recently approved $4.7 billion loan for Bangladesh, and the global lender released $476 million in the first installment in February.
Besides, the country is poised to get about $2 billion in budget support this fiscal year through a co-funding initiative led by the Asian Development Bank, aiming to ease the ongoing pressure on forex reserves.
However, the country is also facing pressure to repay foreign debt taken from development partners. In FY23, Bangladesh has to repay more than $2 billion foreign debt.
Bangladesh repaid $2 billion foreign debt, including $1.5 billion principal amount and $491 million interest, according to the data available with the Economic Relations Division (ERD).
Bangladesh will face maximum pressure to repay debts of $2.5 billion in FY2026-27, FY2027-28 and FY2028-29, according to a senior ERD official.
In the first seven months of FY23, the government borrowed Tk 46,048 crore from the central bank to meet the budget deficit and repaid the commercial banks around Tk 11,089 crore loan.
The government takes loan from the central bank to smooth the country’s money circulation system as the commercial banks are facing liquidity crunch. So, there are toughest situation to raise the budget allocation for the ministries to pay duties and taxes to the NBR that helps increase the tax-GDP ratio.
Even the revenue board falls short of revenue collection target by more than Tk 17,170 crore in the first seven months of the current fiscal year. The NBR officials fear of Tk 30,000 crore shortfall against the actual target of Tk 370,000 for FY23.
SDGs and LDC graduation
According to the United Nations General Assembly adopted the 2030 Agenda for sustainable development on 25 September 2015, mobilisation and effective use of domestic resources are key to sustainable development.
Taxation is a powerful tool to help achieve SDGs. Adequate domestic and international fiscal policies can also play an important role in reducing inequalities and promoting positive sustainable development patterns, it added.
After graduation from LDC status, foreign debt will be costly and the country will not get excessive financing support from development partners. So, if the country does not mobilise domestic resources as much as it requires, it cannot achieve SDGs and will face more economic headwinds.
More fiscal pressures in FY24
Due to Russia-Ukraine war, the country’s forex crunch and government’s austerity measures to insulate the economy slow tax revenue collection growth significantly.
The government is likely to set a target for the NBR to collect revenue of Tk 430,000 crore in FY24, up by 16 per cent or about Tk 60,000 crore from FY23.
Due to less growth in revenue collection, the NBR fell short of target by Tk 22,978 crore against its actual target of Tk 219,015 crore during the first eight months of the current fiscal year.
So, if the revenue deficit widens to around Tk 30,000 crore, the NBR will have to collect 25 per cent tax and duties more in FY24 than the current fiscal year. But the board could never achieve such growth.
