Revenue challenges in the budget likely

Bangladesh already has been appraised across the globe for becoming one of the fastest-growing economies in the world. With an average 6.0 per cent GDP growth rate, Bangladesh’s economy is gradually getting more powerful. Side by side with the nation’s growing economic size, its budget size is increasing. There is a positive relationship between budget size and GDP growth rate.

Expenditure in the budget is being shown higher compared to revenue earnings. The situation creates a deficit in the budget. In South Asia, Bangladesh’s position in respect of budget deficit is rather disappointing. Bangladesh has the lowest tax-to-GDP ratio among South Asian countries. Bangladesh is yet to show its dynamism in earning revenue as expected.

The National Budget for FY 2023-2024 is likely to be placed in the parliament on June 01, 2023. The budget size for the upcoming fiscal year has been set at Tk 7.64 trillion. The Ministry of Finance ( MoF) issued a directive for the National Board of Revenue (NBR) regarding revenue earnings for the upcoming fiscal year.

The directive concerning revenue earnings brought a wide range of criticism. NBR has been ordered to collect Tk 4.30 trillion in revenue by June 30, 2024. The target came as ambitious among analysts and critics. NBR, the apex tax-revenue collector authority, seldom achieved the target set by the MoF.

How it is possible to achieve an ambitious tax-revenue target by FY 2024 is difficult for this writer to understand. Especially amidst the ongoing global economic turmoil. According to MoF, the last fiscal ( 2021-2022) saw a huge shortfall in tax-revenue earnings. A total of Tk 2.87 trillion came in the state coffer as tax-revenue income against the set target of Tk 3.30 trillion in FY 2021-2022, MoF sources said.

In the current fiscal year ( 2022-2023), the NBR has to collect Tk 3.70 trillion. The current fiscal year is set to face a tax-revenue shortfall to a great extent. According to a recently published news report, revenue shortfall until April this fiscal stood at Tk 375.33 billion against its target. Because of the shortfall amount, it can be said that state-owned revenue collectors seldom achieve their targets.

Tax-revenue collection growth in Bangladesh is quite insignificant. It has been learned that for the past five years, Bangladesh saw 12 per cent tax-revenue earnings growth on average. To achieve Tk 4.30 trillion, over 32 per cent growth is needed. Is it possible considering the current situation? As a result of the income-expenditure gap shown in the national budget, the deficit is increasing. In addressing the budget deficit, the government has a plan to borrow from domestic and external sources. There is a negative side to borrowing from these two sources. Borrowing from the banking system has a huge impact on the economy. Due to bank borrowing by the government, the banks cannot invest in the country’s private sectors resulting in hampering economic activities. Borrowing from multilateral donor agencies requires a high interest rate. The deficit in the national budget brings instability in the economy.

The budget deficit situation in Bangladesh is common. Due to having an outdated tax administration system, tax-revenue earnings in Bangladesh are not increasing according to expectations. In FY 2022-2023, the overall budget deficit is estimated at 5.4 per cent of the gross domestic product (GDP). The ratio in FY 2021-2022 was recorded at above 6.0 per cent.

The International Monetary Fund (IMF) approved US$ 4.7 billion in loans for Bangladesh upon certain conditions. Among IMF conditions given to Bangladesh, NBR has to increase 0.5 per cent tax-to-GDP in FY 2023 and FY 2024. Around 0.7 per cent tax-to-GDP ratio is to be increased in FY2025. The IMF body also discouraged tax exemption practices in Bangladesh. Tax exemption facility in Bangladesh is substantial. State coffer loses a huge amount of tax-revenue earnings due to tax exemption facilities. The IMF strongly urged to implementation of VAT law as soon as possible as part of the conditions given recently. Reform of tax structure and tax administration system because of the IMF prescription is urgently needed. Because of the narrow fiscal space, IMF is worried about the concerning issues.

The government in Bangladesh is now cautious about utilizing foreign exchange reserves. The reserve shortfall phenomenon is creating panic among all. Due to the Ukraine- Russia war, the import cost has skyrocketed resulting in releasing forex reserves more compared to earlier times. There were no alternative avenues but to impose restrictions on importable items in saving forex reserves. The restrictions still are in force. As a result of restrictions on importable items, revenue earnings from import duty are in a declining trend.

A news report said that Letter of Credit ( LC) opening dropped around 27 per cent during the past 10 months for belt-tightening measures undertaken by the government.

In the wake of the falling revenue trend, the NBR has introduced plans regarding imposing a carbon tax on automobiles. Besides, NBR is set to recruit private agents in a bid to boost tax revenue collection.

A Policy Research Institute (PRI) study said that the tax-GDP ratio in Bangladesh declined to 7.4 per cent in FY 2023 from 7.9 per cent last year. The proposed budget for FY 2023-2024 is in trouble with the issue concerning the inflation rate. Purchasing power capacity among low-income groups is declining rapidly.

The budget has to reach them with adequate support. In this budget, social safety net programmes are to be increased in addressing the much-discussed problem. Tax-revenue earning at this moment is a timely demand. The government should emphasize expanding fiscal space instead of borrowing from external sources. If possible, the tax collection method should be redesigned for tax providers. Duty from international businesses might have to be increased for the sake of Bangladesh’s economy. If the government fails to implement IMF conditions, Bangladesh has to fill up the budget deficit by borrowing from foreign lenders. Given the overall situation existing in the world, the national budget in Bangladesh is likely to face challenges in tax-revenue earnings. Let us solve the issue and strengthen our internal source in generating tax revenue.

The writer is an economic affairs analyst. He can be reached at mazadul1985@gmail.com