Home ›› 28 May 2023 ›› Opinion
The national budget will be presented on the very first day of June, this year. The budget is to portray its income and expenditure among other functions. The budget document has to make sure its earning sources meet its obligations within the fiscal year concerned. Every national budget comes under a wide range of criticism for various reasons. In particular, financing in the budget comes from both domestic and external sources. The cause of taking budget support from external sources is the huge gap between income and expenditure. As per requests made by the government, the donor agencies come forward in addressing budget deficits. Bangladesh takes loans in filling up the deficit from foreign sources and has to pay exorbitant interest rates. Ultimately, borrowing concepts from external sources came following the unacceptably low Tax-to-GDP ratio Bangladesh is still experiencing.
Fiscal measures taken by the government for increasing earnings are occasionally welcomed by certain think-tank bodies. Bangladesh’s economy is surprisingly well with its narrow fiscal space. In the world, Bangladesh has the lowest tax-to-GDP ratio. Bangladesh’s position in respect of expanding fiscal space needs to be developed. Keeping in view the current scenario of the Tax-to-GDP ratio in Bangladesh, the International Monetary Fund (IMF) is understandably worried. The IMF management strongly advised the government to restructure the tax administration system.
The advice came during the US$4.7 billion loan approval period. The IMF management aspires to see a tax-revenue rise by 0.5 per cent (in FY 2024 and 2025) and by 0.7 per cent (in 2026) respectively.
The finance ministry gave a directive to the National Board of Revenue (NBR) to collect Tk 4.30 trillion in tax-revenue in FY 2024. It is important to note that NBR between FY 2011 to 2022 achieved target a target of 12 per cent on average. To fulfil IMF conditions, the NBR has to increase the 36.3 per cent growth rate in tax-revenue earnings from the existing 12 per cent from FY 2024. According to media reports, NBR could achieve its target once in the past ten years.
Based on previous records, there is little possibility of achieving Tk 4.30 trillion tax revenue in FY 2024.
The country’s apex tax-revenue collector, NBR, is trying to formulate strategies for addressing IMF conditions. The NBR authorities are looking for alternative avenues in a bid to increase the tax-to-GDP ratio. As part of the move, the government has planned to inject a provision for withdrawing zero tax policy in the budget drafted for FY 2024.
Because of tax returns without payment for years, the government is set to introduce the policy in the next budget. The country’s exchequer is expected to see a significant amount of money from Tax Identification Number (TIN) holders. The TIN bearers who are enjoying the advantages of deduction, tax holidays and tax exemption facilities are bound to give a minimum amount as tax returns at the time of submission.
It is alleged that out of total of 8.6 million TIN holders, 3.2 million TIN carriers submit returns. Of them, 25 per cent (0.8 million) do not show taxable income with returns. Currently, a total of 38 services are being provided in exchange for getting tax. The national exchequer is surely to get Tk 1,240 crore from 8.6 million TINs if the clause of zero tax policy can be lifted.
Many economies in the world have minimum tax provisions in their tax policy despite having a high Tax-to-GDP ratio. The USA has the provision titled ‘Alternative Minimum Tax (AMT)’, Canada has imposed the provision styled ‘Minimum Tax on Large Corporations’ France has “Minimum Tax on High Income” and Germany also practices the provision of “Minimum Tax on Capital. Given world practice, Bangladesh is set to adopt a minimum tax policy in the budget draft for the fiscal year 2023-2024.
The provision for imposing a minimum tax Tk 2000 for TIN holders is not the only solution to increase the Tax-to-GDP ratio. The coup upon TIN bearers. Are all TIN holders equally financially solvent? The government should frame an international standard in netting income group people under the tax umbrella.
There are no alternative ways to increase the number of people under the tax umbrella. The eligible taxpayers are not coming to give tax resulting in decreasing direct tax. The contribution of direct tax to the exchequer is insignificant even now.
Of the total revenue, direct tax accounts for 35 per cent and indirect tax 65 per cent. Income tax and corporate tax are direct taxes. On the contrary, indirect tax included VAT, import duty, export duty, excise duty, and supplementary duty. The need for increasing direct tax is timely demand in the economy. Corporate tax known as direct tax contributes almost 1.4 per cent of GDP. There are 273,000 registered companies in the country. Of them, 30,000 companies pay corporate tax indicating that there is little possibility of increasing direct tax in Bangladesh.
Ultimately, the poor segment pays tax compared to the wealthy class through VAT. It is unjust towards the poor people. According to a study report in 2021, VAT accounts for 33 per cent of total tax revenue. The burden of VAT represents 12.1 per cent of the income of the poor against 5.9 per cent for the wealthy class, the report said. VAT is tagged with commodity prices. Poor people cannot buy daily essentials to survive by paying VAT. Such injustice should be lifted right now for the sake of them. Over the past couple of months, low and middle-income group people had been passing a tough time as a result of the high prices of daily essentials. Their capacity of purchasing is being lost caused by the high inflation rate. With their daily or monthly earnings, it is not possible to lead a decent life. At this moment, the government has planned to impose minimum tax provisions (upon having TIN) on them. Their contribution on VAT is admirable. If low-income taxpayers are obliged to pay minimum tax at the return of the submission, the paying of minimum tax for them will be termed as an ‘excessive burden’. The provision of tax holidays, tax exemption, and tax rebate practice should be scrapped in the policy for the greater interest of the economy.
The recommendation from this writer is to discover a mechanism for increasing direct tax. There needs to be an increase of 21 per cent tax revenue as a proportion of GDP by 2041 for becoming a developed country. Only, the provision of a minimum tax policy never helps to achieve the expected level of Tax-to-GDP ratio. Extensive tax policy reform is needed in achieving the goals related to fiscal issues.
The writer is an economic affairs analyst. He can be contacted at: mazadul1985@gmail.com
