Tax-to-GDP ratio target remains unchanged at 14pc in next budget

The target for the tax-to-GDP ratio is likely to remain unchanged at 14 percent in the upcoming 2020-2021 fiscal year budget.

The government does not want to reset inflated target of the ratio as international health crisis like the coronavirus has dealt a big blow to the economy. The budget proposal for the new financial year is in progress by calculating 14 percent as in the current financial year.

Bangladesh is at the bottom of the tax-to-GDP ratio in South Asia, and even it is the lowest in the world.

In the budget for the current 2019-2020 financial year, it was said that the revenue-GDP ratio should be 14 percent. However, in the current situation economists see no possibility of achieving the inflated target of tax-GDP ratio.

A top-level meeting was recently held at the Ministry of Finance on overall situation including the progress of revenue collection; and National Board of Revenue (NBR) representatives in the meeting expressed satisfaction over the recovery until March.

At the same time, taking the April, May and June into account, it is expected to meet the projected revenue-to-GDP ratio, a senior NBR official told Business Post.

In this regard, according to the Ministry of Finance and NBR sources, the revenue-GDP ratio of 2018-19 fiscal year was 10.10 percent. Of which, 8.69 percent is part of NBR. The revenue collection till March of the current 2019-20 financial year soars at Tk 1,75,869, registering a growth by 7.8 percent.

The meeting hoped to increase the revenue-GDP ratio as expected riding on the back of April, May and June collections.

However, economists have always expressed dissatisfaction with Bangladesh's tax-to-GDP ratio as an emerging country in the world.

In the five years, Bangladesh's tax-to-GDP ratio averaged 10.2 percent. The average tax-to-GDP ratio for the last five years is 23.3 percent in Nepal, 20.3 percent in India, 15.2 percent in Pakistan and 13.3 percent in Sri Lanka.

In this regard, renowned economist and finance adviser of past caretaker government Dr AB Mirza Md Azizul Islam told Business Post that the tax-to-GDP ratio in Bangladesh is the lowest in Asia rather it is one of the lowest ratios in the whole world.

Mirza said, Nepal's national income, for example, is two thirds of our national income but the neighbouring GDP is almost double that of us.

He said the secret of big GDP lies in expansion of the tax net. NBR is not bringing potential tax payers under the tax due to various reasons including administrative inefficiency.

Meanwhile, in the forthcoming proposed budget the total revenue collection target is being set at Tk 3,93,000 crore. Of this, NBR is supposed to mobilise Tk 3,30,000 crore.

The rest of the revenue will come from non-NBR revenue sector. The NBR will have to collect the most revenue from VAT amounting to Tk 1,26,73,000 crore.

Besides, there is a target of Tk 1,05,465 crore in income tax and Tk 95,752 crore in customs.

However, in the first 10 months of the current 2019-2020 fiscal year, there is already a revenue deficit of Tk 72,000 crore. At the end of the year, which could be Tk 60,000 crore, hoped the chairman of the National Board of Revenue Abu Hena Md. Rahmatul Muneem.

In a policy statement, the Finance Division of the Ministry of Finance analyzed the report of the International Monetary Fund (IMF) World Economic Outlook published last April. Highlighting the five-year tax-to-GDP ratio, the policy statement said Bangladesh's tax-to-GDP ratio averaged 10.2 percent from 2013-14 to 2017-18.

Bangladesh has also been compared with the nearest neighboring countries in terms of tax-GDP. Analyzing the data from the IMF report, the policy statement said the five-year average tax-to-GDP ratio was 23.3 per cent in Nepal, 20.3 per cent in India, 15.2 per cent in Pakistan and 13.3 per cent in Sri Lanka.