In the first seven months of the current financial year (July-January), there has been a shortfall in revenue collection of 17 thousand 751 crores. This time the target of National Board of Revenue (NBR) collection was 2 lakh 15 thousand 590 crores.However, against this target, the organization has managed to collect only 1 lakh 97 thousand 839 crores. That is, at the end of the financial year, the revenue deficit remains large as usual.
The revenue to GDP ratio has been hovering between 8 and 9 percent over the past decade. The IMF has forecast it to rise to 8.8 percent in the current fiscal year and 10.2 percent in the 2029 fiscal year. India has a higher debt to GDP ratio than neighboring Bangladesh but has a higher revenue to GDP ratio.
Debt to GDP ratio in neighboring India will stand at 82.5 percent in FY2024, which was 82.7 percent in the previous fiscal. In fiscal 2023, the country's revenue to GDP ratio was 20.2 percent. Currently, the GDP ratio in our country is 7.6 percent
To increase the tax GDP ratio, the revenue sector needs to be reformed. Wherever wealth is accumulated in the economy, it should be brought under the tax umbrella. To make Bangladesh a middle-income country, a minimum tax ratio of 10 percent of GDP is required.
This rate is the lowest in Bangladesh compared to South Asian countries. Currently Bangladesh's tax GDP ratio is close to Somalia or Democratic Republic of Congo. Our tax to GDP ratio was fixed at 14.5 percent in the Seventh Five Year Plan. And now just over a year is left for the eighth five year plan to end. But we could not advance at all from the back row.
The condition of Bangladesh may not be deplorable. But there is no doubt that revenue collection will have to increase to meet the pressure of our multi-faceted lending institutions. There is also no substitute for development financing. In the way of collecting revenue locally, the novelty of the experience of other countries should be brought.
In order to increase tax collection, major changes should be made in tax management. In this regard, the International Monetary Fund has also given various instructions. Tax administration needs to be overhauled. It should be taken near the affluent areas. Digital system should be introduced for tax collection. Strong steps are also required to reduce corruption in this sector.
Continuing to collect taxes under the existing British system will not yield tax collection benefits. The RIRA (Reforming International Revenue Administration) and TAXES (Tax Administration Capacity Building and Tax Professionals Services) projects undertaken so far have worked well.
Development partners can help in undertaking such more beneficial projects. Various studies have revealed that if the tax increases by 2 percentage points in the GDP ratio of the country, the revenue income will increase by an average of 66 thousand 800 crore rupees.If the government invests this additional revenue in various sectors, it will increase the growth of the country's gross domestic product (GDP) by 0.2 percent.
According to the Household Income Expenditure Survey of 2022, about 41.10 percent of the country's total wealth is in the hands of the rich and a total of 30 percent of the wealth is in the hands of the upper and lower classes. Collecting proper taxes from them will increase the revenue much more than this. Discrimination will also decrease.
In 1990, inequality in the country as a coefficient (method of determining income inequality) was 0.35. It has now come to 0.49. That is, income inequality has increased.The question is whether there is inclusive development. The poverty of the country may have been reduced to a fine bone. But revenue collection has not increased in sync with the pace of economy.
Tax evasion must be curbed if we want to increase the rate of our tax GDP. On the other hand, according to the IMF, hard tax on irrigation water, diesel etc. cannot be increased.But it may be that we have to take into serious consideration the fact that tax-rebate exemptions that have been going on for a long time, even some one-sided and personal requests that are harmful to the economy.
Recently the IMF has set some rules for Bangladesh. The IMF has traditionally had three policies – first, flexible exchange rates, second, flexible and high interest rates, and third, tight monetary policy. It is also alleged that they follow three principles which are almost like revelations.
All three are what Adam Smith described as the invisible hand (the invisible end) - as if it does all the work. But actually there is more to it than that. For the sake of sustainable economic development, the country should go beyond the policy of restraint. That is why the formation of Regulatory Reforms Commission can be considered as in the past.
There is much debate on whether revenue should be raised through direct taxes or indirect taxes. Meanwhile, if the import is controlled, the import duty will also be reduced. It will also reduce our import revenue. Its dawn will fall in industrial production as well. That is, imposing a ban on imports through monetary policy will have an impact on the overall economy.
On the other hand, the most affected by the contractionary monetary policy are the small and medium enterprises. Bankers don't want to lend to them. Or make various excuses for not giving loans. However, it does not affect big businessmen. Big businessmen get loans. Because they may give so-called bail.
But keeping in mind the current context of Bangladesh, we need to focus more on small and medium entrepreneurs. When the demand in the market increases, the supply of currency must decrease.That's why Bangladesh Bank sometimes has a contractionary monetary policy. Bangladesh Bank should pay special attention so that loans reach the hands of small and medium entrepreneurs.
In our country it is not possible to achieve the target of revenue collection in any year. The authorities mentioned five reasons behind this.The reasons are; High targets, systematic incoordination and procrastination in survey activities in tax area expansion, inadequacy of information exchange in inter-tax management, shortage of skilled manpower and lack of necessary facilities including physical infrastructure.
Every year a higher target of revenue collection is given in the budget. But at the end of the year, it is seen that NBR is not able to achieve the target within the stipulated time. The target is then revised and reduced. National Board of Revenue NBR cannot collect that too.
Because, there are various problems including unreasonable targets, revenue evasion, irregularities and corruption of the concerned, shortage of manpower in the revenue board. There is also a lack of accountability. In this context, I think it is necessary to form an independent tax commission.I wrote about this before. But the previous government did not take this into consideration. I hope the current interim government will take the matter seFoundation.
Author: Former Tax Commissioner, Advocate and Founder Chairman National FF Foundation.
