A modern tax system can generate more resources
Ahead of the 2022-23 budget, the National Board of Revenue (NBR) has entered into discussions with various business and trade organizations, as in previous years. The Ministry of Finance does the same. The objective of the BNR is mainly to seek tax proposals from stakeholders. This is a commendable practice, which gives companies and organizations the opportunity to suggest not only how various sectors can get a break from the tax burden, but also how to improve revenue mobilization by improving the collection system. It is widely discussed that despite Bangladesh’s impressive growth, domestic resource mobilization is too low. Unfortunately, the NBR has not yet succeeded in bringing all eligible employees under the tax net. It is hoped that through these regular consultations between BNR and stakeholders, a better tax system will emerge in the near future.
The NBR plays the most important role in creating fiscal space for the government to undertake its activities. However, the goal imposed on it has not been achieved in recent years. Indeed, the objectives seem unrealistic and exceed the capacities of the BNR given its current institutional framework. It may be recalled that, in the budget for the fiscal year 2021-22, tax revenue – which includes both tax and non-tax revenue – was set at 11.3% of GDP. Of the total revenue target, tax mobilization is the highest at around 85%. In addition, for FY22, the revenue growth target was set at 27%. But the revenue growth trend in July-October FY22 indicates that achieving this goal will require more aggressive efforts, as revenue mobilization is expected to increase by 30.7% over the remainder of the fiscal year.
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Although several infrastructure projects are financed by foreign loans, the mobilization of domestic resources is crucial to achieve the short, medium and long term objectives of the government. With domestic resources, the government can prioritize its spending in line with political priorities. But the continued lack of national resources creates a real challenge for the government in delivering on these promises. At the current level of domestic resource mobilization, the implementation of its political commitments is difficult.
As Bangladesh is poised to become a developing country by 2026, greater mobilization of domestic resources will become even more important. As a developing country, we will not be eligible for foreign aid and concessional loans. Of course, the image of the country will be enhanced and the strength of our economy will help us to supply ourselves on the world market. But it can be expensive because we have to pay market interest rates to get such loans. This could increase the country’s debt burden. As the size of the economy increases, the need for additional financing will continue to increase. With the current tax collection effort, it is not possible to meet resource requirements.
It was reported in the FY22 budget speech that the number of taxpayers in Bangladesh was only 2.5 million. In a country of over 165 million people, that number is surprisingly low. There are many reasons for tax evasion. Some people feel that once they have a tax identification number (TIN), they are stuck forever and have to pay taxes even if their income is below the threshold. Some feel that it is pointless to pay taxes since they are not receiving the service expected of the government as citizens. Some think that since they have to pay bribes at government levels to do their jobs, they shouldn’t have to pay extra money in the form of taxes. So while there is a lack of awareness regarding the responsibility to pay taxes as a citizen of the country, there is also a strong argument for not doing so. It is therefore incumbent on the government to eliminate these perceptions by providing hassle-free services to citizens. Policy makers will also need to ensure that taxpayers’ money is not wasted in the name of development or siphoned off through corruption. Good governance in the implementation of development projects and economic and social programs is therefore essential to mobilize more domestic resources.
As for the BNR, a number of specific measures should be taken to increase revenue mobilization. One is the implementation of electronic governance. Technology can help establish a simple procedure for tax collection and increased compliance as well. It can also be used to track people’s lifestyle to determine their tax rates. Often, there is a mismatch between people’s reported incomes and their spending habits. This is known to the NBR. With a modern system, more human resources and higher skills, the efficiency of NBR can be improved in this regard.
A number of reform measures proposed a few years ago have yet to be completed. Among the measures proposed are the upgrading of the automated customs data system (ASYCUDA), the consolidation and integration of the integrated budget and accounting system (iBAS++), the electronic filing of declarations, the electronic withholding tax (e- TDS), automated customs risk management, and the introduction of an authorized economic operator system. These measures could contribute to bring a lot of efficiency in tax management. Given that the BNR is formulating revenue measures for various sectors in the national budget for the financial year 2022-23, the operationalization of reform measures, some of which are already on the table, should not be ruled out.
Dr Fahmida Khatun is executive director of the Center for Policy Dialogue (CPD). The opinions expressed in this article are those of the author.