Political economy factors weaken tax efforts, promote inequality

Al Amin :
Political economy factors largely changes in economic policies on political consideration are undermining tax efforts as well as increasing inequality in the society, economists said.
Recommending for reforming direct taxation to tackle rapidly rising inequality along with strengthening domestic resource mobilization efforts, they said people are not being benefited from the progressive economic growth of the county due to the indiscrimination in policy making.
According to survey report prepared by the Research and Policy Integration for Development (RAPID), Bangladesh, some 926 Statutory Regulatory Orders (SROs) were introduced between fiscal years 2015 and 2019, each aiming at providing a special benefit to a target group.
It also said that giving very and unrealistic revenue targets can encourage the National Board of Revenue (NBR) to take a protective stance on trade taxes.
Syed Aminul Karim, former Member (Tax) of the NBR, told The New Nation on Sunday, “The government has to bring a balance through placing budget every year as its (Budget) definition is a compromise of conflicting interests.”
“Different interest groups create pressure on government to continue their interests and most of the cases the influential groups are privileged through the policy making. Thus the way, the inequality is increasing day by day,” he said.
“The government should avoid issuance of SROs after budget, although it is tough task,” he added.
The RAPID’s report recommended that the objective of any taxation reform should not be only about raising revenue but also to deal with this growing inequality as much as possible.
It said given the robust economic growth, there is scope for generating more revenue through direct tax, reforming the taxation system and tax institutional capacity building should constitute major priorities, broadening the tax net and sources are critical.
Low personal income tax base and high tax evasion are the results of multiple factors including legal tax exemption and loopholes, political economy factors, complexities of tax assessment and collection, inefficient tax audits, presence of a large informal economy and
underreporting income among the taxpayers though informal arrangement involving a section of income tax practitioners (ITP) and tax collectors.
Besides, lack of automation, improper and irregular security, and corrupt practices undermine the tax efforts, the report said.
Dr M A Razzaque, Research Director of the Policy Research Institute (PRI), said despite significant growth in the per capita income, the overall tax effort in the country has remained quite low and much smaller than that of many other competing countries.
“While the low tax-GDP ratio can stimulate growth, giving higher spending capacity to the people as well as to business enterprises, rising income inequality in the country has become a major concern,” he said.
The income share of the richest 5 per cent of the population increased from around 17 per cent in the 1990s to 30 per cent in 2016, while the share for the bottom 5 per cent declined from an already paltry 1.03 per cent to just 0.23 per cent during the time, according to BBS data.
The BBS, however, have not published any data in this regard after 2016.
The ratio is increasing alarmingly in the recent years, especially in the Covid-19 pandemic period.