Priotise reducing fiscal deficit

Dr. S M Jahangir Alam :

In the first two months of the current financial year, July and August, the revenue deficit stood at Tk 4,870 crore.

The target of revenue collection in these two months was Tk 50 thousand 321 crore, against which Tk 46 thousand 233 crore was collected.

This income is 14.74 percent higher than the same period of last financial year.

In the same period of the fiscal year 2022-23, the amount of revenue collection was 40 thousand 293 crores.

In the last financial year, the National Board of Revenue (NBR) had a shortfall of Tk 44,727 crore.

The target of revenue collection in the financial year 2022-23 was Tk 3 lakh 70 thousand crores.

Against this, the revenue collected is 3 lakh 25 thousand 272.37 crores.

If this deficit increases, it becomes a serious challenge for the government in managing the overall economy, because in the first seven months of the current financial year, the bank loan taken by the government has increased four times compared to the same period of the previous financial year.

Besides, if the expected pace of revenue collection does not materialize – it will not be possible for Bangladesh to increase its tax-GDP ratio (revenue contribution to GDP) in terms of receiving the next tranche of the International Monetary Fund (IMF) loan of $4.7 billion. In the current financial year, looking at the growth in revenue collection, it seems that there may be a shortfall of about 40 thousand crore taka at the end of the year compared to the target.

With the current tax structure, it will not be possible for the NBR to raise the tax-to-DGP ratio to 0.5 per cent as per the IMF’s terms.

Some reforms may take three to four years to bear fruit. Although revenue collection has been on the decline in the last few months, the overall growth in March was close to 9 percent. But, a review of last year’s revenue collection statistics of NBR shows that this growth was almost double the current one during the same period last year.

Mainly, the sector concerned blames several initiatives of the government to control imports and lack of expected pace in the local economy as the main reason behind the decrease in revenue collection.

About 90 percent of the import duty collected by NBR comes through the Chittagong Customs House, 55,800 crores to 2,92,000 crores of revenue is evaded and tax evaded every year.

This amount is eight times greater the allocation for social security programmes in the budget and 200 times the allocation for the health sector.

Basically due to the lack of coordination of the financial sector, the corporate organizations are avoiding tax by using loopholes in the law.

Besides, the government is losing a large amount of revenue due to insufficient initiatives to institutionalize the informal sector.

Tax opacity can be divided into two categories.

Firstly, tax evasion and secondly, tax avoidance.

Corporate entities evade taxes by understating real income.

On the other hand, less tax is avoided within the legal framework.

Bangladesh ranks 52nd among 141 countries in terms of tax evasion and tax avoidance.

5-25 percent of total GDP is tax evaded.

And 15-80 percent tax is evaded.

The amount of which is 55 thousand 800 crores to 2 lakh 92 thousand crores.

If this money can be collected, it is possible to increase the per capita expenditure in the health sector from 1 thousand 862 to 6 thousand 844 and in the education sector from 4 thousand 656 to 9 thousand 638.

Corporate tax rates are being cut worldwide.

But unfortunately it is increasing in Bangladesh.

Higher tax rates are expected to increase revenue collection.

But the opposite is happening.

This can be understood by looking at the tax-GDP ratio.

Bangladesh has a lower tax-GDP ratio than any other country in South Asia except Afghanistan.

Again, even if the rate is reduced, the collection cannot be guaranteed to increase.

Another problem is the multi-tiered corporate tax rate.

Due to this, there is a tendency of evasion in many organizations.

The size of the informal economy or the shadow economy is increasing, it is said that 30 percent of the economy of Bangladesh is the informal sector.

Since this sector is out of the scope of tax, the revenue cannot be increased.

If the informal sector is institutionalized, revenue of 84 thousand crore rupees can be collected.

Although the informal sector contributes 52.4 percent to the economy of neighboring India, the tax-GDP ratio in that country is more than 18 percent.

In this case, Brazil can be an example.

Although 33 percent of the economy is in the informal sector, the tax-GDP ratio is more than 32 percent.

That is possible due to strong tax administration and robust financial reporting.

The main article states that 68 percent of taxable persons do not pay tax, noting that it is possible to increase revenue collection by increasing tax collection.

Out of the 250,000 companies registered with the Directorate of Joint Venture Companies and Firms (RJSC), 30,000 companies have submitted their returns.

That is, only one company out of five companies submits returns.

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 lack of coordination and procrastination in survey activities in case of extension of tax range, inadequacy of information exchange in inter-tax management, shortage of skilled manpower and lack of necessary facilities including physical infrastructure.

Each year a high level 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.

The National Board of Revenue (NBR) cannot collect that either.

The Inland Revenue Department (IRD) of the Finance Ministry has termed this high revenue collection target as a problem.

Revenue deficit is a minor issue in our country.

Due to weak revenue collection system, reluctance to pay revenue or tax, corruption-irregularity of the stakeholders, shortage of manpower of the revenue board, the revenue shortfall continues.

But the question is that the government will borrow? So the issue of revenue deficit should be considered now.

 

The writer, a Bir Muktijoddha, is former Tax Commissioner and Director, Bangladesh Satellite Co. Ltd.