Govt’s failure to tax many rich raises burden on the poor

Economists are concerned about the government’s overreliance on indirect taxes due to lower-than-expected direct tax incomes, burdening low and fixed-income groups.

The failure to expand the tax net has led to a decline in the tax-GDP ratio, while increased borrowing has elevated the debt-tax ratio.

Maintaining prudent levels for both tax-GDP and debt-tax ratios is crucial to prevent imbalances.

In 2022, Bangladesh’s tax-to-GDP ratio dropped to 7.9 per cent, down from 9.6 per cent in 2015, hindering revenue growth compared to the GDP increase of over 6 per cent on average in the past decade.

Criticism has been directed at Bangladesh for having one of the world’s lowest tax-to-GDP ratios. Despite a stable overall debt-to-GDP ratio of around 36 per cent, the tax-to-debt ratio has surged to 350 per cent.

The growing tax-to-debt ratio against the falling tax-to-GDP ratio means the government will face challenges in meeting the debt obligation amid shrinking revenue incomes.

The National Board of Revenue is responsible for generating more than 80 per cent of the government’s annual income.

A sudden drop in revenue generation since 2019 due to a drastic cut in income tax rates is among the reasons for Sri Lanka’s economic collapse.

Economists said that the situation in Bangladesh was not as grave as that in Sri Lanka, but the current economic downturn because of dollar shortages exposed the country’s vulnerability on the economic front.

The government has agreed to make reforms under a $4.7 billion loan programme from the International Monetary Fund to tackle the economic downturn.

Increasing the tax-to-GDP ratio in FY24 by an extra 0.5 percentage point in the current FY24 is one of the major conditions for the IMF loan programme.

Lack of automation as well as political will over the years and corruption in the NBR have been blamed for the poor revenue generation from direct revenue, also known as progressive taxes, compared to rigorous taxes generated from value-added Tax and duties.