Personal taxes may yield Tk65,000cr more: PRI

Staff Reporter :
If revenue collection from personal income tax increases by two percentage points of GDP, it will result in a 0.5 percentage point increase in real GDP, amounting to Tk65,000 crore.

This was said by Ahsan H Mansur , Executive Director of Policy Research Institute (PRI) at a press briefing organised on the occasion of the release of a study report on Domestic Resource Mobilization at the PRI office in Banani of the capitalon Wednesday.

Mansur also said due to the inflationary effects, increases in VAT revenues would have a negative impact on economic growth, as well as household income and consumption.

VAT reform is still required, but tax increases should focus more on personal income taxes after mentioning taxing remittances would not be a logical step.

Ahsan H Mansur, highlighted, “If tax expenditure can be reduced, it is possible to increase revenue by Tk30,000-Tk40,000 crore immediately.

This should be done in the next budget.”

“There’s a lack of clarity regarding the amount of money worth of facilities being provided through tax exemptions in Bangladesh, who the beneficiaries are, and what their contribution is to the socio-economy,” the economist said.

“To increase the tax-GDP ratio at the desired rate, major reforms in the revenue sector are also required in the next three years,” said Ahsan Mansur.

Zaidi Sattar, chairman, PRI; Mohammad A Razzaque, research director, PRI; and Ashikur Rahman, senior economist, PRI also spoke at the event.

Bazlul Haque Khondker, director, PRI, gave the keynote presentation titled “Economic Impacts of Fiscal Policy Change: Effects of increased tax revenues in Bangladesh on GDP Growth, Consumption, Household Income and Inequality.”

Also speaking on the occasion, PRI Research Director Dr MA Razzaque suggested that collecting tax at a higher rate from those who have more money.

Bangladesh has one of the lowest levels of tax revenue in the world as a percentage of GDP.

This poses a risk to the country, both in terms of stabilizing the economy in the short term and maintaining a positive track toward development in the medium term as Bangladesh seeks to become a developed nation by 2041, he said.

At 7.6 percent of GDP, Bangladesh’s tax revenues as a proportion of GDP are currently half that of similar countries like Vietnam.

The major findings of the study including The 2 percentage point rise in overall tax revenue would lead to a 0.2 percentage point increase in real GDP growth, assuming additional revenues were invested in public services.

An increase in overall tax revenues, to fund increased spending, would also contribute to reduced poverty and inequality. The poorest 40 per cent of households would experience the highest gains.

The study report further said a 2 percentage point increase in corporate tax revenue of GDP could raise inflation by 1.15 per cent and reduce real growth by 0.44percent.

As a result, the agriculture and service sectors will benefit, but it might have a major negative impact on the manufacturing sector.