Increase tax net, not tax rates

THE country is likely to get a Tk 300,000 crore budget for the fiscal 2015-16, up about 20 percent from the current year, to meet the rising expenditure of the government, as the Finance Minister said on Tuesday. While the government and economists repeatedly said that the last year’s political violence, centering around national elections, severely bled the economy with narrowed export-import volume and collapsed supply chain, it is unclear to many why the government wishes to put extra tax burdens on citizens. Usually, budget expenditure falls behind the revenue collection from VAT, levy, income tax and other forms of taxes, but when ordinary people are unable to meet their fundamental needs, how can they feed the omnivorous government. From any budget, business people want their interest, ordinary people seek a good life with availability of basic amenities, and government employees seek a handsome salary “with corruption opportunities”. Experts do not deny the suitability of the lusty size of the budget, but is the budget compatible with the economic and political reality of the country?
According to reports published in all news outlets, the minister, whose government raised the tax-GDP ratio to 11 percent in the last six years from 8 percent in 2008, said it is disgraceful that only 10 lakh people, out of about 20 lakh registered, pay taxes in a country of 16 crore people. He said that the government will raise the tax-GDP ratio again by three to four percentage points to about 14 percent in the next four years, which may worry many taxpayers. He mentioned that the government will also start the process of implementing the new VAT law from this fiscal year which could probably raise the rate and extend the tax-net area. Voicing concerns, business people demanded a pro-industry and pro-investment budget. They asked the government to take projects aiming at developing physical infrastructure, ICT and women entrepreneurs under the annual development programme. Besides, the quality of spending and work has to be improved for all projects, including the big ones.
The apex body of business people, FBCCI, called for expanding the tax net instead of increasing existing tax rates, increasing the tax-free income level to Tk 2.75 lakh a year from Tk 2.2 lakh now and reducing corporate tax as it high in the country, with an extension of the income tax exemption facility until 2019 for sectors that are already enjoying the incentive. Many wealthy people exist, even in villages, who lead lavish lifestyles but don’t pay taxes, and therefore should be brought under the net. The government can increase revenue collection by restructuring the tax administration, using modern technology and eradicating corruption by ensuring accountability.
It is the government’s duty to look for internal resource mobilisation as foreign aid from developed countries is increasingly drying up. To become self independent, there is no way to increase the volume of tax but where does the tax money go to? A portion is usually misappropriated by inappropriate and inefficient spending by bureaucrats and politicians that needs to be addressed immediately by creating a financial ombudsman. If accountability is ensured, all the government expenditure is possible with its present budget size. The need is for ensuring accountability in all levels rather than imposing burdensome new taxes upon ordinary citizens.