Govt must focus more on internal resources, direct taxes

Published: 00:00, Apr 05,2021


THE gross domestic product has significantly increased in 50 years since independence, but tax collection has not been able to keep pace with the growing gross domestic product. The situation has left Bangladesh’s tax-to-GDP ratio, which has hovered over 9 per cent for some years, as one of the lowest in the world and, definitely, the lowest in South Asia. The world’s average tax-to-GDP ratio, as the latest World Bank data show, was 15.34 per cent and the South Asian average was 12.1 per cent in 2019. Experts believe that Bangladesh’s tax revenue collection should range between 14 per cent and 18 per cent of the gross domestic product in order for the government to finance its development needs. Tax collection lower than the potential creates finance constraints and forces the government to limit investments in infrastructure, health care, education and social protection. This may also make it impossible for the government to realise its development aspirations, including the Sustainable Development Goads by 2030, and to become a developed country by 2041 if the current tax-to-GDP ratio continues. Official data show that the tax-to-GDP ratio crossed 6 per cent in the 1976 financial year, declined below 5 per cent in 1980, went above 6 per cent in 1992, because of introduction of value-added tax, crossed 8 per cent in 2003 and reached 9 per cent in 2011 and has remained almost static since then.

The tax-GDP gap, the difference between actual collection and the potential, is also very high in Bangladesh, at 7.5 per cent, the highest among the 17 Asia-Pacific countries, as a 2018 United Nations Economic and Council Commission report shows. Experts believe that Tk 2,100 billion could be earned in revenue if the gap can be narrowed. Only 2.4 million people, out of about 5 million having tax identification numbers, file tax returns and this comes down to slightly more than 1 per cent of the people paying income taxes. Experts blame such a deplorable tax collection situation on low tax compliance, narrow tax base, high tax exemption, inefficient tax administration and the absence of reforms, automation and the political will. This is also reflective of an imbalanced tilt towards indirect tax, such as value-added tax which is regressive in nature, while the focus should be on direct taxes. This is more so because internal resource mobilisation could be a problem for the government after Bangladesh, in effect, graduates to the rank of a developing country in 2026 when various global trade facilitations, especially under the World Trade Organisation, will stop the government from putting more focus on indirect taxes. There is another issue for the government to look into. It is obviously the untaxed money that goes into illicit capital flow. It is, therefore, time that the government attended to all tax issues with the required political will.

Many believe that the tax policy formulation and enforcement, both now done by the National Board of Revenue, should be separate to stop conflict of interests. The government must, therefore, draw up a comprehensive plan to increase the tax-to-GDP ratio to improve internal resource mobilisation and cope with funds constraints and better face the time in store after its LDC graduation.

More about:

Want stories like this in your inbox?

Sign up to exclusive daily email