Revenue collection did not stutter badly last fiscal year as feared

The two-and-half-month-long countrywide general shutdown was supposed to cause a massive dent to the state’s coffer as the economic locomotive was effectively chained to its track in the station.

Turns out, the damage was not sweeping: revenue collection in the just-concluded fiscal year dropped 2.26 per cent.

Although this is first-ever negative growth in Bangladesh’s history, when viewed against the backdrop of the pandemic, which had put the economy in a state of induced coma for essentially a quarter, the figure seems rather remarkable.

In fiscal 2019-20, the National Board of Revenue (NBR) managed to earn Tk 218,406 crore, according to its provisional estimates.

The amount fell short of the target by 27.3 per cent, making it the ninth consecutive year that the NBR missed both actual and revised collection goals set by the government to finance its overall fiscal plans.

Bangladesh recorded 13.2 per cent revenue growth in the last five years.

Value-added tax (VAT), the biggest source of revenue for the state coffer, dipped 2.67 per cent to Tk 87,180 crore.

Customs duty fell about 4.5 per cent to Tk 63,382 crore in fiscal 2019-20 on the back of a crash in imports.

Receipts from income tax were the only positive thing in the last fiscal year: it was up 0.14 per cent at Tk 73,004 crore.

The NBR missed the import duty target by 28.95 per cent, VAT by 21.87 per cent and income and travel taxes by 31.57 per cent from the revised collection goal.

“The economic downturn caused by the pandemic was the main but not the only reason,” Zahid Hussain, a former lead economist of the World Bank office in Dhaka.

The pandemic caused income losses for the poor, the middle-class and the rich alike.

The poor and the low-income groups had to adjust their expenditures because they have little savings to draw from.

Even those whose income was not hit cut back on expenditures because they restricted themselves to staying at home.

Overall, private consumption expenditure was hit badly leading to the fall in VAT collection.

The functioning of the NBR was also disrupted during a period when tax collection usually reaches its peak in any fiscal year — the last quarter, according to the economist.

However, revenue collection was weak even before the pandemic arrived on the shores of Bangladesh.

Economic growth was slowing because of weak investments and exports before the pandemic.

The new VAT law created a lot of confusion and the amendments made closed most of the revenue increasing features of the law, which was passed in 2012.

“Progress on automation of tax administration stalled from the very beginning of fiscal 2019-20. None of these helped revenue mobilisation,” Hussain said.

Bangladesh has one of the lowest tax-GDP ratios in the world.

The outlook for the current fiscal year is not that bright.

“A large revenue shortfall relative to the budget target is almost inevitable. Much will depend on the pace of economic recovery, which, in turn, will depend on the trajectory of the virus,” Hussain said.

While presenting the budget on June 11, Finance Minister AHM Mustafa Kamal talked about reforms in tax revenue management.

“We have begun implementing the reforms from this year. However, I could not finish them successfully due to the outbreak of coronavirus in the second half of the fiscal year. I would like to continue all these reforms in the coming fiscal year.”

The government has given the NBR, which brings about 85 per cent of the revenue for the country, the target to generate Tk 330,000 crore this fiscal year.