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The government plans to merge development and revenue budgets, amend income tax laws and establish a procurement authority in the next three years as part of a set of reforms aimed at boosting revenue collection and ensuring transparency in expenditure.
Revenue generation in Bangladesh is one of the lowest in the world because of tax avoidance, a long list of exemptions, lower taxpayer base, and weak enforcement, while public expenditures face leakages and are not efficient.
The reform initiatives are in keeping with the conditions set by the global development partners before they had provided budgetary support to the government to help the country recover from shocks triggered by the coronavirus pandemic.
“We have submitted an implementation plans on reforms with a specific timeline to the development partners,” a finance ministry official told The Daily Star, adding that the minister himself had written to a development partner outlining the government’s plans.
“Some of the reforms will be put in place through statutory regulatory orders before next budget,” said the official.
By July 1 next year, the National Board of the Revenue will implement online payment for income tax exceeding Tk 20 lakh and roll out a piloting of online return filing for the taxpayers with incomes exceeding Tk 70 lakh, according to the document related to the plans.
The government is also set to undertake an initiative to make the return submission mandatory for any individual who has spent more than Tk 4 lakh for travels abroad in the previous income year.
The steps will aim at improving tax collection efficiency and tax assessment and avoiding fraudulent transactions.
Other steps include online payment of VAT amount surpassing Tk 1 crore with effect from January 1 next year, introducing an electronic contract management system of e-GP (electronic government procurement), and initiating and scaling up citizen monitoring of contract implementation by June 30, 2022.
And by December 31 next year, it will integrate e-GP with iBAS++, an integrated budget management system.
In order to implement the reforms, the government will amend the Income Tax Ordinance, 1984, secure approvals from the cabinet, bring in policy changes, and issue orders.
“These reforms will further expand the fiscal space through accelerating revenue mobilisation, enhancing expenditure control measures, and strengthening the environment for continued steady flows of credit to CMSMEs,” said Finance Minister AHM Mustafa Kamal, in a letter to the president of the Asian Development Bank (ADB).
The Manila-based lender has already approved $250 million and the Asian Infrastructure Investment Bank sanctioned $250 million as budget support for the current fiscal year.
The Export-Import Bank of Korea will lend $100 million and the OPEC Fund for International Development will provide $100 million.
The government is also prioritising securing external funds on concessional terms to meet its near-term financing needs.
As part of the reforms, the government will secure the cabinet approval for the Bangladesh Public Procurement Authority Bill by December 31, 2022 for the setting up of a public procurement authority to streamline public procurement, strengthen professionalism in purchase, and enhance efficiency, said the document.
It will establish direct linkages between procurement value, budget and actual expenditure, facilitate real time capturing of procurement budget utilisation, procurement commitment and expenditure data, and monitor and track payments, avoid cost escalations, and monitor contract performance efficiently.
Riding on the set of reforms, the government wants to lift revenue to GDP ratio to at least 10.4 by December 2024, up from 9.7 per cent from the baseline fiscal year of 2020.
The tax-to-GDP ratio will also be increased to 8.8 per cent, up from 8.1 per cent. The capital expenditure to GDP ratio will be raised to 6.3 per cent, up from 5.6 per cent in FY20.
The government also looks to limit the budget deficit at a tolerable level.
The fiscal deficit is estimated at $23.9 billion for FY2022 and $26.5 billion for FY2023. The projected external borrowing is $8.8 billion in FY2022 and $11.7 billion in FY2023.
At least 20,000 electronic fiscal devices will be installed and commissioned for automated VAT invoice generation by 2024.
The government plans to withdraw selected income tax exemptions in the next fiscal year in a bid to reduce unproductive immunity.
From FY24 onwards, it will issue a unified budget circular merging development and revenue expenditures to improve expense management.
The separation of the annual development programme budget and the revenue budget leads to weak control over the sizable project recurrent costs. This often results in fund shortages for well-performing projects but unspent funds for non-performing projects.
(TDS)
