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Economists on Monday said that institutional failure on the part of the National Board of Revenue had been affecting domestic resource mobilisation negatively over the years, which, in turn, resulted in an increase in the government debts.
Due to a lack of resource mobilisation, Bangladesh’s current tax-GDP ratio remains far below the optimum level causing poor public spending in health, education and social safety net, they said.
At a discussion organised by the Policy Research Institute of Bangladesh in the capital Dhaka, the economists said that only tax policy reforms could increase the tax-gross domestic product ratio, but there were resistances in the NBR against required reforms.
‘Bangladesh’s tax-GDP ratio has decreased to 8 per cent from 11-12 per cent in the past few years due to the absence of policy reforms, but tax officials would not allow any changes in the existing system as the current policy has created a comfort zone for them,’ PRI executive director Ahsan H Mansur said.
He said that Bangladesh’s tax administration remained the same as it was in the colonial era and no fundamental changes had taken place in the tax laws except the value-added tax act framed in 2012.
‘Now a days, there is no existence of face-to-face communications between taxpayers and tax officials in any country in the world except Bangladesh,’ Mansur said.
He said that face-to-face communications hampered neutrality and objectivity of tax officials and revenue collection was compromised.
‘Institutional failure on the part of the NBR has been affecting domestic resource mobilisation negatively over the years and the government spending in some areas, including health, education and social safety net remains poor compared with that in the other developing nations in the world,’ PRI research director MA Razzaque said.
He said that resource mobilisation was crucial for Bangladesh to ensure comfortable fiscal space and microeconomic stability.
Razzaque said that the public expenditure even in lower middle-income countries was more than 24 per cent of GDP while it was only 13 per cent in Bangladesh due to a shortage of resources.
As per the United Nations Educational, Scientific and Cultural Organisation standards, public spending on education should be at least 4 per cent of GDP, whereas Bangladesh’s allocation is only 2 per cent, he said.
Referring to the World Health Organisation standards, Razzaque said that public spending on health should be 5 per cent of GDP and in Bangladesh it was just 0.81 per cent of GDP in the financial year 2021-22.
‘The government was failing to ensure required allocation in the sectors from which poor people can be benefited due to lack of reform initiatives to increase tax efforts. At the same time, the people, who have gained benefits from the existing tax policy, are not paying taxes properly,’ he said.
Razzaque recommended that the NBR should provide easy and seamless services to the taxpayers through digitalisation and automation of income tax, VAT and customs duties for ensuring domestic resource mobilisation.
Local resource mobilisation is a must as the cost of debt servicing for Bangladesh is on the rise, he said.
‘External debts, although still sustainable, is growing fast — from less than $40 billion in FY15 to about $96 billion in FY22,’ he said.
Interest payments on domestic debts are currently about as high as 20 per cent of all government revenue and 14 per cent of total public spending, Razzaque added.
PRI director Bazlul Haque Khondker said that if the tax revenue could be increased to 13.5 per cent of GDP, the real GDP would increase by 3.3 per cent and the headcount poverty would fall by 2.2 percentage points.
‘The changes in tax structure in favour of the direct tax along with expenditures of additional revenue may likely result in additional 3.3 percentage points to the GDP growth rate,’ he said.
Bazlul Haque identified low tax efforts as a key impediment to adequate expenditure on the social sector as well as infrastructure in Bangladesh.
He said that an adequate revenue increase generally supported public expenditure in important areas such as education, health, social protection and infrastructure.
PRI chairman Zaidi Sattar said that Bangladesh should go for reducing trade tax as revenue dynamism was not possible with the trade tax.
He observed that customs administration and tax administration are not the same, rather the custom administration would promote business.
Zaidi said that the existing tax policy was hindering the potential of Bangladesh to become a trading nation.
(NA)
