Bangladesh is reported to have one of the lowest revenue to GDP ratios, not only in the region but also globally. Although very meagre, over the years, we have been able to raise the number of registered tax-payers, but the actual tax payment vis-à-vis inflation and devaluation of the Taka, didn’t go up much. Bangladesh’s revenue architecture still relies disproportionately on indirect taxes or customs and value added taxes, thus we are unable to ensure distributive justice at the minimum level.
Although we were able to increase our absolute revenue numbers marginally due to depreciation of the Taka against foreign currency -- as well as a rise in import of essentials at a higher rate -- we were hardly able to meet our budgeted revenue target as approved by law-makers. Our budget deficit also remained to be known as a clerical exercise. Almost the entire revenue earnings were spent for carrying the operating costs of the ever-increasing size of the government.
As in the past, including the last fiscal year, the National Board of Revenue (NBR) failed to meet its revenue earnings target even after its revision. In fact, this has been the scenario for the last 12 years. Many times, in the earlier pre-budget discussions, we had raised for the NBR to go for an overhaul in the way they impose and collect taxes.
Now we are reviewing the entire architecture: How the government and its day-to-day activities were being run after the win of our courageous students in the anti-discriminatory movement, calling for a more equitable distribution of wealth and better public financial management. The media reported a shortfall of close to Tk28,000 crore in our tax collection in the last fiscal year, despite downward revision by Tk20,00cr.
On the upside, our revenue collection did grow by 15% which may be due to the depreciation of the Taka against major traded currencies, and an increase in price of major essential commodities including industrial raw materials. In the fiscal year 2023, it was 10% growth over the previous year.
Development partners and stakeholders such as IMF and World Bank have suggested deep-dive reforms in the tax administration encompassing strengthening the tax administration, automation, review of the archaic tax laws, and making the entire revenue collection more inclusive with a renewed focus on wealth creation in the country.
The tax-to-GDP ratio in Bangladesh is among the lowest in the world, reaching below 8% percent in FY23. Due to lower revenue collection, the government has been seriously struggling to finance its planned growth agenda where most of the foreign aid comes with stringent conditions.
This is going to be drier in the coming days, as Bangladesh graduates into developing country status, warranting for us to stand up on our own feet with more money mobilized locally. As we know, any desired progress in this regard has been constrained by corruption and inefficiencies in the tax administration.
Recent reports about Matiur Rahman, former head of the NBR's Customs, Excise, and VAT Appellate Tribunal, is only the surface; without going deeper into the issue, many are firm in their conviction that there are many “Matiurs” hiding -- who treat personal gains with more weight than meeting the country’s earnings target.
World Bank, IMF, DFID, and many are of the opinion that this trend cannot be reversed without good governance and accountability. Maybe innovation backed by technology too. If the government really wants to enhance its revenue collection capacity, it should also ensure full automation of the NBR's services.
Additionally, tax evasion, particularly by vested interest groups (including many business leaders) closely connected with the ruling regime, must be stopped. Weak and not-so-planned attempts such as trying to boost revenue by allowing “whitening” of black money also warrants a reconsideration.
No doubt, the government has to address the overall capacity issue in the revenue administration to increase its bandwidth to intervene during such a critical time. Otherwise, the country will continue to face crippling economic problems and limitations going forward. It also has to do a better job of setting realistic revenue collection goals, and plan its expenses accordingly. Analysts have repeatedly pointed out, over the past 10 to 15 years, the government had been setting ambitious revenue collection targets that had little to no basis. Repeated failure to meet the revenue collection target has dented the credibility of our fiscal framework.
At the same time, we should widen our pre-budget studies and background research and be inclusive, with a continuous eye on what other similar countries are doing to increase their revenue earnings. Better usage of technology such as MIS and artificial intelligence can play a big role here.
My personal hindsight of the RIRA (Reforming Internal Revenue Administration) and TACTS (Tax Administration’s Capacity Building and Tax-payers' Services) projects funded by the World Bank and DFID reveals that our revenue administrators are too busy in running their day-to-day work and file disposals, and don’t take the time to look at emerging revenue earning potentials through deep-dive sectoral studies and find new islands of wealth concentration in order to consider tax imposition.
Our revenue administrators -- even if the income tax or VAT intelligence cells detect large evasion -- can’t do much due to pressure from above. Hence earning optimum revenue by the national exchequer is also subject to independence of the regulatory body, political governance, and accountability. It goes beyond talking about the right person in the right job.
Mamun Rashid is the founder managing partner of PwC Bangladesh and Chairman at Financial Excellence Ltd.