Country’s tax-GDP ratio is significantly low due to illicit transfer of money
Amounts equal to over a third of Bangladesh’s total tax revenue illegally flowed out of the country in 2015, according to Unctad (United Nations Conference on Trade and Development) report launched in the city on Wednesday.
Illicit financial flows (IFF) from Bangladesh was 36% of its total tax revenue in 2015, says the Unctad’s LDC (Least Developed Countries) Report 2019.
The report used data of 2015 as the latest available estimation on illicit money transfer from the country to different safe haven destinations.
IFF is illegal movements of money or capital from one country to another. Under the Sustainable Development Goals target number 16, countries are pledge-bound to significantly reduce IFF.
The report, released in Bangladesh by the Centre for Policy Dialogue (CPD), also says Bangladesh is one of the major victims of high incidence of tax avoidance and illicit financial outflows by multinational enterprises.
The launch event was held at the Economic Reporters’ Forum (ERF) auditorium in Dhaka.
Quoting the report, CPD’s Senior Research Fellow Towfiqul Islam Khan said: “Illicit financial flow from Bangladesh in 2015 was 36% of total tax revenue, which is equal to the average for all LDCs.”
"Bangladesh is among the seven LDCs having relatively lower tax efforts with a score of 0.68, ranking 27th among 29 LDCs," says the report.
"Bangladesh has been listed among the LDCs which are facing an alarming increase in both domestic and external public debt for the last five years,” it adds.
According to the National Board of Revenue, the total tax mobilized in fiscal 2018 was Tk2.06 trillion. In fiscal 2019, NBR has so far collected a total of Tk2.22 trillion in taxes.
“Bangladesh’s tax-GDP ratio is significantly lower than the LDC average and it is due to illicit transfer of money from the country,” Khan added.
The report says the incidences of tax avoidance and illicit financial outflows are largely contributing to the shortfall in domestic resource mobilization for implementing development action programs while it is also disrupting economic growth.
As a result, the report says, the government has to move towards more and more financial assistance from foreign sources, the majority of which are loans while a small portion of them are grants.
Replying to questions, CPD’s Distinguished Fellow and Trustee Board Member Debapriya Bhattacharya said that Bangladesh’s dependence on foreign financing increased significantly in the last two to three years.
He suggested that the government move cautiously towards obtaining foreign loans to implement development programs due to resource gap.
He said Bangladesh would graduate in 2024 as it pre-qualifies in all three key-indicators primarily, which meant the country achieved capacity to pay high returns on foreign loans.
“So, foreign lenders would consider Bangladesh a lucrative destination for investment. And the fear is here. We have seen many countries recently burdened with higher outstanding foreign loans and their abrupt consequences. What I want to warn about foremost is that we need a policy stance about receiving foreign loans to avoid such a burden,” he said.
He said that the more sustainable way was to increase tax revenue to implement development initiatives every year.
He said the graduation would deprive the country of low-cost financing from foreign sources, curtail export privileges and snap entitlement to be beneficiary of global climate funds.
He said the country now needed a policy stance with regard to the necessity of foreign financing, its rationale, payback methods and duration.
He said the country must enhance diplomatic efforts to obtain her share in global climate funds and find new opportunities for export.
He said the next (fifth) conference of the LDCs was scheduled to be held in Doha (Qatar) in 2021 and the LDC nations expect a leadership role of Bangladesh to give voice to their rights.
“The LDC governments should take a more proactive role in managing the allocation of external development finance in alignment with national development priorities. On the other hand, the international community needs to step up their related support towards their common goal/s,” he said.
The LDC Report 2019 says Bangladesh ranks 27th among 29 LDCs in the tax efforts portfolio with a 0.68 score.
The report says donors’ commitment to allocate 0.15-0.20% of respective gross national income in aid to LDCs remains unfulfilled by most OECD Development Assistance Committee.
In 2017, the total disbursement of foreign financing to all 47 LDCs stood at $54.4billion, the report mentions.
“Had donors honoured their commitment in 2017, the LDCs would have received an additional $33.0 to $58 billion. It signifies a considerable shortfall of external financing in meeting sustainable development goals,” it says.
The report says LDCs together generate barely 1% of global GDP and their stake in the global economy remains marginal. Yet, they are home to 13% of the world's total population, it says.
CPD’s Executive Director Fahmida Khatun and Research Director Khondaker Golam Moazzem also spoke.