In an exclusive interview with Dhaka Tribune’s Belal Muntasir, former National Board of Revenue (NBR) Chairman Muhammad Abdul Mazid talks about how Bangladesh is lagging behind in tax to GDP ratio, what to do for improving it, how the NBR can increase its capability and upcoming budget.
Mazid, who joined Bangladesh Civil Service as BCS Audit and Accounts Cadre in 1981, served the NBR as its chairman from 2007 to 2009. Besides, he served finance ministry most of the time of his long career.
What is your observation on current revenue management?
The country’s current revenue management system, laws and infrastructure are back-dated, introduced in British period. These have not been sufficiently upgraded with the passage of time. I think the entire revenue management, including administration system, should be reformed immediately keeping pace with the changing world.
The NBR needs to be autonomous or operate under an independent commission and it should report directly to the parliaments for ensuring accountability and fairness.
It seems that the operation and management system of NBR depends on government while it is supposed to be controlled by the state.
As a result, the government, as per its wish, gives facilitates to some ones by reducing or exempting taxes while some do not get the benefits. So, administrative reformation is an imperative.
Besides, direct taxes and indirect taxes should be collected under different authorities to make the process easy. Policy making and its implementations need to be separated for ensuring transparency and objectivity. Extra job facilities can be considered for revenue officials as they do very tough job at the risk of being accused in lawsuits.
How do you evaluate our tax to GDP ratio?
Our tax earning is poor in comparison with the country’s GDP (Gross Domestic Product). The ratio is higher in other countries, almost double in neighboring India.
Our tax-GDP ratio is 9-10% while it should be at least 16%.
There are basically three reasons including tax dodging, exemptions and lack of monitoring behind the tax-GDP gap.
Firstly, some are paying the taxes regularly while some are dodging, which is causing a shortfall in revenue collection. Besides, all the sectors and capable persons have not been brought under tax net yet.
Secondly, the government is losing substantial amount of revenue giving tax exemptions for several sectors. Tax-GDP gap widens as privileged sectors contribute to GDP but not to revenue generation.
Thirdly, many organizations including business entities and state-owned commercial organizations collect taxes like value added tax (VAT) from people but do not pay to the government.
The NBR should maintain strong monitoring here. If properly collected, only the outstanding taxes from government agencies like BPC (Bangladesh Petroleum Corporation) can increase the ratio by 1-2%.
I suggest ensuring taxes from all capable sectors, organizations and persons to increase tax-GDP ratio.
NBR should strengthen effective monitoring so that no one can evade taxes. Besides, the government should introduce subsidy instead of exempting taxes. It will increase transparency and accountability, reducing tendency to avoid tax, I think.
Why does the NBR often fail to meet revenue target and what is the solution?
Our expenditure and development budget are increasing every year. So expectation from revenue earning is increasing, a simple equation.
Though the NBR attains a good year-on-year growths in terms of revenue collection, it sometimes fails to meet the target. Then the government has to depend on borrowing from banks and saving tools.
But the matter is how the NBR will meet the target?
This depends on two factors — NBR’s capability and economy’s capability. For example, banks, a large taxpaying sector, are now in crisis. So, less revenue will be collected from the sector.
The government must have focus on economic mobility to earn expected revenue. Besides, the NBR’s manpower, infrastructure and capability must be increased to boost its performance.
One of the major reasons for the revenue shortfall is exempting taxes, which must be stopped.
How can you (the government) expect to meet target, giving away things (giving tax waiver or exemption) like Haji Muhammad Mohsin?
How can the NBR boost its performance?
The revenue collecting authorities have a shortage of manpower and some other limitations, it’s true. But the main problem is how NBR officials prioritize the works they have.
Most of the time, they remain busy with regular works, such as collecting taxes from those who pays spontaneously and conducting some drives.
But the officials should find out those evading taxes and not yet registered. The NBR needs to take innovative program, research or activities to widen tax net and reducing tax dodging.
Besides, the NBR has to take serious initiatives to dispose the huge backlog of lawsuits over taxes, which involve a substantial amount of revenue.
The revenue collecting authorities needs to rationalize the works, giving priority to collecting tax from all and reducing dodging, disposing the suits anyhow.
Now people want to pay taxes, but they do not find favorable atmosphere. One of the instances for this is the tax fair, where a huge number of people come to be registered and pay taxes but they show reluctance at other times.
NBR should encourage people to pay taxes with cordial services throughout the year like that of the fair.
Besides, to boost the revenue sector, I suggest a permanent committee comprising researcher, academician, expert, business leader and stakeholders for the NBR. It will help research, analyzing and policy making.
Is the current revenue policy business-friendly?
The revenue policy is business-friendly in the sense that the economy is growing but it should be friendlier.
I am willing to have juice from dates-tree so I should look into whether the tree has capacity.
The government wants high revenue so it should care about businesses and protect them.
No discrimination is expected. All the businesses should be considered impartially in terms of providing facilities including incentives and bond facilities.
Have you any suggestion on the upcoming budget?
The parliament should put more emphasis on supplementary budget for ensuring transparency and accountability of government agencies concerned like NBR in implementing budget so that it can evaluate the previous fiscal budget.
By practicing the system, the parliament can get an idea of the agency’s performances and can address the challenges ahead.
It will help to boost the country’s macro economy, micro economy as well as revenue generation.