Taxes are an incredibly important component of how a nation continues to improve its public infrastructure. But the memo seems to have gotten lost for Bangladesh as our tax net, despite a burgeoning population, has been stagnant.
In an effort to recoup any loss in revenue, the administration has increasingly focused on indirect taxes -- it is no surprise then that the Value Added Tax (VAT) is increasingly becoming the dominant avenue for revenue collection.
According to provisional data from the National Board of Revenue (NBR), the collection of VAT increased by 15.07% in the first eight months of the current fiscal year, as the VAT wing of the NBR collected a staggering Tk76,401.46 crore out of a total collection of Tk1,96,037.51cr.
While indirect taxes such as VAT are important in the grander context of a nation's tax system, relying on them too much has far more cons than pros. For one thing, given the ubiquity of indirect taxes, it disproportionately ends up hurting the underprivileged and the ultra poor.
The very idea behind taxes is that everyone pays in accordance of their means so that the nation can achieve its economic ambitions, which is why relying on indirect taxes ends up becoming incredibly unfair for those in the bottom rungs of our country's socioeconomic ladder.
Increasing indirect taxes are not, then, a workable substitute for widening our tax net.
Standing at around 7%, Bangladesh has one of the lowest tax-to-GDP ratios in the world, and the primary reason behind such a low percentage is the lack of trust in our tax system. A lack of trust that is entirely justified given the incredibly opaque nature of our tax culture.
Needless to say, the government needs to clear up a lot of the fog surrounding how our hard earned tax money is being used. However, a lack of transparency is but one of the many major reasons, as the very process of paying taxes involves inordinate amounts of bureaucracy and often even harassment from tax bureaucrats.
A broken tax system holding back Bangladesh from achieving its true economic potential would be a tragedy of the highest order. Clearly, a massive overhaul of the entire tax culture is what we need.
