Indirect taxes like VAT and customs duties are disproportionately putting a higher burden on low-income families.
Experts said that the government should increase the direct tax to reduce tax inequality and increase revenue. Otherwise, the poor will get poorer and the wealth of the rich will only go up.
Experts were speaking at a seminar “Using Direct Taxation to Boost Revenue and Tackle Inequality” organized by the Economics Reporters Forum (ERF) in collaboration with Research and Policy Integration for Development (Rapid) on Saturday.
In his keynote presentation, Rapid Chairman Mohammad Abdur Razzaque said: “The National Board of Revenue (NBR) is saying that the ratio of direct and indirect tax will be increased from 35:65 to 70:30 immediately.
“This new target for direct taxation will drive economic growth and tackle inequality in Bangladesh. While this is a welcome move, the target is also ambitious and cannot be achieved overnight.”
“On the other hand, indirect tax poses a disproportionately higher burden on low-income households thus further aggravating inequality,” said the keynote presentation.
In 2020-21, around 29 thousand companies submitted corporate tax returns and paid Tk60,450 crore. 2.73 lakh traders registered with the Registrar of Joint Stock Companies and Firms (RJSCF). Only 11% paid corporate taxes.
Domestic revenue generation in Bangladesh is historically low. The revenue generation to GDP ratio is around 9%.
Of this, direct tax comprises one-third of total revenue at Tk1,040,000 crore in 2021-22. This is far below the other countries and the average of lower-middle-income countries.
“Direct taxation can also help reduce inequality as it mostly targets citizens and businesses with higher incomes. Despite significant growth in per capita income, income inequality has risen in recent years,” Razzaque also said.
In order to increase direct taxation and boost revenue, he also made twelve short and medium-term recommendations for the government and policymakers.
Among them are, increasing the number of registered taxpayers, rationalizing corporate tax rates, reviewing and rationalizing tax exemptions and incentives, dealing with malpractices in tax administration through digitization and automation, strengthening the capacity of NBR and creating separate tax policy wings and tax administration.
Nasiruddin Ahmed, former chairman of NBR said: “Some problems remain in NBR's structure. These resulted in the loss of many good initiatives of the past. Yes, it is important to increase our direct taxes. However, in this case, more emphasis should be given to increasing the tax net rather than increasing the tax rate.”
Kabirul Ezdani Khan, additional secretary of the Budget and Expenditure Management wing of the Finance Ministry said: “Compared to GDP, our budget is small. Despite this, the government has to borrow from domestic and foreign sources to meet the budget deficit due to low revenue. Tax policy should be reformed for this. The housing sector and new businesses like Facebook, Amazon and Foodpanda are expanding but the government does not get the revenue that it should.”
Sharing her own experience in closing remarks, ERF President Sharmin Rinvi said: “Many people do not want to come under the tax net due to various reasons including harassment. NBR should make the tax submission process simpler and transparent.”
Earlier, M Abu Eusuf, executive director of Rapid gave his welcome remarks.
Mahmudur Rahman, a member (tax survey and inspection) of NBR was also present at the seminar.
