Anyone who is informed about Bangladesh's development, budget, or public financing, or has followed discussions or news about Bangladesh in meetings of the World Bank or especially the IMF in April, knows the country's extremely weak revenue situation or the poor tax-to-GDP ratio. Due to the disappointing revenue collection situation, our development financing is becoming quite risky. There is a perception among many that our revenue-collecting agencies, under pressure from the government or due to this risk, are treading or might tread the wrong path.
The stagnation in investment in our economy over an extended period can no longer be denied. High inflation, increased business costs due to interest rate hikes, and foreign currency liquidity crises—these have collectively made the business environment challenging. In the midst of this, the inconsistency in tax policy has aggravated the situation further, akin to ''adding fuel to the fire.'' Even though the corporate tax rate has been gradually reduced to 27.50 per cent, the total tax burden still exceeds 40 per cent, which is neither investment-friendly nor encouraging.
If the government pursues the path of increasing turnover or transaction taxes, it would equate to aggravating the situation further. Business people fear that this would strain capital, reduce profits, and decrease new investments. In many sectors, including the SME sector engaged in product distribution, achieving a 1 per cent net profit amidst high business expenses or intense competition is nearly impossible. Ignoring this fundamental economic reality, any effort to increase revenue could ultimately backfire.
Lessons in public financing have shown that reasonable tax rates lead to spontaneous tax compliance and long-term revenue growth. The same applies to VAT. The current 15 per cent VAT is imposing pressure on both consumers and businesses in many cases. Undoubtedly, expanding the tax base with lower rates, instead of burdening a limited number of taxpayers with high rates, would be more effective and beneficial in the future.
Another major problem with our tax policy is its complexity and administrative weakness. Although there are over a million TIN (Tax Identification Number) holders in the country, less than half of them file tax returns. Even fewer actually pay taxes. This reflects not just tax aversion but also a crisis of trust.
Simplifying the tax payment process, integrating the TIN and NID (National ID) databases, and introducing a symbolic minimum tax for new individual taxpayers might play a positive role, as believed by many within the revenue department. They also think that integrating databases would enable the deduction of the remaining tax from individuals according to the slab or tax bracket, over and above the 10 per cent advance tax currently deducted from fixed deposits or savings certificates.
Moreover, addressing the inconsistencies within the tax structure is essential. On one hand, there is a declaration of reducing corporate taxes, whereas business people do not receive actual benefits due to various conditions and complexities in assessing indirect taxes. Strict conditions on cash transactions, high import duties, and withholding tax collectively increase the effective tax burden significantly. As a result, a gap emerges between the declared tax rate and reality. On the other hand, there is a record of extensive tax exemptions.
The plight of the export sector is not exempt from the impact of this tax policy either. Exports have been declining over the past nine months, which is alarming for the macroeconomy. In this situation, reducing the source tax and lowering duties on raw materials are critical. Otherwise, Bangladesh will fall further behind in international competition.
Simultaneously, considering tax policy from a social perspective is necessary. For example, high duties on essential products like sanitary napkins or children's diapers not only create economic issues but also public health problems. Providing or reducing tax on such products can directly contribute to improving people's standards of living. Similarly, other very essential sectors or subsectors can also be considered where there is little prospect of significant tax collection, but exemptions can create massive social impact.
On the other hand, considering commercial agriculture for new tax collection, as in many other competing countries, might be worthwhile. Even considering the difference in taxation between domestic and foreign institutions in the interest of investment is worth pondering. Records show a good tax payment history for foreign companies, and encouraging them can increase investment.
Therefore, the upcoming national budget should not merely be an occasion to meet revenue collection targets; it should outline a framework for investment and growth. Formulating supportive rather than punitive tax policy can break economic stagnation and bring about new momentum. Our revenue development authority needs to think out of the box and consider the experiences or state of revenue collection in competing countries with a cool head, going beyond conventional or historical structures.
Almost every year in pre-budget discussions, the revenue authorities engage with stakeholders, listen, and promise some changes, but these promises are rarely reflected finally. New taxes are imposed on those who pay taxes, or the procedure of tax payment is made more complicated and painful. Meanwhile, the burden of indirect taxes weighs heavily on the poor. We certainly want a change here. We need prevention of tax evasion and expansion of the tax sector.
#Mamun Rashid is an economic analyst.
*The opinions expressed here are the writer's own.
#This article, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam