IMF conditions persist in new loan, how far has revenue reform progressed

Momentum has picked up in revenue sector reforms as initiatives has been taken to abolish the National Board of Revenue (NBR), creating two separate divisions for revenue policy and revenue collection.

The reforms also include a single value-added tax (VAT) rate; and reducing tax exemptions.

These reforms were conditions of the previous loan programme from the International Monetary Fund (IMF).

Bangladesh has begun discussions on a new loan programme, abandoning the old one.

These discussions have been ongoing for two to three months. According to responsible sources, similar conditions are being discussed for the new loan programme. Preliminary talks are underway for a loan of 4.5 billion dollars under the new programme, which will span three years.

Last week in Bangkok, the capital of Thailand, a meeting was held between the Bangladesh delegation and IMF officials on the sidelines of the IMF and World Bank's annual joint meeting. The discussion centered on reforms in the revenue sector. The meeting primarily focused on the progress of these reform initiatives. The Bangladesh delegation was led by Finance Minister Amir Kashru Mahmud Chowdhury.

Under the conditions of the old loan programme, there was a stipulation to dissolve the National Board of Revenue (NBR) and separate the policy and collection functions by December 2025. One division within the government would create policy regarding tariffs and taxes, while another would handle revenue collection on the ground. Currently, the NBR performs both tasks.

Although an interim government ordinance was issued, the current government has not turned it into law. The current government formed a committee led by the Prime Minister's Advisor for Public Administration, Ismail Zabiullah, to review the matter. The committee has already submitted its report.

The IMF has recommended establishing a single VAT rate and reportedly inquired about progress in this matter during the Bangkok meeting.

According to NBR sources, they have devised a time-bound plan to transition to a single VAT rate by eliminating multiple rates. Reduced VAT rates will be phased out between 2027 and 2030, with the aim of having a single VAT rate in the country by 2030. By law, the single VAT rate would be 15 per cent, although multiple meetings with businesses have occurred about reducing this rate. Businesses reportedly favour a single VAT rate of 7.5 per cent.

Currently, there are primarily 10 VAT rates in Bangladesh, which are 15, 10, 7.5, 5, 4. 5, 4, 2.4, 2, 1.5, and 0 per cent. However, most goods and services are subject to a 15 per cent VAT rate.

Under previous IMF loans, there was a condition to eliminate all tax exemptions by July 2027. It is understood that similar conditions are being discussed for the new loan. The NBR's position is that it is not entirely feasible to eliminate all tax exemptions for economic and business growth. NBR agrees with the IMF condition of emphasising automation in the revenue sector.

The need for revenue sector reform has long been advocated by businessmen and economists in the country. Donors have also echoed this sentiment. Bangladesh is among the countries with the lowest tax-to-GDP ratio in the world, limited to 6 to 7 per cent. There has been no significant progress in revenue collection over the past few years.

People related to the sector state that beyond the IMF''s conditions, reforming the NBR is necessary to meet financial needs, for which political commitment is required.

Zahid Hussain, former chief economist of the World Bank's Dhaka office, recently told the media that reforms in the revenue sector, such as reducing tax exemptions and separating policy and collection activities, are essential. The IMF will not change its stance since these are the same conditions as the previous loan programme. Local experts also prioritise similar reforms. It is imperative to implement these reforms as quickly as possible.

Mohammad Abdul Mazid, former chairman of the NBR, believes that it is vital to separate the divisions of revenue collection and policy to reduce public harassment.

He noted that many countries have separate agencies for revenue policy and collection.

Mohammad Abdul Mazid told the media that the NBR itself would become a division responsible for revenue collection, directly reporting to the minister's office without any intermediaries. The policy division will formulate revenue policy.