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Reforming the revenue administration

COLUMN MAMUN RASHID
Bangladesh is expected to be a Middle Income Country (MIC) by 2021, if not earlier. The country is also, so far, on track to achieving millennium development goals (MDGs) by 2015, which aims to reduce poverty and improve human development indicators. While we all are thinking of growing bigger and taking measures for developing our country, have we given a hard look on the financing aspect of the growth? How will we be able to finance growth? What are the ways of financing growth?
Along with ensuring enough depth in the financial sector, corporate governance, discipline in public expenditures, broadening the tax net and enhancing country's tax-GDP ratio can be the most prudent way of financing our country's growth. We have to reallocate the wealth from the surplus streams to the hungry streams of the economy and need to create a sustainable model, which will ensure the strong momentum of tax revenue collection. If we cannot accumulate required financing from the surplus stream through direct taxation then are there really any other viable alternatives left?
In fiscal 2008, the National Board of Revenue (NBR) earned Tk 21 billion more in tax revenue than its targeted amount. This was a unique performance on the part of the tax collectors since our independence. However, given their performance level until the recent past, it is hard to give full credit to the tax people for this 'excellence'. The fear factor that originated from massive and anti tax dodging drives under the ongoing emergency rule, no doubt, played an important role in collection of larger tax revenues, especially income taxes. The less-than-expected collection of income tax revenue from normal taxpayers and holders of untaxed legal money, until September this fiscal year, support this finding. With some relaxation of emergency rules, looking at the upcoming national election, the fear factor is found to be less intense then in the past.
There is no denying that a
sustained increase in the number of taxpayers and tax earnings can only be ensured under an efficient tax administration. Unfortunately, Bangladesh is yet to achieve that objective, despite some sporadic attempts made to beef up the efficiency level of the tax collectors at the initiatives of the development partners.
In 2002 a reform project called Reforms in the Revenue Administration (RIRA) was introduced with the aim of building a transparent, efficient and effec-tive tax administration. Financed by the UK government, the RIRA project has been assisting the NBR and works mainly with the Large Taxpayer's Units and the Central Intelligence Cell (CIO.
On the other hand, the World Bank (WB), back in 2004, came up with a overTk 4.5 billion pro-ject, styled Revenue Administration Modernisation Project (RAMP), with the objectives of bringing about major structural changes in the tax administration, simplifying revenue collection procedures and developing human resources. But the immediate past government dragged its feet and postponed a final decision on the project. The present
interim administration, for reasons best known to them, has also been displaying a sort of lukewarm attitude towards the project. Media report said the launching of the project is likely to be further delayed since the authorities concerned would like to examine the contents of the project more closely.
Traditionally, almost every tier of Bangladesh administration is averse to reforms that usually hurt the vested interests. Tax administration is no exception. The level of laxity and indolence, for reasons not unknown to many, among taxmen is quite high. It is not unlikely that a section of tax officials are opposing the RAMP to safeguard their own interests.
The Chittagong Customs House Automation project, which was recently launched by the Chief Adviser, carries enough example of strong opposition to reforms by the taxmen. When the project was initiated to replace the obsolete 'direct traders input (DTI)' with the ICT-based automation system, the Customs authority, allegedly, posted out the officials involved with automation. But as the Chittagong Chamber expressed its willingness to be a partner in the auto-
mation project and the government high-ups approved this, the opposition subsided. The project has now got off the ground.
In Bangladesh, the tax-GDP ratio is one of the lowest among the emerging economies. However, we have to admit that during last twelve years there has been significant improvement in revenue collection. In 1996, total tax revenue of the government was only Tk 20 billion, which has improved to Tk 473 billion in 2008. The key driver of the tax revenue is indirect taxes such as value added taxes (VAT) and customs duty, which constitutes around seventy five percent of total tax revenue. In the fiscal 2009 revenue budget, government targets to collect Tk 545 billion as tax revenue, out of which around Tk 225 billion will be from customs duty and Tk 184 billion from VAT. Of the rest Tk 136 billion, Tk 130.5 billion will come from income taxes, which is only 24 percent of the total tax revenue and the rest Tk 5.55 billion from other taxes.
There is still much 'opportunity space' available to improve the collection of income taxes. We have already seen improvements in tax collection in the last
fiscal year. In fiscal 2008, the total collection of income tax was Tk 120 billion. This large improvement, as mentioned, resulted primarily from the robust anti-corruption drive of the caretaker government and the scope of regularising undeclared income by paying penal taxes.
Recently, NBR Chairman Muhammad Abdul Mazid said that in Bangladesh about 15 million people have the ability to submit their tax returns, of which at least 10 million people are capable of pacing taxes. According to Bangladesh Bureau of Statistics (BBS), at least 10 million people in Bangladesh earn more than the tax exemption limit. The number of people submitting tax returns is still less than 1 million. A huge number of people were exempted from paying taxes for several years in the past mainly because of a structural weakness of the tax department, poor infrastructure and technological expertise, lack of systematic data collection, etc.
We have to admit that there is no alternative to reforming the tax administration if we want to broaden the tax net. This is an imperative for generating more revenue domestically, particularly when the global aid climate is becoming increasingly tight and would be tighter in the face of the global financial crisis. There is an apprehension that the momentum of the tax revenue growth may dry up after transition into political regime.
Hence, it is crucial to have political commitment to augment the tax collection. For example, during the caretaker government, Bangladesh first observed 'National Tax Day' on September 15. The next political government similarly needs to create a 'taxpayer friendly' atmosphere and make the people aware of the importance of paying taxes. More importantly, they have to withdraw all barriers and take all out actions for the timely collection of taxes.
The writer is a banker and economic analyst and can be reached at mamun1960@gmail.com