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BIZ LETTERS
Reforming revenue administration: The other view
The write-up titled “Reforming the revenue administration" by the banker- columnist Mamun Rashid, prompted me to go through the article. I surely know him to be a serious person as far as issues of fiscal policy or, NBR reforms are concerned.
Mr Rashid commented, "traditionally almost every tier of Bangladesh administration is averse to reforms that usually hurts the vested interested, tax administration is no exception This is unfortunately a stereotyped sweeping comment that I was least prepared to hear from Mr Rashid.
Yes. a section of officers fearing the loss of jobs or promotion in merit-based bureaucracy, pose a hurdle to any kind of t administrative reforms. But in case of tax administration, jeal hurdles come not from within, but from outside, from the other stakeholders, not from the taxmen. Let me elucidate this deduction:
1. Let us take the example of VAT. The IMF and other donor agencies have been pressing Bangladesh to adopt the best international practice ofVAT, in order to maximise the revenue by virtue of being both effective and efficient, while facilitating trade. A number of NBR officials also work in different donor-sponsored reform projects. NBR made its commitment of reforming the tax systems in line with the best international practices in its Strategic Development Plan (SDP). Fhe first step towards a modern VAT system is to have a transparent accounting system for business people. With a view to making business transaction automated and hence more transparent, the NBR made the use of Electronic Cash Register (ECR) mandatory for all business dealing with VAT-able goods and services. The business community vehemently opposed this move of NBR's and NBR had to defer the date of implementation from July I this year to the January 1 next year.
2. The practices of truncated based VAT (like 4.5 percent. 2.25 percent), tariff value for certain goods and services are all glaring deviations and distortions in the VAT system, which according to IMF, has made our VAT a so-called VAT.
But as you look into the proposals put forward to NBR every year on the eve of the annual budget by different business bodies and associations, you will be surprised at discovering how many of them propose for a standard VAT and how many side with lump-sum VAT, more truncated base, more tariff value.
3. There is a derivative ofVAT- Advanced Trade VAT- popularly known as ATV, collected at the rate of 1.5 percent at the import stage from all commercial imports in addition to standard 15 percent VAT. The VAT that a business/importer would pay at the time of selling in the domestic market (say, as wholesaler or retailer) is being collected in advance- this is totally contrary to the VAT principle. But this was done in order to accommodate business pressures. This demand by the business community was meant for remaining harassment free from the hands of taxmen at the domestic businesslevel.
4. There are hundreds of other examples where NBR distorted the VAT system in order to accommodate the popular demand of what the business people call facilitating trade. We must not forget that simplification has its own loophole too. We cannot make a system effective and efficient just by making it simple.
For example, collecting a specific amount of, or at a uniform rate from all taxpayers irrespective of their income or turnover will no doubt make the system simple; but this simplification will sacrifice the other more important property of taxation- progress and equity.
This is not to blame the business community; maybe, they look at the tax system from a particular angle, which perhaps does not allow them to see the whole truth. By having a distorted VAT, the businesses not only deprive themselves of the benefits that VAT can offer, but also deprives the country of its dues. So, in order for the business community to reap the benefits ofVAT, a standard VAT must be in place at first and in order to make our VAT a standard, or at least close to standard, the crucial role will have to be played by the most important stakeholder i.e. the business community.
Mr Mamun Rashid rightly pointed out that there is no alternative to reforming the tax administration if we want to broaden the tax net, or in other words, increase the tax GDP ratio. There are two components in this assumption. First, broadening the tax base has something to do with the taxpayers at large. Are we, as taxpayers, ready enough to accept that? We must. But it requires a lot of motivation and campaign.
Secondly, the question of administration arises. Unfortunately NBR is too poorly staffed, in terms of both quantity and quality, to embrace any expansion of its services. It is a pity that the government seriously does not look into the NBR manpower issues at all. We have reasons to believe that NBR will collapse in the next 3 /4 years until and unless new blood is infused in its staffing vein with top most priority. Many of us perhaps do not know that in the Customs and VAT departments, no inspector-level officers
were recruited after the early eighties. How can a crucially important department like NBR remain active, let alone effective and efficient, without recruiting any new officers at the basic level for the last thirty years?
The irony, on the other hand, is that NBR has become, courtesy of the Ministry of Establishment, the dumping ground for surplus staff, many of whom have already crossed fifty!
Any reform, especially like that of revenue administration is a collective effort. Just blaming one of the stakeholders will never solve the problem. The other stakeholders like the business community, economic analysts (like Mr. Rashid) also have their share of responsibility- they need to know what ails the revenue administration to identify dispassionately the hurdles that prevent any positive changes, and devise the most effective and efficient ways of reforms; IMF or donor-agency (or development partners, as they are being called euphemistically) - imposed reforms will be of no use until we, tax men, business community, taxpayers at large- ourselves are motivated and committed to reforms.
Last but not the least, the urgency of having political commitment for any reform, in general, and revenue administration, in particular, cannot be overemphasised. Let us have it first and many other things will come as logical consequences.
Ahmed M Saleheen
Dhaka
Where Bangladesh is amid the financial crisis
We really have no floor to discus the outcomes of the great credit crunch of the US and other European countries. The depth of the pitfalls will really depend on how long the recession sustains.
However, this may prove to be a silver lining if we can search for a market niche and earn a bigger share of the market pie. I believe that opportunities arise from problems. Before going through the options available for how Bangladesh will be benefited, we can get a snap shot as to where Bangladesh stands.
Negative Sides:
Export may be reduced. I low? In case of the great crunch, foreign buyers, especially the most affected countries like US, European countries that occupy the highest position as our RMG buyers, will slash their purchase order as well as search for competitive prices. Thus, it will cast direct negative impacts on our export earning.
Foreign aid may be cut down. Due to reform that is taking place because of the present economic fallout, some donor countries think of it as an extra burden to provide the promised aid to the Third World countries like Bangladesh.
Foreign direct investment may be marked negatively to some extent. Many developed countries have started slash-
ing their foreign investment projects.
Remittance occupied the second highest sector for earning foreign currency and now it has downgraded. Because of poor oil price, Middle East countries, the hub of where our remittance comes from, are starting cutting job. This may primarily be because of a decline in construction works.
A lack of confidence towards the economy can make businessmen doubtful about any further investments.
Appreciation of taka against dollar can affect severely our export performances.
Positive Sides:
Exports may increase to some extent due to our price competitiveness in terms of labour cost, in contrast to India and China. The BGMEA leaders are optimistic about the outcomes.