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Hopeless revenue target
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March when seeking budget support of $250 million.
This action plan has been peddled for long -- with little progress.
“We have been hearing about widening the tax net, automation and setting up tax offices in rural areas for a long time now,” said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.
Reforms are too tough on the administrative side.
“When it takes them a year just to recruit officers, how can the entire tax administration be reformed in that time?”
Expecting collections will shoot up in a year because of administrative reforms is being overly optimistic.
“It is an unrealistic target,” he said, adding that the forthcoming year’s targets are most definitely set without considering the present state of collection.
Instead, overhauling the tax policy by simplifying rates would have brought immediate results.
There are numerous tax rates, which leads to manipulation, leakages and corruption, according to Hussain.
For instance, there is one rate for the import of capital machinery and a higher rate for its spare parts.
“Both are capital machinery, so what is the need for two different rates?”
This leaves the door open for businessmen to negotiate with customs officials to lump both under the same category.
“If we don’t design the rate structure in a way that it closes the loop for tax avoidance, the problem of revenue collection will not be solved,” he said, adding that the VAT law, which was meant to have a uniform rate, has too many slabs and exceptions.
The government could also withdraw the tax holidays and tax breaks, which, according to the NBR’s own calculations, cause revenue losses equivalent to 7-8 percent of GDP.
“This also creates scope for leakages. All policy decisions are taken on an ad hoc basis,” he added.
Tax compliance is too weak in Bangladesh because of problems in both policy and administration, according to Ahmed.
“The corporate tax rate is too high. The VAT rates are not right -- too many exemptions were made. The tax administration is not well-equipped. It is not digitalised, which gives scope for conflict of interest among tax officials.”
He went on to call for accelerating the automation of the tax system.
“Let alone other reforms, just full automation would lead to collections that far exceed the target,” he added.
Whatever the government does, it must act now and decisively as the existing revenue base, which is just shy of 10 percent of GDP, is insufficient to meet the country’s development needs, according to the WB.
“Bangladesh’s aspiration of becoming an upper-middle-income country by 2031 crucially hinges on the improvement of its revenue mobilisation.”
The issue of domestic revenue mobilisation has been highlighted in several policy documents, including in the Five-Year Plans and the yearly budgets.
“But revenue generation continues to disappoint,” it said.
Selim Raihan, a professor at the University of Dhaka’s economics department, says it is because of a lack of strong will on the government’s part.
“The government has failed to carry out longstanding reforms. Reforms cannot happen for vested pressure groups. Take the case of VAT law, which was implemented by accommodating everyone’s demands -- it has failed to make a difference,” he added.

Star editor
FROM PAGE 1
communication in any form with the World Bank President on any matter directly or indirectly connected with the Padma Bridge funding or any issue relating to Padma Bridge either in Washington or in any other place or in any other city of the world.
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