Woe Called Revenue Receipts

Fetching extra revenue is on the list How to achieve that is the main twist.

Govt is running its second IMF program. First one was in 2014.One of the conditions set by IMF for the $4.7 billion credit package is to raise tax earnings each year by 0.5 % -0.7% of GDP for the next three consecutive years. A private research organization Policy Research Institute put the absolute figure like this: govt has to add extra tax-revenue of Tk 650 billion to its coffer in 2023-24; in 2024-25,it will have to add further Tk 733 billion; additional Tk957 billion will be required in 2025-26,final year of IMF's ongoing program¹. It is indeed an uphill task for National Board of Revenue (NBR). Yet it has radiated confidence before the govt to finish the task.

Press is abuzz with reports showing skepticism about government’s ability to amass the extra Tk 2340 billion in three years. Composition of revenue receipts gives some hints about the areas that will bear the brunt of generating tax revenue. In terms of revenue receipts, Value Added Tax(VAT) tops the list, followed by income tax. Then comes import duty and supplementary duty. In 2020-21,revenue receipt from VAT was Tk 1.15 trillion.Income tax revenue was Tk 959.50 billion.Revenue from supplementary duty was Tk 482.98 billion.Apart from that import duty fetched Tk371.54 billion².Contributions of export duty and excise duty to total revenue receipts are not significant. News report indicates that NBR is in discussion with large taxpayers to hike tax on income and profit. It is the easiest mean at its disposal. But a rise in corporate tax will definitely give a boost to its earnings.

Meanwhile, Non Performing Loan(NPL) stood at Tk 1.34 trillion by the end of 2022. In 2009,when the current govt assumed power it was Tk 220 billion. A clear indication of sloppy economic management and increasing incidence of cronyism. At public banks NPL is 23% of total credit. IMF demands that it be below 10%. If that happens, operating profits of the public banks will likely to rise and NBR could get extra revenue from them. However, the Islamic banks are in dire conditions following series of scams. It may hurt their operating profit. In that light NBR may not get the desired revenue from these banks.

Another way to bring extra revenue is through raising VAT. NBR could raise it from 15% to 16%. But as utility fares are hiked by significant amount, cost has gone up and profitability of the business has shrunk. Further VAT increase will definitely hurt the business. But NBR could easily get extra VAT revenue resulting from a rise in utility fare. So I think NBR may not hike the VAT anymore.

Another option is to raise the supplementary duty. Supplementary duty on soybean oil,onion,pulses could be a good option as their prices in the international market are on decline. Similar duty on mobile talk time and data could bring more revenues to govt coffer. However, govt claims that mobile operators are yet to pay overdue revenue. As business prospect is bleak, it is unlikely that govt will get huge revenue through supplementary duty on mobile phone services.

I have earlier argued for raising the source tax for exporters. Supplementary duty could also be imposed on export earnings. Govt could compensate the exporters by raising subsidy or floating special local currency funds to buy dollar from the market. Export revenue is still low compared to import revenue. So this is one particular area where NBR should focus on.

Tobacco,Metro,rail ticket could be other sources for extra revenue. As metro service will come into operation by the end of this year,govt could lower the fare significantly and then impose supplementary duty on metro fare. It will increase the frequency of commuters and thereby will raise the revenue. More rail tracks are added into the existing network. So more fast train services await to start operation.Supplementary duty on them could boost the revenue. Similarly,supplementary duty on social media,multiplex screen and restaurant could also be considered.

I once argued for NBR bond for people who do not fall into the definition of taxpayers. Street vendors, small businesses, food stalls could buy these bonds and have a feeling of contributing to the economy. In exchange ,govt could offer some benefits for these groups and launch a lottery program to transfer back part of the revenue.

Given the dismal economic conditions prevail in the major economies, the revenue target is a tough one to achieve. Inflation taming and investment shrinking measures have made the job even more difficult. Yet NBR is optimistic about reaching the target. Undoubtedly, it has to improvise to get extra revenue.

Notes And References

1. " Bipul Onker Barti Kor Ashbe Kivabey(How To Get Extra Tax Revenue) ",Daily Prothom Alo,P-12,February 08,2023.
2. Bangladesh Economic Review 2021