Will Tax On Remittances Lower The Inward Flow?

Idea of taxing the remitter May bring change for the better.

Recently, IMF proposed to impose tax on remittances. The suggestion came at a moment when the country is facing severe revenue shortfall. This year NBR's revenue target is Taka 4.3 trillion, but NBR so far achieved Taka 1.65 trillion. In the first six months of current fiscal year, there is a revenue shortfall of Taka 232.27 billion. This tells how acute the financing crisis has become.

But the idea of taxing remittances is not greeted very well. Strongest argument put forward against it is the loss of remittances. Many migrant Bangladeshi workers may feel discouraged to remit money back home,opponents of the suggestion argued.

However, if we look at the Value Added Tax(VAT) revenue ,then the argument sounds hollow. Imposition of VAT did not welcome by all the quarters at the initial stage. But gradually it has become the biggest revenue earning source of the government. When initiated, it merely fetched crores of Taka in 1991. But in 2023,it fetched Taka 1.25 lakh crore. VAT's share of revenue earning increased at a remarkable pace. Now government depends less on foreign financing of the budget.

Similarly, import duty accounts for a bigger percentage of revenue earning. Duty on imports never curbed the growth of imports.Govt collected a total revenue of Taka 32,125 crores from import duties till February of 2024,registering around 11% growth. This has achieved in spite of the fact that government introduced several import restrictions in the wake of dollar crisis.

Like VAT and import duty, imposition of duty on remittances will not result in loss of remittances. A 5% tax on $20 billion worth of remittances will annually fetch around $1 billion or Taka 115 billion, ample to cover half of the revenue shortfall incurred in the first six months of this fiscal year. Part of the money will finance the incentives given to remittances repatriated to home. Universal applicability of this tax rather than to a target group will pave the path for its success. Since every remitter has to pay this tax, very few may opt for alternative channel. Government is in dubious mood about introducing such tax, fearing further increase in revenue shortfall. I think,and pretty convinced, that such measure will increase the government coffer in this troubling time. More early NBR could implement it, better improvement it may expect in revenue collection. So far NBR has not managed to get enough revenue from the traditional sources to meet its revenue goal. Giving a go to the idea of taxing the remitter may become handy.