Transforming The Public Spending

Policy support instead of incentive May provide the much needed relief.

Every year we just keep spending in key sectors like defense,education, local govt. Yet we fail to keep most of the spending at home. Meanwhile, we borrow a lot from abroad and home to meet the budget deficits. Our revenue collection is in not so happy state. Though pace of revenue collection is growing,but it is well short of the target.

There has been a shortfall of Tk 88.99 billion in revenue collection in the first quarter of 2025-26. This year's total revenue collection goal is Tk 4.99 trillion,set by the IMF. The revelation indicates tally of the shortfall will be larger at the end of current fiscal year. This means on average around Tk 1.25 trillion has to be collected in every quarter. Even the NBR set target for July-September period was Tk 990.05 billion. And NBR missed it. It will be quite difficult to fill the lag in the coming quarters. As usual VAT became the top revenue earner. It did not register any shortfall, rather a surplus of Tk 7.1 billion. Income tax registered a shortfall of Tk 65.41 billion. Import duty registered a shortfall of Tk 30.68 billion.

Since the reciprocal tariff came into effect from August, we have to see its impact on revenue from import from the second quarter(Oct-Dec). Already import revenue dipped. The likelihood of revenue shortfall may become clear in next quarter. Despite the 20.45% growth in revenue collection year-on-year, it is still VAT that contributed mostly on this growth, riding on supplementary duty (witnessed a 64.83% growth) and excise duty (29.49% growth). That means NBR has yet to overcome its capacity shortcomings and relies mostly on raising tax on taxes that affects consumption of goods & services(See NBR).

As I mentioned in earlier pieces(See "Keeping The Public Spending At Home" & "Flaws In ICT Policy"),if we keep part of the public spending as earnings of private companies, then growth of key sectors and revenue collection can be ensured. I already mentioned diverting part of defense [spending] to private sector. Similarly, if the govt [makes] policies to ensure domestic software use in educational institutions from primary to tertiary levels, the whole IT industry will be back on its feet without recognition of thrust sector, without tax break and undocumented money(See my piece "The Chutney Song Mystery" published on https://rezaulhoque.wordpress.com on July 16,2020). Thousands of IT firms will be popped up to cater to the need of educational institutions, getting part of the spending on education and providing govt the VAT and taxes. Similarly, if the govt abolishes the local govt engineering dept/ downsizes it and awards the local engineering works to the homegrown private engineering firms, govt will create high valued jobs,keep spending at home,prevent leakage and boosting tax revenue.

Under the present circumstances, govt provides support for education ,ICT and local engineering. But the spending on one sector does not lead to growth in other sectors. Moreover, govt has to continue spending on these sectors every year, causing leakage, poor quality and loss of revenue and jobs. Now think govt wants to digitize the class rooms of all the high schools. It wants to spend on gadgets needed on such task. Now say it makes policy that [states] that gadgets ,operating software,payroll software,hr software, erp software will be made and maintained by Bangladeshi companies. Then it does not need to provide any cash incentives to IT firms or give indefinite tax breaks. Through the policy support ,govt is generating working order for these companies. And as multiple firms will compete for the [work] ,quality of the projects will be ensured and leakages will be stopped. Plus govt will receive tax revenue from the IT companies.

Revenue shortfall and constraints originating from ongoing monetary policy hint that govt cannot do business as usual without changing the monetary policy. Given this situation, it has to [chalk] out policy supports that aim to divert part of the public spending to private sector and boost revenue,job creation and growth for the private sector.

[Update: this piece has been updated by me on October 24,2025 at 7:37 AM and on November 01,2025 at 8:30 AM and 9:39 AM Bangladesh Standard Time.Update includes references.]