Growing Unease: Revenue Shortfall & High Inflation

Revenue shortfall and rising inflation Should be taken seriously as note of caution.

National Board of Revenue (NBR) has resumed operations of online tax return system since the second week of September. Earlier 526,487 taxpayers , more than double from 2022-23,had submitted their tax statements through the eReturn system for 2023-24. For the last fiscal year, there was a revenue shortfall of Taka 381.57 billion against the revised target of Taka 4.1 trillion. This year too NBR faces an uphill task to meet a colossal target of Taka 5.41 trillion. While govt is tightening the monetary policy, it will be difficult for NBR to double the growth of revenue collection. ADB downgrades Bangladesh's growth forecast to 5.1 % and increases the inflation forecast from 7% to 10%¹. These are worrying developments. In this backdrop, NBR's revenue challenge has also gone up. Sensing the inflationary pressure, governor announced to hike the policy rate by 50 basis points and another one is likely in the coming weeks.

Though income tax is the second highest source of revenue after VAT, only Taka 50/70 billion is generated from online tax return. Last fiscal year, NBR collected Taka 1.31 trillion from income tax. I personally think a user friendly, easy and Bengali online return system would fetch more tax return and revenue for the NBR. If people can submit tax return through button phones/ e-mail, then the number of return submission may go up by manyfolds. NBR' s inability to attract a large number of NRBs to pay taxes plays a role not augmenting the revenue. We inked deal with other countries to avoid double taxation in FDI ,but we did not do so on the income of binationals. If we sign accord with the USA,UK,UAE,Saudi Arabia,Malaysia, Singapore and other countries, a large number of binationals and NRBs will feel encouraged to submit tax. Now NRBs do not show their wealth generated in one country to other country's tax file. Double taxation is reported to be the main reason. This issue needs to be addressed. Special benefits like transfer of funds abroad should be aimed at those who disclose their foreign wealth in the tax files of their country of origin. It will prevent money laundering and bring many NRBs under local tax net. Currently, Bangladesh is running a special campaign similar to Pakistan that allows citizens living home and abroad to deposit their US dollar at the interest bearing accounts of some designated banks. The step is a desperate measure to swell the forex reserve. If Bangladesh Bank takes special measures like financing small and medium business ventures of NRBs abroad on the condition that they provide details of their wealth abroad, then many will feel encouraged to comply the new regulation.

Similarly, many shop owners at home who feel shy to submit their tax return will pay taxes if govt offers some special benefits. For instance, if govt declares people with TIN and BIN get special treatment like reserved places ahead of others in availing govt services,paying utility bills, discounted credit facility etc then many will come forward to pay taxes.

If many of the digital centers set up at the post offices during the time of previous regime are used to train personnel to prepare and submit tax returns for others ,then NBR may get new taxpayers from the upazilas and villages.

I noticed that during tax calculation business income deducts depreciation of equipment, furniture. Right now 10% depreciation cost is allowed to deduct from business income. If it is lowered to 8% or 5% ,taxes from business income as well as revenue earnings from direct taxes will increase. I already share some ideas to increase revenue and number of tax payers in my piece titled "New Tax Act and eReturn System II" ,written in January this year.²

At the same time, if corporate tax is raised by 1%,from 27.5% to 28.5% for non-listed and from 22.5% to 23.5% for listed companies, then govt's revenue will augment by manifold. Unfortunately, the previous govt planned to lower it to 25% and 20% respectively. I think govt should undo the decision given the uncomfortable situation it faces now. ³

To increase tax to GDP ratio every year by 0.5% is really a tough job for the NBR given its current capacity. The ongoing worker's agitation slashed 15% order. Waterlogging still a problem in the flash-flood hit areas. In this backdrop, business as usual will not help the govt to attain its goal. Quick review of revenue policies, drastic cut in public expenditures and radical steps in revenue collection may yield in good outcome.

References:

1. Asian Development Outlook,September 2024. Link: https://www.adb.org/where-we-work/bangladesh/economy
2. "New Tax Act And eReturn System II",Rezaul Hoque,https://hoquestake.blogspot.com, January 27,2024. Link: https://hoquestake.blogspot.com/2024/01/new-tax-act-and-ereturn-sytem-ii.html?m=1
3. "Corporate Tax Cut To 25%", The Daily Star,June 06,2024.Link: https://www.thedailystar.net/business/bangladesh-national-budget-fy2024-25/news/corporate-tax-cut-25-3628386

What Does Wild Fall Of Taka Portend?

Wild fall of Taka causing worries,
Most blame goes to deferred LCs.
Before and after election year,
Gathers abroad illicit capital sheer.

The rapid fall of Taka against major currencies has become headlines recently.Central Bank is selling dollar at Tk 86.70.However, at the exchange market US dollar is selling at TK 93. This rapid depreciation of Taka has been reported to be caused by rising commodity prices,settlement of deferred Letter of Credits, lack of foreign tourists, and rising trade deficit¹.

Government even issued notice banning unnecessary travel of the bureaucrats. But I think bureaucrats’ visit abroad and lack of tourists are poor reasons attributed to wild fall of Taka.The two represent a miniscule part of demand for dollar. The ban came at a time when a minister and her relatives’ visit to another country drew lot of flak in the press. Later, minister claimed that she paid her own expenses and never relied on public money for meeting the expenses. So govt's ban is a diversion to pass the blame to others.

Unease of the govt is compounded by falling remittances, which earlier offset trade deficit and made a current account surplus. In addition, medium and long term debt commitment has also increased, but as percentage of export earnings it is still below 25%(as per my calculation).Along with Occidental multilateral institutions, which are more generous towards Bangladesh, Russian and Chinese credit repayments do not pose serious problem for the moment. Loan repayments of Russian credit line would start from 2023 and some social media put the annual payment somewhere between $565 million. The Ban on Russia and Russian decision to repay the credit in local currency would not cause pressure on US dollar demand. However, such ban could increase dollar demand if US dollar payment could take place in disguise of legitimate international trade via other friendly countries. It is hard to trace such trade payment, so it is better not to embark on such speculation.

So the single reason stands out among others is the deferred LC payment. Most of the LCs opened for importing capital machinery, raw-materials,cooking oil and grains².Rising commodity prices also raised the import expenditure and it is causing the depreciation of Taka. Now here comes another point that we are missing. 2022 is the year before the election scheduled to be held in 2023. Years before and after the election generally witness illicit financial outflow through trade misinvoice. Bout of skirmishes and deteriorating law and order sow panic and lack of trust on domestic system among some quarters. Panic mongers work as sales executive of places where illicit capital finds safe sanctuary.

In an embarrassing report in 2017,Global Financial Integrity (GFI) revealed worrying accounts of illicit financial flow from Bangladesh between 2009 and 2015 with an average flow of $ 8.8 billion. The mismatches between declared value of goods on the invoices and true value of goods were reported to be $5.2 billion in 2008, $6.9 billion in 2010,$8.8 billion in 2011,$7.65 billion in 2012,$9.35 billion in 2013 and $11.92 billion in 2015 ³.As US places sanctions on some personnel of law enforcement agencies for violating human rights, many are under spell of panic. In addition, retribution in politics looms large. Political situation in neighboring countries makes that threat more credible. So exists there a perfect ground for clandestine capital flight through trade anomalies.

However, Canada postponed its residency permit through purchase of flat for two years. But our RMG items are being regularly exported to Canada. And recently one Canadian minister expressed desire to export cooking oil to Bangladesh. So ample means are there to channel out the money.Moreover, Turkey recently opened 2nd-home program like Malaysia. UAE is also running similar campaign.

Two or three quarters later a picture may emerge about the volume of illicit flow. As it happened in the past, this speculation---illegal money transfer through trade data anomalies---may have some roots and may be a reason for depreciation of Taka that is widely ignored.

This depreciation of Taka will work as instrument to curb further import as import is going to be costly. Meanwhile, govt is going to receive another $250 million of ADB’s budget support pretty soon,as reported by the press. Hopefully, Taka will be hovering over some fixed figure for sometimes after that.

Notes And References:

1 “ Dollarer Bazar Osthir,Oshosti(Volatile Dollar Market, Causing Unease)”,Sanaullah Sakib,Daily Prothom Alo(page-1),May 12,2022.

2 “Bank O Khola Bazar E Dollarer Damer Parthokya 8 Taka Chhariyechhey( Difference Between Dollar Exchange Rate At Bank And That Prevails In Market Crosses Taka 8)”,Sanaullah Sakib, Daily Prothom Alo(page-01),May 13,2022.

3 “Bangladesh Lost $50 Billion To Trade Related Illicit Financial Flows In Six Years: Report”,bdnews24.com,December 17, 2021.

Exodus And Awareness

Eid vacation sees mass exodus to village
Taking precarious mean and mocking restriction message.
Lack of awareness and poor preparation
May make severe the next propagation.

Every year during Eid vacation there is mass exodus to villages from the big cities where millions of people dwell in uninhabitable conditions. Pandemic made it a bit difficult this year. As part of ongoing lockdown, government interdicted transport movement between cities. Government's plan to spend the Eid vacation at current location fell on deaf years. Images of people thronging in ferry ghats and huddling in ferries mocked the restrictions and awareness of people.

A news report revealed that 2.8 million people left Dhaka for Eid vacation till May 10.¹ Despite the restrictions and low traffic, many took little known routes and precarious mode of transportation to reach their desired destination. But on some occasions they were hoisted by their own petard.Between April 02 and April 09, just before introducing harder lockdown, a boat capsize near Narayanganj killed 35 persons. It had been killed by cargo vessel belonging to a ruling party MP. Passengers had been trying to go to southern districts before strict lockdown came into effect.

On May 03, a motorized boat carrying 26 passengers sank in Padma after hitting a bulkhead near Munshiganj at Shimulia ghat. All the 26 passengers, on their way to villages, were dead. Later it turned out that an untrained and addicted boy was steering the boat. On May 12, another tragedy struck at Banglabazar ghat in Madaripur. Stampede in an overcrowded ferry killed 5 passengers².

Lax oversight of restrictions contributed to this exodus and subsequent tragedies. What was worst many village-bound people paid couple of times more than the usual cost of leaving Dhaka. Motorbike service providers witnessed windfall gains. Though government deployed paramilitary forces at highways and ferry crossings, they did not prevent people leaving Dhaka.

Meanwhile, Department of Health announced that Indian variant had already been found in Bangladesh. There is fear that the variant may spread after Eid. And another wave of Dhaka-bound people will make the matter worse. So government is contemplating stringent restrictions after Eid.

A good number of people left Dhaka work in informal sector and live in shanties or coshare rooms in apartments of Dhaka. Those running the country should take fair part of the blame as politically blessed quarter is responsible for setting up illegal bazars and shanties across the big cities. Monthly payments they receive from these settlements and footpaths are astronomical. Amid propagation of Corona virus, this kind of business went on as usual.

Absence of non-farm work opportunities and higher wages in informal sector played a role in driving many villagers to settle in Dhaka.

This only increased the chance of spreading Corona virus in Bangladesh. While government imposed lockdown, it did little to start mass awareness campaign. It closed schools, shopping malls but let open markets, restaurants and bazars on footpaths.

Television channels, radio stations and social media platforms could have been used to broadcast awareness programs. Except government-run television channel and radio station, I did not see any government sponsored awareness programs on private TV and radio stations.

In a country like ours where society is agrarian and semi-literate, this kind of awareness program has immense value. High awareness level could easily curb spread of this deadly virus. From our past experience, we witnessed how this sort of promotional videos improved hygiene situation in the country.

As the US stopped supplying messenger of COVID-19 vaccine to Seram Institute of India, vaccination program in Bangladesh came to a halt. Government made significant progress in terms of purchasing vaccine from other sources. However, conditions attached to the loan provided by ADB and World Bank stressed that money should only be spent for purchase of WHO approved vaccine³. Conditions set by Sputnik-V producer also made the prospect of buying Russian vaccine bleaker.

However, private pharmaceutical companies can step forward and produce the vaccine at home. Government will be relieved as it will have to borrow less for mass vaccination if 10 million or more people get vaccine from private sources.

Luckily, Sinopharma's vaccine got WHO's approval. And 500, 000 ampules of vaccine were given as g.

But government's preparation for another wave of COVID-19 is deeply worrying. Last year a plan conceived to turn a Dhaka North City Corporation market into a COVID-19 hospital did not get off the ground in time. It was delayed by a year and when the press was abuzz with second wave in India, it was officially launched. Even private sector is less shy to come forward in aiding the government in its pandemic handling initiatives. Last year at least several conglomerates set up specialized centers to treat Covid patients. One can hardly spot any this year when the situation may turn more dire than previous year.

In addition, no simulation operation or contingency plan is taken from the part of government if a situation like India crops up here. In such a situation there may be dearth of care givers. So far I have not yet seen any increase in number of care givers. Additional care givers may be drawn from scouts, volunteer groups or militia like Ansar and VDP. If they are exposed to a little bit of training , they may turn out to be handy in times of need.

Exodus management and preparation of COVID-19 show government is depending on mercy of God. After Eid vacation when restrictions will be eased, daily wage earners will rush to Dhaka and other big cities. As the fear of another wave looms large, speeding up the vaccination program in crowded cities appears to be the pragmatic solution at the moment.

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Notes And References:

1. Dhaka Cherechhe 28 Lakh Manush(28 Lakh People Have Left Dhaka),a news report by Daily Prothom Alo, May 11,2021.

2. A news report by bdnews24.com on the tragic speed boat crash. https://m.bdnews24.com/samagrabangladesh/detail/home/1889826

3. Russia'r Tika Kena Baron(Russian Vaccine Cannot Be Purchased), a news report by Daily Prothom Alo, May 12.

La Semaine Dernière A Mes Yeux

(23 avril --- 01 mai)

Selon un reportage, incendie a ravagé une partie de la forêt réservée à Maulavibazar. Des forestiers ont tenté de mettre les buissons morts à feu. Mais le feu a propagé et causé assez dégâts à forêt.

Selon un reportage, le gouvernement a prolongé le confinement pour une semaine. Tous les bureaux et transport public resteront fermé jusqu'au 5 mai.

Selon un reportage, une lycéenne s'est suicidé dans un appartement à Gulshan. La cour supérieur a interdit départ de son aimant, un dirigeant d'une société immobilière au Bangladesh, depuis le pays.

Selon un reportage, la Banque asienne du développement a baissé sa prévision de la hausse de PIB du Bangladesh par 1 %. La Banque prévoit que le PIB du Bangladesh atteindra 5,5 ou 6% d'augmentation.

Selon un reportage, cadavres de 5 baleines ont été trouvés dans les côtes de Bangladesh en 16 mois.

La Semaine Dernière A Mes Yeux

(09 avril --- 16 avril)

Selon un reportage, le gouvernement a imposé confinement strict à partir du 14 avril pour une semaine. Le seuil de mort a franchi 10.000. Il y a une crise de lit de réanimation dans les hôpitaux privés.

Selon un reportage, le système d'oxygène et 300 respirateurs gardent dans un entrepôt à l'aéroport de Dacca il y a 10 mois. Le ministère de la Santé n'a pas montré intérêt à les recevoir. La Banque mondiale et la Banque asienne du développement ont financé leurs achats.

Selon un reportage, envoyé spécial sur climat de président américain a opposé la construction d'une centrale charbonnière à Sundarbans, une mangrove sans pareille dans le monde.

Selon un reportage, cadavres de deux baleines se sont trouvés dans la plage de Cox's Bazar. Les scientifiques les ont identifiées comme espèce de «Brides Whale».

La Semaine Dernière A Mes Yeux

(27 mars --- 03 avril)

Selon un reportage, une note faite par l'ONU a fait une projection de 2 millions morts au Bangladesh à cause de propagation du Coronavirus.

Selon un reportage, 269 Américains sont partis Bangladesh dans un vol spécial.

Selon un reportage, 80 Bangladais ont succombé à Coronavirus à l'étranger jusqu'au jeudi, dont 50 Bangladais sont morts aux États-Unis et 19 péri en Angleterre.

Selon un reportage, les tests sérologiques ont affirmé 50 Bangladais avec Coronavirus positive au Bangladesh.

Selon un reportage, Parlement européen a dit non à appel d'annuler GSP sur vêtements bangladais à marché européenne. La décision a porté sourire aux ateliers de confection bangladaise.

Selon un reportage, 498 pèlerins étrangers d'une fraternité musulmane ne partent pas pour leurs pays à cause de propagation de Coronavirus. Ils sont allés en pèlerinage à Dacca à l'occasion de la congrégation annuelle de la fraternité.

Selon un reportage, le gouvernement a commencé le test de dépistage de la Coronavirus dans 14 laboratoires à travers de pays.

Selon un reportage, Economist Intelligence Unit a baissé la projection de la croissance du PIB pour Bangladesh. D'après l'organisation, Coronavirus peut repousser la croissance du PIB au moins de 4%.