Thinking The Unthinkable

NBR misses the revenue target, Taxing export maybe the solution perfect.

Latest NBR revenue collection data shows the collection for July falls short of the stated target by Tk 28.62 billion. VAT outshines others,but income tax and customs duty did not perform as anticipated. The shortfall came amid rising food inflation while international commodity market showing a downward trend.

It is hard to ascertain what caused the price of rice to rise amid record production. If there were [a producer] price index ,then we could see where the problem lies. I have argued about this here(See "Resume The Routine Work", published here on October 9,2024). Unfortunately, it is not available and neither govt nor the BBS shows any intention to launch it pretty soon.

Governor himself acknowledged that $35 billion was plundered from the banking system in the last 15 years. Unlike the USA, Bangladesh does not allow any bank to collapse. So an initiative is on to merge six trouble-ridden banks. Literally, govt is taking the bad managerial decision of the troubled banks upon its shoulder. Letting them go bankrupt would be more prudent solution: you made a wrong decision and you bear the consequences. Govt does not bail out petty businesses, why should it bail out politically motivated projects?

NBR is desperate to make new directives. One directive seeks bank account details of TIN holders. Tax deduction on bank deposits, balance at the end of June and interest earned are the information to be investigated in real time for online tax return. The new directive will discard the need for such proof as the whole thing will happen in real time. Instead of going after how much existing TIN holders earned, it is better to expand operation in other districts, particularly in border districts and real estate booming districts like Sylhet, Chattogram and Rajshahi. Recovering the stolen asset, as govt claimed it traced $3 billion worth of stolen asset abroad, will be another area. Next 4 months after election may see unexpected rise in revenue as new elected govt will assume office for 4 years. Many laundered assets will come back in disguise of FDI, export earnings and remittances. Late [Prof.] Nurul Islam did a remarkable research on this topic and highlighted the two way traffic of this stolen asset(see "Corruption,Its Control And Drivers Of Change: The Case Of Bangladesh",by Nurul Islam,BIDS)

If NBR is really eager to boost revenue, the most plausible way is to impose tax (at least 1%) on remittances and export as I explained in an earlier piece. Central bank's depreciation policy through forex intervention and reduction in reciprocal tariff made room for such taxation. Why not take the advantage while leaving the industry unscathed? Another area is to reimpose duty on sugar that generates ample revenue for the govt. It will bring domestic sugar on [a par] with imported sugar in terms of price. Standard & Poor's forecast says oil prices will be lower next year. So inflationary pressure will not be a concern.

Meeting the revenue target should focus on expansion of taxpayers' base, thinking the unthinkable ( taxing the remittances and export), sugar tax and stolen asset recovery. Hopefully ,post election period will bring the much needed optimism and make NBR's task much easier.

[Update: this piece is updated by me on August 21,2025; update includes link to references.]

Govt's Twin Challenges

The budget deficit and revenue shortfall Create future tax burden for all.

Attaining the revenue target has become so important for the govt. Till April, govt managed to collect Tk 2.89 trillion against a target of Tk 3.58 trillion. National Board of Revenue (NBR) has yet to furnish the data on May. The IMF set the revised target to be Tk 4.35 trillion for the current fiscal year. The shortfall reached Tk 1.46 trillion. It would be a spectacle to watch how the NBR will meet this gap in the next 28 days of this fiscal year. Meeting this target is vital for getting the next IMF credit package. Revenue generation is also crucial for bridging the budget deficit, which is 4% of GDP this year, and the target is set to be 3.65% for the next fiscal year.

Tk 2.26 trillion could be more than halved if NBR bags the shortfall of Tk 1.46 trillion. Missing the credit means we will lose vital source of financing the budget deficit, resulting in a wider budget deficit that nobody wants.

Govt's deficit financing plan consists of Tk 1.26 trillion internal borrowing and Tk 1.35 trillion foreign borrowing. This Tk 1.35 trillion of foreign borrowing will become extremely costly if the negotiations between the govt and the IMF fall apart. Moreover, govt's dependence on internal borrowing, mostly from banks (Tk 1.04 trillion), rises in this scenario. Govt is also relaxing conditions for investment on National Savings Certificate (NSC). This will definitely increase govt's spending on interest payment, eating away vital spending on other social security program.

Lowering the budget deficit is crucial for maintaining long term macroeconomic stability. Bigger deficits mean govt needs to borrow more from home and abroad, piling up the debt. Failure to lower the deficit puts pressure on subsequent future govt's. Since this govt has less political affiliation, it does not have any obligation to run a huge annual development program. Implementation of ADP is fraught with corruption and resource missallocation. ADP creates jobs,investment in rural areas is a banal political rhetoric. Look what happened to the govt that had implemented inflated ADP for all these years!

The govt has two ways to lower the budget deficit : increasing the revenue and cutting the ADP expenditure. There will be overwhelming effort for revenue generation next year to meet the target of Tk 5.18 trillion, there is no doubt. But for the remaining days of this year, govt can boost revenue by depreciating Taka through foreign exchange market intervention. The central bank can start procuring dollar and weaken Taka by 2/3%. Govt has just lowered the fuel prices and it will offset any resulting inflationary pressure. The move will augment revenue earning from import. This move can be coupled with dramatic cut in the rest of the ADP for this year. Political govt has a tendency to spend ADP money at the last leg of the fiscal year. This govt lacks this tendency, I believe, and so can slash the ADP spending significantly.

Tk 2.26 trillion can be lowered significantly if we lower the ADP spending. This will ease the pressure on revenue collection. And relieve the ordinary people from the heat of direct and indirect taxes.

Tk 2.3 trillion ADP spending can be lowered to Tk 1.5 or Tk 1.7 trillion. Missing the revenue target and failure to lower the deficit will push us towards costly bilateral option. Often bilateral arrangement may lead to sell national flag career or one or two utility companies. It may be OK for some ,but problematic to others. So doubling our effort to revenue generation and to lower further the deficit should be the priority.

The Cost Of Domestic Turbulence

Protests cast shadow over revenue target, Lost market share, credit may become the reason for regret.

Protests by the public servants at the Secretariat and at the National Board of Revenue (NBR) crippled the functioning of govt. Govt was compelled to introduce "The Public Service (Amendment) Ordinance 2025" that permits the govt to fire a public servant within 8 days. The ordinance created further grievance and rift. Earlier govt had announced to provide allowance, which was earlier cancelled, to public servants. It now would cost the govt Tk 70 billion.

The NBR staffs are protesting the separation between policy department and implementation department. No one is losing their jobs or benefits here, but govt did not consult with the staffs prior to taking the decision. Many felt deceived and started the protest. The cost is huge: govt may miss the revenue target of Tk 4.35 trillion set by the IMF. The revenue shortfall already crossed Tk 1 trillion and it is impossible to meet the target in the next one and half months. Now if the IMF does not dramatically change its position on the revenue target ,Bangladesh may fail to get the next installments , making it harder for deficit financing. Worst is that the IMF may suspend the program, signalling others to withhold their budget support. If that happens, we may see deterioration of macroeconomic conditions, leading to [rise] in market risk through currency volatility, inflation and prolonging the contractionary monetary policy.

We still have no clue where the tariff debate will lead us. Now this domestic turbulence at the heart of administration and the revenue department will undermine the economy. Since August 5 of last year, value addition to domestic tyre manufacturing industry was hampered, local market share in the tyre market declined. Indian restrictions on import of Bangladeshi goods through land ports will lower export of our agro-processed products to the country. China's decision to import mango, jackfruit from the country may further lower value addition and hamper employment in the agro-processing industry. Furthermore, the tariff debate also casts shadow [over] leather export. Since Bangladesh is delaying [implementation] of waste treatment plant as per the guidelines set by the Leather Working Group(LWG), wet blue leather export to the West was halted. The China filled the void by buying the rawhide and reexporting them to the West over the years. But the tariff debate [interrupted] the reexporting program of leather, resulting in delays of shipments and piling up of rawhide in tanneries.

Both domestic and external factors affected our manufacturing sector. Further domestic turbulence will raise the systematic risk, casting shadow over our manufacturing sector. Instead of exporting agricultural raw materials, we could encourage export of processed and value-added agro-based products. Joint ventures in leather and agro-based products could be considered to boost our export. Similarly, seeking soft grant or spending Tk 70 billion in setting up LWG prescribed treatment plant could easily open new potential [for] leather export. We can ill afford losing the next IMF credit package and losing export share of our leather and agro-based items. In this regard, wider political consensus is needed to address grievances at home.

Recipe For Meeting The Revenue Target

Meeting revenue target and boosting foreign currency, Depreciation is the best bet in this urgency.

Bangladesh Bureau of Statistics (BBS) has revealed the March inflation data. General inflation increased slightly to 9.35%. Though food inflation declined from 9.24% to 8.93%, non-food inflation rose to 9.70% from 9.38% in February. On several occasions, Bangladesh Bank Governor stressed policy rate will be lowered when inflation will be lower than 8%. On going trade war casts shadow over global commodity demand, setting a downward pressure on inflation. Positive real interest rate ( since January) and decline in inflation show sign of optimism in containing the inflation. Uncertainties unleashed by tariff cast shadow over GDP growth,forcing ADB to lower its growth forecast to 3.8% for Bangladesh. Govt is planning to downsize the budget by Tk [70 billion*], a record in recent years acknowledging the reality. The IMF has set new revenue target of Tk 570 billion for the rest of the fiscal year as a condition to get the fourth and fifth installments of the credit package.

So meeting the revenue target and staying competitive amid uncertainties and contractionary policy appear to be the challenges faced by this govt. Govt is continuing the monthly fuel price adjustment through Bangladesh Energy Regulatory Commission (BERC). To make BPC profitable, it has not lowered the prices for last couple of months. When oil prices at international market show a downward pressure, lowering fuel prices at home will help tremendously its subsequent policy actions. In May 2024,I penned a piece titled "BB's Twin Actions" where I argued how depreciation of Taka at one hand increases govt revenue through market mechanism and, on the other , boosts export without deteriorating the inflationary situation. Briefly repeating the argument again: depreciating the local currency will help NBR bagging a huge revenue from the import duties,which account for a large part of revenue collection; it will also halt the need for unnecessary incentives for exporters and remitters as higher exchange rate itself works as incentives. Govt has 2.5 months in this fiscal year and a depreciation is a must (say 10%) to meet the big jump in revenue [collection]. Time is perfect for doing so as oil prices declined by 7% than what it was prior to reciprocal tariff announcement.

As I highlighted in my previous piece, this depreciation also makes Bangladeshi goods more competitive without incurring extra spending. Not far too often we have this chance to go for depreciation. It also makes our position at the negotiation table much more comfortable. We know our goods have become competitive again and govt does not have control over private sector when many of the goods may become cheaper in international market in future. Now at the negotiation table , you promise to import some specific goods more, but in future it turns out that at the international market its prices will come down. Then you have to import it at higher prices to respect the deal at the cost of trade account balance and current account balance, crucial for a tiny country like us. So focus should be [on how] to narrow down trade imbalance between the two countries without mentioning any specific item. When international market says an American good is cheaper, we will buy it more from them. Some goods are strategically important for us. Soybean, LNG,cotton,scrap metal are used as intermediate goods in agriculture, RMG,Transport, steel and real-estate sectors. So these goods could be bought in abundance. In addition, used car,beef,pecan,wheat,biofuel,used bus/van could be considered for import if their prices are competitive in international market.

In brief, depreciation will augment govt's revenue to get the IMF credit and boost future export and remittances. It will also put us in a comfortable position to negotiate with the USA.

[*Update: This piece has been updated on April 15,2025 at 20:55 PM Bangladesh Standard Time.Update includes the revised budget downsize figure.]

Are We Heading Towards Stability?

Govt fails to meet revenue target, This will make stability hard to get.

Remittances inflow set a new record. Around $3 billion worth of remittances came from abroad in March, still sparing 3 more days to officially end the month. However, Taka against the USD shows a depreciating trend. Three weeks ago when I checked the official website of the Bangladesh Bank, USD fetched Tk 121. Now it is being sold at Tk 122 and in the unofficial market it is being traded at Tk 123. In December last year, official rate was Tk 120 ,but unofficial market rate reached Tk 128, reflecting public and private settlement of annual international obligations.

Forex reserve is still hovering at $20 billion for the last three months. Despite record growth in remittances inflow, Taka continues to show a depreciating trend. Earlier Moody's projected that inflation would remain elevated (above 9.5%) across the 2025. Moody's had already downgraded Bangladesh's credit rating from B1 to B2 and set the outlook negative. While Fitch and Standard & Poor's keep the credit outlook stable, they may downgrade us further if things do not improve in coming months and Bangladesh fails to avail the next IMF credit installment. Govt in the recent months provided cash support to the ailing banks. But recent news reports indicate that several problem banks are failing to meet the provision requirement set by the central bank. It means that regulatory authority is preparing for the eventuality of shutting down few problem banks ,which will be good for the economy in the long run.

Revenue data furnished by the NBR shows govt is failing to meet the monthly revenue target. The IMF set the revised target of Tk 4.55 trillion to avail the next package. Despite the growth in year to year monthly revenue, the NBR repeatedly fails to meet the target. The January target was Tk 2.47 trillion, but there was a shortfall of Tk 520 billion. The February target was Tk 2.8 trillion,but there was a shortfall of Tk 590 billion. The shortfall keeps widening, making it a mammoth task to meet revenue targets for the rest of the fiscal year.

This deficit in revenue collection will further cut govt's ability to spend. And if the revenue target is not met the IMF may shut the door,followed by other multilateral agencies. This in turn may put further strain on the economy, leading to further depreciation of Taka. Stable currency and political stability are the two crucial things for drawing foreign investment. Meanwhile, poor credit rating will make tougher collateral requirements when country's private sector may plan to borrow from abroad.

Summing up all the things came up here in this piece does not lead us to a stable situation in the short run. Elevated inflation, depreciation pressure , poor credit rating, failure to meet the revenue target and poor law & order condition may cause further erosion of trust among the investors. I think govt should try at its best to get the next IMF credit. For doing so, it has to make a giant leap forward in terms of revenue collection.

Trapped In Contradiction

Contradiction in stated policy May make the things messy.

Some recent decisions divulged the anomalies in pursuing the ongoing economic policy. Funding crisis has become acute as new commitment for budget support has dried up. So govt indulges in monetary fiscal expansion instead of pursuing the tightening policy.

Funding crisis led the govt to slash Tk 490 billion from the development budget. It is in line with the fiscal tightening policy, which complements the contractionary monetary policy.

But the Bangladesh Bank is unable to stay strict in its stated policy. In the latest move, it decided to print and inject Tk 20 billion into two trouble-ridden banks. The money will ease the liquidity crisis of the banks during this festival month of Ramzan when the clients need cash to spend. Earlier in November last year , it had printed and provided Tk 220 billion to some troubled banks. Later it also injected another Tk 125 billion into six more banks on the eve of new year. In total, this govt printed and injected Tk 345 billion into banking system since it took power.

Another news also divulges that govt is also mulling to "revisit" the corporate tax. The decision may further relax the corporate tax amid a revenue shortfall. This is happening when revenue deficit is widening. Instead of focusing more on direct tax revenue, the stand is similar to fiscal expansion. The IMF's revised revenue target for current fiscal year is Tk 4.55 trillion, which is unlikely to be met during the rest of the fiscal year.

Meanwhile, the National Board of Revenue (NBR) is determined to separate the policy department from the implementation department by July. It is one of the IMF's goals to get the next instalment.

Moody's downgrading of Bangladesh's credit rating from B1 to B2 makes foreign credit costly for the private sector. So govt has to take the next instalment of IMF credit package, scheduled to be released in June, to meet the budget deficit and provide the liquidity support to the private sector.

Contradiction in govt's stated policy is not convincing everyone about govt's ability to contain the inflation. That is why Moody's is projecting an inflation rate over 9.52% around the year. This is indeed a bad news as fixing the economy is the main reason why the govt is here. Yet the policies worsen the situation instead of improving it.

Need Prudent Decision

Prudent macroeconomic management Helps to weather the bad event.

Bangladesh Bureau of Statistics (BBS) is about to publish the inflation rate for October. September inflation rate declined to 9.92%. Despite the ongoing contractionary monetary policy, market has yet to reflect the official inflation data. Govt lifted all duties and taxes on rice import following the heavy loss of Aman paddy cultivation due to unusual precipitation in August-September. This is happening at a time when the govt embarked on bringing the corrupts to the book. During this anti-corruption drive many groups are reluctant to open L/C. On the other hand,high interest rate and lack of instructions from the central bank bar new entrants to go for rice import. Govt has to play crucial role to encourage grain import in this troubling time.

Yesterday(November 06), I read a Reuters report that depicts pessimism about economy following Trump's victory. The report says a fresh round of trade war would accelerate inflation as consumers will pay higher prices for consumer goods¹.

I do not think so. Previous round of trade war under Trump presidency shrank global growth by 0.30%,according to the IMF. This time too, both the IMF and the World Bank projections hint slow down of major economies except the USA for next year. When growth shrinks,demand for output falls and it brings down the price levels. Trump's plan to impose 10% tariff on all foreign goods and 50% tariff on Chinese goods are likely to protect the car industry, particularly the electric vehicle industry. Apart from that it will bring pace to import substitution industry in the US along with the new tax rebate policies for the US businesses. This is heading towards more jobs,more income and more consumption. Trump is likely to recuperate loss from tax rebate by cutting govt spending abroad ( less military spending abroad, less foreign assistance, less fund for climate change etc). This Trumpian resource mobilization will boost consumer activity, a good news for Bangladeshi apparel export. I also disagree with Reuter's fear that it will delay Fed's plan for lowering the policy rate. Fed has already lowered the policy rate. Fall of demand for goods will bring down the price levels. Moreover, Saudis are planning to cut the prices for oil for Asia in December². Prices of fuel, which influence the price levels, registers a decline. So lowering trend of inflation along with boost of American export due to increasing military spending across the globe will force the Fed to lower the policy rate. Back in June 15 this year, I highlighted in my piece titled "Macroeconomy Amid Trade War V", how fall in prices of soya and soya meals may help Bangladesh in the fight against inflation³.

Most importantly, high tariffs on Chinese goods will help relocating manufacturing units to other countries. More FDIs are expected under Trump presidency. In general for Bangladesh, non-food inflation will come down in the first two quarters of next year if any disaster does not disrupt the global supply chain.

Many social media channel claimed China refused to provide fresh credit to Bangladesh. They equated the decision with the regime change. I think it is economic reason rather than political one. Prior to former Prime Minister's visit to China,a Politburo member of Chinese communist party came to Bangladesh in an official visit along with EXIM bank of China and other ministry officials. They held talks with the central bank about the macroeconomy. JICA officials also held talks with the central bank about economy at this time to know first the real economic situation here. According to a report by Reuters⁴, Chinese public debt tripled its GDP due to the crisis in its housing market. So it slows down the economy and the party directing fresh credit to the manufacturing sector at home while the Belt and Road project gets less priority. I think for this reason China is not committing new loan to Bangladesh.

Last week, another decision, it appears, may hurt govt's revenue collection target for the next year. Government decided to revise 30% tax on capital gain from the stock market. The new rate is 15%. It will evidently hamper govt's revenue collection target of Tk 4.8/5.1 trillion next year. No ordinary or common people come to invest in share market, where opaque capital enjoys safe sanctuary. Earlier govt slashed tariff on edible oil and sugar. There are too many fiscal relaxations when the fiscal policy is supposed to align with the monetary policy. I think except the handful few kitchen items , which are consumed by all income groups, there should be no relaxation on taxes.

Government has to reconsider its decision on soft tax policy when normalcy in daily life and kitchen market has yet to return [and it has to meet a colossal revenue target]. Economic activities are not in full swing. Though external situation is in favor of a quick recovery, weathering the bad spell requires prudent economic management.

P.S.: BBS published the inflation for September when I am preparing the piece. General inflation increased to 10.87% and food inflation increased to 12.66%.

References:

1. "Trump Victory To Reverberate Through Global Economy ",Balazs Koranyi,Reuters,November 06,2024. Link: https://www.reuters.com/markets/us/trump-victory-reverberate-through-global-economy-2024-11-06/
2. "Aramco Cuts Oil Prices To Asia",Yahoo Finance,November ,06,2024. Link:https://finance.yahoo.com/news/aramco-cuts-oil-prices-asia-185011180.html
3. "Macroeconomy Amid Trade War V",Rezaul Hoque,June 15,2024.https://hoquestake.blogspot.com. Link:https://hoquestake.blogspot.com/2024/06/macroeconomy-amid-trade-war-v.html?m=1
4. " Why Trump Tariffs Pose A Bigger Threat To China's Economy This Time",Marius Zaharia,November 06,2024. Link: https://www.reuters.com/world/china/why-chinas-economy-is-more-vulnerable-trump-tariffs-this-time-2024-11-06/

Review Decision On Tariff And Vandalism

Review the decision on tariff and criminal act, For more revenue and justice perfect.

Three weeks ago government lowered the prices of sugar and edible oil. Yet the two items are still being sold at higher prices. In general, 52% taxes( 30% duty,15% VAT and 7% advanced tax) were imposed on sugar before the new directive took effect. On the other hand, 15% VAT along with other duties were imposed on edible oil. Govt halved the import duty on sugar and halved the VAT on edible oil. Along with onion, import duty on edible oil and sugar constitutes a great part of import revenue. Slashing the duties will evidently lower the revenue generated from these two kitchen commodities.

In 2023, govt's sugar import stood at Tk 12710 crore. Every year govt imports Tk 25000 crore worth of edible oil. Now with the former duty structure, sugar alone generated Tk 6609.2 crore and edible oil Tk 3750 crore as import revenue. With the new tariff structure, revenue loss from sugar and edible oil will become Tk 1906.5 crore and Tk 1250 crore respectively. The decision would cost the govt altogether Tk 3156.5 crore in this time of austerity^1&2.

As understood from desperation of tackling the inflation,the measures are pretty much in line with govt's top priority. At this time of slow business activity, revenue generation will be lower. This year govt faces an uphill task of meeting revenue target of Tk 5.41 trillion. Last year, revenue shortfall was Tk 381.57 billion against the target of Tk 4.1 trillion. The slow pace of revenue generation ( caused by political uncertainty, lack of capacity and slow business activity) is likely to hamper meeting the target. We have to wait for 1 or 2 months to see whether the tariff reduction has any impact on inflation.

My personal opinion is to review the decision immediately. Because sugar and to some extent edible oil get less priority in the list of essential kitchen items. So govt could easily retain Tk 3165.5 crore by reinstating the tariff structure. I am optimistic after the November 5 election things will improve dramatically including inflation.

Apart from fixing the revenue generation, addressing political uncertainty calls for objective stance on vandalism. Vandalism does not have different meanings for different people. It will be biased move for the govt to call one unlawful act vandalism while sparing the other one. Attacks on key public installation, foreign cultural institute, museum, police station, houses of former ruling party members should be treated as acts of vandalism and law should take its own course. Otherwise, biased justice will open another chapter of political agitation. In Sri Lanka, interim govt tried the attackers of presidential palace and the court sentenced them for their conduct. To gain the confidence of people from all walks of life, interim govt should do the same and immediately bring to book all the troublemakers, plunderers and arsonists. It is indeed a good news that United Nations Commission for Human Rights opened an office in Bangladesh. An independent forensic lab under the UN could help the probe on the atrocities committed during July and August. Reviewing the decisions taken so far could improve our revenue generation and help the govt gaining more confidence.

References:

1. "Chinir Shulko 30% Theke Kome 15% Kora Hoechhey:NBR(Tariff On Sugar Lowered To 15% From 30%:NBR)",Daily Prothom Alo,October 09,2024.
2. "Soyabin O Pam Tele Vat Chhar Diyecchey Sarker(Govt Slashed VAT On Soybean And Palm Oil)",Daily Prothom Alo,October 17,2024.

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

BPC's New System

New system inside BPC May make NBR's task easy.

Bangladesh Petroleum Corporation (BPC) intends to launch a smart fuel distribution system. Successful implementation of this system means timely distribution of fuel and greater transparency in fuel transaction. Being the largest corporation of Bangladesh, BPC activities mean a lot to the govt. (For more read "Smart Fuel Distribution Chalu Korte Chai BPC(BPC Wants To Start Smart Fuel Distribution)", Sanchita Shitu,Bangla Tribune,May 23,2024.Link:https://tinyurl.com/shjbnct4)

Since 2015,BPC made huge profits and it continued till 2021.In this period, govt provided zero subsidy to BPC.Prior to 2015,huge subsidy was given to BPC. In 2013,govt gave a subsidy of Taka 13.557 billion to BPC. This unravels the subsidy pressure on govt. Luckily, monthly fuel price adjustment eases the pressure a lot. But is it enough to rescue the BPC?

BPC automation software has long been a topic of debate. Few years ago, a report divulged that BPC developed a software but faced overwhelming odds implementing the software as certain quarter delayed its implementation(For more read "BPC's 'Payment Automation' Launch Hits Snag" by Financial Express,June 24,2019.Link:https://thefinancialexpress.com.bd/trade/bpcs-payment-automation-launch-hits-snag-1561348071). Prior to the development of software, it took as long as 10 months to record a BPC transaction. That means BPC's legitimate transaction went out of official record from 10 months, ample time to make some fortune out of BPC money. Could anyone believe in a public corporation this kind of mockery was going on years after years?

BPC's transaction revenue is also a great deal of concern for the NBR. It gets huge amount of revenue from BPC's fuel sale. Real time transaction data means real time data on VAT. Lack of real time data allows other to keep NBR in the dark. Another news report divulged that Petrobangla earned huge interest by keeping money into several bank accounts while it owes Taka 220 billion to NBR. I touched the issues in my January piece titled "Economic Reforms: Morning Shows The Day"(for more read https://hoquestake.blogspot.com/2024/01/economic-reforms-morning-shows-day.html?m=1). Both BPC and Petrobangla are large sources of VAT for NBR. Dedicated offices in these two corporations and real time data on VAT could provide relief to NBR in this time of meeting the revenue target.

Not only the BPC money but sometimes subsidized oil also goes off the radar. Two years ago a deadly fire accident in an internal container depot in Chattogram revealed that oil smuggled out of the country in disguise of other goods inside containers. BPC 's smart fuel distribution system hopefully curb the incidence of such practice. It is not clear whether the smart fuel distribution system is the same software automation or a completely new system. If it is the same thing then why does it take so long to implement it? If it is a new system then it will add another layer of security to the existing software automation of BPC and ensure that subsidized oil will not fall into wrong hands.

Mixed Reactions To Reform Programs

Blaming reforms for economic woe Leaves people confused without any clue.

As some reform programs are about to see the light, mixed reactions are being observed in the economy. Indices fell below 5000 points and daily transaction reached below Taka 4 billion at Dhaka Stock Exchange. Imposition of 15% gain tax is identified as the main reason. NBR is likely to put a 15% tax on over Taka 4 million capital gain in the stock market in a bid to meet the revenue target. The decision is indeed a good move as it will have less impact on ordinary people.In general,revenue will rise for the following reasons:

• Depreciation of Taka increases the taka amount of revenue.
• 15% tax on remittances and 15% gain tax on stock trading gain will have an impact on overall revenue generation.
• Bangladesh Petroleum Corporation (BPC) is installing a system to get real time data on transaction and payment. It will help getting VAT money from BPC in the quickest possible time. BPC VAT is one of the large sources of VAT revenue.(for more read "Smart Fuel Distribution Chalu Korte Chai BPC(BPC Wants To Start Smart Fuel Distribution)", Sanchita Shitu,Bangla Tribune,May 23,2024.Link:https://tinyurl.com/shjbnct4)
• Restructuring of existing tax slabs above the minimum taxable income (proposed to be fixed at Taka 500,000) will likely to boost revenue. Because subsequent slabs will likely to see higher taxes.
• Good harvest of winter paddy, low price of crude oil in international market and crawling peg exchange rate will put less pressure on resource allocation. Redirected resources to private sector will increase import and import duty,which registered an 11% growth till February this year.

While UAE imposed tax on outgoing remittances, a great deal of unease is seen here on the issue of remittance tax. Back in March this year,I penned a piece titled "Will Tax On Remittances Lower The Inward Flow?"(see the link: https://hoquestake.blogspot.com/2024/03/will-tax-on-remittances-lower-inward.html?m=1)highlighting why such move will increase revenue. Universal applicability of the tax rather than targeting a sector will bring its success. Import duty,VAT are the examples. Imposition of such taxes does not shrink the volume of tradable goods in the economy, nor does it have any adverse impact on the economy. A quick look at the data on import duty and VAT over two decades will clear the point I like to make.

There is a lot of misinformation about the IMF programs on the public domain. All the blames of current economic situation are heaped on IMF program. And it is being presented as anti-people. But it is the IMF that first raised the issue about non-monetary use of $7 billion forex reserve money through a letter. The letter luckily got leaked in the press and everybody became aware of the true reserve situation, avoiding further unreasonable use of forex reserve. It is the IMF team that raised question about investment of pension fund into savings certificates that offer interest rate lower than the inflation rate. It is the IMF that prescribed to raise the ceiling of minimum taxable income to Taka 500,000. Monthly fuel price adjustment resulted in reduction in bus fare. [It is the IMF that objected inclusion of national savings certificates' (NSD) interest security spending( for more see the link:https://www.prothomalo.com/business/economics/vu79oq3bdn ).*]This clearly indicates reform programs are benefitting the people a lot and plugging the holes that keep nourishing a certain quarter at the expense of public money.

[*Update: This piece has been updated by me on June 01,2024 at 20:25 Bangladesh Standard Time (BST). Update includes IMF's objection on inclusion of NSD interest into social security spending.]

Foreign Currency Crisis And Misuse Of Public Money

Uphill task of revenue collection Is marred with inefficient resource allocation.

Recently, platform of international air travel agencies appealed to the government of Bangladesh to release $323 million owed by the agencies. They made similar request to the government of Pakistan. Both countries are facing severe foreign currency crisis and subject of IMF budgetary assistance to fix their macroeconomy. Earlier Bangladesh Bank eased the rule of purchasing plane ticket with foreign currency, allowing local currency as a substitute. This was not the first incident many multinational companies had earlier reported that they had difficulties in repatriating their profit back home amid foreign currency crisis.

This issue is surfaced at a moment when Bangladesh Petroleum Corporation (BPC) owes Taka 30 billion as fuel bill to Biman Bangladesh Airlines,national flag carrier of Bangladesh. Petrobangla ,another public company ,on the other hand earned Taka 90 billion as interest by depositing VAT money into several bank accounts ,not giving a penny to the National Board of Revenue(NBR).The due payment is more than enough to clear travel agents' dues of $323 million.

Meanwhile, our interest payment on foreign loans has already crossed $2.57 billion for the current fiscal year. It is indeed putting huge pressure on resource allocation. Government has already requested the Russian government to postpone the scheduled repayment of Rooppur Nuclear Power Plant credit for two years. Delay in installing the transmission line ,which requires new assessment and foreign credit,is identified as the main reason.

Monitoring and Evaluation department of the ministry of planning has already shelved the proposed spending on line 5 of the Metro rail service network. It particularly questioned spending on Taka 60 billion as commitment fees and interest payment. Why don't we use the stock market to finance the metro rail project? European settlers in the United States used stock market to expand rail network across America. If people and companies are interested, they will buy stock of this rail network. This is also a measure of identifying the popular and viable routes. Per kilometer construction cost of such project reached a record level ,an unmatched example in the world. And for an electricity-run metro service, we the commuters pay a hilarious amount of fair, almost twice the fair of bus,which is lowered recently following fuel price adjustment. Using simple tiles instead of granite, staircase (and large service lift/no lift) instead of escalator and too many lifts,local materials instead of foreign materials, spartan stations instead of exotic stations, no station plaza instead of too many station plaza, local coaches instead of foreign coaches ,we could bring down the construction cost. I had the opportunity to ride on the Chennai metro,which is also viaduct-based. It is simple ,clean ,functional and cheap. This is what we want here. We have to cut our coat according to our clothes. Eye-dazzling look gives a comfort,but does not provide a relief to the inflation-battered pockets. And our companies should have greater role in these projects. Leasing out the management of metro service to third parties could bring down the operational cost and increase the revenue.

Inefficient use of resources is another worry. A public company provided 100,000 electronic voting machine (EVM) to the Election Commission with a price tag of Taka 38.25 billion. EVM machines were supposed to be operational for 10 years. But after 5-year 60% of them went out-of-service and the public company demanded Taka 80 billion to fix them. However,due to acute funding crisis the project did not see the light. Any private company could provide the EVMs at one-tenth of the cost and might save the public money. So we are witnessing acute funding crisis on one side,and inefficient use of public resources on the other. Government is unable to clear the dues of international air travel agencies,but wasting millions of tax payers' money through rickety public companies.

Perks For Allowing Opaque Capital

Giving access to opaque capital Calls for perks substantial.

IMF in its latest world economic outlook has lowered growth projection for Bangladesh. It forecast a GDP growth of 5.7% in this fiscal year. It anticipates an inflation rate of 9.7% for the current year,declining to 6.0% in 2025.

As per the conditions laid out by the IMF, government implemented market-determined fuel price mechanism. On two occasions, prices of fuel were lowered: diesel witnessed the lowest slash as it may prompt smuggling activity while petrol and octane witnessed the biggest fall. But such reduction in fuel prices has not pronounced yet in bus fare and good prices. Maybe one or two months later one will see the development.

Meanwhile, quintessential kitchen items see another round of increase in prices. As contractionary monetary policy is being pursued in the USA,consumers with tight pocket slashed their purchase of imported clothes,resulted in -19% growth in Bangladeshi RMG export to USA last year. However, IMF is optimistic that contractionary monetary policy has not slowed down the economic activities in advanced economies and price levels in general coming down in these countries.

At one hand ,export to USA shrinks. On the other, revenue collection lags the target and government fails to meet the March target of forex reserve.

While revenue increasing measures are being rolled out one by one, tough criticism casts shadow over them. Imposition of VAT on remittances took a particular hit. Again some argued this might lower the inward remittances. However, UAE already imposed such VAT on outgoing remittances and exchange houses said they would comply.

Another idea of taxing the capital gains in stock market met stiff resistance. Reason for not providing assistance in time of capital loss fuels the resisting argument. However, stock market is one of the areas where opaque capital is allowed and one with capital below Taka 100,000 cannot invest here. That means people below minimum taxable income cannot operate here. NBR needs perks for allowing undocumented money into the stock market. Taxing the capital gains is one of those perks. In real estate sector, another area where opaque capital is allowed, NBR hiked the registration fees. This is clearly perks for the government. However, the perks are not enough to improve the situation in these sectors. Any assistance to stock market is contradictory to ongoing subsidy-cutting policies. It may prolong the inflation containing process. So far our assumption about economy gaining confidence after election proved wrong. Prioritizing the goals and sticking to it should be the prudent step. A note of caution by the IMF for advanced economies should be applicable for us too:

"On the upside, looser fiscal policy than necessary and assumed in projections could raise economic activities in the short term,although risking more costly policy adjustments later on."(see IMF World Economic Outlook April 2024, page- xvi)

By the same token,despite protest from the concerned minister, subsidies to ICT sector should be discontinued. NBR should review its policies regarding giving subsidies to sectors that have access to cheap/cost-free/undocumented capital. These two should be decoupled. And NBR should have perks(in the form of taxes/fees) for allowing sectors to enjoy undocumented money.

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.

Restaurants Face A Bad Spell

Fire killed people in posh neighborhood Triggering govt's anti-restaurant mood.

Dhaka restaurant business is going through a bad spell. The February 29 fire incident at Bailey Road not only claimed 46 lives but started a long campaign against the restaurants that employ around 100.000 people across Bangladesh. Dhaka restaurants are under the scanner of the government. Graveyard silence fell on Bailey road ,which housed more restaurants and would usually be busy in this time of year if the place were not struck by that fire incident on that February 29 night. What prompted the authority to embark on this drive against the Dhaka restaurants is the number and identity of victims: 3 engineering students (among them one identified as the daughter of a senior police officer),2 journalists, daughter of a garment factory owner who is pursuing her studies abroad, an Italian Bangladeshi and four members of his family who are about to go to Italy, one School teacher and her daughter and many more who could not make it to the news headline.

The restaurant where the tragedy struck is located 2nd floor of a 5-storey building that was meant to be occupied by commercial offices. But restaurants and clothing outlet substituted the offices from the basement to the top floor of the building, which received warning notice from the fire department for not taking enough measures against fire. Even the architect was compelled to object gross violation of building code at his creations to the proper authority.

In Dhanmondi, one of the posh areas of Dhaka, a state-of-the art building is being occupied by high-end restaurants leaving in the dark the very architect who designed it for offices. Like the Bailey road building, gas cylinders of the restaurants are being kept on every floor of the building that does not even have a proper fire exit in case of emergency situation.

Authorities’ concerns about safety and building code violation following the tragedy are genuine. But the way they responded to such tragedy calls into question their objective and commitment to enforce building code. It is not the task of the authority to spread further panic and to harm an industry that is creating decent jobs and filling government coffer with VAT money. Authority is supposed to aware the consumers about potential dangers of visiting such restaurants instead of starting a panic spree.

The subsequent driving incident could be aptly called incoherent policies of the respective authorities. Right before their eyes these restaurants popped up on every floor of commercial buildings across Dhaka. They remained mum back then. When one fatal incident surfaced and created storm into tea cups ,they become hyperactive and literally put an end to the restaurant business in the time of austerity.

Origin of the fire and scale of devastation require proper scrutiny. Vital question like is it an accident or a deliberate attack? needs to be answered. Before the probe coming up with convincing findings, drawing a definitive conclusion may complicate further the problem. Last year, on the eve of Eid, we witnessed how several of Dhaka's markets were ravaged by mysterious fire. In Bangladesh, we see frequent fire incidents like the retributive fire attacks in Mexico, Philippines and other countries where organized criminal groups hold sway over society and economy. It is highly indicative of a country that sees introduction of undocumented money into the economy and gradual decline of power of law enforcement agencies. Like many other previous incidents In the case of Bailey road, we read how the fire spread at unprecedented pace and plumes of smokes consumed the victims, giving them no time to think about alternatives. Restaurant business is not flawless. I often wonder how these restaurants thrive when the middle class is loosing its purchasing power and sees opportunities shrink everyday. What is puzzling is that Banani-11 street model has been being replicated across Dhaka for the last couple of years. NBR could tell how much VAT they gave to the govt. Apart from that ,the high-end restaurants created some good jobs. Their frequent occupation of commercial floors lays bare the fact that real estate sector has so many unrented commercial spaces. This means businesses are having a tough time. Similarly, speculation like money laundering behind the smokescreen of restaurant business cannot be ruled out. Especially when govt allows investment of undocumented money in the real-estate sector and more and more restaurants occupy office spaces of a building. Putting aside the issue of occupancy certificate, Govt probe should focus on whether they are engaged in money laundering activity or not. Money laundering accusation is labelled against many people often on purely harassing purposes but its genuine sources are never being investigated by the authority. This is another example of biased use of law.

However, it is also not right to harass the restaurant owners during the fasting month of Ramzan when the business in general sees a low revenue. More documentation, origin of the capital invested and a sustained campaign among restaurateurs and consumers may discourage owners from renting an office space. Arbitrary fining of the restaurants and shutting them down are only hurting the govt that is keen to create more jobs in the next few years. Let deep thought and sanity prevail over reactionary stance.