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.]

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.