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.]

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.]

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.

People Pay For Govt Mess

A minimum tax for threshold income or less! Why should people pay for your mess?

Govt made it compulsory to pay a minimum tax of Taka 2000 for every TIN holder. This is literally forcing the people to pay for its economic mismanagement. Back in 2016,I wrote this piece titled “Get Your Hands Off My Pocket”¹. Sharing it again:

”””

Small and medium entrepreneurs, comprising of mostly Dhaka’s shop owners, staged a Dhaka-wide complete shutdown of their shops as a token of protest against the imposition of additional VAT that they deem unjust. VAT threshold for shop owners was raised to Tk 28000, two times higher than what it was a year ago. Recently Finance Minister even wished to impose tax on the school-goers.

We Bengalis are emotional. Whenever working Bangladeshi’s salary becomes taxable, he/she spares no opportunity to become a new taxpayer. Every year people throng to income tax fair. Just this year around 36,853 new taxpayers get themselves registered in the tax fair. Moreover, 195,000 taxpayers paid around Tk 21.30 billion as income taxes. Apparently, a feel-good factor comes into play on such occasion. However, have we ever thought that our money is ending up in good hands?

Bangladesh’s tax-GDP ratio is 8.6% during the period of 2006-2008. During the same period on average $5 billion laundered abroad every year from Bangladesh. According to Global Financial Integrity report, around $9 billion capital flight took place in 2013. Guess who did that. Bad debts are piling up in banks due to flawed decisions taken by partisan management boards.

Do we see an improvement in law & order situation? Do we get better health services? Are our hospitals well equipped? Do we have quality roads, bridges and public office buildings? Is there an increase in education subsidy? Are our infrastructures good enough to attract domestic and foreign investment? Did we invest enough in political and constitutional institutions to ensure checks and balances and to protect our democratic rights? Does the private sector reap as much benefit as anticipated from the implementation of big infrastructure projects?

In terms of economic management, this government is guilty of dereliction of duty. Public confidence on government shattered as one after another financial scam hit the country. The last one, alleged hacking of Bangladesh Bank’s foreign reserve fund, put the Finance Minister (FM) and senior party leaders at odds with the Central bank’s governor and ended up in the resignation of the latter. Rampant corruption and plundering of public and specialized banks only filled party-men’s pocket. Consequently, people’s confidence to ruling party dwindled away to nothing.

But the FM’s comedy show continues. Recently at an event on remittance, FM expressed his desires to borrow money from central bank’s forex reserve to finance mega projects. The remark causes outpouring of concerns among some professionals as FM, to whom public bank’s stolen Tk8 billion is just “peanut”, took financial scam lightly.

To me, the idea of borrowing from forex reserve sounds like a blatant mockery in the wake of dilapidated condition of financial institutions. And only an FM who never took moral responsibility of any scam can make such heartless and senseless remark about Spartan people’s hard-earned money.

Does such a bad manager of economy have right to impose tax on us? Though the present government technically fit to run the country, a good number of voters did not vote in 2014 general election, boycotted by BNP alliance. In that light, it has lost moral high ground to implement any of its policies. Flawed political course of action by BNP alliance gave the present government an excuse to swell the number of political prisoners in overcrowded prisons, further undermining its organizational capacity. So, the government took an authoritarian stance and pursued anti-public economic policies with no hold barred. Utility fees were raised on several occasions while the oil price was all time low. Without any opinion poll, one can draw a bottom line that people were not happy with such decisions.

Ignoring parliament and without taking prior consent of people’s representatives this VAT raising move only increases resentment. Since the government lacks popular public support, individuals who are not on the same page can say: “Hey you did not care about my opinion. Why should I pay taxes at your whims?”

As soon as public resentment reaches to a crescendo, it may turn into a government changing movement.

Introduction of Magna Carta can be aptly cited here as an example. The elites under the king forced him to revoke some of his privileges and to accept Magna Carta that laid down that the King must consult them before raising taxes or imposing new ones.

In Bangladesh, we already witnessed few spontaneous protests by different professional groups despite effete state of the main opposition. Primary school teachers took to streets and had skirmishes with Police over their grievances. Public university teachers waged an abortive movement over pay hike. And private university students quite successfully made the government rescind its decision of imposing VAT on university fees.

Protests staged by professional groups should ring alarm bell all across the party hierarchy. People simply do not want to see their views and opinions getting crushed under authoritarian boots. They want to see govt policies reflect their wishes. Not just being guided by whimsical policies that they do not ask for. In functional democracies, rival political parties compete for people’s trust and formulate policies based on people’s desire.

Unfortunately, bitter rivalries between two leading parties hampered the proper functioning of democracy. We are left with no choice but to accept the status quo: a parliament where half of the MPs are uncontested.

Imposition or raising VAT and tax is crucial matter and demands consent of people’s representatives. Just slapping them on people like medieval rulers is like trampling on people’s feeling and wishes.

Until democracy gets back on track and a parliament is formed through a free and fair election, government should refrain from emptying people’s pocket by levying unjust and unreasonable VAT and duties. As long as government does not change its decision, people have every right to say:”Get your hands off my pocket. Why should I pay for your mismanagement?”

"""

Notes And References

1. ”Get Your Hands Off My Pocket”,Rezaul Hoque,November 11,2016. https://rezaulhoque.WordPress.com. For more read at https://rezaulhoque.wordpress.com/2016/11/11/get-your-hands-off-my-pocket/
   Later appeared on Dhaka Tribune as " Where Is My Tax Money Going?" on November 19,2016. For more read at https://archive.dhakatribune.com/opinion/op-ed/2016/11/19/tax-money-going

NBR's Surprising Decision

NBR's sweeping minimum tax Raises lower group’s burden max.

NBR is mulling to impose Taka 2000 tax on all TIN holders irrespective of their income. I am taken aback by this very idea. Even a man with zero income like me or below the taxable income has to pay this amount if NBR's idea comes into reality. This is unjust and has serious drawbacks.

Unjust in a sense that while unemployed and lower income groups will pay a minimum amount, govt has not yet raised the corporate tax, which was earlier lowered from 21% to 20%. Many defaulters do business as usual with tax payer's money through loan rescheduling and are allowed to invest abroad. However, it is not known how much money they pay as taxes.

NBR may lose more revenues than what it anticipates to achieve. Those with variable income and pay taxes not more than Taka 5000 will prefer to pretend themselves belong to Taka 2000-tax group and those who are planning to obtain TIN next fiscal year will prefer to go off the NBR radar. At the end of the day NBR may find itself on the loser’s side.

There are plenty of ways NBR could augment its revenues:

• NBR could break down TIN holders into two classes: TIN holders with single earning source and TIN holders with multiple earning sources. Many of the latter group try to validate their swollen wealth by introducing multiple sources. In case of astronomical sum they could pay a relatively high tax on the earnings from secondary sources.
• NBR could think of reimposing duties on oil as international prices are coming down. It is a vital source of NBR revenue and a bad idea to downsize it. If oil price touches $130 per barrel in future, then NBR may reconsider removing duties.
• Increase the income tax and other tariffs of quasi-state and private companies that evade regular audit. This one single step will dramatically improve the governance.
• NBR could impose 1 or 2% tax on interest earning of National Savings Certificate. No one will bother much as the revenue earned will be used to finance the interest payment later.
• Since MFS has become increasingly popular for daily transactions, NBR could take a look at the transaction data by delving into operator's server and impose duties on accounts that transact more than Taka 100,000 per month.

Some other ideas I mooted in the piece "VAT Week Resolution", on December 10 ,2022.Sharing parts of it again¹:

"""

• Govt uses the VAT money to pay subsidy and other expenses.Though mismanagement in public banks put them into precarious position,govt keeps funding these banks using taxpayer’s money to run operation. On the other hand,duties and taxes on export items are still low. Many exporters do not bring their money back home and pay a very low source tax,1%. Yet they receive regular subsidy.Government should raise the source tax to 2.5% and provide subsidy to export earnings brought back home. Even 0.25% increase in export tax would yield good revenue for the government without compromising the competitiveness of the exportable items.
• Micro entrepreneurs and street vendors fall out of NBR's reach because their businesses do not fall into NBR's VAT category. Meanwhile, extortion from Dhaka streets every year reached Tk 14 billion ,according to an NGO study.NBR could introduce special bonds/tools for them which opens the alley for purchase of bonds worth Tk 100/500 every month/quarter at their own will.Part of the revenue will be used to form crisis fund for them in case of working capital need or bankruptcy.
• In addition, NBR could introduce special gadgets with satellite data link so that road side kiosk and shops could generate VAT included cash receipts and the info could be sent directly to NBR server. We have a communication satellite and we need to make good use of it. Our software developers could develop software for such device and there is no need for foreign firms.
  This kind of gadgets without data link already introduced by bus conductors in the name of e-ticketing and squeeze out unreasonable amount from commuters’ pockets. It is interesting to note that those with malevolent intention increasingly hinge on gadgets while govt is shy to introduce them. In local neighborhood shops and groceries, concept of money receipt has become a bygone era thing long ago. To document every transaction this gadget is a must.
  Now in Bangladesh we see criminalized neighborhoods with the spread of grey areas in business and other sectors. Introduction of VAT gadgets will create VAT culture at the grassroot level business and decriminalize the neighborhoods with greater transparency and documentation.

"""

It is not right to slap Taka 2000 tax on all TIN holders. This decision is tantamount to mockery with honest taxpayers. Below tax income may be segmented and different layer of minimum taxes could be introduced. For instance, people with income below Taka 100 000 would pay Taka 500 or 0. More than 1 lakh but below 2 lakh would pay Taka 1000.And the others will pay Taka 2000. NBR has plenty of means to augment its revenue earning. I think it would be a wise decision to discard the minimum tax of Taka 2000.

Notes And References

1. ”Vat Week Resolution “,Rezaul Hoque,December 10,2022,https://hoquestake.blogspot.com.For more read at https://hoquestake.blogspot.com/2022/12/vat-week-resolution.html?m=1

©Rezaul Hoque

What The VAT Row Exposes

A row between NBR and Metro authority Lays bare Metro fare's absurdity.

A row between Dhaka Metro Rail Transport Company Limited (DMTCL) and National Board of Revenue (NBR) has been made a news item.NBR wanted to impose 15% VAT on metro fare. Argument put forward for the proposition is that Metro coaches are air-conditioned and VAT law allows imposition of VAT on such coaches. DMTCL however refused to pay VAT outright. It argued that Metro rail is a mode of transportation for mass people and any imposition of VAT would increase commuting expenses¹.

I am a strong advocate of VAT.However, I found the VAT law argument irrelevant here. Govt has right to impose VAT. Resource-strapped govt has few other alternatives.Metro Rail Act has allowed the govt to set the fare. So air-conditioned coach is a weak argument. Rather financing the budget could be more appropriate.

In Bangladesh, even poor people pay VAT for smoking bidi,for talking to dear ones,for purchasing laundry soap and for buying lifesaving drugs. VAT is everywhere. In that light,there is no wrong to impose VAT on metro fare. The rate of VAT could be the subject of debate or supplementary duty or development duty could be imposed. It could be a better alternative to 15% VAT.

Contrary to DMTCL argument, metro fare has been inflated than the normal fare. Many people would travel if fare were reduced.Slapping additional VAT would not bring much trouble.

Both the fare reduction and imposition of VAT could go hand in hand.Surprisingly, both the seemingly opposite steps may increase revenue. As I have mentioned in an earlier post, reduction in fare would ultimately lead to increase in frequency of commuting and supplementary duties on fare would bring revenue to govt coffer².

Current inflated fare does not bring much revenue. It has been reported that daily operational cost of metro rail is somewhere around Tk 25 million.9000 commuters travel everyday till to date. This means monthly revenue is not enough to meet daily operational expenses. Authority is to blame for this.Significant reduction in fare and fully operational metro could lead it to a profit-making path.

According to a news report,metro rail charges a minimum of Rs 5 and a maximum of Rs 60 in neighboring States of India³. I had the chance to take a ride on Delhi,Kolkata and Chennai metro. A distance between Motijheel and Mirpur-10 would cost me less than 20 Rs. I hardly remember to pay more than 20 Rs to travel a distance between Uttara and Farmgate back in 2013.Even the per km metro fare in metro is higher than the bus fare(Tk2.50/km) in Dhaka. It is absurd and unacceptable. It would not be wrong to say that a section of the authority in connivance with transport businesses inflated the fare. Even the fare is low in inflation-battered Pakistan.

DMTCL is seriously breaching Metro Rail act 2015.Section 33 clearly spells that any obstruction in construction, development, operation and maintainence of Metro rail is a punishable crime (1 year imprisonment or Tk 500,000 fine).Section 42 says that if any licensee commits any crime mentioned in Metro Rail Act 2015 then he will be tried accordingly⁴.

In that light, DMTCL artificially inflated metro fare to serve transport owners’ interest and breached section 33. And therefore guilty under section 42. This argument holds true for one individual employee or group of employees.

In addition, DMTCL also sought Tk 10 billion from govt back in 2022. However, DMTCL could easily lead metro rail to profit-making path by commencing its full operation and lowering the fare.

Making the minimum fare Tk 8 instead of Tk 20 and maximum fare Tk 40 instead of Tk 100,DMTCL could do a great service to ordinary people. I do not know who is calling the shots at DMTCL. If anyone misuses civilian institutions to hurt mass interest,we should try him in civilian court no matter how immune he or she is.We need to create proper laws and fine tuning the existing ones.

Notes And References

1. "Metro Railer Ticket eVat Boshatey Chae NBR(NBR Wants To Impose VAT On Metro Fare)",Daily Prothom Alo(P-10),March 20,2023.
2. " Bangladesh Enters Metro Age: Things To Take Into Account",Rezaul Hoque,January 5,2023.https://hoquestake.blogspot.com.For more read at https://hoquestake.blogspot.com/2023/01/bangladesh-enters-metro-age-things-to.html?m=1
3. "Govt: Metro Rail Fare Based Solely On Operating Cost",Sohel Mamun,Dhaka Tribune,May 06,2022. For more read at https://www.dhakatribune.com/bangladesh/2022/05/06/govt-metro-rail-fare-based-solely-on-operating-cost
4. Dhaka Metro Rail Act 2015

Woe Called Revenue Receipts

Fetching extra revenue is on the list How to achieve that is the main twist.

Govt is running its second IMF program. First one was in 2014.One of the conditions set by IMF for the $4.7 billion credit package is to raise tax earnings each year by 0.5 % -0.7% of GDP for the next three consecutive years. A private research organization Policy Research Institute put the absolute figure like this: govt has to add extra tax-revenue of Tk 650 billion to its coffer in 2023-24; in 2024-25,it will have to add further Tk 733 billion; additional Tk957 billion will be required in 2025-26,final year of IMF's ongoing program¹. It is indeed an uphill task for National Board of Revenue (NBR). Yet it has radiated confidence before the govt to finish the task.

Press is abuzz with reports showing skepticism about government’s ability to amass the extra Tk 2340 billion in three years. Composition of revenue receipts gives some hints about the areas that will bear the brunt of generating tax revenue. In terms of revenue receipts, Value Added Tax(VAT) tops the list, followed by income tax. Then comes import duty and supplementary duty. In 2020-21,revenue receipt from VAT was Tk 1.15 trillion.Income tax revenue was Tk 959.50 billion.Revenue from supplementary duty was Tk 482.98 billion.Apart from that import duty fetched Tk371.54 billion².Contributions of export duty and excise duty to total revenue receipts are not significant. News report indicates that NBR is in discussion with large taxpayers to hike tax on income and profit. It is the easiest mean at its disposal. But a rise in corporate tax will definitely give a boost to its earnings.

Meanwhile, Non Performing Loan(NPL) stood at Tk 1.34 trillion by the end of 2022. In 2009,when the current govt assumed power it was Tk 220 billion. A clear indication of sloppy economic management and increasing incidence of cronyism. At public banks NPL is 23% of total credit. IMF demands that it be below 10%. If that happens, operating profits of the public banks will likely to rise and NBR could get extra revenue from them. However, the Islamic banks are in dire conditions following series of scams. It may hurt their operating profit. In that light NBR may not get the desired revenue from these banks.

Another way to bring extra revenue is through raising VAT. NBR could raise it from 15% to 16%. But as utility fares are hiked by significant amount, cost has gone up and profitability of the business has shrunk. Further VAT increase will definitely hurt the business. But NBR could easily get extra VAT revenue resulting from a rise in utility fare. So I think NBR may not hike the VAT anymore.

Another option is to raise the supplementary duty. Supplementary duty on soybean oil,onion,pulses could be a good option as their prices in the international market are on decline. Similar duty on mobile talk time and data could bring more revenues to govt coffer. However, govt claims that mobile operators are yet to pay overdue revenue. As business prospect is bleak, it is unlikely that govt will get huge revenue through supplementary duty on mobile phone services.

I have earlier argued for raising the source tax for exporters. Supplementary duty could also be imposed on export earnings. Govt could compensate the exporters by raising subsidy or floating special local currency funds to buy dollar from the market. Export revenue is still low compared to import revenue. So this is one particular area where NBR should focus on.

Tobacco,Metro,rail ticket could be other sources for extra revenue. As metro service will come into operation by the end of this year,govt could lower the fare significantly and then impose supplementary duty on metro fare. It will increase the frequency of commuters and thereby will raise the revenue. More rail tracks are added into the existing network. So more fast train services await to start operation.Supplementary duty on them could boost the revenue. Similarly,supplementary duty on social media,multiplex screen and restaurant could also be considered.

I once argued for NBR bond for people who do not fall into the definition of taxpayers. Street vendors, small businesses, food stalls could buy these bonds and have a feeling of contributing to the economy. In exchange ,govt could offer some benefits for these groups and launch a lottery program to transfer back part of the revenue.

Given the dismal economic conditions prevail in the major economies, the revenue target is a tough one to achieve. Inflation taming and investment shrinking measures have made the job even more difficult. Yet NBR is optimistic about reaching the target. Undoubtedly, it has to improvise to get extra revenue.

Notes And References

1. " Bipul Onker Barti Kor Ashbe Kivabey(How To Get Extra Tax Revenue) ",Daily Prothom Alo,P-12,February 08,2023.
2. Bangladesh Economic Review 2021

VAT Week Resolution

Pay VAT not just to fill govt coffer But to create a neighborhood safer. This week is going to be Value Added Tax(VAT) week. VAT plays a crucial role in filling govt's coffer. 31 years ago when then finance minister Saifur Rahman introduced the VAT very few thought it would account mammoth share of government’s revenue. By any standard it was a bold and visionary step back then.Mr Rahman,who lost his life in a tragic road accident in 2009,was criticized right and left for the move.Nevertheless,he implemented the plan and now we are reaping its benefits. In 1991-92,VAT revenue represented Tk 16.775 billion and income tax revenue was Tk 13.00 billion. In 2015-16,VAT revenue was Tk 539.16 billion and income tax revenue was Tk 517.96 billion. In 2021-22,VAT revenue was Tk 1.27 trillion and income tax revenue was Tk 1.05 trillion(Source:BER 2021).Earnings from VAT overwhelmingly dominate govt’s total revenue earnings. Though many people’s income slips through the income tax net,VAT touches people from all walks of life.Peasants, workers,housewives, unemploymed all pay VAT through their daily transactions. All goods and services are subject to 15% VAT regulations. Govt uses the VAT money to pay subsidy and other expenses.Though mismanagement in public banks put them into precarious position,govt keeps funding these banks using taxpayer’s money to run operation. On the other hand,duties and taxes on export items are still low. Many exporters do not bring their money back home and pay a very low source tax,1%. Yet they receive regular subsidy.Government should raise the source tax to 2.5% and provide subsidy to export earnings brought back home. Even 0.25% increase in export tax would yield good revenue for the government without compromising the competitiveness of the exportable items. Micro entrepreneurs and street vendors fall out of NBR's reach because their businesses do not fall into NBR's VAT category. Meanwhile, extortion from Dhaka streets every year reached Tk 14 billion ,according to an NGO study.NBR could introduce special bonds/tools for them which opens the alley for purchase of bonds worth Tk 100/500 every month/quarter at their own will.Part of the revenue will be used to form crisis fund for them in case of working capital need or bankruptcy. In addition, NBR could introduce special gadgets with satellite data link so that road side kiosk and shops could generate VAT included cash receipts and the info could be sent directly to NBR server. We have a communication satellite and we need to make good use of it. Our software developers could develop software for such device and there is no need for foreign firms. This kind of gadgets without data link already introduced by bus conductors in the name of e-ticketing and squeeze out unreasonable amount from commuters’ pockets. It is interesting to note that those with malevolent intention increasingly hinge on gadgets while govt is shy to introduce them. In local neighborhood shops and groceries, concept of money receipt has become a bygone era thing long ago. To document every transaction this gadget is a must. Now in Bangladesh we see criminalized neighborhoods with the spread of grey areas in business and other sectors. Introduction of VAT gadgets will create VAT culture at the grassroot level business and decriminalize the neighborhoods with greater transparency and documentation. So we have to pay VAT not only to fill govt coffer but to create a safe neighborhood.This is the apt realization and resolution for a chaotic time we have been going through. Friday, December 2, 2022 Poor Tax Return Says It All Poor tax return of this fiscal year Result of ambiguity and people’s fear. National Board of Revenue has set December 31 as the new deadline for submitting tax return. November 30 was the previous deadline. However, lukewarm response from the taxpayers prompted NBR to set the new deadline. Bangladesh is one of the few countries in the subcontinent where govt has to solicit/campaign for paying taxes. Only 900000 tax returns have been submitted till the last day of November. But the country has 8 million registered tax payers. But the authority believes the number of eligible taxpayers is much higher. That means more taxpayers ate still out of taxnet. Dismal tax-GDP ratio tells a lot about country’s poor revenue collection.In 2015-16,country’s tax-GDP ratio was 9.49%. In 2020-21,it rose to 8.85% and in 2021-22,it became 8.70%. It has not even reached the double digit figures. Many countries in the region have higher tax-GDP ratio,leaving their govts in a comfortable position to finance their projects. Breaking down of the tax receipts yields that direct tax on income and profit still lags behind indirect tax like VAT in terms of contribution to revenue generation. In 2015-16,VAT revenue was Tk 539.13 billion whereas income tax revenue was Tk 517.96 billion. In 2020-21,VAT revenue was Tk 1.27 trillion whereas income tax revenue was Tk 1.05 trillion(Source:Bangladesh Economic Review 2022). However, govt has lowered the corporate tax from 22% to 21% for current fiscal year.It should raise it to increase revenue from taxes on income and profit. One of the good things govt introduced in recent years is the online return and eTIN to identify potential taxpayers. It dramatically increased the number of taxpayers. And all the troubles and hassles taxpayers endured all these years have also been reduced significantly. Some YouTubers did tremendous help to govt by launching videos on how to submit tax return. I submitted my zero tax return watching such videos. I think NBR should take the initiative to create and disseminate such educational videos to dispel any ambiguity in submitting return. Similar videos can be created to submit VAT return. NBR's job is not only to identify taxpayers but also includes educating the taxpayers. If step-by-step process in filling the tax return is spelt ,more people will be encouraged to submit tax return. In addition ,NBR could also host a frequently asked questions (FAQ) section on its website to respond to some common queries. More people have the fear that once they submit return they may be subject of future harassment. I think NBR should disseminate the message that everyone should pay tax to contribute to economy. Perception about submitting return needs to be changed and should be replaced with a moral obligation. A well-informed taxpayer, clear about his role, is never shy to pay tax in time. Government has to make sure a harassment-free,informative atmosphere. Thursday, June 17, 2021 A Colleague Deserves Better Free press, VAT, girl's education, A lady did her best to serve the nation. Trumped up charges put her in jail. Going abroad is a right she deserves to avail. 1. When we were kids, we used to watch just one channel---Bangladesh Television. Cable TV had not arrived yet. With all my wonders, I watched how one single channel broadcast programs of three TV broadcast companies. In the morning, CNN aired its programs for couple of hours. From noon till afternoon, BBC broadcast its news services1. From afternoon till midnight, BTV aired its programs. Bangladeshis in general had a clear idea about what was going on around the world. Images of First Gulf war, Balkan war, Larry King live, release of Pulp Fiction, handing over of Hong Kong, news of tragic death of princess Diana reached this part of the world in the blink of an eye with accompanying discussion that third world citizens were not accustomed to see and hear. Earlier, they had watched just one channel and received a government-set narrative. However, there were few dailies and weeklies that relentlessly published reports and stories completely different from the government narrative. The credit for giving this access to news and views of the world surely goes to then Ministry of Information and Communication. That initiative tremendously empowered Bangladeshis in terms of getting information and molding their own opinions about different issues at home and abroad, a quintessential aspect of modern democracy. 2. Later government also introduced Bangladesh Open University (BOU), inspired by similar initiative in the UK, that introduced distant learning , secondary and higher secondary school certificate, SSC and HSC, programs for working people and housewives who were dropped out or did not manage to get the regular degree.2 When we sat for SSC exam I saw many mothers along with their daughters sat for SSC exam. Jubilation and joy after the news broke out that they had passed the SSC gave an aura as if the heaven descended on earth.The society would now recognize them as "shikkhito"(educated). It is more like passing Baccalauréat (equivalent to HSC) in France. Millions of people directly benefited from that program. Moreover, BOU offered many other programs through distant learning and modular lessons to get certain degrees and skills that many working people had not dreamt before. 3. By the time, we reached college and university, we saw a good number of female students there. Government offered free education to girls at college level. And it helped many rural households to get education for their daughters without incurring any cost. Enrolment of women at tertiary educational institutions not only increased but a great number of women entered job market. By the way , the present government discontinues the stipend program for women. 4. In 1991, government introduced Value Added Tax (VAT) , a 15% general sales tax on all goods and services3. Prior to that, government depended a lot on foreign loan, which contains unfavorable conditionalities. VAT tremendously lessened government's dependence on foreign loans as it increased government revenue manifolds. In 2005-06, total tax revenue earning was 9.3% of GDP, of which NBR revenue( including VAT) accounts 7.1% of GDP. In 2018-19, total tax revenue earning was 13.4% of GDP, of which NBR revenue( including VAT) accounts 11.7% of GDP. 4VAT gave the government that ease and flexibility to finance government projects. 5. The lady behind all these good policies is in jail now. A trumped up charge against her lodged in the time of caretaker government, complemented by other harassing charges,landed her in jail for the last 2 years. Just before the Corona virus outbreak, she got bail and has been staying at her home since then. Recently she received medical treatments from a private hospital5. I do not subscribe to the politics her party does, nor do I agree with many of their policies and position on various issues. The policies I mentioned earlier did a lot of good in the lives of ordinary Bangladeshis. We have to keep it in mind that Khaleda Zia is wife of a freedom fighter. During the tenure of this government, dear ones of those opposed the idea of Bangladesh grabbed opportunities including lucrative position in party and parliament. Even wife of a convicted war criminal managed to go to Germany on health grounds. Chief and leaders of a party convicted in war crimes make frequent visits abroad, particularly in UK and USA. Just few months ago perpetrators of the mayhem unleashed in Brahmanbaria and Chattogram went to Bangkok in a brainstorming session, as per some news reports. Not just that. Many criminals managed to go abroad. Even during the time of Corona many minor transgressors were pardoned and released from jail. Compared to them, Khaleda Zia is a former Prime Minister who did her best in spite of having so many shortcomings to lift the country out of backwardness and to bring positive changes in the lives of many people. If there were a social credit score in Bangladesh, I bet, Khaleda Zia as an individual would fare well in that score.Her government's tremendous achievement in free press, liberalizing the economy and girl's education would make her score outstanding. Even if her case were presented before the court of Gods, they would be compassionate and kind to her judging her past deeds. It is a shame that a lady who is more than 70-year old and a popular politician is rotting in jail. In our country, politicians do not see any respectable and civilized end of their career. They face all kinds of tragic and savage ends. In that light it is highly untrue that politicians are untouchable and above the law. At the end of the day, Khaleda Zia is a colleague in the same vocation our PM practices.In another vocation, differences in opinion does not lead one colleague to confine another one. Khaleda Zia has every right to go abroad like a free bird and to plan how she will spend the last leg of her political career. As a colleague and wife of a freedom fighter, she deserves better. ----------------------------------------------- Notes And References: 1. In the mid-1990s BTV started to broadcast the news programs of BBC and CNN. Link here 2.Bangladesh Open University was set up in 1992 and designed to be a center for distance learning.Link here 3. Bangladesh Economic Review 2019. 4. More on VAT. Link here< 5. "Still in CCU, Khaleda Zia's health improving slowly",a Dhaka Tribune report, May 20,2021. Link here Subscribe to: Posts (Atom) About Me Rezaul Hoque Hi, this is Rezaul from Bangladesh. Single,Male.Born in 1981.This website is created as an alternative to, and complements,https://rezaulhoque.wordpress.com. Here I share my analyses on various issues including economics and governance. In addition, I also share my weekly news review on the incidents that took place in past one week. I do not make money out of my content. I do not receive any govt social security benefit or any kind of perks. I do not belong to any political group or university or foreign cultural institute.I do not work for any media outlet. Nor do I represent any security agency or private organization. Praises or blame for the contents of this website should be attributed to me and not to my former employers. ©Rezaul Hoque All the contents(including claimed web programs of individual content) are copyright protected. Without prior consent, reproduction of any of the contents,be in part or full, in any format or platform is not allowed. 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