Slow progress in tax revenue reforms annoys IMF

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Shakhawat Hossain
The International Monetary Fund (IMF) has expressed dissatisfaction over the government delay in taking a decision on separation of tax policy from administration in the National Board of Revenue (NBR) as part of reforms, official sources said.
"While we welcome the indication that formulation of new tax laws and separation of tax policy from administration are under consideration, we are disappointed that you have not yet decided to implement these reforms," IMF Asia and Pacific Department adviser Thomas Rumbaugh said in a letter.
In his letter sent last month to the Ministry of Finance (MoF), the IMF Asia and Pacific Department adviser was also unhappy about the little focus on revenue reforms made by the finance and planning adviser in his budget speech.
There is little discussion in the budget speech about the reforms to tax administration, including merging of the income tax, Value Added Tax (VAT) and large taxpayer units (LTUs), said the latter.
"These are the critical issues for fundamentally improving revenue. Achieving future revenue objectives, beyond the modest increase forecast for the FY 08, will not be possible without more comprehensive reform," added the letter.
However, the IMF technical assistance remains ready to assist the reform once the government showed willingness to move in that direction.
Sources said the MoF at a meeting nearly a couple of months ago agreed in principle to go on for separation of tax policy from administration as per recommendation of the IMF.
The meeting also decided to form a committee to examine technical process of such separation and other issues. The proposed committee is yet to be formed, sources added.
The IMF has suggested separation of policy making and revenue collection to bring fundamental change in the NBR and boost revenue generation.
But many NBR officials are opposing the idea saying that the change might not bring the desired results.
"Many IMF recommendations, which were implemented in the past, could not provide much result in revenue generation," said a NBR member on condition of anonymity.
The official said many reforms were implemented in the revenue board during the last three fiscals by following the recommendations of the IMF and other donor agencies.
Quoting an internal MoF study on revenue growth during March-April period of the just concluded fiscal, the official said those donor-prescribed reforms could not give expected results.
The study showed that there was no tax revenue growth, in real terms, during the last couple of fiscals.
Until 2004-05 fiscal, the annual tax revenue growth-- one of the lowest in the region in relation to the GDP-- had been rather satisfactory. But from the fiscal 2005-06 the situation deteriorated.
According to a study, the tax revenue growth for 2006-07 fiscal was calculated at 0.2 per cent in terms of tax- GDP ratio. But the growth rate should be 0.4 per cent.
The NBR managed, on an average, an 11 per cent annual growth of revenue in the years between 2000 and 2004. But in the last fiscal, the board achieved less than 9.0 per cent per cent growth although it should have achieved almost 21 per cent growth.