Sluggish revenue collection worsens macro-economic challenges: CPD

A projected record shortfall to the tune of Tk 850 billion in domestic revenue mobilisation in the current fiscal year, would necessitate huge government borrowing, worries CPD researchers who suggest austere budging ahead.

The prominent policy think-tank of Bangladesh says the sluggish mobilisation of revenue has been worsening country's macroeconomic challenges, such as low revenues, high spending on borrowed money, public woes for price manipulation and the like.

Presenting their thoughts at a media briefing at their office in the city on Saturday, Executive Director of the Centre for Policy Dialogue (CPD) Dr Fahmida Khatun projected the revenue shortfall on the basis of first six months' collection data available with the ministry of finance.

The government targeted mobilising Tk 5.0 trillion in revenue both from NBR, non-NBR and non-tax sources. Of the target, the National Board of Revenue had mobilised Tk 1.65 trillion until December, leaving a Tk 232.27-billion shortfall. As such, the target for the NBR has been revised down to Tk 4.0 trillion from Tk 4.30 trillion.

The CPD organised the briefing on "Recommendations for the National Budget for the Fiscal Year 2024-2025," where the researchers stressed the need for focusing on macroeconomic stability in the upcoming budget, containing inflation and checking "price manipulations" of essential commodities.

"The government would have to achieve 54.4-percent growth to meet the target for revenue collection, which may not be possible," she said in view of the overall financial stresses.

She mentioned that targeted revenue-collection growth was 36.3 per cent while the government could manage 13.9 per cent in the July-December period.

She also suggests addressing liquidity crisis in banks, a reduction in export and remittance incomes, and depleting foreign-currency reserves.

The economist suggests deprioritising right now the development projects having attained less than 10-percent implementation until March 2024.

The CPD fellows found slow implementation of the development projects this year, at 25.5 per cent until December, compared to 27.2 per cent of the last financial year, 2022-2023.

"Despite decline in budget deficit, government is borrowing from banking system at higher rate posing risk on private sectors loan availability," the Centre ED told the media.

Dr Fahmida said the rural areas were most affected by food inflation compared to urban population.

"The rising electricity prices may exacerbate the inflationary pressure on people," she said as regards the latest tariff hike.

The CPD suggests that the government should change its current approach to curbing inflation. "It is printing money and releasing dollars into the market, or withdrawing dollars from the market, which is not the right way to tame it,' Dr Fahmida said in presenting the policy think-tank's views on the monetary-policy front.

They suggest aligning the government monetary policy with the fiscal policy to check "economic distortions".

The Bangladesh Bank is implementing a crawling-peg system to make foreign -currency reserves stable and adopting transition towards a more market-based exchange rate, though it is yet to show full-fledged results, the Centre notes.

"The government has become burdened with support measures to export, remittances because of less-than-expected revenue collection."

The CPD suggests increasing revenue mobilization, widening tax base and prudent use of revenue in government spending ensuring accountability.

Also, it has found the necessity of setting revenue -collection target on the basis of country's reality by considering ongoing adverse economic situation.

It calls for looking into government expenditures for buying cars or for foreign tours.

Also recommended is adjusting the tax-free thresholds to facilitate marginal-income group of people and impose high tax by reinstating the 30- percent highest slab in the upcoming budget.

For corporate tax, the CPD wants the widening of the gap in tax rates between publicly- listed companies and non-listed companies to 7.5 per cent from the exiting 5.0 per cent.

It also recommends excluding non-profit organisations from corporate taxation, lower tax rate for provident fund, gratuity, pension fund to 10 per cent from existing 15 per cent.

The CPD feels that focus should be on property taxation, increase tax on all types of tobacco items and carbonated beverages, waiver of the provision of legalizing undisclosed income in the new income-tax provision, integrating revenue data with ibas++, expediting installation of electronic fiscal device, checking trade-based money laundering, focus on clean energy, cut in taxes on imported books, English-medium schools, universities, and colleges, imposing high tax on cars using fossil fuels, and plastic industries polluting environment.

"Its high time the government started reform activity in the first year of its power," says Dr Fahmida.

The CPD predicts prices of medicines would jump after the country graduates to middle -income status in 2026 as there will be no patent waivers.

"The government could waive VAT on the medicines supplied for domestic consumptions to ease price burden," she added.

Distinguished fellow of the CPD Professor Mustafizur Rahman welcomed the government move on merger of weak bank with a comparatively strong one, suggesting its proper management.

The CPD suggests exemplary punishment for price manipulation of essentials as existing fines and penalties showed no result.

CPD research director Dr Khondaker Golam Moazzem said active discussion of parliamentarians on budget measures is important prior to placing the budget in final form.

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