Government's revenue authority moves to frame a legal Sunset Clause to enable investors to project their cost of business knowing when their tax-cut benefit ends, under a fiscal-reform package.
The move comes as per one condition tagged by the World Bank (WB) to its credit support to Bangladesh which aims to cut down high tax expenditure that affects the country's revenue receipts.
Earlier, the Bangladesh Bank Governor Dr Ahsan H Mansur had sought some $270 million from the World Bank under Financial-Sector Support Project II.
Officials have said rationalization of tax expenditure is one of the strings tied to the WB budget-support credit which may be implemented in the form of Sunset Clause.
Sunset Clause is a global practice in the public-policymaking domain with various historical precedents that define the end-date of a law or tax benefit.
Income Tax, VAT and Customs wings of the National Board of Revenue (NBR) would prepare their respective sunset clauses and go by the obligation for revenue-cost cuts.
A senior NBR official says each of the wings will prepare the timeline for tax waivers to the industries to limit the scope of growth depending on only protective tariffs.
"The revenue board has started to frame a Sunset Rule determining the expiry of tax-exemptions for each of the sectors enjoying now," he says.
Though the timelines for many of the sectors have been defined in the budget to end tax-exemption, the NBR often has to extend those every year following requests from influential quarters, revenue officials say.
Investors were also remaining unaware of what the tax rate would be for the next budget, they add.
There would be no such uncertainties after the framing of the sunset clause as both investors and revenue authority would be able to project tax impact on businesses or revenue mobilisation for the public exchequer.
A top income-tax official alludes to the Income Tax Act 2023 that provides for tax-holiday schemes where the investors know the deadlines for their perks coming through tax incentives.
"However, many of the sectors have been enjoying tax-breaks or pared-down tax rates for a long period, including incomes from poultry, fisheries, and apparel without having any deadline," he says.
Income from fisheries becomes one of the popular sources of disclosures on wealth by many of the tax-evaders as none can measure the volume of fishes in a ditch or pond, he points out.
Professor Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), thinks the sunset clause would benefit taxpayers, taxmen and government's other policymakers to project their respective aspects.
"We have been recommending the sunset clause for a long time in a bid to gradually phase out from the tax-waiver culture that cannot be continued lifelong," he says.
With the help of such clauses, the government can project when the foregone revenue on account of tax-breaks would be added to the public exchequer, he adds.
The policymakers can also assess whether the tax-breaks were justified to bring more investors and help generate more revenue in other ways, he says.
"Cost-benefit analysis of tax-breaks is important. It can be done after expiry of the tax exemption with such clauses," the economist opines.
Three of the revenue board's wings have prepared their respective tax-expenditure reports following conditions set by the International Monetary Fund (IMF) that is bankrolling budget deficit.
Value-added tax (VAT) expenditure could amount to roughly 3.26 per cent of GDP in 2022.
Direct-tax expenditure was 3.56 percent of total Gross Domestic Product for FY21.
The customs wing has counted the lowest tax expenditure, at 0.76 per cent of the GDP, in FY 2022-23.
Former lead economist of the World Bank, Bangladesh, Dr Zahid Hussain welcomes the move but airs doubt over its effective execution.
"We can welcome but cannot pin hope on Sunset Clause as compliance issues are different here," he says on a downbeat note.
Government's failure to cut tax expenditures to the expected level was one of the reasons for not disbursing full loan package of the IMF earlier, he notes in this context.
Political commitment is important to execute such a clause to end tax- breaks in various sectors, he suggests.
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