Bangladesh Budget FY18: Digitalising economy, enhancing tax-base

The annual budget for the fiscal year 2017-18 (FY18) will be crucial for the Bangladesh economy. The current size of the economy demands larger budgets for investment towards enhancement of important areas like infrastructure, education and health. The country with a population of around 164 million with less than 1.0 per cent of the population as tax-payers, indicates that one of the reason for shortfall in revenue generation is the small tax base. It is not unknown that the level of non-compliance among tax-payers as well as potential tax-payers is the main reason behind the impaired growth of the tax base of the country.
There are huge expectations from the Government to make calculated moves in order to create a relatively sustainable atmosphere for the industries in the country and bring about development in the standard of living of the general public. The Government is expected to put in place a strategy wherein it can move toward expanding productive capacity in the economy through ensuring quality investment in physical and social infrastructure and thus creating job for the youth.
The current administrative structure of the country's fiscal management seems to be falling short of plugging the gap created by lack of control and high level of non-compliances from tax as well as regulatory perspective. The existing structure has been characterised by lack of efficiency due to complex division of functions and responsibilities. Hence, there is a dire need to foster transformation of the Government's fiscal management by enhancing the control mechanism and ensuring augmentation of tax base through appropriate and timely compliances.
The furtherance of a "digital economy" could be one of the key drivers in strengthening the governance of the nation which would result in a better control and accountability in the system. The Government may consider incentivising digital transactions to make it more attractive and popular amongst the masses, in order to curb the usage of cash transactions.
With digitisation of tax registrations, the National Board of Revenue (NBR) is now ready to welcome the era of online tax filing and also virtual tax assessment process going forward. Enabling digital linkages through e-filing of tax withholding returns with the income of a recipient, it would be difficult to evade tax. By increasing online transactions, such as tax filings, bank transfers, etc., would not only increase the efficiency of transactions but would also enhance control on the fiscal management by improving the information base of the regulators and curb circulation of black money, reduce money laundering in the economy and also result in a somewhat stable economic and political scenario. The strict digitised control would complete the information circle, which would augment the complexity in escaping from non-compliance and hence contribute positively towards increase in the tax base of the nation.
Further, to improve the fiscal balance of the country, an increased revenue mobilisation is also required. To achieve this, the Government should implement a structural tax reform through a progressive tax structure, avoidance of tax evasion and strengthening institutional capability. To have a consistent growth, the economy requires increased public expenditure in physical and socio-economic infrastructure. This is particularly required to have a structural shift from agriculture to industry/service-oriented economy. Moreover, there is a need for an active fiscal policy with subsidies diverted towards creating more skilled workforce and promoting capability-enhancing sectors. For example, the Government may provide a massive push to infrastructure sector by incentivising the sector further as it is one of the key elements to boost economic growth going forward. Infrastructure development will help to improve connectivity within the city and bodes well for the real estate projects coming in the suburbs and other local regions.
The country has immense potential for foreign investments and the investors worldwide are in the offing to invest in Bangladesh with an expectation from the Government to bring in ease of doing business and compliance processes. With the initiation of e-TIN registration, foreign service-providers are facing challenges in registering themselves and thereafter filing tax returns for taxes suffered in Bangladesh. Such lacuna disentitles the foreign companies from claiming tax credit in their home country. The Government should bring in reform on international tax matters in order to ease tax treaty applications, tax filing and refund mechanism etc. which would foster confidence in foreign investors thereby resulting in contribution towards development of the country.
Finally it is accentuated that the anticipated actions for FY 2017-18 should bring about a fiscal discipline in deployment and application of government expenditure in vital sectors on one hand, and to increase revenue collection by enhancing tax-base through digitising the tax system, on the other.

Sushmita Basu is partner, Kapil Basu, Associate Director and Sk. Aminul Islam, Associate Manager,  PricewaterhouseCoopers Private Ltd.