Bangladesh needs 'massive changes' in VAT laws to boost revenues
FE Report | Monday, 11 August 2008
Bangladesh should make 'massive changes' in the country's existing Value Added Tax (VAT) laws and rules to boost growth of revenue, which remains one of the lowest in the region, the IMF local representative said Sunday.
Jonathan Dunn said Bangladesh introduced the VAT nearly two decades ago, replacing the excise duty system in a bid to collect more revenue, but the latest tax system has so far failed to make any major impact in revenue generation.
"The country introduced VAT in 1991. But in reality, it is excise tax, not VAT," Dunn told a monthly luncheon of the Foreign Investors' Chamber of Commerce and Industry (FICCI).
"Our advise is to bring massive changes in the VAT laws and rules," he said, adding VAT will be workhorse of future revenue generation against the backdrop of the country's policy of continuous trade liberaliasation.
Dunn said the IMF has been discussing with the NBR on VAT reforms for the last one year as part its suggestions to improve the country's revenue generation.
"Time has come for the national board of revenue (NBR) to look into the matter seriously," he said.
He said the changes in VAT rules and regulation should be business-friendly and the electronic cash registers should be introduced to collect VAT.
Bangladesh's tax-GDP ratio has averaged a low eight-nine per cent for the last two decades, despite the introduction of VAT and a number of reforms at the NBR.
The 'poor' ratio is has seriously affected the country's growth as the government could only allocate a fraction of the amount it needed to invest in infrastructure, health and education.
In the past few years, the IMF identified the VAT as a major drag on the country's revenue system, but reforms it pushed through after the signing of three-year Poverty Reduction Growth Facility (PRGF) with the government also made little improvement.
Dunn also urged the government to activate the secondary bond market as part of key reforms in the financial sector.
The government initiated a move to establish a secondary bond market way-back in 2004, but there has been no significant progress until now.
He said the country's reserve is currently below its three-month import payment bill due to price hike of commodities in the international market.
The IMF always suggested its member countries to keep reserve level equivalent to three-month's import bill as a safety against any major external and internal shocks.
Dunn, however, termed the country's balance of payment as 'pretty balanced'.
His comments came as the country's foreign exchange reserve fell below US $6.0 billions last week due to huge import payments.
The reserve is expected to surpass the $6.0 billion 'comfortable level' in the next week amid increased flow of remittance and export earnings.
Dunn said the country's macroeconomic performance was 'remarkably resilient' in a year of multiple natural disasters and elevated international food and fuel price.
A strong pick-up in the domestic economies activities in the second half of the year and rapid growth in garments exports and remittances enabled the country's growth in FY 08 to exceed six per cent, he said.
Jonathan Dunn said Bangladesh introduced the VAT nearly two decades ago, replacing the excise duty system in a bid to collect more revenue, but the latest tax system has so far failed to make any major impact in revenue generation.
"The country introduced VAT in 1991. But in reality, it is excise tax, not VAT," Dunn told a monthly luncheon of the Foreign Investors' Chamber of Commerce and Industry (FICCI).
"Our advise is to bring massive changes in the VAT laws and rules," he said, adding VAT will be workhorse of future revenue generation against the backdrop of the country's policy of continuous trade liberaliasation.
Dunn said the IMF has been discussing with the NBR on VAT reforms for the last one year as part its suggestions to improve the country's revenue generation.
"Time has come for the national board of revenue (NBR) to look into the matter seriously," he said.
He said the changes in VAT rules and regulation should be business-friendly and the electronic cash registers should be introduced to collect VAT.
Bangladesh's tax-GDP ratio has averaged a low eight-nine per cent for the last two decades, despite the introduction of VAT and a number of reforms at the NBR.
The 'poor' ratio is has seriously affected the country's growth as the government could only allocate a fraction of the amount it needed to invest in infrastructure, health and education.
In the past few years, the IMF identified the VAT as a major drag on the country's revenue system, but reforms it pushed through after the signing of three-year Poverty Reduction Growth Facility (PRGF) with the government also made little improvement.
Dunn also urged the government to activate the secondary bond market as part of key reforms in the financial sector.
The government initiated a move to establish a secondary bond market way-back in 2004, but there has been no significant progress until now.
He said the country's reserve is currently below its three-month import payment bill due to price hike of commodities in the international market.
The IMF always suggested its member countries to keep reserve level equivalent to three-month's import bill as a safety against any major external and internal shocks.
Dunn, however, termed the country's balance of payment as 'pretty balanced'.
His comments came as the country's foreign exchange reserve fell below US $6.0 billions last week due to huge import payments.
The reserve is expected to surpass the $6.0 billion 'comfortable level' in the next week amid increased flow of remittance and export earnings.
Dunn said the country's macroeconomic performance was 'remarkably resilient' in a year of multiple natural disasters and elevated international food and fuel price.
A strong pick-up in the domestic economies activities in the second half of the year and rapid growth in garments exports and remittances enabled the country's growth in FY 08 to exceed six per cent, he said.