Bringing potential tax-payers within tax-net
Ahmed Showkat Masud | Wednesday, 9 July 2008
A country's investment and savings rates are correlated. If its gross national savings increase, then total investment in the economy will increase. That is, growth in the country's savings means growth in national investment. If investment increases, then the growth rate of gross domestic product (GDP) will increase. Accumulated national gross savings can then be transformed into capital. After investing that capital, it will then be turned into capital investment. Gross national savings rate differs among countries. For this difference among countries, many factors are responsible. In our country, the gross national savings ratio 29.50 per cent of GDP. This may be treated, rightly or wrongly, as high. What factors have influenced the savings rate to increase?
The number of tax payers in our country is not enough as it should be. Many individuals and business entities who, or, which are potential tax-payers, are still out of tax-net. The country is losing both direct and indirect taxes. Government provides different services and subsidies to the people from the revenue it earns. Since our tax-net is not as per our expectation, it is very much tough to provide the required services and subsidies to the people. To give subsidies and expand social safety net to the vulnerable, the government has to take a large amount of loans from the banking channel. Besides, the comparatively affluent ones in the country are not getting proper services from the state-owned enterprises. They are paying more for those services. They are also using alternatives/substitute services available in the private sector. For these reasons, many people consider that social security programmes, offered by the government, are not enough to make them feel secure. That is why people -- mainly those who are affluent -- save. However, higher rate of gross national savings does not imply that all the countrymen are saving money. Higher prices of foods, fertiliser, and oil compelled the government to allocate more fund for social safety net programmes and allocate subsidies to various sectors. If we compare the amounts allocated for social safety net and subsidies with that of revenue collections, it will be clear why the government has to borrow fund from the banking sector.
However, the affluent people feel depressed about government-provided services that encourage them to save more. That is why our country's gross national savings rate, in the context of our poverty condition, average per capita income and tax-GDP ratio, is otherwise comparatively high. In the European Union (EU) and the USA, the tax-net is large and tax-rate is high. As such, such countries could offer better social security programmes to their peoples. Peoples of those countries feel more secure under the umbrella of their respective governments. That is why the people of developed countries save less. Their countries' gross national savings are lower.
Deficit financing by using the banking channel may reduce private investment (that is, savings also). That could result in lower growth in the near future. So, the only viable option to overcome this problem is to bring the potential tax-payers within the tax-net.
(The writer works with One Bank Ltd., Khatunganj Branch, Chittagong)
The number of tax payers in our country is not enough as it should be. Many individuals and business entities who, or, which are potential tax-payers, are still out of tax-net. The country is losing both direct and indirect taxes. Government provides different services and subsidies to the people from the revenue it earns. Since our tax-net is not as per our expectation, it is very much tough to provide the required services and subsidies to the people. To give subsidies and expand social safety net to the vulnerable, the government has to take a large amount of loans from the banking channel. Besides, the comparatively affluent ones in the country are not getting proper services from the state-owned enterprises. They are paying more for those services. They are also using alternatives/substitute services available in the private sector. For these reasons, many people consider that social security programmes, offered by the government, are not enough to make them feel secure. That is why people -- mainly those who are affluent -- save. However, higher rate of gross national savings does not imply that all the countrymen are saving money. Higher prices of foods, fertiliser, and oil compelled the government to allocate more fund for social safety net programmes and allocate subsidies to various sectors. If we compare the amounts allocated for social safety net and subsidies with that of revenue collections, it will be clear why the government has to borrow fund from the banking sector.
However, the affluent people feel depressed about government-provided services that encourage them to save more. That is why our country's gross national savings rate, in the context of our poverty condition, average per capita income and tax-GDP ratio, is otherwise comparatively high. In the European Union (EU) and the USA, the tax-net is large and tax-rate is high. As such, such countries could offer better social security programmes to their peoples. Peoples of those countries feel more secure under the umbrella of their respective governments. That is why the people of developed countries save less. Their countries' gross national savings are lower.
Deficit financing by using the banking channel may reduce private investment (that is, savings also). That could result in lower growth in the near future. So, the only viable option to overcome this problem is to bring the potential tax-payers within the tax-net.
(The writer works with One Bank Ltd., Khatunganj Branch, Chittagong)