Easing the tax loads on the productive sectors
Monday, 17 March 2008
Amirul Islam
IT would be irrational to raise tariffs across the board on some imported commodities the next year's budget. These tariffs have been high in the present fiscal year despite imploring by business bodies that the same should be lowered for their enterprises to function competitively. They are making similar requests again on the eve of the presentation of the next year's budget for reducing these tariffs.
There are a large number of goods which have been getting exemption from import tariff in recent years on various considerations ranging from their being essential goods consumed by common people to life saving medicines. But hardly tariffs have been rationalized in respect of industrial raw materials or for the productive sectors. A leading chamber body of the country has requested the budget makers only days ago to lower such tariffs on the productive sectors in the next year's budget.
It is also relevant to discuss here that keeping unchanged the tariff on whole products or finished products, will only help the overseas exporters of these products. If some of these products are manufactured locally, these manufacturers will not gain any competitiveness in relation to their imported equivalents. As for retaining the existing high rate of tariff on raw materials or raising them further, the same will keep unduly high the costs of production in these industries or increase them further. No matter whether these are oriented towards foreign markets or domestic ones, such enterprises will have to go on facing problems of competitiveness or the same problems will only be exacerbated if these are not addressed by appropriate budgetary measures.
The local industries that make consumption items with imported raw materials, can only seek to compensate the extra production costs by raising the prices of their consumption goods. This, in turn, will increase the costs of consumption for consumers in many areas.
Revenues are needed by the government and the same are certainly needed in much greater amounts. But the search for greater revenues needs to be directed with prudence and hindsight. Businesses can be stimulated by fiscal policies perceived by them as favourable that may create incentives or increase the same for them to go for business expansion. This, then, would likely facilitate economic growth. The lack of such incentives will create the opposite undesirable results and consumer suffering.
There are other ways of improving revenue collection leaving the economy and the consumers largely unaffected. For example, the potentials of the income tax remain very largely untapped. There are at least three million potential income tax payers in the country and half this number do not pay any tax. There are also a great number of tax identification number (TIN) holders who had to take such numbers only for meeting some requirements, without having any taxable income whatsoever. Such things need to be ratinalised and such TIN holders without having taxable income should be allowed to get off the tax hook without requiring to pay any time. Meanwhile, the ones who do pay taxes that do not always reflect fully reflect their real income. Income taxes yield only about 20 per cent of the total revenues.
Thus, there is so much opportunity to increase revenue earnings by only ensuring payment of taxes in right proportion to income by the present payers of income tax and by bringing a large number of the current evaders -- evaders in the sense that they have taxable income but do not pay any tax -- under this net. Big increases can also be achieved in the collection of value added tax (VAT) by cleansing the system of irregularities. Similarly, higher revenue earnings are possible from streamlining the collection of VAT and excise duties.
Thus, revenue earnings should be increased. But doing of this should be attempted by going for increased collection from the sectors mentioned above while easing the pressure of tariff on sectors that directly involve production and consumption.
IT would be irrational to raise tariffs across the board on some imported commodities the next year's budget. These tariffs have been high in the present fiscal year despite imploring by business bodies that the same should be lowered for their enterprises to function competitively. They are making similar requests again on the eve of the presentation of the next year's budget for reducing these tariffs.
There are a large number of goods which have been getting exemption from import tariff in recent years on various considerations ranging from their being essential goods consumed by common people to life saving medicines. But hardly tariffs have been rationalized in respect of industrial raw materials or for the productive sectors. A leading chamber body of the country has requested the budget makers only days ago to lower such tariffs on the productive sectors in the next year's budget.
It is also relevant to discuss here that keeping unchanged the tariff on whole products or finished products, will only help the overseas exporters of these products. If some of these products are manufactured locally, these manufacturers will not gain any competitiveness in relation to their imported equivalents. As for retaining the existing high rate of tariff on raw materials or raising them further, the same will keep unduly high the costs of production in these industries or increase them further. No matter whether these are oriented towards foreign markets or domestic ones, such enterprises will have to go on facing problems of competitiveness or the same problems will only be exacerbated if these are not addressed by appropriate budgetary measures.
The local industries that make consumption items with imported raw materials, can only seek to compensate the extra production costs by raising the prices of their consumption goods. This, in turn, will increase the costs of consumption for consumers in many areas.
Revenues are needed by the government and the same are certainly needed in much greater amounts. But the search for greater revenues needs to be directed with prudence and hindsight. Businesses can be stimulated by fiscal policies perceived by them as favourable that may create incentives or increase the same for them to go for business expansion. This, then, would likely facilitate economic growth. The lack of such incentives will create the opposite undesirable results and consumer suffering.
There are other ways of improving revenue collection leaving the economy and the consumers largely unaffected. For example, the potentials of the income tax remain very largely untapped. There are at least three million potential income tax payers in the country and half this number do not pay any tax. There are also a great number of tax identification number (TIN) holders who had to take such numbers only for meeting some requirements, without having any taxable income whatsoever. Such things need to be ratinalised and such TIN holders without having taxable income should be allowed to get off the tax hook without requiring to pay any time. Meanwhile, the ones who do pay taxes that do not always reflect fully reflect their real income. Income taxes yield only about 20 per cent of the total revenues.
Thus, there is so much opportunity to increase revenue earnings by only ensuring payment of taxes in right proportion to income by the present payers of income tax and by bringing a large number of the current evaders -- evaders in the sense that they have taxable income but do not pay any tax -- under this net. Big increases can also be achieved in the collection of value added tax (VAT) by cleansing the system of irregularities. Similarly, higher revenue earnings are possible from streamlining the collection of VAT and excise duties.
Thus, revenue earnings should be increased. But doing of this should be attempted by going for increased collection from the sectors mentioned above while easing the pressure of tariff on sectors that directly involve production and consumption.