Higher VAT collection does not say all
Sunday, 16 March 2008
The on-going fiscal year has been a very productive one for the National Board of Revenue (NBR). Its earning from income tax has gone substantially up and indication is that it might well achieve the annual target relating to the value added tax (VAT) at the end of the fiscal. The facility offered by the incumbent government to legalise untaxed money by paying a penal tax of 5.0 per cent in addition to normal rate of tax and the NBR move to make more and more people tax-compliant have started paying dividend.
According to a report published in the FE last Saturday, the VAT collection from the country's big enterprises recorded nearly 23 per cent increase in the first nine months of the current financial year over that of the corresponding period of the previous fiscal. The government in the budget for the fiscal 2007-08 has fixed a VAT collection target of Tk. 158.90 billion of which Tk 101.44 billion is supposed to come from the big enterprises overseen by the large tax payers' unit (LTU) of the NBR. During the July-January period of the current fiscal, the large units paid Tk. 63.48 billion as VAT. However, only five big enterprises engaged in cigarette manufacturing and telecom services were the major contributors to the LTU. The incumbent chairman of the NBR, apparently, happy with the higher collection of VAT from large enterprises, has noticed the return of business confidence which was substantially eroded in the wake of the present caretaker government's anti-graft and anti-tax evasion drives.
There is no denying that commercial activities have been picking up in the recent months. But the situation is still far from normal. It remains debatable whether the higher collection of VAT from a few big enterprises indicated the return of business confidence. For higher sale of cigarettes or increased amount of revenues coming from phone calls does not anyway refer to increased commercial activities. The collection of VAT from other manufacturing units and from shops and establishments at the retail level could be the better barometer for measuring the consumer spending trend. Many tend to believe that fear factor rather than genuine sense of obligation to pay tax, and that too in right amount, played a key role in the higher collection of both income tax and VAT this year. In the immediate past tax assessment year, the number of tax returns submitted by individual taxpayers, with incomes above the tax-exempted limit, was well below the expectation. But the revenue collected from income tax was quite large than the previous years. One cannot expect full disclosure of assets and income in most tax returns under the circumstances in Bangladesh. Yet taxpayers had been relatively fair in paying tax this time. The same could be true in the case of the VAT paid by the large enterprises.
However, the country which has one of the lowest tax-GDP ratios in the world does deserve higher rate of tax compliance by the eligible taxpayers. For the failure to do so creates a lot of fiscal management problems for the government which is often forced to fall back up on expensive bank borrowing. But higher compliance rate in case of income tax would not be that easy. The taxpayers would certainly demand some individual benefits/ incentives of the government in return. But the situation is altogether different in case of VAT. Continuous, honest and sincere drive by the officials concerned, particularly at the retail level, can help earn far greater revenue from VAT.
According to a report published in the FE last Saturday, the VAT collection from the country's big enterprises recorded nearly 23 per cent increase in the first nine months of the current financial year over that of the corresponding period of the previous fiscal. The government in the budget for the fiscal 2007-08 has fixed a VAT collection target of Tk. 158.90 billion of which Tk 101.44 billion is supposed to come from the big enterprises overseen by the large tax payers' unit (LTU) of the NBR. During the July-January period of the current fiscal, the large units paid Tk. 63.48 billion as VAT. However, only five big enterprises engaged in cigarette manufacturing and telecom services were the major contributors to the LTU. The incumbent chairman of the NBR, apparently, happy with the higher collection of VAT from large enterprises, has noticed the return of business confidence which was substantially eroded in the wake of the present caretaker government's anti-graft and anti-tax evasion drives.
There is no denying that commercial activities have been picking up in the recent months. But the situation is still far from normal. It remains debatable whether the higher collection of VAT from a few big enterprises indicated the return of business confidence. For higher sale of cigarettes or increased amount of revenues coming from phone calls does not anyway refer to increased commercial activities. The collection of VAT from other manufacturing units and from shops and establishments at the retail level could be the better barometer for measuring the consumer spending trend. Many tend to believe that fear factor rather than genuine sense of obligation to pay tax, and that too in right amount, played a key role in the higher collection of both income tax and VAT this year. In the immediate past tax assessment year, the number of tax returns submitted by individual taxpayers, with incomes above the tax-exempted limit, was well below the expectation. But the revenue collected from income tax was quite large than the previous years. One cannot expect full disclosure of assets and income in most tax returns under the circumstances in Bangladesh. Yet taxpayers had been relatively fair in paying tax this time. The same could be true in the case of the VAT paid by the large enterprises.
However, the country which has one of the lowest tax-GDP ratios in the world does deserve higher rate of tax compliance by the eligible taxpayers. For the failure to do so creates a lot of fiscal management problems for the government which is often forced to fall back up on expensive bank borrowing. But higher compliance rate in case of income tax would not be that easy. The taxpayers would certainly demand some individual benefits/ incentives of the government in return. But the situation is altogether different in case of VAT. Continuous, honest and sincere drive by the officials concerned, particularly at the retail level, can help earn far greater revenue from VAT.