IMF for separate unit for reviewing fiscal incentives
Friday, 28 December 2007
Shakhawat Hossain
The International Monetary Fund (IMF) has suggested that the government should create a separate unit for reviewing the fiscal incentives.
The Washington-based multilateral agency made the suggestion in a policy reform paper that calls for following the best international practice to reduce existing tax incentives.
"All tax incentives should be repealed unless a compelling justification be found for their retention," said the paper that has been prepared following the request by the caretaker government.
The IMF said, a unit within the Ministry of Finance (MoF), but outside the National Board of Revenue (NBR), should be established to conduct the review.
The IMF was critical of the existing income tax ordinance saying that it is riddled with bewildering variety of tax incentives. It observed that instead of repealing, the tax incentives have been proliferating in the existing income tax ordinance.
Although some have been repealed and others restricted, but most of the expiring tax incentives have been renewed and new ones created.
For example, the IMF said, in 2006-07, the tax incentive for the agro-processing, jute and textile industry was extended and new incentive for diamond cutting and polishing was created.
"However, in view of number of tax incentives in Bangladesh tax system, and the lack of effective action taken in the past to reduce and rationalise them, a wholesale and comprehensive review is necessary," the paper added.
Review rules have also been recommended by the IMF in the paper that included identification and description of all the tax incentives and their calculated costs.
There will be procedures to ensure that the tax incentives be included in the budget reviews to make a critical fiscal analysis.
The IMF also wanted transparency while reviewing and suggested inclusion of a separate part in the Income Tax Ordinance to deal with the tax incentives matters exclusively.
In the same paper, it also suggested a 5.0 per cent increase in tax rate of the top individual taxpayers who are now paying 25 per cent tax on their income.
Besides, the IMF also suggested substantial cut in the corporate tax so that the revenue board can take some immediate action plans to increase the income tax collection as the government is pursuing a policy to reduce dependence on the customs department.
The International Monetary Fund (IMF) has suggested that the government should create a separate unit for reviewing the fiscal incentives.
The Washington-based multilateral agency made the suggestion in a policy reform paper that calls for following the best international practice to reduce existing tax incentives.
"All tax incentives should be repealed unless a compelling justification be found for their retention," said the paper that has been prepared following the request by the caretaker government.
The IMF said, a unit within the Ministry of Finance (MoF), but outside the National Board of Revenue (NBR), should be established to conduct the review.
The IMF was critical of the existing income tax ordinance saying that it is riddled with bewildering variety of tax incentives. It observed that instead of repealing, the tax incentives have been proliferating in the existing income tax ordinance.
Although some have been repealed and others restricted, but most of the expiring tax incentives have been renewed and new ones created.
For example, the IMF said, in 2006-07, the tax incentive for the agro-processing, jute and textile industry was extended and new incentive for diamond cutting and polishing was created.
"However, in view of number of tax incentives in Bangladesh tax system, and the lack of effective action taken in the past to reduce and rationalise them, a wholesale and comprehensive review is necessary," the paper added.
Review rules have also been recommended by the IMF in the paper that included identification and description of all the tax incentives and their calculated costs.
There will be procedures to ensure that the tax incentives be included in the budget reviews to make a critical fiscal analysis.
The IMF also wanted transparency while reviewing and suggested inclusion of a separate part in the Income Tax Ordinance to deal with the tax incentives matters exclusively.
In the same paper, it also suggested a 5.0 per cent increase in tax rate of the top individual taxpayers who are now paying 25 per cent tax on their income.
Besides, the IMF also suggested substantial cut in the corporate tax so that the revenue board can take some immediate action plans to increase the income tax collection as the government is pursuing a policy to reduce dependence on the customs department.