Importance of boosting revenues
Friday, 28 November 2008
The Finance Adviser has drawn the attention of all concerned to the need for strengthening the revenue administration. At a function held in the capital city the other day, he highlighted this imperative, particularly in view of the likely adverse impact of the current global financial crisis on availability of external funds for budgetary resource management. The reason for stepping up efforts to raise the level of domestic revenue collections, under the given circumstances, should be obvious. Notwithstanding the relative improvement in revenue collection in fiscal 2007-08, the same was probably only a transient experience. The tax payers were motivated to pay more taxes, particularly during that fiscal, mainly out of a concern for the anti-tax dodging drive and related factors. There is now an apparent easing of the pressures on these scores. The revenue collection, particularly from personal income tax source, has not been matching the expectation in the year for which the last date of filing related returns expired early this month. There has been some growth in income tax receipts but this growth has fallen short of an earlier expected level.
For steady and sustainable improvement in revenue collections, it is vitally important to strengthen the revenue administration appropriately and adequately, besides other actions in order to deal with the habitual tax dodgers and other offenders. Of course, there should be also maintained various persuasive campaigns to make eligible tax payers aware about their duty to pay taxes. In the long run, this psychological component can prove to be more fruitful in garnering the expected amount of revenues. Certainly, none will contest the need for planned moves to improve revenue collection in the backdrop of the prevailing international aid climate. The developed countries are saying that aid levels will not be allowed to drop substantially. But there cannot be so much reliance on such assurances. Multilateral capital donors are already reported to be suffering from fund shortages from the inability of the major donor countries to make fresh funds available. The economic crisis in the developed countries could go on for long, squeezing their resources to be given as aid, bilaterally and also through the channel of multilateral development institutions. As such, low income countries like Bangladesh have now the compelling reason to adjust themselves to the new situation. Mobilisation of internal resources to fill the gap to be created from slowdown in foreign aid, assumes here a great deal of importance.
In this context, there is no denying of the potential of boosting government revenue earnings particularly through direct income tax, as far as the situation in Bangladesh is concerned. Studies conducted by different bodies, both official and non-official ones, have shown that some 10 million persons in Bangladesh earn more than the existing tax exemption limit. But income tax returns are submitted by about 0.65 million of them. This suggests that there is the prospect of realising income tax from a larger number of potential tax-payers.
Meanwhile, indirect taxies, particularly customs duties, have, so far, been the greatest source of governmental revenues. But earnings from this source are likely to decline in the present year because of falling import activities and declining prices of goods and commodities in the international markets that will impact the revenues unfavourably so far the customs, supplementary and other duties and taxes that are related to import-based economic activities, are concerned. All these factors do point to the urgent need for undertaking greater activities in the areas of income tax and value added tax (VAT) collection from domestic sources. This 'interim' government is expected to soon hand over power to an elected one. But this transition ought not to lead to a diminishing of both intent and drive to make planned thrusts to increase collection of tax revenue. Under the changed global and other related circumstances, the next elected government will be required to include in its short list of high priorities the strengthening of the revenue administration.
For steady and sustainable improvement in revenue collections, it is vitally important to strengthen the revenue administration appropriately and adequately, besides other actions in order to deal with the habitual tax dodgers and other offenders. Of course, there should be also maintained various persuasive campaigns to make eligible tax payers aware about their duty to pay taxes. In the long run, this psychological component can prove to be more fruitful in garnering the expected amount of revenues. Certainly, none will contest the need for planned moves to improve revenue collection in the backdrop of the prevailing international aid climate. The developed countries are saying that aid levels will not be allowed to drop substantially. But there cannot be so much reliance on such assurances. Multilateral capital donors are already reported to be suffering from fund shortages from the inability of the major donor countries to make fresh funds available. The economic crisis in the developed countries could go on for long, squeezing their resources to be given as aid, bilaterally and also through the channel of multilateral development institutions. As such, low income countries like Bangladesh have now the compelling reason to adjust themselves to the new situation. Mobilisation of internal resources to fill the gap to be created from slowdown in foreign aid, assumes here a great deal of importance.
In this context, there is no denying of the potential of boosting government revenue earnings particularly through direct income tax, as far as the situation in Bangladesh is concerned. Studies conducted by different bodies, both official and non-official ones, have shown that some 10 million persons in Bangladesh earn more than the existing tax exemption limit. But income tax returns are submitted by about 0.65 million of them. This suggests that there is the prospect of realising income tax from a larger number of potential tax-payers.
Meanwhile, indirect taxies, particularly customs duties, have, so far, been the greatest source of governmental revenues. But earnings from this source are likely to decline in the present year because of falling import activities and declining prices of goods and commodities in the international markets that will impact the revenues unfavourably so far the customs, supplementary and other duties and taxes that are related to import-based economic activities, are concerned. All these factors do point to the urgent need for undertaking greater activities in the areas of income tax and value added tax (VAT) collection from domestic sources. This 'interim' government is expected to soon hand over power to an elected one. But this transition ought not to lead to a diminishing of both intent and drive to make planned thrusts to increase collection of tax revenue. Under the changed global and other related circumstances, the next elected government will be required to include in its short list of high priorities the strengthening of the revenue administration.