It's time for NBR to face hard truth
Tuesday, 28 October 2008
Shamsul Huq Zahid
THE National Board of Revenue (NBR), perhaps, has started cursing itself for setting up what, according to many, a highly ambitious revenue target for the current fiscal year.
If the current trend in the collection of revenue under different heads persists, it is most likely that there would be serious mismatch between domestic resources and government's annual expenditure plan, leading to further widening of the fiscal deficit.
Buoyed by the tax revenue collection that overshot the target set in the original budget for the previous fiscal (2007-08), the NBR has set a revenue target, the highest ever in terms of tax-GDP ratio (more than 9.0 per cent) for the current financial year.
The International Monetary Fund (IMF), the multilateral lending agency, that takes particular interest in fiscal and monetary policies of the countries which receive its funds under various programmes had, prior to the preparation of the budget, advised the government, indirectly, not to set such an ' ambitious' target under the prevailing circumstances. It said a big revenue target would not be difficult to achieve provided the government undertook additional measures to widen the tax net and improve the tax administration.
It is obvious that widening of tax net and improvement of tax administration cannot be done overnight. It would take quite a bit of time to achieve the objectives even if all the projects and programmes are implemented without any hindrance.
But the period could be longer than many people think because of the resistance from the tax evaders and the vested interests within the tax administration. It is highly unlikely that the NBR's move to bring in more eligible taxpayers under the tax net would go smoothly. Similarly, there would be move from within to torpedo the process of improving the tax administration through ongoing reforms.
It is not that the internal revenue department is not aware of these possibilities. Yet it has opted for a big revenue target, which is, however, very much achievable under right conditions. But until now the conditions do not appear to be right.
Though trend in customs duty and value added tax had been in line with the expectation during the first quarter of the current fiscal, the earning from the income tax was very much disappointing. September 30 was the deadline for the submission of the tax returns. But following the submission of an unsatisfactory number of returns, the NBR extended the deadline to October 31. The deadline is most likely to be extended by another month because of the less-than-expected response from the taxpayers this year.
What is worse is that the opportunity offered to holders of lawfully earned yet untaxed funds to legalise the same by paying a penal tax at a rate of 7.5 per cent in addition to normal tax has disappointed the NBR. The NBR has so far received a poor amount of revenue from this source.
With national election around the corner, it is hard to predict about the taxpayers' mood.
As far as income tax collection is concerned, the NBR before setting up an ambitious target should have taken into consideration the fact that the 'fear factor', which played a dominant role in the collection of more than projected revenue in the last fiscal, would be less intense this time because of the relaxation of emergency rules.
The anti-graft and anti-tax evasion drives prompted many to pay tax in right amount and declare assets in their returns during the last financial year. But that situation does not exist anymore. Most people are sensing that there would be an election soon to put the politicians at the helm of the statecraft again. There are confusions and uncertainties but things are definitely moving towards holding of a national election.
The change in the political atmosphere and the soaring cost of living in recent months are considered two important factors for the lower-than-expected response from the taxpayers. However, there could be last moment rush of the taxpayers to submit their returns. Yet then, the NBR might fall short of the target as far as revenue collection from income tax is concerned. Until October 15 last around 90,000 taxpayers submitted tax returns as against the projected number of 0.6 million.
The most ominous signs are coming from the customs. According to media reports, the import of a number of commodities, including a few essentials, have dropped significantly during last few weeks following the persistent decline in the prices of the same in the international market. Many traders have already suffered losses because of the fall in prices. Naturally, they have opted for 'wait and see' policy to avert any further losses.
The prices of the most commodities, which rose unabatedly in the international market for the last one year hitting the consumers around the world hard, would, in all likelyhood, continue to fall because of the recession taking its grip on the most developed economies in Europe and North America. No country, however, would go unscathed from the effects of the recession triggered by a financial market meltdown of an unprecedented scale.
Besides, the demand for goods and services has also noticeably gone down at home. So, the traders would be far less interested in building up stocks of imported goods when the demand for the same at home is low and the prices going down consistently in the international market. Less import thus would generate less revenue for the government through customs duty. The earning from imports had been more or less around the target during the first quarter of the current fiscal. It may not be so in the coming months.
The earning from value added tax (VAT) in the first quarter is also a matter of concern for the NBR. There was a shortfall of around Tk. 2.5 billion in the first quarter because of the decline in the payment of VAT by some big shots in the services sector, including the cell phone companies.
As far as revenue mobilization is concerned, the government, it seems, might face difficulty this time since it cannot bring down its projected expenditures. The NBR might feel there is still time to handle the situation. But it should start thinking loudly about the ways to tide over the problems brewing around the corner.
...................................
zahidfe@yahoo.com
THE National Board of Revenue (NBR), perhaps, has started cursing itself for setting up what, according to many, a highly ambitious revenue target for the current fiscal year.
If the current trend in the collection of revenue under different heads persists, it is most likely that there would be serious mismatch between domestic resources and government's annual expenditure plan, leading to further widening of the fiscal deficit.
Buoyed by the tax revenue collection that overshot the target set in the original budget for the previous fiscal (2007-08), the NBR has set a revenue target, the highest ever in terms of tax-GDP ratio (more than 9.0 per cent) for the current financial year.
The International Monetary Fund (IMF), the multilateral lending agency, that takes particular interest in fiscal and monetary policies of the countries which receive its funds under various programmes had, prior to the preparation of the budget, advised the government, indirectly, not to set such an ' ambitious' target under the prevailing circumstances. It said a big revenue target would not be difficult to achieve provided the government undertook additional measures to widen the tax net and improve the tax administration.
It is obvious that widening of tax net and improvement of tax administration cannot be done overnight. It would take quite a bit of time to achieve the objectives even if all the projects and programmes are implemented without any hindrance.
But the period could be longer than many people think because of the resistance from the tax evaders and the vested interests within the tax administration. It is highly unlikely that the NBR's move to bring in more eligible taxpayers under the tax net would go smoothly. Similarly, there would be move from within to torpedo the process of improving the tax administration through ongoing reforms.
It is not that the internal revenue department is not aware of these possibilities. Yet it has opted for a big revenue target, which is, however, very much achievable under right conditions. But until now the conditions do not appear to be right.
Though trend in customs duty and value added tax had been in line with the expectation during the first quarter of the current fiscal, the earning from the income tax was very much disappointing. September 30 was the deadline for the submission of the tax returns. But following the submission of an unsatisfactory number of returns, the NBR extended the deadline to October 31. The deadline is most likely to be extended by another month because of the less-than-expected response from the taxpayers this year.
What is worse is that the opportunity offered to holders of lawfully earned yet untaxed funds to legalise the same by paying a penal tax at a rate of 7.5 per cent in addition to normal tax has disappointed the NBR. The NBR has so far received a poor amount of revenue from this source.
With national election around the corner, it is hard to predict about the taxpayers' mood.
As far as income tax collection is concerned, the NBR before setting up an ambitious target should have taken into consideration the fact that the 'fear factor', which played a dominant role in the collection of more than projected revenue in the last fiscal, would be less intense this time because of the relaxation of emergency rules.
The anti-graft and anti-tax evasion drives prompted many to pay tax in right amount and declare assets in their returns during the last financial year. But that situation does not exist anymore. Most people are sensing that there would be an election soon to put the politicians at the helm of the statecraft again. There are confusions and uncertainties but things are definitely moving towards holding of a national election.
The change in the political atmosphere and the soaring cost of living in recent months are considered two important factors for the lower-than-expected response from the taxpayers. However, there could be last moment rush of the taxpayers to submit their returns. Yet then, the NBR might fall short of the target as far as revenue collection from income tax is concerned. Until October 15 last around 90,000 taxpayers submitted tax returns as against the projected number of 0.6 million.
The most ominous signs are coming from the customs. According to media reports, the import of a number of commodities, including a few essentials, have dropped significantly during last few weeks following the persistent decline in the prices of the same in the international market. Many traders have already suffered losses because of the fall in prices. Naturally, they have opted for 'wait and see' policy to avert any further losses.
The prices of the most commodities, which rose unabatedly in the international market for the last one year hitting the consumers around the world hard, would, in all likelyhood, continue to fall because of the recession taking its grip on the most developed economies in Europe and North America. No country, however, would go unscathed from the effects of the recession triggered by a financial market meltdown of an unprecedented scale.
Besides, the demand for goods and services has also noticeably gone down at home. So, the traders would be far less interested in building up stocks of imported goods when the demand for the same at home is low and the prices going down consistently in the international market. Less import thus would generate less revenue for the government through customs duty. The earning from imports had been more or less around the target during the first quarter of the current fiscal. It may not be so in the coming months.
The earning from value added tax (VAT) in the first quarter is also a matter of concern for the NBR. There was a shortfall of around Tk. 2.5 billion in the first quarter because of the decline in the payment of VAT by some big shots in the services sector, including the cell phone companies.
As far as revenue mobilization is concerned, the government, it seems, might face difficulty this time since it cannot bring down its projected expenditures. The NBR might feel there is still time to handle the situation. But it should start thinking loudly about the ways to tide over the problems brewing around the corner.
...................................
zahidfe@yahoo.com