No alternative to broadening the tax base

Financing of the budget for fiscal year (FY) 2015-16 has become the most-talked- about subject in the country. The proposed budget outlay for FY 2015-16 is Tk. 2,951 billion of which deficit is Tk. 866.57 billion. Total revenue earnings have been set at Tk. 2087.70 billion of which the National Board of Revenue (NBR) earnings are projected to be Tk. 1763.70 billion and other non-tax revenues are shown to be Tk. 261.99 billion.
The doubts are now centring more around the NBR taxes. It appears that about 85 per cent of the total revenue comes from the NBR. It is projected that value added tax (Vat) will account for 36.5 per cent, income tax 36.8 per cent, import duty for 10.6 per cent, supplementary duties for 14.7 per cent and others 1.4 per cent of total revenue earnings. The NBR has been assigned with boosting of its collection by 31 per cent over the current fiscal year. The non-tax revenue target has been increased by 14 per cent.
Concerned people are sceptical about huge revenue collection to finance the budget. But the finance minister is optimistic and ready to give a 'big push' to  revenue collection. The NBR and the experts are in favour of widening the tax net and strengthening the NBR. It is true that increasing revenue collection is crucial to the success of the government in financing the budget.
The finance minister in his budget speech gave an outline of a strategy to enhance revenue collection. He said that income tax of individuals, corporate income tax and value added tax would be the principal sources of revenue in this country. He said that only 1.2 million individuals and institutions out of 160 million population pay taxes. Recent surveys unearthed a large number of taxable people and institutions which would be brought under tax net. "Such surveys would continue", the finance minister said.
The finance minister proposed tax benefits for IT sector, exporting cottage industries and exemption of upfront tax on interest income of treasury bonds and bills. Further, seven types of bonds - Wage Earners Development Bond, US Dollar Investment Bond, Euro Investment Bond, Euro Premium Bond, US Dollar Premium Bond, Pound Sterling Investment Bond and Pound Sterling Perineum Bond are getting tax benefits. On the other hand, he proposed bigger taxes on tobacco and exportable like garments, jute and frozen fish. More than 15 imported commodities, which were exempted earlier from tax at the import stage, have been proposed to be brought under taxes. Further, he suggested taxing the gross salary bonus and festival allowances of the public sector employees under tax net. Added to that are specific tax rates announced to collect taxes from foreigners, who are employed in local businesses. He promised to take new initiatives on wealth tax. The finance minister claimed that administrative reforms progressed much and these would continue.
In the meantime, the planning minister outlined budget financing at a post-budget discussion organised by the Centre for Policy Dialogue (CPD) in Dhaka. Saying that the proposed revenue target of NBR is Tk. 1,763.70 billion, which is an increase of Tk 409.42 billion over the current fiscal, can be achieved through various measures. The minister is hopeful of realising Tk. 260 billion that remains pending with the Alternative Dispute Resolution (ADR). At least Tk. 200 billion will come from the ADR. He estimated that Tk. 4.50 billion would accrue from cigarette makers, Tk. 10 billion from mobile operators, Tk 16 billion from garment exporters and Tk 4 billion from service sector. Moreover, additional Tk. 110 billion will be earned from income tax.
However, most of the people believe that the fiscal targets are not realistic. The original revenue target for FY 2014-15 was Tk. 1,829.54 billion which was revised down to Tk. 1,633.71 billion. Out of revised target of Tk. 1,400 billion for NBR about Tk. 1,320 billion could be realised in the outgoing fiscal year. Here arise doubts about revenue targets for FY 2015-16. But some positive measures have been found to have been undertaken by the government. Reportedly, manpower of the NBR has been increased from 13,000 to 22,000. The NBR also conducted  surveys in Dhaka, its adjoining areas and Chittagong where many potential taxpayers owning property, houses and cars were found. The NBR is hopeful that there will be a scope for two-fold increase in the existing number of taxpayers. The income tax department will be able operate in 85 upazilas in the ensuing fiscal year, according to the finance minister's budget speech. These indicate that more surveys are required to find the potential taxpayers and the network should be extended to all upazilas in the country.
A consensus on the policy of enhancing domestic revenue mobilisation should be the key element of medium-term fiscal strategy. First of all, there should be a rational taxation policy as an integral part of fiscal policy. Measures should not be taken on ad-hoc basis. The taxation system should be progressive and sustainable. It means taxing progressively higher income people. It must not be coercive putting pressure on the existing taxpayers. Sustainable revenue system should be oriented to an expansion of the tax base, curbing tax evasion, checking leakages, application of law, redressing grievances of tax payers through designated places of legal advisers, diffusion of tax rules to create a tax friendly atmosphere, providing more client-oriented services, reforms and capacity building of revenue administration, and ensuring more transparency, accountability and efficiency in the revenue administration and tax collection system. The real broadening of the tax base means expanding tax administration in areas yet to be touched. There is a minimum base of taxable income. But many of the urban dwellers and most of those in the rural areas hardly pay any taxes. Broadening of the tax-base, therefore, means an efficient tax administration through major reforms. One first step should be establishing an independent monitoring committee comprising high-ups of the National Board of Revenue and members from think-tanks which will guide and supervise reform and guide ways for increased revenue collection. Proper actions should be taken at the outset. Otherwise, the revenue targets cannot be achieved. In line with the past experience the revenue target for FY 2015-16 may have to be slashed by 12 per cent if vigorous actions are not taken.
The writer is an economist and columnist.
chowdhuryjafar@ymail.com