On better ways of mobilising greater volume of resources

Undeniably, failure to mop up sufficient resources, primarily because of policy-related flaws and man-made factors, the government has no other way but to skip many important infrastructure and welfare projects or go slow on their implementation. Many tend to believe that the government could augment better resources through changes, amendments and adjustments of tax-related policies with regard to three key sectors---tobacco, telecom and real estate (construction included).
The FE talked to Dr. Ahsan H. Mansur, a leading economist of the country and executive director of the Policy Research Institute (PRI) and Sk. Hafizul Kabir, former member of the National Board of Revenue (NBR) and now head of HRD of the Farmers Bank, and sought their oponion on the prospects of getting more revenue from these sectors. Following are the excerpts of the interview (sectorwise):
Tobacco Sector
Dr. Ahsan H. Mansur
The main issues of tobacco sector are different tiers of slab and the multiple rate structure. The current volume share shows that our current tax rate and structure is neither effective in reducing smoking nor is effective to earn a sustainable revenue. We are encouraging the consumers to purchase lower quality tobacco products. The low segment has captured 60% of the total tobacco market where it was just around 24% before. If this trend continues then the low segment will capture 100% of the market in few years.
If we want to increase the revenue while effectively reducing consumption pattern we must attack the low segment.
The slab based differences in rates of tobacco taxation is totally absurd. It should be same ad-valorem tax rates for all the slabs. The differences in supplementary duty rate among the slabs have caused many problems over the years. Nowhere in the world will one see that a cigarette product is available at 1.5 taka per stick. Why do we have to make cheaper tobacco products for poor people? We should increase the prices and tax in low segment in order to make sure we meet the global standard. After adjusting the tax in low segments they should put an end to the different rate of supplementary duty and implement same tax rate in every segment. This will reduce the consumption while at the same time increase the revenue from the industry.
We have managed to harm the revenue potential of it through the wide price indexing gap which has led to extreme down trading. One solution to down trading is less number of slabs. In my opinion, the medium and low segment should be merged into forming a single segment. This will reduce the number of slabs to three while making a path for the government to earn more revenue from the lower tiers.
Government should also put a minimum price on the cigarette products. If we can implement minimum price then quality is bound to improve in those products. Government can also give incentives by allocating one third of the increased revenue from the new prices of the cigarettes. This way industry can use that money to improve quality in the market and compete with better products.
Government should not discriminate with foreign brands. We have to encourage everyone to do business with an unbiased system. International players are bringing better standards in tobacco products quality within the given price range. This always puts pressure on the local manufacturers to improve their product quality. Eventually the consumers will be aided through this healthy competition. If we set the same rate of tax in all the slabs or stick, all the manufacturers will be compelled to compete with the better quality product
Sk. Hafizul Kabir
I have an experience of working on VAT and Tax Collection for almost 29 years. When I was working on tobacco taxation our objective was to increase revenue earning for the government while decreasing overall health hazards. Our current scenario dictates that we maximized the potential revenue from this industry while minimizing the health problems for our consumers.
The low segment is not providing the government more than 28% of the total revenue from this sector while holding around 60% of the volume. Premium brands are holding around 5% of the market volume and providing 20% of the total revenue. So, why should we allow the low segment to hold onto such size of the market if they can't provide us proportionate amount of revenue? This will not be effective in providing us the maximum amount of revenue because consumers will always shift towards the cheaper alternatives of cigarettes. But the cheaper alternatives do not earn the government as much income as the upper segment products do. As a result if the current taxation sustains, our revenue inflow won't. The solution has been visible for a long time. We should increase the supplementary duty of low segment brands which is seriously lagging behind.
The most effective solution for this year would be reducing the slab number from four to two. We should introduce two slabs for tobacco products which should be "high and medium segments" only. If the new medium segment is introduced then low segment brands will have to pay more tax per stick according to the modified supplementary duty. Furthermore, the low and medium brands will release some of the market share for the new High segment. Government can easily earn 6000 to 8000 crore more if they apply two slabs for taxation on cigarettes.
There is an imminent cigarette smuggling problem which directly curbs our revenue share from premium segment and high segment. The most effective way we can block this smuggling of foreign cigarettes is by reducing the supplementary duty and the price on premium and high segment. If government is clever enough to take this move then it can generate more revenue from the premium segment.  
We are also encouraging the consumers to trade down to low quality products. I personally do not believe that low brands of our country can maintain a good quality for the sake of consumers' health. Low quality tobacco products are always more harmful then high quality products. As a result, massive down trading is leading to increased health hazards.
I would strongly advise the government to move towards the two slabs of cigarette pricing. This should be immediately implemented. Also, the supplementary duty of each of the new slabs needs to be logical and equal. The supplementary duty of the premium should be reduced to decrease the absurd gap of price indexing. Government should announce it in this year's budget and I am hopeful that this change will provide our government a significant increase in revenue from this sector by next year.
 Telecom Sector
Dr. Ahsan H. Mansur
In telecom sector we should not opt for earning huge amount of tax revenue from the licensing of new companies. The best technologically advanced countries are not the richest countries in the world. Even in our country we are more technologically advanced than what our income level permits. The main reason was because we also did not charge the license fee initially for one or two important players. This opened an access towards the blessings of telecom sector. Bangladesh has one of the cheapest call rates in the world. We should continue to expand the industry and improve the services.  By bringing more services, we can easily compensate for the less revenue from the license fees.
The practical problem with this part of the telecom sector is that mobile phones are one of the high smuggled goods. The import duty has to be according to the conditions of transfer costs of the system. It should be lowered to increase the smart phone penetration and decrease the impact of smuggling in the market. One of the reasons that the big players are not interested in our country is because of this smuggled mobile phones problem. This creates anarchy in the market. We need a proper system where these mobile phone manufacturers can legally cooperate and face a healthy competition in the market.
We have to allow the private sector to operate in VoIP segment. Our auctioning mechanism has to be very transparent and our auctioning price should not be high. If the price is again high then ultimately the illegal calls will again start multiplying in our country. I believe that a very sophisticated high powered squad is required to stop this problem. But it has to be without any political involvement. Legal VoIP call rate should be adjusted according to the market scenario. Anytime the total cost for legal VoIP calls is high then again illegal ones will be increased. If we are prepared with a strictly regulated system then this will give us huge amount of revenue.
Sk. Hafizul Kabir
Government needs to set parameters considering the future potential of this industry. We should have a fair policy for this industry so that they increase their services and via that the companies can provide us more revenue every year.
According to me the existing telecom companies should provide new monthly subscription offers to increase the penetration of mobile phone services. Government should direct our policies so the monthly packages for users and other creative packages services are provided by the industry. It will bring untapped consumer segments, diversity in telecom services and eventually increased revenue through the volume of subscription.  
Most of the population of Bangladesh does not have affordability to buy good quality smart phones which enables to use new telecom services. The import duty on mobile phones needs to be adjusted to reduce the price of mobile phones. But most importantly, telecom services should be focused in improving the existing services until we become fully ready to focus on the new blessings of 3G and other services. Government should encourage the industry to reduce the prices and rates of all services and call rates.
Another issue should be immediately solved which can be a sustainable revenue source for the government. It is the legal VoIP calls in our country. Government is still trying to completely stop the illegal VoIP market. Two continuous measures are needed for this issue. One is to reduce call rates every time when the illegal call rate becomes cheaper. The other measure is to be completely strict in regulations.  
Real Estate Sector
Dr. Ahsan H. Mansur
To improve the sales growth as well as to ensure the expansion of the real estate and construction industry we must make some immediate changes in our policies. In near future there is a very low probability of any construction outburst in our country. Hence we need a major correction in this sector.
Many developers and most of the individual buyers use vacant land for speculative purposes. This constricts supply and push up prices which is simply against the economic interests of this country. The government should consider a 'vacant land tax' to check large scale unused lands.
Because of the widespread perception that house prices tend to go up, a primary motivation for those wishing to buy property is as an investment. So the demand for housing as investment pushes prices up even further and reduces affordability. A vacant land tax or land holding tax on real value would help break the dysfunctional cycle. It would also force those looking for places to invest money to look into more productive areas of the economy.
RAJUK should stop land allocation and move towards land management and regulations.  Government should acquire land and allocate it to the several companies. They should control the regulations and their objective should be increasing supply and proper planning for the city. Our policies should be proactive in providing housing for everyone rather allocating it to individuals.
We should also reduce the tax rate on transfer of property. This will help the government gain a short term revenue inflow. At the same time, we should increase the regulations so that people have to register it timely with actual value of the property. But the tax should be non-painful. It should not be more than 3%. We should also promote up gradation of real estate property ownership for our citizens with the cycle of living. In developed countries people move up from renting apartments to buying houses in their lifetime. Due to this cycle they have a very strong market. In our country, we overvalue real estate asset which in return becomes unaffordable for a lot of people. Homes should be seen as any other assets. We must not overvalue it and hold it as the "Gems of the family".
Sk. Hafizul Kabir
Currently, the property registration tax is one area where government could earn more revenue if they become more vigilant and enforce the registration on actual value of any property. The buyers are always hiding the actual transaction cost to evade tax from the government. This can be solved by increasing the minimum prices of registration which should be closer to the current market prices. Also the government should ensure every apartment is properly registered. Government can also put incentives for the buyers by reducing tax rate of registration. This is estimated to increase the volume of registration which will finally result in more revenue for the government. So the valuation of the land and apartment prices should be increased this year. At the same time they should reduce the tax for registration of those properties. This will definitely help our government earn more internal revenue from this industry in a short period of time.
If we are looking for a long term solution for the real estate sector then we have to distribute the housing in new areas outside of Dhaka. This way government will be earning more tax revenue from new purchases outside  Dhaka City. Real estate companies also need to increase their stagnant sales volume so they should also look forward to increasing their projects outside of fully developed urban areas. If we develop those areas which have low prices then generally the flat/ apartment prices will be lower and people will be motivated to buy them. Many problems we face today are due to the unplanned urban areas. Given that our prices are extremely high, the unsold apartments are increasing the losses for the industry continuously.