Raising purchasing power for development
Friday, 19 March 2010
Abu Sayed Md. Shaykhul Islam
Present democratic government of Bangladesh has already passed its honeymoon period. It is time for the government to lead the nation to its real destination in line with vision 2021. The dream of making Bangladesh a moderate income country by 2020 will come into reality if the government is able to increase GDP growth. For this purpose, it looks forward to speeding up the economic activities of the country by boosting private investments. It is needless to say that private investment is the main engine to gear up the national economy, which needs adequate infrastructure and a business-friendly tax policy.
The Indian budget for 2010-11 has given top priority to infrastructure development and allocated 43% of the total budgeted expenditure for the same. It has also declared investment allowance for investments in long term infrastructure bonds. The target is to expedite the infrastructure development to tap investment opportunities and create more jobs.
The new budget of India also aims at boosting domestic consumption and in view of this it has reduced personal tax burden of salaried persons and mid-income group. The aim is to increase their spending and savings capacity with an expectation that the money in the hands of middle class will stimulate the business activities and increase collection of indirect taxes like VAT, duties, Advance Income Tax (AIT) etc. and ultimately boosting overall tax revenue.
Indian budget for 2010-1, has declared personal income tax as follows:
For men:
For women:
For Senior Citizens:
No tax for income less than Rs.2,40,000/- which is equivalent to Bangladeshi Tk. 3,96,000/-. Besides, in order to boost retirement planning Rs.100 will be contributed by the Indian government to each New Pension Scheme (NPS) account. In Pakistan senior citizens are allowed 50% relief on tax liability if the taxable income does not exceed Rs.7,50,000/-.
Tax rate on income of individuals in Pakistan is also very low compared to Bangladesh. Pakistan has also introduced separate tax rate for persons having income from property which is as follows:
It seems that both India and Pakistan governments want to provide more money in the hands of individuals to spur consumption. In fact, today, all over the world, popular governments are taking steps to increase overall tax revenue without increasing tax rate. In recent years, Malaysia, China, Thailand, Russian Federation and many other countries have been able to increase substantial tax revenue by doing this. The trend across the region has been to lower the tax rates for encouraging consumptions and promoting investments.
Tax collection in Bangladesh has been increasing substantially for last 3 years. NBR is now doing very well in raising revenue for the government. Dependence on foreign aid is not a good sign for the economy as well as for the image of the country and as such, our tax policy rightly concentrates on internal revenue receipts. In Bangladesh, the direct income tax portion is around 13% of the total earnings of the government. It is easily understood that the personal income tax collection level is much lower. On the other hand, the indirect tax is almost 55% (VAT: 20% + Import Duty: 12%+ Supplementary Duty: 10% +Non-tax Revenue: 12% + others: 1%). So, major parts of the internal revenue receipts are indirect taxes which are paid on the spot when the financial transaction takes place. Such tax payments are very simple and people do not hesitate to pay because there is no necessity of submitting tax return by the consumers and no interaction with the taxmen. Such simple and hassle-free tax collection system also reduces corruption and public sufferings.
In the coming days under the reality of global economic recovery, price hike of food items and essential commodities may be an obvious consequence. The government should be very careful of this situation and NBR should consider all these factors for achieving its tax collection targets. It is reported that NBR has not been able to reach its import revenue collection targets in the first seven months of the current fiscal, which indicates no improvement of buying capacity of the middle class. So, it is time for NBR to workout as to how to collect more indirect taxes by sacrificing a little amount of personal tax with a view to encouraging the middle class to buy more. Undoubtedly, more consumption will bring more indirect taxes resulting in an increase of overall internal revenue receipts for the government.
In order to mobilise internal resources more effectively, NBR needs to adopt pragmatic approach keeping both revenue targets and public welfare in mind. In this regard the government should take all possible steps to speed up the economic activities of the country which in turn will increase tax revenue. The NBR should also speed up the motivation program for creating a culture of paying taxes. Large segments of the society that have the ability to pay taxes still remain out of tax net. So, all out efforts should be taken for broadening the tax base without wasting much time in the name of hearing to assess the taxes of existing tax payers. NBR should quickly dispose off the tax returns of individuals if there is no serious tax avoidance or allegation.
For this purpose, the assessment system should be made easier for small and mid income individual tax payers because the growing middle class is the life blood for any economy and their ability to buy more, boosts the domestic sales. More consumption leads to more sales, more production and more taxes. In fact, all segments of economy behave properly when the markets get desired domestic consumers.
More emphasis needs to be given on large tax payers without putting the low and mid income groups into much formalities and complexities. India is now running a Total Tax Contribution (TTC) survey of larger businesses. Bangladesh may do the same.
NBR should also remain very careful so that the low income groups and senior citizens do not suffer. The scarcity of jobs has pushed our young generation to be self- employed through small grocery shops and businesses. They are often harassed by tax inspectors. It is very difficult for senior citizens to attend the tax hearing because many of them are physically weak and disabled. So, compulsory submission of nil tax return for thee years should be waived for them if they do not have any taxable income. Low tax collection may be accepted but harassment to the poor and senior citizens should not be allowed any way.
There is no denying that the present level of internal revenue receipts is not sufficient for a sustainable development and economic growth of Bangladesh. Revenue receipts from internal resources (tax, non-tax and capital receipts) will be increased when mid income group becomes able to spend more. The hopes and aspirations of digital Bangladesh will be fulfilled, if more people get job and their purchasing powers are increased. Tax revenue receipts can not be raised without raising the income level of the common people. So, it is the time for the government to have a new vision, mission, and plan to bring dynamism in the activities of the tax department and raise public money more efficiently without giving extra pressure on the existing tax payers. The future drive for raising taxes should be based on indirect taxes. Keeping this reality in mind, the tax policy should be designed in such a way so that it does not frustrate the tax payers' earning spirits; rather it brings momentum in the economic activities and encourages citizens and businesses to make money and pay taxes.
The writer is a freelance financial and management consultant. He can be reached at e-mail:
shaykhul@radiancegroup-bd.com
Present democratic government of Bangladesh has already passed its honeymoon period. It is time for the government to lead the nation to its real destination in line with vision 2021. The dream of making Bangladesh a moderate income country by 2020 will come into reality if the government is able to increase GDP growth. For this purpose, it looks forward to speeding up the economic activities of the country by boosting private investments. It is needless to say that private investment is the main engine to gear up the national economy, which needs adequate infrastructure and a business-friendly tax policy.
The Indian budget for 2010-11 has given top priority to infrastructure development and allocated 43% of the total budgeted expenditure for the same. It has also declared investment allowance for investments in long term infrastructure bonds. The target is to expedite the infrastructure development to tap investment opportunities and create more jobs.
The new budget of India also aims at boosting domestic consumption and in view of this it has reduced personal tax burden of salaried persons and mid-income group. The aim is to increase their spending and savings capacity with an expectation that the money in the hands of middle class will stimulate the business activities and increase collection of indirect taxes like VAT, duties, Advance Income Tax (AIT) etc. and ultimately boosting overall tax revenue.
Indian budget for 2010-1, has declared personal income tax as follows:
For men:
| Taxable income inRs. | Equivalent Taka | Rate(%) |
| Up to 1,60,000 | 2,64,000 | Nil |
| 1,60,001 to 5,00,000 | 2,64,001 to 8,25,000 | 10 |
| 5,00,001 to 8,00,000 | 8,25,001 to 13,20,000 | 20 |
| 8,00,001 to above | 13,20,000 to above | 30 |
For women:
| Taxable income in Rs. | Equivalent Taka | Rate(%) |
| Up to 1,90,000 | 3,13,500 | Nil |
| 1,90,001 to 5,00,000 | 3,13,501 to 8,25,000 | 10 |
| 5,00,001 to 8,00,000 | 8,25,001 to 13,20,000 | 20 |
| 8,00,001 to above | 13,20,001 to above | 30 |
For Senior Citizens:
No tax for income less than Rs.2,40,000/- which is equivalent to Bangladeshi Tk. 3,96,000/-. Besides, in order to boost retirement planning Rs.100 will be contributed by the Indian government to each New Pension Scheme (NPS) account. In Pakistan senior citizens are allowed 50% relief on tax liability if the taxable income does not exceed Rs.7,50,000/-.
Tax rate on income of individuals in Pakistan is also very low compared to Bangladesh. Pakistan has also introduced separate tax rate for persons having income from property which is as follows:
It seems that both India and Pakistan governments want to provide more money in the hands of individuals to spur consumption. In fact, today, all over the world, popular governments are taking steps to increase overall tax revenue without increasing tax rate. In recent years, Malaysia, China, Thailand, Russian Federation and many other countries have been able to increase substantial tax revenue by doing this. The trend across the region has been to lower the tax rates for encouraging consumptions and promoting investments.
| SINo. | Gross amount of rent | Rate of tax |
| 1. | Up to Rs. 1,50,000 | Nil |
| 2 | From Rs. 1,50,001 toRs. 4,00,000. | 5% |
| 3. | From Rs. 4,00,001 to Rs. 10,00,000. | Rs. 12,500 plus 7.5% of the amount exceeding Rs.4,00,000. |
| 4. | ExceedingRs. 10,00,000. | Rs. 57,500 plus 10% of the amount exceeding Rs.10,00,000. |
In the coming days under the reality of global economic recovery, price hike of food items and essential commodities may be an obvious consequence. The government should be very careful of this situation and NBR should consider all these factors for achieving its tax collection targets. It is reported that NBR has not been able to reach its import revenue collection targets in the first seven months of the current fiscal, which indicates no improvement of buying capacity of the middle class. So, it is time for NBR to workout as to how to collect more indirect taxes by sacrificing a little amount of personal tax with a view to encouraging the middle class to buy more. Undoubtedly, more consumption will bring more indirect taxes resulting in an increase of overall internal revenue receipts for the government.
In order to mobilise internal resources more effectively, NBR needs to adopt pragmatic approach keeping both revenue targets and public welfare in mind. In this regard the government should take all possible steps to speed up the economic activities of the country which in turn will increase tax revenue. The NBR should also speed up the motivation program for creating a culture of paying taxes. Large segments of the society that have the ability to pay taxes still remain out of tax net. So, all out efforts should be taken for broadening the tax base without wasting much time in the name of hearing to assess the taxes of existing tax payers. NBR should quickly dispose off the tax returns of individuals if there is no serious tax avoidance or allegation.
For this purpose, the assessment system should be made easier for small and mid income individual tax payers because the growing middle class is the life blood for any economy and their ability to buy more, boosts the domestic sales. More consumption leads to more sales, more production and more taxes. In fact, all segments of economy behave properly when the markets get desired domestic consumers.
More emphasis needs to be given on large tax payers without putting the low and mid income groups into much formalities and complexities. India is now running a Total Tax Contribution (TTC) survey of larger businesses. Bangladesh may do the same.
NBR should also remain very careful so that the low income groups and senior citizens do not suffer. The scarcity of jobs has pushed our young generation to be self- employed through small grocery shops and businesses. They are often harassed by tax inspectors. It is very difficult for senior citizens to attend the tax hearing because many of them are physically weak and disabled. So, compulsory submission of nil tax return for thee years should be waived for them if they do not have any taxable income. Low tax collection may be accepted but harassment to the poor and senior citizens should not be allowed any way.
There is no denying that the present level of internal revenue receipts is not sufficient for a sustainable development and economic growth of Bangladesh. Revenue receipts from internal resources (tax, non-tax and capital receipts) will be increased when mid income group becomes able to spend more. The hopes and aspirations of digital Bangladesh will be fulfilled, if more people get job and their purchasing powers are increased. Tax revenue receipts can not be raised without raising the income level of the common people. So, it is the time for the government to have a new vision, mission, and plan to bring dynamism in the activities of the tax department and raise public money more efficiently without giving extra pressure on the existing tax payers. The future drive for raising taxes should be based on indirect taxes. Keeping this reality in mind, the tax policy should be designed in such a way so that it does not frustrate the tax payers' earning spirits; rather it brings momentum in the economic activities and encourages citizens and businesses to make money and pay taxes.
The writer is a freelance financial and management consultant. He can be reached at e-mail:
shaykhul@radiancegroup-bd.com