Ramping domestic revenue mobilisation

The country went through a tremendous upheaval during the July-August period and as a consequence, the economy suffered immensely. Productive activities were disrupted as pitched battles were fought between law enforcers and protesters and this was a widespread event. Although, there is a new government, things are anything but normal. The new-found freedoms and civil liberties that the general populace enjoy today have brought forth fresh demands from various groups, including workers. There have been practically daily protests in and around the industrial belts and law-and-order situation is yet to get back to normal.
On top of these uncertainties the country is facing a major energy crunch. A large percentage of the energy mix has become import-dependent and there is now a move by the policymakers to wean the country off expensive imported fossil fuels. Since domestic supplies of gas have been steadily declining, there is a mismatch between demand and supply of energy. With cutbacks in production comes a reduction in internal revenue generation for the national board of revenue (NBR).
A look at the data published recently in The Financial Express, reveals that the revenue mobilisation over July - September period of 2024 is approximately 6.07 per cent less than that of the corresponding period in 2023. It was Tk754.87 billion in 2023 and in the current fiscal, it's Tk 706. 02 billion--- a shortfall of Tk 45.84 billion. When one takes into account the original target of Tk 964.99 billion for first quarter of FY 2025, it becomes clear that there are some fundamental problems between setting of targets and what is achievable.
In the last few months of the previous administration, came the revelations of concocted data produced by some of the major government bodies which included the Export Promotion Bureau (EPB), the Bangladesh Bureau of Statistics (BBS), the Customs department. Apparently, different models of computation were being done independently by these agencies and national plans had been drawn up and executed based on these erroneous data. Quite astonishing to say the least, but the damage had been done. Billions of dollars in foreign loans (some soft, mostly hard in nature) had been taken from international sources and today these are being paid back in an adverse economic situation.
Nonetheless, now that cooler heads are in charge of the principal decision-making bodies, some of the unnecessary development projects have either been shelved or put on hold. That should help save some resources, but it does not address the revenue collection problems. "Economists attribute this decline to the political and economic transitions occurring in Bangladesh". As pointed out by Dr. M Abu Eusuf, who is the lead analyst on Domestic Revenue in the White Paper Committee and Executive Director of the think-tank RAPID, the strategy for mobilising domestic revenue has shifted amidst changes in governance, leading to stagnation during this period.
Collection has suffered in certain key areas, i.e., VAT collection fell short by 10.02 per cent, customs by 7.23 per cent, and income tax by a paltry 0.03 per cent. Since most revenue for the NBR comes from indirect taxation, viz. VAT followed by customs duties, this fall is understandable and it cannot be reversed in the short term. The government is under immense pressure to maintain a certain level of foreign exchange reserve to meet IMF conditions and repay foreign loans simultaneously. Thus it has naturally been forced to cut back on imports. There is no way around this.
With regards to VAT, since production (and services sector) has fallen across the board, lower VAT is being collected. That too is not going to rebound magically anytime soon. On top of all this, import duties are being slashed heavily on a host of essentials in a bid to stabilise prices in the food markets. Again, industrial imports are down massively since issuing letters of credit by banks have been slashed due to lack of sufficient greenback. This leaves the question of direct income tax.
Levying income tax has always been the NBR's Achilles heel. In fact, indirect taxation has become the mainstay for domestic revenue collection. The NBR data back in December 2023 showed that until fiscal year (FY) 2022-23, indirect tax collection accounted for 66 per cent of the total tax revenue. Understandably, people are in serious economic distress, but there has to be a policy shift from indirect taxation to direct one. Indirect taxation ends up putting a greater burden on all the people of the country, but having a larger spread of people under the purview of direct income tax could pave the way for easing the VAT burden. Not just at the retail level, but at every level of production and services. This needs to happen. Otherwise, state coffers will always fall short of targets.

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