Spending on tax collection faces undesirable cut

Government investment in domestic revenue mobilisation has been declining over the years despite a pressing need to boost tax collection.
The government spent Tk 0.31 to collect Tk 100 in domestic revenue in the fiscal year of 2019-20, but this fell to Tk 0.25 in 2020-21, according to the Medium Term Macroeconomic Policy Statement 2023-24 to 2025-26 by the Ministry of Finance.
The breakdown shows indirect tax collection costs dropped from Tk 0.21 in FY2019-20 to Tk 0.13 in FY2020-21. Direct tax mobilisation costs fell from Tk 0.31 to Tk 0.21 over the same period.
Tax officials say the National Board of Revenue (NBR) needs investment in logistics, automation and manpower development to tackle tax evasion and corruption.
They argue that investment in tax collection has a multiplier effect on the economy. It has a much higher outcome than that of investment in any other sector. Tax-GDP ratio is one of the lowest in Bangladesh, compared to other regional countries.
In May this year, a study by the Centre for Policy Dialogue (CPD), titled 'Digitalisation of the Bangladesh Tax System: The Next Frontier for Higher Resource Mobilisation', supports the data in the policy statements and offers cross-country comparisons.
The CPD found that while investment in tax collection has fallen over the years, revenue has gradually increased.
The study was conducted by CPD Distinguished Fellow Dr Mustafizur Rahman and Programme Associate Isabella Mumu Rozario.
Dr Rahman said investment in tax collection is worthwhile as it yields high returns. India, for example, invests Tk 0.63 to collect Tk 100 in taxes.
He said Bangladesh sees far higher returns on investment in NBR than other countries.
The CPD study showed NBR's resource mobilisation as a share of GDP falling from 8.91 per cent in FY2019 to 7.38 per cent in FY2023, projecting a declining revenue-to-GDP ratio in recent years.
However, revenue officials said investment in domestic revenue mobilisation could increase in the coming years as the government has approved an NBR expansion plan to open more tax offices.
These offices, they said, will have to be digitally equipped to improve taxpayer services.
A former tax official, who asked not to be named, said tax authorities are focusing on tax collection through fiscal measures, increasing withholding taxes.
But enforcement is key, rather than relying on withholding taxes, as the consumers have to bear the brunt of higher prices for commodities and services, he commented.
"Tax evasion is high in Bangladesh. Tax officials do not have effective digital tools to detect concealed income," the official said.
He said the NBR's plans to set up a forensic lab in the Central Intelligence Cell (CIC) have stalled due to funding shortages. Tax officials also need access to global databases to check multinational company tax records and prevent transfer mispricing.

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