The current global economic landscape is grappling with the fallout of the Covid-19 pandemic and the Russia-Ukraine conflict. Widespread inflation and soaring fuel and food prices are affecting people worldwide, especially low-income groups. These challenges highlight the need for effective policy management that preserves government revenue sources without causing significant revenue losses.
Amidst the various global economic crises, Bangladesh is making significant strides under the skilled leadership of Honorable Prime Minister Sheikh Hasina. Despite the daunting challenges posed by the COVID-19 pandemic, the country has managed to achieve 7.1% GDP growth in 2021-2022. There is no doubt that the National Board of Revenue (NBR) has played a pivotal role in driving the country's all-encompassing development.
Over the past few years, the NBR has undertaken various effective initiatives under the guidance of its Chairman, Abu Hena Md. RahmatulMuneem, to increase awareness about people's tax responsibilities. The NBR has digitized its services, allowing for online VAT registration, VAT return filing, tax calculator software installation, Electronic Fiscal Device (EFD) support, and other forms of online tech assistance. To enhance online connectivity, the NBR has signed agreements with numerous banks, including BRTA, the Department of Savings, the Electricity Department, the Election Commission, and the IVAS System. Additionally, online income tax return filing, e-TDS system, and automated challan system for online tax payment have been launched. All Income Tax, Customs House, and VAT Commissioneratehave introduced their own websites and social media Facebook pages. As a result, the NBR has transformed into a modern, technology-based, service-oriented organization, contributing to the government's vision of building a smart Bangladesh.
The National Board of Revenue (NBR) reported a growth of 8.92% in revenue collection from income tax, VAT, and customs during the July 2022 - February 2023 period. The total revenue collected during this period amounted to BDT 1.96 trillion, an increase of 8.9% from BDT 1.80 trillion collected during the same period in the 2022 fiscal year.In addition, the NBR has reported a growth of 15.28% in tax-revenue collection during July 2022 - February 2023 period compared to 2021 fiscal year. This signifies a significant increase in tax-revenue collection by the NBR in the current fiscal year.
These figures indicate that the NBR is moving in the right direction with its effect to improve tax collection, efficient management of tax systems and robust tax policies and structures. It is hoped that this trend of growth in revenue collection will continue in the future, contributing to the economic development of the country.
However, governments across the globe face increased inflationary pressures that necessitate the prioritization of maintaining revenue streams to avoid excessive borrowing from domestic and international sources. It is essential to maintain the flow of government revenue to avoid excessive borrowing. Without revenue growth, it becomes increasingly difficult to manage the crisis. In Bangladesh, it is crucial for policymakers to examine tax structures to support economic recovery without causing significant revenue losses.
A key aspect of government revenue in Bangladesh is the Large Taxpayers Unit (LTU), which includes sectors like the tobacco industry. The tobacco sector is a significant revenue source in the country, contributing approximately one-third of the VAT collected from the domestic market, amounting to around Tk 300 billion. The cigarette industry, a major player in the LTU sector, has demonstrated consistent growth over the years. It generated nearly BDT 300 billion in FY 2021-2022, with a growth of about 25% compared to FY 2017-2018. Revenue deposits from the industry have grown at a Compound Annual Growth Rate (CAGR) of approximately 15% in the last five-year period.
Bangladesh is reliant on its tax revenue to sustain its economic growth by improving infrastructure of the country, and funding development projects for attracting foreign investments. However, the country's revenue levels are being threatened by the rampant illegal cigarette trade arising from increasing tobacco price hikes. Illegal cigarette trading, facilitated by counterfeit or reused tax stamps and banderoles, can become more prevalent due to high tobacco taxes on medium and low-segment cigarettes. When the prices of medium and low-segment cigarettes are increased, consumers of medium-segment cigarettes are forced to switch to low-segment cigarettes, while low-segment consumers are compelled to switch to even cheaper cigarettes such as bidis or illicit cigarettes, which are often affixed with counterfeit labels.
Tax evasion not only reduces government revenue but also negatively impacts legitimate, tax-paying businesses. A steady price hike is much preferable as it prevents high revenue loss and keeps consumers from opting for cheaper, low-qualitybrands or tobacco products such as bidis, chewing tobacco, Gul etc.
Striking a balance between generating revenue and addressing public health concerns is essential for policymakers. By carefully examining and adjusting tax structures, the government can support economic recovery without incurring major revenue losses or exacerbating public health risks. A step may be taken to reduce tobacco consumption or adjust the tax policies in a way that low-quality brands or bidis, chewing tobacco, Gul are not consumed. More pressingly, policymakers should consider the impact of tax policies on consumer behavior and the growth of illegal markets to ensure a sustainable path forward for much-needed revenue generation.
The writer is a former member( VAT Policy) of the National Board
of Revenue (NBR)
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