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Soaring cost of tax exemptions  

| Updated: March 21, 2019 21:55:54


Soaring cost of tax exemptions   

The gross mismatch between the government's avowed objectives and a few actions taken in areas of tax revenue is quite evident from the rising duty exemption trend in recent years. At the beginning of every financial year (FY), the government would invariably set a high tax revenue growth target matching its expenditure projections. But, as if to nullify its own doing, the government would either raise the level of exemptions for some goods or add a few new items to the existing long list of tax waivers. However, duty exemption is not the only reason for the slow growth of tax revenue; other factors have been known to stymie the government's revenue-boosting efforts.

The duty and tax exemptions at the import stage more than doubled over a period of last four FYs to reach Tk 441 billion at the end of June last. The trend witnessed during the first seven months does indicate that the National Board of Revenue (NBR) would also lose the largest ever amount of revenue in tax waivers at the import level during the current financial year. Undeniably, some exemptions are necessary either for greater good of the economy or for meeting some internationally accepted norms and obligations under bilateral and multilateral trade deals. But there are a few tax waivers that can easily be avoided to help boost revenue earning and ensure fair play. Thus, time is ripe for an impact assessment of the tax exemptions granted to various sectors at the import stage. This is necessary because the cost of tax exemptions has been rising relentlessly. It was equivalent to 17 per cent of total tax collection in FY2014-15 and 22 per cent in FY 2017-18. The share is likely to be higher this fiscal because the government granted a few exemptions ahead of last general elections.

Duty-free import of vehicles by the lawmakers remains an example of politically-motivated tax exemption. The NBR lost nearly Tk 16 billion in duty and taxes during the last four and a half years because of the exemption. Lawmakers have been enjoying duty-free import of vehicles since 1986. Interestingly, the politicians, who had once blasted General Ershad for introducing the 'unfair' provision of duty-free import of vehicles by lawmakers in parliament in 1986, later found the provision convenient and continued with the same.

However, such an unfair privilege should have been curtailed long ago. There could be a few more areas receiving duty exemptions unduly. However, despite a negative impact on the revenue mobilisation efforts of the NBR, some areas do deserve tax exemptions for the greater interest of the economy. For instance, capital machinery and raw materials used by some export industries are, justifiably, strong and eligible candidates for tax exemptions and the NBR, understandably, would never oppose such concessions. As a matter of principle, taxmen are opposed to exemptions, for those curtail their tax mobilisation efforts. The policymakers do also subscribe to the taxmen's stance. Yet under pressure from vested interests, the former are often found to change their positions. It is high time all concerned examined the tax-waiver issue afresh. Given the current state of affairs regarding tax exemptions, the government should make a dispassionate assessment of the situation and drop the ineligible beneficiaries from the list. This might help the NBR to cut its loss on account of tax exemptions at the import stage. 

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