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Resource-raising ineptitude is resulting in the ballooning of public debts and squeezing people's-welfare spending, economists and experts said Monday and stressed narrowing Bangladesh's wide tax-GDP gap.
They feel the urgency of ramping up domestic-resource mobilisation efforts to increase the tax-GDP (gross domestic product) ratio which remains well below par with the consequence of poor public spending on health, education and social- safety net.
In this context, while speaking at a meet in Dhaka, they squarely blamed institutional failure of the National Board of Revenue. They said such lacking has affected domestic resource mobilisation negatively over the years, resulting in increase in government debts.
The economists and experts made the observations along with some recommendations at a training programme organized by Policy Research Institute (PRI) and its recently launched Study Centre on Domestic Resource Mobilisation (CDRM).
They recommended fundamental reform in the NBR, proper and efficient taxation and organized VAT systems to raise revenue at the local level, saying that increased revenue is required to realise sustainable development goals (SDGs) by 2030.
A PRI analysis shows that if tax revenue can be increased to 13.5 per cent of the GDP, real GDP will increase 3.3 per cent and headcount poverty will fall by 2.0 percentage points.
Bangladesh's tax-GDP ratio has been hovering around 8.0 per cent.
Executive director of PRI Dr Ahsan H Mansur made opening remarks while its chairman and director Dr Zaidi Sattar and Dr Bazlul Haque Khondker respectively spoke on trade taxes, revenue, protection and the exchange-rate linkages and state of tax reform in Bangladesh and effect on domestic resource mobilisation respectively.
"Bangladesh's tax-GDP ratio has decreased to 8.0 per cent which was 11 to 12 per cent in last few years," Mr Mansur said, attributing the regress to lack of policy reforms and tax officials not allowing any change in the existing system as the current policy has created a "comfort zone" for them.
The country's tax admiration remained the same as colonial era and no fundamental changes had taken place in the tax laws except for value-added tax act made in 2012.
Nowadays, there is no existence of face-to-face communication between taxpayers and tax officials in any country in the world bar Bangladesh. "This face- to-face communication hampers neutrality and objectivity of tax officials and revenue collection is compromised," he notes.
Presenting the keynote paper at the programme, PRI CDRM director Dr MA Razzaque said domestic resource mobilisation is now more important than ever as Bangladesh aspires to become a higher-middle-income (HMI) country by 2031.
"Bangladesh's current tax-GDP ratio is far below the optimum level, its public spending is too low while the cost of debt servicing is on the rise," he told the function, adding that Bangladesh has constrained fiscal space and implications of recent macroeconomic instability.
"Increased revenue is also required for realizing SDG targets by 2030," he noted, adding that US$1000 billion would be required to achieve SDG targets by 2030.
He further explained that high interest payments on domestic debts are putting further pressure on already-constrained fiscal space, and as a result of constrained fiscal space, social security has not received due attention despite the ongoing inflation.
Government borrows from domestic sources at higher interest rates and interest payments on domestic debts are currently about as high as 20 per cent of all government revenues and 14 per cent of total public spending.
Bangladesh's public spending on health and education was only 0.81 per cent and 2.0 per cent of the GDP respectively, which ideally should be 5.0 per cent and 4.0 per cent, he said.
Public expenditure even in lower-middle-income countries was more than 24 per cent of GDP while it was only 13 per cent in Bangladesh for resource constraints, he noted.
Explaining state of tax reform, Mr Khondker said a new income-tax code is required to implement an effective and contemporary tax system. The current system of taxes is based on the antiquated income-tax ordinance from 1984, which causes the country to fall further and further behind time.
If the tax revenue could be increased to 13.5 per cent of GDP, the real GDP would increase 3.3 per cent and headcount poverty would fall by 2.2 percentage points.
"The changes in tax structure in favour of the direct tax along with expenditures of additional revenue may result in additional 3.3 percentage points to the GDP- growth rate," he said.
Low tax effort is a key impediment to adequate expenditure on the social sector as well as infrastructure in Bangladesh, he noted.
Speaking there, PRI chairman Zaidi Sattar opined that Bangladesh should go for reducing trade tax as he feels that revenue dynamism is not possible with trade tax.
"Customs administration and tax administration are not the same, rather customs administration will promote business," he said, adding that the existing tax policy is hindering the potential of Bangladesh to become a trading nation.