The Financial Express

Troubling signs on the tax front

| Updated: September 29, 2019 21:31:28

Troubling signs on the tax front

For the National Board of Revenue (NBR), the immediate past financial year (2018-19) was not anyway notable. Like the previous years, it had to downsize its tax revenue target halfway through the year. Yet it could not hit that revised target at the end of the year.

The Board had fixed the total revenue target for the FY'19 at over Tk 2.96 trillion in the national budget. The target was revised downward to Tk 2.8 trillion. It could not achieve that target too. The overall revenue shortfall was over 20 per cent. In the case of import revenue, the deficit was around 20 per cent. For the local level value added tax (VAT) the shortfall was 16 per cent and for income tax 25 per cent.

There is no denying that the NBR has quite a number of weaknesses, administrative or otherwise. These weaknesses have been hurting the performance level of this very important state entity.  However, its capacity has improved to some extent in recent years. Yet none would dispute the need for improving its performance further with a view to tapping the full tax revenue collection potential.

It would be fair to mention here the tax revenue targets set in the most budgets are received with some degree of scepticism by most experts. As the budgets are unveiled in parliament, experts in no time describe the revenue targets set in those as abnormally high or unrealistic.

The budget for the current financial year is also no exception.

Though the tax revenue collection by the NBR fell short of the original target by over Tk740 billion and of revised target by Tk 580 billion in the last fiscal year, the government has fixed the tax revenue target at Tk 3.25 trillion for the FY'20, higher by Tk1.0 trillion than the amount actually collected by  the NBR in the immediate past financial year.

But much of the blame for lower than projected collection should go to the relevant ministry, not the NBR. The unrealistic tax revenue targets are, in most cases, imposed on the NBR. The top notches in the ministry do know the targets are not achievable. Yet they include those in budget documents, possibly, for playing to the gallery. 

The trend in tax revenue collection during the first couple of months of this fiscal not being healthy indicates to possible repetition of the past performance on the part of NBR. In the first two months of the current FY, tax revenue collection was 18 per cent less than what was mobilised during the same period of last fiscal.

VAT is now the largest source of revenue for the government. That has also taken a hit during the first two months of the current fiscal year. According to statistics available with the VAT-related large taxpayers unit (LTU) of the NBR, the collection of VAT during the July-August period of this fiscal was lower by nearly 16 per cent over that of the corresponding period of last fiscal.

The main reason for decline in VAT revenue was due to drop in collection from tobacco and gas sectors.

As far as tobacco sector is concerned, sale of cigarettes declined by more than 18 per cent and tax revenue by more than 16 per cent during the first two months of the current FY. Significant increase in prices of top and medium segments of cigarettes, according to VAT-LTU assessment, was responsible for the decline in their sale  and consequent lower tax revenue growth. Besides, greater availability of cigarettes produced by clandestine factories that does not pay any sort of duty and tax has also been responsible for lower revenue growth. Law enforcing agencies have raided a number of such factories in recent times. Lower segment cigarette packets, produced by fake factories and cigarettes smuggled from one or two neighbouring countries are available at prices much lower than that fixed by the NBR.

The decline in revenue coming from the tobacco sector is a very unusual and the least expected development. This is the sector where tax revenue has been growing at a rate of 15 per cent annually. So, the government does need to give due attention to the factor/s hurting its revenue flow from the sector which has been and also likely to remain the 'cash cow' for future years.

Another important sector, in terms of revenue collection, the gas sector has been showing all the troubling signs since the beginning of this fiscal year. During the first two months of the fiscal, the collection of VAT revenue from the sector was 68 per cent less than the amount mobilised during the corresponding period of last FY. The major reason for the decline in revenue collection is the exemption of supplementary duty (SD) on natural gas. The SD used to be imposed at a rate of more than 93 per cent. Exemption of VAT realised on imported LNG is yet another reason.

The telecom sector, another cash cow for the taxmen, has been showing some disturbing signs. The dispute between the BTRC and two major telecom giants ---the Grameenphone and the Robi, over arrear dues if not resolved early could hurt the revenue flow for the NBR. It is a positive development that the incumbent finance minister has stepped in to help resolve the long-standing dispute through discussions.

However, a period covering a couple of months is only a small one in a whole financial year. The situation might improve during the remaining period. But that would happen if the government does make some serious efforts to remove the distortions hurting a healthy revenue flow.


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