Corruption cuts tax-GDP ratio in Bangladesh

The country’s tax-to-GDP ratio fell sharply in the past decade as revenue generation could not keep pace with average economic growth of six per cent. Economists blamed the lower-than-expected performance by the tax administration and the losses of revenue to corruption for the falling tax-to-GDP ratio, which fell to around 8 per cent in 2022 from 9.2 per cent in 2011. Due to this unwanted situation, the nation has one of the lowest tax-to-GDP ratios in the world. Furthermore, the citizens of the country have been ridiculed worldwide as reluctant taxpayers, tax ignorant, and tax dodgers despite the threefold increase in per capita income from $940 to $2765 in FY23. Former World Bank Dhaka Office lead economist Zahid Hussain said that most of the citizens were not tax dodgers but became victims of a system that was forcing them to maintain underhand dealings with tax officials. The amount paid underhand is quite significant, he said, adding that it did not contribute anything to the government’s coffers. ‘All goes to the pockets of tax officials,’ he said. Zahid Hussain said that corruption in the revenue administration is hardly discussed nowadays. He recalled a statement made by former finance minister M Saifur Rahman in July 2005. The former finance minister told parliament that graft gripped every ministry, with the National Board of Revenue being the most corrupt body. If actions were taken against corrupt tax officials, the revenue board would become empty, he added. In the past 17 years, economists say, little has changed in the revenue administration. Almost a year ago, during an event organised jointly by the Centre for Policy Dialogue and the German agency GIZ, the country’s business leaders alleged bribery and irregularities in government offices, including the offices of the NBR. Economists suggested two measures for curbing corrupt practices by tax officials – reducing their discretionary power by harmonising tax rates and implementing proper automation in the tax collection system. The reduction of discretionary power of tax officials will facilitate the calculation of taxes and duties, while proper automation will ensure the collection of taxes without meetings between the two parties, economists said. NBR has undertaken many projects in the past two decades for automation in revenue administration without much success. At least half a dozen projects have been undertaken since the 2000s with technical and financial assistance from the World Bank and the Asian Development Bank. Tax administration has, however, only partially been automated. In December 2011, the NBR launched the Bangladesh Integrated Tax Administration System, aimed at facilitating online tax return filing but the project ended without success. In FY21, finance minister AHM Mustafa Kamal promised to provide a tax rebate of Tk 2,000 for filing online taxpayers’ returns, but that promise was not fulfilled. Former NBR chairman Muhammad Abdul Mazid said that the government should identify the reasons and vested quarters behind the repeated failures in the automation of the tax collection system. He emphasised the political will to appoint skilled human resources and infrastructural development in this regard. NBR lagged behind in revenue generation by 0.5 per cent of GDP in the past financial year as per the condition set by the IMF for obtaining the ongoing $4.7 billion loan programme in seven tranches by May 2026. It was one of the major criteria for the release of the second tranche by the Washington-based multilateral lender in November. The government needs the second tranche badly to tackle the shortage of dollars that has pulled down forex reserves to around $21 billion recently from $48 billion in August 2021. The poor revenue collection by the NBR has also undermined the target of the seventh five-year plan of the planning commission. The planning commission’s projection of a 13.7 per cent tax-to-GDP target by FY20 was missed by a whopping 5 percentage points. Economists said that the low tax base was working as a strong deterrent to expanding budget allocations to critical areas like health, education, and social safety. Under the current IMF loan programme, the government has also committed to mobilising additional revenue by 0.5 per cent of GDP in FY25 and 0.7 per cent of GDP in FY26. But the success of higher revenue mobilisation targets depends on comprehensive reforms in the NBR to curb corruption and ensure transparency through proper automation, said Policy Research Institute executive director Ahsan H Mansur. The government, in its different policy papers, underscored the need for proper reforms in the NBR to augment higher revenue ahead of the country’s graduation from the least developed countries’ block in 2026. The latest Medium-Term Macroeconomic Policy Statement FY24–FY26 by the finance ministry said success in revenue collection should be strengthened by making tax administration friendly towards taxpayers. Besides, increasing digitalization to bring transparency and progressivity to taxation by imposing more taxes on affluent sections has also been suggested in the key economic policy paper. But in reality, the recommendations have remained unimplemented, lamented Ahsan H Mansur.
Published on: 2023-10-14 04:43:16.616612 +0200 CEST