The National Board of Revenue has failed to earn revenue targets in the past 12 financial years despite mostly downward revisions and is unlikely to achieve the target in the ongoing year, drawing criticism against the backdrop of the country鈥檚 low tax-to-GDP ratios.
Lack of capacity as well as automation and corruption are blamed for lower-than-expected revenue generation that, according to economists, forces the government to rely increasingly on borrowing for fiscal management.
The government鈥檚 borrowing increased by 177 per cent in the eight financial years ending 2022鈥�23, while revenue generation increased by only 118 per cent during the same period, according to budget documents.
鈥楾he growing borrowing amid poor revenue generation has already hit the fiscal balance,鈥� said Ahsan H Mansur, executive director of the Policy Research Institute.
Despite efforts, the government has failed to increase revenue generation, he said, noting that the tax-GDP ratio slid to 7.8 per cent at the end of FY 2021 from 9.3 per cent in FY 2016.
The revenue generation record by NBR in the past one and a half decades showed that the upward revision of the annual target was made twice for FY2010鈥�11 and FY2011鈥�12 to mobilise higher revenue to meet the government鈥檚 needs for investment and development in line with growth in gross domestic product.
Of them, the NBR, responsible for generating more than 80 per cent of annual revenue, was successful in FY2010鈥�2011.
The original target of Tk 72,590 crore was revised upward by Tk 3,010 crore to Tk 75,600 crore, while NBR collected Tk 76,284 crore in the end.
Encouraged by the success, the then finance minister, AMA Muhith, also made an upward revision of the FY2012 target by Tk 491 crore to Tk 92,370 crore from Tk 91,879 crore. However, the NBR failed to sustain its new-found performance as it managed Tk 91,595 crore in that financial year.
Since then, the present political regime has made downward revisions to the annual target within nine months of announcing the national budget in June.
The finance ministry officials said that the original target of Tk 4,30,000 crore for FY2024 had already been slashed to Tk 3,94,304 crore after consulting with the International Monetary Fund because of its $4.7 billion loan programme, which the government has taken to tackle the ongoing dollar shortage.
However, the independent think-tank Centre for Policy Dialogue has already assessed that the revenue shortfall will hit around Tk 82,000 crore while reviewing 11.4 per cent revenue mobilisation growth in the first six months of FY2024 against the annual target of 37.3 per cent.
Economists said that the NBR had been given ambitious revenue generation targets over the years without any major reform to increase its capacity or check tax evasion.
In FY2019, the NBR suffered revenue losses of around Tk 200,000 crore, more than double the actual Value Added Tax revenue in that year, because of the collection gap, according to the Bangladesh Development Update by the World Bank on April 2, 2024.
The assessment was made by reviewing different rates fixed by NBR for different sectors, said former World Bank Dhaka office chief economist Zahid Hussain, indicating a lack of automation in the collection of VAT.
VAT has become the major earning source for NBR since its introduction in 1991.
Along with VAT, import duties, excise duties, and supplementary duties鈥攁ll known as indirect taxes and called regressive ones鈥攈ave been generating more than two-thirds of income for NBR over the years.
Zahid Hussain identified widespread corruption among other reasons for the slow pace towards a progressive taxation system or mobilising higher revenue from income taxes.
The contribution of direct taxes to overall revenue in Bangladesh stood at 32.1 per cent in 2020鈥�21 while it was 26.5 per cent in 2009鈥�10.
In India, direct taxes accounted for 51.3 per cent of its total revenue in 2016鈥�17, and the figure rose to 56.4 per cent in 2020鈥�21.
The number of registered income taxpayers in Bangladesh crossed one crore in 2023.
However, less than 30 per cent of them pay income tax, which, according to economists, is a major obstacle to the transformation towards a progressive tax policy at a fast rate.
Economists also noted that the current taxation system had not only overburdened the majority of people with indirect taxes but also increased income inequality.
Measured by the Gini coefficient, it increased to 0.49 in 2022 from 0.46 in 2010 and 0.39 in 1990鈥�91, when the narrow Gini coefficient indicated equal income distribution.
The share of wealth by the bottom 10 per cent of the population fell to 1.31 per cent in 2022 from 2.58 per cent in 1990鈥�91, while the share of wealth by the top 10 per cent went up to 40.92 per cent from 35.85 per cent over the corresponding period.
CPD distinguished fellow Mustafizur Rahman observed that income inequality would not decrease without higher revenue from direct taxes such as property tax and inheritance tax.
