BANGLADESH may be far from achieving equality and its social stratification is so stark that a university student, a rickshaw puller, a street vendor and a day labourer are put in the same bracket on one count. They largely skip meals. They are forced to skip meals, especially breakfast.
The reality was exposed in a survey that Youth Policy Network conducted. It has found a whopping 99 per cent of the total 1,022 respondents have skipped at least one meal in recent times. Not only are they compelled to start the day with an empty stomach, but most of them also live below or near the poverty line.
The survey, conducted on working-class people, mobile work force and emerging youth, has found that as much as 60 per cent of the respondents skip breakfast while 17 per cent skip lunch and a similar percentage skip afternoon snacks. The people, whose income ranges from Tk 10,000 and Tk 15,000 a month, also struggle to buy a mere packet of biscuits or even eggs and bananas. They try to evade starvation by consuming dry, starchy and sugary foods containing low nutrition, yet the cheap and unhealthy food is often too pricey for them.
The factor that can be at the heart of such a hapless situation is the unusual, unjust value-added tax. The value-added tax is a vital tool to mobilise revenue for the government. This tax is said to have advantages compared with other taxes because it eliminates cascading, allows zero rating of exports. It is broad-based and difficult to evade. Bangladesh introduced value-added tax in 1991 and over 35 years, almost a third of the revenue that the National Board of Revenue collects comes from the value-added tax.
The people who are responsible for collecting taxes love value-added tax as it is easy for them. But notwithstanding the importance of value-added tax, one must understand the basics of the imposition of value-added tax and how it harms the economy and the nation.
Income tax is a direct tax and the rate is normally set keeping to the income of a person or an entity. This is mostly progressive tax as the percentage of the amount increases proportionately as income rises. For the least income people, taxes are mostly exempted while after a certain threshold, they rise and the richest have to pay the maximum percentage. This system is just for the economy.
Value-added tax, on the other hand, is a regressive tax because it slaps the same amount on consumers regardless of the income. So, value-added tax, in principle, must, therefore, be applied to luxury rather than essential goods to lessen injutice.
Differentiating essential goods from luxury items may sometimes be difficult, but it is mostly easy. Food items, medicines and education must be categorised as essential goods and services. However, if someone consumes food in a posh, air-conditioned restaurant and resorts to health care in an expensive hospital, the amenities, not the basic services, may and, perhaps, should come with value-added tax.
Why should a packet of biscuits and water bottles not be considered luxury items as someone may consume packet-less biscuit and un-bottled water? The answer is 鈥榥o鈥� for two reasons. Unpacked items may not be the safest of options and not ubiquitous. Collecting revenue may be important but it cannot expose a large amount of people to health hazards. The total amount collected in value-added tax on such items is insignificant compared with the total revenue amount collected.
The monetary gain of the state is minimal against the potential danger it creates for people, especially for the ones who are in the lowest rung of the ladder. For some small amounts, the state risks its work force and even the future as the survey showed that 28 per cent of the students skip meals because of high food prices. It is obvious that if these people stay well nourished, they will not only help to make a lot more revenue but also lessen medical costs. So, value-added tax on food items and necessary goods creates a negative impact even on national accounting apart from the social and political consequences.
The value-added tax system is unjust. A 2011 study showed that the least income people carry the heaviest burden of value-added tax while the richest carry the least. While an effective value-added tax rate for people earning less than Tk 4,000 a month is 6.92 per cent, the rate for people earning more than Tk 20,000 is 4.56 per cent.
The tax-to-gross domestic product ratio is only 7.4 per cent, which is the lowest even in South Asia and less than a half of the global rate, which is 15. Advanced economies such as France have a ratio of more than 40 per cent.
The revenue board must not go after earning pittance but rather chase the big ones and resolve the problem. Raising the tax-to-gross domestic product ratio is the deal. It is time to plan and work accordingly.
Eighty-seven per cent of the work force is involved in the informal economy. These people stay out of the tax net. This is good neither for state nor for people. A street vendor does not pay taxes and has to survive by bribing local goons and dishonest sections of people in the administration who protect them from extortion money. The vendors also use electricity and other facilities illicitly and deprive the state.
These people must be brought under the tax net. The solutions do not seem to be that difficult. The administration, if willing, may easily give them licences and collect taxes. The state coffer will not be deprived and more people will come under state services. Our tax collection system must be more dynamic and it should get off food items and lifesaving goods.
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Syed Faiz Ahmed is a columnist and writer.
