Economists for fitting separation of tax policy from administration
The proposed bifurcation of the National Board of Revenue and the future role and responsibilities of the two offices of the revenue board after the spilt are likely to get a special focus in the national budget for the forthcoming financial year of 2025-26.
Officials of the finance ministry said that the interim government would promulgate ordinances to bifurcate the revenue board before the announcement of the FY26 budget on June 5 by finance adviser Salehuddin Ahmed.
However, operations of the post-bifurcation two branches will begin with the implementation of the new budget from July 1, 2025, added the officials.
It is expected that the role and responsibility of the new branches will be narrated in the budget comprehensively.
The NBR has been operated since 1972.
Economists as well as the International Monetary Fund have long been urging the government to separate the NBR鈥檚 tax policy from its tax collection system, saying that their roles are conflicting.
They argue that a proper separation of the tax policy from its implementing branch will augment revenue collection against the backdrop of findings that the country鈥檚 tax-gross domestic product ratio is one of the lowest in the world.
The successive governments have been facing fund shortages to carry out much-needed development programmes in the health and education sectors, said former World Bank Dhaka Office chief economist Zahid Hussain.
He hoped that the forthcoming separation of the NBR should be meaningful.
Recalling the abortive attempts in the past especially in 2009 when the issue was sent to back burner despite approval for the bifurcation by the then cabinet, Zahid said that the issue had been discussed since 2003.
Referring to a draft on much-vaunted separation plan, finance ministry officials said that the revenue board had proposed the abolishing of the National Board of Revenue Order, 1972 and the creation of two divisions under the finance ministry.
One of the proposed divisions is the tax administration that would discharge the role like what the NBR is doing now 鈥� colleting taxes, appointment and transfer and implementation of tax policies.
The other proposed division is the tax policy that would deal with policy-related issues such as income tax, travel tax, wealth tax, customs duty, value-added tax, supplementary duty and surcharge, said the officials.
The officials said that a meeting was held in the past week at the Finance Division to discuss the pros and cons of the proposals.
They said that more meetings would be held to discuss the proposed divisions and their manpower since the NBR wanted high presence of officers from income and customs in the entities.
They hoped that the finance adviser would give details about the modus operandi of the proposed divisions in his budget speech to bring an end to the operations of the NBR.
Institute for Inclusive Finance and Development executive director Mustafa K Mujeri said that the creation of two divisions would not bring expected outcomes in revenue generation unless the government implemented a comprehensive reform plan.
He said that the comprehensive reform plan was imperative to get rid of tax evasions and tax exemptions given to many sectors.
In a pre-budget discussion with the finance adviser on March 17, economists again emphasised expansion of the direct tax and reduction of indirect tax collection in the next national budget to give general people relief amid high inflation prevailing in the country for the past three years.
Finance ministry officials said that the interim government wanted to raise the country鈥檚 falling tax-GDP ratio by generating more revenue in the next financial year.
Half a dozen areas, including rationalisation of income tax waivers and imposing 15 per cent value-added tax on most of the consumer goods, have been identified for higher revenue mobilisation, said the officials.
Tax exemption has been identified as a major reason for the country鈥檚 tax-GDP ratio falling below 8 per cent in the FY 2023鈥�24 from 9 per cent in the FY 2013鈥�14.
The NBR in a report released in December 2024 calculated that Tk 1,15,056 crore was exempted in direct taxes during the FY 2021鈥�22, almost 2.9 per cent of the GDP in that financial year.
Of that exempted amount, Tk 71,394 crore or more than 60 per cent was linked to the exemption of corporate income tax.
The overall amount of revenue losses due to exemptions reached over Tk 1,50,000 crore in the past FY 2023鈥�24, said the finance ministry officials.
The officials said that the proposed revenue mobilisation target would be at Tk 5.5 lakh crore for FY26.