Low tax collection rate to haunt post-LDC Bangladesh

Scoring only 0.68 points out of 1 in the tax effectiveness index, Bangladesh is way behind other least developed countries (LDCs), which scored an average of 0.8.

The Centre for Policy Dialogue (CPD) on Wednesday blamed the lower rate of tax collection for low investment and resource gap in several sectors, as revealed in the Least Developed Countries Report 2019 of UNCTAD.

Towfiqul Islam Khan, senior research fellow at the CPD, said, "We should have a structural transformation to achieve investment dependent growth, but there have been no signs of this in the economy for the last couple of years."

In 2015 alone, illicit outflow of money from Bangladesh was about 36 percent of total tax collection, according to the report by the United Nations Conference on Trade and Development (UNCTAD).

While unveiling the Bangladesh chapter of the report, Towfiqul said that among LDCs, tax revenue has increased from an average of 11 percent of GDP in 2000 to 19 percent in 2017 – but the rate is only 9 percent in Bangladesh. 

The report also found that the Bangladeshi economy is facing several problems, including consumption-based growth in GDP, insufficiency in savings, low investment, inefficient revenue generation, lower gross capital formulation, low resource mobilisation and declining foreign trade.

To maintain a sustained growth for coping with the adverse effects of graduation, Bangladesh should increase revenue generation, prevent illicit outflow of money and utilise foreign loans in priority sectors, the report suggested.

Bangladesh has a resource gap of about 8 percent of its GDP, which is lower than the average 15 percent of other LDCs, the report said.

Towfiqul Islam said Bangladesh is among the seven LDCs who have secured more than seven percent growth in GDP.

He said, like other LDCs, Bangladesh has stable growth, which depends on its huge domestic demand, but to sustain this growth the country should depend on investment.

He also said the illicit outflow of money from Bangladesh is harming several sectors of the economy.

"Despite weaknesses in many indicators, Bangladesh maintained a surplus in its current account, while half of the LDCs has a deficit," Towfiq said quoting the report. 

Only five countries maintained this surplus between 2002 and 2017, all of whom are oil exporters except Bangladesh.

The report also said that 15 among 20 top foreign aid dependent countries are LDCs.

Despite being the third largest aid recipient country, Bangladesh depends on foreign sources only for 20 percent of public financing, which is lower than other LDCs.

The report also said Bangladesh ranked 4th among the top 20 beneficiary LDCs in terms of distribution of privately mobilised capital during 2012-2017, and the country will face an adverse impact when it will graduate from LDCs in 2024.

Of the 47 LDCs, three Asian countries – Bangladesh, Laos and Myanmar – were found pre-eligible for graduation from LDC status in a 2018 review.

Five countries have so far graduated from LDC status – Botswana in December 1994, Cape Verde in December 2007, the Maldives in January 2011, Samoa in January 2014, and Equatorial Guinea in June 2017.