It is time for reforms to increase revenue: Experts

Experts at a webinar emphasised on reforms to increase revenue in proportion to gross domestic product, saying a crisis like Covid-19 is a good time to implement reforms. He opined that the requisite reforms are possible only if the government has the political will.

They made the remarks during the discussion titled "The reliance on VAT to finance the economy: Will the fund shortage be met? 

The Lawyers & Jurists Foundation and The Business Standard jointly organised the event on Sunday night. 

Taking part in the discussion, Planning Minister MA Mannan said that despite pressure (on the government) exerted by vested interests against them, Prime Minister Sheikh Hasina will implement the reforms required.

Chartered Accountants and Management Consultants Mahamud Hossain FCA, who moderated the discussion, said value-added tax or VAT is fast becoming a major component of revenue.

Such an increase in indirect tax rate is imposing an unfair tax burden on the public at large, especially the poor.

Speaking on the matter, Professor Dr Selim Raihan, executive director of South Asian Network on Economic Modeling (Sanem), said 70% of revenue is indirect tax, and the remaining 30% is direct tax. 

He said the per capita income in Bangladesh has doubled in a decade; however, instead of increasing, the tax-GDP ratio has been dropping. He spoke of reforms to mitigate this situation. "For example, the National Board of Revenue collects taxes and makes tax policies as well."

In response, Planning Minister MA Mannan said that due to the strong lobbying presence, governments have not been able to increase the participation of direct taxes.

"We have to rely on VAT for now. In this case, the government will aim to keep relatively low-income groups free from the tax burden."

The speakers said the impact of Covid-19 would reduce imports, bring down consumer spending, and hurt the economy as a whole.

Although the revenue is not at desired levels, the planning minister thinks there will be no shortage of funds in the implementation of the budget. He is hopeful that the revenue will increase as soon as the economy turns around.

"If there is a financial crisis, the government will take loans from the banking system, or it can take loans from foreign sources," he said adding that foreign loans are cheaper now. Also, since Bangladesh has a reputation for repaying loans, it will not be difficult to get the loans required.

Supreme Court lawyer AM Masum said that the full implementation of the online VAT system and digitization of new income tax law will serve to boost tax collection.

Much of the discussion concerned the implementation of stimulus packages to address the Covid crisis.

The speakers said Bangladesh was the first in South Asia to announce stimulus packages but was unfortunately lagging behind in implementation.

Criticising the delay in disbursement of loans, especially in the cottage, micro, small and medium enterprise (CMSME) sectors, they said the failure of the largest employer sector to address the Covid crisis would have a negative impact on the overall economy.

Of the Tk20,000 crore incentive package for the sector, Tk12,000 crore was disbursed at the end of December, which is about 60% of the target. The central bank has extended the loan disbursement period by another three months to March 31.

According to speakers, the CMSME sector needs loans to be disbursed quickly, and microfinance institutions and private development partners can assist in this regard.

They also stressed on the importance of monitoring, saying there needs to be a full assessment of who is receiving the money from the package, and for what purpose the funds will be used.

Suggestions were also made to increase government investment in education and health. 

Planning Minister MA Mannan said a unified education policy was needed to boost government investment in education.