A revenue income and spending trade-off
The NBR now is in a tight spot as the finance ministry sets a big tax collection target and businesses want tax cuts
The finance ministry has set a lofty revenue target to meet additional demand from ministries for a faster recovery, while businesses demand tax breaks and economists urge for no fresh burden on people at this pandemic time.
The National Board of Revenue (NBR), which has already fallen short of its revenue collection target in the first eight months of the current fiscal year, has been left with tough choices.
The revenue authority has to look for ways to keep taxes low to give businesses a breather like other countries around the globe. Also, it has to explore all possible ways to collect Tk3.83 lakh crore for the next fiscal – an improbable task, meaning that the NBR will have to get Tk1.35 lakh crore more than this year's revised target.
When the NBR was given a target of Tk3.30 lakh crore for the current fiscal year, its chief instantly informed the finance ministry in a letter in March last year that the target was not achievable. What he forecast before the budget was finalised became reality as July-February revenue figures were released yesterday.
Finance ministry officials think revenue collection in the current fiscal year might be around Tk95,000 crore less than the target.
Yet, another bigger target has been set for the next year to bankroll the next annual budget, roughly around Tk5.93 lakh crore.
An official of the Finance Division involved in preparing the budget told The Business Standard that according to their estimates, Tk2.50 lakh crore might be collected combining tax and non-tax revenue in the current financial year. Therefore, the size of the budget is being revised down to Tk5.38 lakh crore.
Ahsan H Mansur, executive director of the Policy Research Institute, said, "The government has always failed to collect revenue. Revenue collection in the next fiscal year may increase by 10-12% year-on-year. But the revenue growth target in the budget is 30-40%, which is unrealistic."
Although economic activities have resumed and production and marketing activities of various sectors have reached pre-pandemic levels overcoming pandemic shocks, Imports and exports have not yet returned to positive growth.
In addition to that, a Covid-19 spike continuing for the past one week despite the ongoing inoculation drive is cause for dismay.
Business associations in the country are recommending a further reduction in taxes in the ongoing pre-budget meetings with the NBR.
The apparel sector, the largest export earner, wants a cut in tax at source from 0.50% to 0.25%. Its association, the Bangladesh Garment Manufacturers and Exporters Association has requested the NBR to continue the existing corporate tax of 12% and green factory tax of 10% for the garment sector for the next five years.
The Dhaka Chamber of Commerce and Industry (DCCI) has proposed reducing the value-added tax (VAT) rate from the existing 15% to 7% and increasing the turnover tax limit from Tk80 lakh to Tk1.20 crore.
Rizwan Rahman, president of the DCCI, told The Business Standard that almost every year the NBR's revenue collection falls short of the target.
The DCCI president blamed a tax and VAT system that is not fully-automated, non-expansion of income tax coverage, and the complex tax regime for a continuous failure in meeting the annual target of revenue collection.
In the current situation, businesses are pressing for tax, VAT and duty exemptions for survival. Keeping businesses running in the post-pandemic time is the main focus now. If the businesses operate, revenue collection will automatically increase.
"Given such a situation, we expect a business-friendly revenue system in the next budget," Rizwan pointed out.
In a pre-budget meeting with the NBR, the Centre for Policy Dialogue (CPD) has proposed extending the tax exemption given to domestic industries for another year, considering the Covid-19 situation.
NBR Chairman Abu Hena Rahmatul Muneem, in a pre-budget discussion with the CPD on 10 March, said, "We are trying to introduce full automation for collecting all kinds of taxes to increase the collection."
Ministries want more allocations
The Finance Division has set a maximum ceiling of budget allocation for each ministry for the next fiscal year.
However, ministries are seeking additional allocation to cover the losses and fund development programmes, aimed at expediting Covid-19 recovery.
As the budget for the next fiscal year from July is in the making, letters seeking additional allocation are pouring in to the office of Finance Secretary Abdur Rauf Talukder.
With the present state of trade and economic activities, finance ministry officials themselves are not expecting a big jump in the revenue income in the next fiscal year.
Seeking anonymity, an additional secretary of the finance ministry, who is involved in budget formulation, told TBS, "The ministries are trying to increase the pace of implementation of development activities that were postponed due to the pandemic. For this reason, most of the ministries are asking for additional allocations."
Various ministries and divisions, including the two education ministries, the health ministry, the local government ministry, the planning ministry, the fisheries and animal resources ministry want more funds, he said.
The local government division has sought an allocation amounting to around Tk14,000 crore more than the ceiling set for it. It needs the additional fund to build and maintain rural roads and culverts, which were paused during the pandemic.
The division seeks Tk5,000 crore to implement Prime Minister Sheikh Hasina's "My Village, My Town" scheme.
The roads and highways department wants an additional Tk8,332 crore for the ongoing mega projects.
The fisheries and animal resources ministry has written for an additional Tk1,253 crore.
The demands are even bigger for education.
The education ministry has sent a letter to the finance ministry, requesting it to increase the allocation by Tk7,250 crore, while the primary and mass education ministry has asked for an additional Tk2,068 crore.
Besides, the Technical and Madrasah Education Division wants Tk2,000 crore on top of its ceiling.
Finance division officials have so far held meetings with 36 ministries and divisions.
"We have decided to increase the allocation for the roads and highways department, the local government ministry and the office of the president for the implementation of various mega projects, including the metrorail project," said the additional secretary.
Ahsan H Mansur said, "Work on many development projects was halted in the current financial year due to Covid-19. Ministries may ask for more allocations to complete them. So, there is no alternative to extra spending to overcome the pandemic effects."