Mosharraf Hossain Bhuiyan, the outgoing chairman of the National Board of Revenue (NBR) will retire from his post today. During his two years in service, he undertook a number of reforms, including: implementing the new VAT law, drafting the income tax and customs law proposal, introducing the national single window, and modernising the customs sector. He also identified a number of problems impacting the expansion of revenue collection.
In a recent interview, he spoke with The Business Standard about the country's revenue sector and his experience at the NBR.
TBS: Growth in revenue collection in the past two years was relatively low and in the current fiscal year further decreased. The first five months saw a Tk24,000 crore deficit. Can you tell us the reason behind this drop?
The growth in revenue collection has been consistent. The reason behind a fall in the last fiscal year can be found in the previous year when there was a gap between the periodic collection and the actual collection of taxes.
Considering the actual collection by the NBR, the growth target increased by almost 42 percent from the previous fiscal year. However, this was even greater when compared with the country's overall economic growth. And, despite the large mismatch [due to unrealistic expectations], revenue collection grew by 11 percent by the year's end.
Similarly, in the current fiscal year, an ambitious growth target has caused a greater deficit in the first five-months. Meanwhile, the negative impact of trade has also influenced revenue collection. Thus, growth now stands at six percent but we believe it will reach 11 or 12 percent by the end of the year.
TBS: Bangladesh lags far behind in the tax-GDP ratio, compared with other countries. All the South Asian coutries are ahead of Bangladesh. Why are we facing this problem?
It is true that we are considerably behind when it comes to the tax-GDP ratio. A lot of economically-solvent people in our country do not pay taxes and less than three percent of the population is under the income tax scheme.
A large portion of the economy still functions informally. Agriculture, gas-electricity, information and communication technology – as well as a number of manufacturing sectors – enjoy a tax exemption. This exemption is also allowed for a number of areas under different development projects.
All these factors contribute to decreasing the tax collection rate when compared to GDP.
TBS: The revenue system in our country is considered discriminatory as it depends on indirect taxation. Please let us know your take on this.
Indirect tax, in our country, refers to VAT and duties. Indirect taxes account for 70 percent of total revenue collection, while VAT alone contributes 39 percent. This reliance on VAT is certainly discriminatory, as both the poor and the rich have to pay at the same rate.
However, this tax is applied in all countries of the world. It is needed to drive progress and manage government activities. However, regarding the realities in our country, the National Board of Revenue is trying to strike a balance by exempting tax on daily essentials and increasing it on luxury products. The local industry also has provisions to this end.
Customs duties also indirectly affect all consumers, irrespective of their economic backgrounds. However, there is a trend to reduce customs duties in the international trade regime. We are also doing the same.
But, to protect local industries, regulatory and supplementary duties – alongside customs duties – have been applied on imports. This is needed to properly manage revenue.
TBS: A target has been set to secure 50 percent of total revenue from income tax by 2024. Is the NBR on track to reach this goal?
The NBR has been focusing on direct taxes while reducing indirect-tax dependence. In the 2018-19 fiscal year, income tax was a 32 percent share of the total revenue. In the current fiscal year, the target has been extended to 35 percent.
I believe, in view of the revenue collection trend, till now, the target can be achieved. We have taken certain initiatives to ensure the consistency in growth of direct tax shares in national revenue.
TBS: Which measures have been taken by the NBR to ensure direct tax or income tax growth?
Raising the number of taxpayers and expanding the tax net are the major methods to increase the direct tax share. The NBR has been working steadfast to achieve this goal. Surveys of the field have been undertaken to expand the tax net. The NBR officials are going to individual households to include all people capable of paying taxes. Students of different universities have also been engaged to help conduct the survey.
Additionally, it has been made mandatory for people to get electronic tax identification numbers, or e-TINs, for different tasks, government officials with at least Tk16 monthly salary/ basic salary to show tax returns, and officials at the executive level of private firms to submit income statements. Returning and foreign employees must provide details. Different tax zones have also been created for all the different professions on the list to bring everyone under the tax net.
TBS: How much success do you think has been achieved in increasing the share of direct taxation?
The NBR has successfully increased the number of direct taxpayers; a decade ago, the number of taxpayers was 14 lakhs, now the number has surpassed 44 lakhs. On average, over the last three years, more than five lakhs more people have been listed as taxpayers. The number of taxpayers doubled over the last four years, while the number of foreign taxpayers has also increased. In the last decade, revenue collection increased five fold.
TBS: At present, the population of the country is over 16 crore, but the number of e-TIN holders is 44 lakhs. Many think, that the number should be higher as there are complaints that NBR activities are limited to towns only. Allegedly, officials do not go to the upazila or district levels.
Such allegations are incorrect. There has been a lot of change in the way the NBR works. The NBR is now focusing on collecting revenue from taxpayers in the upazilas, after identifying them.
The initiative has been taken to set up at least one revenue office in every upazila, and the upazilas with many taxpayers will get multiple offices. Taxpayers will also be identified through outsourcing. Union digital centres will be used to provide e-TIN certificates.
Our aim is to provide for the entire national budget, periodically, through internal resources, and we are gradually moving forward with this aim.
TBS: Different quarters are demanding different foreign online portals like Google, Facebook, YouTube, and others be taxed. Has the NBR taken steps in this regard?
As per the law, income from every advertisement sourced from within the country requires 15 percent VAT and there is a fixed rate for tax on income from other sources.
These measures could have been enforced under the 1991 law, but, the NBR could not collect tax directly, as the firms were based abroad.
Letters were sent to the banks used for the transactions, but to no avail. For this reason, it has been made mandatory for these firms to employ agents in Bangladesh to get advertisements. The process is now in its final phase. In a special provision under the proposed income tax law, a directive has also been placed for the foreign firms to open country branches in Bangladesh.
TBS: Entreprenuers think the NBR is an obstacle for doing business. How do you judge this opinion?
I do not find any rationale as to why the businessmen are still talking of such things. We discussed a lot with them before implementing the VAT law. We have been supporting the businessmen every year through different means to boost local industries. The amount of customs duties in our country is higher than all other countries. This is a sign that we are trying to protect our domestic industries. After all this, when objections are raised, we can do nothing but apologise.
TBS: Businessmen are complaining of harassment because customs duty management is not automated. What steps have been taken toward automation?
We have set up certain facilities to ease the business process and make it hassle-free, including: a central automated system for customs data, scanners at ports, a national enquiry point (NEP), a customs hotline, and an e-auction and online customs duty payment process.
Steps have been adopted to establish the national single window to ease export-import activities. Once this is implemented, businessmen will no-longer face hassles.
TBS: What other measures have the NBR taken to stop harassment and ease the taxpaying process?
The major step in this regard is to make all three big taxing options – VAT, income tax and customs duty – available online. As per the new VAT law, procuring business identification numbers (BIN), submitting tax returns, and storing account data as well as payment activities are done online.
When it comes to income tax, all the processes involved have been placed online, including tax identification number (TIN) collection, tax return submissions, and tax payment processes. Mobile banking can also be used to pay income taxes.
Further, almost all the activities relating to customs duties have been placed online. Along with these the new VAT law has been implemented; proposals have also been drafted for customs and income tax laws.
TBS: Questions have been raised about harassment during the new VAT law implementation. What is your opinion of this?
Now look here, we consulted with the businessmen a number of times before implementing the new VAT law. The law was finalised on the basis of their opinions. Despite all this, problems can persist.
The NBR is trying to resolve the problems that have arisen at the implementation stage. One must also consider that people might face issues when growing accustomed to a new law. From the beginning of 2020, software will be installed at different commercial firms, to make the collection process transparent.
TBS: Recently, the government appointed a new chairman for the NBR, who is set to begin his role tomorrow. What challenges await him? What other reforms can be taken by the revenue administration?
At the NBR, everything is done on the basis of the demand forecasted in the national budget. All the reforms are taken after consulting with businessmen and the relevant government stakeholders. The new chairman will take initiatives, as required, but I do not foresee him facing any particular challenges.