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National budget- challenges in inland resource mobilization

The national budget is an important episode in national economic planning and it is the annual fiscal operation forecast of an economy. Many economists have made different views on National Budget across the time. In Bangladesh, there are different school of thoughts on national revenue collection and resource allocation into the economy. Some believe the government is spending budget or doing budget cut for the greater engagement and mobilization in development activities and others believe that the lifeline of the economy is bureaucracy and government administrative wings accordingly they should be privileged.

National budget of Bangladesh 2018-2019

The Deficit

National budget in Bangladesh traditionally follows the deficit budget, it is quite common in the developing, and least developed economies considering the economic transition and huge government spending commitment. It is also witnessed off late developed countries especially Federal Government Budget in the USA and the UK also have the deficit budget. Since continuous economic shift is taking place aligning with global changes, the biggest challenge of our economy is finite resource and balance between resource limitation and growing demand of resources. Any efficient government whoever comes in the power always faces the criticism of national budget on basically the deficit management. Bangladesh Government tries to keep the deficit limit within 5% for almost a decade under the pressure of IMF as a strong advice of efficient fiscal and monetary management of Bangladesh.

More tax

It is worth mentioning that national budget of Bangladesh always sets a target of tax to GDP ratio. Increase in Tax to GDP ratio is inevitable for our economy and 14% is targeted for the current fiscal year. Traditionally we always fail to realize the given target, however, the target helps as an ambitious plan for government and other stakeholders to follow.

It is also noticed in most of the developed economies that the revenue receipts have the largest share from Income tax and corporate tax revenue is not as significant as Income tax which means businesses are more protected. Every fiscal year begins with commotion on revenue target, sources of revenue and tax collection. The center of budget discussion remains at revenue collection and share of NBR revenue collection. It is always seen that NBR and Government try to extend the revenue collection based on direct tax and indirect tax mainly corporate tax and Vat followed by Duty imposed on trade. Corporate tax rate escalation led tax revenue generation and Vat led revenue always create manifold challenges for the business communities including rising cost of doing business.

NBR revenue target of the current fiscal year was TK. 2,48,190 crore out of TK. 2,87,991 crore revenue target having 14% growth which was TK. 2,18,500 crore in FY2016-17. The imminent fiscal Year aims to realize revenue from NBR TK. 2,91,000 crore having 17.2% growth with TK 1,10,000 crore Vat target. If we look at the major revenue collection trend of recent past years, it shows that VAT and Income tax account for 70% of NBR revenue collection.

NBR always upholds the behavior of putting higher direct and indirect tax incidence whereas private sector business community endeavor to rationalize and lower the tax incidence through corporate tax rate cut.

Private sector challenges

The rationale for reduced corporate rate tax is the higher tax rate that does not help the business community all along as corporate always does not make a profit due to fledging business environment. Currently, the private sector is encountering various external business and market risks including inflation, weak infrastructure, energy insecurity and uncomfortable tax system of various business unfriendly policy pressures, market volatility and many bureaucratic and process delays.

High expenditure, high revenue need

The upcoming budget for FY2018-19 seems to have huge revenue target estimated at BDT. 3.6 Trillion having the same deficit in the national budget. There is no doubt that direct and indirect tax are major streams of revenue generation of government operation but this long-held tradition and heritage needs to be changed, as Non-NBR tax and revenue are also potential to realize some resource for the government.

It is ironic that center of attraction in national budget in revenue collection and resource mobilization as a rich and secure revenue stream is the root of operating all economic courses of actions and main debate remains on enlarged target of revenue collection and revision of lowering revenue target as well as revenue collection failure.

It is undeniable that population and economic activities of our country are on the rise. To meet the growing need of 165 million people and their fundamental and social safety needs as well as civil rights, the government expenditure is incremental, therefore, the resource management policy and approaches of government need to change and accommodate accordingly. With that given reality, internal resource management to operate the government operation, it is the high time to address other untapped revenue sources rather than being limited to conventional direct and indirect sources and extreme incidence on a particular community.

Since any major economic activity has wider multiplier impacts across the country, the cost of that economic activity should be shared by all. We know that VAT is a much-debated issue- whether the 15% flat Vat will be enforced or existing practice continues. The mixed reaction from the two-edged incidence of VAT on the economy such as in one hand government is losing substantial revenue and on the other hand, it can fuel huge food and non-food inflation, cost of living and doing business as VAT is common almost on all daily essential consumer and non-consumer traded commodities and services.

Increasing tax and VAT network

The other reason that Bangladesh lies behind in tax collection as positioned in bottom rung in ease of doing business Index Paying taxes index criteria over past couple of years.

Under this volatile circumstance, the government is in an uncomfortable state in implementing this act as there are severe challenges and infrastructural bottlenecks to implement this approved act and extreme resentment from different stakeholders.

The tax revenue collection is now limited to major metropolitan cities land, river and seaport stations and countryside area remain out of NBR reach.

The revenue collection from district and upazilla level does not have the full attention of the government yet. The economic activities in countryside may not be mega-scaled like Dhaka and Chittagong but the regional agricultural activities, non-tax revenue sources like Mobile court fee, Toll from different communication infrastructure project, land wage, agriculture land transfer tax, vat and yearly khajna, rural small business tax, district level small shop and business license fee, small poultry business license can amass revenue. Alongside, a surcharge on the huge land property as well as VAT collection from shops in rural and district area for daily essential commodities like edible oil, biscuit and soap, mineral water and many common items worth Vat sold can heighten revenue. The VAT collected in the countryside must be regularly deposited to Government exchequer.

Against the aforesaid revenue collection state of Bangladesh, some strategic and effective means and ways are recommended below to improve the Inland resource generation state of Bangladesh:

  • The Central Government representative District Magistrate or District Collectorate can be given a target to raise the Non-NBR revenue charge, wage, fees and other form of revenue from rural economic operations.
  • Realizing new revenue streams to offset the revenue shortage from delayed Vat and SD act implementation.
  • NBR wings can be extended to the district and rural area to determine the economic activities and identify potential taxpayers, encourage local people to pay tax through awareness building operations as well as VAT wings.
  • Non-development expenditure efficiency is to be ensured and sector/ministry wise budget allocation and expenditure transparency are to be in place then saving from this non-development expenditure can be resource reservoir of Government.
  • The entire tax ecosystem has not been yet equipped enough to enable all kind of business taxpayers to pay their business tax, Vat in the ICT backed digital process and it will take ages to implement across the country. Therefore, co-existence of conventional and new Vat payment procedure can continue to keep the revenue collection trend consistent. The gradual development of ICT culture in the rural area may enable countryside businesses to be digitally connected to Tax and VAT payment process.
  • Targeted programme and project by GOB to improve our position in paying taxes criteria and ease of doing business index to expand our tax revenue and net.
  • Withholding tax may be compulsory for bringing more people in the tax net of government and easily collecting the tax at source by the employers in both private and public sectors.
  • Direct Tax revenue ratio is 25:75 individual and corporate though the number of individual taxpayers can be huge and substantial considering our population size and a number of public and private sector professionals thus the given ratio can be improved.
  • Out of 3.2 million TIN holders, 2.8 million submit tax return which is less than 3% of our population and to bring huge people into the tax net, people friendly tax payment process.
  • The corporate tax rate for all categories of business can be gradually reduced in order to increase FDI stream.
  • Likewise, Mobile fund transfer and easy ATM cash point, the easy and technologically convenient tax payment mode need to be introduced alongside conventional process to enhance the tax net and revenue generation.
  • Around 10 million SMEs are operational in the country and all of them need to be informal tax payment network encouraging all informal businesses for contribution in resource building of the country.

We belong to such an economy, which is on the track of emergence despite being laden with wide-ranging socioeconomic challenges including unemployment, poverty, maternal and child mortality, limited healthcare, illiteracy and lack of fundamental rights and other social security issues apart from economic transformational challenges. Therefore, we are required to address these core vulnerabilities to ensure all fundamental rights as a priority of our growing population. Alongside, communication infrastructure, education, human and skill development and industrial employment equally are more important for sustaining smooth socioeconomic shift. The required resource to support these huge economic activities is tied with conventional sources, which deprive our economy from the required scale of growth. In addition, this era resource deficiency will end and lead to a new economic trajectory with given thoughts in Bangladesh.

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