Tax collection growth on the decline

Tax collection growth slowed drastically in the first half of the current fiscal year due to falling customs tariff and direct taxes amid declining imports and reduced profits of firms, limiting the government's scope to spend on development activities.

The National Board of Revenue (NBR) clocked 11 per cent year-on-year growth in tax receipts, which amounted to Tk 145,431 crore in the July-December period of fiscal 2022-23.

During the same period a year prior, the tax authority recorded 17 per cent growth in revenue receipts.

As the collection growth slowed, the NBR could attain 39 per cent of the Tk 370,000 crore revenue collection target for the first half of this fiscal year.

This means the NBR will have to collect 61 per cent in the second half of fiscal 2022-23 ending in June, which is likely to be tough as the economy has gotten slower.

Data released by the NBR showed that growth of revenue collection from international trade and direct tax slowed by more than half in the first six months of the year compared to the same period in fiscal 2021-22.

Only value added tax collection growth from domestic economic activities edged up slightly to 16 per cent during the period compared to 13 per cent the previous year.

"Revenue collection data is a reflection of the slowdown of the economy," said Mohammad Abdur Razzaque, director of the Policy Research Institute (PRI) Study Centre on Domestic Resource Mobilisation.

He added that revenue receipts from customs tariff showed a slowing trend as imports fell after the authorities restricted non-essential imports through various measures.

Amid rising stress on the country's foreign exchange reserves and its subsequent fall resulting from higher imports than exports and remittance earnings, Bangladesh Bank began to impose various rules to discourage non-essentials imports.

The measures worked as Bangladesh's imports declined 2.15 per cent year-on-year to $38.13 billion in the six months ending with December in 2022 compared to a year, data from the central bank showed.

Customs tariff collection data exemplifies that. The NBR collected Tk 44,950 crore as customs tariff by posting 9.25 per cent year-on-year growth in the July-December period. The customs duty collection grew 22 per cent during the same period a year ago.

"High value imports have fallen," said Ahsan H Mansur, executive director of PRI of Bangladesh.

Besides, corporate incomes of large companies and banks have dropped for increased costs, which has affected income tax collection, he added.

Income tax receipts grew 6.25 per cent to Tk 43,959 crore in the July-December period compared to the same time the previous year, when taxmen recorded 15 per cent growth in income tax collection.

Mansur then said the slowing growth would affect the government's expenditure for development projects.

"We are already seeing this. Work of many projects has stalled," he said, adding that the development of foreign funded projects would suffer for a dearth of local funds.

As a result, the government will have to borrow more.

The government's net borrowing to finance its budget from domestic and external sources stood at Tk 31,338 crore in the July-November period of the current fiscal year, down from Tk 50,474 crore during the same period a year ago, Bangladesh Bank data showed.

To increase tax collection and reduce dependence on borrowing, revenue collection has to improve, according to analysts.

For this, systematic improvements and administrative reforms of the NBR is needed, Mansur said.

Towfiqul Islam Khan, senior research fellow of the Centre for Policy Dialogue, said the growth in collection recorded in the early months of this fiscal year was largely driven by rising commodity prices.

"Hence, slow progress in improving institutional efficacy for mobilising domestic resources regrettably did not get the due attention," he added.

Now, as Bangladesh has gotten loans from the International Monetary Fund, it has a specific target on tax revenue.

"But a business-as-usual approach will not deliver it. The current adjustments opted by the government as a response to the macroeconomic crisis will also make it difficult to mobilise revenue," he said.

Khan went on to say that formal and informal import restrictions, restrained public investment, and a slowdown of economic activities and private investment will generate lower revenue for the NBR.

"The NBR will need to improve its administrative efficacy to curb tax evasion and restrict illicit financial flows. The reforms in this area over the last decades never received the needed attention," he said.

Khan then said the Public Finance Management Action Plan, Anti-Money Laundering Strategy and many other plans concerning revenue mobilisation were shelved without proper accountability.

"The government also has to review the tax incentives and rescue tax policy from the elite capture," he added.