Strong political commitment and fundamental reform of the National Board of Revenue (NBR) can improve the tax-GDP ratio in Bangladesh, said Dr Ahsan H Mansur, renowned economist and executive director of the Policy Research Institute (PRI).
He also said in a pre-budget press conference that over Tk3 lakh crore of budget, expenditure went for loans’ interest payment, pension benefits, and social safety net program.
He said despite having the potential, the gap between the target revenue and achievement is widened each fiscal Year (FY) due to the failure of existing revenue and taxation policies.
Without massive reform at banks, NBR, and other financial institutions and regulators, achieving the IMF set target in these sectors would be quite impossible, the economist observed.
He also said in the last 9 months, Bangladesh Bank spent $12 billion from reserves, despite cutting imports by around 33%.
This is happening due to controlling the exchange rate, he said.
Dr Zaidi Sattar, Chairman of PRI, and Dr Muhammad Abdur Razzaque, Research Director of PRI, also spoke at the event.
Dr Razzaque gave a presentation illustrating the achievements in different sectors and the government spending of the current fiscal year.
As of July 2022, the gross foreign exchange reserve was at a robust $39.6 billion. However, it experienced a significant reduction over the year, dropping to $30.34 billion by May 8, 2023.
Inflation also saw a sharp rise, peaking at 9.5% in August 2022 and maintaining an average of 8.9% over the subsequent 10 months, overshooting the annual target by 3.5 percentage points.
On the other hand, remittances accumulated from July 2022 to April 2023 amounted to $17.71 billion.
The total remittance earnings will amount $21.26 billion in FY23.
However, this figure still falls short by $610.69 million of the revised remittance target outlined in the Monetary Policy Statement.
From July 2022 to April of FY23, total earnings from exports amounted to $45.7 billion, falling short of the target by 3.46%.
The IMF has also attached several conditions to its loan package to reinforce the fiscal framework of the country. One of the key IMF requirements involves bolstering revenue mobilization efforts by an additional 0.5% of GDP annually in both FY24 and FY25, followed by a further 0.7% increase in FY26.
This implies elevating the tax-GDP ratio from the current 7.8% of GDP to 8.3% in FY24, to 8.8% in FY25, and finally to 9.5% by FY26. The IMF has also recommended the establishment of Compliance Risk Management Units within the customs and VAT wings of the National Board of Revenue by December of this year.
The PRI also recommended reforming some sectors to increase revenue earning — prioritize fiscal reforms, expand the tax net, reduce tax exemption, increase compliance with corporate tax and personal income tax, reform the VAT yield, reform state-owned enterprises, and improve the quality of spending.
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