Country’s tax system inherently biased against ordinary people: Unnayan Onneshan
Dhaka, Nov 26 (UNB) - Unnayan Onneshan, an independent think tank, has said that fundamentally, the tax system of the country is inherently biased against the ordinary people.
The tax-GDP ratio is low, even in comparison to countries with similar level of economies, the organization said in its November issue of ‘Bangladesh Economic Update’.
The Update mentioned that the gap between the Mid-Term Budgetary Framework (MTBF) and revenue collection is inflating resulting into fiscal deficit for which domestic borrowing of the government is increasing with the declined disbursement of foreign aid, although the collection of tax is grossly increasing over the years in Bangladesh but at a slower rate.
It noted that there has been an upward mobility in collection of taxes, fuelled by the consumption tax, VAT over the years.
In FY 2010-11, the total revenue collection was Tk 98456.78 crore that is 22.43 percent more than that of the previous fiscal year in which the contribution of tax and the non-tax revenue was Tk 82320.78 crore and Tk 16136 crore respectively.
The NBR revenue collection of FY 2010-11 was Tk 79091.42 crore and non-NBR revenue Tk 3229.36 crore.
The target of collecting revenue for FY 2011-12 is Tk 118385 crore which is 27.51 percent higher than that of the target in previous fiscal year, while the target of tax revenue is Tk 95785 crore, non-tax revenue Tk 22600 crore, NBR revenue Tk 91870 crore and non-NBR revenue Tk 3915 crore.
Under the business as usual scenario, it is estimated that, in FY 2015-16, the collection of total revenue might reach Tk 134157.32 crore.
The continuation of current upward trend might witness the collection of tax revenue at Tk 112823.32 crore, non-tax revenue at Tk 21334.00 crore, NBR revenue at Tk 108533.28 crore and non-NBR revenue at Tk 4290.04 crore respectively.
Unnayan Onneshan report mentioned that the gap between the target set out in Medium Term Budgetary Framework (MTBF) and actual collection is growing and may continue to rise sharply in the upcoming fiscal years, if drastic reforms are not carried out.
In FY 2010-11, the actual receipt of total revenue was Tk 98456.78 crore while MTBF projection of total revenue was Tk 95188.52 crore which showed a gap of Tk 3268.26 crore.
The gap between business as usual scenario and MTBF projection in FY 2015-16 for total revenue might widen to Tk 80762 crore, while tax to Tk 75691 crore and non-tax revenue to Tk 5067 crore.
“NBR revenues are the dominant components of tax revenue. The contribution of the major sectors of NBR revenue has increased in FY 2010-11,” the report said.
The share of NBR revenue in tax revenue was almost 96 percent in FY 2010-11 while the share of non-NBR revenue was only 3.96 percent. Target for the shares of NBR and non-NBR revenues on tax revenue for FY 2011-12 are fixed at 95.91 percent and 4.09 percent respectively.
Unnayan Onneshan says “major portion of the revenue of the country comes from the collection of the revenue from Value Added Tax (VAT).”
The rate of VAT in Bangladesh is 15 percent in fiscal year 2011 while it is 12.5 percent in India, 12 percent in Sri Lanka, 5 percent in Japan and UK, and 10.25 percent in USA.
This illustrates that the tax system of the country can impose the burden to the poor and there is widespread tax evasion and avoidance by the rich, it says. “The government has to depend on domestic borrowing for financing budget due to vertical drift of total expenditure over the years.”
The trend of domestic borrowing has changed drastically in FY 2010-11 and in the current fiscal year, the government borrowed Tk 11000 crore from banks during July to October 2011 while the target of borrowing from banks is Tk 18957 crore.
If the current trend prevails in FY 2014-15, net domestic borrowing might increase to Tk 35155 crore with borrowings from banks at Tk 26882 crore while revenue earnings might reach Tk 140829 crore.
However, expenditure in FY 2014-15 might increase to Tk 204072.
The report highlighted that interest payment is increasing over the years and domestic share of interest payments is much higher than that of international share of interest payments. The main reason of this is excessive domestic borrowing by the government in recent months.
Domestic and foreign interest payment for FY 2011-12 is targeted at 91.79 and 8.21 percent respectively while in 2010-11, the domestic share of interest payment was 90.25 percent and the foreign interest payment was only 9.75 percent.
Unnayan Onneshan feared that previously, subsidy in agriculture and social sector held the largest share while in recent years a different scenario is seen.
Though the rate of subsidy is following an upward trend over the years, the allocation of subsidy in agricultural and social sector in FY 2011-12 has decreased while subsidy in power sector increased.
In FY 2011-12, the government has targeted total subsidy at Tk 9286 crore which is lower by Tk 125 crore or 1.33 percent than that of FY 2009-10. In FY 2011-12, allocation for agriculture subsidy has declined by 22.27 percent than that of FY 2008-09 and stands at Tk 4500 crore.
In power sector, the allocated subsidy has increased more than 400 times than that of FY 2008-09 and reached Tk 5200 crore in FY 2011-12. If the current trend continues, total subsidy will increase to Tk 13362 crore, while power and agriculture subsidy might stand at Tk 9393 and Tk 3211 crore in FY 2015-16.
The think tank said that domestic borrowing is on the rise and in FY 2010-11, the amount of domestic borrowing was Tk 24817 crore while it was targeted to be Tk 27208 crore in FY 2011-12 that is 9.63 percent higher than that of FY 2010-11.
It mentioned that the government has to repay the foreign debt which is also increasing over the years.
In FY 2011-12, Tk 13058 crore is allocated to repay foreign debt that is 1.5 percent of GDP and 125.80 percent higher than that of FY 2010-11.
The report mentioned that public expenditure in the social sectors is increasing at a negligible rate which might push the marginalized people to severe risk.
Over the years, public expenditure is increasing but expenditure in social sector is decreasing. Moreover, the biased tax system of the country might imperil the general citizens specially the poor while the rich will dodge the system, it said.
The tax-GDP ratio is low, even in comparison to countries with similar level of economies, the organization said in its November issue of ‘Bangladesh Economic Update’.
The Update mentioned that the gap between the Mid-Term Budgetary Framework (MTBF) and revenue collection is inflating resulting into fiscal deficit for which domestic borrowing of the government is increasing with the declined disbursement of foreign aid, although the collection of tax is grossly increasing over the years in Bangladesh but at a slower rate.
It noted that there has been an upward mobility in collection of taxes, fuelled by the consumption tax, VAT over the years.
In FY 2010-11, the total revenue collection was Tk 98456.78 crore that is 22.43 percent more than that of the previous fiscal year in which the contribution of tax and the non-tax revenue was Tk 82320.78 crore and Tk 16136 crore respectively.
The NBR revenue collection of FY 2010-11 was Tk 79091.42 crore and non-NBR revenue Tk 3229.36 crore.
The target of collecting revenue for FY 2011-12 is Tk 118385 crore which is 27.51 percent higher than that of the target in previous fiscal year, while the target of tax revenue is Tk 95785 crore, non-tax revenue Tk 22600 crore, NBR revenue Tk 91870 crore and non-NBR revenue Tk 3915 crore.
Under the business as usual scenario, it is estimated that, in FY 2015-16, the collection of total revenue might reach Tk 134157.32 crore.
The continuation of current upward trend might witness the collection of tax revenue at Tk 112823.32 crore, non-tax revenue at Tk 21334.00 crore, NBR revenue at Tk 108533.28 crore and non-NBR revenue at Tk 4290.04 crore respectively.
Unnayan Onneshan report mentioned that the gap between the target set out in Medium Term Budgetary Framework (MTBF) and actual collection is growing and may continue to rise sharply in the upcoming fiscal years, if drastic reforms are not carried out.
In FY 2010-11, the actual receipt of total revenue was Tk 98456.78 crore while MTBF projection of total revenue was Tk 95188.52 crore which showed a gap of Tk 3268.26 crore.
The gap between business as usual scenario and MTBF projection in FY 2015-16 for total revenue might widen to Tk 80762 crore, while tax to Tk 75691 crore and non-tax revenue to Tk 5067 crore.
“NBR revenues are the dominant components of tax revenue. The contribution of the major sectors of NBR revenue has increased in FY 2010-11,” the report said.
The share of NBR revenue in tax revenue was almost 96 percent in FY 2010-11 while the share of non-NBR revenue was only 3.96 percent. Target for the shares of NBR and non-NBR revenues on tax revenue for FY 2011-12 are fixed at 95.91 percent and 4.09 percent respectively.
Unnayan Onneshan says “major portion of the revenue of the country comes from the collection of the revenue from Value Added Tax (VAT).”
The rate of VAT in Bangladesh is 15 percent in fiscal year 2011 while it is 12.5 percent in India, 12 percent in Sri Lanka, 5 percent in Japan and UK, and 10.25 percent in USA.
This illustrates that the tax system of the country can impose the burden to the poor and there is widespread tax evasion and avoidance by the rich, it says. “The government has to depend on domestic borrowing for financing budget due to vertical drift of total expenditure over the years.”
The trend of domestic borrowing has changed drastically in FY 2010-11 and in the current fiscal year, the government borrowed Tk 11000 crore from banks during July to October 2011 while the target of borrowing from banks is Tk 18957 crore.
If the current trend prevails in FY 2014-15, net domestic borrowing might increase to Tk 35155 crore with borrowings from banks at Tk 26882 crore while revenue earnings might reach Tk 140829 crore.
However, expenditure in FY 2014-15 might increase to Tk 204072.
The report highlighted that interest payment is increasing over the years and domestic share of interest payments is much higher than that of international share of interest payments. The main reason of this is excessive domestic borrowing by the government in recent months.
Domestic and foreign interest payment for FY 2011-12 is targeted at 91.79 and 8.21 percent respectively while in 2010-11, the domestic share of interest payment was 90.25 percent and the foreign interest payment was only 9.75 percent.
Unnayan Onneshan feared that previously, subsidy in agriculture and social sector held the largest share while in recent years a different scenario is seen.
Though the rate of subsidy is following an upward trend over the years, the allocation of subsidy in agricultural and social sector in FY 2011-12 has decreased while subsidy in power sector increased.
In FY 2011-12, the government has targeted total subsidy at Tk 9286 crore which is lower by Tk 125 crore or 1.33 percent than that of FY 2009-10. In FY 2011-12, allocation for agriculture subsidy has declined by 22.27 percent than that of FY 2008-09 and stands at Tk 4500 crore.
In power sector, the allocated subsidy has increased more than 400 times than that of FY 2008-09 and reached Tk 5200 crore in FY 2011-12. If the current trend continues, total subsidy will increase to Tk 13362 crore, while power and agriculture subsidy might stand at Tk 9393 and Tk 3211 crore in FY 2015-16.
The think tank said that domestic borrowing is on the rise and in FY 2010-11, the amount of domestic borrowing was Tk 24817 crore while it was targeted to be Tk 27208 crore in FY 2011-12 that is 9.63 percent higher than that of FY 2010-11.
It mentioned that the government has to repay the foreign debt which is also increasing over the years.
In FY 2011-12, Tk 13058 crore is allocated to repay foreign debt that is 1.5 percent of GDP and 125.80 percent higher than that of FY 2010-11.
The report mentioned that public expenditure in the social sectors is increasing at a negligible rate which might push the marginalized people to severe risk.
Over the years, public expenditure is increasing but expenditure in social sector is decreasing. Moreover, the biased tax system of the country might imperil the general citizens specially the poor while the rich will dodge the system, it said.
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