Revenue versus GDP

Bangladesh has a dream of becoming a developed nation by 2041. In that direction, it has embarked on several plans: the Five-Year Perspective Plans, the Mujib Climate Prosperity Plan 2022-2041, and the Delta Plan-2100, just a few to be mentioned.

To accommodate that target, different ambitious targets have been set. In the 8th Five-Year Plan, to achieve the target of 8.51 per cent growth, an investment of 36.59 per cent of GDP has been envisaged and 12.3 per cent revenue mobilisation is projected. But after the Ukraine war and unprecedented global stagflation, both global and local, the situation became more volatile. In this precarious economic scenario, the IMF has been asked to play a role to stem the rot and bail us out.

The lender, along with a loan package of $4.7 billion to support the country’s economic policies, came up with baggage of suggestions and conditions, one of those being promoting tax revenue to 8.3 per cent by the end of 2024 and to 9.5 per cent by 2026.

Bangladesh was able to get the second tranche of the loan last December, though two of the conditions remained unmet; reserve threshold and revenue collection. Rapid reserve depletion in Bangladesh is a recent phenomenon caused by several novel and grey factors, but generating substandard revenue incommensurate with ever-increasing GDPs is as perennial an enigma as the development chronicle of the country itself. The World Bank website shows the country’s highest revenue ratio was achieved in the year 2012 and 2013.

Thereafter, it started to decline diametrically against the gradually increasing economic growth. In 2012 and 2013, revenue collection was 9 per cent of GDP, whereas growth rates, according to macrotrends, were 6.52 per cent and 6.01 per cent respectively.

After that, growth started climbing, exceeding 7 percentage points sans in the COVID-19 pandemic year 2000. But revenue generation retreated to 8.6 per cent in 2014, with a declining trend to descend to 7.6 per cent in 2021. Last year, after much hype, revenue collection was estimated to stand at 8 per cent of GDP. This meagre figure does not suffice to finance the country’s development needs. It is substandard by any measure compared to its peers and neighbours. The collection rate is above 15 per cent even in Nepal. 

The 8th Five-Year Plan stipulates that some Taka 64,959.8 billion would be needed to realise the target, out of which 94 per cent would be mobilised from domestic sources while 5.1 per cent from external sources.

However, revenue collection continuously lags behind the target. Last year, the extent of the gap was about 10 per cent. In the days to come, when FTA (Free Trade Agreement), PTA (Preferential Trade Agreement), and CEPA (Comprehensive Economic Partnership Agreement) will dominate international trade and Bangladesh will graduate, earnings from import and export duty and export itself may face a headwind during the initial years. So the funding scenario in the domestic theatre remains very gloomy.

Against this backdrop, the need for augmentation in the domestic tax collection efforts and their modernization can hardly be overemphasized. Many complain that the impediment in collecting more taxes is the authority itself; they try to extort taxes from those already in the tax net, leaving the untaxed players panicked and shied away.

A vested quarter, for fear of losing control and losses, inside the management, is averse to digitisation, which works like a cornucopia.

Moreover, connivance between unscrupulous taxmen and taxpayers is often alleged for its low turnout. But it is heartening to note that in the last fiscal year, submission of tax returns by individual taxpayers has registered a growth of 17 per cent raising the number to 3.5 million out of the registered TIN (Tax Identification Number) holders of around 10 million. Revenue growth has also been substantial; 18.39 per cent. This testifies that it can be raised to an acceptable level if the authority comes up with state-of-the-art technology and commitment.

At present, to access many essential services, TIN holding has been made mandatory. So it transpires that many of the citizens are interested in taking TIN to take advantage of this document but are not equally eager to play the responsible role this instrument demands of them. This is an utter contradiction which needs to be done away with through extensive educative, persuasive and finally coercive measures.

People often argue that an income is earned through hard work. Giving away a portion of this hard-earned income is painful, particularly when one thinks that nothing is received in exchange.

This notion is not correct even in a police state where the protection of the lives and goods of the citizens is the single most important job of the government. Because the act of protection alone entails huge expenses which need to be collected from the members of the public,

Nowadays, the government shoulders an extra burden of socio-economic and infrastructural development and social protection to ensure better lives and a humane society for the citizens.

If the taxpayers are made to understand that their contribution in the form of tax does not go in vain but rather it helps build a stable, developed and egalitarian society, their pain may turn into pleasure.

Frequent arrangements of view exchange meetings among the taxable people at local and central levels by the taxmen and highlighting the recognition of taxpayers’ invaluable roles in uplifting and transforming the society may go a long way in this direction and imbibe nonpayers to comply. 

Seeing is believing. The fact that their contributions are fruitful and are being effectively utilised should be demonstrated before their very eyes. Instances of rewarding projects like Metro Rail and Padma Bridge are sure to imbue the payers. Conversely, redundant projects devoid of public interest may arouse mass anger.

Another area having a deterring impact is the quality of public spending and lending. When a taxpayer sees that his/her money is spent on a project using substandard materials or benefiting the mistargeted beneficiary, he or she may be frustrated and may become aversive.

Once again, when one observes that billions and billions of Taka are being looted in the name of bank loans with impunity and banks are being reimbursed the amount from tax money, it douses cold water on the spirit of the tax givers. Tax payment not only gives pain to the giver but also makes the payer more aware. Here, good governance works better than any other goading.        

Bangladesh is one of the fastest-growing economies in the world; it stands among the nations producing the quickest billionaires. But many of them do not wilfully come forward to pay taxes as are expected of them. One will see many business tycoons live in pomp and grandeur and roam through the corridor of power, but their tax credentials are not in keeping with the public perception. Many of them even do not emerge as the number one taxpayer, whereas one nondescript Kaus Mia, the owner of Hakim Puri Zarda, has been receiving the top taxpayer award for the past couple of years, beating many business moguls. This speaks volumes about the intent of the business magnates as far as their tax-paying behaviour is concerned. Persuasive as well as coercive measures may be put in place in this fertile segment. 

Whether police or welfare state, tax is a must for its existence. That is why American statesman Benjamin Franklin said, “….. in this world, nothing can be said to be certain, except death and taxes.” Besides protective and developmental roles, tax has redistributive functions as well; it helps create monetary flow from the rich to the poor without Quid Pro Quo.

Whereas direct tax does it more appropriately, indirect tax stands at the halfway mark; it is borne more by the commoners. Indirect tax’s contribution is about 67 per cent in Bangladesh. That is why there is an urgent need to raise the proceeds of direct tax to at least 50 per cent. In this world of growing inequality, where the winner takes all, this redistributive measure is of paramount importance. It can make the society more responsible, stable and amiable.

Finally, we hope every taxable income earner, let alone the TIN holders, must be brought under the tax net. For that to happen, tax authorities must transform themselves in letter and spirit to receive taxes from their masters with servants’ service and not with only masters’ commands. 

The writer is the former Director General of the Directorate of Foods and is a columnist. He could be reached at <[email protected]>