Our taxation system needs to be modernised shortly   

Despite one of the fastest growing economies, Bangladesh could not show dynamism in terms of revenue earnings. Among South Asian countries, it lags far behind in respect of tax-GDP ratio. 

Outdated tax system, now in practice, seldom generates expected revenue. As a result of low tax- GDP ratio, Bangladesh economy might face numerous challenges in the days to come. 

To addressing budget deficit, external sources are considered one of the major ways instead of government revenue earnings. It must stop by implementing VAT Law of 2012 as key tax reform. 

But, actual implementation needs time.  Reform of income tax law, policies and procedures not happened as expected while the planned administrative reform of the NBR articulated in Tax Modernization Plan of 2011 is yet to be fully implemented.

Following the failure to achieve revenue target in the outgoing 7th Five Year Plan  ( FYP), the government is committed to bring structural changes in tax administration. So tax law, tax collection, tax audit, tax policy shall be modernized as part of tax reform by 2025. 

There are about 164.7 million people in the country of which about 11 million are TIN holders and 4.5 million file tax returns and pay taxes. As a result, Bangladesh stands lowest in terms of tax- GDP ratio in South Asia region. 

With less than 8 per cent tax-GDP ratio, the economy is struggling to with poor revenue collection to overcome unexpected natural calamities.  Nepal's economy sees 17 per cent tax-GDP ratio where 16.8 per cent stands in India. 

The 8th FYP has planned to expand tax- GDP ratio to 9.8 per cent in FY 22, 10.6 per cent in FY23, 11.3 per cent in FY24, 12.3 per cent in FY 25. 

Besides, the government, through the Fiscal Framework of the Perspective Plan 2041, is set to attain a tax-GDP ratio of 17 per cent by FY 2031 and 22 per cent by FY 2041. If tax revenue target is not achievable within stipulated time, the state has to borrow from external sources to meet budgetary deficiencies.  

Due to old-fashioned tax system now practiced in the country, the government is losing huge taxable revenue. Nevertheless, foreign workers, who work in the country are big tax dodgers. 

Transparency International Bangladesh (TIB) already raised voices regarding foreign workers in different sectors.  TIB study titled "Employment of Expatriates in Bangladesh: Governance, Challenges and Way-out" showed that foreign workers remit around $ 3.1 billion through illegal means, evading government tax worth about $ 1.35 billion every year. Only a decent tax policy can minimize the government revenue loss. 

An independent international organization-Tax Justice Network reveals that Bangladesh is losing more than $ 703.40 million in taxes per year- third highest revenue loss in South Asia. 

The report titled "The State of Tax Justice 2020" shows how much tax a country loses from private sector tax evasion and international corporate tax abuse. As per the report, the highest tax loss in South Asia is faced by India ($ 10.32 billion) and Pakistan ( $2.53 billion).  

The report reveals that Bhutan ($ 0.09 million) saw the lowest tax revenue loss per year in the region where tax loss in Maldives is ($ 0.69 million), Nepal ($ 9.26 million), Sri Lanka ($ 104.81) and Afghanistan ( $ 2.89 million). 

Tax exemption along with deduction of tax rates resulted in huge loss of country's taxable income. In the budget for FY 2021-22, reduction of corporate tax, reducing ransom on VAT dodgers, tax waivers on establishing hospitals in remote areas have caused huge loss.     

Media report shows tax-GDP ratio in fiscal 2019-20 was about 9.9 per cent, but   the figure was to hit 17.81 per cent if tax exemption was not applied. 

The government in FY 2019-20 provided tax exemptions of around Tk 2.5 lakh crore to facilitate growth targets in different sectors. A newspaper report said that the National Board of Revenue (NBR) recently offered tax benefit to popularize SUKUK, an Islamic financial bond. 

The report also said VAT waiver from 7.5 per cent to 15 per cent would be granted for making vibrant SUKUK bond in Bangladesh economy.    

As per the General Economic Division sources, the 7th FYP projected the tax-GDP ratio to be 13.7 per cent in FY 20. But the actual ratio was 7.9 per cent and the 8th FYP projected the Tax-GDP ratio to be at 12.25 per cent by the end of 2024-25. 

It was hoped that within the tenure of 8th FYP, tax policy should be reformed. The reforms in 8th FYP recommend to include : Full adoption and effective implementation of the original VAT and Supplementary Duty Act 2012. Incorporating Alternative Dispute Resolution (ADR) in Income Tax, VAT and Custom Acts. A thorough overhaul and simplification of Income Taxes and its  implementation in FY2023. Adoption and implementation of new Customs Act in FY2022.  By end of FY 2022, introducing a proper system of property taxes. Separate unit for tax planning from tax collection. Starting from FY2024, selection of NBR Chair and the new Chair for Tax Policy Unit should be done on a professional basis with a 5-year fixed term appointment. Provide adequate resources and autonomy to NBR Chair and the Chair of Tax Policy Unit to modernize their respective offices with modern technology, professional staffing and policy and research capabilities.

Very recently, the interim government increased VAT on over 100 products. It is an indirect tax and revenue earnings in Bangladesh basically depend on indirect tax. The government has to scale up its moves in respect of earnings revenue from direct tax instead of indirect tax. 

Bangladesh economy is now experiencing high income inequality. Through imposing tax on wealthy people, it is possible to reduce income inequality. Amidst persistent high inflation, it is not wise to increase VAT which may impact the poor to fall into poverty line.   

If tax revenue can be increased in planned way and dependency on foreign loans decreased; a huge volume of foreign loans for mega projects could be avoided. 

It is reported that foreign loans now stands close to $ 50 billion. Many projects in Bangladesh are now waiting for external supports to be inaugurated. For failure of generating enough revenue, the government is in great troubles to meet unexpected expenses with internal sources. Tax reform will help to generate more revenue to meet such expenses.