PRI suggests taxing tobacco, garment exports further
The government should focus more on taxes on tobacco, payroll and garment exports to achieve its revenue target for the next fiscal year, a senior official of Policy Research Institute said yesterday.
“We have to put more emphasis on taxation of tobacco products, withholding of payroll tax and increasing the tax rate on garment exports,” said Ahsan H Mansur, executive director of PRI.
Focusing on these sectors is needed to achieve the revenue target since the implementation of structural reforms in the VAT and direct areas has not yet gained momentum, he added.
Mansur spoke at a seminar on 'Fiscal policy for 2015-16 budget in the context of the Seventh Plan' co-organised by PRI and UKaid at the PRI office in Dhaka yesterday.
The weighted average prices of bidi and cigarettes are quite low in Bangladesh and increasing the rate is the only way to reduce smoking and generate 20 percent year-on-year growth in revenue from tobacco products.
In line with global best practices, Bangladesh should move to a uniform tax structure for all smoked tobacco products, according to Mansur.
PRI said the government can collect a huge amount of money from payroll withholding taxes.
Payroll withholding taxes are the taxes that an employer is required to deduct from its employees' gross wages, salaries, bonuses and other compensation. Payroll withholding is the most important source of income tax collection in all developed and emerging economies.
Tapping this most important source of income at source, that is, at the stage the payroll is distributed, is the most secured way to maximise income tax collection, said Mansur. “The tax administration in Bangladesh is very weak in this respect. For example, Bangladesh collects only 2-3 percent of the total income from payroll, compared with more than 87 percent in the UK and 63 percent in Australia.”
The NBR direct tax wing needs to set up a dedicated department to monitor withholding agents, get the withholdings linked to the payroll of staff provided by the business enterprises and follow up on persons who have paid withholding tax but not submitted their income tax returns, he added.
PRI also suggested the government increase the tax rate on apparel exports in the upcoming budget.
The garment and textile sector is the most dynamic sector in Bangladesh and it is the most under-taxed sector as well. The tax rate on apparel exports was slowly increased from 0.25 percent of export volume to 0.8 percent in fiscal 2013-14.
However, in order to mitigate the high costs incurred by the sector due to political unrest, the rate was temporarily cut down to only 0.3 percent in fiscal 2014-15.
“This rate should now go back to at least the original level of 0.8 percent in FY16 and should further go up in the coming years. The revenue impact from this move would be about Tk 600 crore,” said Mansur.
Sadiq Ahmed, vice chairman of PRI, stressed raising public revenue, increasing spending on health, education and social sector as a share of GDP, increasing the use of foreign aid pipeline and providing a clear statement of expenditure reforms for the seventh five-year plan.
Syed Nasim Manzur, president of Metropolitan Chamber of Commerce and Industry, asked the government to rationalise the supplementary duty to reduce the cost of doing business in the country.
He also urged the government to focus more on utilisation of unused foreign aid.
Mustafizur Rahman, executive director of Centre for Policy Dialogue, said Bangladesh has to maintain macroeconomic stability by focusing on higher investment and increasing productivity.
The National Board of Revenue has set its revenue growth target beyond its capacity in the last few years, he added.
Mohammed Farashuddin, former governor of Bangladesh Bank, stressed the need to strengthen the monitoring of VAT collection from a number of sectors such as sweets shops, jewellery and pharmacy.
Anis A Khan, vice chairman of Association of Bankers Bangladesh, urged the government to make a merger and acquisition policy, especially for the banking sector as most banks' financial strength is not good.
AMA Muhith, finance minister, said the government will seriously consider the proposals made by PRI in the upcoming budget. The withholding of payroll tax is very interesting, he said, adding that the government will pay special attention to it.
The tax rate on garment exporters will obviously change in the upcoming budget, he added.
Muhith is also frustrated over the number of e-TINs in the country. The country now has only 1.8 million e-TIN holders. “We have 160 million people. I think each person should have an e-TIN.” The minister also agreed that the current taxation policy on the telecom sector is not good.
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