Analysts attend a discussion on budget organised by the Policy Research Institute in association with DFID in Dhaka yesterday. Photo: Star
The government should make all personal incomes, irrespective of their sources, taxable to collect more money from individual taxpayers in an effort to reach its ambitious revenue target, an economist said yesterday.
Sadiq Ahmed, vice chairman of Policy Research Institute (PRI), said no sectors should be given a blanket tax exemption.
"If some concessions have to be made to motivate additional domestic and foreign investment, the scope of those concessions should be limited in a way that does not undermine tax collection."
He said providing tax exemption to any high-earning sectors, such as garments, is also not the right policy.
The former World Bank official also urged the government to introduce a proper wealth tax.
He said the modernisation plan of the National Board of Revenue has all the key ingredients of making the agency modern, efficient and capable of meeting the challenging revenue targets.
"But its implementation is slow and needs to be substantially speeded up."
Ahmed spoke at a discussion on the budget for the new fiscal year. PRI, a think-tank, organised the event in its office in the city in association with the UK Department for International Development (DFID).
At 11 percent, Bangladesh has one of the lowest tax-GDP ratios in the region. In this backdrop, the government has targeted to raise the ratio by 4 percent of GDP in the next five years.
"The revenue potential of personal income tax alone is huge," Ahmed said in a presentation.
At present, the top 10 percent of the population owns 35 percent of the national income while personal income taxes are a meagre 1.5 percent of GDP.
Ahmed said, this year's budget also aims to modernise the tax structure by increasing reliance on a progressive income tax system.
"This is a positive note but there is a long way to go. The income tax measures have to be broadened substantially with well articulated income and property tax reform."
Ahmed said the tax base needs to be broadened through stronger enforcement of tax laws, along with efforts to further simplify tax filing and tax payments systems.
Siddiqur Rahman Chowdhury, a former finance secretary, said apart from the existing taxpayers, there are many people who have taxable income, but they have not been brought under the tax net.
"We even have not been able to bring the black money in the mainstream economy. We give some incentives and wait for voluntary actions from the black money holders. Stringent measures should be taken about the issue."
"We also talk about decentralisation. But all decisions are taken by the head of a department in a highly centralised system."
He also criticised the government for its failure to use the huge amount of foreign aid lying in the pipeline.
At present, about $19.4 billion in concessional aid commitment has been in the pipeline, said Zahid Hussain, lead economist of the World Bank in Dhaka.
Hussain also said Bangladesh needs to explain how the growth in a turbulent year was higher relative to the growth in a normal year.
"This storyline has to be clarified. Otherwise, the World Bank will face this challenge in September-October when their Global Economic Prospects come out. They are going to ask us about the estimate for fiscal 2013-14."
"If we tell them that the FY2014 growth rate is 6.12 percent compared to 6.01 percent in FY2013, the next question naturally would be 'how do you explain?'"
"Because we have also told the public that because of the 45 days of strikes and turbulence, the GDP loss was at least $1.4 billion. This estimate has been accepted in the budget speech of the finance minister."
Hussain said, this time the World Bank has disagreed not only on the magnitude but also on the direction of the growth estimate.
He said the credibility of the macroeconomic statistics is at stake. "If you don't have credible macroeconomic statistics, the macro-polices and macro-debates can't move forward constructively."
Hussain said he is really worried as too many unapproved projects have been included in the annual development programme (ADP).
He said, if the country can use 20 percent of the aid money in the pipeline then a large fraction of the external financial target will be achieved in the current fiscal year.
The WB economist also agreed with PRI's Sadiq Ahmed that decentralisation is the number one structural reform agenda.
"Through decentralisation, we can signal the political will for change, build capacity and solve the problem of aligning incentives with development performance."
The government will have to do something credible about decentralisation, Hussain said.
Binayak Sen, research director of Bangladesh Institute of Development Studies, said the Implementation Monitoring and Evaluation Division should be empowered to improve the scenario of project implementation in terms of quantity and quality.
He said the finance minister seems to be keen about giving more power to the upazila parishads, but the political authority might not want it.
Zakir Ahmed Khan, another former finance secretary, criticised the huge allocation made under the headline of the miscellaneous expenditure.
"It is huge. How could the miscellaneous expenditure be 9 percent of the budget?" he said.