NBR failed to widen tax base despite huge spending
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) yesterday demanded an investigation into the National Board of Revenue's (NBR) failure to widen the tax base despite having spent more than Tk 600 crore on consultancy fees and others for the implementation of multiple VAT rates.
The country's tax administration began the project back in 2012 with an objective to expand the tax base, ease the VAT system, improve compliance and reduce harassment among business people.
A majority of the informal business sector, which accounts for 84 per cent of the national economy, was supposed be brought under the tax base through these initiatives. However, in reality, the only noticeable outcome was an increase in harassment.
In accordance with the recommendations made by consultants, the government introduced multiple VAT rates in 2017, but following heavy backlash from the business community, the project was suspended.
Multiple VAT rates were then reintroduced in 2019, but the tax base did not grow as the tax-to-GDP ratio remained stagnant at 9 per cent.
Besides, the collection system is yet to be streamlined while incidents of VAT officials harassing businesspeople, especially those who own small-scale firms, have become far more frequent, said FBCCI President Sheikh Fazle Fahim.
District level NBR officials particularly harass small traders in the name of VAT law implementation, he said.
"The VAT system just became more complicated even though the NBR spent a lot of money to ease the system by paying consultants," added Fahim.
Since the amendments to the VAT system seem to have gone against the NBR's primary objectives, the FBCCI president strongly called for an investigation into the matter.
A section of NBR officials and consultants are keener to undertake new projects rather than see the older ones through.
"Some sections of the multiple VAT law are flawed and go against national interest," he said.
Fahim made these remarks while officially presenting his observations on the proposed budget for fiscal 2020-21.
NBR Chairman Abu Hena Md Rahmatul Muneem could not immediately be reached by phone for comment.
The FBCCI president also suggested that, if the banks are non-cooperative, the government should withdraw funds deposited with those banks for the distribution of loans to firms impacted by the ongoing coronavirus pandemic.
On the other hand, if a financial institution disbursed loans from the stimulus packages in accordance with the guidelines, then the government should increase deposits in that bank, said Fahim.
If necessary, the government could even reward those banks with a 1 per cent reduction in corporate tax, he added.
Following the Covid-19 outbreak in Bangladesh, an additional Tk 70,000 crore was raised for the banking sector by slashing the statutory liquidity ratio to avoid a liquidity crisis and ensure the country's economic survival.
However, certain banks have not disbursed funds from the stimulus packages, citing a liquidity crisis even though those same banks are investing in treasuries, said Fahim.
As of April, about Tk 2,000 crore was disbursed from the Tk 30,000 crore stimulus package while Tk 50 crore was distributed from the Tk 20,000 crore fund geared towards cottage, micro and small firms.
Around $5 billion is being circulated in the country through informal channels and this amount needs to be brought into the formal economy, Fahim said, adding that the government could utilise various financial tools, such as auctions, bonds and debentures, to cover budget deficits instead of high-cost borrowing from abroad.
In response to the business community's earlier demand to set corporate tax rates at 25 per cent, the existing 35 per cent corporate tax rate was cut down to 32.5 per cent.
However, the government should reconsider the proposal while advanced income tax should be reduced to 3 per cent before being gradually abolished, the FBCCI chief said.
Fahim termed the proposed budget as one that would help the country rebound both socially and economically amid the coronavirus fallout.
The FBCCI and central bank are coordinating the disbursement of funds from the stimulus packages and will not allow defaulters to obtain financing from the programme.
Only 34 per cent of the country's population are engaged with the formal banking system. Therefore, it can be said that the democratisation of banking and capital is yet to take place in Bangladesh, Fahim said.
For instance, most cottage, micro and small enterprises operate outside of formal banking channels even though those informal sector firms contribute 84 per cent to the national economy.
"Banks only aim to gain finance for large projects for quick and safe returns," he added.
Comments