Tax noose likely to be loosened to kickstart economy

With the pandemic-induced lockdown battering livelihoods and choking cash flow across the board, the tax authority is working to give a breathing room to businesses and individual taxpayers in the low-income bracket.

The government is unlikely to impose any new tax in the upcoming fiscal year beginning from July; rather, there might be some exemptions such as waiver of value-added tax on the internet use, said officials of the finance ministry.

The National Board of Revenue is expected to place its proposed tax measures to the prime minister today for approval.

"We are getting prepared," said a senior official of the NBR. At the meeting with the prime minister, the overall revenue target for next fiscal year would be discussed and finalised, he added.

Officials said the total revenue collection target might be fixed at nearly Tk 400,000 crore, up 5 per cent from this year's collection target of Tk 377,810 crore.

The NBR may also see a 5 per cent rise in tax collection from this year's initial target of Tk 325,600 crore.

Non-tax revenue collection may go up as the government revised the target by Tk 20,000 crore from Tk 37,710 crore set initially for this fiscal year.

Next year's target for non-tax revenue collection is expected to be fixed at nearly Tk 60,000 crore.

And to attain the collection target, the finance ministry will zoom in on the users of luxury goods and cigarettes that account for roughly 30 per cent of the total annual collection of VAT and supplementary duty, the biggest source of revenue out of direct tax and customs duty.

Besides, there is a plan to levy a new type of tax named COVID-19 tax, the finance ministry officials said.

The NBR will also focus on realising arrears to help implement the Tk 570,000 crore-budget for fiscal 2020-21 and bring the pandemic-hit economy back on track.

WHAT HAVE OTHER COUNTRIES DONE?

Many countries have taken steps to support individual taxpayers and businesses to help them weather the devastating effect of the coronavirus, according to a report of the Organisation for Economic Co-operation and Development released last month.

Measures include an extension of deadlines for tax filings, deferral of tax payments and faster refund to enable businesses to overcome liquidity crunch and remain afloat.

Some countries also offered tax exemptions including social security contributions and payroll taxes. There has been cash support and expanded unemployment benefits.

The steps also include tax waiver to the hardest hit sectors and reduction of corporate tax. Indonesia brought down the corporate tax for the manufacturing sector in 19 areas while Kenya reduced corporate and personal income taxes.

Italy introduced a corporate tax credit for sanitation works at the workplace. A few countries such as China, Norway and Kenya have cut VAT rates temporarily to support consumption, according to the report.

Neighbouring India also offered relief for salaried workers and taxpayers in the form of an extended deadline for income tax returns. It cut tax deduction at source and tax collection at source by 25 per cent for next year.

ANALYSTS' SUGGESTIONS

Analysts said revenue collection and tax relief measures should go hand in hand in Bangladesh to help firms and individuals as well as the economy to rebound from the downturn.

"Next fiscal year is likely to be one of the most challenging ones for revenue mobilisation," said Zahid Hussain, former lead economist of the World Bank's Dhaka office.

This is primarily because of the persistence of economic downturn as the world in general and Bangladesh in particular struggles to tame the spread of the virus.

"Fiscal 2020-21 is not a year in which it will be possible to raise tax rates and achieve significant expansion in the tax base."

In fact, the government will have to consider rate reductions or even waivers, particularly in cases of imports of medical supplies and essential staples.

Hussain said personal income tax and corporate income tax rates may also need to be lowered to stimulate consumption and investment demand. Personal income tax exemption limits will need to rise to provide relief to the middle-income households.

"The challenge, therefore, will be to find ways of making up the revenue losses on these counts by enhancing the efficiency and integrity of the tax administration and expanding the tax net to bring in new taxpayers."

Simplification of the corporate income tax rate structure may encourage small firms to register and pay taxes.

Accelerating ongoing efforts for automation of registration, assessment, filing and payment will help reduce tax avoidance and leakage.

Hussain also recommended speedy settlement of accumulated tax disputes in the courts.

Syed Aminul Karim, a former NBR member of tax policy, said the government can consider creating a new slab -- at 35 per cent -- of wealth tax surcharge to be collected from the super-rich. 

As many property owners remain out of the purview of wealth tax surcharge in absence of valuation of the property at the current market price, a new tax on people having a property in upscale areas such as Dhanmondi and Gulshan can be considered, he said.

Also, the tax rates for the low-income bracket can be reduced to ease pressure on individual taxpayers, said Karim, now an adjunct professor at the Department of Banking and Insurance at the University of Dhaka.

"Tax rebate benefit on investment should be enhanced to increase the disposable income of taxpayers. This will ultimately drive consumption," he said.