VAT hike to improve tax-GDP ratio
The interim government has been compelled to raise VAT on some commonly consumed products to improve revenue collection and stabilise the country's economy.
Chief Adviser's Press Secretary Shafiqul Alam made the statement at a press briefing at the Foreign Services Academy yesterday.
For all latest news, follow The Daily Star's Google News channel. He said capital flight and erratic development expenditure by the previous government have left the economy in a fragile state.
"We need macro-economic stability, and a good tax-to-GDP ratio is an indicator of that. However, our tax-to-GDP ratio is among the lowest in the world. In the last five months, we have had a significant shortfall in revenue collection.
"We had a revenue collection target of Tk 1,69,000 crore [in the last five months], but we have collected around Tk 1,26,000 crore, meaning a shortfall of Tk 42,000 crore.
"In this situation, we may not be able to meet payments for debt servicing."
As such, Shafiqul added, the government has decided to increase VAT on some products..
When reporters queried if it would drive up inflation, he replied that higher revenue was needed to ensure that the value of taka does not go down.
He also said the tax revenue would be spent on people's welfare.
"We are not saying this will not impact the standard of living. We are saying that it will be minimal," said the press secretary.
He said there were different rates of VAT, and the government is trying to bring those to a simplified 15 percent rate to cut the tax leakage.
The interim government has also been trying to cut public expenditure to offset the widespread misuse of public money during the ousted regime, the press secretary said.
He said the government is communicating with other countries about bringing back wealth lost to capital flight, but it is a time-consuming process. He called it the government's top priority.
When asked why the government is bowing down to the International Monetary Fund's pressures to increase taxation, the press secretary said that getting the IMF loan will open doors to loans from other development partners.
At the press briefing, Shafiqul was joined by the Chief Adviser's Deputy Press Secretaries Apurba Jahangir and Abul Kalam Azad Majumder and Assistant Press Secretary Shuchismita Tithi.
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