Impact of tax exemption needs analysis

The personal income tax collection to gross domestic product (GDP) ratio can be raised to 3.1 per cent from the current 1 per cent or so if the government can get all eligible individuals to pay taxes, according to a study unveiled yesterday. 

Moreover, the revenue to GDP ratio will be 2 percentage points higher if the tax authority removes tax exemptions, said the paper.

Bangladesh should conduct a cost benefit analysis to assess the impact of all available tax incentives, said MA Razzaque, said chairman of the Research and Policy Integration for Development (RAPID).

He was addressing a seminar on the use of direct taxation to tackle inequality and increase revenue collection, organised by Economic Reporters Forum and RAPID on the former's premises in Dhaka.

Presenting a keynote paper, Razzaque said Bangladesh's tax to GDP ratio was 9 per cent, one of the lowest in the world.

Revenue to GDP ratio will be 2 percentage points higher if the tax authority removes tax exemptions, according to a paper

The main reason was a low collection of direct tax, which needs to be increased to reduce income inequality, he added.

The National Board of Revenue (NBR)'s recent announcement to attempt increasing the share of direct tax in total revenue from 35 per cent to 70 per cent would drive economic growth and strengthen the government's ability to provide essential public services, Razzaque also said.

It will also allow Bangladesh to generate higher revenue more sustainably and help tackle rising inequality, he said, adding that despite significant growth in per capita income, income inequality has risen in recent years.

Razzaque also said domestic revenue generation in Bangladesh was historically low and the direct tax comprised one-third of the total revenue of fiscal year 2021-22.

The amount is far below that in countries with similar economies and the average of low-income countries.

Nasiruddin Ahmed, a former chairman of the NBR, said tax exemptions in Bangladesh amounted to Tk 2.5 lakh crore in a year and it was provided on political considerations.

The amount of tax collected in a year is more than Tk 3 lakh crore, he added.

In such a case, the rate of tax collection may be increased rather than the tax rate being increased, Ahmed said. If the tax rate is hiked, the scope of tax evasion also rises, he added.

Kabir Ezdani Khan, additional secretary to the Budget and Expenditure Measurement Wing of the Ministry of Finance, said increasing corporate tax could not be a right move.

A company has to pay taxes at different levels like paying tax on employee salaries and on imports and at other stages and as a result, the cost of doing business increases, he said.

Instead, income tax can be increased as people will pay those, he said.

Md Mahmudur Rahman, member (Tax Survey and Inspection) of the NBR, also spoke.