Tax-GDP ratio concerning

Published: January 07, 2019 21:57:03 | Updated: January 09, 2019 22:13:52


Country's declining tax-GDP ratio, practically since 2017, has been   paradoxical  and   concerning    but is  not   inexplicable, to be sure. On the face of it, this   appears   ironic and defiant of conventional wisdom that the rising gross domestic product (GDP) growth rates have not yielded increased   tax revenue. This only goes to show that economic growth  does not  automatically  generate tax  revenue; it requires  serious  mobilisation   efforts  backed by an efficient    tax administration  dedicated  to collect  revenue from a  widely  cast   tax-net. At present, the direct tax regime, potentially the biggest source of revenue collection, is weak.

The focus is on the introduction of wealth and property tax on the one hand, and VAT Act and Customs Act, on the other. Since many people now block their wealth in real estate properties and lands, the rationale for wealth and property tax commends itself. It will also help bridge rising income inequalities, something which have been brought to the fore by the latest household income-expenditure survey. Now coming to the two laws in animated ferment for a long time viz. the VAT Act and Customs Act, they have been much-talked-about but not acted on, apparently for lack of political will. Many now expect to see them through with election having saddled the new government with a landslide mandate. The VAT Act of 2013 estimated a potential earning of TK. 200 billion (20000 crores).       

Tax evasion,  flight of capital  and  inflated   Swiss account   point  to  lost  wealth  for the nation, but  not wasted  because  the   potential  remains  to encourage   them to plough  back  some of those   resources  into  productive  investments. This can be linked to non-resident Bangladeshi (NRB) initiative or to programme for poorer Bengali diaspora uplift. The declining tax-GDP ratio  is  taking place at a time  when  mobilisation of domestic resources  is  pivotal to achieving the sustainable development goals (SDGs). It is really a wake-up call  inasmuch as  on certain SDGs we  are  lagging behind  in the face of the  deadline  to meet a whole lot of  the goals  by 2030. The outlook  is  also concerning  overall  because  the  targeted  increase in  tax-GDP ratio up to  5.4 per cent  by 2020 --in the seventh five-year plan period  --  stood at 2.7 per cent in 2018 at  the halfway mark. So  a  key macro-economic indicator  of   internal  resource  mobilisation  stagnates  and an inherent  potential   for wealth creation  remains  untapped.

The underlying causes of the failure to mobilise internal resources are revealed in a glaring light. Bangladesh   is   the   second   fastest growing  economy   in  Asia, priding itself  on a low-middle  per capita  income  bracket,  with   a high-income upper  five-ten  per cent  people  the size of some East European  countries, and yet  it is   among   the least  tax-paying nation in the world. By some account, at least 30 per cent of the   population can be brought under effective income tax network. That would have greatly facilitated faster progress well   beyond the basic needs regime. It would not only befit our status as low-middle income country but also help with the transitional adjustments that entail a parting cost.           

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