The case for increasing non-tax revenue

Dhiman Chowdhury | Published: February 05, 2019 21:32:35 | Updated: February 08, 2019 21:34:51

What is non-tax revenue? Non-tax revenue (NTR) includes sale of government land, charges for economic services, profit and dividend from SoEs (state-owned enterprises) and other government organisations, fines and penalties, and stamp duties.  There are royalties from oil and gas companies, tolls from roads and bridges, fees from museums, import and export processing fees, visa fees, broadcasting license fees, and revenue from forestry. These can be categorised into three: general services such as fire service, jails, defence, police, PSC (Public Service Commission), BG Press, Public Works Department, Judiciary, CAG (Comptroller and Auditor General); social services like education, sports and culture, family welfare, housing, medical, cemeteries, assistance to aged, assistance to children, library, parks and recreation, water and sanitation, urban development, information and publicity; economic services like parking, street lighting, garbage collection and disposal, pollution control, fisheries, forestry and wild life, industries, oil and gas, roads and bridges, tourism, ports, interest on loans, and stamps, area development.

BUDGET: Budget-in-Brief of the Ministry of Finance shows NTR of Tk 262 billion during 2016-17. The highest amount came from fees and charges - Tk 52.1 billion; second from dividend and profit of government organisations - Tk 52 billion; third from defence - Tk 25.5 billion;  fourth from railway - Tk 11.4 billion; and fifth from interest - Tk 7.6 billion. Other big items are tolls and levies - TK 5.2 billion; receipts from services rendered - TK 5.0 billion; and non-commercial sales - TK 5.3 billion.

PRINCIPLES OF CHARGING NON-TAX CHARGES AND FEES: The best principle is to follow the marginal cost (excluding fixed cost) at least or the average cost (including fixed cost) of providing a particular service. The basic principle is that public services should be charged rather than given away with a view to making public provisions and government services sustainable. It may be a good idea to charge on the basis of service receivers' income, for example, electricity, gas and many other services beyond a certain minimum level may be charged at cost-plus profit. Differential charges can be based on priority for use or on the basis of type of users to lighten the burden on certain sections of society. Tuition fee for secondary and above levels can be based on parents' income.  This is called right prices for right services for right persons. If subsidies are essential, these should be given targeted but not universal. Prices and user charges shall be based on income level of the users.

THE INTENSITY OF NTR AROUND THE WORLD, 2016-17: The ministry of finance and mass media of different countries show that NTR is around 1.30 per cent of GDP (gross domestic product) in Bangladesh. The average in Europe is 5.7 per cent. It is 2.2 per cent in India, 1.14 per cent in Philippines, 1.3 per cent in Sri Lanka, 1.43 per cent in Tanzania, 0.5 per cent in Uganda, 3.6 per cent in Malaysia, and 5.5 per cent in Bhutan.

SCOPES FOR INCREASING NTR IN BANGLADESH: The rent of a circuit house room a day for government officers is around Tk 100, market price of similar facilities is around Tk 2000. Stamp duty is between Tk 10 and Tk 5000. For bank loan it is 0.12 per cent to 0.25 per cent of the loan amount; it is 0.5 per cent to 15 per cent in Vietnam, 3.0 per cent to 12.5 per cent in India. Penalties for concealment of income are 15 per cent of the amount tax evasion; it is 300 per cent in Vietnam. Property registration is Tk 500 to Tk 2000; it is 1.0 per cent of the value or Rs30,000 in Chennai and Delhi. Car registration charge is Tk 1000 to Tk 3000; it is 10 per cent to 12 per cent of the value in Vietnam, Rs30,000 to Rs176,000 in Chandigarh. Gas, electricity per month for a small house is Tk 1800 or $22; it is $54 in Vietnam. A Bachelor degree in a public university costs around $200 in Bangladesh whereas $800 in Vietnam. Foreign travel tax is $10 in Bangladesh, Nepal and Indonesia; it is $17 in India, $22 in Thailand and $14 in Vietnam.

HOW ARE SINGAPORE AND HONG KONG PROSPEROUS WITH LOWER TAX REVENUE? Singapore is one of the prosperous nations in the world. But its mainstream taxes such as personal income tax, corporate tax and VAT are among the lowest in the world. Top personal income tax is 22 per cent (40 per cent in Europe), corporate tax rate is 17 per cent (25 per cent world average) and VAT is 7.0 per cent (20 per cent world average).  Hong Kong's top personal tax is 15 per cent and corporate tax 16.5 per cent. But non-tax revenue in Singapore is 6.5 per cent in terms of GDP whereas the average in Europe is 5.7 per cent. In Hong Kong, non tax revenue like user charges and stamp duty is the highest source of revenue.

PROFIT TAX EXEMPTION IN GOVERNMENT ORGANISATIONS CAN HAMPER MANAGEMENT ACCOUNTABILITY AND NON-TAX REVENUE: Bangladesh Securities Exchange Commission (BSEC), Grameen Bank and many profit-making government organisations are exempt from corporate tax. If corporate tax is exempted, there will be a tendency for management to take excess perquisites resulting decrease in profits and dividends for the government. Imposition of corporate tax will increase accountability of management for sustainable development and will also contribute non-tax revenue to the government.  Here management has two responsibilities: pay profit tax (tax revenue) and pay profit or dividend (non-tax revenue).

SUBSIDIES: Subsidies to 11 SoEs (BJMC, BIWTC, RDA, BIWTA, BSCIC, BSB, EPB, BADC, BWDB, NHA, BSRTI) were Tk 21.9 billion during 2016-17. Dividend from 112 SoEs was TK 18.4 billion in 2015-16. BCIC incurred losses of Tk 2.2 billion from its eight enterprises during 2014-15. Bangladesh Jute Mills Corporation incurred a loss of Tk 4.8 billion during 2016-17 from its 23 enterprises. BSFIC incurred loss of Tk  4.6 billion in 15 enterprises. Bangladesh Shipping Corporation has accumulated losses of Tk  23.4 billion.

REFORMS IN COMMERCIAL STATE-OWNED ENTERPRISES: The world evidence shows better business performance after privatisation. Lack of individual ownership in public enterprises is associated with little economic incentive for monitoring performance and profit. Firms may be pressured to hire politically connected people rather than those best qualified to perform desired tasks. Most of our manufacturing SoEs have losses; the government incurs subsidies, loses tax, and dividend-a non-tax revenue. In European Union (EU), profitability of manufacturing SoEs is lower than in the private sector. Substantial reform of these SoEs, including privatisation, competition, and governance, will create avenues for further tax and non-tax revenue, reduce subsidies and government borrowing and the savings will be used for further infrastructural development of the country. Evidence suggests that the greater the density of SoEs and the more they enjoy favouritism, the lower is the proportion of bank loans that go to private companies, and the longer it takes for private firms to get access to land. There is also a negative correlation between SoE growth and private sector growth. Evidence suggests that SoEs are indeed 'crowding out' private companies in Vietnam.

Dr Dhiman Chowdhury is Professor of Accounting, Dhaka University

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