Carbon tax on cars likely in next budget

Levying carbon tax on private cars and increasing the rate of wealth surcharge are among budgetary means the government envisages to narrow growing income inequality, as Bangladesh reportedly sees rise of some super-rich.

The budget for the fiscal year (FY) 2023-24 may impose ‘carbon tax’ on a taxpayer having more than one vehicle.

People having net asset of over Tk 1.0 billion might have to pay tax at 40 per cent, up by 5.0 per cent, from the next fiscal.

However, the National Board of Revenue (NBR may also revise the ceiling of wealth for surcharge upward by Tk 10 million in the Finance Bill 2023, to be placed before parliament on June 1, 2023 to ratify the new budget.

Carbon tax, first in Bangladesh, may range from Tk 20,000 to Tk 0.3 million.

Several attempts to introduce carbon tax in Bangladesh have fizzled out despite the country having growing dependence on fossil fuels, sources say.

Neighbouring India introduced carbon tax on coal in 2010 and later widened the net to cover petrol and diesel.

However, some economists say taxing existing taxpayers would not help in reducing income inequalities unless the government focuses widening tax net.

Dr Md Abdur Razzaque, Chairman of Research and Policy Integration for Development (RAPID), thinks widening tax net is the only way to address income inequality rather than imposing tax burden on existing taxpayers.

“Wealth surcharge is not an effective fiscal measure as wealth valuation is difficult,” he says, suggesting that the NBR can impose heavy tax on idle land in municipality and city-corporation areas to ensure its productive use.

Car owners are already paying high taxes, and all are under tax net, he pointed out.

“Principle of carbon tax is good. But plan should be framed whether it is only generating more revenue,” he says about the emergent fiscal measure meant for going green to save the planet from global warming.

Last year, the World Bank suggested Bangladesh should impose carbon tax on all kinds of production activities for facilitating transition to green growth.

“I think we have to be careful to make sure that the tax net actually encloses the target audience. The tax, if it aims to actually reduce carbon emissions and vehicle usage, needs to be designed to be fit for purpose,” says Bareesh Hasan Chowdhury, Research Lawyer, Bangladesh Environment Lawyers Association (BELA).

Reduction in vehicle-usage emissions means investing in better, cleaner, and safer public transport systems so people actually have an alternative to using private cars, opines Mr Chowdhury, who is regional facilitator, Friends of the Asia-Pacific.

This includes making the city more walkable as well. 

“Carbon taxes are an interesting innovation but we have to remember this is both environmental policy and tax policy. I would support its introduction as long as it’s a properly progressive tax and not an additional burden on regular people during a cost-of-living crisis,” he said.

He feels that such tax could be imposed if it actually aids in concrete emission reductions, rather than just piling on some more bills for it - which the largest emitters would be able to afford while continuing to pollute.

However, officials said none of the fiscal measures was finalized yet as the tax authority would need to get Prime Minister’s consent in this regard.

The revenue board is scheduled to place the possible fiscal measures for FY 24 before the PM on May 14.

Officials said the NBR may not propose any cut in corporate-tax rate this year though it had reduced the rate by 2.5 per cent during the last two years.

Some of the source taxes and travel tax may see upward adjustments in the forthcoming fiscal measures.

The NBR would propose that the PM revise the tax-free ceiling for individual taxpayers upward to Tk 350,000, from the existing Tk 300,000, considering higher cost of living in the wake of price rises.

Officials said people under low-income group would get relief from payment of taxes with the upward adjustment of tax ceiling.

Off-shore tax amnesty for bringing money back home would not be continued as it failed to attract taxpayers.

To increase the number of tax returns, the NBR may introduce a new provision of ‘Tax Return Prepare’ to facilitate taxpayers.

Gini coefficient is one of the key measures that are used globally in calculating income inequalities. The country that crosses 0.5 in the Gini index is categorised in the state of dangerous income inequality. The range of coefficient in Bangladesh was 0.36 in 1974.

According to Gini coefficient, income-inequality matrix was 0.483 in 2016 — close to danger level — in Bangladesh. Economists say Bangladesh might have reached the danger state of income inequality in the last six years owing to impact of the COVID-19 pandemic.

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