Tax target revised upward by Tk 540b

The government has reviser the tax-revenue-collection target upward by Tk 540 billion to meet a growing need for internal resources to manage budget deficit.

Debt service has become a major headache for the government as loans taken from foreign and domestic sources have reached an optimum level.

Debt-servicing amounts hit a record Tk 1.35 trillion in the past fiscal year (FY25), in a quantum leap from Tk 320 billion in FY2016. Domestic borrowings account for 88 per cent of total debt repayments, finance ministry data show.

Following this, the Ministry of Finance (MoF) has instructed the National Board of Revenue (NBR) to mobilise Tk 5.54 trillion in taxes, up from the targeted Tk 4.99 trillion in the current fiscal year's budget.

Economists say the government's fiscal space has shrunk to an alarming level for mounting debt-servicing pressure.

Talking to The Financial Express on Monday, Finance Adviser of the interim government Dr Salehuddin Ahmed said the main reason for this revision is the shrinking fiscal space, which the government cannot manage by borrowing.

"We have no alternatives but to focus on domestic revenue mobilisation," he says.

The government has observed revenue-mobilisation growth picking up in the past few months, so both tax and non-tax revenues have to rise, he notes to corroborate the move.

Government's bank borrowing for domestic financing has put private-sector credits under pressure.

Bangladesh Bank Governor Dr Ahsan H Mansur, on Sunday, told the FE that the government is taking more than Tk 1.0 trillion from banks to meet expenses, which has shrunk private-sector credits.

"Mobilisation of higher revenue is now imperative to reduce such dependence on banks," he said.

Dr Abdur Razzaque, Chairman of Research and Policy Integration for Development (RAPID), says there are no alternatives to increasing domestic revenue mobilisation. And it is possible with existing resources and manpower.

"The government needs to formalize the informal sector, bringing a large untaxed sector under the tax net," he says to show the way.

The margin of fiscal space is extremely low now, which has also been indicated by the International Monetary Fund (IMF) as a downgrade to a moderate rating from low risk, he points out.

"The government is a bit shaky about taking budget support from development partners, fearing an aggravated debt burden," he notes.

Debt servicing by the government is almost equivalent to the amount collected as domestic revenue, so the government cannot spend if revenue mobilisation is not increased.

"I think this government wants to leave some pragmatic signals for the next government on which sector it must concentrate," he adds.

The upward revision comes as a surprise to the NBR high-ups, who found the previous target ambitious.

Three wings of revenue board-income tax, VAT, and customs-have distributed their increased targets to the tax zones, customs houses, and VAT offices with instructions for intensifying efforts.

A senior official of the NBR says already the taxmen are apprehending a Tk 600-billion shortfall in its previous target of Tk 4.99 trillion. Now, the revenue-collection shortfall would hover above Tk 1.0 trillion by year-end.

"What significant changes in tax-revenue mobilisation have been made to expect a quantum jump in collection?" he asks.

Automation of tax-return submission, as well as the expansion of tax departments in recent years, would need time to pay off, he says.

In the first quarter, the NBR was lagging behind its target by Tk 170 billion.

On October 26, the MoF issued a directive that no additional allocations would be considered under any circumstances and asked ministries and divisions to cut back on less-essential expenses to stay within limits.

Also, the interim government backtracked on its move to implement a national pay scale in its tenure due to budget constraints.

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