Achievable revenue targets

Despite its efforts to the contrary, the National Board of Revenue (NBR), over the past decade could never succeed in achieving its annual tax collection targets. There was nothing surprising about that since traditionally, the finance ministry in its annual budgets is apt to set ambitions targets for revenue collection, which are often beyond the NBR's capacity to fulfil. That is why even a moderate 15 per cent growth in the collection of tax revenues in the last fiscal year was not enough to achieve the target revised downward. The target of Tk4.30 trillion, set in the original budget for FY 2023-24 was downsized later to Tk4.10 trillion. 

Unsurprisingly, NBR's performance in the immediate past fiscal year (FY2023-24) could not make any difference in this respect. In FY24, as reports go, NBR's tax officials could collect Tk3.83 trillion which fell short of the target by over Tk 274 billion. But given the NBR's poorer performance in the previous months of last fiscal that prompted some observers to predict a bigger shortfall. A substantial amount of revenue customarily deposited in the state coffer in the final month of June, however, went a long way to reduce the gap between the target and achievement in revenue collection in FY 24. Notably, the experts' fear of bigger shortfall was attributable to the fact that in May the NBR's tax collection drive saw its worst performance at 8.9 per cent growth. This lower growth was due to a decline in VAT collection by 1.0 per cent. Interestingly, putting an end to the misgivings, VAT collection in June, 2024 posted a 47.2 per cent growth. Even so, finally, the tax regulator could not make it to its goal.

As a result, it has been for the 12th consecutive year that the NBR has failed to achieve its annual revenue collection target. This should be another lesson for the nation's budget-makers.

The reasons for the failure are plain. At the moment, the economy has slowed down significantly, thanks to the restrictions that the central bank has imposed on imports to prevent forex reserve from further dipping. The private business has shrunk impacting negatively on its contribution to the government exchequer in terms of taxes and duties. Also, there is the perennial issue of tax-dodging by affluent people, not to mention the systemic corruption stymieing the efforts of the tax regulator to utilize its potential.

This failure to achieve the yearly tax collection target by the NBR, which mobilises over 85 per cent of the state's revenue, has its ramifications including further squeezing of the fiscal space hampering government's expenditure plans. For instance, the reduced revenue earning will affect government's ability to finance the development projects undertaken in its annual development programme (ADP). Then comes the issue of servicing the domestic and foreign debts. Fund scarcity to repay these loans may compel the government to go for further borrowing from banks or other sources thereby pushing the economy into a vicious circle.

Economists view that the government should focus more on enhancing the NBR's capacity to mobilise direct taxes including income tax than indirect ones levied on services such as VAT and duties. Though VAT remains the biggest and most stable source of revenue earning for the government, some economists would like to put it in an unfavourable light as it is based on consumption rather than income. They would rather like to advise the government to focus on taxes on incomes and profits and expand the tax base to that effect. To this end, NBR's digitisation programme should get the highest priority along with the tax officials' capacity building  including their adoption of technological tools to that effect.