Tax collection conundrum

Apparently, the lower collection of government revenue in 2024-25 fiscal year notwithstanding the increase in the number of tax payers by 150,000, compared to the previous year looks contradictory. But to go by the observation of an official of the National Board of Revenue (NBR), two factors were responsible for this seemingly irreconcilable development. Those are: a) a large number of moneyed people are on the run for political reasons and b) an overwhelming majority of the individual tax returnees took advantage of submitting tax returns showing zero income. About 60-70 per cent of the taxpayers submit such zero-income returns each year. This year more undeserving candidates may have done so, courtesy of the online-submission facility. But it is gratifying to know that the base of tax returnees has expanded substantially, indicating at least a growing interest among the population for payment of tax.

Against this positive development, though, what exposes the inadequacy of the NBR initiative is the wide gap between the government demand for tax collection and the organisation's delivery. Until December, 2024, the NBR revenue accumulation fell short of the target by Tk 577.24 billion. Similarly, the mobilisation of the domestic revenue in the first half of the FY 2024-25 turned out to be lower than the amount of the same period in the previous fiscal. Its collection of Tk1.56 trillion in revenue against a target of Tk2.14 trillion in the same period can neither be helpful for the next national budget nor satisfy the IMF which has strings attached to the US$4.7 billion loan it has sanctioned for the country. The excuse that in a turbulent year, a dip in tax collection is quite natural may not explain the shortfall. Income tax and customs duty have reasons to fall for reasons understandable. But when value-added tax also registers a slide by 5.45 per cent in the half yearly tax mobilisation, it indicates a deeper malaise. The malaise concerns evasion of government duty.

How this may happen is best exemplified by the price differences of the same items between super stores and ordinary groceries. For example, a kilogram of milk powder or Quaker oat at a super store costs a consumer the price printed on the packet or container plus the regular VAT while at a grocery the same is available at a discount of more than Tk100. Thus the price difference for milk powder and oat between the two types of outlets varies between Tk 50 to Tk 150 respectively. Here is a missing link in the business transaction and VAT collection. These problems can be overcome by introducing barcode and QR (quick-response) code even at the grassroots level of retail transactions.

Finally, the NBR's effort to bring more people under the tax net has been appreciated by experts in the field. But the drive has a long way to go before it yields expected results. When only 0.5 million of the total 5.0 million industrial units pay taxes, the NBR efforts leave much to be desired. Similarly, some businesses such as saw mills, brick kilns, outlets of construction materials, local wholesalers of grocery items and sweetmeat shops etc., in peri-urban and rural areas have turnovers many times more than the taxable limit but because of their informal character they can evade paying taxes. The NBR should strengthen its manpower and capacity to explore all such areas for tax collection.