NBR likely to slash tax exemptions in next budget

The authorities are planning to scale back tax exemptions for sectors like ICT, power, charity and fisheries in the upcoming budget after flagrant abuse.

The National Board of Revenue, or NBR, has uncovered the evidence of abuse in the blanket tax waiver facility offered to a number of "priority" sectors.

The direct tax wing has recently initiated the move with instruction from the board chairman Abu Hena Md Rahmatul Muneem.

There is no data on the loss of revenue due to tax exemptions and the outcome of the tax benefit.

The Bangladesh Bank policy analysis unit conducted a study in 2006 on tax expenditure.

The tax expenditure refers to the opportunity cost of taxing at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, referral credits etc., to the taxpayers.

The International Monetary Fund, or IMF, has initiated a move to assess the tax expenditure in Bangladesh.

An IMF mission will conduct 'Bangladesh tax expenditure assessment' during its visit in the country from March 8 to 19.

The mission would hold meetings with the finance division under the ministry of finance, NBR, Bangladesh Investment Development Authority, KPMG, PwC, E&Y, the World Bank, bilateral donors working on taxes, Policy Research Institute, or PRI, and other relevant organisations.

It would share initial results and feedback with the macro-economic wing of the ministry of finance.

After completion of the mission, it will hand over a draft report and give a presentation on tax expenditure of Bangladesh to the ministry.

The IMF delegation will also hold a workshop on 'tax expenditures' for the tax officials on March 9, 2020.

To take preparations for the IMF meeting, the NBR has already asked its field offices to furnish data of the volume of tax exemptions in their respective tax zones, officials said.

The IMF mission would review the corporate and individual income tax expenditures, according to the meeting schedule.

Corporate income tax expenditure is considered higher in Bangladesh due to a wide range of tax exemptions on a wholesale basis for some sectors.

The actual rate of taxes for many corporate sectors, except for banks, is less than 4.0 per cent, although applicable tax rate is 35 per cent to 40 per cent.

However, those sectors have higher contribution to gross domestic product, or GDP, not to the tax revenue.

An analysis of income tax wing has found some 34 statutory regulatory orders were issued during FY 2018-19, after passage of the budget to offer tax waivers. Of the tax exemptions, some 20 regulatory orders offered tax exemptions to charities.

PRI executive director Dr Ahsan H Mansur said each of the orders offering waiver must have the figure of revenue loss to assess the volume of tax incentives.

The policy makers clap in parliament like 'fools' after offering tax exemptions to a sector without knowing its impact, he said.

"All of the tax exemptions should be given through budget, not issuing SROs after the budget," he said.

During its visit, the IMF mission will hold meeting on VAT and customs duties exemptions and its concessionary rates.

A senior official of the VAT wing said the scope for tax exemptions and concessionary rates increased with the introduction of new VAT and Supplementary Duty Act from July 1, 2020.

Businesses having less than Tk 5.0 million annual turnover are exempted from the payment of VAT under the new law, he said.

According to the meeting schedule, the IMF will also review the tax incentives and its relevance for businesses, tax incentives and tax policy issues in Bangladesh, incentives for economic zones, etc.

An analyst said there is no study yet on the tax expenditure of the country.

Senior research fellow of the Center for Policy Dialogue Towfiqul Islam Khan said output analysis of tax exemptions should be done before offering the benefit in the budget.

"It's a paradox in the country where tax-GDP ratio is one of the lowest in the fastest-growing economy," he said.

Many tax exemptions are offered on an ad-hoc basis for a company or a single project rather than having any strategic approach, he added.

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