Revisiting non-tax revenue and tax policies
Non-Tax Revenue (NTR) is the recurring income earned by the government from sources other than taxes. Bangladesh, as a developing country, has been increasingly integrated with the global economy which influences tax performance and also fiscal discipline with a view to increasing self-reliance. A few pragmatic policy initiatives have resulted in improvement in the tax-GDP ratio. The main source of revenue generation is tax. Besides, there are a few non-tax sources like fees, charges, tolls, etc. Non-tax revenue is collected from dividend and profit, interest, administrative fees, penalty and forfeiture, services, rent and leasing, tolls and levies, non-commercial sales, defence, non-tax receipts, railway, post office department, T&T Board, and capital receipts etc.
The major components of revenues of Bangladesh are NBR Tax Revenue, Non-NBR Tax Revenue and Non-Tax Revenue (NTR). Tax-GDP ratio in the year 2014 was 10.4 per cent which is planned to be increased to 13.1 per cent in 2018 as per the 7th Five Year Plan. The NTR was 1.8 per cent of the GDP which would be 1.7 per cent in 2018.
It is a fact that the government's non-tax revenue is the second biggest source of funding of the budget. Therefore, if the license fees and other permission fees get reduced, the government incurs losses. On the other hand, if the fees get increased, the cost of doing business increases simultaneously through which businesses will face challenges. For this reason, other ways should be surveyed so that the cost of doing business does not increase and the businesses can get instant services.
If the government targets to increase the non-tax revenue earning, the process of issuing licenses and other permission should be transparent and well-timed. After the enhancement in September 2015, the business organisations were continuously demanding for reduction of trade licence fees and stopped renewing the licences. The local government ministry took a decision to reduce trade licence fees and issued a gazette on January 31, 2016. It was a very timely and corrective action for that situation by the government.
Trade licence (TL) is the first and primary need to start a business. Without it, it is not possible to start a business. There are 7.84 million entrepreneurs (established entities) in Bangladesh (BBS 2013). Presently, there are about 300 main types of licences and with sub-categories, total types are 602 licenses included in the recent gazette of January 31, 2016 by the LGRD ministry. Fees range from Tk 100-Tk 50,000. There are 19 types of trade licences for which fee requirement is Tk 20,000-Tk 50,000. Sixty types of businesses require fees Tk 5,000-Tk 20,000 while there are 398 types of businesses which require Tk 500-Tk 5,000 for licences. Licences require Tk 100-Tk 500 for small businesses under which 124 categories are included. Some of these businesses are taxi cab, baby taxi manufacturer, poultry farm (arot), butcher of a cow/ox etc. A rough calculation shows that in a year, total revenue of Tk 1.89 billion can be earned. This is a huge amount.
After 13 years in 2015, the trade fees were increased. The time gap is huge. Sudden changes like 400 per cent, 130 per cent and 187 per cent were not acceptable to the business entrepreneurs and the private sector. These created many hassles for both the parties. The new trade licence fees which range from 40 per cent to 110 per cent are to some extent logical and acceptable as the earlier ranges were about 200 per cent to 3,200 per cent. The business community is now ready to pay the fees willingly but the problem is 15 per cent value added tax on trade licence issuance and renewal fees. According to the office order of the Dhaka City Corporation, published on April 2, 2015 for issuance of trade licence and renewal of five regions and markets under the coverage of the Dhaka City Corporation there will be 15 per cent VAT on total cost which has to be provided under treasury challan. On the other hand, in the chapter 3 of the Import Policy of 2015-2018, there is a clause (31) through which for the first time 15 per cent VAT for all registered importers, exporters and indenters has been imposed. The above policy inconsistencies are the concerns of the private sector and may hamper the NTR. Cost escalation and same rate of new and renewal fees may encourage businesses to avoid renewal
In some cases, licence fees have been changed but in some cases, fees have been increased (recruiting agent) while in about 66.78 per cent licences (402 types out of 602), there was no change of fees in the revised circular of 2016. For example, the fees for pharmaceutical factory, tannery industry, cottage industry, book seller, vegetable seller etc. remain unchanged. Furniture is the case where increase is exorbitant. In case of wood/steel furniture, change is about 328 per cent; in case of branded furniture, for the first time trade licence fee has been introduced at the rate of Tk 20,000.
Changes have been made after 13 years. The last change was done in 2002. It is obvious that the charges would increase but had there been an appropriate frequency, it could be manageable for small entrepreneurs. These increases were not made in consultation with the private sector to prepare them to bear the burden of this cost. In the Trade Facilitation Agreement (clause 2.2), consultation with the stakeholders has been made compulsory. We need to have a legal and regulatory basis of these consultations. Categories and subcategories in businesses have been increased between 2002 and 2016. With the increase of business and industry, incomes from these sources have been increasing.
NBR Tax Revenue is collected by the NBR officials. They have got their own system and setup. On the other hand, NTR is collected by the administrative ministries/divisions through their organs. So the respective ministry/division is solely responsible for collecting NTR, reflected in their budget. What the Finance Division does is only compilation. The NTR to the budget is one of the lowest in Bangladesh.
In China, about 40 per cent of its budget money is coming from the NTR. The situation in India is almost close to Bangladesh while Malaysia and Bhutan are exceptions. These countries are collecting NTR to the extent of 27 per cent and 28 per cent respectively. Bangladesh is lagging behind in the field of NTR. Non-transparency and lack of appropriate frequency might be two of the reasons.
State-Owned Enterprises (SOEs) need to pay a certain amount of money to the government from their revenue/dividend surplus but in most cases, the government does not get the proper amount of subscriptions. In most cases, the organisations show losses by keeping their money as FDRs or other investments. There is no government regulation or policy for collecting the correct amount of money from the concerned SOEs. The corporations should have a sector-wise and revenue-wise plan regarding the amount,( e.g. from Tk 500,000, there will be 5-10 per cent ) to be paid to the government.
For marriage registration, definite amounts have been fixed by the government, such as, Union Parishad Tk 500 and City Corporation Tk 12,000 . Previously there was a fixed percentage on every marriage to be given to the government but now the situation has been changed and a definite amount has been fixed. The government should get about Tk 10 million-Tk 20 million each year but in reality the nika registrar is getting the money. The old system, which was used to prevail, could be re-implemented. The concerned authority may look into the issue. Appropriate frequency (that means 13 years' gap of increasing trade licence fees) is missing. Gradual increase could help the businesses to absorb the burden. In 2002 gazette for trade licences, there were 133 main categories, which have been increased to 300 in 2016. Sub category has been increased from 161 of 2002 to 302 of 2016.
There is absence of specific database of trade licences for registered businesses and thus no notification is sent to those who do not renew their licences on time. There is surcharge imposed without maintaining any guidelines. The NTR policy of other similarly placed countries of South Asia and ASEAN can be examined. Some policies prevailed in the past for SOEs can be revisited. Appropriate frequency of increase of licence/registration fees must be maintained. Many of the organisations may not like to go for renewal as new and renewal fees are the same. Renewal fees must be lower than the issuance fees, e.g., in case of IRC, ERC renewal is much less than the new one. There should be incentive for those who are regular in paying renewal fees.
Fifteen per cent VAT on importers, exporters, indenters and issuing licence/renewal is quite illogical and redundant. When a person is starting a business, he is already investing and paying different fees/charges. A businessman all over the year pays his taxes and VAT with production, raw material purchase, income and again renews the license. In that case, VAT on new and renewal is to be justified.
More areas should be found out in consultation with the private sectors. Surcharge acts as a penalty for business entrepreneurs and private organisations which are irregular and late in paying renewal /issuance fees. Discriminatory policies in imposing surcharge must be avoided.
The writer is CEO, Business Initiative Leading Development(BUILD)