Next budget: Tight revenue situation  

Shamsul Huq Zahid       | Published: April 29, 2018 22:10:41


The process of making the national budget for the next financial year is already on. People at the Ministry of Finance (MoF) would soon burn midnight oil to locate sources of revenue essential for bankrolling the budget, particularly for an election year.

But, as far as revenues are concerned, the situation appears to be tight for the government. When Finance Minister AMA Muhith had set a tax revenue target at Tk 2.4 trillion for the current fiscal, most people described the target ambitious. And they have proved right. The head of the National Revenue Board the other day said that there could be a tax revenue shortfall of around Tk 300 billion during the current fiscal.

However, the shortfall has not troubled the government since both recurring and development expenditures have been well below their projected levels.

But the government can afford lowering its spending on neither of these areas as there would be more than usual demand on resources in an election year.

Moreover, for the sake of maintaining the pace of economic growth required for attaining the middle-income country status by 2024, the government has to be particularly focused on development priorities. It would be, thus, interesting to watch how the Finance Minister fulfils all the demands without stoking up inflation.

What is, however, important for the government is the mobilisation of enough revenue. There has to be matching revenue growth to bankroll an ever-increasing size of the budget. But that is the area where authorities concerned do face enough troubles.

The government does need to beef up its revenue earning now more than any time before side by side taking policy measures to bring back investment confidence among the private sector entrepreneurs. Equally important will be the restoration of discipline in the banking sector and greater improvement of physical infrastructure.

If investment from both domestic and foreign sources flows in regularly, naturally, there would be scopes for mobilising increased volume of revenue.

The government does need to have more domestic revenue, at least, for a couple of reasons --lacklustre growth of export and remittance earnings and possible cut in the inflow of soft loans from the major development partners. The global economic outlook remains sluggish, meaning, poor chances of export revenue and remittance growth in the near terms. In the event of the country attaining the much sought-after middle-income country status, the development partners are unlikely to offer soft loans to bankroll its development projects.     

The main reason for slow growth of government revenue has been the greater dependence on a limited number of sectors, namely, telecom, cigarette, real estate and gas. There is no indication that there would be any change in the revenue collection scenario in the near future unless something drastic is initiated.

But for the greater interest of the country's economy, the government's revenue basket needs to be expanded. As far as existing rates of different types of taxes are concerned, there is little scope to push the same further up barring certain tobacco products such as bidi, gul and zarda. The government could also achieve the twin objective of earning additional revenue and reducing cigarette consumption through the enhancement of minimum price of cigarettes and bidis and application of the same principles while levying tax on both the products. 

It has, however, become imperative for the government to reduce tax rates in some areas. The corporate tax is one such area. Businesses have been making demand for long to this effect. The reduction in corporate tax rates is essential to boost investment, both local and foreign. The extent of tax benefit given to listed companies needs to be increased and made equal for all. Listed companies belonging to any particular sector/s should not be discriminated against as far as tax rates are concerned.

The corporate tax reduction, if put into effect, will certainly affect the size of the government revenue, to some extent. But the loss could well be compensated for by expanding tax revenue basket and ensuring greater tax compliance.

Policymakers and others concerned, from time to time, have also underscored the need for enlarging the sources of tax and ensuring greater tax compliance. But nothing substantive has been achieved in both the cases.

Tax revenues from major sectors such as tobacco, telecom, gas and real estate have almost reached the point of saturation. If squeezed further, not much would come out of those. It is time to concentrate on some other emerging sectors such as cement, consumer goods and service organisations of varying sizes. Moreover, the culture of extending tax exemption beyond any logical and justified ground needs to be done away with for the sake of revenue mobilisation.

Moreover, corruption, inefficiency and lack of seriousness are among the major reasons behind the low rate of tax compliance in the country. The annual tax revenue collection could go up several times more than what is earned now if potential areas of taxation are tapped and full payments of taxes by existing sources ensured. However, meeting that objective would require a painful reform of the tax administration. Relevant people in the past talked about necessary reforms. But they did little to carry those forward.

zahidmar10@gmail.com

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