Originally posted in বণিকবার্তা on 3 August 2023
Slow import, manufacturing squeeze domestic revenues
Revenue growth in FY23 below average, at 10pc
Decline in import of commodities and local manufacturing pulled Bangladesh’s domestic tax-revenue growth down the average, to 10 per cent, in the past fiscal, and such “setback” is predicted to prolong for poll unrest.
According to central bank data, the opening of letter of credit for import plummeted 27 per cent in the first ten months of the financial year 2022-23.
The National Board of Revenue (NBR) was lagging behind its target by Tk 384.97 billion in the last fiscal year, according to provisional data of tax-revenue collection by the NBR.
The target for entire year was Tk 3.70 trillion while the NBR collected Tk 3.31 trillion in taxes last year on account of value-added tax (VAT), income tax and customs duty.
Average collection growth was 12 to 14 per cent, against 15 per cent in the previous FY2021-22.
The shortfall is yet higher than the amount worth Tk 300 billion the NBR counted in 2021-22.
According to NBR data, the tax authority collected Tk 3.01 trillion worth of revenue in the FY22 against its target of Tk 3.30 trillion.
However, Ministry of Finance data on NBR’s revenue collection in 2021-22 show Tk 2.87 trillion as aggregate receipt.
A senior official of the NBR thinks the target of revenue collection has been set in ‘super- ambitious’ manner, resulting in a large deficit.
“A huge sum of taxes has been lying with the state-owned entities as arrears for a long period, which could have offset the shortfall in tax-revenue collection,” he says about another major drag on the tax-collection drives.
Though revenue-collection growth for FY2021-22 had been estimated 12.12 per cent, expected growth in receipt could be 29 per cent if actual tax collection is taken into consideration.
The VAT wing mobilised the highest amount of taxes worth Tk 1.25 trillion, with a 16-percent growth over the previous year, while the income-tax wing of the revenue board collected Tk 1.11 trillion and customs Tk 927.32 billion.
Revenue collection by the customs declined drastically to 3.70 per cent last year while income- tax collection grew by 10.19 per cent in direct taxing.
Shortfalls in revenue-collection target were Tk 114.76 billion in VAT wing followed by Tk 182.67 billion in customs wing and Tk 87.53 billion in income-tax wing.
Noted economist Dr Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), notes that the import of non-essential commodities declined due to government’s restrictive measures that in turn affected tax-revenue mobilisation.
“Inflation and exchange rates have contributed to the hefty growth in VAT collection,” the economist says about a blessing in disguise in government’s revenue receipt by dint of two macroeconomic adversities of the day worldwide.
The government also offered tax breaks on a number of essential commodities, including edible oils, last year to keep prices affordable on the domestic market, he added.
“Such sluggish trend in tax-revenue mobilisation would continue in the current FY due to ongoing economic and political unrest centering national elections,” he predicts, as the country’s political arena is already restive over the upcoming polls.
In such a situation, he fears, export order may divert to other countries.
Capital-goods imports declined 50 per cent, which indicates slow growth in manufacturing industries, too, he notes.
Bangladesh Bank data have it that LC opening against capital machinery had dropped by 56.91 per cent, industrial raw materials 31.85 per cent, consumer goods by 18.19 per cent, and machinery for miscellaneous industries by 45.59 per cent until April of FY 23.
Senior Research Fellow at the Centre for Policy Dialogue (CPD) Towfiqul Islam Khan terms the NBR target for FY2022-23 “ambitious”, given its capacity that perennially keeps under question.
“The economy struggled last year. It had implications for NBR revenue collection. The restrictions on imports constrained tax collection at the import stage. In contrast, the rise in commodity prices helped the collection of VAT,” he says about the apparent fiscal paradox.
The deficit also means this year’s revenue-collection target will be higher than the programmed level, but it was anticipated by the analysts.
“Nevertheless, the deficit in revenue collection will ultimately put pressure on government, which is struggling with limited fiscal space,” he said.
Besides paying attention to implementing the planned reforms, it will be critical for the government to emphasise curbing tax evasion in the current fiscal year, the policy analyst suggests.