Raising direct tax key to reducing inequality

It is possible to increase the personal income tax to 3.1% from the current 1% if all taxable individuals could be brought under the tax net, according to economists, as they noted raising the direct tax is a key tool to reducing the growing inequality and income gap.

They believe it is also possible to increase taxes by 2% of the gross domestic product if tax exemptions are excluded. 

But first of all, they called for increasing the number of registered taxpayers at a seminar in Dhaka on Saturday. 

The programme was jointly organised by the Research and Policy Integration for Development (RAPID) and the Economic Reporters Forum (ERF), while RAPID Chairman Mohammad Abdur Razzaque presented the keynote.  

He said Bangladesh's 9% tax GDP ratio – which is the lowest in the world – is due to the poor direct tax structure.

"The taxation needs a recast. Currently revenue measures include 65% indirect and 35% direct taxes. However, the government initiative to readjust direct tax to 70% and indirect to 30% is positive," he said in the keynote. 

Pointing out Bangladesh's growing inequality and low government spending compared to the GDP, he held low direct tax responsible for it.

The RAPID chairman said although direct taxes have increased in recent years, they are still very low in terms of GDP ratio and compared to Asian neighbours.

"The poor are paying the highest VAT in proportion to their income compared to the affluent people," he added.

Mohammad Abdur Razzaque said to achieve a high national growth and become a developed country, Bangladesh's revenue in proportion to the GDP needs to be 17% by 2030 and 21% by 2041. And a significant part of it must come from direct taxes.

He recommended the separation of tax policy and tax administration, and suggested allowing the policy department to function independently.

Terming the target of 70% increase in direct taxes "ambitious", former revenue board chairman Nasir Uddin Ahmed said there should be a specific timeframe for the taxmen as the revenue board has structural problems.

"Due to a political economy, the revenue board is lagging behind in collection. Political economy is the biggest obstacle to increasing revenue," he commented. 

"The board has to provide many sectors with tax exemptions. Besides, many of the lawmakers are now businessmen and they are also looking to take advantage of it. Due to these reasons, a whopping Tk2.5 lakh crore taxes are being exempted every year," he commented 

The former revenue board chairman called for reforms in revenue collections.

Additional Secretary of the Finance Ministry Kabirul Yazdani said the national budgets are small compared to the country's GDP. But even after that, the government has to take loans from domestic and foreign sources to meet the deficit due to low revenue collection. 

The solutions could be automating the revenue collection and opening a taxpayer service wing at the revenue board. 

He said the government is not getting the desired tax even from the housing sector and burgeoning businesses like Facebook, Amazon or foodpanda. Therefore, the tax policy should be overhauled.

Former Additional Secretary of the finance ministry Mohammad Yusuf talked about shaping a mass awareness to increase the number of total taxpayers. He said people will have to be convinced that if they do not pay taxes, the government will not be able to continue many facilities.

RAPID Executive Director M Abu Yusuf moderated the seminar, while revenue board Member Mahmudur Rahman, ERF President Sharmin Rinvi and General Secretary SM Rashidul Islam also spoke.