Digitalisation of taxation to generate 4 times revenue by FY30: CPD

Infographics: TBS

Through proper and sustained digitalisation of the taxation system, Bangladesh's revenue mobilisation could reach up to $167 billion by 2030, a fourfold figure from the current fiscal year's amount, according to a new study by the Centre for Policy Dialogue (CPD). 

Besides, the country's tax-to-GDP ratio could gradually more than double by 2030 from its current ratio of below 8%, said the study, unveiled at a dialogue today (19 May). The event was jointly organised by the CPD and the European Union at a hotel in Dhaka.

"If Bangladesh achieves full digitalisation by 2028, revenue mobilisation could reach $167 billion by 2030, up from $45 billion in 2023," Mustafizur Rahman, a distinguished fellow of the CPD, said while presenting highlights of the study.

However, if the current revenue collection process continues, the revenue would only reach $90 billion by that time, he added at the dialogue, titled "Digitalisation of the Taxation System in Bangladesh: The Next Frontier."

Mustafizur Rahman pointed out the challenges faced due to the lack of digitisation efforts by the National Board of Revenue (NBR). "Without proper inter and intra coordination, Bangladesh's revenue administration will not be able to achieve proper digitisation and automation."

To achieve digitisation, he suggested implementing a time-bound digitalisation and automation programme by 2030, which should cover the entire spectrum of digitalisation, ensure system interoperability, and maintain database software consistency.

Present at the event, former NBR chairman Muhammad Abdul Mazid said at least 25 projects aimed at digitising the revenue board have been undertaken since 1990. "However, continuity has not been maintained."

"Over the last decade, the NBR has undertaken several automation projects, such as the BITAX modules, a comprehensive tax automation initiative; the automated VAT administration system (IVAS), and the national single window. However, most of these projects have not been ultimately successful," said Mazid. 

Currently a number of VAT, tax and customs related works are going on by manual process, he said. "Businesses have expressed dissatisfaction with the NBR and other government organisations for failing to establish proper automation." 

Shams Mahmud, director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), pointed out how businesses in Bangladesh are facing harassment due to the country's lag in automation compared to other countries.

Mahmud, also a former president of Dhaka Chamber of Commerce and Industry, said, "digitisation and automation are very important for ease of doing business. The more automation there is, the easier it is to do business."

Fahmida Khatun, executive director of the CPD, presided over the dialogue, while State Minister for Finance, Waseqa Ayesha Khan, was the chief guest.

Fahmida Khatun said, "Bangladesh will graduate from least developed country status by 2026, and as a result, we may not be able to obtain foreign funds as easily and affordably as before. Therefore, we need to mobilise more domestic resources. For this reason, the NBR needs to enhance its administrative capacity through proper and sustainable digitalisation."

Emphasising the importance of tax justice, she said, "When people who evade taxes and launder money from the country receive benefits, it discourages actual taxpayers."

Former NBR member Md Alamgir Hossain questioned, "In the last ten years, there has been extensive discussion about automation and digitisation within the NBR. However, what is the actual result?"

He said Nepal has successfully implemented digitalisation in their revenue department, "while we are lagging behind." He added that strong political commitment is essential to ensure digitalisation in revenue administration.

Debapriya Bhattacharya, distinguished fellow at the CPD, said taxpayers fear the arbitrary use of power by tax authorities. He suggested that digitalisation could help ease this fear.

He also said there must be accountability in public expenditure. "Countries that ensure accountability in public expenditure encourage potential taxpayers to pay taxes."

Debapriya further said that those who do not pay taxes and syphon off money, have significant power, both politically and financially.

Abu Hena Md Rahmatul Muneem, chairman of NBR, acknowledged that many automation projects of the board have not been successful.

"We tried to identify the reasons and found that the lack of belonging was a significant issue, as most of the projects were implemented by foreign entities. Now we are implementing automation projects using our own experts," he added.

He highlighted several successful automation projects such as online return submission, e-tax deduction at source, document verification system, and automated office management system. He also mentioned successful VAT and customs projects that have been completed.

"Without full automation, we will not be able to collect the actual VAT and tax," he added.

The NBR chairman also said the NBR feels "helpless" due to being assigned significantly higher revenue collection targets. He said the targets set by the finance ministry do not consider the capacity of the NBR but are based on the previous year's targets.

"We have to work year-round to achieve these goals, leaving very little opportunity to think about innovation," he added. 

'Offshore banking policy a wrong signal'

BGMEA's Shams Mahmud expressed his dissatisfaction with the government's recent initiative regarding loan or fund collection from offshore accounts.

"This type of policy sends the wrong signal to honest taxpayers, as anyone can engage in capital flight and easily retrieve their money. Honest businesses like ours are discouraged by this policy," he added.

The Offshore Banking Act 2024 was passed in Parliament on 5 March. According to the law, the government will not impose any tax on the profits that foreigners or non-resident individuals earn in the offshore banking units of Bangladeshi banks.