Make tax policy that helps SMEs, women: Experts

The existing tax policy in Bangladesh has been designed with large businesses in mind and it falls short in supporting small entrepreneurs, women, and fostering entrepreneurship, experts have said.

They have called on policymakers to create income-generating policies that target a wider segment of the population, including a significant number of women.

The discussants emphasised the need for a more equitable tax system, one that is friendly to small and medium-sized enterprises (SMEs), with simplified regulatory compliance and an economy that is gradually formalised.

They also stressed the importance of effective automation, fair enforcement, and a system for swift and hassle-free refunds of advance taxes.

This approach could bring more people into the tax net, raise the country's tax-to-GDP ratio, and address the challenges associated with transitioning out of Least Developed Country (LDC) status by 2026.

The experts raised these concerns during a roundtable discussion titled "Taxation for a Resilient Economy Post-LDC Graduation", organised by the United Nations Development Programme (UNDP) Bangladesh at The Business Standard conference room in the capital yesterday.

Sharmind Neelormi, who delivered the keynote presentation, pointed out that government tax exemptions mostly benefit large businesses, particularly those in sectors requiring heavy investment. She highlighted that women typically participate as labourers or small-scale investors rather than in large-scale investments.

Ferdaus Ara Begum, CEO of Business Initiative Leading Development, added that recent policy changes by the National Board of Revenue (NBR) have negatively impacted small entrepreneurs, particularly women.

She referenced a recent change that reduced the annual turnover threshold from Tk3 crore to Tk50 lakh, increasing the VAT rate from 4% to 15% for many entrepreneurs. Moreover, the reduction in the registration threshold from Tk50 lakh to Tk30 lakh has made it even more difficult for small entrepreneurs to navigate the tax system.

"Only 8% of companies registered with the RJSC pay taxes," she noted.

Bangladesh's tax-to-GDP ratio remains one of the lowest globally, and the experts pointed out the importance of enhancing internal resource mobilisation to support the country's transition out of LDC status in 2026.

The speakers also noted that the government grants more tax exemptions than it collects in revenue, urging an analysis of who truly benefits from these exemptions. They emphasised that only those in genuine need should be entitled to such benefits.

Stefan Liller, resident representative of UNDP Bangladesh said incentives and ease of regulatory compliance are key to the formalisation of small businesses.

"The tax system should be designed to create markets, encourage investment, and create a level playing field, which is essential for an inclusive economy."

He added that small and medium-sized businesses should be at the centre of any tax system, as they are the primary source of employment in Bangladesh.

He pointed out that approximately 70-80% of small businesses operate in the informal sector, underlining the need for a tax system that encourages their formalisation.

Liller further suggested that while a streamlined tax system, reduction in unnecessary exemptions, and gradual formalization of the informal economy are proven strategies to broaden the tax base, these measures alone are not enough. A tax system should also be fair and welfare enhancing.

Despite some progress, Bangladesh's tax-to-GDP ratio declined to 7.3% in the 2022-23 fiscal year, a figure significantly lower than its neighbours, such as India (12%) and Nepal (17.5%), Liller added.

Emergence of 5 Aug due to inequality, says commerce adviser

The interim government's Commerce Adviser Sk Bashir Uddin, who was the chief guest at the roundtable, said fair taxation is essential to implementing social justice.

He warned that without it, disparities and inequalities would persist, potentially leading to events like 5 August, which the nation seeks to avoid.

"We want equality to prevail and inequality to disappear. Structural reforms are necessary, particularly in the tax system, as this is the only way to establish social justice in my understanding."

He further said, "In the absence of social justice, we know the consequences. We've seen how the nexus of corrupt businessmen and bureaucrats has exploited national resources, putting us in difficult situations."

"Looking at our national debt, I believe our development aspirations should be funded by our own resources," he added.

Experts have raised concerns about obstacles hindering revenue system reforms. Despite the interim government's efforts, reform initiatives face significant resistance, primarily from three influential groups: bureaucrats, corrupt politicians, and businessmen.

Professor Dr Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), noted, "The alliance of corrupt bureaucrats, politicians, and businessmen has made it difficult to undertake necessary reforms."

He also pointed out resistance within the NBR, adding, "We have discussed reforms for a long time, but there has been internal resistance from the NBR itself."

Raihan emphasised that overcoming resistance to reform was a crucial challenge.

"Even the interim government is attempting reforms, but we need to be aware of where resistance will come from and how to address it."

Increasing women's income, wealth to bring them into tax net

The keynote speaker Sharmind Neelormi highlighted the challenges women face in becoming part of the tax net, noting that many women lack land and property ownership.

"If we want them to be part of the tax net in an equitable and effective manner, we must first provide them with resources that enable them to generate wealth," she said.

Dr Sayema Haque Bidisha, professor at Dhaka University, pointed out that many women work in the informal sector, often earning low wages.

"They lack opportunities to contribute to domestic resources or improve their own well-being or contribute to inclusive development," she added.

RMG workers' earnings and taxation

Selim Raihan highlighted the issue of women working in the readymade garment sector, which employs around 60% female workers. He questioned, "Have we truly made these workers taxpayers over the past three decades?"

He said, "Their wages are likely below the tax-free income level."

Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Secretary General Md Alamgir highlighted the trust gap and instances of harassment between the NBR and businesses.

He also addressed business owners' dissatisfaction with the non-refund of advance tax and the absence of automation in the system.

"While discussing with us, they [businesses] expressed their dissatisfaction about the harassment and the lengthy procedures taken by the NBR for assessment," he said.

He emphasised the need for NBR to initiate automation and introduce a single-window service similar to Singapore's single trade system. 

"With the introduction of a single window, businesses can submit their files online, make payments, and receive certificates online. But currently, they have to physically submit documents, and the process is very lengthy," he said. 

"Once this system is implemented, many of the facilitations from NBR will be ensured, and the trust deficit between the business community and the NBR will be addressed," he added.

Inam Ahmed, editor of The Business Standard, Dr Bazlul Haque Khandker, research director at the Policy Research Institute, Prof Abu Eusuf, executive director at RAPID, and Rawnak Jahan, director of Care Bangladesh, participated in the roundtable, among others, discussing ways to address the country's tax system challenges.