Plan to raise fees of govt services to increase non-tax revenue

Amid slower-than-expected growth in revenue earning, the finance ministry looks for ways to raise incomes from non-tax sources by hiking fees and charges of government services to narrow the gap between the government's income and expenditures in the next fiscal year.

Ministries and departments have been requested to revise upward the service fees, which have remained unchanged for the past three years, finance officials said, referring to their recent meetings. A number of ministries and departments already have committees to re-assess the rates of fees and charges for services they offer people.

There are departments that have not raised fees for nearly a decade. If they revise the rates upward in the next fiscal year, people and businesses will be subject to higher costs for government services in FY25.

Non-tax incomes, the amount earned from dividend, interest on deposits, service fees and charges of state entities, are the second largest source of the government's revenue after taxes. But they make up just a little over a tenth of the total annual revenue, which is much lower compared to other developing and emerging countries.

Analysts say hiking rates alone will not help much to raise non-tax incomes, unless state-run commercial entities enhance their efficiency and government offices improve service delivery.

Otherwise, upward revision of government fees and charges will just add to the cost of people who already pay much higher in "extra" to get most of the public services such as registration of land and vehicles, or getting passports.

Are services too cheap to chase big target?

Revenue earnings from non-tax sources have remained far from potential, keeping the National Board of Revenue (NBR) under constant pressure to enhance tax and duty incomes at a time when dollar shortage slowed business activities.

Though the national budget sets targets for incomes from non-tax and non-NBR sources, all focus is mainly given on the NBR to earn more direct and indirect tax revenues.

Despite decline in imports and slower economic activities, the NBR recorded an impressive 15% growth in incomes from taxes and duties in the first seven months of the current fiscal year till January. But the target set for it for the whole year remains too big to achieve.

The share of non-tax revenues – incomes from dividend, interest on deposits, service fees and charges of government entities – remains stagnant in the range of 11% of total revenue incomes in Bangladesh, which are a major source of state coffers in other developing and emerging countries.

In China, non-tax incomes make up 40% of China's revenue, which is 27% in Malaysia and even 28% in the small economy of Bhutan.

The share of non-tax incomes in overall revenue in India remains close to that of Bangladesh. Still, massive growth of non-tax revenues appeared as a saviour as it helped India narrow its fiscal deficit when tax revenues fell in the current fiscal year.

In Bangladesh too, non-tax revenues surged on rare occasions, as in FY20 and FY21, on the back of transfers of idle funds from state entities and sales of spectrums to mobile operators. Deposits of surplus funds from government entities amounted to Tk16,000 crore in FY20 and Tk15,500 crore in FY21, accounting for more than a half and a third of non-tax incomes of those two fiscal years respectively.

But these incomes do not come every year, prompting the finance ministry to request other ministries to find ways to raise incomes from government fees and charges.

In response, various government departments revise their fees upward, which increase people's spending to get government services but help little to boost overall non-tax incomes. This is why the non-tax revenue target is slashed in every fiscal year.

Last year saw attempts to raise fees for parks, hospital outdoors and bridge tolls. Yet Finance Division officials are least hopeful of achieving the target.

For FY23, the target for non-tax incomes was Tk45,000 crore, which was lowered to Tk40,000 crore in the revised budget. Actual earnings amounted to about Tk38,900 crore.

The target for the current FY24 is Tk50,000 crore–- less than 7% of the total revenue target–-, which may be trimmed by Tk5,000 crore, given the slower economic activities due to elections, persistent dollar shortage and high inflation, officials anticipate.

However, non-tax incomes surged 64.5% in the first quarter (July-September) to Tk17,735 crore, making up over 18% of total revenues earned during the period. This might have encouraged finance officials to think about a target even higher, Tk55,000 crore, for the next fiscal year.

Automation of various services has also widened the scope for more earnings from government services, officials said.

Can non-tax income be raised?

Financial analysts also believe there are scopes to raise incomes from government entities and services, provided they improve quality of services and check corruption.

Though the rates for government fees and charges look low, service takers have to pay several times higher, they argued, stressing that state-owned enterprises, a major source for non-tax incomes, must enhance productivity, get rid of chronic losses and ensure financial transparency.

A senior Finance Division official claimed that state-owned entities have enhanced their capacity and people are now getting more services from the government offices due to socioeconomic progress. "As a result, non-tax incomes are expected to go up. Plans are there to hike existing cost of services or impose new fees for some services," said the official, who preferred not to be named.

Masrur Reaz, chairman of Policy Exchange Bangladesh, said lack of initiatives to improve efficiency in government services, check irregularities and find new sources are among reasons that limit growth of non-tax incomes. Countries like China, South Korea and the UK are earning more by enhancing service quality, he cited.

Interest contributes the highest to non-tax revenue, followed by administrative fee, dividend and interest income on deposits of state-owned companies, rent and lease from government property, according to central bank analysis.

Senior research fellow at the Centre for Policy Dialogue (CPD) Towfiqul Islam Khan said the leasing of government property should be more competitive to get fair rents, and state-owned commercial entities must run professionally and cut costs to become viable and generate more revenues. 

Departments of at least 30 ministries are the source of non-tax incomes from various services.  

The finance ministry is trying to generate more incomes from these sources for the next fiscal year.

Departments and ministries are responding accordingly. The road transport division has decided to collect tolls on four national highways and a committee has been formed to work on it.

The home ministry has formed a committee to assess scopes to review fees of services like passport and immigration, firefighting, drug control and prisons.  

The shipping ministry has decided to hike registration fees for deep sea fishing vessels, while the BRTA, BIWTC, BSTI are among the government establishments that are mulling enhancement of service fees.

Local government bodies are an important source for non-tax revenue from various services to citizens. In 2018, the local government ministry prepared a guideline for city corporations to raise tolls, fees and rents, at least by inflation rate annually. 

If the government services could be delivered to citizens fairly, without any form of harassment, people would be willing to pay even higher fees, says Zahid Hussain, former lead economist, World Bank's Dhaka office. 

There is potential for boosting non-tax revenue collection in Bangladesh and to make it happen, state commercial institutions must improve management efficiency and eliminate irregularities, while public services be delivered without hassles.

"Anyone will be happy to apply online for a passport and get it delivered at home, paying an even higher fee," the economist said, referring to the long wait in queues in front of passport offices.