On IMF call, NBR plans big for a modern tax system

In line with the reform agendas of the International Monetary Fund (IMF), the National Board of Revenue has initiated programmes aimed at modernising and streamlining the tax system.

One key reform being proposed is the revision of customs law, as the revenue board is committed to making these changes and has already submitted the proposed law to parliament.

In addition, the revenue authorities are set to implement a Medium-Term Revenue Strategy by mid-2024 and will establish a central risk management unit (CRMU) to better manage and mitigate potential risks.

The IMF noted the revenue agendas after recently approving a $4.7 billion credit package to Bangladesh, and tax officials and experts who have been advocating the changes said the agendas are crucial for improving tax efficiency.

They said implementing these reforms will not be a herculean task for the revenue authorities, yet it will be challenging in many areas such as withdrawing tax exemptions and increasing the tax-to-GDP ratio by 0.5 percentage points by next year.

Officials have also acknowledged that this will require significant effort and commitment from all stakeholders, including the government, taxpayers, and the revenue authorities.

Currently, there are 8.6 million registered taxpayers (Taxpayers Identification Number holders) in the country. The authorities said it will be increased to 10 million by 2026.

With a deadline of 2026, revenue officials said they are installing 3 lakh electronic fiscal devices which will fetch an additional Tk10,500 crore in revenue and help ensure businesses hold a cleaner balance sheet.

The IMF prescribed cutting sales of savings instruments by a quarter. The sales have already declined by 70% compared to 2019.

The Washington-based multinational lender also talked about strengthening information sharing between the income tax, value-added tax (VAT), and customs wings of the revenue board. This topic has been discussed for a long time but has not been implemented yet.

The fund's revenue targets include releasing revenue data for each month within the next six weeks. Though the board generally publishes the data on its website, some publications often delay up to one year.       

Pradyut Kumar Sarkar, a member of NBR's income tax wing who is now on his post retirement leave, said the IMF's reform agendas are not so difficult as some have already been implemented.

"But reducing exemptions will not be possible overnight. And raising the revenue as per the target is a big challenge," he told The Business Standard.

Revenue contribution to the country's GDP (tax-to-GDP ratio) has been on the decline for the past few years. But the revenue board needs to collect Tk4.10 lakh crore in FY24 with around 19% revenue growth to achieve the IMF target.  

Besides, it is not possible to come out overnight from tax exemptions  that have been enjoyed by both the public and private sectors for years.

MA Razzaque, director of the Policy Research Institute (PRI), said, "Most of the IMF's reform agendas are not difficult to achieve. But revenue collection will be the biggest challenge to increase 1.7% of GDP over the next three years."

Pradyut Kumar Sarkar noted that the rate at which revenue collection is targeted to grow will be very challenging. 

"Besides, it will be challenging to cancel the exemptions overnight," he said, adding the economy enjoyed the trickle-down effect of the tax expenditure.

In 2021, a study by the NBR found that the government provided tax exemptions of around Tk2.5 lakh crore to facilitate growth in different sectors in FY20. It realised Tk2.18 lakh crore in revenue that year.

Of the total exemptions, Tk46,755 crore was exempted for importing raw materials, capital machinery, and other goods while Tk1,51,738 crore was waived against bond facilities for export-oriented industries. VAT and income tax exemptions amounted to about Tk50,000 crore.

According to the IMF, Bangladesh's tax-to-GDP ratio in FY22 is 7.8%. In the last few years, this ratio has been declining instead of edging up.

In a pre-budget discussion on Thursday, NBR Chairman Abu Hena Md Rahmatul Muneem said he is not worried about the tax-to-GDP calculation of the IMF. 

"We are bringing the benefits in a different way against the exemptions we are offering now," he commented.