Revenue reforms not just because of IMF, but essential in their own right
But the planned reforms should have been implemented much earlier and there have been no significant actions have been taken so far
We have information indicating that the government plans to undertake revenue sector reforms, including reducing tax expenditures, in the upcoming fiscal policy, aligning with the International Monetary Fund's (IMF) recommendations.
These reforms are not merely because of the IMF's suggestions but are essential in their own right and should have been implemented much earlier. Despite this, no significant actions have been taken so far.
For a long time, the government has been granting extensive exemptions to certain sectors, some of which contribute minimally to the economy and employment generation. Additionally, some local industries have benefited from high protection due to high tariff walls on imports of similar products, leading to an anti-export bias.
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As a result, these sectors remain non-competitive in the export market. Maintaining such a policy indefinitely is not advisable, as it creates the wrong incentives.
Due to the high exemptions for certain sectors, the government is losing revenue on the one hand, while consumers are also disadvantaged as they have to pay higher prices due to high import tariffs on the same products. Besides, there are allegations of misuse in this area. Therefore, the government needs to gradually reduce these exemptions.
I believe that reducing tax exemptions would not hurt exports; instead, it could make them more competitive in the long run.
Moreover, the digitalisation of tax, value-added tax (VAT), and customs procedures has been a long-discussed issue. There is little time to waste in automating the National Board of Revenue (NBR) to ensure compliance, which is one of the reasons for the country's low tax-to-GDP ratio.
Therefore, it is crucial to implement sustainable, effective, and comprehensive automation, as well as establish inter- and intra-agency connections within the government, in a short time, to enhance the tax-to-GDP ratio.
However, some of the NBR's actions are not logical. Bangladesh is one of the highest-taxed countries for the mobile phone sector, with taxes amounting to about 60%, including corporate taxes and tariffs on talk time and internet services. There is also a discussion about further increasing tariffs on talk time and the internet, which would be illogical and undermine the sector's growth. This is considered a very important sector for revenue, and it would not be the right decision to cripple it.
Other issues being discussed in fiscal policy would mostly affect the middle and lower-middle classes. People in the country have already been facing high inflation for over two years. To protect them from high inflation, the government needs to implement both fiscal and monetary measures. This includes continuing the policy rate hikes that have already begun, with further increases likely needed.
Furthermore, the budget should include support for the basic food supply for one crore households and, if possible, extend it.
Dr Ahsan H Mansur is the executive director of Policy Research Institute (PRI) Bangladesh.
