IMF Target: Where will NBR find an additional Tk66,900 crore? The answer could be govt entities

Borrowing from someone often comes with strings attached, and the International Monetary Fund (IMF) is no exception. 

In a bid to restore discipline in the money market and boost revenue generation, it has set six new benchmark conditions for Bangladesh, encompassing performance in three areas – performance criteria, indicative targets and benchmark conditions.

The evaluation of performance under the new conditions will take place in May during the upcoming review of the 42-month programme. It is anticipated that Bangladesh will receive the third instalment from the IMF at that time.

As a result, one of the main goals for Bangladesh before the next loans from the IMF will be the additional revenue generation of Tk 66,900 crore by June next year. 

But the question remains, how can Bangladesh generate such a huge amount of additional revenue within such a short period? 

Even if we register many new taxpayers overnight, meeting the revenue target by June looks unattainable. This is because these newly registered taxpayers will only file their tax returns after the specified timeframe

Dr Abdul Mazid

This challenge is further magnified by the persistently low level of revenue generation in Bangladesh, exemplified by only 1.4% of people filing tax returns in FY 2021-22. Overall, the National Board of Revenue (NBR) failed to hit the tax collection target for the last 11 consecutive years. 

In FY 2022-23, the revenue collection target was Tk3.70 lakh crore. According to NBR's provisional account, Tk3.25 lakh crore in revenue has been collected. Despite revenue generation growth of 8.12% compared to the previous financial year, there is a shortfall of around Tk44,000 crore in the revenue collection target. 

As things stand, encouraging more people to file tax returns remains the biggest challenge for Bangladesh to boost revenue. 

However, registering more people to file tax returns alone will not enable the country to meet its target within the given timeframe. People's hesitancy to comply with tax filing obligations can't be overcome without substantial reforms in the country's tax structure.

"Even if we register many new taxpayers overnight, meeting the revenue target by June looks unattainable. This is because these newly registered taxpayers will only file their tax returns after the specified timeframe," explained Dr Abdul Mazid, a former secretary to the Bangladesh government and former chairman of the NBR. 

So, according to him, the primary focus at this moment should be on collecting a 'fair' amount of taxes from the taxpayers who are already registered.

In addition to that, he also underscored the need to recover the massive amount of revenue held up by various institutions, primarily government entities.

The NBR has disclosed that around Tk 25,000 crore of value-added tax (VAT) alone is yet to be recovered, with nearly Tk 24,000 crore owed by government entities.

According to sources, during a visit to Dhaka last October, an IMF team raised questions about strategies for recovering a significant amount of revenue held up with Petrobangla during a meeting with the NBR.

According to the NBR, the outstanding VAT with Petrobangla, the oil, gas, and mineral corporation of Bangladesh, is over Tk22,000 crore.

In addition to Petrobangla, 28 government entities owe the NBR.

These entities include the Civil Aviation Authority, Chattogram Port Authority, Standard Asiatic Oil Company, Meghna Petroleum, Uttara Regional Passport Office, Mymensingh Regional Passport Office, Jashore Passport Office, Bangladesh Services Limited, Pragoti Industries Limited, and several municipalities across the country.

"Our main priority should be to recover this money as soon as possible," said Dr Mazid, suggesting that when government institutions comply, it also serves as an encouragement for others to follow suit. 

"Furthermore, addressing the pending cases at the earliest is also essential," he added.  

Notably, another Tk 21,600 crore is tied up in nearly 10,000 pending cases. This backlog grows steadily as new cases outnumber resolved cases, posing a continual obstacle to revenue collection efforts.

It has been reported that the National Board of Revenue (NBR) will also adopt a tax compliance improvement plan covering VAT and income taxes.

By June next year, the finance ministry will publish an updated medium-term debt management strategy covering three years starting from the current fiscal year of 2023-24.

However, the former NBR chairman holds the opinion that the government should not merely set targets and instruct the NBR to achieve them.

"Instead, the government should consistently consider revenue targets when making economic decisions. Suppose the country's economy is not in a robust state, and there is a decline in the purchasing power of the general population along with reduced imports. In that case, it will impede revenue growth," said Dr Mazid. 

He also identified tax exemption as a key factor contributing to Bangladesh's low revenue. "The people with more money should give more tax. But if we keep exempting their tax, then the economy can never be stable."

Dr Mazid added that tax exemption for megaprojects is also a concerning issue, which is decreasing our tax-GDP ratio. He also cited the examples of neighbouring country India, where such practices have long been overhauled. 

"The costs associated with megaprojects should be factored into the overall calculation. It should be a standard principle that regardless of the nature of the activity, taxes must be paid. However, currently, consultants and construction companies involved in megaprojects are benefiting significantly from substantial tax exemptions, and this comes at the nation's expense," he explained. 

NBR officials informed the IMF officials during their October visit that the revenue loss due to exemptions would be more than 10% of the loss incurred in FY23. Additionally, they noted that the revenue loss was 34% higher than the amount incurred in FY22.

As per NBR officials, the IMF proposed additional reductions in the tax exemption facility to enhance revenue generation in alignment with the criteria outlined in the loan agreement.

Despite the notion that the government may find it relatively easy to implement the benchmark targets since they involve mainly paperwork, Dr Mazid concluded with a cautionary note.

"Getting away with only paperwork should never be an option. These numbers mirror the current economic condition of our nation, and instead of just showing the improvement on paper, we should have to improve them in reality."

Jannatul Naym Pieal is a journalist, Illustration: TBS