NBR faces tough task to collect Tk2.34 lakh crore more by 2026 to meet IMF conditions

The revenue board will have to collect an additional Tk2.34 lakh crore to push up Bangladesh's tax-GDP ratio from 7.8% to 9.5% by June 2026, calculates the Policy Research Institute, stating that the target can only be achieved if policy reforms are carried out within the time frame agreed upon with the IMF.

"The target looks very challenging, but there is no alternative to that," PRI Executive Director Ahsan H Mansur has said, stressing the need for meeting the time-frame of pledged reforms.

Previous failures, however, have made him less optimistic.

The 2012 VAT law was not implemented as agreed, he said at a briefing on "Implications of IMF loan conditions on domestic revenue mobilisation" in Dhaka.

The pledged time-bound measures include adoption of tax revenue measures yielding an additional 0.5% of GDP in the FY2024 budget by June and risk management compliance at the NBR's customs and VAT wings by December this year.

Tax experts said raising the tax-to-GDP ratio to 9.5% in three years and other structural revenue reforms are possible.

Md Alamgir Hossain, former member of revenue board's tax policy, said the government aims to raise the tax-to-GDP ratio to 17% by 2030. In line with it, the International Monetary Fund (IMF) mentions achieving the 9.5% tax-GDP ratio by 2026.

"I think the target set by the fund will accelerate the revenue collection," he told The Business Standard.

Noting the revenue board's already completed reforms, he emphasised upcoming agenda including digitalisation and integration of revenue collection.

However, Md Farid Uddin, a former member of the national revenue board, said reforms are not possible within the stipulated time as the board is too weak to digest the changes.

"The VAT law is distorted. Tax law and customs law is not yet passed. Talks about automation ongoing for years, without significant outputs," he added.

He said loan instalments of the fund can get stalled if the government fails to carry out major revenue reforms. "This had happened to some other countries earlier."

The revenue board set the collection target at Tk3.70 lakh crore for FY23. The PRI said it had prepared the projection after estimating the collection at around Tk3.45 lakh crore this fiscal year.

The PRI said the tax to GDP ratio was 7.8% in FY22 as revenue collection stood at around Tk3 lakh crore.

In response to Bangladesh's loan proposal, the IMF approved a $4.7 billion credit support in January this year. The lender has already released the first tranche of the loan package.

Referring to the IMF revenue target, the organisation said Bangladesh will have to increase the tax-to-GDP ratio by 0.5% to 8.3% in the 2023-24 fiscal year. Revenue collection in the current fiscal could be around Tk 3.45 lakh crore.

To meet the IMF goal, the revenue board will have to collect Tk4.10 lakh crore in FY24, Tk4.84 lakh crore in FY25 and Tk5.80 lakh crore in FY26, according to PRI projections.

In other words, the revenue board will have to post an average of 20% growth per year. Overall growth will have to be around 78% by June 2026 compared to revenue collection in FY22.

However, revenue collection has increased at an average 14% in the last five years, which notes that attaining the high growth target will be very challenging.

Ahsan H Mansur said, "The situation will worsen if the target is not achieved since we have no other options."

An observation of revenue collections in the last five years shows that the tax-to-GDP ratio is on the decline.

In response to a query by journalists, Ahsan H Mansur said Bangladesh previously had an IMF loan programme paused as the country could not implement the value-added tax (VAT) law.

"Political economic considerations have largely stalled the revenue reforms. In the absence of political directives, the VAT law could not be implemented in 2012," he commented.

MA Razzaque, research director of the PRI, said the IMF revenue target is not challenging as the government's 8th Five-Year Plan projects a higher tax-to-GDP ratio by 2026.

He said it is possible to increase tax contribution to the GDP by about 5% by abandoning tax exemptions, scaling up tax compliance and short-term VAT reforms.