Separation of NBR crucial to boost revenue collection: IMF

Infographic: TBS

Reform in Bangladesh's tax system, including the separation of the National Board of Revenue (NBR), is very crucial to boost revenue collection, a senior official of the International Monetary Fund (IMF) has said.

The IMF and the World Bank have initiated a joint effort to enhance Bangladesh's revenue mobilisation and separation of the NBR, Chris Papageorgiou, chief of the Development Macroeconomics Division in the IMF's Research Department, said during a virtual briefing with Bangladeshi journalists from Washington yesterday (28 June).

Responding to a question regarding the ongoing protests concerning NBR's separation, Papageorgiou said, "We are in discussions with the authorities. It's the Joint Revenue Mobilisation Initiative, which basically has the two institutions joining forces coordinating on four primary pillars on how to get the revenue mobilisation going."

When questioned about the feasibility of Bangladesh achieving the IMF's revenue target of Tk2.40 lakh crore by December amidst the current unrest, Papageorgiou said, "We recognise the difficult environment. The target was made to be ambitious but achievable."

He underscored that Bangladesh's tax-to-GDP ratio is among the lowest globally. "We are working with the authorities and other development partners to increase revenue mobilisation," he said, noting that the World Bank, the ADB, and other organisations have been working to boost Bangladesh's revenue collection under their programmes for the past one and a half years since the IMF's loan programme started. "Some of the reforms are critical," he stressed.

Papageorgiou identified two ways to increase revenue, one being a "mindset issue". He explained that public recognition of the authorities' serious efforts is crucial, and the authorities need to implement measures that yield tangible results from this seriousness. "We have close contact with the NBR chairman. He is constantly updating us about all of the reforms we are pushing."

He further commented, "Some of these reforms are very critical. This is necessary for some level of stability in the economy during the transition period." He cited increasing tax revenue, VAT harmonisation, and income tax exemption removals as examples of these critical reforms.

While positive progress was observed in the third and fourth reviews, he admitted, "Performance on the collection side is not encouraging. The authorities are making efforts, [but] some of the approaches come short. Revenue mobilisation is possible through the implementation of critical commitments."

Political uncertainty

Papageorgiou highlighted the uncertainties surrounding Bangladesh's transition to elections, describing them as "political, economic, domestic, and external". He noted uncertainties regarding how the elections will be conducted and how government changes will occur.

He mentioned that while many expressed interest in investing during Bangladesh's investment conference, they also voiced concerns about these uncertainties. He suggested that implementing critical commitments by the authorities could boost both foreign direct investment (FDI) and revenue earnings.

Exchange rate stability

Regarding the exchange rate, Papageorgiou said the Bangladesh Bank is currently following a "crawling peg" system, and a fully market-based exchange rate has not yet been implemented. "However, preparations are underway for a complete transition to a market-based system in the future, as an immediate full implementation could cause external sector shocks."

He described Bangladesh's exchange rate situation over the past five weeks as "very positive", noting its role in reducing instability in cross-border trade and remittances.

Subsidy pressure

Papageorgiou said the World Bank and the IMF are formulating a three-year plan to reduce subsidies in Bangladesh's fuel and power sectors, emphasising that these subsidies are creating pressure on the country's economy and GDP growth.

He identified three major sectors that require reform: the fiscal and revenue sector, the subsidy and the banking sector. He described the banking sector as "distressed", noting that providing capital to some banks is not a long-term solution. "Now is the opportune time for banking sector reform," Papageorgiou added.