NBR wants to come out of tax exemptions

The National Board of Revenue (NBR) wants to reduce tax exemptions significantly for various projects in public and private sectors. 

Instead, the revenue board has requested all ministries and divisions to take extra allocations from the finance ministry to pay tax, VAT and duty. To this end, the NBR on Thursday sent a letter to 281 organisations, including ministries, divisions and autonomous firms. 

According to the letter, tax exemption on various development projects is a major obstacle to increasing the tax-to-GDP ratio.

The NBR hopes that the country's tax-to-GDP ratio will be doubled if such taxes are levied instead of exemptions.

According to the NBR, the tax exemptions given in various sectors every year amount to around Tk250,000 crore.

"It [the letter] is a clear message from the NBR that it will not offer tax exemptions in the future," says a NBR official seeking anonymity. 

Agreeing with the NBR's move, Dr Debapriya Bhattacharya, an economist and public policy analyst, told The Business Standard that in the interest of tax collection, financial transparency and reduction of inter-sectoral inequalities, the wholesale tax exemptions should be abolished. 

After paying the tax money to the government coffers, if necessary, they can have additional funds allocated by showing it as expenditure, he noted.

The economist thinks that other projects and many groups are taking advantage of the facility.

Such tax benefits should be given to those in special needs, Dr Debapriya said.

The finance minister is also not in favour of such exemptions. In his budget speech for FY20, he said tax exemptions in various sectors would be avoided as much as possible. "We will refrain from issuing SRO [Statutory Regulatory Order] until it is an emergency, which will bring transparency in revenue management. The confidence of businesspeople in the government will also go up," he added.

NBR Chairman Abu Hena Md Rahmatul Muneem in different discussions also expressed his position against the wholesale tax exemptions.

The NBR conducted an internal study on exemptions during the preparation of the budget for the fiscal 2020-21.

The NBR estimated that the tax-GDP ratio was 9.9% in FY20, but it would have been 17.81% had the government not provided tax exemptions.

It said the government provided tax exemptions amounting to around Tk2.5 lakh crore to facilitate growth in different sectors in FY20. It realised Tk2.18 lakh crore in revenue that year against a target of Tk3 lakh crore.

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.

The findings were presented to Prime Minister Sheikh Hasina before the FY22 budget was placed in Parliament on 3 June.