Limit tax exemptions | The star of the day
Known known – this best sums up the prognosis of the visiting mission of the International Monetary Fund as it seeks to define the terms of the future loan of 4.5 billion dollars.
Take, for example, the prescription at the National Revenue Board yesterday on the second full day of staff mission meetings after arriving in Dhaka for a 15-day tour.
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The mission called for the reduction of tax exemptions, which include full tax relief, reduced rates or tax on only part of the items.
It is now well established that tax exemptions in Bangladesh are excessively high and need to be brought under control.
And yet, little has been done on this front over the years.
What’s worse is that the government has no idea how much the state coffer is being robbed for this act of generosity.
“There has to be a systematic estimate – we don’t have one,” said Ahsan H Mansur, executive director of the Bangladesh Policy Research Institute.
PRI did a study some time ago on the matter and found that 40,000 crore of Tk is lost every year. This amount would easily exceed Tk 60,000 crore now.
“If there’s no baseline estimate, we don’t know where we are,” said Mansur, a former IMF economist.
The ten-man IMF mission has now asked the BNR to do so, the Daily Star learned from those involved in the talks held yesterday.
“It’s an old story. The question now is who will do what and when,” said Zahid Hussain, former senior economist at the World Bank’s Dhaka office.
The NBR, however, is reluctant to claw back tax exemptions because it boosts GDP growth, according to people familiar with the discussions, who requested anonymity to divulge sensitive deliberations.
The IMF team also urged the BNR to increase its revenue – a long-standing Achilles heel of Bangladesh’s economy.
At less than 10%, Bangladesh has one of the lowest tax-to-GDP ratios in the world. And yet, little has been done to change the narrative.
A long term plan from the NBR on how it would improve its revenue was requested.
The mission, which will end its tour on November 9, also wanted a progress report on the various reforms undertaken by the BNR, in particular the automation of the tax administration.
“There have been no reforms – all efforts to that end have been in vain. The NBR has no interest in reforms. If you insist on reforms, they require more resources, when they are sufficiently staffed,” Mansur said.
The Washington-based multilateral lender has called for accelerating automation, another lingering issue.
“No reform can complete the finish line,” Hussain said.
The team wanted to know the status of the amendment of the Customs Law and the Income Tax Law, which were discussed in 2012 and 2017 respectively. The two draft amendments are at the parliament, NBR officials told the mission.
Similar observations were made by the team during its meetings with the banking division of the Ministry of Finance and the Bangladesh Bank.
They demanded a strategy document to reduce delinquent loans – another age-old problem in the economy – as well as a statute on the amendment of five financial sector laws, including the law on banking companies.
Their recommendations to move to a true market-based exchange rate, remove the dodgy interest rate cap and end the practice of reporting gross foreign exchange reserves have been made repeatedly now.
“These are all known issues. If the government is willing, they will find a way to introduce the changes,” Hussain said.
The team called for reducing the number of bureaucrats holding seats on the board of state banks and ensuring the autonomy of the BB.
“Forget about autonomy, central bank governors don’t exercise all the powers they currently have,” said Mansur, also chairman of Brac Bank.
The mission ordered a return to the old practice of issuing a monetary policy statement every six months and possibly increasing the frequency to quarterly.
A quarterly monetary survey will only be possible when the Bangladesh Bureau of Statistics starts publishing GDP data every three months, BB officials told the mission.
The team also wanted to know what steps were being taken to control inflation, which hit a 12-year high of 9.5% in August.
Inflation will be around 9-10%, according to BB officials.