Accountability in utilising resources is crucial for higher revenue mobilisation
The unreal target for revenue mobilisation has made the target numbers provided in the national budget unreliable and less authentic. For several years, the revenue targets are set so high that they remain beyond the capacity of the National Board of Revenue (NBR) to achieve, given current institutional and structural circumstances. Due to the ongoing Covid-19 pandemic, the task has become much more challenging, as economic activities have dampened and incomes of individuals and businesses have eroded. Since revenue income is a major source of domestic resource mobilisation, which is used to finance budgetary expenditures, lower resources lead to the risk of reduced budget implementation. The other sources of income are borrowing from the banking system, sale of national savings certificates, and foreign loans and assistance, which are used for financing the budget deficit. In the recently announced budget for fiscal year (FY) 2021-22, the budget deficit is set at 6.2 percent of Gross Domestic Product (GDP).
In the latest budget, revenue income that includes both tax and non-tax revenues is set to be Tk 389,000 crore, which is 11.3 percent of GDP. This is 10.7 percent higher than the revised budget of the outgoing FY2020-21, which was Tk 351,532 crore. In the latest budget, the revenue target has been set at Tk 330,000 crore. However, given the achievement record in tax collection during the 11 months of the outgoing fiscal year, the target for FY2021-22 is far too high and not likely to be achieved once again. Tax collection during July to May of FY2020-21 was short of Tk 44,361 crore compared to its revised target. The Centre for Policy Dialogue (CPD) projected that revenue collection by the NBR will finally add up to Tk 298,000 crore in the outgoing fiscal year. Therefore, to achieve the targeted revenue in the upcoming fiscal year, revenue mobilisation will have to increase by 30.5 percent. In view of the ongoing pandemic and subdued economic activities, this is an unachievable target. Also, in Bangladesh, resource mobilisation efforts have been lower than its targets for decades. One does not expect any radical changes in FY2021-22 either.
With revenue mobilisation targets in the current fiscal year remaining unfulfilled, the revenue-GDP ratio will be 9.9 percent, which is lower than the targeted 11.4 percent in the revised budget of FY2020-21. For a growing economy, low revenue collection obstructs the fulfilment of the objectives set in its short term activities, and medium and long term plans. Adequate domestic resources create fiscal space for the country to prioritise its spending in line with the policy priorities and political commitments of the government. At the current level of domestic resource mobilisation, implementation of those plans will be very tough.
On the other hand, as Bangladesh is going to graduate from the Least Developed Country (LDC) status, higher domestic resource mobilisation will become all the more important. Traditionally, a part of the budget is financed by foreign resources. However, foreign aid and concessional loans will not be available during the post-graduation period. Unless domestic resource mobilisation efforts are enhanced substantially, the country will have to resort to expensive foreign loans at the market rate to meet the resource gap, which could increase the debt burden.
It is ironic that in a country of about 165 million people, the number of taxpayers is only 2.5 million people, according to the latest budget announcements. The tax net is skewed, with a large number of eligible people remaining outside of it. Tax evasion and avoidance are problems across various income groups and economic sectors. Implementation of e-governance through the use of information technology has resulted in significant improvements in other countries, as technology could effectively capture earnings and expenditures of people. Technology can also help establish an easy tax collection procedure and increased compliance. Along with the full automation of the NBR, the need for more human resources and higher skills is also crucial to improving efficiency, especially given the size of the population and the prospective number of taxpayers in Bangladesh. Besides, the tax administration has to encourage people through a hassle-free tax system that will respect taxpayers and cooperate with them. There is a fear among the new and small taxpayers that once they are recorded, they will be targets of harassment.
In his budget speech, the Finance Minister referred to a number of reform measures on direct tax, value added tax and customs development. For example, the budget speech mentioned measures such as the upgrading of the Automated System for Customs Data (ASYCUDA), consolidation and integration of iBAS++ (Integrated Budget and Accounting System), electronic return filing, electronic tax deducted at source (e-TDS), automated customs risk management and introduction of an authorised economic operator system. However, the reform measures have been on the table for years. These measures should have been completed and operationalised long ago. The Finance Minister expects that the estimated revenue target of FY2021-22 will be possible through effective tax policy, efficient tax management and participation of all stakeholders, including businesspersons. How these are going to be implemented within a year is not comprehensible.
In addition to technology and skilled human resources, the motivation of taxpayers is also important. People would feel motivated to pay taxes, and contribute towards an effective resource mobilisation effort, only if the utilisation of resources is done efficiently and without corruption. If the taxpayers are not convinced about the quality of services they get from the government in return, and if they are not confident of the proper utilisation of their taxes, they will not feel motivated to pay taxes. Therefore, transparency and accountability of resource allocation for development are also pre-conditions for higher domestic resource mobilisation. How much of this resource is used for employment generation, poverty reduction and social safety are key factors for successful resource mobilisation efforts. Rationalisation of tax rates through a progressive tax system and incentives to all taxpayers should be in place to ensure tax justice.
Ideally, revenue mobilisation efforts are also a way to create a sense of participation among people in the development process of the country. However, many do not feel such a sense of participation in the current development mechanism, despite paying regular taxes. If the common taxpayers do not have the opportunity to create pressure on public representatives to be accountable and transparent on the use of their hard-earned money, the utilisation of these resources will not be beneficial to all.
Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue. The views in this article are personal.