Dhaka, Bangladesh (BBN) – The collection of tax is grossly increasing over the years in Bangladesh but at a slower rate, Unnayan Onneshan (UO) said on Saturday.

The independent think tank also said the gap between the Mid-Term Budgetary Framework (MTBF) and revenue collection is inflating resulting into fiscal deficit for which domestic borrowing of the government is increasing with the declined disbursement of foreign aid.

“The tax-GDP ratio is low, even in comparison to countries with similar level of economies. Fundamentally, the country’s tax system is inherently biased against the ordinary citizens,” it noted.

The independent research organization said in its November issue of ‘Bangladesh Economic Update’ that major portion of the revenue of the country comes from the collection of the revenue from Value Added Tax (VAT).

The rate of VAT in Bangladesh is 15 percent in fiscal year 2011 while it is
12.5 percent in India, 12 percent in Sri Lanka, 5 percent in Japan and UK and 10.25 percent in USA. The excessive rate of VAT in the country imperils the marginalized people.

“This enlists that the tax system of the country can impose the burden to the poor and there is widespread tax evasion and avoidance by the rich,” the report said.

The target of collecting revenue for FY 2011-12  (FY12) is BDT 1183.85 billion which is 27.51 percent higher than that of the target previous fiscal year, while the target of tax revenue is BDT 957.85 billion, non-tax revenue BDT 226 billion, NBR revenue BDT 918.70 billion and non-NBR revenue BDT 39.15 billion.

With the vertical drift of total expenditure over the years, the government has to depend on domestic borrowing for financing budget, the UO said.
The trend of domestic borrowing has changed drastically in FY 11 and in the current fiscal year, the government has borrowed BDT 110 billion from banks during July to October 2011 while the target of borrowing from banks is BDT 189.57 billion, the report said.

If the current trend prevails, in FY 15, net domestic borrowing might increase to BDT 351.55 billion with borrowings from banks at BDT 268.82 billion while revenue earnings might reach at BDT 1408.29 billion.

However, expenditure in FY 2014-15, might increase to BDT 2040.72 billion.

“Interest payment is increasing over the years. Domestic share of interest payments is much higher than that of international share of interest payments. The main reason of this is excessive domestic borrowing by the government in recent months,” it noted.

Domestic and foreign interest payment for FY12 is targeted at 91.79 and 8.21 percent respectively while in FY11, the domestic share of interest payment was 90.25 percent and the foreign interest payment was only 9.75 percent.

Previously, subsidy in agriculture and social sector hold the largest share. However, in recent years a different scenario is seen.

Though the rate of subsidy is following an upward trend over the years, the allocation of subsidy in agricultural and social sector in FY 12 has decreased while subsidy in power sector is increased.
If the current trend continues, total subsidy will increase to BDT 133.62 billion, while power and agriculture subsidy might stand at BDT 93.93 billion and BDT 32.11 billion in FY 16, the UO estimated.

Similarly, domestic borrowing is also on the rise and in FY 11, the amount of domestic borrowing was BDT 248.17 billion while it was targeted to be BDT 272.08 billion in FY12 that is 9.63 percent higher than that of FY 11.

The government has to repay the foreign debt which is also increasing over the years. In FY 12, BDT 130.58 billion is allocated to repay foreign debt that is 1.5 percent of GDP and 125.80 percent higher than that of FY 2010-11, the UO said.

“According to the optimistic scenario, public expenditure in the social sectors is increasing at a negligible rate which might push the marginalized people to severe risk,” it said, adding that public expenditure is increasing over the years but expenditure in social sector is decreasing.

BBN/SSR/AD-26Nov11-2:33 pm (BST)