Dhaka, Bangladesh (BBN) – The Unnayan Onneshan sees the tax collection and public expenditure, both in design and implementation level, is structurally biased against low-income groups, poor and marginalized section of the society.
The independent multidisciplinary think-tank said that in the income side, the net inflow of foreign aid has become nearly half of the total disbursement of loan and grants, because of lesser availability and high debt-servicing liabilities.
“The payment of interest and principal payment had emerged as the major head of expenditure in recent years because of short-sighted policy decisions by the government, and the fruits of such borrowing being distributed to a few, particularly in subsidizing quick rental power plants,” the Unnayan Onneshan said in its September issue of Bangladesh Economic Update, released on Saturday.
Explaining on the biased incidence of tax, the policy research organization said that expansion of tax burden in the form of valued added tax (VAT) which cuts across all sections of the society with same weight, irrespective of levels of income, is exerting pressure on the marginalized section of the society, while they are receiving lesser amount of public expenditure, making a system of perpetual inequality of burden and benefits.
The total amount of VAT earned was BDT 354.79 billion and the income tax was 283.46 billion in FY 2011-2012. The government is enacting laws for further expansion of VAT net in pursuant of the three year reform program articulated in the memorandum of economic and financial policy (MEFP) with the International Monetary Fund (IMF).
Referring to the miss-match between subsidies provided to the quick rental power plants and the tariff of the electricity at household level, the Unnayan Onneshan pointed out that a net of BDT 144.45 billion has been given as subsidies which is 7.53 percent of the total public expenditure while tariff rate at consumer level has been increased five times during the current regime. This too has been levied to meet the condition of the IMF, it added.
Disaggregating the composition of public expenditure, particularly in social sectors such as health and education, which have presumed equalizing effect, the organization revealed that the expenditure in these sectors have remained static over the years.
In FY 2011-12, education and health expenditure as percent of total public expenditure were at 11.63 percent and 5.07 percent respectively while these were at 14.30 percent and 5.87 percent respectively in the previous fiscal year. Targeted share of education and health expenditure in total public expenditure in the current fiscal year has reduced to 11.55 percent and 4.87 percent respectively.
Pointing out the avoidance and evasion of income tax, the Unnayan Onneshan said the incoherence of increase in land registration tax because of fixation of minimum allowable limit of sales price of land and the unmatched level of earning from income tax. Revenue earnings from registration went up by 284.75 percent in FY 2010-11 due to new price floor than that of FY 2005-06 while income tax increased only by 222.16 percent during the same period.
The income tax net is not increasing at a deserving level, as the research organization refers to NBR statistics of the total number of the holders of tax identification numbers (TIN) being only 3.5 million in a population size of 160 million and of which only 1.1 million people have submitted their tax returns.
As regards the flow of foreign aid, the research organization added that the outflow has increased. In FY 2011-12 (July to March), total disbursement of loan and grants was USD 1407 million, of which total grants was USD 542 million and loan was USD 955 million, and the actual availability stands at only USD 696 million, after payment of principal and interest payment.
The actual domestic borrowing and interest payment in FY 2011-12 were BDT 209.95 billion and BDT 197.96 billion while the target in the current fiscal are BDT 334.84 billion and BDT 233.02 billion.
“The government is depending on either domestic or foreign loan due to meeting the rising gap between total revenue collection and total expenditure,” it noted.
In FY 2012-13, government has targeted to borrow BDT 125.40 billion as net foreign loan, which is 69.48 percent higher than that of FY 2011-12. The increased borrowing is squeezing government expenditure on social spending, it added.
In FY 2011-12, collection of income tax was BDT 283.46 billion against BDT 354.79 billion from VAT. In budget 2012-13, government has targeted taxes on income and profit at BDT 353.00 billion as well as VAT at BDT 404.66 billion which is respectively 24.53 and 14.05 percent higher than that of the FY 2010-11.
“The revenue-GDP ratio in Bangladesh is still quite lower than any other South-Asian countries and developed countries as many tax payers do not want to pay their taxes or try to avoid the payable income taxes,” the Unnayan Onneshan said.
Revenue-GDP ratio of Bangladesh was only about 11.2 percent in 2011 while it was 12.5 percent in Pakistan and 21 percent in Nepal.
BBN/SSR/AD-29Sept12-12:40 pm (BST)
