The government is likely to set Tk 6 lakh crore revenue collection target in the forthcoming national budget, relying on higher indirect taxes, also known as regressive taxes which affect the low-income group the most.
Finance ministry officials said that half of the provisional revenue target would be realised from the value-added tax in the 2026-27 financial year beginning on July 1.
VAT, the National Board of Revenue’s main source of indirect tax, contributed about 40 per cent of the revenue generation target (Tk 5,03,900 crore) in the current financial year, FY 2025-26, is likely to see a jump, they said.
Besides the customs duties (11 per cent), the other sources of indirect tax, VAT collection target is likely to be over 50 per cent and the rest 38 per cent of revenue would come from income tax, known as the direct tax, for the FY27.
The FY27 national budget will be the first budget of the current government led by the Bangladesh Nationalist Party.
Economists say more incomes from indirect taxes mean burdening the poor and rewarding the rich.
The practice is contrary to tax equity as the poor have to pay more tax then the rich, they say.
‘It also widens income inequality,’ said Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, a research organisation.
Income inequality in the country stood at Gini coefficient of 0.4999 in 2022, according to Household Income and Expenditure Survey 2022 released by the Bangladesh Bureau of Statistics in April 2023.
The overall income inequality widens as the Gini coefficient stood at 0.4999 in 2022 from 0.482 in 2016 and 0.458 in 2010, with a smaller Gini signifying less unequal distribution of the national wealth.
Finance ministry officials said that the higher revenue generation was likely to be designed by ensuring compliance and checking tax evasions.
They said that the number of registered VAT-payers was only eight lakh in the country where an annual turnover above Tk 50 lakh by a business required him a mandatory registration.
The NBR will aim to make the number one crore from the new financial year and emphasise automation to check evasion.
In April 2024, the World Bank in its ‘Bangladesh Development Update Special Focus: Strengthening Domestic Resource Mobilisation’ said that VAT had been one of the major sources of revenue.
‘But a VAT gap analysis shows that there is potential to collect over three times more VAT if there were no policy and compliance gaps,’ added the WB.
Mustafa K Mujeri said that a section of NBR officials indulged in corruption and helped the rich and politically influential persons to evade taxes.
Economists blamed the lower-than-expected performance by the tax administration and the losses of revenue to corruption for the falling tax-to-GDP ratio to below 8 per cent in 2022 from 9.2 per cent in 2011.
The citizens of the country have been ridiculed worldwide as reluctant taxpayers, tax ignorant and tax dodgers despite the threefold increase in per capita income from $940 in 2011 to $2,765 in 2023, they said.
Former World Bank Dhaka office lead economist Zahid Hussain said that the tax-GDP ratio fell sharply in the past decade as revenue generation could not keep pace with the average economic growth of six per cent due to corrupt tax officials.
There are over 1.12 crore electronic-taxpayer identification number holders, but half of them do not submit the mandatory returns amid failure by tax officials to make the errant taxpayers comply with rules.
Economists said that the failure by tax officials forced the poor to pay the price with payment of higher indirect taxes, including VAT.
The burden of VAT represents 12.1 per cent of the income of the poor against 5.9 per cent for the rich, according to a study report released on July, 2021 by the Campaign for Good Governance with the support of Oxfam Bangladesh.
The poor have little or no idea that they have to pay tax every day as VAT is included in the prices of mobile phone use, medicine, gas, electricity and other essential goods and services, added the report.
