Pre-poll tax exemptions to weigh on collection

Over Tk 133b loss feared

Tax collection during the current fiscal year is set to face a big blow owing to what economists call "populist policy" of exemptions before the general elections. On the basis of official projection, the FE estimated around Tk 133 billion loss in tax collection this year as major revenue-generating sectors got the benefit after passing the Finance Bill-2018.

The National Board of Revenue (NBR) will even lose the taxes it received last year from those sectors, officials said.

In the first quarter of fiscal year (FY) 2019, the NBR experienced a Tk 114 billion shortfall in revenue collection against its target.

It has been found that tax exemption offers picked up momentum in the last few months, meaning the period ahead of December elections.

Economists termed the government measure "populist."

Dr Mirza Azizul Islam, a former finance adviser, said the tax exemptions usually given after persuasion from various pressure groups.

Tax exemptions appear to be offered for incentivising local industries but they act as a profit-maximising measure by businesses, he said.

Since businesses have political connections, they are getting the benefits, he added.

"Readymade garment is not an infant industry in Bangladesh. But it has been enjoying the incentives for a long," he said.

He argued fiscal incentives are not a big matter for investment, it has little impact if infrastructure, utilities and other factors remain favourable.

He said a large amount of tax incentives ahead of election may be termed 'populist policy" of the government. Tax exemption offers in three wings -- income tax, Value Added Tax and Customs -- were plenty this year.

The NBR officials counted Tk 110 billion revenue loss in collection, compared to that of the previous fiscal, for offering tax waiver to the Liquefied Natural Gas (LNG) sector alone.

The gas sector contributed around a quarter of the total VAT collection of Large Taxpayers Unit (LTU) last year.

The NBR also offered tax benefit to the export-oriented sectors by cutting tax at source rate to 0.60 per cent from 1.0 per cent. It also cut corporate tax rates for the readymade garments industries.

Income tax wing estimated Tk 15 billion loss, compared with its projected revenue income this year due to the exemptions.

Also, the NBR offered VAT exemptions from ocean-going ships, travel agents' commission, and taxes benefit for Dhaka Stock Exchange (DSE) share holders.

Officials of the Large Taxpayers Unit (LTU) under the VAT wing said the arm would need to achieve 100 per cent growth in collection to achieve the target for this year.The target of the wing has been set at Tk 600 billion for the current fiscal year against the last year's actual collection of Tk 450 billion.

Officials said such exemption proposals have remained shelved during the last three to four years due to the government's policy to discourage tax waiver culture.

Ferdaus Ara Begum, chief executive officer (CEO) of Business Initiative Leading Development (BUILD), said the tax-exemptions should be time-bound, not in perpetuity, to help some sectors grow.

"There must be a review of the tax incentives after a certain period to see the impact of the waiver," she said. In an analysis, BUILD has found that some 408 industries enjoyed tax holiday facilitates.

It has been found the government cannot phase out tax exemptions from particular areas like the readymade garment sector.

In the first quarter, the NBR faced a Tk 114 billion shortfall against its target.

Tax revenue collection grew by 5.2 per cent in July-September period against 20 per cent in the corresponding period of the last year, said a provisional data of the NBR.

All the three wings of NBR -- income tax, VAT and customs -- missed their respective targets for the period. VAT collection fell short of the target by Tk 51.52 billion followed by customs duty Tk 40.04 billion and income tax Tk 22.75 billion.

Asked about the impact of the exemptions on the current fiscal's tax revenue collection target, NBR chairman Mosharraf Hossain Bhuiyan said the board has not conducted any analysis of revenue loss yet.

He, however, declined to comment on this issue.

The government has set a Tk 2.96 trillion target for the NBR this current fiscal.

• Courtesy: The Financial Express /Nov 25, 2018