Transcript RECENT AND UPCOMING FISCAL REFORMS IN BANGLADESH

Workshop on
COLLABORATIVE RESEARCH ON SOUTH
ASIA TAX SYSTEMS
Singapore: 08-09 August 2010
Session II: RECENT AND UPCOMING FISCAL REFORMS
IN SOUTH AISA
Fiscal Reforms in Bangladesh:
Evolution, and Future Initiatives
Presentation by
Mustafizur Rahman
[email protected]
CENTRE FOR POLICY DIALOGUE (CPD)
B
A N G L
A D
E
S
H
a c i v i l s o c i e t y think – t a n k
Fiscal Reforms in Bangladesh:
Evolution, and Future Initiatives
Presentation Outline
1.
Introduction: Salient Features of Bangladesh’s
Current Fiscal Scenario
2.
Growth Trends and Revenue Structure of
Bangladesh
3.
Major Fiscal Reforms in Recent Times
4.
Fiscal Initiatives in the Budget for FY2011
5.
Medium Term Fiscal Plan
6.
Areas of Research Interest
2
1. Introduction: Salient Features of Bangladesh’s Current Fiscal
Scenario
Salient Features of Tax System
Notwithstanding the various fiscal reforms of the recent past, Bangladesh fiscal system
continues to suffer from a number of major weaknesses:

Low Level of Revenue Mobilisation

Regressive Nature of Taxation

High Tax Incidence

Low Tax Base

High Degree of Tax Evasion

Limited Administrative Capacity

Resource Constraints (Human and Logistics)

Centralised Taxation System

Cumbersome Legal Procedures
3
2. Growth Trends and Revenue Structure of Bangladesh




Over the past years total revenue and tax receipts as % of Bangladesh GDP
have increased – from 6.5% and 5.5% respectively in FY1982 to 11.2% and
9.4% respectively in FY2010
Tax receipts roughly generate four-fifth of total revenue
National Board of Revenue (NBR) is the apex tax authority of the
government which is entrusted to mobilise tax revenue
Average annual growth of total tax revenue for FY1982-1991 period was
13.77%; it came down to 11.8% during FY1992-2001. However, average
annual growth picked up between FY2002-2010 and was 14.21%
Revenue and Tax Revenue as % of GDP
Fiscal Year
Revenue as % of GDP
Tax Revenue as % of GDP
1982
6.48
5.47
1992
8.21
6.61
2002
9.48
7.80
2010
11.22
9.37

However, tax-GDP ratio is still significantly low when compared to other
countries (average tax revenue as % of GDP in South Asian countries is
about 12%)
4
Growth Trends and Revenue Structure of Bangladesh

Customs duty (import tariff) used to be the preeminent contributor to the
revenue envelope in the early 1980s – accounting for 42% of total tax
revenue of the country in FY1982 and 35% in FY1992

In FY1992 VAT was introduced with a view to gradually replace the sales
tax; over the years VAT emerged as one of the major components of tax
revenue

However, dependency on the tax collection at import stage was high at
that point – 51% of total tax collection originated from CD, VAT and SD at
import stage
5
Growth Trends and Revenue Structure of Bangladesh




1990s was the decade of trade liberalisation in Bangladesh as import duty
was slashed considerably (average duties coming down from about 60% to
20%)
As a result, in FY2010, the share of CD and total tax collection at import
stage declined to 14.7% (35% in FY1992) and 35.3% (51% in 1992)
respectively
VAT emerged as the predominant component of tax mobilization: VAT
(import plus local) as % of total tax revenue has gone up from 22% in
FY1992 to 33% in 2002 and a further 37% in FY2010
Contribution of Income tax has increased over the last decade – from 16%
of total tax in FY1992, to 18% in FY2002 and finally 26.4% in FY2010
6
3. Major Fiscal Reforms in Recent Times: Income Tax
1.


2.

Tax Base
Introduction of ‘initial exemption limit’ (tax-base as ‘total income’) instead
of ‘filing threshold system’ (tax-base as ‘taxable income’) in FY1993
Current tax exemption limit: Tk 165,000 (USD2,357); per capita annual
GNI – USD700
 Tk. 180,000 (USD2,571) for Female and Senior citizens (65 years and
above)
 Tk. 200,000 (USD2,857) for persons with disability
Tax Rate
Income tax rate in Bangladesh maybe considered to be high.
Category of Taxpayer
Tax Rate
Personal (Highest Rate)
25.0
Bank, insurance and other financial institutions
(Listed/Non-listed)
42.5
Dividend income of corporate tax payers
20.0
Mobile phone operator
45.0 (35.0 for listed cos)
Listed for public trade
27.5
Not listed for public trade
37.5
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Major Fiscal Reforms in Recent Times: Income Tax
3.
Administrative Measures

Introduction of large Taxpayers Unit (LTU) for income tax in
FY1999

Introduction of withholding tax being final discharge of tax liability
in FY1999 (at present total items are 20 in number out of 44
items under source-tax)

Advance income tax payment on quarterly basis if tax-base
exceeds a limit

Assessment on the basis of report of a outsourced chartered
accountant in FY2001

Introduction of Central Intelligence Cell (CIC) in FY2004

Mandatory provision for Tax Identification Number (TIN) for
registration of assets and business (land, vehicle etc.) in FY1991

Introduction of online submission of tax returns for personal
income at a pilot basis in FY2011

Strengthening of inspection, survey, search and seizure
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Major Fiscal Reforms in Recent Times: Income Tax
4.
Special Tax Incentives

Tax holiday

4 years (for Dhaka and Chittagong) to 6 years (other areas)
up to FY2011

10 years for export-oriented industries in EPZs

15 years for power generation companies from FY2010 (along
with other tax-exemptions on their expenditures)

Accelerated depreciation scheme

Exemption of agriculture farming activities (excepting two areas)

Periodic initiatives to allow “whitening of black money”
9
Major Fiscal Reforms in Recent Times: Indirect Tax

Introduction of VAT through repeal of Sales Tax, Business Turnover
Tax and shifting of 90% of excisable goods and services in FY1992

VAT rate: 15%

Truncated rates are common – However, upward revision of
truncated rates and significant withdrawal of truncated rates
through introduction of standard rates in FY2011 (28 services
from 52)

Zero tax on export

LTU-VAT was established with effect from 1 October 2004

Provision of tariff value for VAT since FY1993

Provision of withholding VAT was made applicable for both goods
and services
10
Major Fiscal Reforms in Recent Times: Indirect Tax

Introduction of trading-stage VAT and provision for delegation of
Magistracy power to the VAT officers since FY1997

Introduction of VAT refund system since FY1998

Introduction of license to VAT consultants since FY1999

Introduction of compulsory registration irrespective of annual
turnover since FY2000

Introduction of advance trade VAT (ATV) on commercial importers
since October 1, 2004 and replaced by VDS (VAT deducted at
source) at import-stage since FY2011

New provision to issue a unified registration number to each
registered person for VAT and income tax purposes incorporated in
FY2008; however, this has not been implemented as yet

Customs, Excise and VAT Appellate Tribunal established from
October 1, 1995

Provision of outsourcing of external auditing professional since
1993-94
11
Major Fiscal Reforms in Recent Times: Indirect Tax

Excise, Taxes & Customs (ETAC) Data Computerization Project
with major finance from the World Bank (December 1989 - June
1999) for IT-based tax management system

Implementation of ASYCUDA (Automated SYstem for CUstoms
DAta) software, which was launched as a project of the NBR in
1991 with financial assistance from UNDP. The project was
redesignated
as
SPEED
(Special
Processing
of
Electronically
Entered Declaration) at the implementation stage

Infrastructure Development Surcharge (IDSC) was first imposed in
FY1997 at import stage and was later withdrawn in FY2008
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Major Fiscal Reforms in Recent Times: General Reforms

Help Desk opened at the NBR Head Office in November 2007 to
help visitors and other persons seeking assistance with regard to
income tax, VAT and customs duty

Citizens Charter of the NBR published in January 2008
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Fiscal Initiatives in the Budget for FY2011

Following “Plan of Action” is to be implemented in FY2011 :










Freeze/take over of bank accounts of tax defaulters.
Bilateral meeting with the aim of settling outstanding income
taxes
Strengthen monitoring mechanism with a view to ensure
deposit of withholding tax and outstanding income tax
Strengthen legal initiatives to end large-revenue related
disputes and appealed legal cases in the higher courts of law
Settle audit disputes
Retrieve household asset holding number from municipality
and trade-license related information of businesses and thus
identify new tax payers
Identify forged TIN
Regular visit in order to coordinate the works of field level
offices
Establish tax offices at district level
Create tax related database
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5. Medium Term Fiscal Plan
Revenue and Tax Revenue as % of GDP
Fiscal Year
Revenue as % of GDP
Tax Revenue as % of GDP
2010
11.2
9.4
2011P
11.9
9.7
2012P
12.5
10.2
2013P
13.1
10.8
2014P
13.6
11.3
2015P
14.1
11.8

The government in its Sixth Five Year Plan has set a target to
improve revenue-GDP ratio and tax-GDP ratio to 14.1% and 11.8%
respectively by FY2015

Reforms aimed at strengthening tax administration and improving
taxpayer services during FY11-15 will continue to focus on the
following measures:

Improve monitoring of tax collection and the impact of measures
to expand the tax net

De-link tax collection from tax officials by allowing payment
through banks and/or online rather than through tax offices
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Medium Term Fiscal Plan









Improve procedures for ensuring timely deposit of tax revenues at
the point of collection
Establish a special tribunal to prioritise resolution of long-standing
tax payment cases
Improve publicity and information to encourage individuals and
firms to register and pay tax
Undertake action to fill vacant positions in NBR (currently 8,000),
improve on-the-job training and undertake other capacity building
measures
Develop one-stop service centres to provide information and advice
to taxpayers and create a more positive tax compliant environment
Further simplify tax forms and improve tax payment procedures
such as payment through mobile phones
Implement an integrated automation strategy covering taxpayer
submissions, assessment, permissions and approvals, and payments
Make all rules, regulations, SROs, notices and other orders available
on the NBR website immediately after they had been issued
Introduce e-governance and online tax payment systems
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6. Areas of Research Interest

Indepth Review of Fiscal Reforms in Bangladesh

Economic Cost-Benefit Analysis of Fiscal Incentives in
Manufacturing Sector

Incidence of Indirect Tax

Equity Dimensions in Bangladesh’s Tax System

Modalities to Broaden Income Tax Base
17