Policy recommendations for budget 2021-22

Policy recommendations for budget 2021-22

The civil society and business chamber and association recommend many reforms in the budget but there is resentment that government is hardly heed to those recommendations. The budget of last few years are bigger and bigger but without major changes in policy. In order to development oriented, business and investment friendly budget, government may look into some reform in taxation policies encouraging investment as well as increase of revenue.

The civil society and business chamber and association recommend many reforms in the budget but there is resentment that government is hardly heed to those recommendations. The budget of last few years are bigger and bigger but without major changes in policy. In order to development oriented, business and investment friendly budget, government may look into some reform in taxation policies encouraging investment as well as increase of revenue.

Regarding investment and generation, investment in SME is the best sector to support. Most SMEs have encountered poor access to finance in any part of the world. Adequate access to finance is crucial if SMEs are to survive and grow. SMEs are often lack the collateral for loans. Adequate financing of SMEs is often constrained by their relatively high credit risk and the conservatism of FIs. FIs are not willing to extend credit without any security coverage. Let them have coverage of their investment and withdraw the cash subsidy from the tax of common citizen. As a result, credit guarantee institutions have been established to help enterprises obtain funds from banks by guaranteeing payment of loans. Such an action will enhance activities of SMEs and generate job in the market. The budget usually allocate few hundred crore of Taka to support ailing public sector banks. There is hardly any improvement of health of those banks. Government may impose a condition for these banks to extend loan to SMEs to qualify for the budgetary support.

Both domestic and foreign investors ranked the taxation system and administration as one of the major roadblocks towards increasing investment in Bangladesh. The honest tax payers are being repeatedly taxed, while the tax-evaders are being incentivized. Bangladesh Bank has developed a platform for database of import, Letter of credit and revenue collection. The NBR and commercial Bank and other stakeholders have access to the platform. The tax officials use their discretionary power to impose tax on assesse. Their Tax order start with a sentence “I have some reason to believe that you have more income”. But the officer is not bound to show the evidence of his belief. Such a discretion create opportunity of corruption and dissatisfaction of taxpayers. NBR should use those data to identify the importers of raw materials and estimate the production capacity of any enterprises.

NBR has an easy-going policy of gatekeeper on entry point of export and import at port to collect AIR and advance VAT. These easy collection policies made the NBR of customs duty, AIT and Advance VAT are holding back the reform of tax department. The historical role of AIT and customs duty is always regressive on economic development.

Tax deduction at source and minimum tax regimes are totally against the spirit of income tax principles. Companies may incur loss in one year and make profits in next year. However, they are paying more taxes one year compared to the previous year. Revenue strategy must move away from sales-based tax system to profit or income-based income tax. The deduction at source and advance tax needs to be rationalize, so that the final incidence of such a tax cannot be more than what the assessed tax on profits would be.

The budget may encourage document-based transactions of business and purchase of moveable and immovable properties. All payments should be through banking system with a threshold for micro and small businesses. Hundred percent compliant business and individual will get a tax rebate and non-compliant taxpayers will pay higher rate of tax.

Some major transactions such as purchase of real estate is fully on cash basis. The assessment of tax on fixed tariff and there is not link with actual transaction. Such cash transactions are should be allowed only through banking channel so that the NBR can ascertain source of money and payment of actual tax on income of the those transacted money.

The nation is uniteto eliminate corruption from our administration. The budget is one of the instrument to eliminate or reduce corruption. The best alternate process is to locate the black money and block the utilization of these money for comfort of corrupt peoples. One of the easy way to stop money laundering mean hiding of black money inside the assets and in any safe place. The budget of Bangladesh officially facilitate money laundering in the assets and investment in shell companies. Usually the black money holders create shall company under the name of their relatives and our budget encourage investment in such companies in the name of black money whitening scheme. The facility should be allow only after paying regular tax as well as some additional penalty.

There is a proven experience of other countries that business become inefficient due to support or protection of high customs duty, subsidy and other regulatory duty. Let the business become efficient competing with local and overseas manufacturers so that our business become competitive in the international market.

There is no denial that bond facilities for exporters are full of corruption of Bondholders and officials of NBR. On the other hand, NBR unable to give bond facilities to all possible export oriented industries except RMG, Leather and few Ship builders. NBR reportedly has shortage of work force. NBR is busy with a huge job of maintaining the bond with its inefficient and corrupt officials. The policy makers trying their best to divert export products but forgot about bottleneck in NBR.

The “cost” of maintenance of bond license cost about 10% to 15% of the duty benefits. On the other hand, those industries will not mind to pay additional tax of about 20%. These bondholders are usually importing basic raw materials. Those raw materials has 5% to 10% customs duty. The budget may reduce this customs duty to zero but impose VAT of 15% and withdraw bond facilities. Such a reform in customs duty will eliminate corruption and facilitate few hundred products to be competitive like RGM in the global market. Our RMG is competitive only for duty free import of raw material as other factors like labour and utilities and logistics are same for all sorts of business. This reform will also increase the revenue for the national exchequer. This is a simple mathematic and trade-off between corruption and revenue for the nation.

NBR should undertake take a number of potential reform measures, including the segmentation of taxpayers, forming semi-autonomous revenue authorities, formation of a tax ombudsman and ensuring private sector representation in non-executive revenue governance bodies etc. A good tax system that should be simple, equitable, transparent, and accountable, and Bangladesh could only benefit from implementing this. The VAT and Income tax departments are two wings of NBR but all tax payers have two different registration of Income tax and VAT. All the tax payers may be given a single tax registration for Income tax and VAT.

Efficiency of tax audit strategies should be increase while reducing the risk of leakage. Income tax and VAT collection would be the major focus of the tax department using technology.

Digitalization of the overall tax system in a systematic manner is a must. Records should be maintained in such a way so as to reduce intermediaries that lessen the chances of human error.

NBR should establish data bank, collection third party information for efficient revenue forecast. Reliance should be increased on Information Technology – big data, real time analytics, mobile apps, social media, etc. Self-assessment of taxes should be promoted. Paying taxes should be made simple and not considered a headache. Electronic tax payment facilities should be allowed in grater degrees.

The current revenue policy and administration structure requires a review to align with global best practices such that revenue generation is not a collection-focused exercise, rather a policy and practice focused system which is centred on the economic and other growth related policies.Taxmen’s mind-sets are the key barrier to the National Board of Revenue (NBR) reform. Reforming the tax administration will be possible only if taxmen change their orthodox mind-sets and view taxpayers as clients.

There should be the accountability of NBR. The taxpayers and the tax collectors should all be held equally accountable in certain cases of easy traceable evasion. Forming fully autonomous/ semi-autonomous revenue authorities to reduce discretion and discrimination, formation of a tax ombudsman and ensuring private sector representation in non-executive revenue governance bodies.

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