Bangladesh revenue up 16% in eight months, but target shortfall remains

Infograph: TBS

Bangladesh's government revenue grew by a healthy 16% in the first eight months of the current fiscal year (2023-24), exceeding the average growth rate of 10% over the past five years. However, despite this positive trend, the National Board of Revenue (NBR) still faces a significant revenue shortfall.

The February collection surge of over 19% was the second-highest of the year. Analysts attribute this growth to a combination of factors, including rising import prices and improved tax collection efforts.

However, this has not been enough to bridge the gap. The NBR currently faces a shortfall of Tk18,221 crore for the eight-month period, even after a downward revision of the initial revenue target.

Income tax collection has been the bright spot, witnessing a growth rate of around 20% in the first eight months, with February showing a particularly strong increase of 29%.

Syed Md Abu Daud, a member of the NBR, told The Business Standard, "We are now monitoring more closely at the field level. Those who previously neglected to deduct tax at source (TDS) are now being compelled to do so. The mandatory implementation of Proof of Submission of Return (PSR) has also played a significant role in the increased income tax collection."

Analysts suggest that the February growth could be attributed to increased imports ahead of Ramadan.

Even though imports have decreased overall over the past eight months, import tax revenue has increased by roughly 11%, while VAT revenue has increased by more than 16%.

Recent data from Bangladesh Bank indicates a 4% decrease in letter of credit openings from July to February. Nevertheless, a senior NBR customs official told TBS that increased imports and efforts to prevent false declarations by importers contributed to the growth in import tax collection.

To address revenue collection challenges, NBR Chairman Abu Hena Md Rahmatul Muneem convened a meeting with field-level officials at the NBR building in the capital's Agargaon yesterday.

An official at the meeting told TBS that they were instructed to boost monitoring to prevent irregularities and to collaborate closely with officials to collect revenue that is currently stuck in cases.

Despite these efforts, former NBR member Md Farid Uddin expressed doubts that the revenue target for the current fiscal year will be achieved.

He told TBS, "A significant portion of the revenue is generated through the Annual Development Program (ADP). Typically, revenue collection peaks towards the end of the year, but this time, the low implementation rate of the ADP will likely lead to lower revenue collection.

"In this scenario, it's highly unlikely that we'll meet the revenue target."

The revenue target for the NBR in the current fiscal year was initially set at Tk4,30,000 crore. Achieving this goal would require a growth rate of around 30% compared to last year's collection, a rate never seen before in Bangladesh.

To adapt to this challenge, the target has been reduced by Tk20,000 crore to Tk4,10,000 crore.

NBR sources revealed that in the first eight months of the fiscal year, revenue collection amounted to Tk2,26,586 crore. With four months remaining, more than Tk1,83,000 crore will need to be collected to meet the revised target.

Consumers bear the brunt

Financial experts point out that NBR's push for higher revenue collection disproportionately burdens consumers due to Bangladesh's heavy reliance on indirect taxes. These taxes account for roughly 80% of total revenue, meaning increased collection translates directly into higher costs for citizens.

"Low-income earners are particularly squeezed," explains former NBR member Md Farid Uddin. "With existing price hikes, additional import duties and local VAT further strain their budgets."

Farid Uddin emphasises the need for comprehensive tax system reforms. "Without such changes," he warns, "the burden on ordinary people will remain significant."

Echoing these concerns, SM Nazer Hossain, vice president of the Consumer Association of Bangladesh, told TBS, "Businesses don't absorb these extra indirect taxes – they pass them on to consumers. That's why we advocate for increased direct taxes and a reduction in indirect taxes. Unfortunately, the NBR hasn't addressed this issue."

He further blames the current tax structure, along with other factors, for the recent price hikes in essential goods like dates, lentils, sugar, and various fruits.