The National Board of Revenue fell short by 23 percent in the first half of the current fiscal year, owing to unchecked duty exemption and gloomy business activities.
The consequence is that the government has been becoming increasingly dependent on banks, while the revenue collection target for the board reached more than double in H2.
Officials at NBR said the government has provided LNG import and supply, apparel and a number of mega-projects with more than Tk20,000 crore VAT and duty waiver. Besides, a slump in business has led to a reduction in import of major products, among which are vehicles, clinker and capital machinery.
As they put it, revenue collection still falls short despite an ambitious target having been set.
Musharraf Hossain Bhuiyan, a former chairman of the National Board of Revenue, said the board allowed a big tax and duty waiver to ease business and encourage government mega-projects.
He alleged that a number of sectors, including cigarettes, paid a low volume of VAT at the beginning of the current fiscal year, claiming they had been experiencing dull business.
According to NBR data, the revenue collection target in the first six months of the current fiscal year was set at Tk1,36,668 crore. However, the board could collect only Tk1,05,161 crore —a shortfall of Tk31,508 crore against the target.
Revenue board sources said the NBR faced its biggest deficit in customs duty collection. Deficit in the sector amounted to Tk14,176 crore against the target. Collection of customs duty posted a 1.96 percent growth in the first half of the fiscal year.
According to the Bangladesh Bank, import of all major products except petroleum declined during July-December of FY20. Petroleum with import duty exemption witnessed a 17 percent rise while overall import slipped 4.35 percent.
Dr Mirza Azizul Islam, a former advisor to the last caretaker government, noted that the decline is negative for the economy.
"Though decline in import is good for economy, we have a different situation here. Our exports also slipped alongside imports," he added.
"People's expenditure for consumption dropped as the economy is weak.The government will find budget implementation a lot tougher if the situation continues," he noted.
Meanwhile, the decline in internal consumption pushed VAT collection down against the target. After customs duty collection, the board faced the second biggest deficit in VAT collection.
The deficit faced by the board in this sector stood at 21.03 percent. VAT collection was Tk41,090 crore against the target of Tk51,996 crore in the first half of the fiscal.
Dr Abdul Mannan Sikder, member (VAT Policy) of the NBR, said the first half usually sees a low VAT collection. "We hope the collection will speed up once we complete installing the Electronic Fiscal Devices. The deficit will be minimized by the end of the year."
Income tax collection, however, went well in the first six months. The NBR achieved 81.46 percent against its target in income tax collection.The collection stood at Tk32,646 crore against the target of Tk40.075 crore.
Chairman of the Revenue Board Abu Hena Md Rahmatul Muneem said, "Revenue collection slipped slightly due to a fall in import-export and the monsoon. The NBR will be able to meet the target by the end of the fiscal year."
The shortfall in revenue collection has come in the way of an implementation of the budget. Government borrowing from banks for ADP implementation has already crossed the annual target.
The government borrowed Tk48,016 crore from banks until December, a higher figure than the annual borrowing target for FY20 of Tk47,364 crore.
ADP implementation with bank loans reflects on the implementation rate. The implementation rate until December was slow — only 26.36 percent. The year-on-year implementation rate was 27.45 percent.
"Shortfall in revenue collection naturally pushes the government into borrowing from banks," Finance Division additional secretary Habibur Rahman told The Business Standard.
Towfiqul Islam Khan, senior research fellow of the Centre for Policy Dialogue, said setting an ambitious collection target without enhancing the capacity of the NBR is putting pressure on the banks.
"The NBR has been in revenue collection shortfall in the last couple of years. Low implementation of the budget has been papering over the issue," he told The Business Standard.
"However, this year's situation is different as government borrowing from banks has crossed the yearly target. This will put private credit at grave risk," he concluded.
According to central bank data, private sector credit growth in the first half of FY20 stood at 9.9 — an all-time record low.