Country's declining tax-GDP ratio, practically since 2017, has been paradoxical and concerning but is not inexplicable, to be sure. On the face of it, this appears ironic and defiant of conventional wisdom that the rising gross domestic product (GDP) growth rates have not yielded increased tax revenue. This only goes to show that economic growth does not automatically generate tax revenue; it requires serious mobilisation efforts backed by an efficient tax administration dedicated to collect revenue from a widely cast tax-net. At present, the direct tax regime, potentially the biggest source of revenue collection, is weak.
The focus is on the introduction of wealth and property tax on the one hand, and VAT Act and Customs Act, on the other. Since many people now block their wealth in real estate properties and lands, the rationale for wealth and property tax commends itself. It will also help bridge rising income inequalities, something which have been brought to the fore by the latest household income-expenditure survey. Now coming to the two laws in animated ferment for a long time viz. the VAT Act and Customs Act, they have been much-talked-about but not acted on, apparently for lack of political will. Many now expect to see them through with election having saddled the new government with a landslide mandate. The VAT Act of 2013 estimated a potential earning of TK. 200 billion (20000 crores).
Tax evasion, flight of capital and inflated Swiss account point to lost wealth for the nation, but not wasted because the potential remains to encourage them to plough back some of those resources into productive investments. This can be linked to non-resident Bangladeshi (NRB) initiative or to programme for poorer Bengali diaspora uplift. The declining tax-GDP ratio is taking place at a time when mobilisation of domestic resources is pivotal to achieving the sustainable development goals (SDGs). It is really a wake-up call inasmuch as on certain SDGs we are lagging behind in the face of the deadline to meet a whole lot of the goals by 2030. The outlook is also concerning overall because the targeted increase in tax-GDP ratio up to 5.4 per cent by 2020 --in the seventh five-year plan period -- stood at 2.7 per cent in 2018 at the halfway mark. So a key macro-economic indicator of internal resource mobilisation stagnates and an inherent potential for wealth creation remains untapped.
The underlying causes of the failure to mobilise internal resources are revealed in a glaring light. Bangladesh is the second fastest growing economy in Asia, priding itself on a low-middle per capita income bracket, with a high-income upper five-ten per cent people the size of some East European countries, and yet it is among the least tax-paying nation in the world. By some account, at least 30 per cent of the population can be brought under effective income tax network. That would have greatly facilitated faster progress well beyond the basic needs regime. It would not only befit our status as low-middle income country but also help with the transitional adjustments that entail a parting cost.