Policymakers as well as experts hardly miss any opportunity to point out the country's lack of ability to generate enough resources domestically to finance its budget. They do also often mention the fact that the tax-GDP ratio is one of the lowest in the region.
But when it comes to making genuine efforts to generate tax revenue, the relevant parties are not found serious enough in making any notable change in the ratio.
For instance, take the case of mobilisation of the value added tax (VAT) that fetches the highest amount of revenue for the government. When VAT was first introduced by the government in 1991, many had doubted its success. There was also widespread criticism, particularly from businesses.
It is, however, believed widely that the government has so far been able to tap only a fraction of the VAT revenue potential. Businesses, for understandable reasons, will not be interested to pay taxes, be it VAT or tax on profit, unless they are adequately motivated or offered incentives.
The volume of revenue that the government gets 30 years after the introduction of VAT is truly far below the potential. It would not be out of place to blame the taxmen partly for this.
VAT is a tax that is ultimately passed on to the consumers. Yet businesses have never been comfortable with VAT payment.
Take the case of new VAT law. The government, as advised by the multilateral donors, prepared the draft of a new VAT law that was supposed to boost revenue substantially. Parliament passed the law in 2012. But enforcement of the law was put on hold in the face of strong opposition from businesses. However, seven years later, the new law was made effective in the fiscal year 2019. The purpose of framing the law, however, was largely diluted because of changes made to it through several amendments.
Another important aspect of VAT revenue mobilisation has been widespread evasion of VAT payment. Evasion is common in the case of all categories of businesses. But it is more in the case of small- and medium-scale shopping outlets the number of which is very large.
According to the NBR estimate, about 4.0 million businesses are eligible for VAT payment and, of them, only 2, 36,000 are VAT registered ones. Nearly 3.0 per cent of VAT revenue comes from the retail and wholesale level traders. The amount could be raised several times more if there was an effective mechanism to check tax evasion.
Back in 2009, the NBR decided to make the use of electronic cash register at the shopping outlets mandatory. It first chose the ECRs (electronic cash registers). Later it backtracked from the move as monitoring of ECR-generated invoices was found difficult without getting the machines integrated into a central server.
The move was kept on hold for nine years. In 2018, the board decided to make available electronic fiscal devices (EFDs) to businesses free-of-cost. It has already distributed 1,300 EFDs in Dhaka and Chittagong. The NBR has reportedly floated a tender to procure 100,000 EFDs. It has a target to import an equivalent number of EFDs.
A report published in this paper recently said that many shops despite having the NBR-supplied EFDs are giving their clients hand-generated invoices. The cost of an EFD is more than Tk22,000. The shopping outlets would not be interested to use EFDs since the new VAT law does not make the use of EFD mandatory.
It is quite clear that the soft-approach taken by the government in the matter of VAT recovery from the small and medium shopping outlets would lead to the wastage of funds on the import and installation of EFDs. There has always been allegation that a section of VAT officials is not interested in ensuring the mandatory use of fiscal devices that might affect their 'unofficial' income.
Such an allegation may or may not be true in a sweeping sense. But the fact remains that the government must collect taxes that are legally due, using both men and machines. This is necessary to change the unenviable regime of mobilisation of domestic resources for bankrolling national budgets.
