Md. Habibur Rahman | Session: 2019- 20 | Department of Banking
Source: The Daily Star
Bangladesh's economic rise story faces a hidden adversary – a tax system heavily reliant on indirect taxes that disproportionately burden the poor. A recent study by the Research and Policy Integration for Development (RAPID) highlights this issue, revealing that a 1% increase in indirect taxes translates to a 0.42% rise in poverty. This revelation comes at a critical juncture as the government unveils its fiscal measures for 2024-25, raising concerns about their impact on living standards.
The National Board of Revenue's (NBR) recently announced tax plan offers minimal respite for taxpayers. The unchanged tax-free income threshold translates to a continued squeeze on disposable income for individuals like young couples earning Tk 43,800 monthly. Daily necessities like refrigerators will become dearer due to increased VAT, and mobile phone usage will take a hit with higher call and data charges.
This rising tax burden tragically coincides with a worrying inflation trend. Consumer prices surged to 9.89% in May, further eroding purchasing power, especially for low-income segments. The government's focus on indirect taxes, which already contribute two-thirds of revenue, risks exacerbating this trend and stalling progress on poverty reduction. The increasing VAT burden on those below the poverty line – rising from 2% in 2000 to 7% in 2016 – underscores this disparity.
While there's some relief for middle-income earners (between 11 lakh and 21 lakh taka), the reinstated 30% tax rate for high earners (over Tk 43 lakh) raises eyebrows about fairness and effectiveness. This measure, coupled with the lack of an increase in the minimum tax threshold, suggests a system that might not pull its weight from all segments. While potentially boosting government coffers in the short term, the amnesty scheme for holders of undeclared wealth could discourage honest taxpayers and undermine the system's integrity in the long run.
For businesses, the push for cashless transactions continues with tax benefits for firms conducting transactions through banks. The hospitality and healthcare sectors face stricter compliance measures, requiring proof of tax return submissions for license renewal. Additionally, the reintroduced 27.5% tax on incomes from provident funds and cooperatives further strains resources.
The NBR's ambitious target of collecting Tk 4.80 lakh crore in tax revenue – an 11% increase – necessitates exploring alternative solutions. RAPID proposes a phased tax reform over 10-15 years, focusing on broadening the tax base and modernizing administration. A shift towards user-friendly, automated systems and a focus on taxpayer education and assistance are crucial for fostering voluntary compliance. The NBR's recent success in increasing the number of taxpayers through automation initiatives demonstrates the potential on this front.
The path forward for Bangladesh requires a delicate balancing act. While the government seeks to boost revenue and formalize the economy, neglecting the plight of the most vulnerable can derail this progress. A tax system that fosters inclusive growth, with a focus on direct tax collection and a reduction in the reliance on regressive indirect taxes, is vital. Only then can Bangladesh truly claim victory in its fight against poverty.
