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IMF Looks For Bangladesh To Bolster Revenue Collection

by Mary Swire,, Hong Kong

09 December 2013

The report from the International Monetary Fund (IMF) following Bangladesh's 2013 Article IV Consultation, and the third review under the country's Extended Credit Facility (ECF), recommends that the Government should continue to strengthen its revenue collection and tax administration capacity.

The IMF noted that political uncertainty and nationwide strikes have reduced economic activity in Bangladesh, with private investment the most affected. Real gross domestic product (GDP) growth moderated in fiscal year 2013 (to June) to 6 percent and is projected to further slow down to 5.5 percent in FY14 before strengthening to 7 percent in FY15.

As a consequence, while the Government's deficit was 4.5 percent of GDP in FY13, and in line with the ECF program targets, revenue shortfalls of 0.5 percent of GDP, resulting from the slowing economy have had to be offset by better controlled non-essential expenditures and lower subsidy costs. The tax revenue under-performance was led by weaknesses in value added tax (VAT), supplementary duties and other taxes on imports.

It is believed that Bangladesh's fiscal deficit will adhere to a target of 4.3 percent of GDP in FY14, but this will necessitate stronger tax collection efforts. The country's tax-to-GDP ratio is projected to remain flat at about 10.5 percent of GDP between FY12 and FY14, with a decline of revenue from import-related taxes of 0.4 percent of GDP offset by gains in income taxes, boosted by automation. The revenue ratio is projected to increase only slightly in FY15, and then more decisively beyond that with the launch of the new VAT code.

The IMF encouraged further reforms to modernize the tax system and generate additional resources over the medium term. "Decisive revenue administration reforms are needed to improve tax collections," it noted, "while advancing implementation of the new VAT without further delays."

The Government's tax revenue reform program is, in fact, centered on those two elements – strengthened revenue administration, and the maintaining of steady progress in VAT implementation.

The National Board of Revenue (NBR) has successfully launched the automated issuance of taxpayer identification numbers (TIN), linked with the national identification database. As of end-September 2013, more than 530,000 taxpayers have obtained TIN registration, including over 90 thousand new taxpayers, helping to boost income tax collection. To further strengthen tax collections in the future, the IMF stressed that the automation process needs to be progressed, including through online re-registration of current VAT taxpayers (from December 2014), supported by increased staffing levels.

In addition, to secure a medium-term improvement in the tax-to-GDP ratio, the Government has acknowledged that it is critical to move forward on the implementation of the new VAT, which is running behind the plan approved by the Minister of Finance in March 2013. The immediate priorities are now to issue the tender for the VAT software vendor, and then select the vendor (a rescheduled June 2014 benchmark). The NBR is also continuing public consultations on the draft regulations for the new VAT, issued in September 2013.

The IMF therefore concluded that "revenue administration reforms and the new VAT law can be expected to modernize the tax system and generate additional resources over the medium term to further increase development and social welfare spending."

TAGS: compliance | Finance | tax | economics | value added tax (VAT) | tax compliance | fiscal policy | law | gross domestic product (GDP) | International Monetary Fund (IMF) | corporation tax | tax authority | Bangladesh | import duty | regulation | individual income tax

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