Fair ir Tax ax Mon onitor in n Ban Bangladesh 201 2018 – an an Over Overview Sushashoner Jonny Procharvijan (SUPRO) CIRDAP Auditorium, Dhaka 16 September 2019 www.supro.org -------------------------------------------------------------------------------------------------- Mohammad Shahid Ullah Kn.shahid@gmail.com, +8801731-802395
FAIR IR TAX IN IN BANGLADESH : : CONTEXT • Tax to GDP ratio is lowest among the neighboring South Asian countries; though tax to GDP ratio has increased from 7.8% to 10.39% from FY 2009 to FY 2018; it is lower than Nepal (14%); where Bangladesh per capita income is almost double that of Nepal. • Dependency on indirect taxes(VAT) • Challenge of increasing inequality: The latest Household Income and Expenditure Survey released by the Bangladesh Bureau of Statistics (BBS) found that the income share of the poorest five percent of the population was 0.23% of overall income, a sharp fall from 2010 when it was 0.78%. In contrast, the share of the richest 5% grew to 27.89% of all income, up from 24.61% in 2010. While the BBS survey mainly sheds light on growing income inequality, wealth inequality is even worse. • The Gini stands coefficient for wealth inequality is 0.74, and for income inequality is 0.48.
FAIR IR TAX IN IN BANGLADESH : : CONTEXT • A recent report by Wealth-X says Bangladesh has had the highest rise in its ultra-wealthy population, surpassing any other country in the world. In other words, the number of super-rich more than doubled in just five years (2012-17). And high income individuals and organizations do not pay their taxes. • The tax reform policies guided by IFIs is anti-poor . Tax reforms in Bangladesh over the past decades could not bring about significant changes in tax efficiency, productivity or fairness. • Capital flight
Gove vernment Inc Income, , Budget 2018-19 19 Domestic Loan, 15.3% Foreign Loan, 10.8% Foreign Grants, 0.9% Non Tax Revenue, 7.2% Tax Revenue (Non-NBR), 2.1% Tax Revenue (NBR), 63.7%
Sh Share of f Tax x and Non-Tax x Reve venue in Total l Revenue (% (%) FY 2018 89.61 10.39 FY 2017 88.58 11.42 FY 2016 87.60 12.40 FY 2015 86.11 13.89 FY2014 83.09 16.91 FY 2013 83.64 16.36 FY 2012 80.96 19.04 FY 2011 83.05 16.95 FY2010 80.46 19.54 FY 2009 80.26 19.74 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of Tax Revenue in Total Revenue (%) Share of Non-Tax Revenue in Total Revenue (%)
Gro rowth ra rate of f tax x coll llect ctio ion in in perc ercentage 30.00% 27.45% 27.98% 25.00% 19.72% 18.96% 20.00% 18.11% 14.83% 14.60% 14.17% 15.00% 13.70% 12.32% 10.73% 10.69% 9.46% 10.00% 5.00% 0.00% FY0 5 FY0 6 FY0 7 FY0 8 FY0 9 FY1 0 FY1 1 FY1 2 FY1 3 FY1 4 FY1 5 FY1 6 FY 1 7
Sh Share of f dire irect and in indire rect tax (% (%) under NBR BR tax 80 72.83 71.91 70.51 70.02 69.67 70 65.45 65.52 65.12 63.86 63.87 60 50 Percentage (%) 40 36.14 36.13 34.88 34.55 34.48 30.33 29.98 29.49 28.09 27.17 30 20 10 0 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018* Axis Title Share of indirect tax (%) Share of direct tax (%)
Sh Share of of diff fferent taxes/d /duties under NBR NBR (%), (%), FY 2013 to o 2018 FY 2018* 38.32 12.74 18.2 29 1.7 FY 2017 37.98 12.34 18.14 29.5 2.04 FY 2016 35.65 11.58 16.84 34.29 2.09 FY 2015 36.55 11.22 15.37 35.49 1.22 FY 2014 36.98 11.24 14.93 35.61 1.24 FY 2013 37.76 12.12 14.83 34.01 1.08 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% VAT (%) Import Duty (%) Supplementary Duty (%) Income Tax (%) Others (%)
Sh Share of of CI CIT T and PI PIT T in income tax x (%), (%), FY 2009-14 14 100% 90% 27.48 43 43.5 44.39 44.34 45.02 80% 70% 60% 50% 40% 72.52 57 56.5 55.61 55.66 54.98 30% 20% 10% 0% FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Share of CIT (%) Share of PIT (%)
Pot otentia ials of of Per ersonal l Inc Income Tax x • According to NBR data, as of December 2018, there are about 3.7 million TIN holders, of which around 2 million people submit tax returns. However, this does not mean that those who have paid tax have not evaded tax. • About 1% of people pay income tax in Bangladesh; • The NBR has no statistics about the number of people having taxable income. • Some 68% of the people do not pay tax despite having taxable income. There is an assumption that the total number of people who should be paying taxes exceeds one crore. • The high income individuals and organizations do not pay their taxes. There may be as many as 100 people who pay a personal tax over Tk1 crore, whereas at least 50,000 owe that amount or more.
PROBLEMS AND POTENTIALS OF CORPORATE TAX • Tax dodging and tax avoidance by MNCs is one of the major cause of the low tax-GDP ratio in Bangladesh. • ActionAid estimates in a recent study titled ‘Mistreated’ that the country has 18 treaties which give opportunities for tax avoidance. ‘Mistreated’ has estimated that Bangladesh has lost US$85 million in 2013 alone, due to a single rule in the country’s tax treaties. • According to NBR, eight insurance companies have allegedly avoided around Tk345 crore in Value Added Tax (VAT) in four years, 2013 to 2016, in five ways: presenting low insurance tariffs, reporting false tariff codes, issuing partial coverage against single bonds, and VAT dodging on agent commissions and reinsurance commissions. • Due to pending cases in court, 10 MNCs operating in Bangladesh, including three telecom giants, have outstanding taxes in the amount of 13 thousand crore taka. • For corporate taxation, the auditing system in Bangladesh is problematic. Companies and their auditing firms manipulate real scenarios of income and dodge or evade taxes. • There are huge tax exemptions, including zero tax rate for export processing zones (EPZ) and special economic zones. There is no reliable estimate or study of the revenues foregone due to tax exemptions. At the time of preparing tax incentives, the actual cost- benefit accounting is not prepared. NBR does not publish the list of companies benefiting from tax exemptions and such incentives and are not subject to parliamentary oversight.
PROBLEMS AND POTENTIALS OF F WEALTH TAX • There is no systematic wealth tax mechanism in Bangladesh; NBR introduced a wealth surcharge in FY 2011-2012 as an alternative to a wealth tax • Under the present surcharge system there are complexities and disparities in determining the value of assets. The cost of acquisition is the basis of surcharge. • In general, people own assets mostly from inheritance, but there is no tax on inherited property. • The value of assets could be determined every 3-5 years; this would increase the amount of tax on wealth. Through this process the proposed amount of taxation on wealth will be 25000 crore taka, according to the Bangladesh Economic Association.
Prob oblems wit ith VAT • VAT is injustice against the poor people; the poor have no idea that they are paying tax every day and getting less public services. • A large portion of poor people are out of social protection / safety net programs; the public expenditure in Bangladesh is not pro-poor. • There is VAT on mobile phone bill, medicine, and essential goods (soybean oil, sugar, sanitary napkin) and other essential services. • Secondly, VAT is not being deposited properly by the business community, what they collect from customers. • The new VAT law was drafted almost secretly without any impact evaluation study.
Co Components of of Go Government t Sp Spendin ing, Bu Budget t 201 2018-19 19 Housing, 1.1% Recreation, Culture & Religion, Industrial & Economic 0.9% Services, 0.7% Miscellanious, 0.5% Social Security & Public Order & Welfare, Safety, 5.7% 5.8% Education & Technology, 14.6% Public Administration, 18.0% Interest, 11.1% Defence, 6.3% Transport & Communication, 12.2% Agriculture, 5.7% Energy & Health, 5.0% Power, 5.4% Local Gov. & Rural Development, 7.0%
Sh Share of of educatio ion expendit iture in term rms of of tot otal l budget and GDP GDP 18 16.1 16 14.3 14.1 14.1 14 12.6 11.7 11.6 11.6 11.4 12 11 10 8 6 4 2.19 2.18 2.09 2.09 2.01 1.95 1.87 1.85 1.78 1.73 2 0 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 RBFY 2018 BFY 2019 Share of total budget (%) Share of GDP (%)
Sh Share of f hea ealt lth exp xpendit iture in ter erms of f total l budget and GDP 6 5.67 5.6 5.39 5.03 4.76 4.76 5 4.52 4.34 4.35 4 3 2.46 2 0.92 0.89 0.79 0.8 1 0.73 0.73 0.71 0.7 0.69 0.34 0 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 RBFY 2018 BFY 2019 Share of total budget (%) Share of GDP (%)
Percentage of of alloc ocation in agri ricultu ture in term rms of of tot otal budget 12.0% 11.3% 10.9% 9.8% 9.6% 10.0% 9.2% 7.8% 8.0% 7.0% 6.7% 6.1% 5.7% 6.0% 4.0% 2.0% 0.0% FY 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 1 3 FY 2 0 1 4 FY 2 0 1 5 FY 2 0 1 6 FY 2 0 1 7 FY 2 0 1 8 FY 2 0 1 9 % of allocation in agri. In terms of total budget
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