The National Board of Revenue (NBR) has presented the staff mission of the International Monetary Fund (IMF) with a list of at least six major obstacles to increasing tax revenue. These include the tax gap—the difference between actual tax collection and potential tax—,revenue forecasting, a narrow tax base and wide exemptions, a lack of automation, capacity building, and an evidence-based strategic action plan.
The presentation took place with the currently visiting IMF team at the NBR’s head office in the capital’s Agargaon on 4th March where NBR’s tax wing highlighted the challenges to them.
The NBR informed the IMF team that it is focusing on enhancing its capacities for digital transformation, creating action plans for each wing, putting plans and strategies into action, investing in the development of human resource capacity, and implementing organisational and administrative changes.
NBR has also presented the current reform activities to the IMF mission and also presented a way forward, especially how to come out from the tax gap, NBR officials said.
NBR officials have noted that the NBR has reduced tax exemptions in recent years and has plans to do so even further. However, officials claimed, the IMF mission made no observations in this regard.
One of IMF’s over 30 key conditions was to rationalise tax expenditure while approving a US $ 4.7-billion loan in January 2023. The IMF is reviewing the progress of the Government’s reform agenda where IMF set to increase the country’s tax-to-GDP ratio by 0.5 per cent this year. The tax-to-GDP ratio is less than 8 per cent at this moment.
Throughout the years, the Government has provided a significant amount of tax exemptions, primarily to the corporate, export-oriented, remittance, power and energy, microfinance, economic zones, hi-tech, apparel and textile, poultry, and fisheries sectors, as well as investors in the capital market and other sectors including salaried individuals.
Additionally, NBR intends to expand the export-oriented industries to which RMG has previously been allowed access to the same facilities. The corporation tax rate for green apparel factories has already been lowered by the Government to 10 per cent. Currently, 12 percent of textile manufacturing is not green.
Bonded warehouse facilities are another benefit enjoyed by garment exporters since they allow them to import raw materials duty-free and manufacture finished goods for export markets. It is not possible to sell the finished goods or the raw materials in the neighborhood marketplaces.
