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Low-tax GDP ratio worrying

Published : Tuesday, 17 May, 2022 at 12:00 AM  Count : 414

Low-tax GDP ratio worrying

Low-tax GDP ratio worrying

Even though the country's GDP had steadily grown on average in the past decade, but the Tax-to-GDP ratio markedly declined during the same period of time.

It is disappointing that tax collection as a percentage of GDP in today's Bangladesh has been stuck at around 7.6 per cent, the lowest in South Asia and one of the lowest in the world. Besides economists this also compels us to question on the reported inconsistency, since revenue receipts should normally increase in line with expansion of the economy. In addition, the average annual growth of tax collection is a mere 11 per cent. In fact, our economic reality now shows that there is 'no relation between GDP growth and revenue collection' although the tax-to-GDP ratio increases in other countries following economic growth.

As much as it is puzzling, it is also a tale of failure in collecting tax and expanding the tax payers net. However, according to a separate World Bank data, among the least-developed countries set to graduate to developing nations' category in the next four years - Bangladesh has the lowest tax collection as a percentage of GDP. Questions automatically arises, does it mean the country's additional GDP growth has remained out of the tax net? Does it also suggest that the economy has become more informal?

It is time the country's tax and government's economic authorities concerned, convincingly explains this mysterious reality. It is a fact that the new value-added tax law, which came into effect several years ago, is rampantly distorted while a large number of people are exempted from tax payments. Moreover, there are plenty of tax benefits under various names in the country: Holidays, exemptions and waivers. As a result, the country also loses a huge amount of tax because of the prevalence of tax breaks.





The point, however, tax exemptions alone cost Bangladesh 2 per cent of its GDP. And then there are innumerable cases of tax avoidance and averting. Besides, the tax base is low compared to the size of the economy. Collection efficiency is also low. And experts have often suggested that there are numerous loopholes in our tax policies. However, a dark shadow of doubt is cast over our GDP growth since, growth numbers do not commensurate with actual data such as revenue collection, debt, export-import, and credit growth.

To finish with, reforming existing tax laws have become imperative. At the same time the laws have to be strictly implemented. Without increasing revenue collection, it is not possible to fulfil expectations of the people and the government. Our politicians have to realise this.



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