Growing deficit in tax collection a major concern

In the early months of the current fiscal year, Bangladesh was facing an alarming increase in its revenue collection deficit, posing significant fiscal challenges for the government. The National Board of Revenue (NBR) reported a deficit of over Tk 1,800 crore in July, that more than doubled to Tk 4,870 crore in August. As a result, during the first two months of the fiscal year, the revenue collection  reached Tk 46,233 crore against a target of Tk 50,321 crore.

While this collection represents a 14.74 percent increase compared to the same period last year, it is clear that the deficit is escalating at an unsustainable rate. Mohammad Abdul Mazid, the former Chairman of NBR, pointed out that the government has not implemented necessary reforms to enhance revenue collection. While setting revenue targets, concrete actions to increase revenue and reform the tax system were lacking, contributing to the widening deficit.

The government has set an ambitious target of Tk 430,000 crore for revenue collection in the current fiscal year. However, the continuous increase in the deficit raises doubts about the feasibility of achieving this goal. The deficit is particularly concerning because it comes at a time when the country faces economic challenges, including a dollar crisis and rising global commodity prices.
The largest share of revenue in the first two months of this fiscal year came from Value Added Tax (VAT). However, both VAT and Income Tax collections fell short of their targets. VAT collections have increased due to high inflation, but the desired revenue did not materialize from income tax as the deadline for return filing approached.

Despite the dollar crisis, revenue from imports and exports increased, exceeding the target by Tk 14.62 crore. This sector's growth in the first two months of the fiscal year was 8.94 percent compared to the same period last year.

Executive Director of the Policy Research Institute and former IMF official, highlighted the long-standing issue of financing in Bangladesh. The crisis has become more pronounced as revenue collection remains inadequate, and external credit flows are not sufficient to bridge the gap.

One factor contributing to the revenue shortfall is the government's measures to discourage imports in response to a weakened dollar and rising global commodity prices, which were exacerbated by the Russia-Ukraine conflict.

In conclusion, Bangladesh's escalating revenue collection deficit is a cause for concern, particularly in the face of economic challenges and ambitious revenue targets. Addressing this deficit will require a multifaceted approach, including implementation of reforms to enhance revenue collection, reducing unnecessary expenditure, and seeking increased foreign aid.

As the deficit continues to grow, the government must act swiftly to ensure fiscal stability and sustainable economic growth.