Augmenting revenue biggest challenge: Former Bangladesh Bank governor Farashuddin in interview

Former Bangladesh Bank governor Dr Mohammed Farashuddin has stated that by widening the tax net, revenues can be augmented even after lowering the tax rate.

“To increase revenues, a win-win situation for both government and tax payers should be created. Individuals should be taken into confidence. The number of taxpayers and the amount of revenues should be increased,” he said.

“This is possible and it would be the ideal situation,” observed Farashuddin, who served as Bangabandhu Sheikh Mujibur Rahman’s personal secretary.

“All should collectively strive to achieve it. If the number of taxpayers can be increased significantly, then revenues can be augmented even after lowering the tax rate,” he added.

Farashuddin came out with the suggestions while talking to bdnews24.com on Monday evening on the forthcoming budget for 2016-17 fiscal.

Finance Minister Abul Maal Abdul Muhith will present the budget in Parliament on June 2 for a record eight consecutive times. This will be the 10th budget to be presented by Muhith.

The finance minister has already announced that the size of the next budget will be more than Tk 3.40 trillion.

Ten days ahead of the budget, Farashuddin dwelt at length on its size, challenges of revenue generation, how to deal with the challenges etc. He also lauded Prime Minister Sheikh Hasina’s leadership.

bdnews24.com: The finance minister has already announced that the size of the next national budget will be more than Tk 3.40 trillion. Many have dubbed this large and ambitious. What is your assessment?

Mohammed Farashuddin: According to me, the size of the proposed budget is not big at all. This Tk 3.40 trillion budget outlay will be 7.4 percent of our GDP. Ideally, the size of the budget should be at least 20 percent of the country’s GDP. So we are still far behind. Moreover, now our growth rate is more than 7 percent.

But, there will always be challenges in the budget. There will be some expectations. More attention should be given to fulfilling those expectations.

bdnews24.com: In the present context, what, according to you, will be the biggest challenge in the budget?

Mohammed Farashuddin

: In my opinion, increasing revenue collection is the biggest challenge at this moment. It will be difficult to implement the budget, if the revenue is not increased.

Hence, my suggestion is that a win-win situation for both the government and the tax payers should be created. Individuals should be taken into confidence. The number of taxpayers should be increased and this way revenue mobilisation should be augmented.

This is very much possible and it would be the ideal situation. All should strive to achieve this. If the number of taxpayers can be increased significantly, then, I believe, revenues can be augmented even after lowering the tax rate.

bdnews24.com: This year even before the presentation of the budget, a controversy has been created over VAT. Traders have demanded withdrawal of new the VAT law. They have even threatened with a stir. What is your suggestion on this?

Mohammed Farashuddin: I have thought over the matter…. The new law can be implemented from July 1, 2016. But for small entrepreneurs and traders, who do not maintain proper accounts, the VAT rate can be 5 percent instead of 15 percent for one year.

In this regard, it can be said that without a large revenue from VAT, this budget cannot be implemented.

The new VAT law, which was introduced in 2009, was passed in Parliament in 2012. All the stake holders will have to come into a consensus on various technical aspects of it based on the discussions that have been going on since its inception.

I am of the view that it’s advisable to implement this by taking into consideration the practical scenario and also the consent of all.

bdnews24.com: In a country of 160 million people, the number of tax payers with TIN (tax identification number) is 1.8 million. And the actual number of people paying taxes is less than a million. How, under these circumstances, will revenues increase?

Mohammed Farashuddin: This is very unfortunate. Depressing…Our tax-GDP ratio is less than that of Nepal, a little over a tenth. This has to be increased, no matter what. That is why my advice is: reduce the tax rate, increase the number of tax payers, and raise the revenue volume.

bdnews24.com: What do you think are the other sources of revenue other than VAT and income tax?

Mohammed Farashuddin: I think there can be some good sources of revenue other than income tax, duty, and VAT. For example, a part of the surplus the BPC (Bangladesh Petroleum Corporation) earns from the sale of fuel oil can be brought to the exchequer. If necessary, petroleum and petroleum products can be imported and distributed through several companies. Further cuts in diesel and kerosene prices could create a positive trend.

Another aspect is that our e-commerce is flourishing. The poor and the middle class will not be hurt if tax is impose on the purchases and sales that take place here, and at the same time the government exchequer will see additional funds.

bdnews24.com: The finance minister has spoken of a separate allocation or budget for mega projects. What do you think of that?

Mohammed Farashuddin

: The government is laying special emphasis on the budget on priority projects such as the Padma Bridge, Rampal thermal power plant, LNG terminal, Matarbarhi power plant, and the metro rail to increase the GDP growth rate. The ‘separate budget’ the finance minister has suggested for mega projects will not only be beneficial for the budget but for the overall economy as well.

bdnews24.com: Political stability has prevailed in the country for some time. It seems it will prevail in future as well. How helpful will the new budget be for Bangladesh’s economy?

Mohammed Farashuddin: Here, I cannot do without praising Prime Minister Sheikh Hasina’s leadership. Bangladesh has achieved a six percent GDP during the eight years of her government. Bangladesh has maintained this growth rate even in the face of stagnation in the world economy. Now we are crossing the seven percent threshold. I must say this is the success of Sheikh Hasina’s government.

And it is because of this success that Prime Minister Sheikh Hasina has received the United Nation’s highest environment award. Business magazine Fortune has ranked her 10th among the top 50 leaders of the world. The GDP growth rate had been fixed at seven percent during the 2015-16 financial year. The Bangladesh Bureau of Statistics has indicated after analysing the data for the first nine months (July-March) that a growth of 7.05 percent is likely to be achieved. The new budget is understood to have set a growth target of 7.5 percent.

bdnews24.com: The prices of fuel oil and foodstuff are currently low in the international market. What effect will this have on Bangladesh’s economy?

Mohammed Farashuddin: I think, like the last time, the finance minister is going to present the budget in a comfortable situation. Bangladesh has for some time been reaping the benefits of low fuel oil and food prices in the international market. Oil and food prices have played a role in keeping inflation within tolerable limits. The government’s subsidy burden, too, has lightened. It is not facing any difficulties despite having substantially increased the salary and allowances of government employees. All these advantages are likely to be carried forward to the next budget.

[The 2015-16 financial year budget had announced a reduction in inflation to 6.2 percent. At the end of April, the rate was even less at 6.04 percent. The new budget targets a further cut to bring the inflation rate to 5.8 percent.]

bdnews24.com: Thank you, sir.

Mohammed Farashuddin: Thank you.