Pre-Budget (2011-12) Discourse

1. Pre-Budget (2011-12) Discourse Domestic Resource Mobilization vs Pro-Poor Revenue Strategy Equity and Justice Working Group Bangladesh www.equitybd.org

2. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy Objectives of the seminar • Provide an overview on our revenue program and taxation system & policies b. Make recommendations on how pro poor or people-oriented taxation can contribute the revenue augmentation Equity and Justice Working Group Bangladesh www.equitybd.org

3. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy Domestic resource mobilization into development programs could be a prudent strategy for our government Our government has declared her Vision-2021 where following targets to be achieved 1. Enhance the GDP growth rate into 8% within 2013 and 10% within 2017. 2. Reducing the rate of living under poverty line into 15%. 3. Increase the primary enrollment into 100% within 2010, making tuition fee free education up to graduate level within 2013 and ensuring 100% literacy within 2014. 4. Ensuring self reliance in food by 2012 5. Ensuring safe drinking water for all within 2011, sanitation for all within 2013, and house for all within 2015. 6. Reducing matrimonial death rate into 1.5% and child death rate into 15% 7. Increase power generation up to 7000 MW by 2013, 8000 MW within 2015 and 20000 MW by 2021. Equity and Justice Working Group Bangladesh www.equitybd.org

4. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy Resource will be needed to achieve the targets of Vision-2021 Government has prepared 6th five year plan and projected 185.71 billion dollar to invest for the period of 2011-2015. The investment would be mobilized through following way; - At least 42.43 billion dollar will be mobilized and invest through public sector finance. This investment includes revenue collection and borrowing from domestic and foreign sources and 22% of planned finance. - Private sector investment is targeted 148 billion in total which is nearly 78% of the total projected amount. - 13.78% finance will be arrange foreign sources that’s included the FDI (Foreign Direct Investment) and ODA. Equity and Justice Working Group Bangladesh www.equitybd.org

5. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy But question is whether it is achievable ? • To achieve the targets would require an investment rate at least 32-35% of our • GDP. But existing scenario saying that the investment is not crossing beyond • 25% of GDP in last years and yearly growth rate on investment is 12-13%. • - If this trend continue, the accumulation of investment in five years may stand at • 169.7 billion dollar and in that case, the total gap between investment and target • will stand 16.7 billion dollar. • - An investment growth of 19.78 per cent per year (on average) has to be ensured • by FY (Fiscal Year) 2015 to cover up this gap of investment where major part • will come from domestic sources. Equity and Justice Working Group Bangladesh www.equitybd.org

6. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy The following causes and phenomenon are being exist for assumed shortfall between target and achievement of investment - National savings accumulation does not reach the target in years - If government fail to achieve the target of revenue mobilization - Foreign finance and investment fail the target Equity and Justice Working Group Bangladesh www.equitybd.org

7. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy A flow chart of foreign aid in Bangladesh Flow chart of foreign Aid (million US$) Fiscal Year Grant Loan Total GDP % 72-23 486 60 546 8% 79-80 650 572 122 89-90 765 1043 1808 6.7% 2001-02 190 1006 1196 3.6% 2008-09 37 1022 1059 3.5% 2009-10 88 1477 1565 1.6% Source: Flow of External Resource into Bangladesh-2009 (A govt. hand on receiving foreign resource published yearly) Equity and Justice Working Group Bangladesh www.equitybd.org

8. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy The bleak scenario of foreign aid flow doesn’t support the government’s target of investment indeed. So that it would be a prudent strategy to collect the required resource from domestic sources. In that case govt. should enhance the revenue collection which needed some reform activities in NBR (National Board of Revenue) those are following; Structural reform in NBR - Expand revenue activities at grass root level at least upazilla (Sub-district) level - Deploy skill manpower and according requirement - Introduce online taxation system and simplified the process of tax assessment and realization. Equity and Justice Working Group Bangladesh www.equitybd.org

9. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy Institutional reform in NBR - Establish separate unit for tax-base identification, tax assessment and realization. Unified responsibility of existing taxation process creating scope of corruption that to be eliminated if we expect the revenue augmentation. - Reinstate the tax ombudsman which is now a sort of inactive. Absent of tax ombudsman cause of suffering for people in taxation process those are really enthusiastic for tax paying, on the other govt. is being deprived from her expected tax due to undue domination by the NBR officials and a few fraud companies also. - NBR should capacitated to imposed discriminatory tax rate based on the economic activities and their out & impact on employment & service that is prevailed in different developed and developing countries. Tax realization showing in shamble due to absent of policy related discriminatory taxation process in Bangladesh. Equity and Justice Working Group Bangladesh www.equitybd.org

10. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy What’s the pro-poor strategy for our government to enhance the revenue mobilization process The volume of our economy is ranked as 43rd largest according to IMF assessment. But considering the volume, country is being paid a little amount of direct tax form the business activities than those are expected. Bangladesh is one of the countries where percentage of direct tax is very low comparing other developing countries like India (33%) and Sri Lanka (31.3%) and even developed countries have more than 70% revenue come from direct tax. Equity and Justice Working Group Bangladesh www.equitybd.org

11. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy What’s the pro-poor strategy for our government to enhance the revenue mobilization process Sector wise contribution in revenue mobilization Fiscal Year Realization % Direct Tax Indirect Tax 1991-92 18% 82% 1994-95 14% 86% 2000-2001 18% 82% 2004-2005 17.9% 82.1% 2008-2009 18.8 % 81.2% 2009-2010 20.8% 79.2% 2010-2011 Proposed 22.6% 77.3% Source: NBD Equity and Justice Working Group Bangladesh www.equitybd.org

12. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy What’s the pro-poor strategy for our government to enhance the revenue mobilization process - Government have to take measures to unveil the underground economy which is out of taxation system. According to the expert opinion and their study reveals that the volume of underground economy is near about 37% of our GDP. Due to this underground economy, government is depriving the expected direct tax which is almost 3% of GDP. - Audit transparency have to be ensured in auditing the business activities. This is assuming that, a few audit firms are playing a collaborating role with fraud business companies to evade their tax paying. That’s why revenue mobilization doesn’t get the pace. Equity and Justice Working Group Bangladesh www.equitybd.org

13. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy What’s the pro-poor strategy for our government to enhance the revenue mobilization process - Government has declared tax exemption up to the fiscal year 2013. This exemption is applicable on the production of agro sub-sectoral business, garments, textile, melamine, pharmaceutical etc which is total 16 no of items under business activities. Though it’s saying that the exemption is contributing the employment but questionable due to not having proper study and information on output, but cleared that the government loosing the revenue. - Government have to review and reduce her non-development expenditure like administrative cost. In every year, administrative cost is increasing which is almost 80-90% of total revenue collection that’s hindering the development finance. Equity and Justice Working Group Bangladesh www.equitybd.org

14. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy What’s the pro-poor strategy for our government to enhance the revenue mobilization process VAT should expand and impose following pro poor revenue strategy - Government has reviewed the VAT (Value Added Tax) and submit in to the parliament for approval. The proposed new VAT Act have brought 31 no of new changes in its articles those are mainly focused to expand the VAT net and impose new VAT at roots level of business activities. So that it will result the burden for poor people and their livelihood. - The existing rate of VAT (2-15%) in Bangladesh is much higher comparing other countries. E.g the VAT is imposed in Singapore maximum 5%, Thailand 7%, Indonesia, Myanmar, Vietnam & South Korea is 10%, New Zeeland 12% and Nepal imposed @ 13% with different rate. - So that its assuming that the both pressure from high inflation and imposing VAT will make the poor people hardship and increase poverty indeed. Equity and Justice Working Group Bangladesh www.equitybd.org

15. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy VAT should expand and impose following pro poor revenue strategy Institute of Fiscal Study, UK has made a comment on its report (Price impact of VAT) that the VAT always impinge the poor livelihood and stage the development of them. They also able to show that the poor are paying double as VAT than the rich based on the proportion of income earnings (showed figure) Equity and Justice Working Group Bangladesh www.equitybd.org

16. Domestic Resource Mobilization vs Pro-Poor Revenue Strategy Thank You Equity and Justice Working Group Bangladesh www.equitybd.org