Ambitious revenue plans feared to make living costlier

The government is going to set a revenue target of Tk4.8 lakh crore for the forthcoming fiscal 2024-25, which is around 17% higher than the revised target of the outgoing fiscal, according to sources with the finance ministry.

However, economists have termed this revenue plan “ambitious” and expressed their fear that it might deteriorate inflation in the country by driving up commodity prices amid low product supply stemming from reduced imports and manufacturing.

Moreover, experts have said reaching the revenue target will be challenging for the National Board of Revenue (NBR) as the economy is currently slowing down, and the government has imposed import restrictions.

They said the higher revenue target can increase the burden on people who are already struggling with price hikes, because depreciation of Taka and high local inflation rate are the main reasons for the expected revenue growth. The increased value of imported goods would drive up import duty, while local inflation would lead to higher VAT collections, both of which will ultimately be paid by
the public.

An inflation target of 6% was set for the current fiscal year, but in reality inflation averaged 9.72% from July to April of FY24.

According to the Bangladesh Bank data, in the July-March period of FY24, Bangladesh imported various products worth $45.62 billion, which is 15.42% lower compared to the same period in last fiscal, when goods worth $53.94 billion were imported.

Inflation is projected to be 6.5% in the next fiscal year, but experts said controlling inflation will be very difficult until economic conditions improve.

Muhammad Abdul Majid, a former chairman of NBR, said, “to increase revenue, the economy first needs to be healthy.

Imposing a huge target without improving the economy would not achieve this. If you create a big budget based on this target, you will face a budget deficit later, which can put more pressure on the economy as the government will have to rely on debt to meet the deficit.”

Higher target without innovation leaves NBR helpless

Speaking at a recent programme about NBR’s hardships in meeting the government’s revenue target, its Chairman Abu Hena Md Rahmatul Muneem said the NBR feels helpless due to being assigned significantly higher revenue collection targets every year. When the finance ministry sets the target, it does not consider NBR’s capacity and projects a growth in revenue collection based on the previous year’s targets.

“We have to work throughout the year to achieve these goals, which leave us very little opportunity for innovation,” he said.

Economists say the ambitious target for FY25, combined with the current economic challenges, presents a significant test for the NBR and the government’s economic strategy.

According to finance ministry sources, the government has set a revenue target of Tk4.8 lakh crore for FY25, with a growth target of 17% from the revised target for the current fiscal year.

Of this amount, Tk177,600 crore is expected to come from income tax, with a growth target of 20%; Tk177,600 crore from VAT collection, with a growth target of 17%; and Tk124,000 crore from import duty, with a growth target of 12%.

To achieve these targets, the tax rate will be increased in various areas in the next budget. Additionally, the increase in the value of the dollar has reduced people’s real income, and the tax-free income limit will not be raised in the next budget. This will impact the market due to the increase in VAT rates on many products, said economists.

In FY24, the government initially set a revenue target of Tk4.3 lakh crore, anticipating a 30% growth from the previous fiscal’s revenue collection.

However, that target was later revised down by Tk20,000 crore to Tk4.1 lakh crore. Despite collecting Tk2,89,376 crore in the first ten months of FY24, the country’s revenue in the outgoing fiscal fell 30% short of the revised target, according to NBR data.

As a result, the amount needed to fulfil the revenue collection target in the remaining two months of FY24 was Tk120,624 crore.