Tax shortfall in Q1: Lower import of 10 major items, exemptions blamed

FT ONLINE

Revenue officials have delved into why tax shortfall has hit Tk 149.06 billion during the first quarter of the current fiscal year, missing the target.

In a written paper, both customs and VAT wing explained the reasons for the declining trend and the negative growth of their revenues compared with the same period a year ago.

The downward trend of import of revenue-generating major 10 products, increase in the import of the zero and low-taxed items and a decline in revenue collection from the tobacco sector are among the reasons for the significant falloff.

The two wings have recently submitted the paper to the chairman of the National Board of Revenue (NBR).

In the July-September period, revenue collection by both the wings posted a negative growth against the corresponding period of the last year.

Customs wing posted a negative 1.34 percent growth while the VAT arm 0.86 percent in the Q1.

The customs wing said it received Tk 9.35 billion or 45 percent less revenue in the July-September period from the top 10 revenue providing products.

The wing also said the government has provided different exemptions at the import stage worth 107.51 billion during the period.

The wing received Tk 11.51 billion revenue in the Q 1 against Tk 20.86 billion last year from the imports of cellular mobile phone, CKD (completely knocked down) motor cycle, goods carrier, motor car, diesel oil, lubricating oil, polyethylene, rice, double cabin pick-up, unprocessed aluminum, aluminum ware, etc.

In contrast, imports of products under 0 and 5.0 percent duty rates shot up by 492 percent and 4.0 percent in Q1.

The import of products that belong to higher duty structure -- 10 percent, 15 percent and 25 percent -- dropped by 12 percent, 8.0 percent and 11 percent respectively in that period.

The customs wing has received Tk 5.58 billion lower than expected because of the decline in import of revenue-generating products and increasing the import of lower-duty products.

The VAT wing said it received Tk 10 billion lower than expected revenue in Q1 from the cigarette sector alone.

It also received Tk 21 billion less revenue than that of the previous year due to exemptions from gas sector supplementary duty, which was 93 percent last year.

It also found a higher trend in obtaining VAT rebates, reduction of net VAT collection due to the adjustment of 5.0 percent Advance Tax calculating 33.5 percent value addition.

The NBR also increased the rate of VAT exemption to 100 percent from the previous 80 percent on all utility bills, including gas and power of the export-oriented sectors.

In the July-September period, the NBR received a cumulative Tk 473.88 billion in taxes, posting a 2.62 percent growth. Of the three wings, the income tax department recorded a growth of 11.56 percent.

It collected Tk 159.69 billion tax revenue in the July-September period, which was Tk 135.08 billion in the same period last year.

This means all three wings have missed the target, with customs by Tk 61.06 billion, VAT by Tk 64.29 billion and income tax by Tk 23.70 billion.

Officials said if such a trend in the revenue collection continues, there will be a record shortfall this fiscal.

In the first three months, the board collected only 14.55 percent of its revenue collection target of Tk 3.25 trillion.

An economist said revenue shortfall and lower imports indicate the economy is subdued.

Dr. Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI) said the shortfall in revenue collection and the decline in import of revenue-generating products reflect a depressed economy.

"Overall macroeconomy is weaker than what is told. If we achieved an 8.0 percent growth, then why is import negative?" he said.

He questioned why VAT collection posted a negative growth despite the government data showed an 18-19 percent manufacturing growth.

Weak economic scenario and poor reform activity are the reflection of poor customs duty and VAT collection, he added.