Govt to phase out export stimulus as nation accomplishes economic graduation

The government is taking stock of its ongoing stimulus bundles offered to the export sectors in a bid to phase out such spurs as the country gets closer to economic transformation into a developing nation.

The government is also examining the spurs’ effectiveness as some of the bundles have been there for decades. A phase out deadline for some sectors is also being thought of, officials said.

Some officials of the Ministry of Finance told Business Insider Bangladesh that the government has been providing incentives to promote export trade stretching to various sectors for a long time. However, export earnings are growing only for a handful of sectors.

This shows that several sectors have failed to increase shipments despite availing public support, officials said.

In this regard, the National Board of Revenue (NBR) submitted a study paper to the finance ministry on “Reforms of Taxation Rules and Procedures” that deals with phasing out unproductive export sectors from having incentive bundles.

At the same time, to increase the tax revenue, VAT and income tax coverages will be expanded and the ratio of direct and indirect taxes increased rapidly from 35:65 to 70:30, meaning indirect tax burden would be mitigated.

The recommendation also states that the government will say “good bye” to some private sectors making them de-entitled to the bundles. And, the government also wants to optimize its use of spurs and carry out structural reforms at the NBR and tax policies.

The ensuing strategic measures not only increase revenue by expanding the scope of income tax by trimming tax rates, but also bring people with taxable income under the tax net.

The recommendation states that there is a need for enhancing the capacity of the NBR to identify the impact and trends in tax expenditure and carry out calculations and tax-based analysis.

According to a source, a national committee was formed in the Prime Minister’s Office last year to prepare, plan, implement and monitor Bangladesh’s potential challenges after its economic transformation. According to the decision of that committee, a sub-committee on ‘Inland Revenue Collection and Tax Rationalization’ was also formed.

According to the decision of the sub-committee, a 9-member ‘Study Group’ was formed which has prepared the 5-point scope of work of the study group.

According to NBR sources, after conducting the survey, the study group made 20 recommendations based on 6 points of preliminary recommendations and 5 points of scope of work.

Among them, there are 5 points of recommendations under scope-1 (Progress of ongoing reform activities to strengthen internal resource mobilization and identification of necessary reform areas).

There are 5 points of recommendation including - Expressing opinions on the proposed introduction or amendment to trade laws and regulations in accordance with Articles 2.1 and 2.2 of the WTO ‘Trade Facilitation Agreement and further expanding and institutionalizing the scope of discussions with stakeholders.

Ensuring greater transparency and impartiality in conducting revenue risk management, audit and inspection activities. Taking training programs using various media including online to enhance taxpayer services. Making service procedures easier and time saving.

In the scope-3, there are – issue-based research – completion of Tax Expenditure Analysis, Tax Gap Analysis, Revenue Forecasting, Perspective Analysis on Earnings Stripping Rules and Drafting of Legal Reflections; Making necessary amendments to the laws and regulations and imparting training.

In scope-4 has 3 points of recommendations have been incorporated These are - streamlining and simplifying customs procedures under WTO and WCO (World Customs Organisation) rules; Re-examining the applicability of supplementary customs at the import stage; Involve various research institutes in these activities to identify the areas of reform. There are 4 points of recommendations under scope-5. These are - Bangladesh Digital Taxation to create a consumer based tax base for tax collection from non-residents and for this purpose, taking initiatives to add necessary provisions to the Income Tax Ordinance of 1984 and the proposed Income Tax Act.

Former finance adviser to a caretaker government, AB Mirza Azizul Islam, told Business Insider Bangladesh that the government should adopt a phased programme over cash incentives/subsidies following the country’s LDC graduation (transition from LDC) plan.

“Because, according to the WTO and after transitioning from a LDC to a developing country, the government will not be able to continue support like providing incentives.”

He said the action plan should include increasing productivity, developing product diversification strategies and improving administrative efficiency.