The government must fix the flaws in tax measures to fight income inequality

INCREASED DEPENDENCE by government on indirect taxes, which include value added tax and additional duties, and lack of efforts to increase revenue and profit collection, which are direct taxes, overloaded the majority of the population for about two decades. Such a proposal, also evident in the budget’s tax measures for fiscal year 2023, would also have contributed to growing income inequality. The government’s inability to tax the wealthy sections of society, mainly due to poor policy enforcement leading to such an unwarranted situation, and to broaden the tax base would have inspired the government to choose the easy option of taxes indirect and highly dependent on bank borrowing, which limits the investment situation. The government cut corporate tax by 2.5 percentage points for the third consecutive year this fiscal year. The budget provision for amnesty in exchange for repatriating money stashed abroad also contradicts the government’s aim to focus more on progressive fiscal policies. The rich, meanwhile, continue to benefit from tax policies, which only burden the poor and the middle class.

Bangladesh’s revenue from revenue and profit accounted for 32.1% of FY2021 revenue; it was 26.59% for fiscal year 2011 and 12.46% for fiscal year 1980, as shown by Finance Division data. But this suggests slow income tax growth, which is out of step with the average economic growth of 6%. Bangladesh has about 6.27 million taxpayer identification number holders, but only about 2.29 of them submitted tax returns in fiscal year 2022. The figure was about 2.2 million for fiscal years 2021 and 2020. And that shows that there has been no significant broadening of the tax base in terms of income. Moreover, collection of revenue from value added tax averaged 28.5% from 1991-1992 to 1995-1996 and 35.7% from 2006-2007 to 2009-2010. The highest 39.2% of revenue came from value-added tax in fiscal year 2021, which impacted poor and limited-income groups equally while, as data from the Bangladesh Bank, the number of bank accounts with more than Tk 10 million on deposit increased to 103,597 in March 2022 from 101,976 in December 2021 amid the constraining times of Covid.

While the government has failed to tax the wealthier sections of society, which adds to growing inequality, tax evasion has reportedly been rampant due to poor enforcement of relevant laws. Bangladesh is reported in November 2021 by the London-based Tax Justice Network as losing more than $144 million in taxes each year due to corporate tax abuse and offshore tax evasion. The government must therefore review its policies, broaden the tax base, rely more on direct taxes and strengthen tax governance to stem growing income inequality.