Wednesday, 25 May, 2022

Ambitious revenue target in next budget

The government is setting an ambitious revenue target in the next fiscal’s budget riding on the current trend of tax collection by NBR amid signs of economic recovery from the corona crisis.  

Finance Minister AHM Mustafa Kamal is likely to announce a hefty Tk 6.77 trillion (6,778.64 billion) budget for FY23 on June 09, where the revenue target has been primarily estimated at Tk 4,330 billion.  

This revenue target will be Tk 440 billion or 11.31 percent higher than the current fiscal’s original revenue target of Tk 3.89 trillion.

“The country’s economy has been able to make a turnaround from the corona crisis. Businesses and trade have returned to pre-Covid level, which has a positive reflection in revenue collection,” said a finance ministry official dealing with budget preparation seeking not to be named.

“We hope that this uptrend in revenue collection will also continue in the next fiscal year and the collection will rise further,” he added.

NBR officials informed that the domestic economy has become vibrant during the Pahela Boishakh and Eid festivals, while imports have also surged.

In view of this, they expect to reach close to the National Board of Revenue (NBR) target this year with a projection of rise in tax collection in the closing months.

NBR data suggest that tax collection registered over 16 percent growth until March which was the highest in recent years.  

The government is going to announce the next fiscal’s budget at a time when the uncertainties of the ongoing Russia-Ukraine war is looming large and the corona crisis is not still over.

At this moment, revenue mobilization, from domestic sources, in particular, is going to be a very challenging job for the government and it has to depend on NBR for domestic resources. 

NBR is the largest source of revenue as it provides 85 percent of total revenues from income tax, value-added tax (VAT) and import duties. The biggest 39 percent contribution comes from VAT. 

Of the Tk 4,330 billion estimated revenue target set for FY23, NBR has to collect Tk 3,700 billion which is 8.40 percent of GDP, nearly 12 percent up from current fiscal’s original target of Tk 3,300 billion.

However, the current fiscal’s original target was GDP’s 9.50 percent. In FY22, the NBR’s target has been revised downward to Tk 2,950 billion.

Economic analysts say the new revenue target is “ambitious” as NBR can not achieve even the revised target every year because of its administrative shortcomings.

 In FY21, the NBR finally managed to collect Tk 2,600 billion in revenues with a staggering Tk 410 billion deficits.

“NBR can never achieve the revenue target the government set for it in every year’s budget. Even it cannot achieve the revised target because the target is not realistic,” commented Dr Ahsan H Mansur, executive director of Policy Research Institute (PRI).

At the same time, he also observed that the country’s domestic revenue mobilization is not commensurate with the size of the economy.

“There is ample scope of collecting more revenues, but the NBR has a huge capacity shortfall. The NBR has to be overhauled for the expected revenue mobilization,” he pointed out.

Of the NBR taxes, Tk 2,040.75 billion has been estimated to come from VAT, Tk 1,179.46 billion from income tax, Tk 424.56 billion from duties and Tk 55.23 billion from other sources. 

Non-NBR revenue collection target is being set at Tk 180 billion and the non-tax revenue target is being set at Tk 450 billion. These two targets were Tk 160 billion and Tk 430 billion in FY22.

The overall budget deficit, on the other hand, is being projected at Tk 2,448.64 or GDP’s 5.55 percent, down from current fiscal’s 6.2 percent.

Even though the deficit is going down in terms of GDP’s share, it is expanding by Tk 301.83 billion in terms of volume compared to current fiscal’s originally projected Tk 2,146.81 billion deficits.

To meet the budget deficit, the government eyes to borrow Tk 400 billion from non-bank sources, including Tk 350 billion from savings certificate sale.

During the current fiscal year, the government had set a non-bank borrowing target at Tk 370 billion including Tk 320 billion from the sale of savings certificates.