Raise tax-GDP ratio | The Daily Star
12:00 AM, February 17, 2019 / LAST MODIFIED: 12:30 AM, February 17, 2019

Raise tax-GDP ratio

Economists urge govt at a conference

Economists yesterday called upon the government to increase the tax-GDP ratio to reduce inequality and poverty in order to achieve the UN Sustainable Development Goals by 2030.

The call came at a two-day conference in Dhaka, where economists suggested introduction of inheritance tax, property tax and international tax cooperation to curb illicit financial flows and manipulation of transfer pricing mechanism. 

They also proposed tax on international financial transactions to increase tax collection.

Social protection expenditures at the present level of allocations cannot reduce income inequality much, said Binayak Sen, research director of the Bangladesh Institute of Development Studies, in his keynote speech at the 4th SANEM Annual Economists' Conference.

“It is too meagre to instigate any meaningful change. We need to raise the tax-GDP ratio to enhance its effectiveness -- or else it lapses into tokenism.”

This year, the government allocated Tk 64,177 crore for social safety net schemes, which is 13.81 percent of the total budget. As of June last year, the tax-GDP ratio is 9.27 percent.

Currently, Tk 500 is provided as allowance, which is equal to the daily farm wage, he said at the event organised by the South Asian Network on Economic Modelling (SANEM) at Brac Centre Inn.

“With this tokenism, it is not possible to reduce inequality much.”

Since 2010 growth has been accelerating at a faster rate, but the pace of poverty reduction has slowed down and inequality is increasing at an even faster rate.

Both consumption and income inequalities have been rising, especially since 2010, in Bangladesh. Income inequality is generally higher by 12-16 percentage points than consumption inequality in Bangladesh, according to Sen.

The high economic growth did not yield high political freedom and thus reduced the pressure of redistribution, which works better under democracy.

It also could not ensure a significant rise in the tax-GDP ratio. For Bangladesh, the rise has been only 2 percentage points in a decade, he added. The large social safety net scheme helped address poverty, said Planning Minister MA Mannan. “But we are not saying that we have been able to eliminate discrimination.”

The government is working to reduce poverty and inequality. 

“If we can really achieve sustained democracy, it would be possible to achieve inclusive growth and development. If we can make people aware about their own strength, we will be able to achieve inclusiveness in economic, social and intellectual spheres.”

Rahman went on to deny that the country has been in a state of jobless growth as pointed out by economists.

The rising inequality is a huge challenge in achieving the SDGs, said Nagesh Kumar, director of the South and South-West Asia office of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP). About $5 trillion would be needed to reduce the infrastructure gap in the region to achieve the SDGs.

To address the challenge, Kumar suggested expanding the tax base, increasing efficiency in tax collection and enhancing efficiency of public expenditure.

“International financial transaction tax could generate substantial resource to finance SDGs,” he said, while citing that illicit financial flows and transfer pricing manipulation cause developing nations to lose $300 billion annually.

SANEM Chairman Bazlul Haque Khondker suggested collection of taxes from all possible sources, including the informal sector.

SANEM Executive Director Selim Raihan also spoke.

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