Resource Mobilization for Sustainable

Development in Bangladesh
Background
As the world is moving towards a sustainable development goal approach, resource mobilization is
becoming one of the top priorities for developing and least developed countries. Financing for the SDGs
must come from all available sources, including Domestic Resource Management (DRM), Official
Development Assistance, foreign direct investment (FDI), remittances, and private philanthropy. For
Bangladesh, its transition to developing country means more emphasis on Domestic Resource
Mobilization. Unfortunately, we are far from being self-sustainable via DRM. A study conducted by the
General Economics Division reveals the fact that Bangladesh would need additional investment of US$
66 billion on annual basis to achieve SDGs. In this scenario, combined and coordinated approach of all
stakeholders is critical for attainment of 2030 Global Development Goals.

Current Status
The “SDGs Financing Strategy: Bangladesh Perspective” prepared by the General Economics Division of
the Planning Commission provides an estimate of the annual resource gap and an opportunity to revise
the government interventions and financing strategies accordingly. The estimates show that an
additional amount, over the current provision of investment related to SDGs by public sectors and
external sources, would be US$ 928.48 billion at 2015-16 constant prices. This amount would be
required for SDGs implementation over the period of FY 2017-FY 2030, which is 19.75 per cent of the
accumulated gross domestic product (GDP) under the 7th Five-Year Plan (FYP) extended growth
scenario. The costing exercise covers close to 80 per cent of the 169 targets of SDGs.

There are five potential sources of gap financing, Private Sector Financing, Public Sector Financing,
Public-Private Partnership (PPP), External Financing comprising Foreign Direct Investment (FDI) and
foreign aid and grants, and Non-Governmental Organizations (NGOs).On average, public sector would
account for around 34 per cent of the financing requirement, whereas private sector has the share of
around 42 per cent during 2017-30 period. The Goals and associated targets of SDGs have large public
goods aspect whose provision would require higher public funding relative to private sector’s
contribution. The average share of PPP is 6.0 per cent. The external sources would constitute close to 15
per cent where FDI would make up 10 per cent and foreign aid would comprise 5.0 per cent of financing
gap. Finally, the NGOs would contribute around 4.0 per cent for the same period.

If we take look at DRM, the existing performance of revenue mobilization from direct tax has been less
than impressive. For a while, NBR has maintained a very narrow taxpayer base with only 1.3 million
registered TIN holders and not all of them file tax returns. Furthermore, there is a general consensus
among policymakers that the taxpayer base needs to expand rapidly with major registration drives.
Moreover, the Direct Tax Law/Codes are also considered to be outdated and it requires fundamental
changes based on the principle of universal taxation. The direct tax administration is also outdated,
paper-based, and based on territorial/geographical administrative units. While withholding at sources is
being applied recently, in the absence of a central data base, there is no way for the tax administration
to follow up on additional tax payments and also administer the withholding agencies. The collective
effect of all these deficiencies is the very low direct tax/GDP ratio in Bangladesh, which hints the
possibility of a high degree of both tax avoidance and evasion.

Challenges
Resource mobilization by the public sector will continue to remain a major challenge and will require
steadfast implementation of tax policy reforms (in both VAT and direct tax fronts), modernization of tax
administration, and reform of the NBR tax administration

implementing a fair, transparent and inclusive tax collection method to bring untaxed public in the
government's tax net.

National Board of Revenue (NBR) and civil society people to come forward to translate public apathy
toward taxation into active public engagement, which will also work to curb tax evasion.

need for advocacy and campaign in order to create political pressure to reform the taxation system by
active public participation. The civil society network also recommended ensuring direct tax-based
budget and increasing budget allocation in essential public services, particularly in education, health,
agriculture and social protection.

lack of transparency among the NBR officials resulted in frustrating response from the public, depriving
the government of large-scale revenue earnings. He also added that although the NBR has adopted a
number of good initiatives, the tax collection agency has failed to achieve the optimum transparency in
the sector,

Resource mobilization by the public sector will continue to remain a major challenge and will require
steadfast implementation of tax policy reforms (in both VAT and direct tax fronts), modernization of tax
administration, and reform of the NBR tax administration

Way Around
Improving investment climate: Government needs to put more emphasis on improving the investment
climate to increase private investment by removing its impediments such as land procurement, energy
shortage, trade logistics, contract enforcement and tax issues. Though these are long term issues
continued efforts are needed to address them. Public investment will need a boost to reduce the
infrastructure-energy deficits and improve trade logistics through increased mobilization of resources.

As FDI not only augments investment but also brings new technology and management skills which have
spillover effects Bangladesh should attract larger volume of FDI as part of its strategy to mobilize
significantly bigger amount of resources for achieving accelerated growth, poverty reduction and
employment generation.

Mobilization of resources, particularly with greater focus on sustainable increase in NBR tax revenue,
will be essential for financing the Plan. Financing of this National Plan will require increased private and
public sector savings, rapid income growth for the private sector and increased revenue mobilization
through reform and modernization of tax policy and tax administration.

Broadening of the taxpayers’ base: The Govt. will undertake measures to improve the monitoring of the
ownership of all sizable physical and financial assets of taxpayers and determining the income
generation out of those assets.

Broadening of the tax revenue sources: Tax administration has the tendency to increase tax incidence on
existing and complying taxpayers and exerts less effort to identify new taxpayers by gathering
information from multiple sources. The so called “Black Money” is circulating in the domestic economy,
it is the responsibility of the tax department to find their owners. Thus, the Govt. will support the tax
administration to broaden its sources for revenue mobilization by identifying, adopting and
implementing practices that are useful for such objectives (For example, the Govt. can support the tax
administration to focus more on income from service providers and self-employed who are traditionally
more difficult to tax).

Treating all sources of income equally for the tax purpose without discrimination for the households:
This would imply taxation of capital gains from land, real estate/housing, and stock market. Wealth
accumulation in Bangladesh is primarily happening through accumulation of urban land and real estate,
untaxed/low tax income of the rapidly growing RMG sector, and relatively low tax incidence on income
through financial instruments.

Local government finance and inter-governmental transfers The LG finance in Bangladesh has three
aspects: i) local resources mobilization (LRM) perspective ii) national government’s grant iii) transfer
through projects and project financing. Local resource mobilization Local governments collect local
taxes, fees, and miscellaneous receipts. The sources of tax items of LGs are very general in nature. LGIs
levy taxes in the prescribed manner. The Government may frame model tax schedules and where such
schedule have been framed, the LGIs shall be guided by them in levying tax, rate, toll or fees.

Public sector resource mobilization has always been the most important constraint in expanding the
investment programme to meet the growing infrastructure demand, and meet the needs of expanding
social spending in education, health and social protection. The revenue targets established for the
national Board of Revenue is ambitious, but supported by proper policy and administrative reforms and
automation of tax administration the targets are certainly attainable. The major challenge will be in
changing the culture outdated practices associated with NBR revenue administration and steadily
moving toward a modern IT and accounts-based administration of the VAT and direct tax systems.
Effective implementation of the NBR modernization Plan including automation of the VAT and direct tax
administration will be preconditions for the success of the domestic revenue mobilization strategy.