The fiscal space of the country is declining due to rising interest payments, said Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh, on Tuesday.

In the keynote paper at a programme titled ‘Bangladesh’s Domestic Resource Mobilisation: Imperatives and a Roadman’, he said that the interest on foreign debts in local currency increased by 654 per cent over 12 years while the government revenue increased by only 360 per cent over the period.

The programme was organised by the Policy Research Institute of Bangladesh on the day at a hotel in the capital Dhaka.

Mansur stated in his keynote paper that improving tax revenue is needed urgently to restore fiscal credibility.

He said that as Bangladesh sought to become a developed nation by 2041, lower level of tax revenue posed a risk to the country, both in terms of stabilising the economy in the short term and maintaining positive track towards development in the medium term.

‘While serious reforms of tax policy and administration will take several years to implement, it is possible to generate an additional tax revenues of Tk 20,000-25,000 crore a year by phasing out tax exemptions and exclusions,’ he said.

He added that Bangladesh could raise Tk 60,000 crore in the short term by gradually phasing out certain tax exemptions over three to four years.

‘This could be implemented immediately, while other reform measures will take more time to design and implement,’ said Mansur.

Emphasising widespread reforms in the taxation system, the economist said that the automated tax system was largely manualised and corruption prone.

He also said that the country’s tax-GDP ratio is 7.6 per cent currently, lowest in South Asia.

‘Our tax-GDP ratio is close to Somalia or Democratic Republic of Congo,’ he added.

‘This rate will decrease further in the coming years if there are no reforms. It is not possible to graduate to the high income country list with less than 10 per cent tax-GDP ratio,’ he said.

National Board of Revenue chairman Abu Hena Md Rahmatul Muneem said, ‘Comparing our tax-GDP ratio with Somalia or Congo is not fair. You have to weigh up all the parameters while comparing.’

‘It is important to look at the source of revenue of countries that have higher tax-GDP ratio. For example, the tax-GDP ratio of Nepal is high. Their main source of revenue is the tourism sector. We do not have such a source,’ he said.

State minister for finance Waseqa Ayesha Khan said that tax exemptions are being given for a long time in various fields.

‘The government has given 120 types of tax exemptions in the past five years. But such facility should not exist in the long term,’ she said.

Adviser to the prime minister on economic affairs Mashiur Rahman, Federation of Bangladesh Chambers of Commerce and Industry president Mahbubul Alam, and Metropolitan Chamber of Commerce and Industry president Kamran T Rahman, among others, were present in the programme.