1 Manzoor Hasan Director Political Economy of Tax Regimes: The Bangladesh Context

“Collaborative Research on Fiscal Policy in Asia” AND… 2

Political Economy of Tax Regimes – The Bangladesh Context 3

 Extraction of resources from the Bengal region by foreign rulers  Not much done for welfare of the people of Bengal  As a result people were not interested to pay taxes  Leaders of Indian sub-continent and East Pakistan also used non-payment of taxes as a strategy for independence struggle  The psychology to not to pay taxes continued for several centuries  At present Bangladesh’s Tax-GDP ratio is just above 9%, which is less than other countries in South Asia.

 Who are the major formal and informal lobbies and what are their political and economic interests? ◦ Parliament is the ultimate authority to frame tax policy ◦ Lobbyists within the parliament – businessmen cum members of parliament  Lack of laws regarding “conflict of interest” ◦ Nexus between politics and business ◦ Kinship matters 5

 What is the extent and nature of their influence over policy formulation and implementation? ◦ Extent of influence is wide ◦ Some examples:  Tobacco and biri taxation  Reconditioned car taxation  Taxation of unexplained/ undeclared money  Influencing implementation of tax policy  Government favoritism ◦ Pressure from lobby groups increasing over time 6

 What are the key political factors affecting the makeup of earmarked revenue and general budgetary support?  Revenue collection not successful in many years  Success in revenue collection in  Political support from the highest level a deciding factor  Big underground economy adversely affects revenue collection 7

 What are the key political factors affecting the policies and institutional arrangements for fiscal federalism and decentralization? ◦ Bangladesh has a unitary government ◦ Empowerment of local government bodies important  Decentralizing tax collection at the local level  Incentive to retain a part of the tax collected locally 8

 What is the impact of the above on historical and current reform efforts? ◦ Not much reform initiative  Donor led  Not backed by strong political will  Emphasized on automation  Lack of insider support 9

 Nurturing tax policy research in Bangladesh  Development of experts in this field  Collaboration between researchers and practitioners in the filed across South Asian countries

Thank you 11