1

Manzoor HasanDirector

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 2009-10 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