It’s certainly a novel and inventive approach to raising revenue.
We all know that Bangladesh needs to expand its tax base, but the tax authorities continue to have difficulty in collecting income taxes. Solving the problem of getting tax-payers to pay more income tax continues to be a challenge for the authorities, hence the continued reliance on and continuing expansion of the value added tax as a tool for raising revenue. The problem is that consumption taxes such as our value added tax are typically regressive in effect. This is because the richer you are, typically, the smaller the proportion of your income you spend on goods and services in any given month.
On the other hand, the poorer you are, typically the higher the proportion you spend on goods and services. In fact, at the bottom of the income ladder, most families spend every penny they earn each month, and are thus taxed on every last penny they earn, however little it may be.
In fact, it is ironic that by relying more on consumption taxes rather than income taxes, the government actually probably ends up taking more out of a poor person’s pocket than if they enacted and enforced an across-the-board income tax. I guess that is why the Finance Minister tried to ameliorate the regressive nature of this year’s tax regimen by raising taxes on items that are perceived to be luxury goods and used only by those who ought to have plenty of disposable income.
Unfortunately, luxury is in the eye of the beholder, and when it comes to private education and private medical services, I have to take issue with how the government defines a luxury good or service.
You don’t have to be wealthy or even middle-class to have to (not want to) avail yourself of private education or private healthcare in this day and age, you merely need to have the ambition to provide the best for your family, and an inability to access the public services set aside for such a purpose through lack of enough of them to go around.
We can all understand why it is appropriate to heavily tax items such as air-conditioners and decorative light fixtures. But education and healthcare are hardly similar. It is good that the tax on private education fees was dropped down to 7.5% from the initially bruited 10%, but the fact remains that when there are hundreds of thousands of young men and women who want higher education but cannot find a place in the public institutions, it makes little sense to tax them for the very laudable action of being willing to pay money to get an education. In fact, the government should be subsidizing their fees not contributing to them.
What else might the government profitably tax to the extent that not only will it be able to raise some much-needed revenue, but that would also have desirable social outcomes, as well? Frankly speaking, the simplest thing to tax which would be sure to ensure that the impact would be progressive rather than regressive would be bellies. In Bangladesh, there is a direct correlation between the size of someone’s belly and the size of their wallet. We don’t have overweight poor people. If anyone is overweight it is a sure sign that he or she has been consuming more than his or her fair share of our scarce national resources and is therefore a prime candidate for a good taxing. Tax assessors should scour the countryside with tape measures and enforce a salutary tax on rotundity. Such a tax would be the closest way we could approximate an income tax without actually having to go to the trouble of keeping track of how much people earn.
In any case, the rich are usually pretty wily when it comes to hiding their wealth, both inside the country and outside. But a belly is not something that is so easy to hide, even if you enter into a conspiracy with your tailor. Nor can one’s belly be squirreled away outside the country.
The way forward is clear. If income tax is too easy to evade and too hard to enforce and if we are left with consumption taxes to balance our budget, then the simple way to ensure that such a tax regimen is not regressive is to replace the value added tax with a belly tax.
I expect the government to give this proposal due consideration.