Government has tried to boost up the revenue collection but the revenue collection in current fiscal year may have big shrinkage due to current political standoff. This shortfall of revenue may force government to cut its investment on different sectors like education, health, infrastructure etc. In addition, failing in collecting the adequate revenue has been resulting in rising per capita debt burden, increasing pressure on the ability of the government to carry out regular as well as developmental projects, and crowding out of private investment. The falling rate of growth in revenue collection has also been exposing the country to external terms and conditions in implementing its domestic economic policy.
Besides the political turbulence, the collection of tax is significantly lower for a number of reasons. The country has a narrow tax base. There exist wide opportunities of evading and avoiding tax. Finally, structural weaknesses of the economy have added further difficulties to tax collection. For example, more than 69 percent of total tax comes from indirect sources in Bangladesh. Therefore, strengthening of regulatory policy along with structural reforms, and innovation in the tax system is the requirement of time putting pressure on the marginalised.
The study also finds that the gap between revenue collection and expenditure is getting wide over years and also projects that the gap will be wider in the upcoming fiscal year. For the promising economic performance, this gap needs to be shrunk without the contraction of the public invest or the development expenditure. To optimise economic performance through shrinking the gap between revenue collection and expenditure, two dimensional steps should be taken – one is from the revenue collection side and the other is from revenue spending. There is no alternative rather than to increase the size of tax base. New steps, therefore, should be included with present efforts to widen the tax base, especially through raising public awareness and ensuring imposition strict law and order.
It can, however, be said that although deficit financing is weak fiscal tool for fostering economic growth of any country. However, it can be used properly to mobilise additional resources for economic and social development, and most importantly, in the creation of employment.
Finally, present political turbulence may exert an immense pressure on the economy for which the revenue collection may fall far below from the target thus the deficit may widen.
So along with the effective change in revenue structure to increase the collection, an inclusive political dialogue that reducing the exigencies of current political uncertainly will ensure consolidation of democracy through regular transfer of power and cause the economy to grow faster is also needed.