Tax Expenditure Reporting as a Tool for Budget Transparency: Bangladesh Context

Abstract

The growing trend in revenue collection, domestic investment, increasing per capita income, more or less stable inflation, increasing exports and remittance are showing that Bangladesh is well on track in reaching the target of becoming a middle income country very soon. However, the widening gap between total revenue collection and total government expenditure and increasing trends of budget deficit also pose challenges in sound fiscal management in addition to the political and other factors which may hinder the economic development of the country. Furthermore, revenue foregone or loss due to various tax concessions and allowance provisions which is defined as the ‘tax expenditure’ may hinder the revenue collection and mobilization process and thus economic development. Though tax expenditure is widely used policy option to intervene amidst the market failure ensuring social and economic welfare for vulnerable groups, this policy option has been misused widely because of the systematic leakage causing huge loss of government revenue. This paper explores the present scenario of tax expenditure in Bangladesh in relation to fiscal management and critically analyses the provisions for tax expenditure drawing the domestic and international frameworks and practical experience of tax expenditure statements from other parts of the world. Based on secondary data analysis using desktop research method this paper recommends the introduction of tax expenditure budgeting and reporting as part of the budgeting process in Bangladesh. However, this paper also carefully addresses the trade-offs of introducing tax expenditure to avoid unexpected consequences.