Personal Experiences,Study, Learning Blog of Abu Rashid aka Harun

Dear Hon'ble Finance Minister Mr. Abul Maal A Muhith, MP

Dear Sir

Bangladesh  has been going to a middle income and higher income by the able stewardship of you. AL govt during their first regime during 1996-2000 made computer things taxfree thus enabling many middle income people like us to buy their first computes. The then AL govt also broke the mobile monopoly and started digital revolution. At the moment, middle income people could buy laptop, tv, freeze but still it is difficult to buy cars for them. If we look into developed countries, we could find that people in general buy cars like here in Bangladesh people could afford mobile phone. The case is that one could go for basic mobile phone or pricey according to his ability. However for the cars, due to high import tax, most middle income people could not go for the bare minimum ones. The ten or more old cars are sold at the price of a new budget car of the developed countries. Since it is imperative that we mimic what developed countries do to reach their level, I reckon we may consider their way of pricing cars – that is minimal import tax however later higher income tax, fitness, insurance, road tax etc.

To go that way, we may have two options. One is directly go to that direction or gradually. Here I am going to mention the both ways with financial implications. That is, how much revenue would be lost but at the same time how revenue could be generated using different afterwards mechanism. Before going into these two options in detail, no of car in Bangladesh and simple measure of little increase of current income tax and road tax is discussed.

http://www.brta.gov.bd/index.php/statistics

No of registered private passenger cars upto Feb 2015 is 269354 [From 2010 to Feb 2015 around 1 Lac cars have been registered ; so we could take total no of passenger car around 1 lac for conservative estimate assuming cars registered before 2009 are kind of out of order]

If there are around 100000 cars( 1 lac) private cars in Bangladesh, then if current road tax is increased from 5800 to 12000 and income tax is increased from 15000 to 24000, then the extra 15000 BDT per private passenger come will come. This is altogether comes up as the extra revenue of 15000 * 100000 = 150,00,00,000 BDT(i.e. 150 crore taka).

If tax is brought to just vat, that is just 15%, the government will lose the revenue amount of 800000*15000 =1200,00,00,000 BDT(i.e. 1200 crore taka) should it assumed that each car gives on an average 4 Lacs taka tax. Now if the govt proposes income tax and road tax of 120000 per year, then additional 1 lac taka will come from each of such newly imported car. So govt could only make up the amount of of 15000 * 100000 = 150,00,00,000 BDT(i.e. 150 crore taka). However If this new charge is applied to all registered cars except those were registered in last four years(they will get six years grace period as higher tax paid initially and no of such registered cars in last four years is 40000), then extra revenue generated will be 60000*100000 = 600,00,00,000 (i.e. 600 crore taka). It may be a more acceptable solution for the government. If the govt set the target of getting additional 50000 taka per year from per car owner and it is applied to all , no exemption is made then total additional earning would be 50000*100000=500,00,00,000 (i.e. 500 crore taka). This one would be more acceptable and easily implementable.

Now at the same time, if overall import tax reduced for upto 15000 cc from 100% to 50%, the govt will lose 4 lac BDT per car. On average every year around 15000 cars are sold or imported, so the loss of revenue in a year would be 400000*15000 =600,00,00,000 BDT(i.e. 600 crore taka). However it is expected that if tax is reduced by half, the sale would double. In such cases, from 15000 additional sale of car govt would earn the same 400000*15000 =600,00,00,000 BDT(i.e. 600 crore taka) and again more money from road tax and income tax equals to 36000*15000 =54,00,00,000 BDT(i.e. 54 crore taka)

So my final proposition is:

1500 cc and below cc car total tax  during import = 15% [there would be no other tax, it is just vat]

New road tax for such car is 12000 taka per year

Income tax advance for such car is 108000 taka per year

So an owner of 1500 cc and below car would pay the government in form of road tax and income tax is 120000 taka per year. He may be give n the option to pay in monthly installment of 10000 taka per month. This amount is equivalent to the salary paid to the drives. So people would go for driving themselves and may keep the car. In the above rate, the govt would earn extra 1 lac per car as they are now getting only around 21000 taka per year per car. So additional revenue earning of the govt per year would be 1 lac car * 1 lac bdt additional= 1000,00,00,000 taka, that is 1000 crore additional money.  The govt may arrange this thing with the owners selected bank and bank will take the responsibility to collect if someone is in default.