Two months back, a business report published in “Star Business” of The Daily Star drew my attention. The Daily Star is the leading English daily published in Bangladesh. The report highlighted about the increase in revenue collection this year. It is a very delighted news that the revenue collection has increased by 1000 crore (100 crore = 1 billion).
The report also presents list for the top ten tax payers for both corporate tax and also for VAT. The report mentions the tax amounts for these firms for the period of 2004-2005, 2005-2006, 2006-2007 and 2007-2008. According to the data presented in the report, most of the firms’ payment has increased in case of both corporate tax and VAT. The chairman of the National Board of Revenue (NBR), Peoples Republic of Bangladesh, is also happy to announce this news. He mentions it as a great success for NBR.
Yes, it is a success for NBR. But, does the news indicate a positive economic growth in the country? The question can be resolved by calculating the rate of change in tax payment and VAT payment for every period.
If we analyze a financial statement, we find tax as a function of profit. As profit is the difference between income and expenses, change of tax is also a function of change in income or expenses. Mathematically we can express this concept as:
Profit = Income – Expenses
Tax = Profit * Tax rate
If we consider two consecutive years’ tax amount as Tax1 and Tax2, Percentage change in tax amount, (Tax2 – Tax1) / Tax1
= (Profit2 * Tax rate – Profit1 * Tax rate) / Profit1 * Tax rate
= (Profit2 – Profit1) / Profit1
= [(Income2 – Expenses2) – (Income1 – Expenses1)] / (Income1 – Expenses1)
Hence, tax growth rate would be positive if revenue can be increased or expenses can be reduced. Alternatively, tax growth rate can become negative if revenue falls or expenses increase.
For an individual firm, positive or negative growth in tax can be treated as an indication for success or failure in management performance. When it happens for most of the top corporate tax payers, it is no more individual performance. It becomes an issue about the overall economic growth of the country.
Unlike tax, VAT is directly related with sales or revenue. If VAT growth increases, it must indicate a positive sales growth. If VAT growth declines, it must raise question about sales growth. Hence, most of top ten VAT payers’ positive or negative growth in VAT payment naturally indicates the positive or negative economic growth of the country.
The top 10 corporate tax payers’ list includes seven banks, two gas companies and one mobile operator. Grameen Phone tops the list with a payment of TK 435 crore taxes in the period of 2007-2008. Its previous period’s tax payment amounts TK 128 crore. Hence tax amount grew by 239.84% in the period of 2007-2008. But, what was the tax growth rate in the previous years?
Table 1: Top 10 Corporate tax payers (Source: The Daily Star, July 10, 2008)
Company name -Tax amount (In crore TK) – Change in tax payment 2007-2008 – 2006-2007 2005-2006 – 2004-2005 – 2007-2008 – 2006-2007 – 2005-2006
Grameen Phone 435 128 28 6 239.84% 357.14% 366.67%
Standard Chartered Bank 220 188 86 41 17.02% 118.60% 109.76%
Chevron Bangladesh Blocks 13 and 14 Ltd 180 81 11 – 122.22% 636.36% –
Islami Bank Bangladesh Ltd 161 101 65 2 59.41% 55.38% 3150.00%
Titas Gas (T&D) Company Ltd 136 97 70 – 40.21% 38.57% –
HSBC 118 78 42 4 51.28% 85.71% 950.00%
Southeast Bank Ltd 88 49 11 5 79.59% 345.45% 120.00%
Pubali Bank Ltd 78 44 – 0.12 77.27% – –
Citi Bank NA 76 52 28 14 46.15% 85.71% 100.00%
Prime Bank Ltd 67 47 26 – 42.55% 80.77% –
In 2005-2006, Grameen’s tax amount increased by 366.67%, while in 2006-2007, tax grew by 357.14%. Hence the growth rate has reduced every year. Most of other firms of the list had the same phenomena. Tax growth rate for Standard Chartered Bank for the last three periods were 109.76%, 118.60% and 17.02%. Hence in 2007-2008, the tax growth rate drastically fell for this bank. The exceptions of this list are Islami Bank Bangladesh Ltd and Titas Gas (T&D) Company Ltd. Titas Gas had 38.57% tax growth in 2006-2007, while the growth rate was 40.21% in 2007-2008. On the other hand, Islami bank’s tax growth increased by more than 4% in 2007-2008. But in 2006-2007, their tax growth rate fell sharply. In this period, their tax growth was only 55.38%, while in 2005-2006, their tax growth was 3150%.
Nearly similar story is written for the top 10 VAT payers in ’07-’08 term.
Table 2: Top 10 VAT payers (Source: The Daily Star, July 10, 2008)
Company name – VAT amount (In crore TK) – Change in VAT payment 2007-2008 – 2006-2007 2005-2006 – 2004-2005 – 2007-2008 – 2006-2007 – 2005-2006
British American Tobacco 2828 2481 2079 1852 13.99% 19.34% 12.26%
Grameen Phone 1438 918 985 345 56.64% -6.80% 185.51%
Dhaka Tobacco 1180 1029 962 712 14.67% 6.96% 35.11%
Titas Gas Field 764 835 819 789 -8.50% 1.95% 3.80%
Sheba Telecom 601 252 224 – 138.49% 12.50% –
Hobigonj Gas Field 465 494 512 546 -5.87% -3.52% -6.23%
AKTEL 277 237 328 110 16.88% -27.74% 198.18%
Kailashtila Gas Field 196 159 99 110 23.27% 60.61% -10.00%
Rural Electrification Board 105 18 24 – 483.33% -25.00% –
Rashidpur Gas Field 101 125 138 170 -19.20% -9.42% -18.82%
Out of the ten, five firms had reduced growth in VAT payment in this period compare to ’06-’07. Three of these firms had negative growth in VAT payment for the year 2007-2008. Out of these ten firms, Grameen Phone, Sheba Telecom and REB had very sharp growth in 2007-2008. Grameen had an increase in their growth in VAT payment from -6.8% to 56.64%, while Sheba’s growth increased from 12.5% to 138.49%. REB’s VAT payment growth was sharper. It increased form -25% to 483.33%. On the other hand, British American Tobacco Bangladesh, the highest VAT payer in Bangladesh, had a VAT growth of 13.99% in 2007-2008. Their VAT growth was 19.34% in 2006-2007. It is also mentionable that Grameen had a VAT growth of 185.51% in 2005-2006, while the growth reduced to -6.80% in 2006-2007.
Table 3: Annual tax growth rate for top 10 corporate tax payers
Company name – Change in tax payment – Growth 2007-2008 – 2006-2007 – 2005-2006 – 2007-2008 – 2006-2007
Grameen Phone 239.84% 357.14% 366.67% -32.84% -2.60%
Standard Chartered Bank 17.02% 118.60% 109.76% -85.65% 8.06%
Chevron Bangladesh Blocks 13 and 14 Ltd 122.22% 636.36% – -80.79% –
Islami Bank Bangladesh Ltd 59.41% 55.38% 3150.00% 7.26% -98.24%
Titas Gas (T&D) Company Ltd 40.21% 38.57% – 4.24% –
HSBC 51.28% 85.71% 950.00% -40.17% -90.98%
Southeast Bank Ltd 79.59% 345.45% 120.00% -76.96% 187.88%
Pubali Bank Ltd 77.27% – – – –
Citi Bank NA 46.15% 85.71% 100.00% -46.15% -14.29%
Prime Bank Ltd 42.55% 80.77% – -47.32% –
Total 80.23% 135.69% 408.87% -40.87% -66.81%
Table 4: Annual VAT growth rate for top 10 VAT payers
Company name – Change in VAT payment – Growth 2007-2008 – 2006-2007 – 2005-2006 – 2007-2008 – 2006-2007
British American Tobacco 13.99% 19.34% 12.26% -27.67% 57.76%
Grameen Phone 56.64% -6.80% 185.51% -932.76% -103.67%
Dhaka Tobacco 14.67% 6.96% 35.11% 110.70% -80.16%
Titas Gas Field -8.50% 1.95% 3.80% -535.25% -48.62%
Sheba Telecom 138.49% 12.50% – 1007.94% –
Hobigonj Gas Field -5.87% -3.52% -6.23% 66.98% -43.54%
AKTEL 16.88% -27.74% 198.18% -160.83% -114.00%
Kailashtila Gas Field 23.27% 60.61% -10.00% -61.60% -706.06%
Rural Electrification Board 483.33% -25.00% – -2033.33% –
Rashidpur Gas Field -19.20% -9.42% -18.82% 103.82% -49.95%
Total 21.49% 6.13% 33.15% 250.73% -81.52%
It is very alarming that the growth rate for both corporate tax and VAT for most of top ten firms are negative in both 2006-2007 and 2007-2008. Hence the additional tax payment does not indicate the positive economic growth for the country.
The government of the Peoples Republic of Bangladesh must be more calculative about the economic growth of the country and concentrate in finding the reasons which would cause the declining economic growth in the country.