Tax revenue
Aside from its low Tax-GDP ratio, one of the most striking features of Bangladesh's tax system from the standpoint of international trade is its heavy reliance on customs duties, VAT and other charges levied at the border. Indeed, taxes on imports into Bangladesh account for over half of total tax revenues. Furthermore, a large share of corporation taxes (which account for two-thirds of all income taxes) are derived from export profits and/or are paid by foreign investors.

Bangladesh does, in fact, use a variety of measures (including duty concessions for specific purposes, duty drawbacks, bonded warehouses, EPZs, cash grant, etc.) in an attempt to offset the adverse effects of import taxes on exporters; but such measures contribute to the complexity of its trade (and tax) regime. As a member of multilateral trade organisation like WTO and also of regional ones like SAFTA, BIMSTEC and recently ARF, Bangladesh is committed to follow a trade liberalisation policy with a substantial tariff cuts on imports, and at the same time, to provide fiscal incentive to boost its export.

In a global economy where the countries become members of international or regional trade bodies, it is not possible on their part to bring about unilateral changes in their trade policies and hence the paramount need to adjust its fiscal policy to cater to the twin needs of necessary revenue collection for financing its development goals and also at the same time, to foster foreign trade.

Since government revenue is heavily dependent on trade taxes, an associated problem of tariff liberalisation is the loss of tariff revenue and its effect on budget balance. Alternative sources of revenue must be tapped if a sudden rise of budget deficit, which is already high, is to be prevented.

Fiscal policy
There is a close relationship between trade and development. Therefore, there is the need for mainstreaming trade policies in national development strategies. When we speak of such strategies, certain social parametres like education, health, poverty alleviation, betterment in standard of life and reasonable accommodation flash across our mind's sky.

The main objective of fiscal policy in Bangladesh has been to achieve growth with equity and social justice. The government has pursued an export-oriented growth strategy spearheaded by the private sector. Together with financial liberalisation and pursuit of prudent fiscal policy, an environment conducive for export-oriented growth has been created.

In the area of trade policy, the number of quantitative restrictions (QRs) has been drastically reduced; the maximum tariff rate has been brought down from 350 percent in FY 1992 to 25 percent in FY 2005. The number of tariff slabs has been reduced from 24 in the 1980s to only four in FY 2005. The number of end-user based tariff concessions has been slashed and the extent of tariff dispersion has been reduced. This has reduced the anti-export bias of trade policy. Various direct export incentive schemes have complemented the liberal import policy to promote export.

The package of export incentives (as stated earlier) entails substantial expenditure. The objective of fiscal policy, therefore, has been to improve performance on both the revenue and expenditure side of the budget. On the revenue side, the aim has been to improve the revenue-GDP ratio in general and the tax-GDP ratio in particular. On the expenditure side, the fiscal policy aims at reducing current expenditure so that resource envelope for development expenditure may be increased. The coverage of VAT, introduced in 1992, has been enlarged. In other words, enhanced efforts are underway to mobilise domestic resources to reduce budget deficit as well as dependence on external resources.

The public expenditure policy is also geared towards streamlining the infrastructure development and social sector. In support of poverty reduction goal, each year additional resources are being allocated towards directly poverty reducing activities covering all dimensions of poverty -- human poverty, income poverty, social disparity, gender inequality and social in security.

Impact of trade liberalisation
Since the early 1980s Bangladesh has promoted trade mainly through reforms of its trade regime and removal of structural obstacles to production and trade. The liberalisation programmes undertaken by the successive governments focused on simplification of import procedures, reduction of quantitative restriction (QRs), rationalisation and diminution of import tariff and maintaining of a competitive exchange rate.

The liberalisation process has achieved considerable success though progress, at times, has been uneven. In the latest Import Policy Order (IPO), 2003-2006, the number of 'Items on the Control List' has been brought down to 63 from 122 in the previous IPO. The number of tariff slabs (including 'zero') has come down from 24 in the 1980s to only four ('0', 7.5%, 15%, and 22.5%) in FY 2005.

An important element of trade policy has been the introduction of generous promotional measures for exports which include, inter alia, lower rate of interest on bank loans, duty-free import of machinery and intermediate inputs, cash incentives, duty-drawbacks and exemption from value-added and other taxes. A policy of dismantling tariff and non-tariff barriers along with export incentive scheme has led to the reduction of a policy induced anti-export bias.

SAFT A, launched with effect from July 1, 2006, will see duty cut-back on export/import of specified numbers of items/commodities of SAARC countries. Quite in the fitness of things, this will augur well for the over-all economic development of SAARC countries along with the betterment in the standard of living of the teeming millions of people living in South Asia region.

However, the lndo-Pak trade dispute has cast a shadow over the implementation of SAFTA. Pakistan's limited tariff concessions to only one item of the positive list comprising 773 items led the two countries to accuse each other of violating the SAFTA framework agreement. SAARC Foreign Ministers' Conference, held in Dhaka, has decided to refer it to the regular meeting of SAFTA Council of Commerce Ministers before the 14th SAARC Summit scheduled for April 3-4, 2007, in New Delhi. Even given the resolution of this problem, there will be no silver lining in the firmament of SAARC trade unless its five LDCs (out of its present eight members) expand their very narrow export list in the context of sensitive lists of various members. And it is in this way, the LDCs of SAARC can expect to reap the good harvest of long and short time benefits.

Usually the fiscal policy of the government is designed to maintain macroeconomic stability creating an enabling environment for private sector investment to foster economic growth, acceleration of poverty reduction and generation of sufficient revenue for financing development activities. Trade liberalisation has expanded our export base and, as a consequence thereof, our export earnings have increased over the years.

The financial objective of trade liberalisation policy is to make resources available as far as possible to obviate the necessity of foreign assistance, negate the possibility of raising the rates of income tax and customs duty and maintaining the Balance of Payment (BoP) to avert the undue fluctuation of exchange rate. The government is committed to raise the revenue-GDP ratio to finance the country's public investment needs from domestic resources. The Expenditure-GDP ratio was increased by 2.0 percent of GDP in FY2005.

It is clear that the government's expenditure package will inflate from year to year to finance various activities. Export earnings are expected to provide sufficient revenue to meet a significant portion of those financing needs. And that is possible, to a great extent, by the liberalisation of trade which will have a salutary impact on the fiscal health of the nation in the sense that rise in tax rate and duty will not be called for at the cost of suffering of middle income group. Needless to say, this middle income group constitutes a large percentage of our population.

Concluding observations
Foreign trade is now considered as one of the important vehicles of development. So many activities are to be undertaken to pull the LDCs out of the clutches of poverty to bring them to the level of developing countries and ultimately to that of developed ones. "Trade and Not Aid" is our slogan for the purpose.

This is why we want export-led growth. Of the 149 members of WTO, many are LDCs, under-developed and developing countries which rely on primary commodities for export to the markets of developed countries. But these countries are not getting the fair deal for their products/commodities because of quota restriction and tariff/non-tariff barriers imposed by developed countries. WTO is now the forum in which trade relations among nations evolve through collective debate, negotiation and adjudication, and is the prime mover for facilitation and expansion of global trade.

But it is a sad commentary that WTO is dominated by the advanced industrial countries which are reluctant to allow duty-free and quota-free access to the products of the underdeveloped countries. Progressive international trade liberalisation came through multilateral negotiations known as "trade rounds". One such round was held in Doha, the capital of Qatar, in 2001. It now appears that Doha Round is also doomed to failure because of obstinate attitude of world's trading powers throwing WTO's five years' search for a free trade deal deeper into crisis amid persistent disagreement over the reforms needed to reduce barriers to agricultural and industrial trade.

Under the circumstances, what is the panacea for developing countries like ours? To my mind, the panacea lies in the formation of regional trade agreements like SAFTA, ARF and BIMSTEC-FTA. Unfortunately the intra-regional trade among the SAARC countries is still low and is only about 4 percent of the overall trade of the member countries compared to 37 percent among the North American Free Trade Agreement (NAFTA); 67 percent among European Union (EU) members and 38 percent among ASEAN members. As other regional organizations have demonstrated, SAARC will only succeed if all member countries forsake their national interest for the greater benefit of the region. SAFTA will bring benefit to the entire region only when all its provisions are implemented in letter and spirit. It is to be realised, in this era of globalisation, that there is no substitute for regional co-operation. Creation of a free trade area and its uninterrupted operation lies at the core of such cooperation.

Md. Nurul Abedin is a former Secretary.