Budget relying on success of private sector

M. S. Siddiqui
Publish Date : 2014-06-09, Publish Time : 00:00, View Count: 21 9 hours ago
http://www.observerbd.com/details.php?id=24588


Finance Minister Abul Maal Abdul Muhith on Thursday unveiled a Tk. 2 lakh 50 thousand 506 crore Taka national
budget for fiscal year 2014-15 at the Jatiya Sangsad by outlining programmes for boosting confidence of businesses
aiming at luring investments for 7.3 percent economic growth and by 2021 it would be 10 percent. The output was
likely to have grown by 6.12 percent in the fiscal year ending in June. According to the bill, the size of the budget
for the fiscal year 2014-15 is Tk 34,284 crore or 15.86 percent higher than the current fiscal year's revised budget of
Tk 2,16,222 crore.

The allocation for non-development and other expenditure has been estimated at Taka 1 lakh 70 thousand 191 crore.
Expenditure for Annual Development Plan (ADP) has been estimated at Tk 80 thousand 315 crore, up by 18 percent
or Tk 15,315 crore from the revised budget of the current fiscal of Tk 60,000 crore. The finance minister said the
general inflation will be hovering around 7 percent by June 2014 and will come down further at the end of the FY15.
Government has truck records of chronic failure of public sector investment of Annual Development Programme
(ADP) for many years and shall have the same fate in the next years to come. In order to achieve the ambitious
target the private investment needs to rise to 25 percent of gross domestic product from the present 21 percent, an
increase not seen before. The Centre for Policy Dialogue (CPD) has the opinion that the economy will face an
impossible task of raising private investment by Tk 75,000 crore in fiscal 2014-15 to achieve the desired 7.3 percent
GDP growth.

In the ADP for FY 2014-15, human resource sector-education, health, and other related sectors-will receive 24.3
percent, overall agricultural sector 25.8 percent, power and energy sector 14.3 percent, communication (road,
railway, bridges, and other related sectors) 23.3 percent and other sectors 12.25 percent of total allocation.
It has been reported in the media that the total budget this year will be over Tk. 2,50,000 crore (over $31 billion). Of
this amount, Tk. 16,400 crore ($ 2.05 billion) will be earmarked for defense. The amount represents 6.56% of the
national budget and a 12.7% rise from last year's budget ($1.86 billion).

According to the proposed budget, the revenue receipts for FY15 has been estimated at Tk 1 lakh 82 thousand 954
crore, of which Taka 1 lakh 49 thousand 720 crore will come from NBR while Tk 5 thousand 572 crore from Non-
NBR sources. In addition, Taka 27 thousand 662 crore will be collected as Non Tax Revenue (NTR). Government's
plan to borrow Taka 31,221 crore from the banking sector and believed that there will not have any negative impact
on the fund flow to the private sector, as there is too much idle money in the banking system.
CPD said the budget was not properly designed, as financing it would require $4.1 billion, which is quite high and
seems unachievable in a single year. Its alternative is to borrow from domestic sources, which comes at an average
cost of 8.75 percent as opposed to 0.97 percent for foreign funds, meaning increased interest payment burden, which
already got the third biggest allocation in the proposed budget.

The budget relies heavily on revenue generation. A wide variety of goods will now be taxed at import stage, ranging
from bottled water to a new range of taxation on mobile phones, jewellery to sales tax on real estate. Though
revenue is bound to increase, so will the retail prices of all products that have been brought under the purview of tax
net.

FM has proposed to reduce customs duties on 40 basic raw materials-used in the manufacture of medicines-to a 5
percent concessionary rate from the existing 10-25 percent. A number of measures including stimulus packages will
be taken for readymade garments, pharmaceuticals, ship-building, leather, and IT sectors to add further momentum
to the export sector.

Customs duties on 14 items used in anti-cancer medicines have been withdrawn, with other existing concessionary
rates applicable to the sector remaining unchanged. Anti-cancer medicine producers and cancer patients will benefit
from the measure.

An increase of taxes on the import of billets, the raw material for steel bar manufacturing to Tk 5,000 from Taka
3,500 a ton has been recommended. The move to increase import duty on billets will help to protect the local steel
industry.

Budget to reduce supplementary duty on imports of woven fabrics from 30 percent to 20 percent will harm local
fabrics manufactures but it will help garment companies that depend on imported fabrics. This may increase export
of readymade garments.

A new tax bracket for high-income individuals, higher surcharge on wealth of richer people, health surcharge on
tobacco products, green tax to curb environmental pollution by industries, imposition of VAT in new areas,
increased source tax for land registration, are pragmatic steps.

The offer of 20 percent tax rebate for factory relocation from Dhaka and its surrounding areas would increase
investment and employment. There are some positive change in tax policy with impose of 30% tax on over Tk44.20
lacs income of individual, Tax cut on non-listed corporate, increased tax on land deed value, increase in land
registration in City corporation and municipality areas, extension of tax holiday and also further tax holidays for
relocated industries from city areas are very pragmatic steps. The new budget could be brought plastic industries tax
holiday facility and tax increase fish business from 3% to 5% on income from the fisheries sector.
Budget proposes a radical change in supplementary duty (SD) structures. Budget proposes SD on Car, made dress,
ceramics products, sanitary products, refrigerators, air-conditioning equipment and others technical goods one of up
to 60 percent from 36 to 0 on two product contains existing supplementary duty. There is a proposal to withdraw SD
on 162 products. The most new green tax would be imposed on a company's turnover if it is found to have polluted
"air, soil and water". Also the reduction of corporate tax will help to encourage further investment in different
sectors and diversification sectors of investments and generate more revenue for the government.
Garments sector to be given tax paid huge discounts will continue next fiscal year. For companies in the apparel
industry to source 30 percent of the decimal has been reduced from 80 per cent. The government move to reduce
import duties for a selection of industrial raw materials, as it will help local entrepreneurs remain competitive in the
global market. These changes are not enough to achieve the target of revenue collection and growth of GDP by
7.3%.

Government has initiated some courage to reform the tax structure and widen the tax net and moving ahead with
plan to introduce new VAT act by 2015-16 and also in process of introducing new direct tax act instead of present
income tax law.

An ambition of higher growth or a dream is a positive side of government. The ambitious high revenue collection,
implementation of ADP and investment of 25% of GDP in private sectors are seems difficult due to poor
performance of National board of revenue (NBR) and other regulatory authorities and present regulatory regime. A
major reform in administration and increase efficiency and reduction of corruption are preconditions to achieve the
target as well as political stability.

The implementation of proposed budget is relying on private sector for investment and revenue collection but one
financial year is too short period for the ambitious target. Is the private sector also prepared to serve the nation?

The writer is legal economist and he can be reached at shah@banglachemcial.com