Finance Minister AMA Muhith has largely been true to his words. In one of his pre-budget discussions, he said the private sector has been contributing about 80 per cent to the country’s gross domestic product (GDP). That is why he has proposed new fiscal measures for its further buoyancy. He has done this to a fair extent. And the response from different chambers of commerce and industry to the proposed budget for the fiscal year (FY) 2014-15 has been more or less quite positive. The chambers, which represent the economic actors in the private sector, have welcomed the proposed budget for the next fiscal as business-friendly. The proposed fiscal measures indicate that the Finance Minister has been quite keen on facilitating a faster growth of industry leading to its greater contribution to the GDP.
Domestic industries have thus been promised to be given special supportive measures this time in the new budget in a more pronounced manner than before to ensure a level-playing field for them. Duties on import of several raw materials used in local industries are therefore to be reduced and those on many finished products increased. The budget has focused on shifting of factories from cities and proposed extended tax holiday facility for the relocated units. The finance minister also hinted at the possibility of reducing the lending rates and increasing credit flow to support new investment in the private sector. Duties on import of raw materials as well as finished goods where paper, glass, ceramic, rubber, pharmaceutical, manufacturing of bus tyres, bicycle tubes, liquefied petroleum gas (LPG) cylinders, furniture, paint, electric, plastic etc., are concerned are either to be lowered or increased, depending on sector-specific needs and circumstances. The proposed new fiscal measures are quite pro active about promoting private-sector growth. Particularly notable is the budget’s stated goals about harnessing the growth potential of some priority industrial sectors where Bangladesh does otherwise enjoy some comparative advantage.
The new fiscal proposals to lower rates of duty on imported equipment in order to reduce the fife and other hazards at work places are purported to making the readymade garment industry responsive to the global clients’ demand for safety of factory workers. Likewise, the proposed imposition of surcharge of 1.0 per cent on industrial units which will fail to set up effluent treatment plant (FTP), will be considered environment-friendly.
However, the biggest challenge for the Finance Minister in the forthcoming fiscal will be in the area of instilling a sense of confidence among private investors, both actual and potential ones. If that happens, they will then come forward to make investments in different productive sectors. Without investment rising beyond 30 per cent, the aim of attaining the targeted middle- income status for Bangladesh will only remain a dream.
Mere duty reductions will not, however, help as the private sector will not be interested to make investment in new ventures in a difficult business environment. Difficulties here relate to fears about policy instability, deteriorating law and order situation, tax enforcement of property rights, political uncertainty (on real or perceived grounds), high costs of doing business, persistence of infrastructural deficit, malfunctioning institutions etc. All these factors are governance-related issues. Such issues will need to be addressed effectively by the political leadership at the highest level. Without this, the proposed national budget and new fiscal measures will not be of much consequence to deal with most of them in a befitting manner, matching the practical needs, requirements and expectations of the investors.
Finance Minister AMA Muhith placed the proposed national budget for the fiscal year (FY) 2014-15 in the Jatiya Sangsad (Parliament). People came to know the salient features, including the fiscal measures, of the budget days before its formal announcement, courtesy of the media. True to media speculation, the budget for the next fiscal has turned out to be quite big, judged against the fiscal performance in the outgoing one. The size of the budget, notwithstanding its not being otherwise over bloated if public expenditures of Bangladesh’s comprador economics are taken into account, has even baffled many economists who are quite aware particularly of the government’s capacity in terms of resource mobilisation and its spending. A good number of them have already expressed their doubt about the prospect of mobilising resources, both local and foreign, necessary for the implementation of the budget and achieve the targeted rate of economic growth, 7.3 per cent, during the upcoming fiscal.
The government proposes in the next fiscal’s budget to mop up tax revenue worth Tk. 1.55 trillion as against the possible collection of Tk. 1.30 trillion in the outgoing fiscal. The original tax revenue target was set at Tk. 1.41 trillion for that year. But due to the shortfall in the collection of National Board of Revenue (NBR) – portion of taxes and duties, the government had to lower its revenue target. The collection of income tax and VAT (value-added tax) suffered badly in the fiscal 2014, mainly due to the political troubles in the first half of the outgoing FY. Overall economic activities, including manufacturing and services sector, took a beating in its first half. This seriously affected the tax revenue collection. Against this backdrop, the Finance Minister intends to mobilise nearly Tk. 220 billion more in income tax and VAT in the upcoming fiscal. This could prove a daunting task, particularly when the possibility of return of violent politics cannot altogether be ruled out, given the nature of the Bangladesh polity. But the government of the day has, apparently, decided to play down publicly such a risk and its possible effect on the economy.
Such a risk apart, the issue concerning the capacity of the NBR as the main tax revenue collecting body is hard to ignore. Barring the not-so-friendly attitude of a section of tax officials to the taxpayers, the shortage of manpower, logistics and incentives is viewed as a major handicap for the NBR working as a dynamic and efficient entity. Undeniably, the NBR has done well in recent years in areas of tax collection where much efforts and attention are needed. But the potential, in terms of generation of direct tax revenues, remains far greater. In addition to beefing up its capacity, the NBR needs to extend its reach even up to the upazila level from where it could collect taxes from thousands of small and medium business establishments. It will be not out of place to mention here the failure of the tax authorities to ensure introduction of the electronic cash register (ECR) machines in shops and other relevant business organisations in cities and towns. The success of the move would have helped the NBR fetch greater amounts of VAT revenue.
The government, for reasons best known to itself, does not appear to be adequately attentive to its task of tapping non-NBR — both tax and non-tax — sources. A sort of stagnancy or a very marginal increase in the volume of revenue is noticed in this particular area. If explored, the government might find a few more areas for mobilising additional resources without creating much dissatisfaction among the eligible taxpayers. No matter who says what, the country needs a budget far larger than the one proposed by the Finance Minister last Thursday. And the potential to mobilise domestic and external resources to ‘get the same implemented is also there. But there are quite a few man-made or management hurdles. Any successful implementation of the budget based on quality spending will continue to elude the nation until and unless those hurdles are removed.
(The writer is an Economic analyst, Columinst, e-mail [email protected])
