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CPD IRBD study on revenue collection cited

Published in The Financial Express on Sunday, 7 June 2015.

Proper budget execution hinges on political stability

Shahiduzzaman Khan

Stability of socio-political situation was identified as the main challenge to implement the national budget for the fiscal year (FY), 2015-16. For any country to prosper, political stability is a pre-condition for its forward march. The proposed budget of Tk 2.95 trillion, which is 17.2 per cent higher than that of the previous fiscal, is somewhat challenging.

Admitting political instability in the country, which is seen as a damper on economic advances, the finance minister AMA Muhith said: ‘I believe that devastating political programmes will not be observed in the coming days.’

The finance minister appears upbeat on meeting the challenge. Although he admitted that the revenue collection target for next fiscal year is high, he said the National Board of Revenue (NBR) is ready to achieve it. Its manpower has been doubled now and they have all been trained. NBR chairman said the tax authority has the capacity to collect Tk 2000 billion in any given year. Since the target for fiscal 2015-16 is lower than that, the NBR can achieve it.

However, many analysts voiced their scepticism about the government’s ambitious 7.0 per cent gross domestic product (GDP) growth target, saying it will require an increase in the GDP-investment ratio from current 28 per cent to 32 per cent next year.

The leading think tank of the country, the Centre for Policy Dialogue (CPD), identified mobilising the targeted huge revenue principally from domestic resources as a major challenge for the next budget. It also aired doubt about fairness of a few fiscal propositions.

The think-tank also questioned the quality of fiscal framework as it thinks the budget does not provide any monitorable transparent plan for its implementation. The quality of fiscal planning has been deteriorating over the last four years, which is likely to continue in FY16, it said.

Analysts say the high revenue target and the absence of clear guidelines in achieving that improving efficiency of spending may lead to messing up in achieving the budgetary target. All major parameters of fiscal framework will need to register higher growth rate to attain the targets.

It noted that dependence on domestic financing increased while utilisation of foreign loans and grants remained weak. To overcome the problem, the CPD suggested the government to increase its foreign aid utilisation to reduce reliance on high-cost domestic borrowings to fund the budget deficit.

Tapping more foreign assistance, sluggish exports and accelerating private investment were identified as some other challenges for the government in the new fiscal year. Sufficient initiatives have not been taken in the budget to boost private investment in the country which has remained sluggish over the past two years.

In order to reap the benefit of fiscal measures, there is a need for reform of government institutions. And to attain the status of a middle-income country (MIC), the country also needs political stability, consensus on national issues as well as more investment.

The provision of black money still exists in this year’s fiscal proposals. Experts say a legal framework needs to be formulated to help bring undisclosed or black money into the mainstream economy. In the absence of an effective mechanism to address the relevant issues, the volume of black money has only grown bigger and bigger, a large part of which has even been transferred abroad.

Many chambers welcomed the government proposal for reducing the corporate tax rates in some cases, which ‘has been a longstanding demand of the private sector’. However, the proposed budget did not reduce corporate tax on non-listed companies and tax on distributors. Some chamber bodies criticised the move.

In fact, all sectors of the economy should be progressively brought under the tax net. However, these sectors should be identified first and their ability to pay should be determined. At present, readymade garment, textiles and other export sectors in Bangladesh are facing the twin challenges of the Eurozone crisis and the increased costs of compliance. As such, the increase in tax at source to 1.0 per cent from 0.3 per cent may be reconsidered until the industries are on a stronger footing.

Many economists do not support raising VAT (value added tax) from 2.0 per cent to 4.0 per cent on superstores which will be economically damaging to this emerging but struggling industry with high employment potential. They also opposed the idea of imposing VAT on tuition fees at any level in order to make quality education affordable for the wider population.

The government’s move to impose income tax on gratuity came under criticism as superannuation funds like gratuity are designed to provide financial security for retired persons. Such proposal should be dropped, analysts say.

It has become a tradition to spend around half of the development budget in the first three quarters, but the pace accelerates in the fourth quarter when 40 to 45 per cent of the development outlay gets implemented. The government this time, as the planning minister said, will try to get out of the practice and spend the total development outlay equally in every quarter. Furthermore, several reform measures have been taken to facilitate full implementation of the ADP.

What is needed at this hour is socio-political stability in the country which may help implement the fiscal proposals. Everybody needs to work for ensuring such stability.

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