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Dr Khondaker Golam Moazzem on budget and infrastructure

Published in Dhaka Tribune on Monday, 29 June 2015.

More money talks

Rehan Kabir

Various issues need to be tackled before we can move forward with the budget Finance Minister AMA Muhith has recently unveiled the budget for the fiscal year 2015-16 with what is believed to be a mammoth amount of around Tk295,100cr.

He was genuine and honest when he said his previous arrangements did not garner enough positive results as had been expected this year. But he then put political vulnerabilities as an excuse instead of the lack of accomplishing prior aims during the current year and also for conceivable weaknesses the following year. As he specifies, gaining further ground depends on positive political environment.

This financial plan, as estimated, is going to set a new record regarding the total national output (GDP), as its expense is roughly 17% of the total GDP.

The National Board of Revenue (NBR) is being given an overwhelming undertaking of mustering Tk176,000cr to finance the significantly larger budget compared to the current year’s.

This could rise to be the most crucial of all endeavours undertaken by the government in the following fiscal year according to numerous economists and analysts.

This budget predicts a 5% deficit, with the difference between projected income and expenditure to be subsidised for the most part from local sources — from banking and non-banking institutions.

This is the second financial plan under the Awami League government’s second successive residency.

It is the 16th plan being exhibited by Awami League in its four terms of administration — the 9th one for Mr Muhith as finance minister, and a record 7 in succession for him.

The monetary allowance for the FY16 is Bangladesh’s 44th national budget since the country’s freedom in 1971.

This budget announces the inauguration of the seventh five-year arrangement of national advancement. In line with the financial plan, it also predicts a national growth of 7% in the first year.

The reserve for development expenditure has seen a sharp rise in the form of 29% to a whopping Tk97,000cr.

His ambitious revenue target — 27% higher than this year’s revised figure — will be challenging to achieve although the wisely proposed three-fold increase in advance income tax on garment exports will rake in huge money. Around 85% of the total revenue comes from the NBR, and they have been tasked with boosting their collection by 31% over the current year.

To facilitate the increased collections, the scope of value-added tax will be widened and some innovative measures imposed, finance division officials said.

On the income tax side, besides increasing the number of taxpayers, initiatives will be taken to collect more taxes through reform measures.

Another big source of funds for the government is non-tax revenue, whose target has been increased about 14% year-on-year.

The corporate world, in all likelihood, will see a cut in their income tax rates. The tax-exempted income ceiling of individuals and women taxpayers may be raised, keeping in view the current price situation.

The duty rates of some of the consumers’ items are likely to be revised both upward and downward. Source tax of the export-oriented may also see a raise this time.

The poverty rate is expected to fall 2 percentage points to 22% as a result of the targeted expansion of the economy during the upcoming fiscal.

Meanwhile, the finance division had wanted to keep the inflation target at 6.5% in 2015-16 in tune with the seventh five-year plan, but it is now being projected at 6.2% amid a sharp fall in commodity prices, both on the domestic and international markets.

Stimulating private-sector investment will be another big challenge for the government according to many economists.

However, Policy Research Institute (PRI) executive director Dr Ahsan H Mansur finds the revenue plan a bit upscale: “The NBR target is definitely ambitious.”

Dr Khandker Golam Moazzem, additional director at the Centre for Policy Dialogue (CPD), said the next budget will face key challenges in executing major infrastructure projects like roads and providing gas to fuel the economic growth up to the desired level.

The country’s power sector has improved somewhat, but the other key areas of infrastructure remained far below the mark in terms of execution.

The budget is expected to put emphasis on macro-economic stability through continued creation of investment opportunities, expanding and upgrading physical infrastructure, improving quality of social services, and strengthening institutional and regulatory environments.

Human-resource development, particularly with regards to women and children, according to the finance minister, will get priority in the budget.

Administration prospects do not look splendid. The finance minister guarantees little on open organisation, police force, and judiciary. Strengthening the local government remains an uncharted territory.

He ingrains no new trusts on streets, gas supply, and congested driving conditions in Dhaka city which damage the economy so terribly. There is no solution for a shrinking agriculture business or the hailing labour trade.

Implementation becomes difficult because of any non-structured process of revenue collection and expenses. Besides, corruption, inefficiency, political influence, and the substandard process of financial management make the whole implementation process of the budget inefficient.

As revenue is not collected as forecast, the government has to depend on foreign loans and donations or internal borrowings from banks to meet the planned budgetary expenses. Sometimes, the availability of foreign loans and donations becomes difficult and the government has to borrow from banks. Excessive borrowing from banks leads to a liquidity crisis, the money market becomes unstable, and the credit flow to the private sector gets reduced significantly, hampering the growth of business and thus, the GDP growth.

So the revenue plan should be drawn up on the basis of research on the tax net and the collection strategy should be devised based on this.

With a view to spreading the tax net, the implementation strategy on revenue should cover (i) the analysis of avenues of income (for any particular profession or business, its industrial analysis and distribution of sector income), (ii) analysis of taxpayers (taxpayers, property taxpayers, gift taxpayers, professional taxpayers in any profession like doctors, lawyers, chartered accountants, etc, and business sectors), (iii) a reformed tax administration process (technical manpower with the highest level of integrity in dealing with laws and taxpayers, proper survey and research), (iv) modernisation of laws (to cover the untaxed area, tax evasion, and an equitable taxation system for all sections of people), (v) strengthening the accounting practice, making the concerned professionals more accountable,  and (vi) initiatives and efforts to fight corruption for posting healthier revenue income.

If expenses are made under a better plan, of course the budget will see efficiency in fund spending. It could be bettered by (i) decentralisation of political power and the power of fund-spending going to the local government with transparent follow-up of implementation, (ii) making the administration and project implementation processes independent and free from any political influence, (iii) appropriate human resource management by following performance-based promotion and hiring and firing professionally, (iv) improving financial management and accountability.

The budget should realistically address the strategy of exploring all avenues of tax-collection enhancement. In the same way, the strategy on expenses and project implementation should be stated to ensure better efficiency and the best use of resources.

The above revenue plan, especially tax, priority-based expenses, and the budget implementation strategy, should be drawn up in line with the 7th five-year plan. The revenue plan, especially on tax, the sector-based priority under reform plans and implementations, should be addressed, keeping in mind the aspirations and objectives as set under Vision 2021.

The financial year 2015-16 is the first year of the 7th five-year plan after the end of the 6th five-year plan on June 30. A sizable amount of revenue in the form of tax, a redrawn plan on expense based on priority of sectors, especially the arms and legs, and a suitable implementation strategy are essential for fulfilling the unmet aspirations under the 6th plan, if we want to meet all the aspirations under the Vision 2021.


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