Published in The Daily Star on Tuesday, 21 June 2016


Making the budget work – Fahmida Khatun

fahmida-khatun-column-feat3The mid-year event of discussing the national expenditure and income, and their implications, has caught the attention of a broader section of people over the years. The national budget, which is also supposedly the reflection of the political philosophy of the government, gives the government the right to undertake various fiscal measures for a year, through which it can collect taxes from people and undertake various development programmes for the country. Thus the budget can play a key role for economic growth and poverty reduction. Moreover, measures taken in the budget have direct impact on the day to day lives of the people. Not only are individuals’ income and expenditure patterns affected through tax measures of the budget, decisions on business, trade and investment are also influenced by budgetary measures. Tax collections, government borrowing and expenditure patterns can also have an impact on these areas. This process in turn can contribute towards employment generation and economic growth. Besides, direct allocations for various social sectors and poverty reduction programmes can help eradicate poverty.

When the budget has such wide spread importance on the economy and its various sectors, it naturally deserves public scrutiny. Undoubtedly, over the years, awareness about the budget has increased, at least among the city dwellers, so have the concerns. Quite contrary to the government’s objectives to do good for people by way of boosting the economy through resource mobilisation from domestic and foreign sources and spending for development activities, people get anxious before the announcement of the year’s budget. Concerns surface among the salaried people as to whether there would be new taxes and by how much the prices would go up following the budget announcement, and how they would manage with a reduced income. The business community, investors and entrepreneurs also get concerned about the taxes and tariffs on income, export, import, investment, employment generation and profit.

If this is the reaction to the budget, it is indeed a difficult task for a finance minister of a country like Bangladesh to please the broader section of people with allocation and fiscal measures in the budget. Displeasure is growing. The budget for the fiscal year 2016-17 has come under fire even from the business group, which traditionally would welcome it, saying that it has been business friendly. On the other hand, many suggest that the budget is increasingly becoming a routine exercise and there is no creativity in it, only a relocation and readjustment of expenditures and allocations. And in the process, a few groups have been rewarded, with the majority feeling disgruntled.



The major source of such unhappiness is, of course, the tax efforts suggested in the budget. Constrained by lack of adequate resources to undertake large development expenditures and dissatisfied by the low tax-GDP ratio, the Finance Minister has made a desperate effort to mobilise higher revenue in this year’s budget, even though targets set for the National Board of Revenue (NBR) have not been fulfilled in the last few years. But a jump to the growth of 36.5 percent in fiscal year 2016-17 looks rather difficult, given the current state of affairs. In order to achieve such a growth, authorities will have to address the bigger issue, which is broadening the tax net, modernisation of the NBR, establishment of e-governance and capacity development of the concerned officials. It seems that there is an attempt to target only the low-hanging fruits – chasing those who are already in the tax loop or the easier sectors. NBR’s efforts in identifying several new areas and sectors which are outside the tax net is commendable. Obviously, it has to take several unpopular steps in collecting taxes from those sectors. As more people and institutions would come under the purview of the tax department, there will be an organic increase in tax revenue.

With its current capacity, it will be difficult for the tax department to achieve its goals. Compared to the size of the population and prospective number of taxpayers, the number of officials is limited and the capacity is also inadequate. Full automation of the NBR is incomplete, which makes the task of tax officials very difficult. Tax evasion and avoidance are problems across various income groups and economic sectors. If appropriate taxes are to be collected from an influential and resourceful person, or a trader is to be fined for misreporting prices, officials of the NBR must have the support and protection of the higher authority. Evasion is high in the case of value added tax as well. Though disposable income of a large number of people has gone up over the years due to higher per capita income, it is not reflected in VAT collection. Decision on VAT law, which has been at a standstill for a while, needs to be taken at the earliest.

The establishment of e-governance can bring great success, not only in bringing taxable people into the net and keeping data on income and assets of people, but also on overall economic management. Many countries such as the Philippines, Indonesia and Tanzania have shown success in tax payments through ICT. However, political will comes to the forefront in implementing such measures. Budget is of course also about expenditures, as they are crucial for development. Much has been said about the adequacy of allocation and quality of spending. But resource mobilisation holds the key for making any expenditure. As we have to increasingly depend on domestic resource mobilisation in the coming years, there needs to be a dramatic effort towards broadening tax net and reducing tax evasion. And while carrying out the drive towards collecting more taxes, we should not lose sight of their implications for employment generation and poverty reduction.

The writer is Research Director at the Centre for Policy Dialogue.




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