Centre for Policy Dialogue has organised a media briefing on analysis of the proposed National Budget FY2017-18 on Friday, 2 June 2017 at the La Vita Hall, Lakeshore Hotel.
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Published in The Financial Express on Friday, 3 June 2017
Budget to hurt ‘middle, lower-middle classes’
The tax structure proposed in the new budget would fuel inflation which could have negative impacts on the overall economic growth and investment, a leading policy think tank predicts.
At the same time, the taxation structure would increase the tax burden on the middle- and lower-middle-income groups, according to the Centre for Policy Dialogue (CPD).
“The proposed tax structure outlined in the budget would increase both production cost and living cost in the country,” said Debapriya Bhattacharya, Distinguished Fellow of the CPD, at a post-budget press conference in the capital Friday.
“Already, the price of rice is in an upward trajectory while the prices of oil and gas have already increased. At the same time, the exchange rate of Taka is also likely to go downward in the coming months,” the leading economist observed to underpin his fear about price spirals.
“Considering all this, there is big possibility of increased inflation in the next fiscal,” he said, adding: “This can have a negative impact on the overall growth and investment in the country.”
The policy think-tank came up with its views a day after Finance Minister AMA Muhith placed an ‘ambitious’ Tk 4.0 trillion-plus national budget for the fiscal year 2017-18.
The new budget relies largely on collections under the new VAT law to cover a 35 per cent growth in revenue earnings.
The proposed budget has estimated the inflation to remain stable at 5.5 per cent. However, CPD officials termed this inflation estimate ‘questionable’.
And the budget has proposed the introduction of a uniform single VAT rate of 15 per cent for the next three years.
Turning to this provision, Debapriya said, “The Finance Minister did not clearly mention whether the rate will be changed or brought down after three years.”
At the same time, he added, no clear implementation plan for enforcing the act has been mentioned and no assessment of additional revenue generation from the implementation of this act has been made public.
Mentioning that supplementary duty has been increased for some major industries, CPD officials noted that although it is expected to generate additional revenue, the measure may increase tax burden on importers while a number of sectors will suffer from higher cost of doing business.
Mr Debapriya was also critical about the excise duty on bank- account balance, which he said would be a disincentive for those using banking channel at a time of falling interest rate on savings.
“We always have called for taxing those who are smuggling their money abroad and not increasing the tax burden on ordinary taxpayers,” he told the journalists.
“But, the latest budget would mainly work to increase the tax burden on middle- and lower-middle-income people,” the economist added.
He also found the absence of any specific work plan for implementing the annual development plan or the overall budget.
“We agree with the expectations laid out in this budget,” the eminent economist said. “But we do not see any specific implementation plan for realising those expectations.”
Mr Debapriya observed that it would not be possible to implement this budget without direct involvement of the public representatives.
Currently, he said, parliamentarians or local-government representatives do not have any role to play in the monitoring of project implementation.
“It would be wrong to think that such big budget will get implemented only through public administration and without any true involvement of public representatives,” he added.
CPD officials also lamented what they said the absence of any specific guidelines for reforming the banking sector or for rejuvenating the capital market in the latest budget.
“There should have been some specific guidelines in this regard given their central roles in the overall economy,” Debapriya said.
CPD researchers also observed that the much-hyped GDP growth is having little impact in terms of employment generation in the country.
“While achieving the growth figures has dominated attention, it has not been able to create more jobs in the economy,” Debapriya said, adding: “Job creation has slowed down while unemployment rate remained unchanged.”
CPD officials also noted that as per the latest budget, the gross foreign-aid requirement will be around US$ 7.6 billion, which is an almost impossible target given that the record foreign-aid inflow was only US$ 2.7 billion back in the year 2016.
“Normally, it takes four years for the government to spend such amount of foreign aid money,” Mr Debapriya said.
The policy think tank also pointed out a gradual concentration of ADP allocations on certain sectors while relatively moderate rise in allocations for health and education.
“Top five sectors, including transport and power, have received 69.1 per cent of total ADP allocations while there has been moderate rise in primary, secondary and mass education as well as health and family welfare,” Mr Debapriya said.
With regard to the provision that allows the investment of undisclosed money — commonly called black money — CPD officials said the inclusion of such provision in the ordinance is morally unethical for honest taxpayers and might encourage people to evade tax.
“The need for a predictable legal framework including a new law on undisclosed money and ‘benami’ property is tough now,” said Mr Debapriya in his extensive observations on the new budget.
Another Distinguished Fellow of the CPD, Mustafizur Rahman, said implementation of the budget would depend largely on enhancing government’s institutional capacity.
Executive Director of CPD Fahmida Khatun and Research Director Khondaker Golam Moazzem also spoke on the occasion.
Published in The Daily Star on Friday, 3 June 2017
Fresh taxes may fuel inflation: CPD
The proposed taxes for fiscal 2017-18 might fuel inflation and deal a blow to investment and economic growth, the Centre for Policy Dialogue said yesterday.
“The cost of doing business and living will go up, which will affect the middle-class and the lower middle-class,” said Debapriya Bhattacharya, distinguished fellow of the CPD.
The government resorted to the easiest ways to boost its revenue collection, such as raising the levies on bank accounts and air tickets, and in so doing, continued to create pressure on honest taxpayers, he said.
Debapriya’s comments came at a press briefing to present the think-tank’s analysis on the proposed budget for the upcoming fiscal year.
The CPD criticised the allocation of Tk 2,000 crore to shore up state banks’ capital base, as the performance of most of the lenders did not improve despite injection of funds for the last several years.
Terming the situation in state banks “unexposed bankruptcy”, Debapriya said public money was being used to make up for the losses inflicted by loan defaulters.
“He [finance minister] kept mum on the troubled banking sector. Was it because of the powerful quarters in the sector?”
The think-tank’s observations came a day after Finance Minister AMA Muhith proposed a 26 percent bigger budget of Tk 400,266 crore for fiscal 2017-18 compared with the outgoing fiscal year.
Debapriya said the finance minister proposed raising the government’s expenditure by a whopping 26 percent without giving any clear outline of how the implementing agencies, with their existing capacity, would efficiently manage the higher allocation.
Although the CPD didn’t disagree with the government’s expectations and aspirations, it expressed doubt about the methods for executing the proposed budget.
Debapriya said the budgetary structure creates a financial illusion as the reality does not match the figures used to frame it.
“Most surprising is the deficit financing part. It appears that a huge spiral in foreign financing was shown to match the figures,” he said, citing an 80 percent growth projection of gross foreign aid flow in fiscal 2017-18.
The finance ministry showed that $7.6 billion of foreign aid would fly into the country in the next fiscal year, which would be a record.
Bangladesh managed to utilise foreign aid of $2.7 billion at most in a fiscal year, which was in fiscal 2015-16.
Noting the allocations in various sectors, the CPD said the provisions for agriculture and allied sectors are higher than the outgoing fiscal year’s, but their share in the total budget is contracting over time.
Debapriya also said the allocations for education and health sectors were still low in terms of the country’s gross domestic product.
On tax measures, the think-tank said the tax-exempted threshold, which has been kept unchanged at Tk 2.5 lakh, is relatively lower in Bangladesh.
“There is scope to raise this,” it said, while citing the tax-free income ceiling in India, which is Rs 2.5 lakh — equal to about Tk 3.13 lakh.
The CPD also believes the minimum tax rate should be reduced to 7.5 percent instead of 10 percent to encourage more people to pay taxes. The income tax on the first slab is 5 percent in India and 4 percent in Sri Lanka.
The civil society body said no clear implementation plan to enforce the new VAT law was given in the budget proposal and neither an assessment of the additional revenue generation from its implementation from July 1 was made public.
“Effective implementation of the act will be uncertain and challenging,” the think-tank said.
CPD Distinguished Fellow Mustafizur Rahman said the government gave a big concession by way of exempting many goods and services from VAT to reduce the pressure on people.
The list of items for supplementary duty was not changed amid demands from businesses to protect domestic industries.
“But primarily we think that prices will rise,” he said, adding that it cannot be said that the measures have been framed to gain popularity.
“There are some areas where there is a tax burden,” Mustafizur added.
The CPD said VAT would be imposed at a uniform rate on the supply of gas and electricity.
CPD Research Fellow Towfiqul Islam Khan said the NBR advised the Power Division not to increase the prices of electricity and to claim rebate after imposing 15 percent VAT.
But it appears that the government may need to increase subsidy if the retail prices are not increased.
“The government’s policy decision is unclear in this regard,” he said.
The CPD said a number of targets — such as the 7.4 percent GDP growth and the 5.5 percent inflation goals — set by the government for next fiscal year were tenuous, while the aim to increase the foreign aid flow would be “impossible to attain”.
Private investment of some Tk 66,000 crore and public investment of nearly Tk 50,000 crore will be required in fiscal 2017-18 to achieve the targeted growth.
The CPD, however, said economic growth does not become meaningful unless enough jobs are created and the unemployment rate brought down.
Citing the Labour Force Survey, it said 4.7 lakh people got jobs per year between 2013 and 2016, down from 13.3 lakh between 2010 and 2013.
During 2006-2010, 16.8 lakh people got employment annually.
Net employment in the manufacturing sector has fallen 9 percent. The decline in female labour force was 11 lakh at a time when the manufacturing sector posted 11 percent average growth during 2013-2016, the CPD said.
Debapriya said the decline in manufacturing sector jobs indicates the changes in the investment scenario.
“It needs to be investigated where jobs are being created and what types of jobs are those. It appears that the economy is going through a big change,” he added.
Fahmida Khatun, executive director, and Khondaker Golam Moazzem, research director of CPD, also spoke.
Published in Dhaka Tribune on Friday, 3 June 2017
CPD: Inflation rate will not fall as predicted
CPD asked the government to specify how they planned to achieve the tax revenue targets and urged them not to increase tax burden on the existing taxpayers, instead of expanding the tax net.
The Centre for Policy Development, the premier non-government economic think tank in Bangladesh, does not believe that the inflation rate will go down to 5.5% as Finance Minister AMA Muhith predicted in his budget speech at parliament on Thursday.
“[… rather] there is a concern of the inflation rate going up,” said Dr Debapriya Bhattacharya, distinguished fellow of the think tank, while presenting his informed opinion about the proposed national budget for 2017-18 fiscal year at a hotel in Dhaka yesterday.
“I think the overall tax structure will increase production cost, and the living expenses will go up. This is likely to trigger inflation and adversely affect investment and economic growth,” he added.
In his budget speech on Thursday, Muhith proposed a tax revenue target of Tk248,190 crore for the 2017-18 fiscal year, of which Tk91,344 crore will come through VAT collection and Tk86,867 crore will come from income tax collection.
The new income tax collection target is 32.3% higher than that of the outgoing year, while the VAT target is 32.5% higher.
“Lower and middle income people will feel the pressure,” he said.
The government’s decision to increase gas and electricity prices and not to lower fuel prices may make the situation worse, he added.
The CPD asked the government to specify how they planned to achieve the tax revenue targets and urged them not to increase tax burden on the existing taxpayers, instead of expanding the tax net.
Debapriya also said the proposed budget has set ambitious targets, but it lacks a comprehensive road map for effectively achieving the said targets.
He pointed out that people were being deprived of benefits from government allocations because the government was failing at time-bound implementation of priority and fast-track projects.
“Lack of proper utilisation of the allocated resources in large-scale physical infrastructure projects create a barrier towards better distribution of resources in other important low-cost projects,” he added.
He said the proposed budget projected a 7.4% GDP growth, but it would be meaningless if the government did not create more jobs.
To reach the GDP growth target, an additional investment of Tk 6,000 crore in the private sector and Tk50,000 crore in the public sector is required, he added.
Overall, there is little scope for enhancing the delivery efficiency of the new budget, Debpriya said.
“One will have to get the political economy right … The Ministry of Finance needs to come up with a bold implementation plan, building on some of the ideas mentioned in the budget.”
The CPD also made a series of recommendations: 1) It advised the government to establish an independent fiscal policy authority and separate the existing unit from the revenue collection authority; 2) It called for the government to introduce a separate but integrated budget for local government and set up a permanent local government financing commission; 3) Adding NGO financing in the public expenditure; 4) Setting up an independent Public Expenditure Review Commission; 5) Setting up an independent Finance Sector Reform Commission; 6) Setting up an Agriculture Price Commission; and 7) Setting up an independent statistical commission.
Debapriya also criticised the increased excise duty on bank accounts.
“The new move will act as a disincentive for those using banking channels in times of falling interest rates on savings,” he said.
CPD distinguished fellow Prof Mustafizur Rahman, Research Director Khondaker Golam Moazzem and Research Fellow Towfiqul Islam Khan spoke at the event as well. CPD Executive Director Fahmida Khatun moderated the event.