As part of the Independent Review of Bangladesh’s Development (IRBD) programme CPD organised a media briefing to release the report on the State of the Bangladesh Economy in FY2016-17 (Second Reading) and CPD’s Budget Recommendations for FY 2017-18 was held at BRAC, Dhaka on 16 April 2017.
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Published in The Daily Star on Monday, 17 April 2017
Cut kerosene, diesel prices
Proposes CPD for next budget; wants VAT 12pc from 15pc
Staff Correspondent
The Centre for Policy Dialogue yesterday said the value-added tax rate should be 12 percent in the low- and middle-income countries in South and East Asia.
Bangladesh’s proposed uniform VAT rate of 15 percent is on the high side when compared to neighbouring low- and middle-income countries in South and East Asia, said CPD research fellow Towfiqul Islam Khan.
He made the comments while presenting the think-tank’s recommendations for fiscal 2017-18 budget in the capital’s Brac Centre Inn.
The global median rate for VAT is 15 percent, but in South and East Asia and among low- and middle-income countries in general, the median appears to be 12 percent.
If a uniform VAT rate is to be implemented from July 1, it is recommended that the rate be reduced to 12 percent gradually over a medium term, the CPD said.
It is hoped that after the uniform 15 percent VAT rate gets effective, the ensuing revenue expansion will enable the government to lower the VAT rate without adverse earning consequences.
The civil society body also suggested adjusting VAT rates to the prices of utilities such as electricity in a way that the combined effect does not create a serious burden on consumers.
CPD warned that the cost of production in almost all sectors might go up in the coming months as a result of the new VAT law.
There might also be depreciation of the money exchange rate, a rice price spike and a further increase in tariffs for electricity and gas.
Consumers will have lower disposable income due to the declining remittance inflow and the increase in indirect tax coverage.
To reduce the impact, the think-tank suggested cuts in the prices of kerosene and diesel, which would help raise consumers’ disposal income.
“Private investment is showing promising signs. At this moment, it is necessary to provide relief to the private sector so that they can remain competitive,” said CPD distinguished fellow Debapriya Bhattacharya.
CPD also urged the government to slash the personal income tax rate for the lowest threshold to 7.5 percent from 10 percent.
A reduction in personal income tax will help boost people’s disposable income, especially of those belonging to the middle-class, Debapriya said.
“This cut will bring more revenue to the state as it will increase domestic demand.”
CPD also recommended providing strategic protection to domestic market oriented industries.
According to Debapriya, incentives to domestic market-oriented small and medium enterprises will have a positive impact on the economy as a whole.
The sector has potential to take Bangladesh forward. A revolutionary change may take place from rural to urban areas if these enterprises get minimal support of what the export-oriented sectors have been getting for the last two and a half decades, he said.
CPD recommended an expansionary fiscal policy to spur private investment and attain development goals for the nation, citing that economic indicators such as falling inflation and interest rates are favourable for such moves.
But realistic targets should be fixed, said CPD.
It also suggested carrying out proper assessment of fiscal incentives through observing performances since fiscal incentives are not always given based on scientific analysis.
“This is a matter of political economy. Those who have lobbying power and political connections control budgets,” said Debapriya.
On budgetary framework, he said quality of fiscal structure deteriorates gradually.
Referring to the gap between targets set and the actual realisation of budgetary goals, he said big budgets are prepared without any realistic analysis and without taking the institutional capacity into consideration.
“This creates a sort of fiscal illusion … it seems big but it is not big in reality,” Debapriya added.
Bangladesh’s budget implementation capacity is quite low compared to other developing countries such as India and Vietnam.
“It is high time to turn this so-called big budget myth into reality,” CPD research fellow Towfiqul said.
One of the reasons behind the inadequate implementation of budget is lack of ownership, particularly among the public representatives, as budgets are not prepared based on adequate consultations, Debapriya said.
At the end of the day is the budget, a document containing some figures put by some bureaucrats or a document that comes through a political process, he said.
The CPD also suggested depreciating Bangladeshi taka to boost remittance inflow and export receipts.
Debapriya said there is an apprehension that new VAT rate will increase the burden of indirect tax on people. Efforts should be on to collect increased direct tax to ensure equity.
The implementation of new VAT will fuel prices of various goods and services in the market and increase financial burden on people.
CPD suggested increasing allocation for education and health and expediting reforms.
Chaired by CPD Executive Director Fahmida Khatun, CPD distinguished fellow Prof Mustafizur Rahman and CPD Research Director Khondaker Golam Moazzem also spoke at the event.
Published in The Financial Express on Monday, 17 April 2017
CPD sees expansionary fiscal policy better for economy
Criticises govt limitations in budget implementation
FE Report
The economy deserves an expansionary fiscal policy to move forward, local think tank Centre for Policy Dialogue (CPD) said Sunday.
But it criticised the government machinery for its limitations in implementation of the budget and resource mobilisation.
CPD distinguished fellow Dr. Debapriya Bhattacharya said the next national budget would be the last full-fledged budget proposal before the next general election, and definitely it will be an expansionary budget.
“But it would be meaningless to propose a large budget without enhancement of the budget implementation capacity,” he told a pre-budget meeting at a city hotel.
He was replying to a volley of questions from the local media after placing the think tank’s pre-budget recommendations for the fiscal year 2017-18.
Chaired by CPD executive director Fahmida Khatun, CPD distinguished fellow Professor Mustafizur Rahman and additional research director Dr Khondaker Golam Moazzem also spoke on the occasion.
Dr Bhattacharya argued that the revenue authority registered an average collection growth of 13 per cent in last five years, but wished to set a high target of 34 per cent in the next fiscal year.
On the other hand, the spending growth averaged less than 12 per cent in the past five years, but now the government deliberately wants to leap it up to 27 per cent.
Terming such statistics of the government as ‘fiscal illusion’, Dr Bhattacharya said the magnitude of such kinds of illusion rises on the eve of the general elections.
Dr Bhattacharya lamented the implementation performance of Annual Development Programme (ADP) in last three months of a financial year and termed it as a last quarterly ‘vicious cycle’.
“In nine months we achieve 45 per cent of ADP and in the last three months we attain the remaining 55 per cent,” he said, expressing dissatisfaction over that the Implementation, Monitoring and Evaluation Division (IMED) never reveals any result-oriented evaluation of ADP executions.
“…to my mind, the representatives of the people in the parliament also do not want it and this is a matter of political economy,” he added.
He said the rates of growth and others indicators would not provide any meaning until bringing any reform in such political economy.
Meanwhile, CPD senior research fellow Towfiqul Islam Khan presented a paper on the state of the Bangladesh economy in fiscal year 2016-17, recommending measures to cut prices of kerosene and diesel in the next budget for the benefit of lower income group of people.
He said the cost of production would increase further in the next fiscal year as the new VAT and SD Act is scheduled to be effective from July 1, possible depreciation of exchange rate, rise of rice price and possible rise in electricity and gas price.
CPD apprehended that the cost of production would increase following the new VAT and SD Act which is scheduled to become effective on July 1 while the local currency is likely to depreciate, the price of rice would rise and the prices of electricity and gas would increase further.
“If the new budget reduces the oil prices, it would offset the cost of production,” said Mr Khan. He recommended providing strategic protection to promote domestic market-oriented industries.
He said the income tax rate for the first slab of individual’s taxable income should be 7.5 per cent from existing 10 per cent as it would enhance the disposable income.
The CPD fellow also recommended gradually lowering the Value Added Tax (VAT) rate to 12 per cent instead of the uniform 15 per cent.
“It is reckoned that Bangladesh’s proposed uniform VAT rate is on the high side when compared to her neighbouring low and middle-income countries in South and East Asia,” he said.
He said there is a need for an assessment of government spending to properly diagnose public expenditures. “We’re suggesting such assessment not for the current fiscal year, but also for all time …” he added.
The think-tank said budget should come with a set of associated reform agenda, including banking commission, independent financial sector reform commission, agricultural price commission and public expenditure review commission.
The commissions should come with the mandate to provide medium term policy guidelines to the government and formulate concrete set of strategies to improve the efficiency in budget delivery, it said.
However, Dr. Bhattacharya said there is a very little hope that the government will form such commissions before elections as these commissions will create discomforts for many influential people.
Published in The Independent on Monday, 17 April 2017
CPD for reducing kerosene, diesel prices
Independent Online Desk
Centre for Policy Dialogue (CPD), a civil society think thank, on Sunday recommended reducing kerosene and diesel prices to provide some relief to investors and consumers, which will have a positive impact both on the economy and society.
“Rational downward adjustment of kerosene and diesel prices can provide some relief to investors and consumers by raising their disposal income, particularly those with lower level of income,” CPD research fellow Towfiqul Islam Khan said while placing a set of recommendations for the upcoming National Budget FY2017-18.
The CPD came up with the recommendations analysing the state of the Bangladesh Economy in 2016-17FY at a media briefing at the Brac Centre Inn in the city.
To overcome weaknesses in budget implementation, Towfiqul Islam put forward a five-point recommendation, including reduction in the prices of kerosene and diesel, depreciating BDT to provide exporters some relief, reduction in the interest rate of saving certificate, controlling rice prices and formation of an independent financial sector reform commission to remove weaknesses in the banking sector.
Towfiq said the cost of production in almost all sectors may experience upward trend due to implementation of the new VAT and SD act, possible depreciation in exchange rate, rise in rice price and another round of upward adjustment of electricity and gas tariffs.
Addressing the function, CPD distinguished fellow Dr Debapriya Bhattacharya said, “We fear that the cost of production will go up in the next fiscal year… we need to control it so that the private sector will have a competitive edge.”
About the budget size, Debapriya said the country’s macroeconomic base is friendly to give a bigger budget in 2017-18FY, but the quality of fiscal structure is declining gradually.
“Placing a big budget without any realistic review creates a fiscal elusion. It seems to be a big budget, but not big in true sense. There’s a big deficit between the big budget and its implementation,” he said.
“In the last three years, we noticed huge shortfall in the budgetary targets of revenue collection and expenditure, deficit and financing the deficit. The shortfall is going up gradually as the targets are not set on the basis of revised budget,” the CPD distinguished fellow said.
Placing the CPD recommendations, Towfiq said the total budget size has increased over time, but the actual implementation of the national budget as share of GDP did not improve over the last six years by any visible margin. For example, public expenditure remained stagnant at 13.5-14 percent of GDP. “So, it’s high time to turn this so-called ‘big budget’ myth into reality.”
He said the budget implementation capacity of a number of key government agencies will need to be enhanced – in both quantitative and qualitative terms.
Noting that the rise in production cost is expected to be accompanied by a decline in external earnings from exports and remittances, he said the CPD recommended depreciating BDT to provide exporters some relief and continuing to provide cash subsidies to exporters of non-traditional productions and for non-traditional markets in this situation.
The CPD recommended increasing budget for education and health sectors substantially to reach at least the national expenditure targets during the 7th five-year plan.
It said the budget for the education sector will have to be at least 2.7 percent of GDP in the 2017-18FY to achieve the target of increasing the allocation for education to 3 percent of GDP as set in the 7th five-year plan.
It also said budget for the health sector has to be equivalent to at least 1 percent of GDP in the next budget to achieve the target of reaching 1.2 percent of GDP as set in the 7th five-year plan.
CPD distinguished fellow Prof Mustafizur Rahman, its executive director Dr Fahmida Khatun and Research Director Dr Khondaker Golam Moazzem were present.UNB.