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The Centre for Policy Dialogue (CPD) recommended strict government measures to restore the country’s macroeconomic stability by focusing on curtailing inflation rate, stabilising exchange rate, and protecting vulnerable and disadvantaged groups.
A focus should also be on creating a harmony between fiscal and monetary policies, finding out deep rooted structural issues, intended policy efforts, ensuring good governance and discipline to ensure best use of public resources. The policymakers will have to make some hard choices.
CPD made the budget recommendations at a press briefing titled “Recommendations for the National Budget FY2024-25,” held at Dhaka’s Dhanmondi on Saturday. They revealed these as part of CPD’s flagship programme titled “Independent Review of Bangladesh’s Development.”
Highlighting some guiding principles for the national budget for FY25 while presenting the keynote paper, CPD Executive Director Fahmida Khatun said, “The targets to be set for the macroeconomic framework for FY24 did not take cognisance of the current realities.
“Building on the lessons from this experience, the design and fiscal targets of the upcoming FY25 should be set in a realistic manner, taking cognisance of the emergent macroeconomic scenario – both concerning the domestic and external fronts.”
Fahmida continued, “The policymakers should take cognisance of the continued rising cost of essentials. Proper attention should be given to food production, social protection (including public works programmes), subsidies for agriculture, energy and power sectors, as well as the health and education sectors.
“Bank borrowing will likely be under pressure to finance the budget deficit and non-bank borrowing targets are unlikely to be met.”
The CPD recommended keeping the existing tax-free income threshold for personal income Tk 3.5 lakh unchanged. Meanwhile, the second slab of the income tax, which is 5 per cent for additional Tk 1 lakh, should be increased to Tk 2 lakh for FY25, the think tank added.
It suggested increasing the highest personal income tax to 30 per cent instead of existing 25 per cent to promote tax justice. It proposed to exempt not-for-profit entities under the “companies” category, and amend the definition of Income Tax Act 2023 section 2(31).
Tax on provident fund, gratuity fund, superannuation fund and pension fund should be reduced to 10 per cent from 15 per cent.
VAT collection targets should be implemented proactively, and VAT should be collected vigorously through harmonisation and data sharing across various wings of National Board Revenue (NBR), the CPD recommended.
Transfer Pricing Cell (TPC) of NBR, Bangladesh Financial Intelligence Unit (BFIU) and Customs Intelligence and Investigation Directorate (CIID) should work closely to deal with trade-based money laundering.
The NBR is scheduled to establish compliance risk management units (CRMUs) as part of the IMF conditionality which is a good initiative but financial, technical and human resource capacity should be focused on, the think tank suggested.
The CPD said the government should also focus on increasing the volume of essential commodities through the open market system and provide support for subsidised credit programs in the agriculture sector, stimulus for small and medium enterprises, and direct assistance for low-income groups.
Budget allocation on the health sector was less than 1 per cent of GDP for the past 20 years, which is 4th lowest among 44 LDCs in 2020. Bangladesh’s out of pocket expenditure was 74 per cent in 2020.
So it is crucial to increase both budget allocation and utilisation of the health sector.
CPD proposes that the corporate tax on all companies manufacturing tobacco products be increased from 45 per cent in FY22 to 50 per cent in FY25, and the associated surcharge to be increased from 2.5 per cent in FY22 to 5 per cent in FY25.
For soft drinks and energy drinks, CPD recommends that the government should put a specific excise duty of Tk 0.10 per ml or Tk 100 per litre.
The Total Tax Incidence (TTI) on imported sanitary napkins in FY22 was 127.72 per cent, which was recommended to be reduced to 31.93 per cent in FY25 so that the product remains low-priced, but at the same time the domestic manufacturers of sanitary napkins receive some level of tariff protection.
CPD recommends that the VAT on medicines should be exempted starting from FY26 to ensure that medicines continue to be affordable to all even after the loss of TRIPS waiver in 2026.
The eighth five year plan states that the education budget should grow from 2 per cent to 3 per cent of GDP by FY25, while it remains only 1.76 per cent of GDP in FY24, which is fifth lowest among 41 LDCs.
CPD proposed that 5 per cent VAT on tuition fees for English medium schools and 73.96 per cent tax incidence on imported books should be exempted.
Furthermore, 15 per cent corporate income tax rates of private universities, medical colleges, dental colleges, engineering colleges, and colleges imparting information technology education should be reduced to 10 per cent in FY25.
CPD suggests a 1 per cent surcharge on polluting industries, a plastic tax on producers, and reinstatement of a 5 per cent supplementary duty on plastic bags, higher customs duty on plastic waste, and a joint initiative with India to reduce plastic waste.
Replying to a question, CPD Distinguished Fellow Mustafizur Rahman said, “In terms of Bank merger, evidence-based integration would be preferable. Due to which the bank has become weak, it needs to be strengthened through mergers.”
The economist further said, “In terms of the Balance of payments (BoP) position, there are improvements in trade accounts and current accounts, but finance accounts are weak. Repayment cost will be high as currency is devalued.
“Gradually the subsidy should be reduced as well as the competitiveness of the exporters should be increased, their capacity should be increased.”
CPD Research Director Khondaker Golam Moazzem said, “There is doubt as to how much the new government will be able to keep the economy mainstream. We think that Parliament needs more participation in budgeting.”
