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What is new in proposed budget?

M S Siddiqui
07 Jun 2023 00:00:00 | Update: 06 Jun 2023 22:54:13
What is new in proposed budget?

The finance minister placed Tk7.61 lakh crore budget for FY2023-24, which is 15.2 percent of the GDP. The budget propose to allocate a total of Tk 4 lakh 36 thousand 247 crore to operating and other sectors and Tk 2 lakh 63 thousand crore to the Annual Development Programme. The overall deficit in the proposed budget will stand at Tk 2 lakh 61 thousand 785 crore, which is 5.2 percent of GDP. Out of the total deficit, Tk 1 lakh 55 thousand 395 crore are proposed to be financed from domestic sources and Tk 1 lakh 2 thousand 490 crore from external sources.

The finance minister has said that inflation will remain under control in the next fiscal year and the annual average inflation is expected to stand at around 6 per cent. He believes that “Due to the decrease in the prices of fuel, food, and fertilizer in the global market, along with the adjustment of fuel prices in the domestic market and government initiatives to keep the food and supply systems normal, the inflation will remain much controlled in the next fiscal year and the annual average inflation is expected to stand at around 6 per cent.”

The proposed budget has expanded expenditure target by a sizeable 15.3 per cent given the global recessionary trend and the fact that this year’s outlay has actually shrunk by 2.6 per cent. Development expenditure for the next fiscal year has also been targeted 14.7 per cent higher against this year’s revised outlay which is a mere 0.7 per cent more than the original target.

The proposed income tax rates and tax slabs for all categories of individual taxpayers except companies and local authorities are no tax on first Tk 3.5 lakh, 5 per cent tax on next Tk 1 lakh; 10 per cent on next Tk 3 lakh; 15 per cent on next Tk 4 lakh; 20 per cent on next Tk 5 lakh and 25 per cent income tax on the balance of total income.

The budget has proposed a minimum Tk2,000 tax on individuals who will file tax returns even if they do not have taxable income but have an obligation to submit income tax returns to take service from the government with a view to circulate this participation into government welfare work. At present the number of e-TIN registered taxpayers is 87 Lakhs plus. Until April this fiscal year, NBR received 31.7 lakhs tax returns from taxpayers, mainly individuals, which was 22 percent higher than that of the same period in fiscal year 2021-22. The minimum tax is expected to generate additional revenue of Tk1,240 crore.

Budget has a landmark declaration of introduction of Universal pension Scheme. The Universal Pension Management Act, 2023 has already been passed and FM hoped to roll out the scheme from FY2023-24.

In his budget speech for fiscal 2023-24, FM suggested raising the property registration tax in various areas, including Dhaka, Chattogram, Narayanganj and Gazipur, to 8 per cent from the existing 4 per cent. For example, people buying property in the capital’s Gulshan, Banani, Motijheel, Dilkhusha, North South Road and Mohakhali areas currently pay 4 per cent of the deed value or Tk 10.8 lakh, whichever is higher, as tax for registering each katha. From the next fiscal year starting in July, the amount could be raised to 8 per cent of the deed value or Tk 20 lakh, whichever is higher. Besides, people now pay a 3 per cent property transfer tax in the municipal jurisdictions of any district, but Kamal proposed raising the rate to 6 per cent for fiscal 2023-24.

In addition, a 1 per cent transfer tax is charged for property in areas that are not in the specified schedule. So, FM proposed raising the rate to 2 per cent for the next fiscal year.

Currently, there is a 10 per cent surcharge on assets worth between Tk3 crore-Tk10 crore, or if they have more than one car, or own over 8,000 square feet of real estate in the city area. The surcharge-free limit of wealth has been raised from Tk3 crore to Tk4 crore in the latest budget for FY2023-24 although the propose a minimum surcharge amounting to 10 per cent, where the net wealth of an individual exceeds Tk4 crore and 35 per cent surcharge for individuals who have net wealth exceeding Tk100 crore.

One expert said the asset valuation should be based on the current market price of assets. For example, if someone bought a house in the Gulshan area 40 years ago, he pays tax on its market value at that time, which is not justifiable. They should pay tax on an estimated current price. If the government would value assets as per the current market situation that will be helpful to realize more revenue, he added.

The surcharge exemption increase to 4 crore will facilitate the wealthy persons although they should pay more tax in the current economic situation, but the new measure will reduce it.

The total amount of tax subsidies given in the form of rebates, discounts, exemptions and reduced rates will be Tk 1,78,241 crore in the current financial year.

Besides, a road map is being formulated to establish a permanent system of formula-based price adjustment in the energy sector. We hope to finalise the formula-based price adjustment system by September this year. The total subsidy will gradually decrease in the medium term following the recent price increases and the implementation of the upcoming adjustment mechanism.

The amount, which is referred to as the direct tax expenditure, is up more than 41 per cent from Tk 1,25,813 crore in 2020-2021, which accounted for 3.56 percent of the gross domestic product. At the same time, we are trying to explore alternatives to cash incentive to ensure that the growth of the export sector is not hampered.

Another new head for risk management has been proposed. The separate allocation of Tk4,000 crores has been proposed in case situations like the Covid-19 pandemic or Russia-Ukraine war create a risk to the economy. The separate allocation has been proposed in case situations like the Covid-19 pandemic or Russia-Ukraine war create a risk to the economy which is a new step to face any adverse situation.

‘’The government is providing policy support in exports by identifying the highest priority sectors, special development sectors, as well as special development service sectors. However, in the post-LDC graduation era after 2026, measures such as the rationalisation of tariff structures and gradual phasing out of cash assistance in export accounts have to be undertaken in compliance with the prescribed criteria of the World Trade Organisation rules,” FM added.

The Bangladesh Bank has already reduced lending to exporters from reserves through the Export Development Fund (EDF). The $7 billion fund has been brought down to $5 billion.

Besides, exporters have been discouraged from taking loans by increasing the interest rate on EDF loans.

Apart from this, the central bank has set up a local currency fund called the Export Facilitation Pre-finance Fund (EFPF) of Tk10,000 crore for exporters. Finally, there is a commitment from FM to reform in tariff structure. The government is considering reforms in tariff structures and a gradual reduction of cash assistance for of Bangladesh’s sustainable graduation from the least developed country (LDC) status. Locally-made cancer, diabetes medicines.

FM in budget speech said that at present, the process of strengthening the manpower structure of the National Board of Revenue (NBR) is underway. A study is being carried out to help rationalise the scope, extent and nature of tax exemptions. The NBR is preparing a ‘Medium Term Revenue Collection Strategy (MTRS)’ to help achieve the revenue collection targets in the medium term. Income tax and customs laws are being modernised. Government is trying to augment non-tax revenues as well. We are updating fees/rates, identifying potential sources and making the Ministries/Divisions aware of and active in collecting revenues from other sectors.

There is good news that, in order to reduce the cost of supply and strengthen financial stability in the power sector, the government will phase out the payment of minimum capacity charge by removing the clause of payment of minimum capacity charge at the time of contracting renewal of existing rental power plants or rent-operated power plants.

Government will aim to ensure sustainable debt management in the medium term. Hence, during the pre-transition and post-transition periods, we will continue to look for bilateral and multilateral foreign financing sources for credit facilities on possible easier terms. FM announced that the gap between the existing multiple exchange rates is being brought to a minimum level with the aim of making the exchange rate gradually market-oriented. In addition, the process of making the interest rate and exchange rate market based is going on. Tariff rationalization, domestic resource mobilization to meet fiscal deficit, withdrawal of subsidy/cash assistance or exploring alternatives etc. should be considered now.

FM announced that tax exemptions and tax concessions, albeit rationally applied, should be continued and the existing tariff rates at the import level should be gradually reduced to meet the challenges of graduation from the least developed country category. A judicious reduction of incentives is required to encourage capacity building of domestic industries. Proper identification and redressal of Anti Export Bias and gradual reduction of tariff rates will be a key factor for signing Preferential Trade Agreement (PTA) or Free Trade Agreement (FTA) with our important trading partners. These forward-looking measures will also help us to face the challenges of post LDC graduation. Let’s hope that government will fulfill the commitment of the reforms.

There is no good news for the fixed income group and the budget has almost no significant improvement of obstacle of doing business. The budget has mentioned LDC graduation, but no reform has been specifically mentioned except a promise to reform the tax structure.

The writer is Non-Government Adviser, Bangladesh Competition Commission. He can be contacted at [email protected]