Home ›› 20 Jun 2023 ›› Editorial
At this time newspapers are full of information containing budget analysis highlighting macro-economic challenges the economy is facing at the moment. The title of the articles is also interesting reflecting the personal views of the author, however in most cases, the maximum debated discourse is high inflationary pressures and sufferings of the marginal people. The obvious reason for inflation is the Ukraine-Russia war. The international price hike has been handled by the most affected countries while Bangladesh is yet to overcome the situation. Media reports say the real inflation is much higher than that of the announced one. Real inflation could be around 15-16 per cent.
In Turkey, inflation overshot to 72.31 per cent in 2022, from only 15.18 per cent in 2019, though inflation there is much lower now. However, their situation was quite different compared to Bangladesh. Inflation in Thailand spiked to 7.7 per cent in June 2022 and has now been reduced to 2.7 per cent only, in the EU inflation came down to 7 per cent in April 2023.
In most of these countries, they have taken policies to reduce demand by increasing interest rates. Bangladesh has discouraged import to reduce pressure on the balance of payments however import control measure has an impact on business and GDP growth, reducing business confidence. The present situation if continued further might have a serious impact on investment and business growth.
Bangladesh Bank has initiated a quantitative tightening by increasing the repo rate for adjusting excessive money from the economy, but it did not work as the price adjustment mechanism of necessary products has not been set and declared. The stress on the banking sector for excessive borrowing may lead to a liquidity crisis in the second half of the upcoming fiscal year. The new Monetary Policy Statement will be announced in July for the next six months, along with an interest rate corridor some other measures may be announced to address macro-economic challenges.
The tax revenue collection was targeted at 3880 billion in 2022-23, achieved Tk 3296 billion which is 15per cent lower, against that tax revenue has been targeted in 2023-24 at Tk 4500 billion– which is more than 36per cent higher– may be difficult to achieve. From the tax collection trend in the last few years, it seems that the targeted revenue generation is almost close to impossible if some strong achievable and meaningful reforms are not taken. For a long time, there has been expert advice even from the private sector also to separate tax collection and tax administration.
The budget however, announced some steps for increasing discipline in the tax administration, such as; the discretionary power of tax officials has been reduced in the proposed Income Tax law and incorporating a new accounting method namely depreciation and amortization rules provisions for capital gains and transfer pricing policy. Another proposition is in case of imposition of penalty, at the time of issuing show cause notice, litigation has been reduced. The power of VAT authority is reduced slightly, now they can ask for freezing the Bank account but can not ask for transfer of the fund to the Govt. In the case of VAT, in the Finance Bill( clause 21) - issuing a prior notice to the VAT payer before imposing any penalty has been included. However, in the case of pecuniary jurisdiction, non-cadre officials have the authority for penalising offenders.
Because of the increasing tax revenue collection network, probably NBR has tried to increase the tax network and a minimum tax of Taka 2000 for low-income people has been imposed and this has become mandatory if they are willing to get any services from the government. A rough estimate shows that the new policy will add about BDT 1200 crore to the govt. exchequer. It seems to be a bit contradictory while the minimum tax is set at Tk 2000 for any services from the government there is an increase in tax-free income from 3 lakh to 3 lakh 50 thousand. It is also not clear whether the exempted income ranged people will also have to pay minimum tax for availing any services from the government.
One of the concerns is the budget deficit which has been targeted at 5.1per cent against almost the same in the last year at 5.1per cent(estimated). Fiscal deficit in the context of GDP has been increasing since 1016-17 when it was 2.6per cent, increased to 5.4per cent in 2022-23 in the budget. Similar is the case of budget expenditure which was 11.3per cent of GDP in 2016-17 and increased to 15.1per cent of 2022-23 in the budget, later estimated to be 13.4per cent, however in the new budget it has again targeted 15.0per cent seen from the source of Ministry of Finance.
The loan from foreign sources is 22.89per cent higher, amounting to Taka 1.02 trillion which was Taka 0.83 trillion in the last year. The loan from the banking system is to increase 14.78per cent to Taka 1.32 trillion from 1.15 trillion in the revised budget of 2022-23. It seems that both the budget deficit and loans from the banking system have been increased. This can create uncertainty in preparing expenditure projections and their implementation.
In the budget, there is an announcement of withdrawal of 2.5per cent exemption of corporate tax rebate of autonomous bodies such as; WASA, City Development Authority, Civil Aviation Authority, Land Port Authority etc. Government has a huge investment in SOEs with no or negative rate of return, SoEs are incurring losses and need subsidies.
The budget encouraged some domestic industries such as refrigerators, electronics and home appliances, and raw materials for cosmetics industries by providing some duty reduction for importing raw materials. Computer accessories and pharmaceuticals will get support up to 2025. SD has been withdrawn from In 234 items, withdrawn minimum value from some products. Duty enhancement on some agricultural products (Cashew nut, Dates), some HS codes have been splitted, some merged, needs further analysis to understand the real impact.
In collecting direct tax, one of the major areas is Tax Deducted at Source (TDS) which is about 86per cent of total collected direct taxes, target of direct tax in the new budget is BDT 1.53 trillion. The withholding Tax is about 14per cent and is collected by NBR directly through the 32 tax zones. Among 114 heads of TDS collected under sections 50 to 56 and 64 of Income Tax Ordinance 1984, there are 44 items which are non-adjustable and treated as minimum tax as per 82-C of ITO 1984 increasing tax budget to the taxpayers. On the other hand, in case of refundable heads of TDS, some of the taxpayers do not adjust the tax through yearly income tax to avoid complexities and hassles (e.g., Income Tax Audit). The budget has not given any directives in that respect.
The minimum tax collected as TDS becomes the cost of services and products which depicts double standard policy implication. With incremental budget size, NBR fixes the direct tax collection target proportionately aligning with the increase in budget. The budget has not announced any extra strive to collect the direct tax, because about 86per cent of taxes are collected at source.
To widen the tax base like automated and simple self-assessment system with all transparency need to be introduced so that taxpayers do not have to meet tax officials. Given that, well-articulated process maps for return submissions, Audits, Appeals and Alternative Dispute Resolution can be prepared and make the process as simple as possible for innocent taxpayers so that they can accomplish their job by themselves.
The VAT automation project started in the year 2014 for ensuring interconnectivity among 16 modules and the payment modes such as e-Chalan, A Chalan etc. While the budget has announced several new initiatives for SMART Bangladesh with the introduction of a automated services such as; EFD, Sales Data Controller(SDC) etc., automation is still not fully established.
Direct Tax Expenditure in 2020-2021 was Tk 1,25,813 crore, of which Tk 85,314 crore is at the corporate level and Tk 40,499 crore at the individual level, a total 3.56 per cent of GDP. Taking into account the projected total GDP size of 2023, the total amount of projected “Direct Tax Expenditure” for the current financial year will be Tk 1,78,241 crore. Adding the estimated subsidy amount to this brings the total subsidy amount to Tk 2,89,228 crore (about 130 per cent more than in 2020-21, the highest was on salaries, 61per cent in 2020-21). Clear guidance in that respect may bring transparency and understanding to the concerns.
The writer is CEO of BUILD a Public Private Dialogue Platform. She can be contacted at [email protected]
