Kamal set to propose Tk6,78,064cr budget

Finance Minister AHM Mustafa Kamal is all set to place the Tk 6,78,064 crore budget proposal for FY2022-23 in Parliament tomorrow, which is Tk 74,383 crore larger when compared year-on-year.

Though the size of this proposed budget has increased, the government did not manage to boost its sources of revenue significantly. Under such circumstances, the government borrowing will go up in the next FY to cover the budget deficit.

The Bangladesh government is already under pressure in the current FY due to a number of issues, especially inflation and commodity price hikes in the international market.

It should be noted that last year, the overall environment of placing the budget for FY22 was unique as Bangladesh was navigating through the Covid-19 crisis at that time. As the Covid situation has improved, the placement of the budget for FY23 will be different than last year.

Bangladesh’s economy is however feeling the heat of global instability. The finance minister will place the budget proposal for FY23 while facing pressure from a number of key issues – inflation, remittance, foreign trade deficit, and volatility in the forex exchange rate.

Finance ministry sources say the proposed budget for next FY will have a deficit of Tk 2,45,064 crore. This figure indicates that the budget deficit in FY23 could increase by Tk 30,383 crore when compared year-on-year. The deficit in FY22 was estimated at Tk 2,14,681 crore.

To cover the budget deficit in FY23, the government will collect Tk 1,46,335 crore from internal sources, Tk 95,458 crore from foreign loans, and Tk 3,271 crore as foreign aid.

Under the internal sources, the government will collect Tk 1,06,334 crore from banks, up by 39.08 per cent or Tk 76,452 crore estimated for the current fiscal year and Tk 35,000 crore from the sale of savings certificates, and Tk 5,001 crore from the sale of stamps, revenue stamps and others.

The projected inflation rate for FY23 is 5.6 per cent, an increase from 5.3 per cent estimated for the ongoing FY. Data from the Bangladesh Bureau of Statistics (BBS) show that the country’s inflation rate stood at 6.29 per cent in April 2022.

In the new budget, Bangladesh is setting a GDP (Gross Domestic Product) growth target of 7.5 per cent, which was 7.2 per cent in FY22. The proposed budgets for FY22 and FY23 were Tk 6,03,681 crore and Tk 5,68,000 crore respectively.

According to insiders, the government has a revenue collection target of Tk 4,33,000 crore in FY23, a 11.31 per cent higher than current fiscal year. So, the revenue collection is estimated to go up by Tk 44,000 crore in the upcoming FY.

 VAT, tax key sources of revenue

The VAT and taxes collected by the National Board of Revenue (NBR) are key sources of government revenue. The NBR will have to supply 54.57 per cent of the proposed budget for FY23.

In the next FY, the NBR will have a collection target of Tk 3,70,000 crore, up by 12.12 per cent or Tk 40,000 crore when compared year-on-year.

The revenue board is supposed to supply 54.66 per cent of the total budget for the current FY. To achieve this goal, the NBR had a revenue collection target of Tk 3,30,000 crore, but the collection process has not shown much pace.

The NBR collected revenue to the tune of only Tk 2,27,756.59 crore in the first ten months (July-April) of current FY. It will have to collect Tk 1,02,243.41 crore more in the next two months to reach its target, which is next to impossible.

Finance ministry sources say the proposed budget will set Tk 18,000 crore as target for non-NBR tax collection in FY23, which is Tk 16,000 crore this FY. The government earned Tk 2,918 crore from this sector in the first six months of FY22 – only 18 per cent of the target.

The government is setting a non-tax revenue collection target of Tk 45,000 crore in the next FY. Bangladesh earned only Tk 15,802 crore in the first six months of this FY against a target of Tk 43,000 crore, which is a decline of Tk 9,000 crore compared to the same period previous FY.

 ADP allocation Tk 2,46,066cr in FY23

In the budget, there are always unavoidable expenditures such as salaries and allowances of government employees, debt servicing of foreign and domestic loans, and subsidies. Nearly two-thirds of the budget for FY23 or Tk 4,11,406 crore will be spent for those purposes.

Besides, the proposed budget for FY23 will allocate Tk 2,46,066 crore for ADP (Annual Development Programme).

The ADP size for this FY was set at Tk 2,25,324 crore. ADP implementation reached its highest in five years in the first ten months of FY22. The size of revised ADP is 2,17,175 crore this year, and of this figure, 55 per cent of Tk 1,19,829 crore has been spent during the July-April period.

Power production, LNG imports getting biggest subsidies

A number of key sectors are getting the biggest subsidies and incentives in the next FY. Among those, Tk 17,000 crore will be allocated to power, and Tk 17,300 crore will be allocated to help pay LNG import costs (liquefied natural gas) and cover subsidies for loans taken under the incentive package.

Besides, Tk 6,745 crore will be allocated as food subsidy, and Tk 16,000 crore will be for agricultural incentives.

However, the government will only provide this subsidy if the prices of electricity, fertiliser and gas are not readjusted.

Corporate tax dropping by 2.5%

The next FY is bringing good news to the business community as the corporate tax is dropping by 2.5 per cent. The government is providing this tax benefit to encourage more investments in Bangladesh.

The tax-free income limit of individual taxpayers could remain the same in FY23, and the existing facilities for whitening black money could continue as well.

However, the NBR is planning to double tax at source on export earnings, said finance ministry and revenue board sources, adding that the move could be proposed in the budget for FY23 in a bid to boost revenue collection.

There will be bad news for companies who are used to receiving tax exemptions on interest after failing to pay back bank loans – willingly or unwillingly. A proposal seeking to withdraw this particular facility might be tabled in the budget for FY23.

Individual taxpayers however will continue to enjoy this tax exemption in the next FY.

In a bid to encourage businesses to pay the government’s dues, the next budget could offer exemptions in the payment of fines and interest. Under existing rules, a business will have to pay a fine matching the amount of VAT they evaded, but it could be halved in the next budget.

Moreover, the timeframe for repayment of evaded VAT could be shortened to 24 or 36 months, while the interest rate would remain 1 per cent, NBR sources say.

The government, in the budget for FY23, could drop the amount of VAT currently imposed on various commodities – at both retail and wholesale levels, in a bid to tackle their skyrocketing prices.

According to NBR sources, Bangladesh currently imposes 5 per cent VAT on product sales made by nearly 40 lakh small businesses, which could be dropped to 15 per cent – 2 per cent in the next FY.

There is also a plan to cut the VAT on sales made by air-conditioned restaurants across the country. From the exciting 7.5 per cent, the NBR could drop this rate to 5 per cent.

Besides, there is a plan to impose VAT on some products at the production level. Up to 5 per cent to 10 per cent VAT might be imposed on some industries which are currently getting tax holidays.