Can Muhith translate big numbers to Bangladesh’s benefit this budget?

Budget presentation is a matter of festivity for the finance minister, especially considering that it is going to be the 10th consecutive budget under the current government, his personal 12th. It is a cold moment for the opposition to find out loopholes. Businesspeople search for implications for them and economists and development thinkers take notes for analysis.

Budget discussions usually begin in March every year but this time it began in January which the government thinks a positive thing as it helped the government incorporate many things.

"It's not an election-oriented budget. I've been placing budget every year. I've so far placed nine budgets. It'll be the 10th. I'm looking into it in that perspective (of continuous process)," Muhith said in a pre-budget discussion. He said he does not think there will be massive changes that necessitate an election-oriented budget.

Estimating this year's budget size to be "more or less Tk 468,000 crore", the minister expressed hope over higher revenue earnings, he said this is a "very helpful indicator" that the number of taxpayers reached around 33 lakh and most of the new taxpayers are mostly young."I feel very good after 10 years," Muhith said adding that when he started people were unwilling to pay taxes due to harassment. "I don't think it exists anymore in the country." He indicated that there will be an allocation for Rohingya in the next budget.

Estimates and forecasts

The revenue collection target for the coming fiscal year is likely to be fixed at Tk 340,775 crore, up 18 percent from that of the current fiscal year. The revenue collection target for fiscal 2017-18 is Tk 287,990 crore.

Finance Ministry officials said the revenue target will be fixed in such a way so that the budget deficit remains within 5 percent. The allocation for annual development programme (ADP) for the coming fiscal year is likely to be Tk 178,296 crore, up from the outgoing fiscal year.

Earlier, Planning Minister AHM Mustafa Kamal forecast that Bangladesh will achieve 8 percent growth by the next fiscal year. The government is likely to set the GDP target for the upcoming fiscal year at 7.8 percent, said an official.

Roasting the golden goose

Apparently in a dilemma of choices - increasing tax revenue and encouraging investments through fiscal incentives - the government of Bangladesh is sacrificing one for another, preferring immediate earning over long-term gains. It is corporate tax rates that have not yet been revised downward to attract investments for creating jobs and widening income tax net in future.

In any country in today's world, corporate tax rates leave a major effect on aggregate investments, both local and foreign. Higher rates discourage investors as it eats up profit, hampers the companies' capacity to reinvest and expand and provides disincentives to fresh entrepreneurs.

Muhith has finally hinted at cutting corporate tax rates, admitting that the rates are much higher in Bangladesh than they are in other countries. "I am going to reduce, or perhaps rationalise, the corporate tax rates, it is one of the highest in the world."

Muhith said his intention was to eliminate 'so many layers'. "It will be ideal if we can make two ranges." He referred to the range between 45 percent and 27 percent, and said changes were essential. But, he doubted whether he would be able to do it. "I'm not sure. When I discussed it in the mini-cabinet, it received objections."

In an interview previously with a business magazine back in 2013, he had described corporate tax as a "golden goose", as narrated in a fairytale that lays egg every day if it is kept alive and nurtured. The higher rates of corporate tax are considered as one of major hindrances to business activities and foreign direct investment (FDI) in Bangladesh.

'Corporate tax rate is higher in Bangladesh largely because the tax authorities are yet to bring all taxable companies under the tax net,' Aminur Rahman, a former income tax policy member of the NBR, told this author. "But now that frequent tax fairs are attracting more and more new taxpayers, the rate should come down."

Telecom blues

Mobile phone operators sought duty benefits for the import of 4G-enabled handsets, which would help in reducing cost of such devices and widening access to fast internet. To cut costs, they also demanded withdrawal of value added tax and supplementary duty and surcharge on internet usage, which now stand at 21.75 percent. The Association of Mobile Telecom Operators of Bangladesh (Amtob) came up with the pleas at the National Board of Revenue (NBR) while presenting proposals for the upcoming budget for 2018-19.

At present, mobile handset importers pay a total of 31.75 percent of the price as duty. The demand of Amtob, representing Grameenphone, Robi, Banglalink, Citycell, Teletalk and associate members Ericsson, Huawei and Nokia, comes nearly two months past the launch of 4G services by the top three operators.

"We urge for giving import benefit for two-three years," said Shahed Alam, head of regulatory affairs of Robi Axiata Ltd, the second largest mobile phone operator after Grameenphone.

Amtob Secretary General TIM Nurul Kabir said the majority of the devices being used in the country were basic phones. "Now if we want to reach the bottom of the pyramid, we have to address their affordability," he said. Amtob also demanded rationalisation of corporate tax for mobile phone operators. It is now 40 percent for operators listed at the stock exchange and 45 percent for non-listed ones."

For bears and bulls

In a bid to lure multinational and large corporate companies into enlisting in Bangladesh's stock exchanges, stakeholders are seeking a cut in the corporate tax rate for publicly listed companies in the budget.

Policy incentives could encourage multinational companies (MNCs) to be listed in stock markets, stock analysts and stakeholders say. Currently, publicly listed companies pay a minimum of 25% and a maximum of 45% tax based on their business category. Companies listed with stock exchanges enjoy a 10% rebate compared to non-listed companies.

In its budget proposal, the Dhaka Stock Exchange (DSE) urged the government to increase tax-free dividend income to Tk1 lakh from the existing TK 25,000, and to reduce tax at source on share transactions to 0.015% from the existing 0.05%.

Meanwhile, the Bangladesh Leasing and Finance Companies Association (BLFCA) demanded the reduction of the corporate tax rate for publicly traded companies to 25% from the existing rate of 40% in its proposal.

Any benefits this time around?

Finance Ministry sources said the government has decided to increase the income free ceiling for individual taxpayers, considering the rising inflation.

Currently, the tax free ceiling for individual incomes between Tk2.5 lakh to Tk 4 lakh is calculated at a 10% rate, 15% for the next Tk5 lakh, 20% for the next Tk6 lakh, 25% for the next Tk3 lakh, and 30% tax on additional income beyond that.

There would be no taxes for individual taxpayers earning Tk2.70 lakh or Tk3 lakh in the next budget, from the existing tax free status of incomes not exceeding Tk2.5 lakh, according to NBR sources.

The tax free ceiling for women and people above the age of 65-year will be increased to Tk3.25 lakh from the existing Tk3 lakh, while the tax free ceilings for taxpayers with disabilities and injured freedom fighters will remain the same- Tk4 lakh and Tk4.25 lakh respectively, they informed Dhaka Courier.

Power and energy

Power and energy sector is likely to see a slashed budget allocation for the upcoming fiscal (FY19) compared to that of the previous fiscal (FY18). Tk 262.26 billion is likely to be allocated for the country's power and energy sector in the next national budget for the 2018-19 financial year, which was Tk 294.24 billion last year.

According to sources at the Power, Energy and Mineral Resources Ministry, Tk 228.93 billion has been proposed for the power division and Tk 33.34 billion for the energy and mineral resources division. In the previous fiscal Tk 249.47 billion was allocated for power division and Tk 44.77 billion for energy sector.

A new classification system?

According to Saiful Islam, deputy chief of Public Expenditure Management Strengthening Programme, funded by the Ministry of Finance, a new classification system will be introduced during the budget, which will give true pictures pertaining to expenditures and resource mobilization.

The new system will clearly highlight the liabilities of the government, which the existing budget structure fails to show. It has been prepared in line with the International Monetary Fund (IMF)'s Government Finance Statistics (GFS) manual (2014). The system, a 56-digit chart from existing 13-digit, includes resource checking, regional resource distribution and quick analysis of budget features.

"This is a more detailed reporting system intended to comply with international budgeting practices," Saiful said. "This is a step towards attaining accrual basis of the accounting system in the public finance."

Expert Opinions

The government should maintain an income tax rebate for foreign investors, according to Barrister Omar Sadat, president of the Bangladesh German Chamber of Commerce and Industry (BGCCI). He feels that with a reasonable tax rate, investment will increase, there will be more return on investment, and employment will be generated. "To attract investment we have to build our image by marketing positive aspects of our business environment. "

Economic and banking analyst Mamun Rashid told Dhaka Courier that that finance minister will be facing a daunting task of keeping the fiscal deficit below 5.0% and subsidies within the estimate that he is expected to make in the next budget.

"On the inflation front, the challenge is likely to be more than estimated. I would not be at all surprised if we get to see the international oil and food prices dictating terms for all of us. Therefore, the entire budget exercise for the next fiscal will no doubt be a tough one, given the current state of the economy."

"We have witnessed the government finances going haywire during the outgoing fiscal, mainly due to the rising expenditure on account of increased volume of food import and diverting additional resources to manage the Rohingya situation. Will the government be able to handle its finances well in next fiscal? As usual, we would expect the finance minister to put the public finances in order. We would be very interested to watch how he reins in the runaway subsidies."

Proclaiming greatness before bidding adieu?

This is the last budget of the Awami League-led alliance regime while the country's business policies and atmosphere will most likely undergo certain changes, thanks to general elections next year. However, the budget proposals, till writing of this report, will come into effect as they are unless changes are made before the passage of the bill at the end of June.

Unfortunately, many things about previous budgets have turned into clichés. We also have not seen any clear assessment of how the budget has been implemented or in other words how the public money has been utilised. Could this be the year when the government pulls out all the stops to support the taxpayers, the general people of Bangladesh, before possibly riding high into the sunset?

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