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Analytics of National Budget for FY 2018-19

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AKM Asaduzzaman Patwary

Research Fellow, DCCI

National Budget is an important and one-year fiscal forecast of macroeconomic planning. Against the consistent economic growth and qualification benchmark of middle income country, the national budget of Tk. 4,64,573 crore with revenue target Tk. 3,39,280 crore largest ever in the economic history of Bangladesh was declared aiming at 7.8% GDP growth, Per Capita income of $1956 and 33.54% Investment to GDP ratio. The budget for FY 2018-19 is 18.31% of GDP and 25.15% higher than revised budget for FY 2017-18 maintaining deficit at 5% of GDP. The finance bill 2018 has been approved with no change in revenue realization and expenditure.I would like to bring into attention of all concerned the pros and cons, issues and critical reform observations for pro-people and business Budget.

It is worth recognizing some timely initiatives of expanding social safety net of vulnerable section of people to eradicate poverty rate and ensure social safety protection measures including ‘one farm one house’ in each union, old-aged and widow benefit net, universal pension scheme, social security allowance to 5 million people through G-to-P, digital database of social protection beneficiaries through allocation of Tk.64,656 crore, 2.55% of GDP in this fiscal year.

screenshot-93The proposed revenue target is Tk.3,39,280 crore which is 30.77% higher than revised budget FY 2017-18 with deficit budget of TK.1,25,293 crore of which TK. 54,027 crore will be sourced from foreign borrowing and rest TK.71226 crore from local banking and non-banking sources.

NBR revenue is aimed TK.2,96,201 crore which is 23% higher ambitious target as trend of NBR revenue termed always low as the legacy with no exception in current fiscal year as revenue mobilization encountered various constraints. The largest revenue target led by 37% VAT may increase the inflation incidence on mass people more on especially middle-income group people. In addition, the proposed 5% ATV will escalate the inflation and cost of living standard.

33.54% investment to GDP ratio in proposed budget having Private sector contribution of 25.15% is 1.91% higher than last year. This contribution requires additional Tk.47,000 crore from private sector investment which may be gained through friendly corporate tax regime. The Corporate Tax rate is not encouraging for inclusive private sector investment growth.

Many economists have brought different viewpoints on National Budget across the time. In USA, the national Budget for last 2 decades put higher priority on National infrastructure equally the social welfare. The Trump government followed a drastic budget cut policy in Federal budget. The size of federal budget in Year 2019 is $4.407 trillion. Office of Management and Budget of White house estimates revenue of $3.422 trillion with $985 billion deficit. The Trump administration released 2019  budget with changes to the federal government spending. To pay for additional defense spending, the border wall, infrastructure plan, health human service and energy, Government spending would be cut from many departments including State department and other key departments.Office of the budget Responsibility (OBR) in UK in their budget planned to boost UK productivity over the long term. The last Autumn budget was £809 Billion with shortage of £40 Billion providing additional investment in housing, infrastructure, and Research and Development (R&D). The government spending in UK of current fiscal year shows that highest public spending is dedicated to Social protection by £253 Billion followed by Health £155 Billion, education £103 and highest Government earning receipt is £185 Billion Income tax followed by VAT £145 bill, National Insurance £134 billion and corporate tax of £55 billion with 2.2% deficit.

Against deep seated EU economic stalemate, sharper economic deceleration British Chancellor of Exchequer acknowledges the productivity and financial crisis and revised downward the growth target for realistic budget whereas in Bangladesh we hardly do so rather put wishful economic plans leading to breaching credential of people. And, this is the qualitative difference of national budget between UK and Bangladesh.

National budget in Bangladesh traditionally follows the deficit budget considering the economic transition and huge government spending commitment and it is quite common in both developing and LDC economy. The biggest challenge of economy of Bangladesh is finite resource and balance of resource limitation and growing demand resources. Any government whichever comes in the power always faces the criticism of national budget is the deficit budget. Bangladesh Government tries to keep the deficit limit within 5% for almost a decade under the advice of efficient monetary management of Bangladesh.

The deficit budget can be lowered through increasing tax to GDP ratio. The recent trend of 5% deficit can be overcome if tax to GDP ratio can be realized. It is perceived that the given deficit can merely be reduced through expanding tax net. The standard of Tax to GDP ratio in this region is about 16% whereas our standard hovers within 10%. It is also considerable that our tax net is slowly increasing against growing GDP size which widens the gap and disappointment in budget deficit and holds back tax and GDP ratio.

It is also observed in most of the developed economies that largest share of revenue comes from the Income Tax and Corporate tax revenue is not as significant as Income tax as businesses are more shielded and people spontaneously pay tax irrespective of income level. Every fiscal year begins with commotion on revenue target, sources of revenue and tax. The centre of budget discussion remains at revenue collection and share of NBR revenue. It is always seen that NBR try to extend the revenue collection based on direct tax and indirect tax mainly corporate tax and Vat followed by Duty imposed on trade. Corporate tax rate escalation dependent tax revenue generation and Vat led revenue always create manifold challenges for the business communities including inflated costof doing business. Revised NBR revenue target of FY2017-18 was TK.2,25,100 crore and TK.2,05,000 Crore was realized against revised target. The FY 2018-19 aims to realize estimated NBR revenue TK. 2,91,000 crore with TK 1,10,000 crore Vat target. If we look at the major revenue collection trend of recent past years, the VAT and Income tax is seen 70% of NBR revenue collection.

The National budget creates a rivalry situation between Business community and NBR as NBR always upholds the behavior of putting higher direct and indirect tax incidence whereas Private sector business community efforts to rationalize the tax incidence through tax rate cut. Private sector businesses may be inspired more to be compliant if corporate tax rate is rationalized as cost of compliance and higher corporate tax are mostly unaffordable for new businesses in highly competitive atmosphere.

The rationale of logical corporate rate tax is high tax rate does not always help the business as corporate always do not make profit due to fledging business environment and several direct and indirect tax adversely unease the doing business in Bangladesh. Currently, private sector encounters various external business and market risks including inflation, weak infrastructure, energy shortage and uncomfortable tax system, tax rate, unfriendly policy pressure, market flexibility and other bureaucratic tangles.

screenshot-94The budget for FY2018-19 targets estimated revenue of Tk.3,39,280 crore and the lion share of the revenue budget will be backed by NBR revenue comprising of 37.32% VAT, 34% income tax & other direct tax, rest are other sources. There is no doubt that direct and indirect tax are major streams of revenue generation of Government  but this long-held tradition needs to be changed as Non-NBR revenue receipts have potential to source fund in Government exchequer. With the stark reality, it is the high time to address revenue net rather than be limited to conventional sources and some communities.

The tax revenue collection is now limited to 5 major metropolitan cities and to some extent land, river and sea ports since Tax office has no reach into districts and countryside. Tax collection in Dhaka, Chittagong, Rajshahi, Sylhet, Jessore and Khulna shares 78.2%, 14.7%,1.3%,1.2% and 3.3% respectively. The revenue collection from Dhaka and Chittagong is 92.9% against 45% of GDP and remaining 7% is collected from remaining economic operation worth 55% of GDP. This indicates extreme imbalance in revenue collection. If 45% of GDP generates revenue of TK. 2.5 trillion then remaining 55% has potential to raise TK. 2.5 trillion. New sources of non-tax revenue like earning from local brick field, sand extraction and stocking, Jalmahal and increased government service charges and fees for court, stamp duty, earning from agriculture, housing office and leasing in rural area and different Government service registration fees can be brought under the tax to augment contribution of Nontax revenue in revenue budget.

Of revenue expenditure, TK.1,13,206 crore was allocated to human resource development and TK. 1,43,982 crore to physical infrastructure prioritizing economic and human dividends provided rightful implementation happens. ADP is Tk.1,73,000 Crore which is 16.89% higher than revised Budget  which can be larger considering huge infrastructure needs in our transformational economy and industrial capacity building needs. It is worth mentioning that more than half of the national budget used to be spent in ADP in almost each year till FY1980 from FY1973. Non-development expenditure alarmingly rises having 54% of total budget whereas ADP holds 37.23%. It is undeniable that our economic transformation requires massive investment in physical and communication infrastructure across the country. And, resource shortage led budget coupled with inefficiency in ADP implementation, prodigal public expenditure and cripple down development requirement.

The single largest allocation to Local Government division in ADP can be helpful for rural infrastructure and economic improvement. The allocation of Tk.46,452 crore in Human resource development followed by TK.45,450 crore in Communication infrastructure are apparently substantial for creating economic dividend however doubling ADP budget of Energy sector for industry led energy security will revive the economy.

93% ADP implementation based on fund employment is less than that of previous fiscal year. Slow pace of ADP and infrastructure projects implementation hamper Project development, new resource generation and cause resource abuse. Taking the implementation urgency into account, a high-powered project monitoring development and advisory authority headed by the Prime Minister can be considered including fast-track projects.

The national budget targets to rise the number of TIN holders to 1.5 Crore and Return submission to 8 million within next five years which is apparently positive but by this time the GDP could be around $400 Billion widening the tax to GDP ratio gap.

The higher local resource sourcing can help the smooth economic mobility of Bangladesh making 8% GDP growth. Taking this economic circumstance, budget implementation and economic visions of Bangladesh into account, national budget must have clear roadmap for policy enforcement, institutional capacity building in rising revenue, tax to GDP ratio and other economic planning in a given fiscal year.

The incremental budget size is not unusual and challenging for our economy as transitional economy like ours has huge and diverse development needs. To cope with this trend, we must build a stronger and better budget management, formulation and implementation authority for the sake of pristine budget culture in Bangladesh.

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