AKM Asaduzzaman Patwary
Research Fellow, Head of R&D, DCCI
Against the backdrop of stable political environment and improved macroeconomic condition of Bangladesh, the national budget for the FY 2017-18 was unveiled with the total expenditure of Tk. 4,00266 crore, setting target of 7.40% GDP growth and 5.5% inflation. The budget FY 2017-18 is 26% larger than revised budget of FY2016-17 against revenue proposed Tk. 287991 crore, of which NBR revenue accounts for Tk. 248190 crore led by VAT Tk. 91,344 crore. The proposed NBR target is 31.80% higher than that of revised FY 2016-17. This large and ambitious budget is apparently a challenge for Government to implement. The declared budget was heated and much discussed due to declaration of Vat and SD act 2012 implementation from July 2017 and other pressing issues including Vat exemption list made this fiscal budget very controversial as well as other pressing issues including excise duty on bank saving. The parliament has endorsed the finance bill as the political budget with huge political commitment.
Tk. 207138 crore has been allocated for non-development expenditure whereas Tk.1,53,331 crore earmarked for development expenditure. Non development expenditure has been increased by 16.27% and development budget by 37.09% over revised budget of FY2016-17. The ADP allocation witnessed substantial growth due to higher allocation in Health, Education, Power, energy and mineral resources, railway and roads and highway and bridge divisions with extensive increase to Tk 67,371 crore. Non development budget increase by TK. 28984 crore in FY 2017-18 is not friendly for our limited resourced economy. Increasing trend of higher allocation for infrastructure development will lead to accelerated economic growth trajectory as planned in Seventh Five Year Plan.
Budget is instrumental approach for economy like ours. The process of budget planning, preparation needs to be focused and oriented on public welfare and ultimate state of macro-economic condition.Unfortunately this budget is a mammoth and gigantic budget bereft of public orientation. Philosophically it is a political and robustly unplanned budget. It is likewise previous other format of budget without any exclusiveness. The analysts and economists marked this budget a loaded car with low CC engine. The TK 4 trillion budget cannot be apparently useful for our growing economy as almost TK 3 trillion is an expenditure budget as opposed to TK. 1.57 trillion development expenditure. The extremely increasing trend of expenditure budget for our resource constraint economy is not welcoming and beneficial at all.
On the other hand, deficit budget is on rise to Tk. 112275 Crore in FY 2017-18 which is dominated by banking sector and saving certificate and this persistent dependence on bank and savings certificate increase cost of Government and indirect tax incidence on mass people and business community. One of the largest expenditure allocation went to Interest payment over TK.40000 crore is to shield the highest interest payment to saving certificate investors. This unilateral decision of government creates severe investment imbalance among all stakeholders and primary investors in Banking sector and capital market sector. The cost of capital from this savings certificate financing is very expensive over other sources of financing to meet the budget deficit and threat to emerge the fallen capital market and a privilege to a very small section of people. To meet this need, government is forced to put the higher tax incidence on other section of people. The unrealistic TK2.88 trillion revenue generation target does not commensurate huge budget and the main pillar/measure of revenue generation source from Vat enforcing Vat and SD act as implementation of the act has come across deferral as the vat is the largest NBR revenue source of Government. The deferral of the VAT &SD act implementation will make NBR revenue reduction by minimum 20000 crore which will also adversely affect the revenue generation target of Government as well affect the development budget resource generation which ultimately declines macroeconomic environment of Bangladesh. The decision of scrapping the excise duty on bank saving/deposit has been appreciated everywhere especially to small and marginal investors and depositors as initiative to raise TK 1500 crore from bank depositors was gravely wrongful initiative of Government then.
Unchanged higher threshold of corporate tax rate is discouraging for local and foreign investment though reduction of corporate tax to 15% for RMG will encourage RMG sector expanding investment and facilitating the $50 billion export earning target.
It is also assumed that due to change in proposed tariff price may decline for a wide range of products such as LED lamp, raw materials for ceramics, battery, locally made computer, laptop, tab, mobile phone, fire resistance door, video conference device, adhesive tape, fiber glass, LPG cylinder, solar module, textile & RMG raw materials, viscose whereas likely price increase on TV cards, cigarettes, spices, Soya bean meals, double cabin pick-up and above 1600 cc CKD motor car escalating cost of living of mass people and doing business too.
The approved budget has not offered any common and label playing platform across the board for cross section of industries including SME cross section of manufacturing and industries and many of the new and emerging, non-traditional industries will remain vulnerable and behind to progress. The backward linkage industries in agro processing, livestock, jewelry, plywood and textile related SMEs and other industries have not been given any fiscal and non-fiscal protection to come forward even though many small SMEs in agro machinery and equipment business will also be badly affected too. Therefore, this budget is not considered as inclusive and fully industrial friendly in the context of emerging Bangladesh.
In order to implement the large budget, proposition made for Tax administration reform such as establishment of an appropriate administration setup for combating cross-border tax evasion, capital flight and facilitating recovery of evaded tax and establishment of 103 new Tax circles offices in different upzillas are apparently timely moves easing tax net in the country but effective and friendly administrative system, structural reform are essential to achieve the objective.
The budget lacks coordination with other national economic master plan like 7th five year plan, development blueprints like economic graduation by 2021 and 2030 in terms of GDP target, resource mobilization to investment and GDP ratio as well as SDG agenda as targets set separately in those development agenda are irrelevant and severely disintegrated to one other which indicating a clear maladjustment and abuse of national resources for coordinated and combined development work of our economy in long run. Budget is the yearly blue print to ease and enforce the each of the targets of the major development plan in terms of resources and plans. Another irony of this budget is the employment generation programme except a plan for National Skill Development Centre. The incremental GDP growth in past years have not commensurate the required employment generation in the country as industrial growth was insignificant despite having inflated growth in the economy. 7 percent GDP is to create maximum 7 million of jobs as economic standard but the employment growth and GDP growth are not progressing in same direction at all. That is why, the 7 percent plus GDP growth regime does not look sustainable and become incredible to most of the people in Bangladesh.
On the other hand, our economy is not being able to harness and get exploited upto its optimum potentials as the physical infrastructure is not substantial and sound enough against the requirement which has put our economy behind many Asian economies in the growth and development race. Though it is very critical issue to create several economic rippled effects and dividend at micro and macro level across urban and rural economy, the FY 2017 infrastructure budget allocation was 2.87 percent of GDP but the aggregate allocation of infrastructure in FY 2018 is extended to 3.61 of GDP including power, energy and multilateral communication transport but the allocation in entire road, rail and water transport sector is still less required. An ideal budget can be featured as Infrastructure investment to GDP to 5% in order to encouraging private local and foreign investment growth. Proposed tax exemption under PPP model of transport communication like national highways, road, expressway, elevated expressway and subway will encourage private investment in infrastructure sector alongside thrust on Rural Infrastructure development will also help to increase economic dividend and up escalate the less privileged rural economy and connect urban economic .
But the increase marked in this fiscal year is expected to bring about positive changes and impacts on entire economic operations advancing the socio-economic state of most of the people of the country in the year to come provided rightful and rational allocation and implementation happens in projects undertaken. Government and private sector investment to GDP as well as FDI in cross section of industry can expand if this infrastructure project development continues even further. This aspect of the budget is attributed to little contribute to government ADP implementation and momentum to new joint venture and private sector development projects as well. The Budget year can be changed into calendar Year January to December to cope with other Government agencies programme, banks and maintain accounting standard above all this calendar year will enable effective ADP implementation as June to July fiscal year hampers the development work due to longer monsoon period.
Government is required to ensure the expenditure budget rationalization and efficiency to reduce tax burden on people and inject resources into robust and inclusive development works of the economy in minimising the deficit gap and reduce the banking and financial sector extreme dependence. The proposed budget needs to look into corporate tax rationalization and increase the individual income tax threshold above all ADP implementation and fastest 22 new economic zones completion under the special ADP project monitoring pool in order to surging the clustered new private investment, industrialization growth and the private investment aimed at 31.09 % of GDP in FY 2017-18 to translate the proposed ambitious budget and underpin the long-held economic visions for 2021 and beyond, the far-reaching and wonderful economic era to shape and contextualize the sharp and compact economic history of Bangladesh.