Budget: Fusion of vote and VAT?

Bangladeshis are now caught between hope and despair.

The source of hope, false or real, are the claims made by a section of policymakers about high-sounding economic achievements and future growth prospects to impress the electorates.

The people are, however, disillusioned, to a large extent, by the mismatch between what their leaders preach and what they experience in real life. The dreadful future that awaits them due to global climate change is another source of despair.

The national budget that a finance minister ritualistically unveils (?) before the national parliament annually is yet another source of both hope and despair. Data relating revenue target, expenditure, annual development plan, VAT, etc., were published in the media well ahead of the formal presentation of the budget. On occasions, the incumbent finance minister himself disclosed a few figures.

The policymakers tend to generate high hopes among the people resorting to number games. They use all the 'mega' figures to demonstrate their ability to put the economy in higher growth trajectory.  Hardly, they refer to downsides and their lack of capacity to implement what they promise in the budget documents. Yet, at the end of the day, the people get frustrated by the net outcome.

 The national budget that Finance Minister AMA Muhith placed before parliament last Thursday is a document that would, obviously, generate less hope and more frustration among the people.

Since Mr. Muhith prior to its formal presentation had described the budget as an election-oriented one, most people had expected it to contain a few sops for the electorates in the form of tax cut and other financial benefits. But the opposite has happened. The budget, if kept in the present form ultimately, would give rise to more resentment among the electorates than satisfaction.

None seems happy with the budget. The value added tax (VAT) has apparently got most part of the government's attention as far as resource mobilisation is concerned. But the truth is that VAT being an indirect tax affects all sections of people--- from a man on the street to a highly affluent individual.

Despite incorporation of the exemption provision in the new VAT law and increase in the number of goods and services entitled to enjoy such exemption, hike in the limit for turnover exemption and the single VAT rate at 15 per cent have annoyed the businesses.

The negative impact of the new VAT provisions is already being felt. Even in the case of goods and services where there are provisions for VAT refund, the consumers, it is feared, would be forced to pay it. The government will not be able to stop such unfair transfer of VAT on to the consumers.

The proposed budget for the upcoming fiscal is a mega one. So, the government would have to mobilise resources matching its expenditure goals. But in doing so, the budget makers have banked more on VAT because it is easier to collect. The mandatory installation of electronic cash registrars would also make things easier for the taxmen.

But the government, it seems, is not that eager to beef up the income tax revenue which has huge potential. Hence, the National Board of Revenue (NBR) has given most part of its attention to the existing taxpayers and shows lukewarm interest in netting new taxpayers. Taxmen are found busy consulting files of the existing taxpayers. They should, instead, spend more time on locating potential taxpayers.

Despite the demand from businesses for a cut in the corporate tax rates, Mr. Muhith has kept the same unchanged. Given the ongoing stagnancy in private investment, a reasonable cut might have helped attracting new investments.

The most damaging element of the proposed budget is the proposal to hike excise duty on the balance of bank accounts. It is not understandable what prompted the government to include such a measure in an 'election' budget. The additional amount that the measure is estimated to fetch is a peanut---only Tk. 6.0 billion-compared to the overall tax revenue target. Is it worth taking such an unpopular decision?  There is another side of the story. Many have raised questions about the existence of very excise duty. They argue that there should have been no excise duty after the enforcement of VAT.

Mr. Muhith at his post-budget press conference termed the proposed budget as the 'best budget' he had so far presented. 'The taste of pudding lies in its eating' and since the people have not yet tasted how sweet and sour the budget is, they may not give their definitive view at the moment. But from the fiscal measures they get enough indication about the impact of the budget, including an increase in the rate of inflation.

The price situation is not that comfortable at the moment. Many had expected withdrawal or substantial reduction of duty on rice import to help ease supply of the main staple. But, for unexplained reason, it has not happened.

It appears that the policymakers are more eager to project achievements in areas of macro indicators and development expenditures. They are aware of the government's limited capacity, in terms of resources and execution. Yet, all the time, they come out with high spending and high resource mobilisation targets. However, questions are often raised about the quality of data presented by the state statistical organisation on macro-economy.

The proposed budget is the last budget of the incumbent government for a full financial year before the next general election. But one tends to believe after a review of the content of the budget that the policymakers have not paid adequate attention to win the hearts either of the businesses or the electorates.

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