The outgoing fiscal has not gone well for Finance and Planning adviser Dr. Mirza Azizul Islam.
Soon after the announcement of the national budget, came two back-to-back floods followed by a power-packed cyclonic storm. The natural disasters, besides exacting a human toll, caused substantial damage to property and food crops.
Those were possibly not enough to compound his miseries. The unabated hike in food and fuel oil prices in the global market has done the rest. Subsidies on account of food, fuel and fertilisers have gone well beyond the budget estimate leading to a substantial increase in borrowing from the country's banking system by the government.
The multilateral lenders going by the developments slashed the GDP growth projections by one percentage point to 5.5 per cent. But the country's central bank repeatedly said the growth would be, at least, 6.0 per cent or more. Buoyed by a record Boro rice harvest-thanks to a favourable climate and higher food grain prices in domestic markets, the finance adviser now projects the GDP growth for the current fiscal at 6.2 per cent.
A robust revenue collection, which is equivalent to 11.3 per cent of the GDP and 1.0 per cent higher than that of the preceding year, in the fiscal 2007-08 is yet another issue that has satisfied the finance adviser most. A large part of the higher revenue has come from taxes on income and profit and value added tax (VAT). The opportunity to formalise undisclosed lawful income and the drive to net in more taxpayers have made significant contribution to the tax revenue increase. The anti-graft and anti-tax evasion drives also have had an impact. The finance adviser has disclosed that the government's anti-graft drive has yielded a revenue of over Tk 12 billion for the public exchequer -- not a very big amount considering the 'noise' over the drive.
Going by the pattern of resource allocation made in the national budget for the next fiscal (2008-09), one might feel tempted to say that the unpalatable experience over prices of essential commodities, particularly those of cereals and fuel oils, and the hardships caused to the poor and low income people by the price-spike is still haunting the finance adviser.
This is evident from the finance adviser's readiness to describe the budget for the next fiscal as an 'expansionary' one because of its higher deficit content.
"One must bear in mind that in the backdrop of the negative impacts of international price hike of oil, food and fertiliser together with internal shocks, an expansionary fiscal policy to protect the poor and the low income group of the community has become an essential necessity", he said in support of expansionary fiscal policy.
However, the finance adviser should consider himself to be lucky if he can finally manage to keep the deficit at the projected level of 5.0 per cent at the end of the coming fiscal. Actually, the deficit projected in the budget would be much higher if other hidden subsidies given to the state-owned enterprises (SoEs) are taken into account. The fuel oil prices-the crude oil price is forecasted to reach $200 a barrel in the near future-- if not adjusted domestically, have all the potentials for unsettling the government's deficit estimate.
To provide relief to the poor and boost agricultural production, the direct allocation under social safety net programmes, 100 Days Employment Generation scheme and subsidies to agricultural inputs, food and fuel is about Tk. 330 billion. The projected expenditure on the safety net programmes and on subsidies together-Tk. 310 billion- is Tk. 54 billion more than the proposed size of the annual development programme (ADP) for the next fiscal.
However, the safety net or employment generation schemes being ad-hoc in nature are helping only a section of the hardcore poor to manage a living. These are not anyway helping the government's avowed policy of halving the poverty by 2015.
Besides, the government has reasons to be genuinely concerned about the poverty situation if it sees in the context of the reported erosion in the income of the poor due to the ongoing hike in food prices. The erosion in income of the poor as revealed by a study carried out by the Centre for Policy Dialogue (CPD) does indicate the reversal of the poverty reduction trend witnessed between 1991 and 2006.
Despite the emphasis given on food security and protection of the poor from price escalation, the budget has tried to address the problems and needs of some domestic industries and provide a bit of fiscal relief.
The decision to keep the existing limit for tax income individuals at Tk 150,000 unchanged will not go well with fixed income people. With inflation reaching the double digit-most people have taken the latest official inflation estimate at slightly over 7.0 with a grain of salt--- the taxpayers had expected some revision in the limit. An upward revision of the limit would have been justifiable, particularly when the finance adviser at one place of his budget speech said, "the fixed-income group of people in the country is facing hardship due to high inflation arising from the abnormal price-spikes in both international and domestic markets during recent times".
The proposal to raise the tax-free income limit for persons solely dependent on income from agriculture to Tk. 50,000 in addition to the normal tax-free threshold of Tk 150,000 unlikely to bear any fruit. The people dependent on income from agriculture do generally live in rural areas and they, possibly, are not aware of the fact that their income is taxable. It is not known whether the National Board of Revenue (NBR) has ever collected income tax from agriculturalists.
The proposed 2.5 per cent reduction in tax rate for listed and non-listed companies would be welcome. But there would be genuine reasons for the banks, insurance companies and financial institutions, most of whom are listed issues-to be aggrieved by the government decision to keep their tax rate at 45 per cent, particularly when the non-listed companies would be enjoying a tax-cut.
The proposal to rescind the section 16CC of the Income Tax Ordinance relating to the payment of a minimum tax on the basis of the turnover of all companies, irrespective of profits and losses, will fulfil a long-standing demand of the businesses.
The proposal to re-introduce four-tier duty structure with a 3.0 per reduction in duty on capital machinery, spares, basic raw materials and intermediate goods would be welcomed by the domestic industries. The businesses are likely to appreciate the extension of the tax holiday facility until 2011 and inclusion of some more sectors. Income tax and other relief extended to small and medium enterprises (SMEs) and Information and Communication Technology (ICT) sector would also be greeted heartily by the stakeholders concerned.
The finance adviser in his long speech touched upon many issues, including reforms programme of the government. He even mentioned a number of reform-oriented developments relating to the election commission and the electoral process. But, there was no word about holding of the election in accordance with the earlier 'roadmap', though the onus of implementing the budget in the second half of the fiscal will be on next elected government, if the election is held by December next.
Crisis management features dominate
Shamsul Huq Zahid | Published: June 10, 2008 00:00:00 | Updated: February 01, 2018 00:00:00
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