The size of the Annual Development Programme (ADP), which has a strong crowding-in effect on private investment, should be significantly enhanced in the next fiscal, the Metropolitan Chamber of Commerce & Industry (MCCI), Dhaka has suggested.
The ADP implementation should improve, with more emphasis given to quality rather than the size of the projects, the country's leading trade promotion organisation (TPO), representating mostly the organised industrial sectors, noted in an editorial comment in the latest monthly publication -- Chamber News, June, 2008.
A package of fiscal, financial and other support measures should, the chamber noted, be announced for the manufacturing sector. "Anomalies of tariff, for which local industries are badly hit, should be removed. Budgetary support to non-farm rural activities is also essential" it noted.
For higher revenue-gross domestic product (GDP) ratio, the discretionary powers of the tax and VAT officials should be reviewed as these stand against better compliance, it said.
The MCCI made pleas for assigning a higher priority to education and health sectors because of their significant contribution to poverty reduction.
Allocation to Operation and Maintenance (O&M) should be raised significantly, because under-funding of O&M may constrain the government's ability to maintain the quality and growth of public services in future and thus undermine productivity in various sectors of the economy, according to the MCCI.
Larger allocation should also be made for the power sector, which holds the key to achieving high and sustainable economic growth, it said while recommending for continuing the subsidies to farmers on account of diesel, electricity, and fertiliser.
In its comment, the MCCI recalled that it had urged, through its earlier proposals for the forthcoming fiscal and the follow-up meetings thereupon, the National Board of Revenue (NBR) to address the need for providing strong fiscal, tariff and other policy support for helping economic growth.
The revenue collection, the chamber pointed out, has recorded an impressive 23 per cent growth in the first nine months of the present fiscal but at the same time, it is worrying that the government's ADP remained underimplemented.
"Only 31 per cent of the development budget has reportedly been implemented in the first eight months of the fiscal (the lowest in the past ten years). The under-implementation of the ADP is in sharp contrast with the increase in the government's recurrent expenditure, much of which was, of course, inevitable because of the unforeseen increase in the emergency expenditures on relief work and payments of subsidies", it observed.
"Despite strong revenue growth, the government's budget deficit has grown fast, financed chiefly by borrowing from banks. If this trend continues, the budget deficit at the end of the present fiscal may exceed 6.0 per cent of the GDP, as against the targeted 5.6 per cent. The inflation rate soared to a record 11.59 per cent in December 2007, nearly a 100 per cent increase in the past one year, with food inflation reaching a staggering 14.5 per cent, it added.
The MCCI said a high and sustained growth is necessary in agriculture, which accounts for 21 per cent of the country's GDP. "Agriculture sector should, therefore, receive a high priority in the budgetary allocation in the coming fiscal. The government should continue the prevailing subsidies to the farmers on fertiliser, diesel and electricity, and increase the flow of credit, Budgetary support should be extended to non-farm rural activities as well, which currently account for 28 per cent of the country's agricultural GDP and 40% of rural employment".
Calling upon the government to provide a package of fiscal measures to the industrial sector, the chamber should that sustained growth of the industrial sector would require a much higher budgetary allocation for the power sector and for the development and maintenance of physical infrastructure (roads, ports etc.).
It also recommended for extending appropriate fiscal incentives, including tax holiday benefits, which, the chamber observed, should be extended beyond the present deadline of June 2008 for promotion of promising industries. "There should be budgetary provisions for zero-tariff imports of machinery, spare parts, and intermediate goods for export. While it generally supports import liberalisation, it considers it necessary and expedient to remove duty anomalies so as to help growth and survival of domestic infant industries", the chamber added.
Pointing out that the revenue-GDP ratio in Bangladesh is now among the lowest in the world, it stated this ratio should be raised in the next budget by at least 1.0 per cent from the present 10.3 per cent of GDP. "Empirical evidence worldwide indicates that lower tax rates induce greater tax compliance. It, therefore, suggests that the corporate tax rate be reduced from the present 40 per cent to 30 per cent in the next budget. The highest rate of personal income tax should also be reduced from the existing 25 per cent to 20 per cent, and the level of tax-exempt income for payment of personal income taxesmay be raised from the present Tk. 150,000 to Tk. 200,000", it added.
Among other tax-related measures the Chamber recommended for raising the investment allowance for individual tax payers from the existing 20 per cent to 30 per cent of total income, removing the discretionary powers of the income tax and value added tax (VAT) officials, which has reportedly created opportunities for more corruption in the tax administration and harassment of taxpayers, re-introducing the tax exemption facility the commercial banks used to enjoy on the amount of profit used for provisioning their non-performing loans, bringing under the tax net the non-government organisations (NGOs) engaged in profit-making commercial enterprises, and dropping the requirement to show 5.0 per cent higher income than the last assessed income to be eligible for self-assessment.
The chamber observed: "Non-tax revenues currently account for just about a fifth of the government's total revenue earnings. Efforts should be made to enhance non-tax revenues by (i) raising administered prices, many of which are below cost, (ii) improving the performance of the state-owned enterprises (SOEs) and thereby reducing their losses, and (iii) phasing out implicit subsidies enjoyed by the SOEs".
The high inflation, according to the chamber, rate is now the greatest menace in the economy. "Causes of inflation are diverse, and many of these causes remain beyond the reach of fiscal policy. However, fiscal policy can supplement the monetary policy measures for containing inflation by taking measures that will reduce production costs, for example by reducing the import duty on raw materials and intermediate goods and enhancing production in the real sectors and expanding supplies".
