Analysing budgetary measures

The national budget for the fiscal year 2014-15 is the 6th consecutive one of the incumbent octogenarian and scholarly finance minister. He has performed his part very eruditely, professionally and with a practical vision. The vision has been critically misconstrued by many as ambitious and not achievable. Their so-called "ambition" is correctly needed and has rightly been dealt with by the finance minister. This is because it is an eye opener for those orthodox thinkers. These critics tend to consider Bangladesh incapacitated to take off in its journey from poverty to sustainability. But the finance minister as the pilot did it rightly and very timely.  We should highly applause the minister for setting a goal.
The fiscal measures in the budget are very welcome steps. The raising of exempted slabs is a more welcome step too. The favour for women taxpayers keeping aside males also attests to his unbiased thinking for all. He is the finance minister for all.  Maybe the treasury bench, parliament and opposition bench are all female-led and he cannot set them aside with all. However, forgetting his own group seems to be irrational. The male tax payers' exempted income limit could be easily and logically raised to Tk 240,000.
The inequality of income in Bangladesh is aggravating. In this backdrop, he has proposed a new tax slab of 30 per cent on income of over Tk 4.42 million (44.20 lakh.) It is an acclaimed proposal. If the finance minister raises the exempted limit of male taxpayers to Tk 0.24 million (2.40 lakh), this 30 per cent tax slab would apply to those earning income of over Tk 4.4 million.
The reduced tax rate of 35 per cent for private limited and non-publicly-traded companies is a very positive and assertive step. However, the tax rate of 27.5 per cent applying to listed companies and publicly-traded companies only on 10 per cent shares earmarked for the public is not acceptable. This exempted rate should be applicable to initial public offerings (IPOs) making available at least 40 per cent shares, if not 50 per cent or more to the public. This would promote the supply of shares. Also stability of the stock price will persist in the capital market. People will enter the market as investors as it will in all likelihood restore institutional and small investors' confidence in the stock market. The monetary policy has set the limit of deposit at 50 per cent for capital market. But the banks cannot access the market because of a wide demand-supply gap. The supply by IPO or increased shares in the existing publicly traded companies at a reduced tax rate can improve the supply situation very well. Also investors can buy some better shares.
The capacity building by Bangladesh Securities and Exchange Commission (BSEC) has not been dealt with in the budget. The minister should have spoken on it in the interest of a capital market that he and his government aspires for. The BSEC capacity building in the face of demutualisation should be taken into consideration.
The reluctance of taxpayers to pay tax need not be mentioned. Everybody first thinks to avoid and then evade taxes, both direct and indirect. The companies have been paying turnover tax at the rate of 0.5 per cent irrespective of previous losses. The minister has reduced it to 0.3 per cent. He should revisit it and bring it back to 0.5 per cent, if not higher. The development pace needs more local resources. By doing it he has discouraged a group of taxpayers, who despite reluctance are paying it. Let their paying spree be not hindered. Or else, the nation will suffer. Let them be least givers instead of high takers.
Tax policies on capital market should have been taken care of more. The distinction between investors and traders need to be defined well. The investors should be given the priority over traders. Institutional investors need to be given preference to establish a sustainable capital market. The tax on profit should be exempted only in the case of shares withheld for over 2 years or so etc. Trading profits add fuel to uncertainty and aggravates social injustice.
Tax holiday continuation steps are most warmly welcome. Industrialisation and development are two sides of the coin, especially for Bangladesh where unemployment persists at large.
The exemption of tax on agricultural income has been raised to Tk 0.2 million (2 lakh). This is a very timely and prudent step. This will encourage self employment and agricultural development. People will be more interested in the agriculture sector and this incentive will work as a catalyst.
The 5-year tax holiday for demutualised bourses is a warmly welcomed measure. In the face of the demand from bourses the minister has promptly accepted it. He should have tagged few conditions with it for the bourses like steps by them to develop the market scenario etc.
Reduction of advance income tax (AIT) on exports from 0.80 per cent to 0.30 per cent is good. But it should have been set at 0.60 per cent. It is not believable that this reduction can give them the competitive edge in the export market. With a mere 0.30 per cent AIT, the government would incur a revenue loss substantially. It is not clear how this loss of revenue will be compensated.
The corporate social responsibility (CSR) limit for entities has been raised to Tk 120 million (12 crore) from Tk 80 million keeping the threshold of 20 per cent on receipts. This would leave leverage for the government in social upliftment. This step is highly admirable.
The payment of a monthly rent of above Tk 25,000 through an account payee cheque is a very prudent step. However, has the government made the National Board of Revenue (NBR) prepared to enforce it and reap benefit from it? Does the NBR have the capacity to monitor and survey all these? If it was yes, then the TIN net would have been much wider. Out of approximately 3.5 million TIN holders, only 1.3 million submit income tax returns. This is not acceptable. The minister could have proposed a fee on maintaining a TIN like Tk 1,000. This is the first year of the government and he can still do it. With a fee like Tk 1,000 only per TIN a substantial amount of revenue can be generated. This can be still proposed or done by issuing an executive order.
The minister was silent about corruption of income tax and VAT assessing officers. They are given the discretionary power by the law to augment more revenue. Do they apply it ever? There is no monitoring system to watch their performance. The NBR should have improved the assessment quality of the officers. If it is done, it will fetch increased revenue for the exchequer and reduce their scopes of resorting to dishonesty. The proposed taxes on allowances for government officers are a welcome step. At least the finance minister has initiated measures to remove distortions like this.
The writer is an economist and FCA.  [email protected]