Bigger budget, wider deficit on lower income

Bangladesh saw its perennial budget deficit widen to Tk 1.98 trillion in the past fiscal year as, economists say, economic adversity in crunch time plays out on usual incremental budgeting.
The gap between spending and revenue earnings widened as tax collection remained slower than estimated during budget making.
In the previous fiscal year, 2021-2022, the gap between spending and revenue earning was Tk 1.84 trillion, in absolute terms, according to official data.
The total outlay was recorded at Tk 5.63 trillion in the FY 2022-2023 in an annual increment from Tk 5.20 trillion a year before.
The total tax receipts, including NBR taxes, stood at Tk 3.65 trillion in the past fiscal--up by around 9.0 per cent from Tk 3.35 trillion in FY2022.
However, the government reckonings show the budget deficit in proportion to GDP (gross domestic product) at 4.46 per cent--down by 0.18 percentage points from that of FY2022.
People familiar with the developments in budgeting and budget financing at government's finance division told the FE that non-development expenditure from the budget rose over 10 per cent in the bygone year under review.
The non-development spending amounted to Tk 3.61 trillion in FY2023 against Tk 3.27 trillion in FY2022.
And development expenses also increased more than 4.0 per cent in the past fiscal. The development expenditure stood at Tk 2.04 trillion in FY2023. It was Tk 1.95 trillion in the 2022 fiscal year.
One senior official at the division said, "The NBR (national board of revenue) tax mobilisation remained much lower than targeted in the revised target even."
The pared-down NBR tax-collection target was Tk 3.7 trillion but the revenue authority could make it nearly Tk 3.2 trillion up to June final.
He said the revised target for import duty was Tk 430 billion but, at the end of June, it ended up mobilising Tk 360 billion only.
The revenue mobilisation from imports usually spikes fast but the restrictions on imports on the back of forex-market volatility squeezed the earnings from import duty.
As a result, the tax-GDP ratio also contracted to 7.38 per cent or down by 1.36 percentage points from the revised target. The ratio, however, decreased by 0.16 percentage points from fiscal year 2022.
Most government revenue comes from NBR sources (87.4 per cent up to June 2023).
Growth rates of NBR and non-NBR tax revenue are 9.1 per cent and 19.1 per cent respectively. On the other hand, non-tax revenue collection grew by 7.3 per cent compared to the previous fiscal year (FY22).
For tax-and non-tax revenue, achievements as to the annual target were 84.5 and 84.9 percent, respectively.
The deficit financing mainly comes from domestic borrowing which stood at about Tk 1.2 trillion in FY2023. The loans mostly come from banking sources.
On the other hand, foreign borrowings stood at Tk 726.3 billion in the year under review.
The finance minister announced the national budget 2022-23 with an outlay size of Tk 6.78 trillion with a revenue target of Tk 4.33 trillion.
Economists see the revenue shortfall as the main reason behind the widening budget deficit. They say the government missed out on a large amount of taxes form imports following restrictions on some non-essential, luxury imports.
"Not only import duty, there are other taxes on imports, so import compression is another reason as it helped reduce the tax mobilisation," says Dr M Masrur Reaz, chairman of the Policy Exchange of Bangladesh.
Dr Mustafa K Mujeri, executive director of the Institute of Inclusive Finance and Development, says Bangladesh's tax as a ratio of GDP remained lower for lower receipts and so the tax authority should widen the net for netting potential new taxpayers.
He also has stressed the need for reform in the tax arena to make the revenue regime "taxpayer-friendly".

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