Following best practices in budget formulation

The Jatiya Sangsad on June 29 last passed the national annual budget for the financial year 2014-15.
Important features of the budget are: the total revenue income target has been set at over Tk 1.82 trillion (182,954 crore) which is 13.7 per cent of the gross domestic product (GDP) at the current market price against the target of Tk 1.67 trillion or 14.1 per cent of the GDP for the financial year 2012-13. On the other hand, the target of total expenditure is 18.7 per cent of the GDP. In the budget for the financial year 2014-15, deficit financing has been estimated at 5.0 per cent of the GDP compared with 4.6 per cent in the previous fiscal year.
On the revenue front, one of the main sources of income is the income tax, the target for which has been set 16 per cent higher than that of the previous fiscal. The value added tax (VAT) collection is expected to post a growth rate of 10 per cent over the previous fiscal. The other tax revenue of the National Board of Revenue (NBR), namely import duty, supplementary duty, etc. has been targeted to grow only three per cent higher than that of the previous fiscal. Non-tax revenue is also expected to increase at the rate of only five per cent. If we consider the inflation it will be found that the target for collection of revenue under the head 'Other NBR Tax' and non-tax revenue has been reduced.
It is not clear why the collection of revenue has been estimated at a lower rate. As regards to import duty and supplementary tax, it has been mentioned that a lot of changes (pluses and minuses) have been made in consideration of the betterment of the nation. But it has also been mentioned that due to such pluses and minuses the net import duty required will increase by Tk 2.0 billion (200 crore) and the supplementary duty will fall by Tk 5.0 billion (500 crore). If we consider such a net impact, it will be found that the revenue target under the heads like import duty, supplementary duty and others have increased by only four per cent compared with that of the previous fiscal. So, there remains a question as to the procedure of determining the estimate for collection of revenue.
On the expenditure side, different changes as regards to budget allocation have been made this fiscal. For example, the government has a vision to achieve the status of a middle income country by 2021, for which industrialisation is essential. For this different plans have been drawn up, including expanding infrastructure facilities, establishing an institute of plastic engineering and technology, improving and renovating tourism facilities of different areas of the country for developing tourism industry. Undoubtedly, all the plans are favourable for industrialisation. But how much can be materialised? There is doubt about, because the budget allocation for the industrial sector has been reduced by 33 per cent compared with that in the revised budget of the last fiscal.
Similarly, there is an adverse correlation between the plan and resource allocation in the 'civil aviation' sector. In this sector different remarkable plans include the procurement of two Boeing aircraft, continuation of the work for expansion and upgradation of another airport apart from the Hazrat Shahjalal International Airport and upgradation of the Cox's Bazar Airport into an international one. Here also it is doubtful that the plan will be materialised, because the budgetary allocation in this sector has been reduced by 44 per cent compared to the amount in the revised budget of the last fiscal.
Likewise, as regards to environment, Bangladesh is one of the most vulnerable countries exposed to global climate change. The level of pollution in rivers surrounding Dhaka is severe. To overcome the situation, as stated in the budget speech, a lot of steps will be taken by the government. These include: relocation of tanneries from the city's Hajaribagh to Savar by March 2015, all-out support of the government to the programme for converting into compost fertiliser the waste collected from areas under all city corporations and municipalities under an eco-friendly waste management system, the action on conversion of the existing brick kilns into hi-tech environment-friendly brick-kilns to reduce the severity of air pollution, continuation with the Air Monitoring Stations to monitor the quality of air in the atmosphere etc. But the allocation for the ministry of environment and forest has been increased only by 3.8 per cent compared with that in the revised budget of the previous fiscal. In view of the existing environmental problems and the prevailing inflation, it can be said that the budgetary allocation for the ministry has been reduced by three per cent. With this less budget allocation, how will the plan to combat environmental pollution be executed?
A budget these days is not merely a statement on a government's receipts and expenditure. It has got a functional role to play. It is not only desirable but also necessary to formulate such a budget which may enable the government to allocate resources in a manner that it can meet its social and economic objectives. The best international practices in the budget formulation process are: setting the fiscal targets and the level of expenditures compatible with the targets, formulating expenditure policies, allocating resources in conformity with both policies and fiscal targets, and addressing operational efficiency and performance issues. Reasonable causes of estimating the revenue collection at a lower rate in terms of percentage of the GDP are absent in the budget for the current fiscal, which indicates the non-compliance in setting the fiscal targets. The lack of resource allocation in conformity to the expenditure policies is also beyond the international practices in the budget formulation process. So, the budget has not been prepared following the internationally-acceptable core processes of budget preparation.
Finally, the budget is the financial mirror of government policies. So, it should be prepared in such a manner that it can earn confidence of the professionals and general people alike. This is very important for economic development of the country.
The writer is Council Member and ex-vice president of the Institute of Chartered Accountants of Bangladesh (ICAB).
 sha.hossain@gmail.com