Making it a pro-investment and export-supportive budget
Abul Quasem Haider | Tuesday, 10 June 2008
FINANCE and Planning Adviser Dr. A.B. Mirza Md. Azizul Islam and National Board of Revenue (NBR) Chairman Abdul Majid have been having pre-budget discussions for the last few months. Every year such discussions are held to take the advice of different groups to prepare the budget. The national budget for the forthcoming fiscal, like that of the previous one, has been prepared by an unelected caretaker government. Due to emergency, there is no political activity in the country and as such there has been no scope for the political parties to participate in the pre-budget discussions.
The finance adviser got ample scope to discuss the budget with different chambers, and social organisations and associations. Indirect implementation of some measures of the budget for fiscal year (FY), 2008-2009, has already started by way imposition of new taxes and rates. The present caretaker government is not being able to control the prices. Diesel and octane prices increased by Tk. 7.0 and Tk 9.0 per liter with effect from March 29, 2008 and also since then the price of commodities and transport fare are increasing continuously.
To arrest the rising inflation, the World Bank (WB) has advised Bangladesh Bank to adopt a credit squeeze policy. The WB expects soaring oil price to impact commodity prices and inflation. Careful monetary policy handling can minimise the pressure of inflation on the economy. On this ground, the WB reportedly advised for increasing the price of electricity. It pointed out that due to subsidies on account of diesel, kerosene and oil, the same items are being smuggled out to India. On the other hand, the poor farmers are hard pressed because of increasing kerosene and diesel prices.
For the outgoing budget the government had set a goal to provide 43 per cent of its resources from internal resources, while for the next budget it expects to mobilise more than 50 per cent of the needed resources form domestic sources. To achieve this target, anti-corruption measures should be strengthened.
As a budget depicts the image, outlook and vision of a government, it needs to pay attention to a number of issues. The government must pay attention to measures that can boost exports and reduce the production cost. It has to bear in mind that without exporting indigenous products, there is no way to increase export earnings. So, to encourage export-oriented industries, the existing facilities have to be kept undisturbed and new plans and programmes have to be taken for further industrialisation. New facilities, to make up the extra cost of production, caused by oil price-hike, should be extended to the export-oriented industries to boost the exports.
To keep up the tempo of activities of export-oriented industries and to encourage foreign investment, tax holiday measures should be extended for ten years.
To encourage rapid industrialisation, the existing tax structure should be restructured. At present there are taxation at five stages. This should be reduced to 0-2.5 per cent. In this case, the tax on commodities that meet the demand of the middle class needs to be reduced from 15 per cent to 7.0 per cent. The rate of tax on luxury products may be increased form the existing 25 per cent to 30 per cent.
At present, 76 per cent of the total foreign currency is earned by the readymade garments (RMG) sector. The textile sub-sector, the main segment of this sector, employs 2.5 million workers. It is a flourishing sector. Its three sub-sectors -- spinning, weaving and dyeing and finishing -- are essential for the RMG industries. Import of spares for RMG and the sub-sectors are objected, until now, to taxes imposed, at different rates, ranging from zero per cent. Since the prices of oil and electricity have increased, the tax on import of spares of these sectors should be exempted to help reduce the cost of production.
The cost of living has enormously gone up due to price hike. Hence, the tax-exempted income limit should, at least, be enhanced to Tk. 3,20,000 from existing Tk 1,50,000. This would encourage the actual tax payers to pay taxes without concealing their income and collection would be easier.
The drive for eradication of corruption should be further strengthened. The finance adviser's budget speech, we all would expect, would spell out the guidelines clearly about this. In order to eradicate corruption and graft from the society, the government should take a long-term plan, aiming at deep-seated institutional reforms, considering the fact that combating corruption involves a process and it is not an event.
There should be special allocation in the proposed budget for fiscal 2008-2009 for publicity campaigns to create public awareness against corruption and graft.
During last five years, only 80 MW was added to the national greed which was quite frustrating. The total deficit of electricity stands now at 2050 MW. The deficit has to be met in the interest of industrialisation of the country by attracting foreign investment. The government, in the meantime, accorded permission for setting up of four big power plants. On assumption of power, the present caretaker government took the decision to set up facilities to produce 2500 MW electricity, for which foreign and local investors are to involved. Furthermore, it has taken the initiative to set up five to 10 MW capacity small power plants in the country. If the scheme materialises, production capacity will, no doubt, increase considerably. Attainment of self-sufficiency in electricity by 2010 should be kept in mind while finalising the national budget for the forthcoming fiscal and is taken up for implementation on July 01, 2008.
Meanwhile, it is to be noted that the number of tax payers is relatively small in our country. A cross section of the people remains unwilling to pay individual tax, out of fear of harassment and other irregularities that are frequently practised by the tax personnel. To overcome these problems, appropriate measures have for long been overdue in order to rectify the behaviour of the tax-payers as well as the tax-collecting officers. To increase the number of tax payers, the government has launched a campaign to identify tax payers visiting the offices and the organisations. This encouraging step, we hope, will continue. A clear guideline for this needs to be spelt out before the proposed budget for fiscal 2008-2009 becomes operational on July 01, 2009.
The last four-party alliance government did not put any school, college and madrasha under the MPO, for the purpose of providing subventions for the concerned teachers. Thousands of applications for MPO have been lying pending in the Ministry. The alliance government did simply grant permission to some of the institutions without any monetary benefit. A good number of teachers and staff are there in such institutions. They are living, sub-human life. The government gave hopes on different occasions but did not do anything for them. So, in the budget for fiscal 2008-2009 there should be allocation of sufficient funds to put those schools, colleges and madrashas, as approved by the government, under the MPO. Otherwise serious chaos will prevail in the educational institutions all over the country.
The previous four-party alliance government accorded approval for establishment of 56 private universities under the Private Universities Act. These universities got approval as non-profit institutions. But, recently, the NBR imposed 40 per cent tax on these non-profitable institutions. This is a self-contradictory decision on the part of the incumbent caretaker government as it is unethical and unjustified. The government should reverse the decision, before finalisation of the budget for fiscal 2008-2009, ahead of its implementation.
The sponsors of the private universities built the universities with their own resources without any financial support from the government. Condition has, however, been imposed by the government that within a few years of establishment, the universities have to shift to their own campuses. Such a heavy burden would make it impossible for the private universities to go for the development of education. It is also imperative to exempt the private universities from the tax imposed by the NBR.
Banks and insurance companies in the country in its financial sector contribute substantial to the economy. But due to certain discrimination in the sector, the non-financial organisations are facing great hindrances to their becoming profitable concerns. The banks as well as the financial institutions, like the leasing companies, were approved by the Bangladesh Bank (BB). The central bank until now, approved 28 leasing companies and they are effectively conducting their business. The banks -- private and government-owned -- are running their business smoothly following the guidelines of the Bangladesh Bank. The financial institutions are facing a particular limitation in conducting their business. The banks have the scope to earn profit from other sources by extending their banking services. But some of these facilities were curtailed by the government in the budget for fiscal 2005-2006. Specially, under the previous budgets, 10 per cent tax on term deposit receipt (TDR) was exempted but under the budget for fiscal 2005-2006 the tax was reimposed. The leasing companies hold the views that as they do not have scope to conduct banking activities, the tax on TDR is a burden for them. If the tax on TDR is waived, they will be able to earn financial solvency. Their claim is justified. Since the tax was exempted under the provisions of the pervious budget the government should waive it in the budget for fiscal 2008-2009.
Progress in poverty alleviation is slow. Thousands of non governmental organisations (NGOs) working in the country are publicising their to work for poverty alleviation. But allegations are there that they charge rate of interest on loan at an exorbitant rate from the poor. Recently, they requested the Chief Advisor to allocate funds for them in the budget for fiscal 2008-2009. The NGOs cannot be allowed to charge interest at 40-50 per cent rate against poverty alleviation loans from the poor. The rate of interest on loans for the countryside should be reduced to five to 10 per cent. The poor and the distressed, in the countryside, should be given the opportunity to build their future. Job opportunities have to be created for the unemployed people in the rural areas for poverty alleviation. That is why, instead of setting up town-based large industries, initiative has to be taken to establish village-based small industries to create job opportunities for the unemployed people in the villages. Poverty alleviation is never possible without employment for the unemployed.
The government's 30 per cent subsidy, given for promoting agricultural development and production of agricultural commodities for export, should continue to help boost production and export. This benefit should be protected form the hands of those who misappropriate. The government does need to ensure that the benefits reach the target group for attaining self-sufficiency in agriculture as well as poverty alleviation.
Over the last few years incentive for the export-oriented textile sector has been reduced to 5.0 per cent from 25 per cent. The representatives of the Bangladesh Textile Mills Association met the Chief Advisor and demanded restoration of the 25 per cent cash incentive. As the government thinks that the cash incentive is misappropriated through unfair means for which it scaled down the facility to 5.0 per cent. It was said that the incentive would be given to the entrepreneurs but ultimately it has not been done. The promised 100 per cent value added tax (VAT) exemption and 25 per cent cash incentive on gas and electricity bills of the exported oriented industries should be implemented in the coming budget. So the proposal for providing 25 per cent cash incentive on gas and electricity bill merits an urgent attention instead of 25 per cent cash incentive on export. This approval should come in the budget for fiscal 2008-2009.
The budget for fiscal 2008-2009 is of vital importance. The government is passing through a very crucial time, facing criticism at home and abroad. It needs to be aware of the reality and come out with a comprehensive and constructive guideline for future development of the country in the next budget.
The writer, a former Vice President of the FBCCI, BGMEA and BTMA, is Chairman, Eastern University
The finance adviser got ample scope to discuss the budget with different chambers, and social organisations and associations. Indirect implementation of some measures of the budget for fiscal year (FY), 2008-2009, has already started by way imposition of new taxes and rates. The present caretaker government is not being able to control the prices. Diesel and octane prices increased by Tk. 7.0 and Tk 9.0 per liter with effect from March 29, 2008 and also since then the price of commodities and transport fare are increasing continuously.
To arrest the rising inflation, the World Bank (WB) has advised Bangladesh Bank to adopt a credit squeeze policy. The WB expects soaring oil price to impact commodity prices and inflation. Careful monetary policy handling can minimise the pressure of inflation on the economy. On this ground, the WB reportedly advised for increasing the price of electricity. It pointed out that due to subsidies on account of diesel, kerosene and oil, the same items are being smuggled out to India. On the other hand, the poor farmers are hard pressed because of increasing kerosene and diesel prices.
For the outgoing budget the government had set a goal to provide 43 per cent of its resources from internal resources, while for the next budget it expects to mobilise more than 50 per cent of the needed resources form domestic sources. To achieve this target, anti-corruption measures should be strengthened.
As a budget depicts the image, outlook and vision of a government, it needs to pay attention to a number of issues. The government must pay attention to measures that can boost exports and reduce the production cost. It has to bear in mind that without exporting indigenous products, there is no way to increase export earnings. So, to encourage export-oriented industries, the existing facilities have to be kept undisturbed and new plans and programmes have to be taken for further industrialisation. New facilities, to make up the extra cost of production, caused by oil price-hike, should be extended to the export-oriented industries to boost the exports.
To keep up the tempo of activities of export-oriented industries and to encourage foreign investment, tax holiday measures should be extended for ten years.
To encourage rapid industrialisation, the existing tax structure should be restructured. At present there are taxation at five stages. This should be reduced to 0-2.5 per cent. In this case, the tax on commodities that meet the demand of the middle class needs to be reduced from 15 per cent to 7.0 per cent. The rate of tax on luxury products may be increased form the existing 25 per cent to 30 per cent.
At present, 76 per cent of the total foreign currency is earned by the readymade garments (RMG) sector. The textile sub-sector, the main segment of this sector, employs 2.5 million workers. It is a flourishing sector. Its three sub-sectors -- spinning, weaving and dyeing and finishing -- are essential for the RMG industries. Import of spares for RMG and the sub-sectors are objected, until now, to taxes imposed, at different rates, ranging from zero per cent. Since the prices of oil and electricity have increased, the tax on import of spares of these sectors should be exempted to help reduce the cost of production.
The cost of living has enormously gone up due to price hike. Hence, the tax-exempted income limit should, at least, be enhanced to Tk. 3,20,000 from existing Tk 1,50,000. This would encourage the actual tax payers to pay taxes without concealing their income and collection would be easier.
The drive for eradication of corruption should be further strengthened. The finance adviser's budget speech, we all would expect, would spell out the guidelines clearly about this. In order to eradicate corruption and graft from the society, the government should take a long-term plan, aiming at deep-seated institutional reforms, considering the fact that combating corruption involves a process and it is not an event.
There should be special allocation in the proposed budget for fiscal 2008-2009 for publicity campaigns to create public awareness against corruption and graft.
During last five years, only 80 MW was added to the national greed which was quite frustrating. The total deficit of electricity stands now at 2050 MW. The deficit has to be met in the interest of industrialisation of the country by attracting foreign investment. The government, in the meantime, accorded permission for setting up of four big power plants. On assumption of power, the present caretaker government took the decision to set up facilities to produce 2500 MW electricity, for which foreign and local investors are to involved. Furthermore, it has taken the initiative to set up five to 10 MW capacity small power plants in the country. If the scheme materialises, production capacity will, no doubt, increase considerably. Attainment of self-sufficiency in electricity by 2010 should be kept in mind while finalising the national budget for the forthcoming fiscal and is taken up for implementation on July 01, 2008.
Meanwhile, it is to be noted that the number of tax payers is relatively small in our country. A cross section of the people remains unwilling to pay individual tax, out of fear of harassment and other irregularities that are frequently practised by the tax personnel. To overcome these problems, appropriate measures have for long been overdue in order to rectify the behaviour of the tax-payers as well as the tax-collecting officers. To increase the number of tax payers, the government has launched a campaign to identify tax payers visiting the offices and the organisations. This encouraging step, we hope, will continue. A clear guideline for this needs to be spelt out before the proposed budget for fiscal 2008-2009 becomes operational on July 01, 2009.
The last four-party alliance government did not put any school, college and madrasha under the MPO, for the purpose of providing subventions for the concerned teachers. Thousands of applications for MPO have been lying pending in the Ministry. The alliance government did simply grant permission to some of the institutions without any monetary benefit. A good number of teachers and staff are there in such institutions. They are living, sub-human life. The government gave hopes on different occasions but did not do anything for them. So, in the budget for fiscal 2008-2009 there should be allocation of sufficient funds to put those schools, colleges and madrashas, as approved by the government, under the MPO. Otherwise serious chaos will prevail in the educational institutions all over the country.
The previous four-party alliance government accorded approval for establishment of 56 private universities under the Private Universities Act. These universities got approval as non-profit institutions. But, recently, the NBR imposed 40 per cent tax on these non-profitable institutions. This is a self-contradictory decision on the part of the incumbent caretaker government as it is unethical and unjustified. The government should reverse the decision, before finalisation of the budget for fiscal 2008-2009, ahead of its implementation.
The sponsors of the private universities built the universities with their own resources without any financial support from the government. Condition has, however, been imposed by the government that within a few years of establishment, the universities have to shift to their own campuses. Such a heavy burden would make it impossible for the private universities to go for the development of education. It is also imperative to exempt the private universities from the tax imposed by the NBR.
Banks and insurance companies in the country in its financial sector contribute substantial to the economy. But due to certain discrimination in the sector, the non-financial organisations are facing great hindrances to their becoming profitable concerns. The banks as well as the financial institutions, like the leasing companies, were approved by the Bangladesh Bank (BB). The central bank until now, approved 28 leasing companies and they are effectively conducting their business. The banks -- private and government-owned -- are running their business smoothly following the guidelines of the Bangladesh Bank. The financial institutions are facing a particular limitation in conducting their business. The banks have the scope to earn profit from other sources by extending their banking services. But some of these facilities were curtailed by the government in the budget for fiscal 2005-2006. Specially, under the previous budgets, 10 per cent tax on term deposit receipt (TDR) was exempted but under the budget for fiscal 2005-2006 the tax was reimposed. The leasing companies hold the views that as they do not have scope to conduct banking activities, the tax on TDR is a burden for them. If the tax on TDR is waived, they will be able to earn financial solvency. Their claim is justified. Since the tax was exempted under the provisions of the pervious budget the government should waive it in the budget for fiscal 2008-2009.
Progress in poverty alleviation is slow. Thousands of non governmental organisations (NGOs) working in the country are publicising their to work for poverty alleviation. But allegations are there that they charge rate of interest on loan at an exorbitant rate from the poor. Recently, they requested the Chief Advisor to allocate funds for them in the budget for fiscal 2008-2009. The NGOs cannot be allowed to charge interest at 40-50 per cent rate against poverty alleviation loans from the poor. The rate of interest on loans for the countryside should be reduced to five to 10 per cent. The poor and the distressed, in the countryside, should be given the opportunity to build their future. Job opportunities have to be created for the unemployed people in the rural areas for poverty alleviation. That is why, instead of setting up town-based large industries, initiative has to be taken to establish village-based small industries to create job opportunities for the unemployed people in the villages. Poverty alleviation is never possible without employment for the unemployed.
The government's 30 per cent subsidy, given for promoting agricultural development and production of agricultural commodities for export, should continue to help boost production and export. This benefit should be protected form the hands of those who misappropriate. The government does need to ensure that the benefits reach the target group for attaining self-sufficiency in agriculture as well as poverty alleviation.
Over the last few years incentive for the export-oriented textile sector has been reduced to 5.0 per cent from 25 per cent. The representatives of the Bangladesh Textile Mills Association met the Chief Advisor and demanded restoration of the 25 per cent cash incentive. As the government thinks that the cash incentive is misappropriated through unfair means for which it scaled down the facility to 5.0 per cent. It was said that the incentive would be given to the entrepreneurs but ultimately it has not been done. The promised 100 per cent value added tax (VAT) exemption and 25 per cent cash incentive on gas and electricity bills of the exported oriented industries should be implemented in the coming budget. So the proposal for providing 25 per cent cash incentive on gas and electricity bill merits an urgent attention instead of 25 per cent cash incentive on export. This approval should come in the budget for fiscal 2008-2009.
The budget for fiscal 2008-2009 is of vital importance. The government is passing through a very crucial time, facing criticism at home and abroad. It needs to be aware of the reality and come out with a comprehensive and constructive guideline for future development of the country in the next budget.
The writer, a former Vice President of the FBCCI, BGMEA and BTMA, is Chairman, Eastern University