Sustainable revenue growth key to execution of mega budget

The national budget for the upcoming fiscal (2017-18), expected to be presented by Finance Minister AMA Muhith in the first week of June next, will surely be a mega one. As indicated by the minister himself, it would cross for the first time the Tk.4.0 trillion-mark.
However, bigger budget would obviously necessitate mobilisation of greater volume of revenue. The people involved in the budget preparation would have to burn enough midnight oil to locate sources that would fetch higher revenue on a sustainable basis. None would contest the fact that the government does need higher revenue to help the country achieve the middle-income country status by 2021.
During the last few years, there had been a notable increase in the size of the budget. When the present government came to the power for the second term in the year 2014, the size of the budget in that fiscal year (2014-15) was worth Tk.2.39 trillion. In the subsequent two years, the budget size kept increasing to Tk. 2.64 trillion in FY 2015-16 and Tk. 3.40 trillion in FY 2016-17.  
It is important, however, to look at the mobilisation of revenue---both tax and non-tax--- in the context of the size of the annual budget. Though the tax revenue collected by the National Board of Revenue (NBR) recorded growth between 14 and 19 per cent in recent years, it was less than the targets set by the government. There is no denying that tax generation in the country has been far below its actual potential because of a number of factors including inefficiency in tax administration and poor coverage of potential tax sources.
A sector-wise analysis would give a clear picture about the state of tax revenue generation. In the last fiscal year, almost 20 per cent (Tk. 300 billion) of the internal tax revenue came from four large sectors such as telecom, gas, tobacco and real estate. All these sectors except the real estate registered growth during that year with gas leading the chart. Tax revenue from gas sector grew 52 per cent against that the previous year, followed by tobacco and telecom with growth rates estimated at 14 per cent and 7 perr cent respectively.
The picture is likely to be identical this fiscal. Revenue receipt from gas sector is expected to register growth at around 40 per cent. Tax revenue earning from tobacco sector is likely to grow 17 per cent. Thus, revenue growth will continue to be highly dependent on only few sectors, which is at all not a healthy sign for a growing economy like that of Bangladesh.
Combined with the factor of skewed internal revenue dependence, the Finance Minister has yet another factor to worry about when he looks for ways to meet the revenue need for the upcoming ambitious budget. That is the sluggish nature of the global economy. Brexit is already impacting the country's RMG sector. Remittance inflow has remarkably slowed down. This year it is expected to grow at 7 per cent. An Asian Development Bank report projects it to grow at only 4 per cent next year. The fall in remittance earnings has come in contrast to the rise in the flow of manpower, particularly to the Gulf countries, in recent months. This might be due to the fall in wages in these countries in the wake of the falling oil revenues.
The prospect remains rather clouded as far as the external sector is concerned because of the rising global political tension that sets the world economy for another challenging year ahead. Hence with a view to minimising the impact of a worsening global economic situation, the Finance Minister is left with no option other than looking at the domestic market to support his upcoming ambitious budget.
Bangladesh simply cannot afford to take a blow from external sources nor can it continue to depend on few sectors to support the wheels of the economy. The government currently has 7 mega projects in its hand, the largest of which is the Padma Bridge. The metro rail project comes next. Infrastructural development projects are well recognised for improvement of the economy. While net foreign asset is covering a part of the cost of the projects through domestic credit creation, a significant amount of the fund is being internally sourced.
However, the government does need to boost its internal revenue generation. It has to do its best to increase revenue earning from the existing sources and also find new sources of revenue. The NBR people have to be innovative and serious in their revenue-generation efforts.
 The tobacco sector has been a major source of revenue earning for the government. A befitting strategy needs to be devised keeping in mind the two opposing factors --- long-term health agenda of the government and sustained revenue growth from this sector. The Prime Minister's vision of reducing tobacco consumption to 5 per cent of total adult population by 2040 should be one of the key drivers behind promoting the long-term health agenda. The Finance Minister, in recent times, has already cited Biri as a serious health hazard and has stated his vision of eliminating the Biri industry within 2 years. To realise that vision, measures to curb Biri consumption need to be initiated without any further delay. It is worthwhile to mention here that the Anti-Tobacco Media Alliance (ATMA) has demanded a hike in the minimum price of cigarettes to help reduce its consumption. An identical suggestion has also come from the Campaign for Tobacco Free Kids. The latter has also emphasised that the tax rate in Bangladesh is high. But in terms of product price, it is still very low. In this particular issue, varying opinion may come out from different groups. The government at the end of the day should take into account the best option after making the cost- benefit analysis. What is needed most is an inclusive strategy for tobacco taxation taking both biri and cigarette under the same principles and increase the minimum price of both.
The strategy that the Finance Minister will follow in the preparation of the budget for next fiscal remains more of a speculation.  But one thing is for sure, whatever he unveils, will be received with high scepticism by different groups. The Finance Minister would surely try to appease almost everyone making large allocations in the next budget ahead of the next general elections. Getting both ends met, however, might prove difficult for him.
The writer is a professor at Dhaka School of Economics.
 pipulbd@gmail.com