In quest of money

In some ways, the budget that the finance minister has proposed was foretold.

Finance Minister Abul Hassan Mahmood Ali has no other option but to go for 'fiscal consolidation'. This effectively meant earning more money, which the proposed budget is all about.

He has axed most tax exemptions, VAT and otherwise, to open the path for raking in more money to reduce deficit and thereby fight inflation. He has explored every avenue to fill up the tills which he thinks would push up the tax-GDP ratio to 10% from less than 8% now.

In doing so, all classes of people from lower to middle-class to upper-class will have to cough up more money this year for the government exchequer. From mobile talk time to fruits to bank deposit to refrigerator and air conditioner – costs will go up.  

But exactly here, at this mission of revenue collection, the buck has stopped. The finance minister did not float any new or innovative ideas in any areas, making the budget speech a drab read. But was not that expected when you draw up a budget in a time of unprecedented economic crisis?

Many of his pronounced assertions on sectoral allocations stand to scrutiny. He has talked for pages about the achievements in and importance of education, health and rural economy. But allocations on these only went up nominally.

As a main mission, the finance minister also talked of 'belt tightening' as part of his prime goal of taming inflation which he thinks will come down from the current almost double –digit touching level to 6.5% next fiscal year.

But many of the corresponding figures to support the mission pose conflicting indications.

For example, he still guns for a 6.75% growth and to support it, he has aimed for an investment level of 33.41% of GDP, a number never achieved before with the closest coming to 32.21% clocked in when the economy was on a flying mode in FY19.

This also certainly does not jive with the goal of fighting inflation. Even in this current fiscal year of high inflation, the investment level has been revised down to 30.98%.

In another case related to the above scenario, the finance minister envisages private investment of 27.34% of GDP. This will comply with his pronounced goal of making the new budget a vehicle for 'employment and heavy industrialisation'.  But then, a low 9% private sector credit growth is anaemic for this heavy investment, which if becomes a reality, would knock out the inflation target.

Multi-pronged attack on Inflation 

To fight inflation, the government aims to reduce budget expenditure, discourage unimportant expenditures and go for austerity steps besides applying monetary tools, the finance minister said while placing his proposed budget for the next fiscal year.

"We will follow fiscal consolidation as well as reduction of budget deficit, we will continue belt-tightening measures, even if on a limited scale for the upcoming fiscal year," he said.

"However, if this approach is continued for the long term, growth rate may slow down. Therefore, our goal will be to increase government spending gradually in the second half of the upcoming fiscal year," he said.

However, he admitted that this would be possible if revenue realisation increased and to this end, emphasis has been laid on removing tax exemptions gradually.

No mention of banking sector malaise

The budget speech mentioned nothing about the current deep banking malaise although the Medium-term Outlook of Bangladesh Economy that was tagged with the budget documents said "non-performing loans and lack of financial discipline has become a concern recently." But he sees bank merger as the only way to ride out the ailment and says nothing about the breakdown in governance.

Stress on efficiency and technology

One good effect of the waiver of tax exemptions and new taxes will be that a message will get out to industries that to persist in this challenging world they have to be more efficient and technology dependent, which the finance minister has also spelled out in his speech.

Falling reserves a challenge

The finance minister has also acknowledged the challenge of continuously falling foreign exchange reserves which he wants to yank up by 71% the next fiscal year to $32 billion from below $19 billion now. 

This ambition also looks wobbly as he also estimates that imports will rise by 10% from this year's decrease of 10%, thus drawing down on reserves. Exports are hoped to rise 8% next fiscal year while in the 11 months of this fiscal year, these figures stand at a piffling 2%. Another pillar of building reserves – remittance – is projected to grow by 7%, a 3 percentage point decline from this fiscal's so far 10%.  

The budget speech did not have much about any specific strategy to hike either exports or remittance. The finance minister has banked on free trade agreements (FTAs) and preferential trade agreements (PTA) to be cut in future. But so far only one PTA has been signed with Bhutan.

Local industries get good deals

However he has made some good offers for local industries.

He offers duty waivers on import of paper, raw materials for local manufacturers of prefabricated building, refrigerator, washing machines, computer, LPG cylinder and lift.

To promote cashless transaction, he offers 3-year tax waiver for incomes from 19 businesses such as AI-based and block-chain solution development, digital data analytics, robotic process outsourcing, cyber security service, digital graphic designs and data entry, IT freelancing and call centre service on condition of full cashless business transactions.

Non-listed companies will see corporate tax lowered to 25% from 27.5% now if they ensure cashless transaction condition, which means they keep their cash transactions within Tk36 lakh annually and ensure bank transfers of all single transactions over Tk5 lakh.  

Considering people's health benefit, turnover tax on sweetened beverages has been raised to 3% as on carbonated beverages.    

The new budget offers an exit to companies from complexities about undisclosed income and assets created after introduction of data verification system (DVS). They can get their tax files cleared by paying specific tax for flat and land as well as 15% tax on cash and other assets. Then, they will face no question from any authority, the budget speech assured.

Tax-free individual income limit remains the same at Tk3.50 lakh, but slabs for upper income groups have been restructured, making earners of Tk20 lakh and above pay the highest 30% tax.

Bank depositors with over Tk10 lakh in accounts will see a rise in excise duty as the finance minister seeks to "rationalise" the duty on local bank deposit slabs and waive it from accounts of offshore banking units or foreign lenders.

The finance minister makes one thing clear that tax exemption will go and everyone with taxable income has to pay tax.

"We have to come out of the culture of duty exemptions at individual, institutional and government levels. This will help more revenue generation and higher tax-GDP ratio," he says.  

To make his point stronger, he has sought amendment to the law that allows lawmakers to enjoy duty-free car import privilege.

"A noble example will be set if the public representatives amend this privilege and lead everyone to come out of tax exemption culture," he said.

Presently MPs are exempted from all types of customs duties and taxes, which amount to over 500% on a car for general buyers. Proposed amendment, if approved, may make MPs pay at least 25% import duty.

He said the budget was aligned with Awami League's election manifesto that listed controlling prices among its top priorities. But the budget he proposed had nothing much to offer to shield consumers from the price shocks.

He proposed nearly Tk10,000 crore more next year for over 1.15 crore beneficiaries for 115 social safety net schemes, without raising the number of food-aided schemes. These are the people who are helpless victims of spiralling prices. However, in fiscal proposals, he reduced tax at source for over 30 food and essential items to 1% from 2% now at distribution level.

"Budget for FY2024-25 has been formulated with a view to accelerating the growth of the economy to prepare for LDC graduation reaching upper-middle income nation, creating new jobs, sustain GDP growth, promote local industries, increase investment through protection and trade facilitation, development of export oriented and heavy industrial enterprises and promote Made in Bangladesh concept," his budget speech reads.

It is to be seen now how he makes those happen.