Key features include: New VAT act, money whitening facility, wealth tax, incentives for capital market
Presenting a Tk5,23,190 crore national budget proposal for FY2019-20 before the parliament on Thursday, Finance Minister AHM Mustafa Kamal sought to create jobs for 30 million people by 2030, increase tax-GDP ratio to 14% from current 10% by next two years and attain a double digit GDP growth in four years.
He pledged for transition to the Fourth Industrial Revolution, introducing digital primary education and reducing fuel use by 20% by 2030.
The finance minister vowed to adopt the block chain technology in business and financial transaction.
The budget, however, fell short of spelling out the mechanism how the government is going to create huge employment opportunities in a sluggish private sector investment regime.
Private investment to GDP has been hovering between 22% and 23.4% for the last one decade. It rose only 1.37% since 2013-14 when it was 22.03%, according to Bangladesh Bureau of Statistics.
The proposed budget has not sought to increase the private investment to GDP, as economists say ratio of private investment must be increased to 30% of GDP for achieving double digit economic growth.
The draft budget has no outline to increase tax to GDP ratio as corporate tax, which contributes major portion of tax income, has been kept unchanged.
In the budget, high hopes to teach the nano technology, biotechnology, robotics, artificial intelligence, material science, internet of things, quantum computing, block chain technology and other similar technologies in the class room have been expressed.
The budget has pledged to reforms in the banking sector and increase paid-up capital for banks to strengthen their financial standings.
Injecting money to rev up banking sector
On the contrary, the finance minister allocated Tk1,500 crore for recapitalization of corruption-plagued public sector banks — meaning tax money will be pumped again to shore up the battered state-owned banks.
He proposed to establish Wage Earners’ Bond, venture capital, treasury bond and a vibrant bond market, as an alternative to bank financing for industrialization.
He assured of doing needful in formation of a Bank Commission. “We have heard for long about establishing a Bank Commission for bringing discipline in the banking and financial sector. We would discuss with all concerned in this matter and do the needful.”
The budget proposed to introduce Universal Pension scheme for all. According to finance ministry officials, they have been working for the last three years to launch it.
It would take another three to four years to begin, as it involves enacting a number of acts and regulations, they said.
Relying on bank borrowing, saving tools for deficit financing
The Tk523,190 crore budget outlay has forecast to earn Tk377,810 crore in revenue, up by 17.92% than the revised target of the outgoing fiscal year.
The revenue target for the National Board of Revenue for the next fiscal year has been proposed to be set at Tk3,25,600 crore, non-NBR at Tk14,500 crore and non-tax revenue income target at Tk37,710 crore.
On the borrowing front, the budget has set a target of borrowing Tk27,000 crore from savings tools and Tk47,364 crore from banks.
Besides, borrowing target from foreign sources for deficit financing has been set at Tk63,848 crore, which was Tk50,016 crore in the outgoing fiscal year.
According to the draft budget, total deficit for the upcoming fiscal year is Tk145,380 crore, which is 5% of next year’s GDP.
Incentives for capital market, RMG and foreign wage earners
The proposed budget has also brought immense joy for capital market, as the finance minister proposed to increase the tax-free cash dividend from Tk25,000 to Tk50,000.
“Dividend income from the listed companies shall be tax-free up to Tk50,000. Double taxation on dividend from listed companies will also be removed,” reads the budget speech.
Besides, Kamal proposed imposition of 15% tax on stock dividend distributed to the shareholders by any listed company to encourage companies to declare cash dividend.
He even proposed imposition of 15% additional tax on so much of retained earnings and reserves, much to the pleasures of stocks investors.
The draft budget announced 2% incentive on money remitted by expatriate Bangladeshis, and 1% incentive for apparel exporters on income generating from traditional markets like the US, countries falling under European Union, and Canada.
“An incentive at the rate of two (2) percent on money remitted by expatriate Bangladeshi will be provided from this financial year. For this purpose, I propose to allocate Tk3,060 crore in this year,” read Kamal’s budget speech.
Against 1% incentive for apparel export, the draft budget has allocated Tk2,825 crore.
Staggered, expanded VAT rates
The finance minister also proposed to introduce the much-debated Value Added Tax and Supplementary Duty Act, 2012 from July 1, with four different rates — 5%, 7.5%, 10% and 15% — for specific goods and services.
The draft budget, however, raised turnover tax from 3% to 4%, and threshold to become eligible for such tax is Tk50 lakh from Tk36 lakh.
Small business will be affected by the hiked rate, and the proposed measure could be a cause of discontent for the finance minister.
Businesses having Tk80 lakh yearly turnover will also be subject to VAT, according to the draft budget.
Kamal proposed Tk100 crore for the training and employment of specific group of people in the budget.
As expected, the proposed budget extended tax holiday facility for another five years.
Kamal also introduced wealth tax for the first time in the budget. “I am proposing that an individual taxpayer having a net wealth of Tk50 crore, or above will pay higher of 0.1% of net wealth or 30% of his income tax payable as surcharge.”
In the budget, he vowed to increase tax income through widening tax net, not by increasing tax rate.
“The basic principle of tax revenue collection by our government is boosting revenue mobilization not by increasing the tax rate but by widening the tax net and coverage. To do that, we will establish revenue offices in every Upazilas and Growth Centres in the country.”
Scope for whitening ‘black money’
Defying the warning of Asia Pacific Group (APG), an anti-graft and anti-terrorist financing watchdog, the finance minister proposed money whitening facility at 10% rate for investing in economic zones and high-tech parks.
The proposed budget kept tax-free income threshold unchanged at Tk2.50 crore, tax reduced from Tk5,000 to Tk4,000 for per square meter of apartment with disclosed money.
Increasing the threshold of surcharge from Tk2.25 crore to Tk3 crore has also been proposed.
GDP, mega projects
In the draft budget, GDP growth for the next fiscal year has been estimated at 8.2%.
“GDP grew consistently at a very high rate in the last decade. We expect a GDP growth of 8.13% in FY2018-19. Our commitment is to achieve a growth rate of 10% by FY2023-24, and maintain that rate until 2041 so that we can lay a solid foundation for becoming a high income country by that time.
“To achieve this objective, GDP growth rate has been projected at 8.2% for FY2019-20,” says the budget speech.
The budget also proposed to allocate Tk45,140 crore for the 14 mega projects that are now ongoing.
The highest allocation among those — Tk14,980 crore — have been proposed for the construction of the country’s first nuclear power plant at Rooppur; while the second highest allocation — Tk7,212 crore — is set to go to the metrorail project.
The Padma Bridge project has been allocated Tk5,370 crore, while its Rail Link Project gets Tk3,995 crore.
In the draft budget, the Chittagong-Cox's Bazar rail line project gets Tk1,105 crore, and Matarbari Power Plant at Moheshkhali gets Tk3,056 crore.
Mustafa Kamal also proposed to allocate Tk1,407 crore for the power grid network and for the expansion of power system network Tk2,108 crore.
In the previous budget, the government had allocated Tk40,000 crore to implement 10 mega projects to strengthen country’s communication network and to develop the power and energy sector to boost economy.
“About 2km structure of the Padma Bridge, being constructed entirely with our own resources, has now become visible, and the overall physical progress of the project is 67%,” reads the budget speech.
Farm subsidy remains the same
The proposed budget has vowed to continue subsidy in the agriculture sector.
“We will continue successful interventions, such as agricultural subsidies, other agricultural input incentives and support cards including those for fertilizers and seeds, support for agricultural rehabilitation, agriculture credit at easy terms, etc,” reads the speech.
The allocation on subsidy and incentive for agriculture has been kept unchanged at Tk9,000 crore for the upcoming fiscal year.
However, no arrangement of direct cash subsidy for farmers has been proposed.
Social safety net widens
The government has allocated Tk74,367 crore in this sector, which is 14.21% of total budget and 2.58% of GDP in FY2019-20.
In the revised budget of FY2018-19, the allocation was Tk64,404 crore.
State honorarium for the valiant freedom fighters has been increased from Tk10,000 to Tk12,000.
The number of recipients of adult allowances has been increased from four million to 4.4 million.
The number of recipients of allowances for widows and victims of domestic violence has been increased from 1.4 million to 1.7 million.
The number of beneficiaries of allowances for all insolvent persons with disabilities has been increased from one million to 1.54 million.
The number of recipients of stipends for disabled students increased from 90,000 to 100,000; and the rate of stipends increased from Tk700 to Tk750 for primary students, from Tk750 to Tk800 for secondary students, and from Tk850 to Tk900 for higher secondary students.
The budget has proposed the highest allocation in public administration, while lowest in industrial and economic services sector for FY2019-20.
In operating and development of the budget, the finance minister proposed allocating 18.5% to public administration sector; 15.2% to education and technology sector; 12.4% to transport and communication; 7.2% to local government and rural development.
On the other hand, allocation of 6.1% to defence; 5.6% to social security and welfare; 5.4% to agriculture; 5.4% to energy and power; 5.3% to public order and safety; 4.9% to health; 1.3% to housing; 0.9% to recreation, culture and religious affairs; and 0.7% to industrial and economic services.
Read the full budget speech for FY20 here.