There have been a lot of expectations and recommendations for the FY23 budget, because of rising global and local inflation, commodity price hikes and energy price hikes.
A few measures that the government might take to balance the budget and curb inflation might be that tax return submissions will be made mandatory, among general taxpayers.
Currently, only 2.4 million taxpayers submit tax returns out of 7.5 million holding taxpayer identification number (TIN).
There are also talks of the government planning to double the source tax from 0.5% to 1% on export earnings.
At present, source tax is being levied at the rate of 0.5% from the export income of all types of goods, which will expire on June 30, the end of current fiscal year 2021-22.
These are changes in both micro and macro levels which are sure to impact people's lives, as well as Bangladesh's economy, which is bearing the brunt of the Ukraine-Russia conflict, unstable commodities market, depreciating currency, and not to mention the Covid-19 pandemic.
All these are inferring that the government plans on pumping more money into the economy, as well as striving harder to fill in state coffers to ease that process.
Finance Minister AHM Mustafa Kamal is set to place the national budget of Tk680,000 crore in the Jatiya Sangsad for FY23 on Thursday.
The size of the budget will be about 15% of the country's gross domestic product or GDP.
This is the country’s 51st budget and the 23rd of the Awami League government in five terms.
The budget will see special measures of tax exemptions on agriculture, food processing and small sector development.
The annual development program (ADP) is set at Tk244,000 crore.
In the upcoming budget, the target of GDP growth is set at 7.5% and inflation will be kept at 5.5%.
In the proposed budget, the expectation of GDP is set at 7.5% – around Tk445,000 crore, which is Tk14,000 crore more than FY22, finance division sources said.
The GDP size in FY22 was Tk283,400 crore.
Zahid Hussain, former lead economist at the World Bank Dhaka office, said that the budget deficit in the next fiscal should not cross that of the current FY.
He also said that the government should find a way to save from subsidies.
“Remittance senders are already benefiting from the rise in the value of the dollar, so the remittance subsidy should be lifted as the country spends Tk5,000 crore on it,” he added.
Moreover, 1% cash subsidy on exports should also be lifted, he said. “Most industries have turned their fortunes around since the pandemic.”
More subsidies
The government is trying to provide relief to citizens by increasing subsidies and expanding the social safety net amid surging inflation.
It has prepared a Tk82,745 crore subsidy package for the fiscal year 2022-23 (FY23) with the aim of preventing inflation and various other factors from derailing Bangladesh’s pace of post-Covid-19 pandemic recovery.
However, concerns remain over whether the subsidies, in spite of the record allocation, will fall short of the necessary amount.
In April, a meeting of the coordinating committee on the currency exchange rate and the budget and resources committee estimated the necessary subsidies for various sectors in the coming fiscal year.
According to projections made at the meeting, the food sector will need Tk6,745 crore in subsidies, while Tk17,000 crore in subsidies is needed for the power sector, Tk17,300 crore for the LNG sector, and Tk15,000 crore for fertilizer in the agriculture sector.
Subsequently, it was decided that subsidies in the food and electricity sectors would be reduced. The subsidy in the food sector was reduced by Tk780 crore to Tk5,965 crore last week, while subsidies for electricity have been reduced by Tk1,000 crore to Tk17,000 crore.
The revenue target for the FY23 has been set at Tk433,000 crore.
The revenue collection target for the current fiscal year is Tk369,000 crore. This is 11.3% of total GDP.
The NBR is getting a target of Tk370,000 crore. This is 8.4% of GDP.
The revenue target for the FY23 has been set at Tk433,000 crore.
The revenue collection target for the current fiscal year is Tk369,000 crore. This is 11.3% of total GDP.
The NBR is getting a target of Tk370,000 crore. This is 8.4% of GDP.
Prof Selim Raihan, executive director of South Asian Network on Economic Modeling (Sanem), said customs fees and duties on essential import products could be reduced as much as possible.
Moreover, the area of domestic supply needed to be enlarged.
“The prices of various products go up from import to consumer level due to unscrupulous traders. What kind of action can be taken against them can also be presented in the budget,” he added.
Selim Raihan said that people would look at how social protection programs were increasing their coverage area to protect those directly affected by rising inflation, such as low- and middle-income households.
Prof Mustafizur Rahman, distinguished fellow of the CPD, recently told the media the people of the country were now under inflationary pressure and it should be kept at a tolerant level as much as possible to give people relief.
“For this, expenditures in the social safety nets should be increased and side by side the poor section of people should get protection,” he added.
Inflation woes
The government should formulate the upcoming budget for the fiscal year 2022-23 with a focus on macroeconomic stability and curbing the inflation rate to safeguard lower and middle-income people, experts have said.
They also think that the budget of the upcoming fiscal year must be “an exceptional one,” as frequent hikes in commodity prices, the external trade situation, and the ongoing Russia-Ukraine war has put the economy under new pressures.
Recently, in a presentation, economist Debapriya Bhattacharya said the inflation rate is in reality higher as BBS data failed to capture the actual price level and consumer basket.
He also said that the inflation rate might be as high as 12% and this trend would continue in the coming days.
Bhattacharya said the government should take adequate initiatives to control inflation from the new financial year to continue productive development work and protect livelihoods.
Creating jobs, reducing imports, widening the social safety net, stabilizing exchange systems and foreign reserves will be adequate to prevent inflation.
Ahsan H Mansur, executive director of the PRI, and moderator of a recent dialogue, said: “We want a fair and balanced budget to be formulated, keeping in view the current context, especially inflation and foreign exchange reserves. Although I disagree with calling it a crisis, there is instability in the market."
Investment
According to the recent presentation by Debapriya Bhattacharya, investment (as % of GDP) decreased between FY19 (32.21%) and FY21 (31.02%), with private investment decreasing to 23.07% in FY21 from 24.94% in FY18.
National savings are also declining due to rising inflation. They fell to 30.8% in FY21 from 32.1% in FY16 and domestic savings also fell to 25.3% in FY21 from 27.3% in FY16.
Considering the present circumstances, Mustafizur Rahman suggested paying more attention to the revenue budget instead of the development budget.
Tax concerns
The government is set for double deduction at source from interests on bank deposits of companies to prevent tax evasion and ensure it does not go unreported during returns submission.
The new budget for FY23 is likely to propose raising the rate of source tax to 20% from the existing 10% from interests on savings deposits, fixed deposits or any term deposits maintained by company taxpayers with any banks or non-bank financial institutions interest, according to sources at the finance ministry.
The non-RMG export sectors may enjoy a corporate tax of 12%, the same rate the readymade garment (RMG) industry is now enjoying.
The prevailing tax rate for export-oriented RMG factories stands at 12% and it is 10% for green ones.
Companies, that enjoyed waiver of interest on loan and tax exemption on the interest amount on their loans, may not be able to avail that facility from next year.
According to insiders, the government is expected to propose granting tax breaks to local manufacturers of electronics in the FY23 budget, while imposing hefty taxes on finished goods imports.
Imports of laptops, desktop computers, printers, and other completed computer and ICT equipment are currently subject to only a 5% duty.
To help and expand the local hardware industry, the government may change the current tax provision and charge a higher duty on such finished products.
The Association of Mobile Telecom Operators of Bangladesh (Amtob) wants the government to withdraw the provision of 2% turnover-tax on its member operators.
According to the organization, the provision contradicts the income tax principles, as taxes are collected on profit of an organization and not on turnover, for it results in capital erosion in paying turnover taxes despite incurring loss.
