Bangladesh has a big hole in the income tax system, reflecting serious governance problems, experts said yesterday.
Appreciating the budget that aims to modernise the tax structure, they said reform is much needed in the tax system.
They suggested power decentralisation to the local government level and to make considerable background preparatory work to implement many policy and institutional reforms taken in the new budget.
They were speaking at a seminar on Implementation Challenges of the 2014-15 Budget, jointly organised by the Policy Research Institute (PRI) and DFID in the city, with former finance secretary Zakir Ahmed Khan in the chaired.
In Bangladesh, the top 10% of the population owns 35% of the national income while personal income taxes are a meager 1.5% of GDP, according to the keynote paper presented by PRI vice chairman Sadiq Ahmed.
“This is a serious governance problem. The government should look into it,” he said.
He said the government has taken many substantive policy and institutional reforms in the new budget. “But implementation requires considerable background preparatory work.”
Former finance secretary Siddiqur Rahman Chowdhury said the budget is simply not achievable. Many provisions were taken in tax reduction and also many measures taken for increasing revenue income, he said.
“But these are not enough to achieve revenue shortfall. Huge taxable income group is not within tax net yet.”
He was critical about legalising black money. “This should not be allowed rather strong action should be taken against black money holders.”
World Bank lead economist Zahid Hussain said the country might achieve 6.5% economic growth in the ongoing fiscal year, not the 7.3% the government is aiming at, and that too will depend on the revival of the stagnating private investment.
He said the fiscal targets are appropriate, but the only question is whether it is appropriate relative to the country's ability to implement the budget.
"If you look past experiences, then you have to say that it is probably ambitious relative to what we are able to collect and spend." As ADP projects taken in the new budget, he said 959 projects have been included in the Green page of the ADP, which means they are unapproved and have no allocation.
“But you can be rest assured that a lot of the projects will find their way into the list of the approved project or the While Page during the year.”
He said: “We have identified three factors which probably inhibits our development: political will, capacity and incentive." He agreed with Sadiq Ahmed's identification of decentralisation as the number one structural reform agenda.
"Through decentralisation, we can signal the political will for change, build capacity and solve the problem of aligning incentives with development performance." "If we want to improve service delivery on the ground both in urban and rural areas, decentralisation is a key. So, the government will have to something credible about decentralisation."
He said political buy-in is critical and will determine the success or failure of decentralisation.
On the social safety net programmes, he said it seems the country is moving in the opposite direction from what is envisaged in the draft National Social Protection Strategy. Hussain said he does not see any specific milestones in the budget speech which will be achieved in the current fiscal year.
Research Director at Bangladesh Institute of Development Studies (BIDS) Binayak Sen said the government has taken too many projects under ADP, which might lose their implementation quality.
“The projects should be taken on priority basis and enhancement of efficiency of IMED is also important,” he said.
He also put emphasis on decentralisation of power. “The government does not allow the local government to function properly.”
Public banks are also a threat to destabilise the financial sectors, he said the government should look into this seriously. “What did they do by default money and what is the reason of default.”
PRI executive director Ahsan H Mansur in his keynote paper said the main risk to the budget originates from its ambitious NBR revenue target.
Although, the budget has a number of fiscal measures on the VAT and direct tax fronts and imports are picking up, it will require close monitoring and expenditure control or adjustments to limit the overall deficit and domestic borrowing at the budget level.
He said large infrastructure projects need to be translated into real action on the ground through speedy implementation.
