Pitch-perfect budget for an election year?
Ten years. Ten budgets in a row.
And this one – four times larger than the first Awami League post-1/11 budget – is the finance minister’s most ambitious, and may be his last.
Mind you, this is AMA Muhith’s 12th budget, all told, including those he presented under other governments.
It is not ambitious because the finance minister is likely to propose a budget that is only over a tenth larger than the last budget. After all, the ruling Awami League government has posted year-on-year GDP growth every year of it’s current term in office.
It is ambitious because it will attempt to deliver so much to so many while providing tax relief to corporations and individuals alike.
The FY2018-19 budget is likely to rely for financing on an expanded tax net, despite several years of missed revenue targets. The plan is to open tax offices at the upazila level.
But going down the line for taxes, away from the main urban centres, is itself a wager on the robustness of the Bangladesh economy.
At the Jatiya Sangsad today, the finance minister’s FY2018-19 budget will offer a political symbol, not only of Bangladesh’s dynamic performance, but also of the Awami League’s confidence as stewards of the economy.
Bet big, win big?
In other words, today’s budget clearly has an eye on December, when the country goes to the ballot box for the 11th general elections.
Finance Division sources said the next fiscal year’s budget will not have many changes, and will not rock the boat, but it will be big – around Tk464,500 crore – 16% bigger than the size of the outgoing fiscal year budget.
Finance Minister AMA Muhith, on various occasions, has indicated that the budget would have a little something for everybody. For some people, there may be much to look forward to.
Officials said demands from different quarters would be accommodated in the budget, and that it would offer a tax cut to help boost local businesses.
Social safety net programmes, the beating heart of any compassionate campaign, will receive higher allocations.
At a pre-budget meeting, National Board of Revenue chairman, Md Mosharraf Hossain Bhuiyan, also hinted there were no plans to increase tax-at-source for export-oriented industries.
He assured the country’s business community that the tax structure would be investment-friendly, and stressed that the government wanted more investment.
Speaking to the Dhaka Tribune, experts said special attention to social safety net programmes and increased sectoral allocations represented a budget to satisfy voters.
Finance ministry and NBR sources said the government would increase the number of social safety beneficiaries by 1.1 million people, taking the total covered by the safety net up from 7.5 million to 8.6 million people.
Social safety allocations are likely to increase to Tk65,000 crore, up from the Tk54,206 crore in the current budget.
“To ensure the welfare of the people, a government must increase social safety allocations, whether or not it is based on political considerations. Nevertheless, focusing on the social safety net and satisfying the business community offers a political dividend,” Policy Research Institute Executive Director Ahsan H Mansur told the Dhaka Tribune.
The business lobby is quite powerful and policymakers pay heed to their demands, Ahsan said.
“But there is nearly no way for the government to hit the budget’s likely revenue target without any major changes to the tax structure, which are unlikely with elections looming ahead,” the leading economist said.
Where is the money coming from?
Since this is an election year budget, there are challenges ahead for the government.
While it plans to not decrease corporate taxes in a bid to attract investment and satisfy local businesses, there are hints of increasing the tax-free income limit to Tk3 lakh per year from the current Tk2.5 lakh per year level.
One finance ministry official, asking not to be named, told the Dhaka Tribune it wasn’t clear how all this would be paid for.
“There are no new measures to contribute to the ambitious revenue target,” he said.
“The government is going to set a bigger revenue target for FY19, but chances are slim of achieving the target.”
Economists think this revenue target will not be achievable since there is no new mechanism to increase the collection of revenue.
In the next budget, the government is likely to set a revenue target of Tk3,39280 crore, of which the National Board of Revenue will collect Tk 296,201 crore.
Revenue collection by the National Board of Revenue (NBR) during the July-March period of the outgoing fiscal year fell short by Tk23,007crore.
The revenue agency collected Tk1,44,311 crore against a target of about Tk1,67,319 crore in the first nine months of FY18, sources at the NBR said.
By the end of the year, the shortfall is likely to reach Tk30,000 crore, sources said.
Dhaka-based policy and economy think tank, the Centre for Policy Dialogue (CPD), estimates that overall revenue shortfall for the 2017-18 fiscal year will likely reach the Tk50,000 crore mark.
“Since this is an election year budget, the government will have to take up projects in consideration of demands from several groups. Yet there are no new instruments to increase tax collection. As a result, there will be an adverse impact on revenue collection and implementation of projects,” Dr Khondaker Golam Moazzem of the CPD told the Dhaka Tribune.
“Learning from the outgoing fiscal, we should take steps to increase tax collection and to bring more people within the tax net,” he added.
Allocation for megaprojects, including the Padma Bridge, will also likely increase. Big ticket projects remain potent symbolic and actual landmarks of national development.
To expand the tax base, the government is planning to set up tax offices at the upazila level.
“The decision to set up tax offices at the upazila level has been taken but it will take two to three years to implement,” Finance Minister AMA Muhith said at his office on Monday.
The government also plans to reduce the Value Added Tax (VAT) slab and to have five slabs instead of the existing nine.
“But the maximum VAT rate will remain at 15%,” he added.
Source: Dhaka Tribune.