11 June 2017

http://dailyasianage.com/news/67126/good-budget-with-contradictions-and-confusions

Good budget with contradictions and

confusions
M. S. Siddiqui

The total size of the proposed budget 2017-18 FY is taka 4.26 trillion along with an annual
development plan of about taka 1.55 trillion. The sizes of the total outlay and ADP are both the ever
highest in Bangladesh budgets. As per the proposed development budget transportation and
communication got the highest priority with about 27.4% allocation. The second highest budgetary
allocation goes to the education and technology sector. proposed for an allocation of Tk 45,163
crore in the budget for 2017-18 fiscal for education, which is 11 percent of the total budget size.

Of the total allocation for the sector, Tk 23,141 crore has been allocated for Ministry of Education, Tk
22,022 crore for the Ministry of Primary and Mass Education. The name of head changed from
education to education and technology crated confusion. Government has plans to build ICT based
interactive classrooms in 503 model primary schools with a view to enhancing both capacity and
quality in primary education sector and probably renamed sector as education and technology. Also,
there is a plan to undertake two projects at the cost of Tk 14,864 crore to create appropriate learning
environment in existing and nationalized schools as FM said.

The healthcare sector is just neglected in this budget with 6.1% budget that stood at the 6th position
of the ADP. The standard allocation should be 15% of the budget. The finance Minister did the
mess while proposing excise duty on deposit in Bank. In fact, there was excise duty on deposit for
many years and budget only increase to Tk800 from Tk500 for deposit of 1 lac to 10 lacs and so on
but apparently withdraw excise from Tk20,000 to Tk one lac. But the budget speech did not
elaborate the matter and create sparked reaction among the citizen. This has been created due lack
of communication of information in the budget speech.

The budget proposed to exempt VAT on refrigerators, freezers, air-conditioners etc but imposed
VAT on Plastic and Rubber make products like Sandal, household utensils etc. The retail price of a
pair Sandals is maximum Tk120 are produced by recycling the used plastic that the poor and street
children collect from various places for their livelihood. The logic of such withdraw of VAT from
refrigerators, freezers, air-conditioners etc and impose to environment friendly SME is only known to
the government.

There is another confusing decision of introducing tax 10% duty, VAT and other taxes, totaling an
additional cost of 37.5 percent on solar panels, the main component of a solar power system.
Finance Minister AMA Muhith has proposed imposition of duty on imports of solar panels reportedly
amid demands for protection of local solar panel assemblers who must compete with cheap
imported products, particularly from China. The solar system was enjoying zero tax along with coal
for power plants.

But the industry insiders said that nearly half of the country's nine assemblers are out of production
and the rest can meet only 10 percent of the annual requirement for solar panels of 100 MW.
Bangladesh has largest solar home systems in the world mainly because of zero duty on import of
solar panels since 2009. Over the last two decades, Bangladesh has made huge progress in making
popular the use of solar home systems in the areas having no electricity connection, thus ensuring
that 45 lakh homes get solar power.

Solar panels are sourcing 8.4 per cent of the country's household lighting, according to the latest
estimation of the Bangladesh Bureau of Statistics (BBS). It showed that in 2013, solar panels
sourced 6.9 per cent of the household's lighting which increased to 8.4 per cent in 2015-16. Already,
over 600 solar irrigation pumps have been installed and more to come to cut dependency on
electricity and diesel used to operate more than 16 lakh tube wells and pumps for irrigation. Since
the demand is growing due to rising interest of the private sector in establishing solar power plants,
generating electricity from rooftop solar systems and shifting to solar-based irrigation and mini-grids.

The government has issued Letter of Intent (LoI) to buy 830 MW of electricity from grid- connected
solar power plants. Power purchase agreements have been signed for 302 MW, according to
Sustainable and Renewable Energy Development Authority (SREDA). The move will escalate costs
and affect solar energy ventures, which have already been planned and are being set up, such as
expansion of solar power plants connected to the national grid, plants being installed for irrigation
and solar rooftop systems. Entrepreneurs, who have been showing interest in installing solar panels
on rooftops of their factories, will not go ahead with the plan due to the price hike, said officials of
Infrastructure Development Company Limited (IDCOL).

The government has also been encouraging other uses of solar power such as solar pumps and
solar home systems in the areas that have remained off the power grid so that the dependency on
fossil-fuel-based electricity can be reduced, according to sources in the energy sector. It has aims to
generate 10 percent electricity from renewable energy by 2020 from present 2.86 percent of 15,594
MW power generating capacity. The budget does not reflect this policy.

The did not change the corporate tax. The tax rates are publicly traded company 25 per cent, non-
publicly traded company 35 per cent, publicly traded bank, insurance and financial institution (other
than merchant bank)/newly established bank, insurance, and financial institutions approved by
government in 2013 at 40 per cent, non-publicly traded bank, insurance and financial institution 42.5
per cent and merchant bank 37.5 per cent.

Government reduces the tax of Export Oriented Garments industries to 15% from existing 20% and
also one percent reduction for recolonized green industries. It is interesting that the backward
linkage industries of garments are out such reduction of corporate tax. This is a good initiative only
for garments which cover 80% of the total export but it could be cover entire export sectors.

Regarding income tax, NBR introduced the universal self-assessment system in fiscal year 2007-08
in a bid to facilitate taxpayers in submitting tax returns on the basis of their own calculations.
Currently, more than 95 per cent of the taxpayers submit their tax returns under the system.
Taxpayers under the self-assessment method may enjoy some relief like submission of their revised
returns and relaxed auditing of their tax files in the upcoming fiscal year.

The files of the taxpayers won't be audited or scrutinized in case of showing 15 per cent higher
income than that of previous year. Currently, it is 20 per cent which many taxpayers found too high
as annual income growth. Taxpayers would be able to submit revised tax returns within six months
of return submission if they found any fault in tax returns. They can even pay tax within that period in
case of less payment with the tax returns. However, a penal tax at a rate of 2.0 per cent per month
would be imposed on the tax amount due to delay in full tax payment.

From fiscal 2017-18, companies will have to pay taxes on the salaries to be paid to employees who
avoid tax return submission despite having taxable income. the Finance Bill 2017, will empower
taxmen to claim taxes on salary payment to those employees who do not submit returns even after
having taxable income.

This is also likely to be applicable to those working at management or executive level positions in a
firm -- a further tightening of rules by the National Board of Revenue to increase collection of payroll
tax. It appears that private sector companies are going to face greater scrutiny in claiming their
expenses for employees' salaries. The employers will have to ensure that their employees with
taxable income submit tax returns, to claim expenses for salaries.

Some 5.95 crore people above 15 years of age are employed in Bangladesh, with about 95 percent
of them being in the private sector. Managers, professionals, technicians and associate
professionals, clerical support workers, and service and sales workers account for one-fourth of the
total employed population, according to BBS data.

The budget has proposed to collect 62% of the revenue through the NBR with introduction of new
VAT law and income tax and others. There is no mention of amount of revenue earning from new
taxes and new VAT law. NBR may put extra pressure if the tax net properly expanded although
there is a proposal of expansion of offices at over 100 Upazila. The mass people especially the
business community could face tough treatments from the NBR people.

This budget has an over dependency on foreign aid and foreign loan with an ambitious increase of 3
times. The experience tells that government is inefficient in utilizing existing foreign loan and
assistance and wondering how they will utilize three time higher foreign funds.
Bangladesh has three major problem now gradually reduction of export of growth of garments, low
remittance despite increase of overseas employment and reduction in growth of new job opportunity
within the country. Government has no policy support for increase of new products for export as it
has reduced corporate tax for garment industry not for other export items. There is no policy option
for increase of remittance of Foreign exchange by expatriate and creation of new job.

The writer is a legal economist. He can be reached at mssiddiqui2035@gmail.com