The proposed budget: Issues, realities and possible impacts

The proposed budget: Issues, realities and possible impacts

Md. Joynal Abdin

The Financial Express on June 14, 2013

The Finance Minister has placed in the parliament the proposed 2013-14 budget. He was describing throughout his budget speech achievements and future targets of the present government. At the very beginning of his speech, he recalled a few economic targets set by this government for Vision 2021. But he wisely forgot to mention that the government failed to meet targets which were supposed to be met by 2013: the GDP growth to be raised to 8 per cent; every house to be equipped with a healthy sanitary toilet and supply of electricity to reach 7,000 megawatt by 2013. We know many specialists will say these indicators are irrelevant to the budget speech. But we can expect a brief explanation from the Minister before he re-set GDP growth at 8 per cent target from 2013 (stated in Vision 2021) to 2014 (stated in the budget speech).

In the digital Bangladesh part, the Minister has informed the nation that the government has established 4,000 union information centers and 24,000 web portals are going to be launched shortly. User-density of mobile phones and internet is rising. This is true but still the government is trying to regulate uses of internet by reducing its uploading speed.

The ceiling of tax-free income has risen to Tk. 2, 20,000; for women and the aged it is Tk 2, 50,000, for the disabled or physically challenged, it is Tk. 3, 00,000. A good initiative has been taken by proposing lower minimum income tax for the people living in upazila or villages. They get less civic services and will pay less. Therefore, it is a logical and justified initiative. But one of the bad decisions is minimizing the gap of income tax rate between publicly traded companies and non-traded companies. This initiative will discourage profitable companies to be listed in the stock market. As a result, the number of good companies in the stock market will be reduced. Good investors/profitable companies will not come to the stock market only to enjoy 5 per cent less income tax after facing so many hassles to manage listing procedures. By another decision of charging tax on dividend but withdrawing tax on premium on face value, the government will provide more favor to the rich people who are company owners than individual small investors.

By providing facility of black money whitening in land and real estate sector, the government is inviting a very dangerous social disparity. Its result will be that the black money holders will purchase lands and apartments to whiten the money and its prices will go up abnormally. General people or the white money owners will be unable to purchase lands/apartments. From another dimension, black money owners will acquire lands and build recreation houses instead of farming. General farmers will lose cultivable lands. Real estate companies are going to enjoy a boom at the cost of cultivation/agriculture production. In the long run, it will hamper balanced economic and social development of the country. This black money should have been whitened by allowing investment in manufacturing industries / education / health sector. These sectors will give us more output than that of the land or apartment sector.

Another good initiative of the budget is to reduce income tax payment documentation for professionals / salaried individuals. Now due income tax payment amount is adjustable with the income tax paid earlier (cut at source mode). The tax return form is going to be simplified. This initiative will encourage salaried people to come under the tax net. Import duty on capital machinery is going to be reduced to 2 per cent. But how much money will the government fetch a year following 2 per cent import duty on capital machinery? If the government withdraws import duty from capital machinery completely, how much the loss will be? All sorts of capital machinery should be allowed to be imported with zero duty.

A bad example of imposing duty on intermediary product is the duty on urea resin. It is the duty of the government to look for benefit of masses, not to protect one or two government-owned entities. How much revenue will the particular company be giving to the government? How many employment opportunities these will be generating? Why is the government not looking for the benefit of entrepreneurs in electrical, plastic sectors? There is a rumor that one of our ministers wrote DO letter to increase duty on urea resin. Why? It will reduce competitiveness of the whole sector.

Withdrawal of duty from alloy steel, reducing import duty on optical fiber cable, 60 per cent subsidiary duties on imported potato chips and reducing duty on inputs for biogas plant are good initiatives. But imposition of 10 per cent customs duty and 5 per cent regulatory duty on FEP/Teflon tube raw materials of medical equipment and instrument manufacturing industries is a bad decision. Because there is no import duty on the finished goods made by the FEP. The government should think about making a level-playing field here.

The budget is expected to address a few anomalies in different sectors. The duty on raw materials was higher than that of the finished goods. This budget has addressed these anomalies which is a good decision. But the Tk. 8 million turnover ceiling on SMEs is not enough. Because Tk. 8 million per year means Tk. 21,917 per day. If the value addition is 30 per cent, then the revenue of that firm is Tk. 6,575 per day. The firm makes profit of Tk. 6,575 daily which includes wages, bank interest, electricity and other charges which are too minimal. So the ceiling of turnover tax should be increased further.

Special incentive for small and cottage industry with plant machinery and equipment worth Tk. 4 million is very small in amount. According to the National Industrial Policy 2010, ” in manufacturing, small industry will be deemed to comprise enterprises with either the value (replacement cost) of fixed assets excluding land and building between Tk. 5 million and Tk. 100 million, or with between 25 and 99 workers” and ” for services, ‘small industry’ will correspond to enterprises with either the value (replacement cost) of fixed assets excluding land and building between Tk. half a million and Tk. 10 million, or with between 10 and 25 workers”. So, how can an industry having replacement cost of Tk. 5 – 100 million have plant, machinery and equipment not exceed Tk. 4 million in value? In such a case, this budget proposal is violating the definition mentioned in the National Industrial Policy 2010. The special incentive system will not work. This ceiling should be increased for small and cottage industries separately. The ceiling for cottage industries may be Tk. 4 million but the ceiling for small industries should be at least Tk 25 million to make it workable and follow the National Industrial Policy.

Finally we can say this is a good budget with so many commitments and high ambitions but it has to be revised on a few issues; otherwise this budget will not be workable / effective for balanced economic development. The government should not try to make a single losing state-owned enterprise profitable. Rather it should think for welfare of the whole sector. We hope that the government will be wise enough to revise the decision on investment of black money from lands or apartments to manufacturing / education / health care sector for ensuring optimum utilization of the money without harming any community or creating threat for the future. All sorts of basic metals and capital machinery may be allowed to be imported with zero duty to promote industrialization and there should be a significant gap between traded and non-traded companies’ tax rates to inspire non-traded company to be enlisted in the stock market.


Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s