The Financial Express

'FY'22 budget focus should be on higher spending'

| Updated: April 18, 2021 21:57:04

Ahasn H Mansur Ahasn H Mansur

FINANCIAL EXPRESS (FE): Country's economy has been going through a difficult time because of the pandemic. In such a situation, what should be the main features of the national budget for the next fiscal year?  How can this year's budget guide the people involved in budget preparation?

Ahsan H Mansur (AHM): Undoubtedly the country has been passing through a difficult time due to the pandemic. The government is expected to place the national budget before Parliament sometime in June next. The upcoming budget should contain effective measures to deal with the pandemic fallouts. The perspective of the budget is very much important and the relevant policymakers should keep this in mind while preparing the budget. 

I don't believe that the ongoing lockdown is the last one. The government may have to repeat it a few more times this fiscal and the next. Even many European countries, including Germany, are in lockdown even though major vaccination programmes have been taking place there.

Bangladesh is still at a much lower level of vaccinations or immunisation campaign. It needs to gear up the vaccination to help the economy recover early. The USA is now giving 4.0 million shots a day. Bangladesh's population is half of the US. So, we need around 2.0 million doses a day. Do we have such preparation?  The present rate of vaccinations will take at least 10 years to cover all its population.

The import of vaccines should be opened to the private sector as some people in the country can afford expensive vaccines. I don't understand why the government has created a monopoly here. The US government is procuring Pfizer at a rate of US$20 for each dose which is equivalent to Tk 1700. But this rate is for the US government. Bangladesh may have to pay more for each dose. So, the vaccine is likely to be expensive in Bangladesh at the users' end.

The upcoming budget should focus on how to raise spending. We are preparing a big budget, but in the middle of the fiscal year we, usually, cut its size by 20-30 per cent. In reality, we trim it further at the end of the fiscal year. So, what we need is a realistic budget having appropriate spending priorities.

The rate of budget spending during the current fiscal year is poor. Up to February last, overall expenditure was just one-third of the budget projection. The expenditure should increase in the next budget.

During May and June, the implementation of the annual development budget increases, but that does not ensure quality expenditure. 

We need to pursue an expansionary fiscal policy for the next fiscal year, not a contractionary one. Revenue mobilisation targets should also be realistic. If we target to collect revenue in the next fiscal at a rate of 45 per cent higher than the one set for the current fiscal, it will never be achievable. Under the present situation, such higher revenue targets are not feasible.

We can target at best an 8.0-10 per cent higher revenue target for the next fiscal year. To my mind, the budget deficit should be widened from its existing practice of 5.0 per cent of the GDP.

 My argument is: The revenue collection will not be satisfactory in the next fiscal year due to the Covid situation. So, the GDP also will not expand as it was in the past. So there will be a huge gap in revenues to feed the budget.

The deficit may be widened to 7.0 per cent to 8.0 per cent of the GDP for the next fiscal year to meet the budget spending.

FE: What are the policies followed in the budget for the FY'21, you think, have paid dividends?  What should be policy changes in the next budget?

AHM: There is no achievement as far as the budget for 2020-2021 is concerned. The policy the budget is adopting is not right. One example: The Ministry of Health had procured 300 ICU beds but those were not installed in any of the hospitals as they lacked adequate manpower to handle those.

The ADP execution rate during the current fiscal year by the said ministry has remained the lowest among all ministries/divisions.

The government had allocated Tk 970 billion for the health ministry in the current year's budget,  but it could spend only Tk 220 billion up to February last. How can I say it has paid a good dividend to the people?

However, an area government should think seriously about how to widen the tax net. This is not for the next fiscal year. This is for meeting revenue shortfall in the medium-term.

The budget should have kept options for social protection as the unemployment and poverty rates have surged especially in the urban areas. We have failed to disburse cash funds in this fiscal year due to lack of reliable databases.

The government may consider two types of assistance; 1. in-kind and 2. cash.

I think "self-identification" is the right mechanism to reach the right people. Self-identification is a voluntary form in which each individual chooses to disclose his or her job losses or financial impact of the pandemic or lockdown.

The list prepared by the union parishad or upazila parishad is the wrong process where the target population, at times, are bypassed. The authority may verify the information submitted by the job-losers whether the information is correct or not. Suppose, one person may give his mobile number and his office number. The government office concerned may verify it.

There is a need for conducting reforms and modernisation of the taxes and VAT system. The VAT is still partially automated. "We need full automation of the VAT system to make it business-friendly.

FE: The main sources of domestic tax revenue are tobacco, telecom, gas, real estate and cement. How have these sectors contributed, in terms of revenue, during the current FY? What should be the policies to generate more revenues from these sectors?

AHM: The big taxpayers have been contributing to the economy by paying taxes. The policy we adopt to realise taxes from the big sources is not right. We often exercise arbitrary power to collect taxes from them. We need to develop a system that would be able to generate more taxes from them. 

The simple way is to develop a database of the big tax-paying sectors. We need to understand the chain effect of tax imposition on such big tax sectors on other sectors. A detailed database of the big sectors can generate a system and help get more revenues.

FE: Agriculture makes a sizable contribution to the economy and employment generation. What should be the policies to spur the growth of the sector? Is the peasantry getting a fair price for their produce during the Covid time?

AHM: The policy being adopted over agriculture in the budget documents is more or less in the right direction. The government has been giving different incentives to the farmers. The government has been providing export subsidies for agricultural products. I think these are alright. But we need to emphasize more on research and the field-level applications of the research results and innovations.

The farmers often do not get fair prices. One of the reasons is the lack of a preservation system for agricultural produce.  

FE: Businesses have been demanding a sizable cut in the corporate tax rate. What should be the best tax rates in Bangladesh conditions? 

AHM: The corporate tax should largely be uniform. It needs to be reduced to a large extent from the present level.

The telecom sector which is believed to be the dynamic sector has the highest tax rates, probably the highest in the world.  I know they pay around 58 per cent in taxes, including corporate ones. They do not get tax benefits even after being listed on the bourses. The imposition of higher taxes on the sector is impacting fresh investment.

It is a sector that needs a rational tax structure for the interest of other sectors or sub-sectors that depend on the telecom sectors. The country's telecom companies barring the GP are not being able to make a profit due to the high taxes.  We are killing the goose that lays golden eggs. The corporate tax rate for the telecom companies needs to be reduced every fiscal year between 2.0-2.5 per cent for the next 5/7 years. Only then it will stand at around 25 per cent.

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