FE: 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?
Mamun Rashid (MR): Given the ongoing pandemic, expanding and improving the nation's healthcare infrastructures should receive top priority in the budget for the next fiscal year. The recent weeks have exposed how inadequate and weak our current healthcare system is. It is simply not being able to handle a health emergency like the present one. The system is already overwhelmed by the onrush of Covid-19 patients. Likely, the pandemic will not just go away anytime soon. Therefore, drastic enhancement in the healthcare sector is urgently needed. The government did not put much emphasis on healthcare in the budget for the current fiscal year. Thus, relevant policymakers in the next year's budget should take into consideration the weaknesses seen in the healthcare system and take remedial measures immediately.
The upcoming budget may also focus on further technology improvement and increased automation within the public sector so that more tasks may be completed remotely/online rather than having to physically visit various government agencies. This would reduce wastage of time and resources and make the system much more efficient.
FE: What are the policies included in the budget for the FY'21, you think, are paying dividends? Should the government go for a few policy changes in the next budget?
MR: The current year's budget has enough allocations and incentives dedicated towards public infrastructure projects which have paid dividends, in terms of keeping the overall economy active and moving ahead. However, there has not been enough attention to incentivize and motivate the private sector towards growth in the budget for the current fiscal and, therefore, the next budget should strongly focus on the private sector. Besides, as the pandemic has weakened the economy, the government may go for an expansionary fiscal policy, including tax cuts for private businesses, transfer payments, rebates and increased government spending on projects. All these are likely to help stimulate the economy.
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?
MR: As Bangladesh is growing and developing, it is expected that demand for gas, real estate development, telecom and cement (which is directly connected to real estate and infrastructure development) will also keep rising. These sectors have been making a substantial contribution to the economy. Such contributions are expected to continue in future years. The focus, however, should not be only on the collection of more taxes from these sectors. The budget policies should help these sectors grow and expand further. The more these industries grow, the higher will be the volume of tax revenues from them. Any attempt to squeeze out more revenues from these sectors without allowing them to flourish and grow, would only harm them and hamper their natural growth. This would inevitably lead to lower tax collection from them.
Even though tobacco is currently a large contributor to tax revenues, the habit of smoking has been on the decline. In most western countries, the tobacco industry is being highly discouraged, and Bangladesh should also start to reevaluate its policies when it comes to the tobacco industry. While the tobacco industry is not expected to be weakened in Bangladesh anytime soon, in the long run, our tax policymakers may be advised not to put too much emphasis on it from a revenue collection perspective. Tax on the tobacco industry is already very high and regressive in comparison to similar other countries. Besides, higher taxes are also encouraging the consumption of low-quality cigarettes or the illicit tobacco trade.
FE: Agriculture makes a sizeable 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?
MR: Despite, Bangladesh's impressive economic growth and development, agriculture is still the backbone of the country's economy and food security. The self-sufficiency in food and independence is critical, especially during a pandemic where there are so many uncertainties in the global supply chain and logistics. Last year's debacle with the price of onion is a case in point. it remains as an example, how much impact just one agricultural product can create on the life of the consumers. There is no guarantee that our external/foreign suppliers of basic agricultural items can or will continue to meet our need. Therefore, domestic food production and sufficiency are vital. It would be highly beneficial if the next budget provides for higher spending and investment in farm biotechnology which can help boost food production within the existing arable land. The budget should also provide funds for imparting training to the farmers on the latest technological advancements and techniques in agriculture.
The way the domestic agricultural logistical system is currently set up the actual peasantry is not getting their fair price and the greatest culprit are the intermediaries and the middleman who pocket most of the profits leaving very little for the actual farmers. Therefore, upcoming budgetary and social policies should be aimed at removing the influence and power of these unscrupulous middlemen so that the peasantry may receive a greater share of the profits.
FE: Businesses have been demanding a sizeable cut in the corporate tax rate. What should be the best tax rates in Bangladesh conditions?
MR: Even though corporate taxes have been reduced in the current budget, it was not enough to have any kind of meaningful impact which might truly further stimulate business investment. The current surplus of cash in the commercial banks is proof that business enterprises are still shy of investing in the economy. Therefore, more corporate tax rate cuts, incentives and rebates are needed. To be competitive with other similar developing nations and to attract more FDI, Bangladesh's starting corporate tax rate for private limited companies should not exceed 25 per cent. Similar tax rate cuts should be considered for other types of businesses as well. This would most likely result in a higher corporate tax revenue net (i.e. more corporate taxpayers). This may ultimately lead to the collection of more revenue and investment growth.
The budget for FY'21 reduced taxes at the individual level by increasing the taxability threshold/bracket slightly. This threshold needs to be raised further (i.e. higher amount of tax-free income bracket) if it is going to have any kind of meaningful impact on the lower middle and middle-class people. The individual tax-free threshold should be raised to Tk. 600,000 in the next budget. The reason is that they are the individuals who consume products made by corporations. Therefore, the hike in disposable income (by increasing the tax-free income threshold) would allow individuals to spend more on goods. This may, in turn, further promote economic growth.