Volume : XIX
Issue : 2
April -June 2017
NATIONAL
BUDGET 2017-18
Institute of Chartered Secretaries of Bangladesh (ICSB)
THE COUNCIL 2016-2019
EDITORIAL BOARD
Subscription Rate
Institute of Chartered Secretaries of Bangladesh (ICSB) established under an Act of Parliament i.e. Chartered Secretaries Act 2010 is the only recognized professional body in Bangladesh to develop, promote and regulate the profession of Chartered / Company Secretaries in Bangladesh. The affairs of the Institute of Chartered Secretaries of Bangladesh (ICSB) are managed by a Council consisting of thirteen elected members and five nominees of the Government. The major contribution of a Chartered Secretary is in the corporate sector. Chartered Secretary is a requisite qualification to become a Company Secretary. Company Secretary is an important professional, aiding the efficient management of the corporate sector. Company Secretary is a Statutory Officer under the Companies Act 1994. According to Bangladesh Securities and Exchange Commission (BSEC) all the listed companies should have a Company Secretary. Company Secretary is the compliance officer of the company, who has to interact, coordinate, integrate and cooperate with various other functional heads in a company.
Mohammad Sanaullah FCS Mohammad Bul Hassan FCS Md. Selim Reza FCS Nazmul Karim FCS Mohammad Asad Ullah FCS Itrat Husain FCS Md. Shahid Farooqui FCS Safiar Rahman FCS Md. Azizur Rahman FCS A. K. M. Mushfiqur Rahman FCS Gopal Chandra Debnath FCS Md. Anwar Hossain Chowdhury FCS Salim Ahmed FCS Munshi Shafiul Haque, Additional Secretary (IIT), GoB Md. Ekhlasur Rahman, Additional Secretary, GoB Nasreen Begum, Additional Secretary, GoB Prof. Md. Helal Uddin Nizami, Commissioner, BSEC Md. Mosharraf Hossain, Registrar, RJSC, GoB Editor Prof. Dr. Feroz I. Faruque FCS Members Itrat Husain FCS Bazlur Rahman Sikder FCS Kazi Ashiqur Rahman FCS Subash Chandra Moulick FCS Mohammad Shahajahan FCS Md. Shiful Islam ACS For Students : per copy Tk. 100; per year Tk. 350 Others : per copy Tk. 150; per year Tk. 560
Design & Print
: : : : : : : : : : : : : : : : : :
President Senior Vice President Vice President Treasurer Councilor Councilor Councilor Councilor Councilor Councilor Councilor Councilor Councilor Councilor Councilor Councilor Councilor Councilor
In this issue
Editorial
3
Message from the President
4
The Council 2016-2019
7
Institute News
9
ARTICLES
Published by Institute of Chartered Secretaries of Bangladesh (ICSB)
(Established under Chartered Secretaries Act 2010 (Act No. 25 of 2010)
The views and opinions expressed in the articles published in this Journal are those of the writers only. Administrative Ministry Ministry of Commerce Government of the People’s Republic of Bangladesh Institute Office Padma Life Tower (8th Floor) 115 Kazi Nazrul Islam Avenue Bangla Motor, GPO Box No. 3100 Dhaka-1000, Bangladesh Phone : +88 02 933 9957, 933 4878, 933 6972, 831 5338 +88 02 4934 9578, 933 6901 (Extn.-101-108) Fax : +88 02 933 9957 Mobile : 01708 030804 E-mail : secretary@icsb.edu.bd, icsb@icsb.edu.bd Web : www.icsb.edu.bd Campus Padma Life Tower (7th Floor) 115 Kazi Nazrul Islam Avenue Bangla Motor, GPO Box No. 3100 Dhaka-1000, Bangladesh
Glimpses of Budgetary Dillema in Bangladesh - Prof. Dr. Feroz I. Faruque FCS
15
Big Budget (FY 2017-18) Towards Crafting of Big Picture - Bipul Kumar Bhowmik FCS
18
A Comparative Analysis on National Budgets FY 2015-16 to FY 2017-18 - Mohammad Shahajahan FCS
20
Scrutiny of Budget 2017-18 Perspective of Income TAX and VAT - 1Prodip Kumar Roy FCS & 2Gourav Roy
25
National Budget 2017-2018 - Dr. Md. Rashedul Azim ACS
29
Budget to Enhance National Competitiveness - Md. Shiful Islam ACS
35
The National Budget 2017-18: Challenges to Industrial Escalation - Razia Sultana Lubna
38
Notification
41
Editorial
this issue...
mber 2016
July-Dece
Volume
: XIX
Issue : 3
cation 2016
6th Convo al Convention
6th Nation
2016
3rd Corporate
Governance
Excellence
Value Added Tax and Economic Growth of Bangladesh
A
ll economies, whether developed or developing require some degree of government intervention with a view to facilitating economic growth and development in their domains. This is particularly so as certain essential goods and services such as education, security, electricity, road,water and health facilities among others are mostly provided by the government. However, in providing these goods and services government has to source funds (revenue) from various sources including taxation. New form of taxes are selectively being introduced particularly by the developing countries so as to boost their revenue earning capacity with the aim of ensuring rapid economic growth and development of the country. The Value Added Tax (VAT) is one of such taxes initiated by governments to raise revenue for smooth government operations. In Bangladesh VAT was introduced since 1991. Before that period, a committee was set-up by the Government in 1990 to review the entire tax system in the country. Presently, the NBR is responsible for collecting VAT. Burgess and Stern (1993) argue that the structure of taxation in developing countries differs from that of developed. For developing countries, we have roughly two-third of tax revenue coming from indirect taxes like VAT while for developed countries two third come from direct taxes. They suggest that tax structure can change over time to maximize economic
growth rate. Kneller, et al (1999) studied the effect of the structure of taxation and p u b l i c expenditure on the steadystate growth rate having taken into account the financing assumptions associated with the government budget constraint and their results were found consistent with the Barro (1990) model. Specifically, they found that non-discretionary taxation and productive expenditure not only exist but also enhance growth. Williams McCarten (2005) suggested that a more detailed econometric examination focusing specifically on the collection efficiency of VAT, using an unbalanced panel of 45 countries (including a number of developed countries) for the 1970-1999 period found that VAT collection efficiency increases with urbanization, trade openness, real GDP per capita and measures of both political stability and the ‘fluidity’ of political participation.
Prof. Dr. Feroz I. Faruque FCS Editor
Award, 2015
April - June 2017
3
Message from the President
D
ear Professional Colleagues, Well, another quarter of the year 2017 has
already been over. In this quarter, like the previous quarters, we had few events at our beloved ICSB for the development of our profession as well as the Institute. Among the programmes, there were meetings with distinguished personalities and top level
government
officials,
holding
of
CPD
programmes after a long interval, reintroducing training programmes and celebration of the 7th years of CS Act 2010 enactment. At the end of the quarter, it appears to me that a fruitful period has passed and a challenging time for the Institute in all
government bodies very soon. We also had several
respects.
other training programmes on topics like “Internal
The most significant achievement of this quarter is reintroduction of our Training Programmes after a long gap. Training is not only developing the capacity of the Chartered Secretary Professionals but it also has several impacts like making our Institute familiar to others, giving the society a positive vibe and most
audit & Control”, ‘Management of Provident Fund, Profit
Participation
Fund
and
Gratuity
Fund’
“Standardization of Annual Report” etc. which was open to any interested professionals to enhance their knowledge and skills. From now on, Training Programme will be a regular feat of the Institute.
importantly a source of income for the Institute. This
From August onward we are going to have a set of
quarter we started the Training Programmes with the
new training programmes for professionals from the
Company Secretaries of different companies under
Corporates bodies, as Stephen R Covey Mentioned in
the Power Division, Ministry of Power, Energy &
his best seller “Seven Habits of Highly Successful
Mineral Resources, Government of Bangladesh. It
People”, that “Sharpen Your Saw”. No matter when
signifies the continuous growth and capacity
you passed the examinations, you always have the
enhancement of the Institute.
A modern training
option for learning something new and that will keep
room with all facilities is now ready and the Institute is
your knowledge updated. You are also invited to take
capable to arrange any training programmes for the
part in our Training that will really benefit you in the
development
long run.
of
the
corporate
executives/
Professional Company Secretaries. We have created a bridge between the Ministry of Power, Energy &
You will be happy to know, that the Council has taken
Mineral Resources, Government of Bangladesh and
initiative and drive with the Govt. for inclusion of
ICSB which was reflected in the speech of the
Chartered Secretaries in the ITP list as a priority. To
Secretary of Power Division. We are hopeful that we
pursue the Chairman of NBR, we also had a meeting
will get more opportunities to work with different
which was quite positive from the both end. I am very
4
April - June 2017
followed by an Iftar party during the Holy Ramadan.
No matter when you passed the examinations, you always have the option for learning something new and that will keep your knowledge updated. You are also invited to take part in our Training that will really benefit you in the long run.
If you go through this issue of the journal, you will also come to know about our other activities which took place in this quarter. We are trying our best to offer you the best possible service despite our various limitations. Let me conclude with an invitation, as you all may be aware about our 7th Annual General Meeting to be held on 19th August 2017 at the BIAM Auditorium, 29, Eskaton, Dhaka at 4.30 pm. It is my sincere invitation to all the Members please join the AGM, enlighten us with your ideas, identify our mistakes, guide us as you believe for the greater interest of the profession of
optimistic that before the next budget we will be able to finalize that. Besides this, it is a good sign that the Continuing Professional Development (CPD) Programme has been restarted after a long interval. I am very thankful to all the Members of PDSC who worked hard to make it happen. The topic ‘One Stop Service Act
Chartered Secretary. And finally, when I look back it gives me immense impetus to push forward. As the Institute is growing there will be some problems and we, the professionals, will
continue our journey amidst
challenges towards our destination. Wish you all a very Happy Eid Mubarak.
2017 (proposed) initiated by Bangladesh Investment Development Authority (BIDA)’ was a timely selection
Allah Hafiz
and the BIDA Chairman also expressed his satisfaction about the activities of the Institute. We had the opportunity to celebrate the 7th Anniversary of the enactment of CS Act 2010 this year
April - June 2017
Mohammad Sanaullah FCS PRESIDENT
5
6
April - June 2017
The Council 2016-2019
April - June 2017
7
Institute News April - June 2017
T
he 2nd quarter (April – June) of the year 2017 was eventful for the Institute.
INTERNAL MEETINGS Meetings of the Standing Committees The following Standing Committees Meetings were held during the 2nd quarter: • The Executive Committee Meeting held on May 25, 2017 • Membership & Registration Committee Meeting held on June 3, 2017 • Education Committee Meeting held on May 13, 2017 • Examination Committee Meeting held on May 7. 2017
Meeting with the Chairman, NBR
FCS met Md. Nojibur Rahman, Chairman, National Board of Revenue (NBR) at the NBR Building at Segunabagicha, Dhaka on June 18, 2017.
The President briefed the Chairman about the various activities of the Meetings of Sub Committees Institute for the professional development of the Company The following Sub-Committees Secretaries. He particularly Meetings were also held during the appraised the hon’able Chairman 2nd quarter, 2017: on the inclusion of ICSB Members in the Income Tax Ordinance 1984, • Journal & Publications Sub Added Tax and Committee met on May 13, 2017 Value Supplementary Duty Act, 2012 as • International Relations Sub ITP and VAT practitioners. He, Committee met on May 20, 2017 quoting the examples of the • Members’ Welfare and neighboring countries said that a Recreation Sub Committee met new horizon in the professional on April 4, June 10, 2017 fields will be opened for ICSB Members if they are included in the • Information Technology Sub Committee met on May 20, 2017 said Ordinance and Act. He further briefed on the Curriculum of ICSB • Company Law Review Sub and informed the Chairman that the Committee met on May 31, June Members of similar institutes like 10, 2017 ICAB & ICMAB are already enjoying the status of ITP and VAT Agent. He EXTERNAL MEETINGS urged upon the Chairman for his kind attention to take due initiatives Meeting with Honourable, so that the Members ICSB may also Chairman, NBR get the opportunity to contribute Delegates of ICSB led by its for the economic development of President, Mohammad Sanaullah the country. April - June 2017
The Chairman gave a patient hearing, noted the points and assured that he will consult the issue with the concerned Officials and other regularity Authorities. He instantly forwarded the application to the concerned Member of the NBR for further action. The Chairman assured his wholehearted co-operation for the development of the Chartered Secretary profession to ensure good governance in Corporate Sector of Bangladesh. The delegate also included Mohammad Bul Hassan FCS, Senior Vice President, Md. Selim Reza FCS, Vice President and Nazmul Karim FCS, Treasurer of the Institute. Meeting with Dr. Md. Abdur Razzaque MP, Chairman, Parliamentary Standing Committee for Ministry of Finance A delegation consisting of the Office Bearers and Officers of the Institute of Chartered Secretaries of Bangladesh (ICSB) met Dr. Md. Abdur Razzaque MP, Chairman, Parliamentary Standing Committee for Ministry of Finance at his office
9
Institute News
«
Meeting with Dr. Md. Abdur Razzaque MP, Chairman, Parliamentary Standing Committee for Ministry of Finance
in Bangladesh Parliament on June 20, 2017. The delegation was led by Md. Selim Reza FCS, Vice President of the Institute. The Vice President of ICSB briefed the Chairman about various activities of the Institute and the professional responsibilities of a Company Secretary. He particularly emphasized on the inclusion of the Members of ICSB in the Income Tax Ordinance 1984 & Value Added Tax and Supplementary Duty Act, 2012 as ITP and VAT Agent. He explained with examples of our neighboring countries and tried to pursue the Chairman for the amendment of the said Ordinance as well as the Act, so that new windows for ICSB Members would be opened in the professional field. As the Chairman of the concerned Parliamentary Standing Committee, Mr. Razzaque listened and endorsed the same view to include ICSB Members as ITP & VAT Agent. He also noted the points and assured that he will place the issue in the Meeting of the Parliamentary Standing Committee and will try to provide necessary supports to address the issues in favour of ICSB to create more opportunities for the ICSB Members. The Chairman also told that his office will take
10
necessary initiatives for the development of the Chartered Secretary profession to ensure good governance in Corporate Sector of Bangladesh. Among others Md. Selim Reza FCS Vice President, Nazmul Karim FCS, Treasurer Md. Shahid Farooqui FCS,Council Member, Salim Ahmed FCS, Council Member, Immediate Past Senior Vice President M. Naseemul Hye FCS and few other Senior Fellow Members of the Institute were also present during the meeting. Meeting with the Managing Director & CEO of Dutch Bangla Bank Limited Mohammad Sanaullah FCS, President of ICSB met Mr. Abul
Kashem Md. Shirin, Managing Director & CEO of Dutch Bangla Bank Limited on June 15, 2017. The President of ICSB requested him to reduce the interest rate from 10.5% to 8% of the term loan of ICSB considering the market prevailing interest rate of other Banks in Bangladesh. It is to be mentioned here that the Term Loan Limit of Tk. 80 million was taken during the purchase of the Aftabnagar Land for permanent Campus of ICSB. The Managing Director and CEO of Dutch Bangla Bank Limited assured the President of ICSB that he will take necessary possible action in this regard and ultimately reduced the interest rate at 9.5 % from previously 10.5%.
CONTINUING PROFESSIONAL DEVELOPMENT (CPD) PROGRAMME CPD Programme on ‘One Stop Service Act 2017 (proposed) initiated by Bangladesh Investment Development Authority (BIDA)’ Institute of Chartered Secretaries of Bangladesh (ICSB) organized a Continuing Professional Development (CPD) Programme on
From right: Mr. Abul Kashem Md. Shirin, Managing Director & CEO of Dutch Bangla Bank Ltd. Mohammad Sanaullah FCS, President, ICSB Md. Monirul Alam FCS, former Vice President, ICSB
April - June 2017
Institute News
«
FCS, Council Member & Chairman, Seminar & Conference Sub Committee of ICSB. They gave valuable inputs in their discussion.
The CPD Seminar in Progress
Members Present at the CPD Seminar
‘One Stop Service Act 2017 (proposed) Initiated by Bangladesh Investment Development Authority (BIDA)’ on Saturday, April 29, 2017 at Hotel Purbani International, Dhaka. Mr. Kazi M. Aminul Islam, Executive Chairman of Bangladesh Investment Development Authority (BIDA) attended the Seminar as the Chief Guest while Mr. Ajit Kumar Paul FCA, Executive Member and Secretary of BIDA attended the Seminar as Special Guest. The Keynote Paper was presented by Mr. Tauhidur Rahman Khan, Director, BIDA, who explained its salient features and implementation procedures. In his paper, Mr. Khan mentioned that the BIDA OSS initiative is to house 17 Ministries/Departments of the Govt. April - June 2017
under an umbrella aiming to easing foreign investments in the country thus to augment the economic development of the nation. Official Discussants of the session were Prof. Dr. Feroz Iqbal Faruqe FCS, former Sr. Vice President of the Institute and Md. Azizur Rahman
Mohammad Sanaullah FCS, the President of the Institute was present as the guest of Honour. In his Speech, he emphasized on the role of Company Secretaries in good governance in attracting foreign direct investment. They can play the pivotal role to grow the confidence of the investors. In most cases, Bangladesh is advancing forward and to institutionalize the process, he further inspired the Chartered Secretary Professionals to apply their knowledge and experience more effectively. He urged to the Chairman of BIDA to include the clause of mandatory appointment of Chartered Secretary in the firms with foreign investments so that they can ensure the compliance with the rules and regulations of Bangladesh. Mohammad Asad Ullah FCS, Chairman, Professional Development Sub Committee chaired the Seminar and summed up the whole session. He told that The Govt. of Sheikh Hasina, timely reviewed the investment in the country scenario and decided to
ICSB President handing over a Crest to the Chief Guest
11
Institute News
«
reform the BOI substantially and establish a high power investment authority in the name and style: Bangladesh Investment Development Authority (BIDA) and to create momentum in the economy the hon’ble Prime Ministry directed to merge the Privatization Board with BIDA. He further told that Govt. should form a taskforce to cut cost of business to ease doing business and facilitate trade through addressing problems of businesses and to remove complexities in business. Concerned Ministries, Chambers and trade Associations and business leaders should be the Members of the Task Force under the leadership of BIDA. To monitor the FDI, they should hold meeting every month for close co-ordination. A lively question answer session was held at the later part of the Seminar while the BIDA Officials answered different questions of the participants. The Programme was attended by a large number of Members of the Institute who are working in different listed companies of the country and Corporate Leaders were also present on the Occasion.
The President of ICSB along with the Participants of the Training Programme
professional organizations participated the training programme. Mohammad Sanaullah FCS, President of ICSB being present summed up the training programme and distributed certificates among the participants. The President of ICSB in his speech said that Provident Fund, Profit Participation Fund and Gratuity Funds are actually a part of salary that is received by an employee from his/her employer is gratitude for the services offered by the employee in the company. They are defined as benefit plan and are retirement benefits offered by the employer to the employee upon leaving his job. An employee may leave his job for various reasons, such as retirement/ superannuation, for a
better job else where, on being retrenched or by way of voluntary retirement. “I hope that you will be benefitted with the experience of this training programme in your professional life.” He concluded. Certificate Awarding Ceremony at ICSB for the Company Secretaries of Power Division Institute of Chartered Secretaries of Bangladesh (ICSB) arranged a Certificate Awarding Ceremony on successfully completion of a Professional Training Programme on “Company Secretarial Practice” for the Company Secretaries of different companies under the Power Division, Ministry of Power, Energy & Mineral Resources,
PROFESSIONAL TRAINING PROGRAMME Professional Training Programme on ‘Management of Provident Fund, Profit Participation Fund and Gratuity Fund’ A Professional Training Programme on ‘Management of Provident Fund, Profit Participation Fund and Gratuity Fund’ was arranged at the training room of the Institute from 4 to 8 May, 2017. A good number of participants from different
12
From Left: Mr. A. K. M. Humayn Kabir, Joint Secretary, Power Division, Mohammad Sanaullah FCS, President, ICSB, Dr. Ahmad Kaikaus, Secretary, Kazi Rawshan Akhtar, Additional Secretary, Maksuda Khatun, Additional Secretary, Power Division
April - June 2017
Institute News
« Government of Bangladesh on May 6, 2017 at ICSB premises. Around 21 Company Secretaries of different Power Generation and Distribution Companies participated in this training programme which was started from April 10, 2017. Dr. Ahmad Kaikaus, Hon’ble Secretary of Power Division attended the programme as the Chief Guest and stated that this kind of Trainings enhances the capacities of the Company Secretaries to make a significant sign in their professional development. He further expected that this Training Programme will be highly instrumental to fulfill the commitment of the Government to ensure good governance. Mohammad Sanaullah FCS, the President of the Institute mentioned in his speech that Company Secretary Profession is evolving rapidly around the world, new dimensions to meet the challenges of this competitive world. He stated that the Company Secretaries are the Advisors to the Board of Directors of their respective companies. He also emphasized on assuring good governance and enhancing professionalism among the Company Secretaries while discharging their duties in their respective government owned companies. Kazi Rawshan Akhtar, Additional Secretary Power Division, Ms. Maksuda Khatun Additional Secretary, Power Division, Mr. A. K. M. Humayn Kabir, Joint Secretary, Power Division, Respected Managing Directors of Power Generation and Distribution Companies, Mr. Mohammad Bul Hassan FCS, Senior Vice President, Mr. Nazmul Karim FCS, Treasurer & Mohammad Asad Ullah FCS, IPP and April - June 2017
The President of ICSB along with the participants of the Training Programme
Council Member of the Institute also spoke during the occasion. Mr. Md. Selim Reza FCS, Vice President of the Institute offered a vote thanks. Professional Training Programme on ‘Standardization of Annual Report’ A 3 days Professional Training Programme on ‘Standardization of Annual Report’ was arranged at the training room of the Institute from 20 to 22 May 2017. A good number of participants from different professional organizations participated the training programme. Mohammad Sanaullah FCS, President of ICSB being present summed up the training programme and distributed certificates among the participants.
ICSB CELEBRATED SEVENTH ANNIVERSARY OF ITS ENACTMENT The Members of the Institute of Chartered Secretaries of Bangladesh (ICSB) celebrated 7th anniversary of Enactment of Chartered Secretaries Act-2010 on June 16, 2017 at the Alumni Association Auditorium, Senate Bhaban, Dhaka University. The President of the Institute Mohammad Sanaullah FCS chaired the programme. A large number of Members including the Councilors and Office Bearers of the Institute attended the programme. In the welcome speech Salim Ahmed FCS, Council Member and Chairman, Members Welfare & Recreation Sub Committee of the
Cake cutting of the Seventh Anniversary
13
Institute News
ÂŤ
The President concluded his speech expressing his hope that the new Chartered Secretaries will have a greater role through skilled professionalism in their respective fields as well as development of the Institute in future.
Seventh Anniversary in progress
Institute appreciated the Members participated in this programme despite their busy schedule and thanked all concerned for making the programme successful. The President Mohammad Sanaullah FCS, in his speech outlined the various activities taken by the Institute during the last 7 years and recalled the efforts and hardships that the Founding Members of thereafter the councils went through to pursue with the Government of Bangladesh in passing the enactment of the Chartered secretaries Act 2010 and establishing ICSB. He specially
expressed gratitude to the honorary Fellow Members including the then Honorable Commerce Minister Mr. Muhammad Faruk Khan MP in the enactment process of the law and gazette notification of the chartered Secretaries Regulations 2011. The President urged upon the Members to be more cooperative and responsive in establishing the Institute as an icon for professional skill development and corporate governance particularly in corporate sector. He also highlighted that the Institute needs to gain pace through its younger generation of Members.
Members Present of the Seventh Anniversary
14
Among others, Senior Vice-President Mohammad Bul Hassan FCS, also in his address shared his feelings on this great occasion of the congregation. The anniversary programme was marked with Cake cutting, reminiscence from Members, Doa Mahfil & Iftar.
TRAINING PROGRAM FOR 3RD QUARTER (JULY TO SEPTEMBER) 2017 Name of the Programme 1
Internal Audit & Control Environment
2
TAX Management
3
Customs & VAT Management
4
Management of Initial Public Offering (IPO)
5
Finance for Non-Finance Executives
6
Management of Company Meetings
7
Corporate Affairs Management
8
Management of PF, Gratuity & WPPF
9
Compliance Companies
for
Banking
10 Effective Audit Committee
April - June 2017
Article
ÂŤ
GLIMPSES OF BUDGETARY DILLEMA IN BANGLADESH - Prof Dr Feroz I. Faruque FCS
D
evelopment Budget
There is no alternative of development and realistic budget for strengthening the economy of the country. To make a mid income level county by 2021 and to make a developed and progressive country by 2041 successive diversified, implementable budget is very much required. The aim must be high and steps must be carefully choosen for making a country like Bangladesh more competitive and towads this goal the Tk.400266 crore budget is in line with the diversified development needs of the country. 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. 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 the renamed sector as education and
April - June 2017
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 the Finance Minister said.
Implementation Status Implementation status of 2016-17 has been estimated based on last 3 years average. Source: Ministry of Finance, GoB From the above table we can observe our failure of implementation rate is successively increasing.
In 2014-15 India, Vietnam and Uganda implemented 92.7%, 100% and 89.3% respectively of their budget, while Bangladesh implemented 81.1%. In 2015-16 India & Vietnam implemented 100% and Uganda implemented 90.3% of their respective budget, while Bangladesh implemented only 79.4%.
Personal Tax Regarding income tax, NBR introduced the universal self-assessment system in fiscal year 2007-08 in a bid to facilitate
Table-1: Last 7 years budget proposals and rate of implementation FY 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 20116-17
Proposed Increase budget in % 132170 16.12 163589 23.77 191738 17.21 222491 16.04 250506 12.59 295100 17.80 340605 15.42
Revised Budget 130011 161213 189326 216222 239668 264565 317174
Increase Real in % implementation 17.63 128268 24.00 152428 17.44 174013 14.21 188208 10.84 204380 10.39 236080 19.88 277934
Yearly Budget Implementation Rate Budget Implementation (%) 97.05
2010-11
93.18
2011-12
90.76
2012-13
Linear (Budget Implementation (%))
84.59
81.59
79.4
81.6
2013-14
2014-15
2015-16
2016-17*
Source: Ministry of Finance of the respective countries
15
ÂŤ
budget that stood at the 6th position of the ADP. The standard allocation should be 15% of the budget.
ADP Implementatio Rate (July-March) ADP Implementatio Rate (%) 2016-17 2015-16
44.8
VAT & Excise Duty
41.1
2014-15
43.5
2013-14
43.2
2012-13 2011-12
49.5 44.8
Source: Ministry of Finance, GoB 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 percent 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
16
Article
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.
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 increased to Tk800 from Tk500 for deposit of 1 lac to 10 lac and so on, but apparently withdrawing excise duty from Tk.20,000 to Tk. one lac. But the budget speech did not elaborate the matter and created sparked reaction among the citizens. This has been created due lack of communication of information in the budget speech.
There is another confusing decision of introducing 10% duty, VAT and other taxes, totaling an additional cost of 37.5 percent on solar panels, the TO MAKE A MID INCOME LEVEL main component of a solar COUNTY BY 2021 AND TO MAKE A power system. The Hon’ble DEVELOPED AND PROGRESSIVE Finance Minister Abul Mall COUNTRY BY 2041 SUCCESSIVE Abdul Muhith has proposed DIVERSIFIED, IMPLEMENTABLE imposition of duty on BUDGET IS VERY MUCH REQUIRED. imports of solar panels reportedly amid demands or executive level positions in a for protection of local solar panel firm - a further tightening of rules assemblers who must compete the cheap imported by the National Board of Revenue with products, particularly from China. to increase collection of payroll The solar system was enjoying tax. It appears that private sector companies are going to face zero tax along with coal for power plants. But the industry insiders greater scrutiny in claiming their said that nearly half of the expenses for employees' salaries. country's nine assemblers are out The employers will have to ensure of production and the rest can that their employees with taxable meet only 10 percent of the income submit tax returns, to annual requirement for solar claim expenses for salaries. panels of 100 MW. Bangladesh has largest solar home systems in Health Care the world mainly because of zero duty on import of solar panels The healthcare sector is just since 2009. Over the last two neglected in this budget with 6.1% decades, Bangladesh has made This is also likely to be applicable to those working at management
April - June 2017
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«
huge progress in making popular the use of solar home systems in the areas having no electricity connection, thus ensuring that 45 lac homes get solar power. Solar panels are sourcing 8.4 percent 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 lac 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
April - June 2017
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.
Personal Tax Surprisingly there was no consideration of increasing individual tax free limit despite the country has officially 5.5% inflation, is it justified for a welfare state! The exemption limit should have been atleast Tk. 350000 a year and redressing the slabs logically. Welth tax should have more slabs for which taxpayers will be more interested to pay tax. Tax rate should be lower, but net could be spreaded more.
Employment Generation 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.
Corporate Tax The tax rates for 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 reduced the tax of Export Oriented Garments industries to 15% from existing 20% and also one percent reduction for recognized green industries. It is interesting that the backward linkage industries of garments are out of such reduction of corporate tax. This is a good initiative only for garments which cover 80% of the total export but it could cover the entire export sectors. Bangladesh has three major problem now, gradual reduction of export 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 increasing 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 expatriates (NRBs) and creation of new job. The best thing government has done deferring the new VAT law for two years which was the brain child of few local and foreign half baked immature brains without giving adequate consideration & importance to the opinion of the business community, who actually collects VAT for the government. » About the Author Fellow Member of the Institute & Former Senior Vice President
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Article
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BIG BUDGET (FY 2017-18) TOWARDS CRAFTING OF BIG PICTURE - Bipul Kumar Bhowmik FCS
T
he budget which is basically an annual outline of fiscal policy, has over the time turned into all-encompassing document for the nation, making other national policy document either less important or of no importance. As the budget is a means to implement economic activities of a government, the political government prepares the budget in line with its political philosophy. And this was the case with the present government as well when it re-took the power in 2014. The government set several milestones when it presented the first budget during its current regime. These included among others, growth of gross domestic product (GDP) to 10 percent by 2017, maintaining price stability, enhancing rate of investment to at least 30 percent of GDP, undertake special program to mitigate the power and energy sector deficit, curbing corruption, attaching highest priority to establish digital Bangladesh. National budget for FY 2017-18 comes at a challenging time. Despite being powered by high growth and cushioned by low international prices, the Bangladesh economy has been facing a number of disquieting features. Exports have seen slow growth in FY 2017 and remittance have been declining for some
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time. While private investment is yet to pick up, steering the wheel of the economy , public investment have been making up the void to some extent but faces the challenges of improving efficiency and accountability of large expenditures. Employment generation has slowed down despite high GDP growth. And to top it all, piled up bad loans in the banking system have hit the governance of the whole financial sector. The task of formulating a budget in such a situation is understandably not easy. Maintaining the growth
low bank interest rate is a vital component to spur and sustain such initiative. Present state of banks which is popularly termed as ‘unexposed bankruptcy’ need to be turned around to avoid huge bad loan and high cost of fund otherwise the hope to lower the interest rate will remain unmeet. Proposal to recapitalize the banks with Tk. 2,000 crore will bring message that delinquency is all right, not punishable, rather adjustable. Public money is being used to make up for the losses inflicted by the loan defaulters. Lack of adequate attention is visible in case of reforms particularly in the financial AS THE BUDGET IS A MEANS TO sector. Moreover, the word IMPLEMENT ECONOMIC ACTIVITIES ‘non-performing loans’ is OF A GOVERNMENT, THE POLITICAL completely out of budget GOVERNMENT PREPARES THE speech – really surprising! BUDGET IN LINE WITH ITS POLITICAL PHILOSOPHY. A reduced corporate tax rate has offered to the garment momentum, energizing the sector with a view to increase investment, creating jobs and investible capital (but not the reducing poverty – all are market demand actually) without concerning issues of addressing our own structural policymakers. So, question is - are problem including the lack of we moving towards the malleability of exchange rate. achievement of great vision with However, reduction of corporate tax rate to 14 percent (1 percent this big budget? less than non-green unit) for Mega dreams require mega green units of garment is also a shake-ups, sometimes crushing good initiative. ones, especially if control over costs and transparency is little. It is welcomed the enhanced So, quality of life will also be allocation in the major areas reduced. FM wishes to achieve including education, the power higher GDP rate with a hope to sector, and mega infrastructure rope in private investment. But projects. Business community is April - June 2017
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EXHIBIT OF KEY FINANCIALS IN BUDGET (FY): 2017-18 Sl. No. 1
GDP Growth
7.4%
2
Inflation
5.5%
3
Budget Size
Tk. 400,266 cr
3.1
Development Budget
Tk. 153,331 cr
3.2
Non -Development Budget
Tk. 246,935 cr
4
Total R evenue
Tk. 287,990 cr
4.1
NBR Earnings
Tk. 248,190 cr
4.2
Non -NBR Earnings
Tk. 39,800 cr
4.3
VAT
36.8%
4.5
Income Tax
34.3%
4.6
Import Duty & Others
28.9%
5
Deficit
Tk. 112,276 (5% of GDP)
5.1
Bank Borrowing
Tk. 28,203 cr
5.2
Non -Bank Borrowing
32, 149 cr
5.3
Foreign Source
51,924 cr
Concentrations
Budget Proposals
‘Cr’refers to Taka in Crore
happy to see that the government prioritized infrastructure in the budget. This move will help to attract investment, generate employment and foster economic development. However, experiences show that poor planning and lack of proper implementation have impeded the fulfillment of the projects. Funding of mega projects through foreign financing is also a big challenge due to lack of implementation capacity. So, before delivery of figures (i.e. deep drive), figure it out rationally otherwise huge effects will knock-on (as a result of huge deficit, bigger bank borrowings, budget mismatch-if any). Foreign finance form institutional lenders make a good sense but rest from non-conventional sources will lead to costlier projects (due to high costs of fund) with weak economic returns.
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There is no fundamental change in the proposed social protection budget for the fiscal year (FY) 2017-18 while the government still escapes from its commitment to implement the national social security strategy approved in 2015. There are two new programs in the proposed budget – Tk. 150 million for the scheme of improving the livelihood of tea labourers and making one-time payment of Tk. 5,000 per head as substitute of food support and two festival allowances of Tk. 10,000 each for freedom fighters in addition to their monthly honorarium. Obviously, the budget has an eye on the elections of 2019. And hence, there may well be an emphasis on spending to complete projects ahead of it. As per the new budget, public expenditure would go up by 26
percent but the trend growth is 16 percent for last eight-nine years. We hope massive spending will result in qualitative spending that will benefit the country as a whole. Tax collection would go up by 34 percent but it will be spectacular fact to increase tax collection by a third in a single year. Despite of dedication of complete chapter for governance and reform, no prescription has been provided for reforming of banking sector and capital market (except excluding the stock exchange services in the VAT net). FM’s growth mantra – to generate consumption demand - is also debatable because it mostly depends on public spending and public spending is greatly affected by remittance, export earnings etc. No cushion has been provided to increase disposable income either by increasing tax free slab in income tax or reducing the lower tax rate. Forecasting of economic recovery by next year is also not showing us any hope due to new challenges – fall in remittance and poor growth in exports. There should be some specific guidelines in the budget to combat sluggish export growth, falling remittance and unemployment. Unemployment is acute in the country. About 20 million youths are unemployed. A recent report of a research organization reveals that 110 million youths in the age group of 15-29 years are either in jobs or in educational pursuits. Achievements of SDGs are also an important feature for the upcoming budget. » About the Author Fellow Member of the Institute
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Article
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A COMPARATIVE ANALYSIS ON NATIONAL BUDGETS FY 2015-16 TO FY 2017-18 - Mohammad Shahajahan FCS
B
ackground
Many governments in the world are seen to cut their national budget due to austerity or economic downturn as a consequence of the financial crisis started in 2008. Bangladesh is a surprise in the world as its economy is growing; GDP is increasing as well as national budget is also increasing simultaneously year to year though the world-wide recession still prevails by and large. The size of the national budget of Bangladesh for FY 2017-18 has been proposed Tk. 400,266 crore. The success of government depends on the effective implementation of this giant size budget. This study aims to analyse the national budgetsof FY 2015-16 (actual), FY 2016-17 (both original and Revised) and FY2017-18 to find out the success/ failure story in implementation of previous budgets as well as to recommend on better implementation of thebudget of FY 2017-18.
Budget Structure The size of national budget has increased by 43% in FY 2016-17 and 68% in FY 2017-18 based on actual budget of FY 2015-16. The revised budget for FY 2016-17 is above 33% of actual budget of FY 2015-16. So based on previous
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experience, there is uncertainty for the government whether they can implement the proposed budget of FY 2017-18 as there is trend that the revised budget and actual budget utilization is lower than the budget proposed in each year.
Revised ADP budget is same as original budget of FY 2016-17, which indicates the capacity development of Bangladesh in utilising ADP i.e. better implementation of development projects and programmes in utilization of ADP. But we should wait till the end of FY 2016-17 to The non-development budget, see the actual achievement and development budget, Annual value for money of the ADP fund Development Programme (ADP) utilization cannot be confirmed budget and budget for other until the comments of the expenditure also has increasing Supreme Audit Institution (SAI) Bangladesh (CAG report) on ADP is published. BANGLADESH IS A SURPRISE IN THE WORLD AS ITS ECONOMY IS For FY 2016-17, total actual GROWING; GDP IS INCREASING AS WELL AS NATIONAL BUDGET IS ALSO expenditure up to Mach, INCREASING SIMULTANEOUSLY YEAR 2017 is only Tk. 149, 333 TO YEAR THOUGH THE WORLD-WIDE crore and revised budget RECESSION STILL PREVAILS BY AND are fixed at Tk. 317,174 crore LARGE. which indicates a big proportion of budget (Tk. 167841 crore representing 53% of trend over the years. Except ADP revised budget) have to consume budget, all aredecreasing in within the rest three months. This revised budget of FY 2016-17. involves potential risks of Figure 1: Comparative Analysis on National Budget Structure 450000 400000 350000 300000 250000 200000 150000 100000 50000 0
2015-16 (Actual) 2016-17 (Budget) 2016-17 (Revised) 2017-18 (Budget)
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non-compliance, not adhering to procurement plan, misuse of public fund, unspent huge budget at the end of FY 2016-17 etc. Actual non development revenue expenditure of FY 2016-17 up to March, 2017 covers 59% (Tk. 1,04,514 crore out of Tk. 1,78,154 crore) of revised budget of FY 2016-17 which indicates government agencies need to consume the rest 41% of revised budget within 29 June, 2017 which appeared simply impossible. So there is risk of unspent non-development budget at the end of FY. The actual development expenditure of FY 2016-17 up to March, 2017 is only 29% (Tk. 33,780crore out of Tk. 115,990crore) of revised budget of FY 2016-17 and actual ADP expenditure up to March, 2017 is only 30% (Tk.33,436 out of Tk. 110,700) of revised ADP budget of FY 2016-17 which indicates government projects and programmes need to spend the rest 70% to 71% of revised budget within 29 June, 2017 which is also appeared impossible. So, revised development expenditure as well as revised ADP for FY 2016-17 appeared as over-estimated. On the other hand, spending 70% to 71% of ADP / development expenditure budget within 3 months is welcoming the potential risks of non-compliance, misprocurement, huge budget unspent at the end of FY and misuse of fund. Therefore, based on the analysis on original and revised budget of FY 2016-17, the big size of FY 2017-18’s non-development April - June 2017
Figure 2: Comparative Analysis on Sectoral Allocation in National Budgets 140000
2015-16 (Actual)
120000 100000
2016-17 (Budget)
80000
2016-17 (Revised)
60000
2017-18 (Budget)
40000 20000 0
budget and development budget implementation need well planning and well monitoring & supervision. Otherwise there is potential risk of budget unspent at the end of FY.
Sectoral Budget
Allocation
in
Overall expenditure structure (both development and non-development) of the proposed budget of FY 2017-18 mainly grouped into three categories i.e. social infrastructure, physical infrastructure and general services. 29.31 percent of the total outlay amounting Tk. 117,302 crore has been allocated to social infrastructure sector, of which 26.12 percent has been proposed for the human resource sub-sector (education, health and other related sectors) and 3.18% for food & social safety. 31.74 percent of the total allocation amounting Tk. 127,059 crore has been proposed for the physical infrastructure sector, of which 13.02 percent will go to the overall agriculture and rural development, 11.88 percent to overall communication and 5.28
percent to power and energy sector. 24.03 percent of the total allocation amounting Tk. 96,186 crores has been proposed for the general services sector. Besides these, overall expenditure structure includes a large amount of Tk. 41,457 crore for interest payments, Tk. 7509 crore for PPP Subsidy & Liability and Tk. 10,752 crore for Net Lending & Other Expenditure. As per Figure-2, comparing to the actual budget of FY 2015-16, budget of FY 2016-17 and revised budget of FY 2016-17, all sectoral allocations have an increasing trend in the proposed budget of FY 2017-18. Therefore it is necessary to enhance sectoral capacity and efficiency to consume increased sectoral allocations with ensuring value for money.
Annual Development Programme The proposed budget of FY 2017-18 have placed special emphasis on growth enhancing mega projects in making allocations for ADP of the next
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« Figure 3: Comparative Analysis on Annual Development Programme 180000
2015-16 (Actual)
160000
2016-17 (Budget)
140000 120000
2016-17 (Revised)
100000
2017-18 (Budget)
80000 60000 40000 20000 0
fiscal year. Furthermore, it has emphasis on the importance of enhancing regional capacity and development of human resources will continue as before. In FY 2017-18, it is expected to utilize sizeable amount of project aid in implementing some large projects. In this context, the ADP for FY 2017-18 has been determined by adding 38.5 percentincrease to current FY 2016-17's ADP. Sector-wise allocations for the ADP have been presented in Figure-3. Allocations for human resources development sector (education, health and related sectors) is 28.7 percent, for overall agriculture and rural development sector (agriculture, water resources, rural development and rural institutions and others) 21.2 percent, for power and energy sector 13.7 percent, for transportation sector (roads, railways, bridges and others) 26.8 percent and for other sectors 9.6 percent have been proposed in FY 2017-18's ADP.
it observed that there is an increasing trend in the ADP allocation to all four sectors i.e. Human Resource, Agriculture and Rural Development, Power and Energy and Transport & Communication. It is necessary to put the allocated resource to project/ programme events timely to achieve the project/ programme development objectives. This will help to utilize the ADP successfully.
Deficit Financing
Article
Budgetary deficit proposed at Tk. 112,275 crore for the budget of FY 2017-18, which is 5 percent of GDP. Budget deficit in FY 2017-18 has increased slightly compared to the previous year due to increased allocations for development activities and social security sector and it is expected that it have no negative macroeconomic impact due to robust GDP growth. Deficit of Tk. 51,924 crore has been proposed to be financed from external sources (2.3 percent of GDP) and Tk. 60,352 crore from domestic sources (2.7 percent of GDP). Of the domestic sources, Tk. 28,203 crore (1.3 percent of GDP) is proposed to come from banking system and Tk. 32,149 crore (1.4 percent of GDP) from various savings certificates and other non-banking sources. Financing target from external sources of FY 2017-18 (Tk. 51,924 crore) counts 352% of FY 2015-16’sactual external source financing (Tk. 14,755 crore) and 180% of FY 2016-17’s revised external source of financing (Tk. 28,771 crore). On the other hand, domestic sources financing of FY
Figure 4: Comparative Analysis on Budget Deficits 120000
2015-16 (Actual)
100000
2016-17 (Budget)
80000 60000 40000
2016-17 (Revised) 2017-18 (Budget)
20000 0
Comparing with actual budget of FY 2015-16, budget of FY 2016-17 and revised budget of FY 2016-17,
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2017-18 (Tk.60,352 crore) is 119% of FY 2015-16’s actual external financing (Tk. 50,730 crore) and only 86% of 2016-17’s revised external source of financing (Tk. 69,903 crore). So the government is seen to rely more on development partners and other external financing organizations for its deficit financing rather than mostly depending on domestic sources as earlier.
Figure 5: Comparative Analysis on Revenue Mobilization 350000
2015-16 (Actual)
300000
2016-17 (Budget)
2017-18 (Budget) 200000 150000 100000 50000
Revenue Mobilization In FY 2017-18 proposed budget, the estimates of total revenue collection stand at Tk. 287,991 crore and foreign assistance has been estimated to be Tk. 51,924 crore. Total expenditure has been estimated at Tk. 400,266 crore and major portion (Tk. 203,152 crore)of this budget will meet through collecting revenue by the National Board of Revenue (NBR). Four sources of NBR revenue are: i) income and corporate tax Tk. 86,867 crore against revised budget of FY 2016-17 Tk. 64,000 crore, ii) import and export duty Tk. 30,153 crore against revised budget of FY 2016-17 Tk. 21,690 crore, iii) Value Added Tax (VAT) Tk. 91,344crore against revised budget of FY 2016-17 Tk. 68,768 crore and iv) supplementary duty Tk. 38,212 crore against revised budget of FY 2016-17 Tk. 29,330 crore. In proposed budget of FY 2017-18, NBR tax (Tk. 248,190 crore) is 168% of FY 2015-16 actual NBR tax Tk. 146,242 crore and 134% of FY 2016-17 revised NBR tax Tk. 185,000 crore. Proposed Non NBR tax (Tk. 8622 crore) of FY 2017-18 is 153%of FY April - June 2017
2016-17 (Revised)
250000
0
Total Revenue
NBR tax
Non NBR tax
Non Tax Receipt
2015-16 actual Non NBR tax Tk. 5,645 crore and 118% of FY 2016-17 revised NBR tax Tk. 7261 crore.
5) General Income Tax threshold remain unchanged at Tk. 2.5 Lakh (with provision for stakeholders consultation).
Proposed Non Tax Receipt (Tk. 31,179 crore) of FY 2017-18 is 148% of FY 2015-16 actual Non NBR tax Tk. 21,066 crore and 119% of FY 2016-17 revised NBR tax Tk. 26239 crore.
6) Maximize Duty and Tax on Cigarette and Bidi
A number of initiatives have been identified for achieving the increased target of revenue collection which are as follows: 1)
Increase and/or sustain the number of tax payers.
2) Emphasis on three areas: (a) continuity and stability of tax policy, (b) transparent enforcement procedures, and (c) simplified business operations. 3) Increase the efficiency of tax administration. 4) Online VAT Registration, Return Submission Process and service centre.
7) Excise Duty on Bank Accounts and Air Tickets 8) The Value Added Tax and Supplementary Duty Act 2016: flat VAT rate 15% (which has been deferred for 2 years). All of the above initiatives look good except flat VAT rate 15% (which has deferred for 2 years and hence at least tension free for the next 2 years), excise duty on bank accounts and Income Tax free income threshold remain unchanged at Tk. 2.5 Lakh. Primarily, excise duty on bank accounts was proposed to Tk. 800 as Excise Duty instead of existing Tk. 500 in cases where the balance, whether debit or credit, exceeds Tk. 1 Lakh but does not exceed the limit of Tk. 10 Lakh.
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« Similarly, Tk. 2,500 proposed instead of existing Tk. 1,500 in cases where the balance exceeds Tk. 10 Lakh but does not exceed the limit of Tk. 1 crore; Tk. 12,000 proposed instead of existing Tk. 7,500 in cases where the balance exceeds Tk. 1 crore but does not exceed the limit of Tk. 5 crore and Tk. 25,000 proposed instead of existing Tk. 15,000 in cases where the balance exceeds Tk. 5 crore. This has already criticised by the public and business community. By this time, after consultation in parliament excise duty on bank balance per year per account has been reviewed by the government as follows: balance up to Taka 1 lakh- zero %, balance more than Taka 1 lakh to 5 lakh- Taka 500, balance more than Taka 10 lakh to 1 crore- Taka 2500, balance more than Taka 1 crore to Taka 5 croreTaka 12000 and balance more than Taka 5 crore- Taka 25000. The new VAT laws will effective on 1st July, 2019, ending the two and a half decade system of multiple VAT rates applicable to more than 100 goods and services. Tax free income threshold remain unchanged at Tk. 2.5 Lakh may force the tax prayers to use innovative tax accounting at the time of submission of tax return.
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Conclusion & Recommendations Many critics have termed the proposed budget of FY 2017-18 as very optimistic, very ambitious, election budget, implementation impossible budget etc. Honourable Finance Minister Mr. Abul Maal Abdul Muhith also in his budget speech said, ‘The budget of FY 2017-18 is, indeed, an ambitious one’. The study found‘The proposed budget of FY 2017-18 is ambitious but implementable with some exception’. Hence, implementation of the proposed budget involves various potential risks like cut down budget at the time of revised budget, n o n - c o m p l i a n c e , mis-procurement, budget unspent at the end of FY, misuse of fund, more dependent on external financing and may increase use of innovative tax accounting at the time of submission of tax return. Analysis of the previous budgets also provides the evidence of mostof the same kind of risks. For the sake of better and successful implementation of the budget of FY 2017-18, well planning, well monitoring and well supervision of the budget
Article
and monthly spending is very much necessary. From the very first day of the FY 2017-18, the spending should be started following the designated key performance indicator(s) along with compliance of the relevant rules and regulations. Capacity building of spending units as well as revenue collection agencies is vital for the better implementation of the proposed budget of the FY 2017-18. Finally, participatory, well planned, well monitored and well-coordinated approach is very much essential that will ensure the successful implementation of the budget of FY 2017-18.
Reference 1.
Bangladesh on Development Highway:The Time is Ours, Budget Speech 2017-18 by Mr. AbulMaal Abdul Muhith, Honourable Minister, Ministry of Finance, Government of the People’s Republic of Bangladesh, 18 Jaisthya 1424, 01 June 2017.
2.
Daily newspapers published in Bangladesh.
» About the Author Fellow Member of the Institute
April - June 2017
Article
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SCRUTINY OF BUDGET 2017-18 PERSPECTIVE OF INCOME TAX AND VAT - 1Prodip Kumar Roy FCS - 2Gourav Roy
G
overnment Budget of Bangladesh
Bangladesh is a developing country with a goal to be a developed within next two decades. To implement the goal, the country is making its one of the most effective economic weapons very active and that is none other than the government budget of Bangladesh. In each and every year the budget that is proposed is blessed with lots of potentials and thoughts to implement basing on the country’s demand, situation, and value creation of life standard of the common people of the country. So, what’s required more is a very prospective and well organized and pragmatic budget for a country like Bangladesh. But the question is, “To what extent the goal to prepare a pragmatic standard budget is fulfilled by the Government of People’s Republic of Bangladesh?”
Scrutiny of Increasing Income Tax Resolution on Economy of Bangladesh Income tax is a very well-known term for all citizens in a country. Income tax is a tax levied directly on personal income. To put it simply, income tax is tax on your earnings. Once one citizen’s earnings go above your personal allowance he/she must pay tax on
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the following sources of income: •
Income from employment
•
Interest on savings
•
Rental income
•
Income from Agriculture
•
Income from Business
•
Capital Gain
•
Income from Other Sources
Income tax is a sad fact of life and if one receives income from any of
the above sources one may need to file a self-assessment tax return. In the recent budget of 2017-18, the Ministry of Finance (MoF) has argued and announced a highly increased percentage of income tax for the taxpayers of the country Bangladesh.
Tax Slabs for Personal Income Tax We see that, in the last three years including 2017-18, the income tax
Tax Slabs for Personal Income Tax Amount of Slabs for Scale Up to Tk. 2,50,000 2,50,001 to 6,50,000 6,50,001 to 11,50,000 11,50,001 to 17,50,000 17,50,001 to 47,50,000 47,50,001 to upward
Required Percentage of Tax No Tax 10% 15% 20% 25% 30%
Minimum tax rate For Dhaka City and Chittagong City Tk. 5,000/Other City Corporations Tk.4000 Other Areas Tk.3000 Corporate Tax Slabs Corporate Sectors Non-listed Companies Listed Companies Listed banks, NBFIs, Insurance Co. Non-listed banks, NBFIs, Insurance Co. Merchant Banks
Percentage of Tax Required 35% 25% 40% 42.5% 37.5%
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« The Comparative Scenario of Income Tax from Previous Years
Income Tax (In Crores)
Income Tax by Years 90000 80000 70000 60000 50000 40000 30000 20000 10000 0
Article
away some of the money otherwise used to pay wages. So employers can't pay good wages. 3. High Prices Businesses have to raise prices to get money to pay these taxes. So product prices go up. This leads to inflation. 4. Shoddy Products
2015-16
2016-17
2017-18
45078
62754
85176
Income Tax
As ‘Multiple governments’ levy so many taxes on businesses, these taxes take away money otherwise used to improve quality. Instead, businesses must cut corners to make the products and pay the high taxes. Many recalls are the results of businesses cutting too many corners, to save money so they can pay the high taxes.
Axis Title Figure: Last Three Years’Income Tax Increasing Trend
trend is upward sloping with sharp edge positive movement. This is a key indicator of conservative policies of government in the economy that may have more negative impacts than positive ones.
2. Low Wages
Probable Impacts of Increasing Income Tax and Value Added Tax (VAT) in the National Economy of Bangladesh
Here, the trend of the VAT for the last previous years has been provided
The total outcome of all of the effects listed below is a large tax burden. And only workers feel the brunt of this burden, because only workers create wealth. When all of these effects are combined, the tax burden on the average worker is currently about 73 percent of income. So people can't live on their incomes.
5. Product Unavailability and Discontinuation Because high taxes cost businesses more, they can't provide as many products as they
Value Added Tax by Years Value Added Tax (In Crores)
1. Inadequate Incomes
Multiple governments’ levy so many taxes on businesses that "taxes" is the highest budget items on the ledger sheets of most businesses. These taxes take
100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 Value Added Tax
2015-16
2016-17
2017-18
54576
68675
91254
Figure: Last Three Years’ VAT Increasing Trend
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The impacts of high income tax are shown below in the diagram
Foreclosures, evictions, and homelessness
Inadequate incomes and low real tax revenue
Lost jobs and Chronic R ecession
Low wages
Product unavailability and discontinuation
High Prices and Inflation Poverty and High Crimes
Figure: Impacts of the Increase of Income Tax in 2017-18 in Bangladesh
used to be able to. Property taxes make it expensive to stock products with lower quantities demanded. And manufacturers can't afford to produce the low-demand products and also pay their taxes. The result is that people with allergies to the mainstream products can't buy any products they can use. 6. Lost Jobs Many businesses go bankrupt, because they can't afford to operate after government takes its cut. Other businesses flee the country, to escape the high taxes. And still other businesses must cut their payrolls to stay within their incomes. The result in each
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case is the loss of jobs those businesses provided in the economy. 7. Foreclosures, Evictions, and Homelessness Because taxes are so high, people who originally entered into mortgages or rental contracts with the ability to pay them now no longer have the money to pay the monthly payments. Landlords also can't pay their taxes and their mortgages, causing the loss of the rental units. And if the taxes are not paid instead, government quickly seizes the property and sells it at auction at a sheriff sale. Thus, high taxes cause foreclosures and evictions.
With the foreclosure or eviction comes homelessness, because these victims of government greed can no longer afford to pay rent or mortgage payments. Sohigh taxes cause homelessness. 9. Chronic Recession The high taxation takes so much away from the economy that it enters a permanent form of recession. If government tries to boost the economy with increased government spending, the result is stagflation (simultaneous high inflation and unemployment) instead of prosperity. The only cure for stagflation is to cut both taxes and government spending.
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ÂŤ But this takes time to happen, keeping the effects of over taxation in place for a time after the over taxation ends. 10. Low Real Tax Revenues The permanent recession and losses of jobs caused by the high taxes cause a drop in government revenue, as economic production drops. If government then raises tax rates to recoup the lost revenue, production drops again, and the revenue drops even more. In addition to this, the increase in prices caused by the increased taxation prevents government
28
spending from purchasing as much. So high tax rates cause lower real tax revenue collection.
Bibliography 1.
https://www.mof.gov.bd/en/ budget1/17_18/brief/bn/State ment%201.pdf
2.
https://www.mof.gov.bd/en/ index.php?option=com_cont ent&view=article&id=384&It emid=1
3.
http://www.thedailystar.net/ Bangladesh-Budget-2017-1 8/frontpage/powered-vat-14 14258\
Article
4.
http://www.thedailystar.net/ Bangladesh-Budget-2017-1 8/frontpage/govt-shore-rem ittance-1414408
5.
http://eml.berkel ey.edu/ ~saez/course131/budget_ch0 4.pdf
6. https://www.google.com/ search?q=Government+budg et+analysis&ie=utf-8&oe=utf -8&client=firefox-b-ab Âť About the Author CFO, Active Fine Chemicals Ltd., AFC Agro Biotech Ltd. 2 BBA (Student), University of Dhaka 1
April - June 2017
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NATIONAL BUDGET 2017-2018 - Dr. Md. Rashedul Azim ACS
I
ntroduction
In developing countries like Bangladesh, the budget is mainly focused to reduce property. If we see the ultimate goal of Vision 2021, we find it to become a middle income country where poverty will be completely eradicated. The poverty reduction focused budget mainly design to ensure basic needs of life and to scale up the standard of living boosting up the sectors prioritized based on strength and opportunity. A reform plan of expenses focusing prioritized sectors needs sizeable revenue stream specially collection of tax, the significant part of revenue, to save the country from foreign loan for deficit budget. The plan of tax as revenue and reform of expenses are not enough unless the financial management is adequate and transparent. As such, budget should have a clear implementation strategy of revenue collection and efficiency of expenses. However, considering all of the above issues of the budget FY18 and present fiscal year performance, the analysis emphasizes on various macroeconomic issues to predict what will be the next fiscal year’s performance.
April - June 2017
Budget Highlights (FY18) The National Budget of Bangladesh for the fiscal year 2017-18 (FY18) has been published on June 1, 2017. The government has set GDP growth target at 7.4% for FY18; 20 bps higher than the 7.2% growth target of FY17. Bangladesh achieved 7.24% GDP growth in FY17 (provisional) amidst a number of global uncertainties. After completing the Millennium Development Goals (MDGs) with tremendous success, Bangladesh has stepped into the era of Sustainable Development Goals
budget is BDT 1,122.75 billion which is 5.0% of GDP and 28.1% of the budget. Budget deficit in FY18 is 13.8% higher than the previous fiscal year. However, the government has estimated that revenue will grow at a much faster pace than public expenditure. Non-development expenditure is BDT 2,071.38 billion which is 51.8% of the budget and development expenditure is BDT 1,590.13 billion, 39.7% of the budget. Sector wise, notable allocations have gone to Education (11.28%) and Interest Payment (10.36%).
IF WE SEE THE ULTIMATE GOAL OF VISION 2021, WE FIND IT TO BECOME A MIDDLE INCOME COUNTRY WHERE POVERTY WILL BE COMPLETELY ERADICATED. (SDGs). The Government has already identified the lead and associate ministries involved in achieving each SDG. Besides, Annual Performance Agreements of various ministries/divisions have been aligned with the SDGs. The budget size is BDT 4,002.66 billion which is 26.2% higher than compared to that of the FY17 revised budget and the largest of its history. The budget has revenue target of BDT 2,879.91 billion which is 31.8% higher than that of the FY17 revised budget. Projected deficit of the
The total ADP size in the Budget FY18 is BDT 1,533.31 billion which is 38.5% higher than that of FY17 revised budget. It is 96.4% of the total development expenditure. In the ADP for FY18, 28.7% is allocated to Human Resource sector (Education, health and others), 21.2% to overall agricultural sector, 13.7% to energy sector, 26.8% to communication sector and the rest 9.7% is allocated to other sectors.
The government scaled up its revenue generation target to BDT 2,879.91 billion, a rise of 31.8% from BDT 2,185.00 billion of the FY17 revised budget. The targeted revenue is 13.0% of the GDP, higher than that in the previous
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« Chart :1 Sources of fianancing
External Financing 13%
Financing Domestic 15% NBR Tax Revenue 62%
Non-NBR Tax Revenue 2% Non-Tax Revenue 8%
This year’s budget deficit is kept unchanged to that of the previous year’s budget at 5.0% of the GDP. The total Budget deficit is estimated to be BDT 1,122.75 billion. Out of which domestic source will finance 53.8% and external source will finance 46.2%. Out of domestic sources, Govt. will borrow BDT 282.03 billion from banking system, which is 27.6% lower than the FY17 targeted bank borrowing (18.0% up from the revised FY17 budget).
TARGETED ECONOMIC INDICATORS Gross Domestic Product (GDP) Government has set GDP growth target at 7.4% for FY18, 20 bps higher than the 7.2% growth
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in March’17. This decline in inflation reflects a confluence of factors like domestic output growth supported by inclusive financing, continuing moderation in global commodity prices, and BB’s growth supportive yet cautious monetary stance. Domestic interest rates are in a lower regime but are expected to go up due to government's development projects. Considering all these factors, a 5.5% inflation target is quite achievable.
Export
Source: Ministry of Finance
fiscal year (12.4%). The key growth driver for collecting such a big amount of revenue will be uniform VAT which is proposed to be 15.0% in FY18 budget.
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target of FY17. 7.24 percent GDP growth was achieved in FY17 (provisional) which has weathered global uncertainties. A number of factors have contributed to achieve this growth. First of all, the political calmness prevailing throughout 2016 has bolstered overall economic activities in the country. As of March, 2017, private sector credit growth stood at 16.06% which exceeded the target. However, attaining 7.4% GDP growth trajectory in FY18 will be a tough task. The government has taken a range of steps in power, energy, and communication sectors along with development of ports and economic zones. The monetary and fiscal policies are also set to be accommodative of high growth.
Inflation For FY18, inflation target is 5.5%. Inflation target in FY17 was 5.8% and government has been quite successful in attaining that. Actual Inflation in March’16 was 6.10% and it came down to 5.39%
Finance minister in his budget speech this year did not mention any export target for FY18 as well. In FY16 the government set an export growth target of 8.5%, where export registered 3.92% growth till April in the current fiscal year of 2017. Total export value amounted at around USD 29 billion which is around 78% of the annual target of USD 37 billion. Adverse conditions in international market have created a downward pressure on RMG export. But of the two major export destinations, export to the European Union has improved significantly. It’s expected that export in the USA market will increase considerably with accelerated economic recovery in the US.
Import There was no specific target provided in the FY18 budget for import either. Import payment was USD 35 billion in March 2017 compared to USD 31.3 billion at the same time last year. Growth of imports was mainly triggered by the existing momentum of April - June 2017
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domestic demand. During this period, growth of both import LC opening and rate of settlement were quite satisfactory. Especially, there has been significant increase in the import of capital machinery, which is indicative of increasing production capacity in the days ahead. With GDP acceleration, import demand is rising which is creating depreciation pressure on the exchange rate.
declining remittance growth. It has again started to grow in last two months. Recovery in remittance growth can be expected over the near to medium term from oil price stabilization boosting Middle Eastern economies, as also from the recent upsurge in manpower exports from Bangladesh. Manpower export is expected to hit 35% which will bring momentum to remittance growth.
Remittance
Revenue Collections & Financing Sources
Remittance inflow in Bangladesh significantly depends on variables like the GDP of domestic and host country of the migrant workers, exchange rate, petroleum price, and skill of labour. Remittance, which is the largest source of foreign exchange for Bangladesh after export receipts, declined 16.08 percent year-on-year to $10.28 billion in the first 10 months of fiscal 2016-17. This recent decline in remittance reflects a combination of global and local factors, but mainly driven by weaker economic activity in the Middle East. This is because 58% of the remittance Bangladesh receives comes from six Middle-East countries. Also there was a devaluation of foreign currencies like British pound, euro, Malaysian Ringgit, Singapore Dollar to US Dollar around July 2016 due to BREXIT and slowly growing US economy. Because of this currency devaluation, we are getting less in Bangladeshi taka against the earnings of our workers' in these countries. Remittance inflow was US $ 940.75 in February 2017 which was the lowest in last five years. Flow of remittance via illegal channel is also a factor for April - June 2017
The budget for the FY18 has revenue target of BDT 2,879.91 billion, the government targets 31.8% growth in FY18 compared to FY17 revised budget. The incremental revenue will be grossly shared by income tax (32.3%) and VAT (32.5%) whereas the incremental revenue in FY17 (revised) was shared by income tax (45.58%) and VAT (36.38%) . The uniform VAT from July 1, 2017 will be a key growth driver for the VAT revenue growth. Projected deficit is BDT 1,122.75 billion. Historically, the government has never achieved its revenue target and the dispersion is rising in last three budgets. The average deviation of actual revenue from target revenue for the last five fiscal years (FY12-FY17) stands at –8.4%. Only in FY’12 the target revenue was achieved.
NBR Tax Revenue The budget for the FY18 has targeted BDT 2,481.90 billion revenue from NBR tax which is 86.2% of the target revenue. This is 34.16% higher than that of FY17 revised budget. In the revised
budget of FY17, this target was BDT 1,850.00 billion which was 84.7% of total revenue.
Non NBR Tax Revenue and Non Tax Revenue There is target for BDT 86.22 billion or 3.0% of total revenue to collect from Non-NBR tax. Revenue from non-tax sources is estimated to be BDT 311.79 billion or 10.8% of total revenue which was BDT 323.50 billion or 13.3% of total revenue in the FY17 initial budget. In order to achieve these targets, automation in tax collection is set in to reduce complication in tax collection and significant administrative reform has been done.
Deficit Financing The budget deficit for the FY18 will be BDT 1,122.75 billion or 5.0% of GDP. Deficit to GDP ratio remained constant at 5% in FY18 same as FY’17 but budget deficit has increased by 13.8% from the revised budget of FY’17. Considering that Bangladesh’s deficit is not that high, financing the deficit is challenging but possible. The key turnaround in deficit financing was high foreign financing (80.5% growth over the revised budget of FY17). Anticipated gross foreign aid of USD 7.6 billion in FY18 is the highest in the history,
Foreign Financing Total budget deficit’s 46.2% or BDT 519.24 billion will be financed through external sources which was BDT 287.71 billion or 29.2% in the FY17s revised budget. The growth in targeted foreign financing is 80.5% as compared to FY17s revised budget.
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« Bank and Non-Bank Borrowing Bank will be a major source of funds to finance the budget deficit. There is a plan to borrow BDT 282.03 billion or 25.1% of deficit from banking sector which was BDT 239.03 billion or 24.2% of deficit in the FY’17 revised budget. At present, there’s ample liquidity in the banking system and interest rate is all time low. Financing through non-bank borrowing has been set at BDT 321.22 billion which is 30.2% lower than the revised budget of FY’17 and 28.6% of total deficit
Efficiency of Expenditure In the proposed budget for FY18, total expenditure has been estimated at BDT 4,002.66 billion. This is 18.0% of GDP and 26.2% higher than that of the revised budget for FY17. The overall expenditure framework has been categorized into three main groups based on their
allocation of business. These are social infrastructure, physical budget, 29.3 % of total outlay has been allocated to social infrastructure, 31.7% to physical infrastructure, and 24.0% to general services. Sector-wise, Education & Technology, Public Services, and Transport and communication have got preference having 16.4%, 13.6%, and 12.5% allocated respectively. Public service got the highest growth in allocation, a 61% in allocation. The allocation for non-development expenditure has been set at BDT 2,071.38 billion. For development expenditure, it has been estimated at BDT 1,590.13 billion which is almost 7.2% of GDP and 37.1% higher than that of revised budget FY17. Size
of
proposed
Total Allocation ADP (TA) BDT bn FY'18 Growth (%) FY'18 R. FY’17 Education 654.00 30.10 301.00 175.00 Public Service 545.00 61.00 48.00 45.00 Transport 501.00 38.10 425.00 293.00 Interest 415.00 17.30 Local Govt. 277.00 11.50 238.00 212.00 Defense 258.00 11.00 07.00 7.00 Agriculture 244.00 22.00 89.00 72.00 Social Security 241.00 13.90 43.00 42.00 Public Order 229.00 10.30 26.00 21.00 Fuel and Power 271.00 45.00 210.00 145.00 Health 207.00 39.30 95.00 49.00 Industry 41.00 43.30 31.00 17.00 Housing 37.00 (27.90) 26.00 40.00. Recreation 36.00 30.50 15.00 09.00 Total 3895 1553 1126 Ministry/ Division
Source: Ministry of Finance
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TA. % of GDP FY'18 2.90 2.50 2.30 1.90 1.30 1.20 1.10 1.10 1.00 1.00 0.09 0.02 0.02 0.02
allocation is BDT 1,533.31 billion which is an increase of 38.5% from budget for FY17. In ADP transport and communication got the highest priority (26.8% allocation). Human Resource, Agriculture and Rural Development, and Power and Energy got 28.7%, 21.2%, and 13.7% of the ADP allocation respectively.
Fast Track Projects •
The government has allocated BDT 306.14 billion to large high infrastructure and fast-track projects in its FY18 budget, which is 19.9% of total ADP of FY2018 (BDT 187.27billion and 16.9% in FY17).
•
Most of the projects did not make considerable progress except that of Rooppur Power Plant and Padma Bridge.
•
Unable to utilise allocated budget (unutilized resources in FY17 was BDT 35.60 billion)
•
Given the progress of work of bridge, it would be difficult to complete the remaining works of main bridge, river training and rail links by December 2018.
ADP
Table-1: Summary of the Budget (BDT bn) TA. % of Budget BDT bn FY'18 R. FY’17 16.30 15.90 13.50 10.70 12.50 11.40 10.30 11.20 6.90 7.80 6.40 7.30 6.10 6.30 6.00 6.70 5.70 6.50 5.30 4.60 5.10 4.70 1.00 0.90 0.90 1.60 0.90 0.90
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Historically, the government revised down the expenditure on an average to 91.0% of what it proposed in the budget. The government usually sticks to the initial allocation for non-development segment in revised budget and utilized almost full allocation in the last few years. During FY14 to FY17, the average revised
April - June 2017
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Table: 2 Allocation to mega projects and progress
Revenue Earnings NBR Tax Revenue Non - Tax Rev Non - NBR Tax Rev.
FY'18 (BDT bn) 2879.91 2481.90 311.79 86.22
R FY'17 (BDT bn) 2185.00 1850.00 262.39 72.61
Growth
Public Expenditure Non - dev. Exp Dev. Exp. ADP Others
4002.66 2071.38 1590.13 1533.31 341.15
3171.74 1781.54 1159.9 1107.00 230.3
26.20% 16.27% 37.09% 38.51% 48.13%
Budget Deficit
1122.75
986.74
13.78%
Financing: Domestic Sources Bank Borrowing Non - Bank Ext. Borrowing
603.52
699.03
(13.66%)
282.03 321.49 519.24
239.03 460.00 287.71
17.99% (30.11%) 80.47%
31.80% 34.16% 18.83% 18.74%
Source: Ministry of Finance
non-development expenditure budget was 94.3% of what government actually proposed in the budget. In revised budget FY17, it came down to 94.3% of proposed allocation. On the other hand the government always expended less that what it proposed for development expenditure segment. In the last three years, the average development expenditure and average ADP expenditure was 94.2% and 94.9% respectively of what government actually proposed in the budget
Health To make healthcare readily available to mass people in rural areas 13,339 community clinics have been set-up. Health segment has got higher allocation by 40 bps in proportion to budget in FY18 amounting BDT 206.52 billion (161.82 billion in health service devisor and 44.7 billion in April - June 2017
medical education and family welfare division) which is BDT 148.29 billion in revised FY17 budget, having a growth rate of 39.3% (YoY) in this budget. A decreasing trend is observed in the allocation for this segment in proportion to total expenditure steadily for the last three budgets. Real per capita allocation for health has been proposed to BDT 617, which was BDT 561 in the revised budget of FY17.
Energy and Power Allocation for Energy & Power sector increased in FY18 budget. The government has increased its allocation by 68 bps from 4.6% in revised FY17 to 5.3% in FY18. The amount available for Energy and Power sector is BDT 211.18 billion which was BDT 145.61 billion in FY17 revised budget, a staggering increase of 45.0% (YoY). In previous budget, the government lowered the budget allocated for
energy and power to implement more power plant projects along with transmission and distribution networks. This sector comprises 13.8% of the total development expenditure budget for FY18.
Transportation and Communication Allocation for transportation and communication sector has been experiencing upward trend since FY13 budget. It still remained the most preferred segment in development budget having 11.9% of allocation in FY18 proposed budget. The allocation for this sector is BDT 475.58 billion as compared to BDT 333.63 billion of revised FY17 budget, having a growth rate of 42.5% (YoY). One of the major reasons for this higher allocation is that, the government has undertaken some major project to improve the transportation system of the country.
Agriculture and Rural Development Agriculture and rural development budget allocation had been consistently increasing since FY12 and has continued the trend in the most recent budget. In FY18, it got BDT 521.28 billion as compared to BDT 448.76 billion in FY17 revised budget, grew by 16.2% (YoY). The allocated amount for the sector is 34.0% of total ADP and 13.0% of total budget.
Conclusion The bigger budget is a base for carrying out Bangladesh from least development status to development status. But it will not be too easy to implement the
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ÂŤ budget. A number of familiar challenges have to be mitigated for the implementation of budget FY18. This ambitious budget will face different challenges because of the inability to mobilize targeted domestic resources, low capacity to spend the earmarked allocations, failing to use foreign aid in the pipeline and growing predominance of non-concessional foreign loans, and quality of public expenditure is still suspected to be fruitful. Structural and institutional weaknesses continue to stand between the nation and its potential achievements. The vision is not supported by proper implementation and innovation in this regard. However, by transparency
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bringing more in budget
formulation, implementation and assessment procedures, the government have to establish a Public Expenditure Review Commission; formulate appropriate follow-up mechanisms for monitoring government tax incentives; disclose financial accounts of state-owned enterprises including BPC and contingent liabilities in detail; establish transparency in government’s asset acquisition; formulate an appropriate foreign aid policy in view of the changed global aid architecture; more sunshine on defense economy; introduce separate but integrated budget for local government and integrate NGO financing in the public expenditure structure.
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Finally, to improve budget utilization performance in FY18, government must ensure greater involvement of parliamentary standing committees in formulating and overseeing implementation of the budget; develop a detailed work plan to implement the budget; provide quarterly reports on budget implementation in Parliament; establish an effective result-based-monitoring system to ensure high quality delivery; make closing fiscal framework figures of elapsing fiscal year (FY17) available at the earliest and revise budget for FY18 at an early stage and on and on. Âť About the Author Associate Member of the Institute
April - June 2017
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BUDGET TO ENHANCE NATIONAL COMPETITIVENESS - Md. Shiful Islam ACS
I
n the recent years, Bangladesh enjoyed some significant development particularly in the economic field. Mentionable achieving MDG with noticeable success, turning the country into lower middle income status, maintaining a growth of GDP at the rate of 7.24 (as GOB estimated). Even the budget, when we consider the size of it obviously signals the development strategy. As the big size budget results in big expenditure, big development, effort to bring almost all into the coverage of budget, these all are appreciable. But concentration also should be put on enhancing the national competitiveness where institutionalization, infrastructure development, efficiency in expenditure, investment, human capital development claim to be the core factors among others. In today’s global village how a country will survive and compete with others depends on its competitiveness. Country competitiveness has become a central theme for both developed and developing nations. We are in the midst of an increasingly open and integrated world economy where countries compete for investment and human capital that are critical to their economic growth. This focus on national
April - June 2017
competitiveness has been increasingly reinforced and attracted to both the public and private institutions around the globe. Once we talk about competitiveness of a nations, various factors come to our mind such as the strength of its public and private institutions, the quality of their infrastructure, their macroeconomic environment, education, health,
published by the World Economic Forum. World Economic Forum defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can achieve. Since 2005, building on Klaus Schwab’s original idea of 1979, the World Economic Forum has published the Global Competitiveness Index (GCI) developed by Xavier IN THE RECENT YEARS, BANGLADESH Sala-i-Martín in ENJOYED SOME SIGNIFICANT collaboration with the DEVELOPMENT PARTICULARLY IN Forum. The GCI combines THE ECONOMIC FIELD. MENTIONABLE 114 indicators that capture ACHIEVING MDG WITH NOTICEABLE concepts that matter for SUCCESS, TURNING THE COUNTRY productivity and long-term INTO LOWER MIDDLE INCOME prosperity. These indicators STATUS, MAINTAINING A GROWTH are grouped into 12 pillars: OF GDP AT THE RATE OF 7.24. institutions, infrastructure, macroeconomic environment, market efficiency, financial health and primary education, market development, and their higher education and training, state of bureaucracy and goods market efficiency, labor transaction costs and among market efficiency, financial others. These factors contribute market development, to prepare reports that technological readiness, market benchmark performance and size, business sophistication and attractiveness as nation states in innovation. These pillars are in the economic sphere. turn organized into three sub indexes: basic requirements, Let us look at the latest Global efficiency enhancers, and Competitiveness Report as innovation and sophistication published in September 2016. factors. Bangladesh is the 106th most competitive nation in the world Among the sub indexes as out of 138 countries ranked in the designed by WEP, the first one is 2016-2017 edition of the Global basic requirement which is also Competitiveness Report called the key for factor –driven
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ÂŤ Basic requirments subindex Pillar 1.
Institutions
Pillar 2. Infrastructure Pillar 3. Macroeconomic Environment Pillar 4. Health and primary education
Key for
factor-driven economies
economy. A country obviously focuses on all the pillars in a integrated way to score a better rank, but this time let us diagnose the status we enjoy in the pillars of basic requirements particularly in the first one i.e Pillar 1: Institutions. Behind choosing and putting more weights on pillar 1 (Institutions), three underlying causes might be produced. Firstly, it is general view that basic requirements should be fulfilled at first if one wants the move a sustainable and ordered one, secondly once one can achieve good score in the indexes of basic requirements particularly in institutionalizations, it would be easier for her to achieve successfully in all other sub-indexes. Thirdly, institutions define the identification, beliefs and values of a country along with portray of visionary approach.
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Institutions simply stand for establishment, foundations or organization created to pursue a particular type of endeavor. As per WEF, the institutional environment of a country depends on the efficiency and the behavior of both public and private stakeholders. The legal and administrative framework within which individuals, firms, and governments interact determines the quality of the public institutions of a country and has a strong bearing on competitiveness and growth. It influences investment decisions and the organization of production and plays a key role in the ways in which societies distribute the benefits and bear the costs of development strategies and policies. Good private institutions are also important for the sound and sustainable development of an economy. The 2007–08 global financial crisis, along with numerous corporate scandals, has highlighted the relevance of accounting and reporting standards and transparency for preventing fraud and mismanagement, ensuring good governance, and maintaining investor and consumer confidence. Wide-ranging research and study say that institutions matter a great deal in determining the level of economic development of a country. Institutions determine the costs of economic transactions: they spur development in the form of contracts and contract enforcement, common commercial codes, and increased availability of information, all of which reduce the costs of
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transactions, risk, and uncertainty. Institutions determine the degree of appropriability of return to investment: protection of property rights and the rule of law spur investment and thus increase incomes. Institutions also determine the scope for oppression and expropriation of resources by elites: unequal institutions which allow the dominance of powerful elites over economic exchange strongly limit development, as can be seen in the case of many ex-colonial countries. Lastly, institutions determine the degree to which the environment is conducive to cooperation and increased social capital; inclusive and participatory institutions increase the flow of information and the extent to which resources can be pooled to reduce risk and ensure sustained levels of wealth. This fits nicely with the finding of historical studies that high quality institutions today are rooted in greater equality, political competition and cooperative norms in the distant past. Institutions strongly affect the economic development of countries and act in society at all levels by determining the frameworks in which economic exchange occurs. They determine the volume of interactions available, the benefits from economic exchange and the form which they can take. As per the data of competitiveness report Bangladesh obtained lowest score or position in institutions index (Pillar 1) among the 12 pillars. In this sub index Bangladesh ranked 125th position, though overall rank is 106th most competitive country. April - June 2017
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Some other comparative scores in institutions index might be presented. Our neighboring country India ranked 42nd among the 138 nations. In institution index top position went to Finland which has been followed by Singapore and New Zealand as the second and third position. So from the above circumstances, it can be claimed that our country Bangladesh have to improve significantly in institutionalization and we have to uncover the opportunity and benefits which an economy having developed and matured institutions enjoys. Therefore, at first we have to create due recognition of institutions and realize importance of it and consequently necessary budgetary allocation should be ensured. Even the budget planning, its implementation with efficiency and sustainability
April - June 2017
largely dictated by the institutions of the country. To mark on the institutions WEF consists of as many as 21 issues. These are Property rights, Intellectual property protection, Diversion of public funds, Public trust in politicians, Irregular payments and bribes, Judicial independence, Favoritism in decisions of government officials, Wastefulness of government spending, Burden of government regulation, Efficiency of legal framework in settling disputes, Efficiency of legal framework in challenging regulations, Transparency of government policymaking, Business costs of terrorism, Business costs of crime and violence, Organized crime, Reliability of police services, Ethical behavior of firms, Strength of auditing and reporting standards, Efficacy of corporate boards, Protection of minority shareholders’ interests and
Strength of investor protection. So Bangladesh should pay due attention on developing and ensuring proper use of institutions. Necessary importance should be paid by all and keeping this in mind budgetary allocation should be ensured. We do not have much room to compromise on basic sub-indexes particularly in Institutions and infrastructure to reach our visionary target.
Source a. http:// www.un.org b. http://www.weforum.org c. https://sustainabledevelopment. un.org/
Âť About the Author Associate Member of the Institute
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THE NATIONAL BUDGET 2017-18: CHALLENGES TO INDUSTRIAL ESCALATION - Razia Sultana (Lubna)
C
onsidering the present economic outlook of Bangladesh, first challenge is poor capacity to execute the proposed budget. Consequently, in consistent with Annual Development Program (ADP), revenue collections along with the spending implementation already have been in short-fall for last few years. On the other hand, private investments have been declined dramatically and the public investments upset due to its increasing project costs. Moreover, increasing illegal capital outflows resist the capital formation in the national economy. Then again, human development is not treated properly since insufficient spending on the social sectors. More to the point, the account balance records is suffering from a chronic deficit due to under performance of the external sectors with a significant decline of remittance inflows in recent time. Another alarming issue is that, as a consequence of institutional fragility, the recapitalization of the state-owned commercial banks is become worthless and hence the number of default loans raise dramatically. Lastly, high unemployment rate distress the fiscal discipline and in addition, youth unemployment has an adverse impact on national economy which insecure the
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demographic dividend. To deal with these challenges, developing an efficient channel to allocate resources into a productive sector may boost the return of expanded production capacity as well as may bring a commendable impact on Gross Domestic Product (GDP). In the light of said impediments, a snap of the economic challenges are discussed as under – a) Greater Tax Burden – the National Budget 2017-18 has proposed to increase tax collection by 34.16% and this target will increase the tax
common consumers during buying goods and services. Though the new VAT Act has been postponed to come into force but the unequal and open global market will be the reason of extra cost of business operation. For example – cost of raw materials of the textile and clothing industry will harshly suffer because of potential increase of different import and other duties.
b) Exclusively Depend on Bank Loans – for last couple of years, budget deficit with bank loan CONSIDERING THE PRESENT dependency have been ECONOMIC OUTLOOK OF significantly increased BANGLADESH, FIRST CHALLENGE IS and fund for private POOR CAPACITY TO EXECUTE THE PROPOSED BUDGET. CONSEQUENTLY, sector investment has IN CONSISTENT WITH ANNUAL been declined DEVELOPMENT PROGRAM (ADP), accordingly. Therefore, REVENUE COLLECTIONS ALONG WITH a tough competition is THE SPENDING IMPLEMENTATION arisen to collect fund ALREADY HAVE BEEN IN SHORT-FALL for the private sectors FOR LAST FEW YEARS. as well as industrial acceleration. burden of common businesses as well as c) Increasing Utility (Electricity and Gas) Charges – charges individuals. It has widely of utility, electricity and other known that commonly services are already been businesses are required to increased for several times pay different types of taxes as and it is directly affected the following figure. To meet the low profit businesses and said target, the National transportation costs which Board of Revenue (NBR) has narrower the industrial needed to widen the areas of growth rapidly. tax collection and hence it will directly impact on cost of business operation and the d) Lack of Wider Scope of April - June 2017
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Article encourage such incentive schemes to perform well in the open global market.
250000 200000 150000 100000 2017-18
50000
2016-17
Ad d
ed
2015-16
ue Va l
Ta x
on
in
co m e
an d
pr of it Ta x( VA Im T) po rt Du Ex ty po rt Du Ex ty Su ci pp se le Du m Ot ty en he ta rT r y ax Du es ty an d Du To tie ta s lN BR Ta x:
0
Business Activities – commonly, a big budget supposed to facilitate a wider scope of business activities to deliver a mass economic motions. But the Fiscal Budget 2017-18 has paid a less attention of such potentiality and preferred the non-development activities where no clear direction of business scope and fund flow.
e) No Incentives for the Low Profit Business Sectors – another limitation of the National Budget 2017-18 is that, there is no significant amount has been preserved as an incentive scheme for the low profit business sectors and industries to tackle the difficult situations where as nowadays many developing counties like Bangladesh are highly Industrial & Economic Services 1.0%
Recereation, Culture & Religious Affairs 0.9% Housing 0.9%
NON-DEVELOPMENT & DEVELOPMENT BUDGET: 2017-18 (TAKA 4,002.66 BILLION) Use of Resources
Miscellaneous Expenditure 2.7%
Public Order & Safety 5.7% Social Security & Welfare 6.0%
Education & Technology 16.4% Interest 10.4%
Public Administration 13.6%
Transport & Communication 12.5%
Defence 6.4% Agriculture 6.1%
For a sustainable development, it is indispensible to widen the areas of business activities, increase the incentive schemes on health, education as well as on social security. Noted this view, a medium term strategy may be fruitful for a sound productive capacity and a prudent economic management. Moreover, in order to stimulate the enhanced production and tackle the inflationary pressure, fiscal and monetary policies deserve a coordinated approach. On the other hand, by adopting a cautious expenditure strategy in private domestic sectors will prevent the declining trends of the private investments. In addition, emphasis on export growth along with the macroeconomic incentives may boost the employment opportunities, ensure a sound
Health 5.2%
Energy & Power 5.3%
Local Govt. & Rural Dev. 6.9%
Sector-wise Resource Distribution (Including Subsidies & Incentives and Pension)
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ÂŤ allocation of resources, and consequently, implementation status of the development programs regarding health, education and social security sectors will be increase significantly. Furthermore, a strong institutionalization will be effective to bring fiscal discipline, deficit, debt and subsidy management. As a result, individual and common business income will be increased and turned down the tax evasion trend. In brief, a pro-active course of action will be effective to stabilize the allocation and distribution procedures and an innovative social policy will generate strength in the existing external sectors along with an advance global supply chain management.
40
Sources 1.
2.
3.
Income tax rates, tax-free limit to stay unchanged; available at < http://www.thedailystar.net/B angladesh-Budget-2017-18/ frontpage/income-tax-ratesstay-unchanged-1414273 > [Accessed on July 29, 2017] Problem in Education: Quality not Priority; available at < http://www.thedailystar.net/B angladesh-Budget-2017-18/ frontpage/still-not-enoughquality-education-1414294 > [Accessed on July 29, 2017]
Article
t/uploads/2017/06/Presenta tion-on-An-Analysis-of-the National-Budget-for-FY2017 -18.pdf > [Accessed on July 29, 2017] 4.
Dissecting the Annual Budget 2017-2018 of Bangladesh: Aggressive Taxation in Focus; available at < https://futrlaw.org/analysis-a nnual-budget-2017-2018-b angladesh/ > [Accessed on July 29, 2017]
Âť About the Author Professional Level-I of the Institute
An Analysis of the National Budget for FY2017-18; available at < http://cpd.org.bd/wp-conten
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