Never before did so much uncertainty prevail over the fate of the national budget as it is doing now in the case of the budget for the upcoming financial year (FY2017-18).
A raging debate has been going on for the last few days in national parliament over hiking of excise duty on bank-account balance. Finance Minister AMA Muhith is now a target of scathing criticism, even from his own party men.
Such attack on the finance minister by leading ruling party lawmakers is also unheard of in the parliamentary history of Bangladesh. Only Commerce Minister Tofael Ahmed came in defence of the beleaguered finance minister.
Many tend to predict that the days of Mr. Muhith are now numbered since without signal from the party hierarchy, lawmakers would not have made such ferocious attack on him. But, by any count, criticisms directed towards Mr. Muhith are highly unfair. It is not the finance minister alone who finalised the budget. The cabinet approved the budget prior to its presentation. So, why should he alone be the target?
Another major bone of contention in the case of next fiscal's budget is the value added tax and supplementary duty law-2012, scheduled to be enforced from July 01 next. In fact, the dropping of the proposal to hike excise duty on bank-account balance is not a big problem. But the issue of new VAT law is far more serious.
The new VAT law has been opposed tooth and nail by businesses, particularly the small and medium ones. Consumers are worried that prices of most goods and services would go up in the event of imposition of a uniform VAT rate of 15 per cent.
But the truth is that the original VAT law has undergone massive changes to accommodate the demands of businesses. In fact, the old VAT law would now be more rewarding for the government, in terms of revenue mobilisation. Still opposition to the new VAT law is very strong.
Media reports say that the top government decision maker has decided to continue with the old VAT law and postpone enforcement of the new one against the backdrop of raging criticism. It has dawned on the ruling party that the government cannot afford the risk of new VAT law implementation when election is scheduled to be held late 2018 or early 2019.
But non-enforcement of the new VAT law is likely to result in some major problems for the government. The government has announced a mega budget for the next fiscal, particularly banking on the new VAT law. According to an estimate, there will be a shortfall of about Tk 680 billion of revenue if the enforcement is postponed. And if the government sticks to the current size of the budget for FY 2018, then it would have to borrow more from the country's banking system and non-banking sources. Such borrowings would lead to higher interest payments.
Besides, the postponement would also risk Bangladesh's relationship with a leading global multilateral donor---the International Monetary Fund (IMF). The IMF approved nearly US$1.0 billion worth of extended credit facility (ECF) for Bangladesh to strengthen its macro-economic stability. The preparation and enforcement of the new VAT and SD Act was one of the conditions attached to the disbursement of the credit. Already five financial years have gone by after the adoption of the law. Yet another delay would surely give rise to resentment among the IMF policymakers.
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