The highest ever budget of Tk 6.77 trillion, about 12.27 per cent higher than the originally announced budget of last year, is going to be announced at a very tumultuous global situation. Almost all groundings of budget for FY23 are set with high (11.31 per cent) ambition of revenue target. It seems like a glowing picture with an expectation to achieve increased growth, but intermittent challenges such as amplified inflation, dismal employment situatiion, depressing domestic and foreign investment, exchange rate fluctuation etc need better policy prescription and greater attention.
Bridging the implementation gaps between announced and implemented policies could pave the way for increasing investment and business. The country needs increased investment, jobs for marginalised people so that they can fight post-COVID situation and on-going price hike of consumables. Non-transparency in policies is one of black holes for which benefits of policies cannot be enjoyed to attract new investment.
Investment in 2019 was 32.21 per cent of GDP, reduced to 31.09 per cent in 2021, while the target for 2022 is 33.10 per cent. ICOR is expected to be 4.6 in 2022, meaning 4.6 taka is invested to produce an additional product worth of Taka One. ICOR was 4.09 in 2019, increased to 4.6 in 2022, meaning productivity of investment is falling. Investment has been becoming costly. Unemployment rate is increasing, while informal sector employment is increasing from 81.4 per cent of total labour force of 57 million of 2021 to 85.71per cent in 2022. Decent work and economic growth as per SDG 8 is far from achievement.
Industry-GDP ratio for the 8th FYP is set to be 41.9 per cent ( 2025) from the 35.4per cent in the 7th FYP (2020). Manufacturing/GDP ratio has to be increased from 24.2 per cent of 7th FYP to 30.2per cent in the terminal year of 8th FYP. Gross Investment/GDP has to be from 31.8per cent of 7th FYP to 36.6per cent in 8th FYP. Private Investment to GDP ratio has to be 27.4 per cent, FDI/GDP ratio has to be 3 per cent.
Overall external balance during July-March of FY21 recorded surplus of US$6990 million. The figure turned into negative, to US$ 3097 million in the same period of FY22 which is another cause of concern. Imports of consumer goods in the first three quarters of FY22 stood at $6.8 billion (about 19 per cent increase than last year), capital machinery at $ 3.8 billion ( $ 2.6billion in the same period of last year) and industrial raw material import is $ 22.13 billion ($ 14.39 billion in same period of FY21). Export in July-April 2022 is $43.34 billion against $32.07 billion of the same period last year.
Since last several years the government is reducing the Corporate Income Tax (CIT). Last year there was a reduction of 2.5 per cent of CIT for non-publicly listed companies. However, with the reduction of CIT, increased the rate of AIT and TDS, the total impact of corporate tax increased to about 40-45 per cent as these taxes are non-refundable. TDS has been collected under 54 heads and 111 subheads by different sections and sub-sections of ITO 1984. Among 54 heads of income, 22 heads of TDS is refundable, the rest 32 heads of income is non- refundable as 82C recognises other TDS as minimum tax. 41 Sub-heads are non-refundable and treated as minimum tax as 82C.
In 2020-21 NBR earned Tk 510.91 billion as TDS (except AIT BDT 185.37 billion) where tax was deducted under 55 heads of services. Total income tax collection was Tk 852.24 billion (where tax at source covers 81.7per cent including AIT).
With the condition of re-investment, the CIT can be reduced further. At the same time minimum tax provision has to be withdrawn, all taxes deducted at source have to be made refundable. Effective tax rate, in no way should be higher than that of the announced rate of the CIT, all taxes paid on top of the amount should be refundable and in that respect policies would need to be reformed.
Employment incentives can work for increasing investment in the balance sheet. Corporates can show their new employment data, even banks and financial institutions can get some credit with the creation of new employment.
Tax rate would need to be based on accounting profit. Tax should not be imposed on total receipts and sales, or it should be refundable. Gross profit calculated by the field level officials do not follow prper guideline which is one of the discouraging facts why businesses do not like to pay taxes.
Private sector inform that admissable expenses in business are not properly implemented. Most of the cases admissable expenses are much less that real expenditure. In case of promotional expenses only 5 per cent has been allowed as admissable expenses which increases the cost of businesses. On the other hand as the tax deducted at source is not refundable, suppliers added the cost with supplies contributing to cost about 15-20per centhigher.
Similar is the case with VAT. Because of high target, tax people want to collect taxes. Small businesses are usually hard hit. There has been instant registration alluring them to provide a number of benefits. However, after registration tax people claim arrear VAT, and fine them for not complying the VAT policies, which has been creating a fear-factor about NBR and creating obstacles for widening tax net.
VAT exempted turn over is up to Tk 5.0 million. This benefit is not meant for businesses of Dhaka and Chittagong. VAT exempted turnover limit is not applicable for all sector. In this respect GO-17 of VAT can be referred to. VAT registration is not mandatory whose yearly turnover is below Tk 5.0 million. But this GO is compelling 140 products and services to pay taxes irrespective of yearly turnover which is a distortion of the VAT law. Through this SRO businesses of District and City Corporations such as-- manufacturers of biscuit, chanacur, jam jelly, pickles, logense, soap, medicine, ink, detergent, matches, toilet papers, nails, bicycle parts, plastic, rubber, leather and wooden products have been brought under VAT irrespective of turnover. Some services such as; laundry, decorators, beauty parlour, sweetmeat shops, RMG marketing, online product selling, ride sharing etc have also come under VAT irrespective of turnover.
A number of exemptions have been allowed for small businesses. However, very few of them can avail these exemptions. Large entrepreneurs are supposed to procure primary and intermediate goods and supplies from small-scale business through linkage establishments. The situation is different in the country, large industries depending on backward linkage industries, produce all their supporting materials by themselves. By this way large entities are availing the benefits allowed for small scale entrepreneurs.
Even though on-line return submission for VAT is allowed, small entrepreneurs can not avail these opportunities, they have to submit all documents directly.
The policy for allowing use of VAT Credit by themselves for large Tax Deducting Entities ( there are ten procuring entities) is not working properly. VDS Certificate needs to be provided instantly and online or soft version of certificate can serve the purpose, e-TDS has been introduced since October 4, 2021, but a significant number of people are not aware of the benefits and thus not paying TDS online.
In case of customs valuation, database needs to be updated to reduce harassment of the taxpayers. HS code fixation still remains a problem, Advance Ruling is not working. Bonded Ware House Policy for RMG and Non-RMG should be similar. The 8th FYP has a provision for a new Customs Act, which can be implemented in the upcoming Budget.
In fine, it should be our learning from the experience that policies are for implementation, only paper based policies, isolated from implementation, will not work as incentive for local and foreign investors.
Ferdaus Ara Begum, CEO, BUILD-a public private dialogue (PPD) platform works for private sector. ceo@buildbd.org