Total outlay proposed for the Bangladesh Budget 2021-22 (not 2021-22 which is 24 month period January 2021- December 2022, but July 2021-June 2022) is Taka 6.03 trillion. The amount is 17.5 per cent of the Gross Domestic Product (GDP) of Tk 34.56 trillion of the country (lower than the optimal size of 20 per cent of GDP) and therefore, cannot be termed as over ambitious. With a target to achieve a 7.2 per cent growth in GDP and a projected inflation of 5.3 per cent during the year, the budget in not outside the trends even in the corona infected time. There is a seemingly perceptible impression even in the government quarters that the fiscal year 2021-22 (FY22) budget is 'business friendly'. What is wrong, if any, therein !
The expectation of the Finance Minister AHM Mustafa Kamal is that (a) the business orientation of the budget, (b) reduction in corporate tax rates, (c) extended tax holidays for establishment of hospitals, (d) reduction in advance income tax, (e) reduction of duty on industrial inputs, (f) lowering duty of tariffs in imports of micro bus and hybrid vehicles, (g) Value Added Tax (VAT) exemptions at local level manufacturing stage on the production of sanitary napkin, continue existing exemption facility at import manufacturing and trading stage of Covid-19 test kits, PPE and vaccine(s) as well as continuation of the 02 per cent and 01 per cent incentives on remittance and ready-made garments (RMG) exports will result in greater investment, higher protection to the domestic import competing industries and more job creation. All these are purported to enable higher growth and prosperity in the country. The projection of rising the investment-GDP ratio to 33.1per cent (private investment at 25.0 per cent and public 8.10 per cent) will be much appreciated if the private sector rose to the occasion.
MONETARY AGGREGATES: The commendable performance of Bangladesh Bank in monetary expansion in FY21 and availability of half a million crore taka as liquidity from the recovery of the Repo, Special Repo and ALS by December 2020 has created condition for non-inflationary or moderately inflationary monetary expansion in FY22. If (a) private sector investment growth of recent times escalates in response to the significant budgetary incentives, (b) expansion of the economic activities push up consumption expenditure and (c) thousands of vacancies in the primary education sector and elsewhere are filled up, the expected growth impetus may as well go to 7.2 per cent GDP growth. It is worth noting that the Wall Street Journal has projected significant growth in the US economy as well as in the European economies. China has also shrugged off the covid-19 sluggishness for much higher growth. These economies have some complementarily with the Bangladesh economy; this will also likely benefit the economic growth in the country.
The Finance Minister deserves commendation for formulating an optimistic-looking budget at a very difficult corona scenario which is threatening to worsen. FY22 Budget comes during centenary celebration of the Father of the Nation and in the Golden Jubilee hallmark of the precious independence. Establishment of the cherished welfare state as envisioned by Bangabandhu and as strongly espoused by the exceptionally dedicated, able, gusty and globally well regarded Prime Minister Sheikh Hasina seem to have struck a chord in the budget statement. A national budget contains a philosophy and the context of the budgetary disparity in income, wealth and opportunity in Bangladesh. FY 22 Budget could enhance its usefulness by a strategic 'growth with equity' focus successfully practiced by the Hasina Government of 1996-01.
CORONA, HEALTH SECTOR AND THE MAJOR MISSING LINK OF THE PROPOSED BUDGET: 11.03 per cent infection rate, an increasing daily deaths and an aggressively escalating infection in the districts bordering India as well as in the interior areas signifying a community spread of the virus have left an inadequately prepared healthcare system on the verge of collapsing. Even clear categorical directive of the Prime Minister to equip all districts hospitals with IC units and High Flo Oxygen Equipment has remained unheeded. Many complain that compared to an impressive 8.0 per cent of GDP allocation for health sector in Vietnam, we have at best 1.0 per cent allocation. But the fact that more than half of the allocation remained unutilised during FY21 speaks tons about the inefficiency, lack of coordination, wastage and corruption in the health set up in the country. Attention in this matter is long overdue.
Devastation of corona threatens to disrupt life of the citizens, it is necessary to initiate priority action on war footing. With the FY21 coming to an end and more than 50 per cent health sector budget is yet to be spent; it will be advisable to open letter of credits (L/Cs) for airlift importation of at least 50 IC units, several oxygen making plants and as many as possible high Flo Oxygen equipment with the unspent budgetary allocation.
Expectation about reforms in the health sectors have been widespread and strong. There is still time until the approval of the budget by the parliament, to bring about a `strategic restructuring of the health sector' including an effective chain of command, accountability, transparency in procurement and a roadmap for strengthening the manpower in number and quality, health care for all and community involvement in medicare.
PRICE COMMISSION: Markets have behaved whimsically in recent times in respect of many goods and services, medicines, rice, onion, edible oils etc. In the approval process of the FY22 budget, establishment of a price commission to undertake (a) research local and international to specify price ranges for all kinds of goods and services like essential commodities, building materials, construction of roads, bridge, culverts (b) market monitoring for correction of abnormal price movements and (c) price projection of goods and services imported by Bangladesh.
MARKET WITHIN A REGULATORY FRAMEWORK & SOME NOTEWORTHY FEATURES OF THE BUDGET: Reduction in the corporate taxation needed an analysis of the Tax Rate Revenue Elasticity. A lower rate may yield an even lower total revenue further worsening the tax-GDP ratio. Closure attention to prevent the VAT leakages i.e. non-collection and non-submission of the VAT collection (80 per cent) have been going on for long; why can we not complete the automation of the tax administration started in 1983 as well as have crash programme for procurement and installation installed of Electronic Fiscal Device (EFD) / sales data controller by June 30, 2022? Reducing penalty i.e. the monthly interest from 2.0 to 1.0 per cent on the default to submit VAT collection to the treasury (para 261-6) may encourage further default. The budget proposals seem to suggest a consequential reduction in the price of the lower end of the cigarettes (and perhaps Bidi); this may to encourage wider spread smoking and consequential increase in the healthcare expenses.
One way to come out of the moral hazard in whitening the black or undisclosed income in to enforce same rate of tax on such incomes as on the regular tax payers income. Unless the black money income fears confiscation of the undeclared income by a specific date, the desired result may not come about.
The budget unfortunately recognises mobile financial service (MFS) and agent fund management as 'mobile banking' and `agent banking' (para 210). This may jeopardise the regular banking system. However, imposition of a moderate tax on the MFS income is a good idea in view of the excessive charge of taka two for a hundred taka transfer and the massive advertise expenditure from out of the windfall. To make payment through crossed cheque or bank transfer or mobile financial service (MFS) mandatory where the amount exceeds Tk 50,000 is a long awaited plug on the whole of tax cheating; the Finance Minister deserves a big thank you for this bold step.
Reduction of customs duty on microbuses, perhaps in the hope of these being used as public transportation may not be a wise step. It will essentially replace the Anisul Huq- Sayeed Khokon Formula to discard the old vehicles in favour of by 6000 large size luxury buses in Dhaka city and will make the traffic congestion even more unmanageable.
How rational is it to raise the income tax on the vehicles up to 1500cc from Tk 15000 to Tk 25000! This will hit the middle class and reconsideration in is in order. Much higher taxation on the second vehicle owned by a "family" defined under the Banking Company Law will bring much higher revenue without harming many.
The proposed 15.0 per cent taxation on the income of the private colleges and universities will further harm the already distressed quality of education. The budget should instead, suggest a blue print for restoring the primary and secondary education almost at a halt for 15 months now. The matter of taxing the private universities is sub-judice as the High Court judgment declaring such taxation illegal and asking NBR to refund the tax already collected still stands until the Supreme Court decrees otherwise.
THE WELFARE STATE: A vexing problem facing the Republic of ours is the lack of supply of vaccines for 120 million people for 'herd immunity' (70 per cent of population). The Indian source has run into unanticipated crisis. The Chinese source of supply was first rebuffed last year and messed up now in the price disclosure. Highest level attention will succeed in solving the problem. Covid-19 is going to be with us for a long time. The health protocol i.e soap washing of hands, maintaining 3-feet distance if one has to go out at all, refraining from hand touching the nose, eye and the mouth as well wearing a mask along with the herd immunity are the prevention against the corona. In this case, prevention is the only way out. A strategy locates a punter for joint production of vaccines in Bangladesh is the only sustainable option.
The budget needs revision to clearly spell out the steps to feed the old and the corona poor (total may be as high as 50 million) as was successfully done for 15 million people for nine months through VGD /VGF in the aftermath of the 1998 floods. The increase in the allocation for the social safety network from Tk 955.74 billion in FY21 to Tk 1076.14 billion in 2021-22 (para 135) augurs very well. It is desirable to separate the pension which is also a part of the social safety net from the other forms by allowances and support.
The Government may seriously consider issuing identity (ID) cards for the senior citizens (65+ years of age) and encourage the public and private sectors to grant them 50 per cent concession on medicare and travel costs.
The FY22 Budget needs to sharpen its focus for implementation of the stimulus package for the cottage, micro and small enterprise (grouping small enterprises along with medium enterprise paves the way for the later to grab the lions' share of the facilities). An institutionalisation for bank facility to nurture the CMS enterprises will help create 60.0 per cent plus jobs. This will increase income of the poor, reduce poverty and dent disparity.
Bangladesh has come a long way by increasing per capita Gross National Income (GNI) from $85 in 1972 (World Bank) to $2227 in 2021 (Bangladesh Budget of Statistic) and transforming this to social progress. A lot more need to be done to ensure a 'smile' on each face. Budget 2021-22 can certainly improve on its already promised steps to greater heights.
Mohammed Farashuddin PhD, was private secretary to the Father of the Nation; he is a former governor of Bangladesh Bank and founder Vice Chancellor of East West University. mfarashuddin@gmail.com