Budget FY 21-22
Old wine in a new bottle
Finance Minister proposed a budget 2021-22 of Tk 6.03 trillion, while it was Tk 5,68,000 in the previous year.The new budget is about17.4% of the GDP and around 12% higher than the revised budget of the current fiscal while 6.34% higher than the main budget of current year.
The budget has proposed a 7.2 per cent GDP growth target for the fiscal year starting amid a second wave of coronavirus infections that is sweeping across the country.
The FY 2020-21 had a projected growth target of 8.2 per cent in FY 2019-20. But, the economy took a big hit at the end of the fiscal year due to the pandemic. The country's economy grew by 5.24 per cent that year, according to government calculations.
The overall budget deficit for FY2021-22 will be Tk214,681 crore, which is 6.2% of the GDP. Nation can certainly afford a higher budget deficit if the budgetary allocations are made where they are needed the most. In the wake of the second wave of the pandemic and enforcement of a nationwide lockdown, there is a need for increased public expenditure to support the affected marginalised people in the country.
Bangladesh is one of the lowest spending countries in South Asia, in reference to the GDP.In order to implement the Tk 6.03 trillion budget, the government will have to overcome the challenge of increasing revenue collection and rely on loans for a third of budget financing. The budget has also most no reform to increase the capacity of bureaucracy to implement the development budget.
The budget has some new idea and proposal worth mentioning. The finance minister proposed a 10-year tax exemption for 'Made in Bangladesh' brands. Government planned to accelerate the establishment of mega industries and production of import-substitute industrial goods in the country. The exemption will apply to companies that produce three- and four-wheelers, home and kitchen appliances and light engineering products under certain policy and guidelines. Companies producing three and four-wheelers could get another ten-year exemption if they met additional qualifications.
Budget also propose a five-year extension of the VAT exemption for manufacturers of motor cars and motor vehicles to 'maintain the existing momentum of growth in local industries'.The minister also proposed a ten-year tax exemption on the production of selected IT hardware if it is manufactured in Bangladesh.
Another remarkable proposal is to offer tax incentive to empower the people belonging to the transgender community through creating tax incentive facilities for employers. They have been brought under the tax net for whom the tax-exempt threshold level is Tk3,50,000. The more tax incentives for employers, they may be entitled to a 5% tax rebate on tax payable on the lower 75% of the total salary paid to transgender employees, provided they accommodate at least 10% transgender employees or more than 100 in the total workforce.
The 3rd new proposal is to improve the human resources so that the resources are fully compatible to contribute to the multidimensional industrial sectors and to discourage foreign technicians in the local industry at the same time. The institutions that will be engaged in giving vocational training and the capacity of the people in the fields of agriculture, fisheries, science, and IT shall be entitled to enjoy a tax holiday period of up to 10 years.
Similar incentive will also offered to institutions providing professional training in automobile, aircraft storage, food, footwear, glass, mining, mechanical, shipbuilding, refrigeration, ceramics, mechanist, garment design and pattern making, pharmacy, nursing, integrated medical, radiology and imaging, ultrasound, dental, animal health, production service, cloaking and garment finishing, and poultry farming.
The budget has good news for the women entrepreneurs' that their annual turnover eligible for tax exemptions has been increased from Tk 50 lakh to Tk70 lakh. The FM has proposed to continue 1.0 per cent additional export incentive for the country's RMG sector in the next fiscal year (FY22) in addition to the other existing export incentives to the textiles and RMG industry. Government could initiate the promise of trade facilitation to reduce cost of doing business instead of offering cash incentive to the RMG exporters. FM confirmed in his budget speech that Bangladesh is in negotiation with 19 countries for FTA. Government may immediately sign Free Trade Agreement with the source of raw materials and end market of our export products in order to be competitive in the global market.
This is appreciable that to promote the operation of one-person companies, the tax rate has been proposed at 25%. The proposed budget has kept the personal tax rate unchanged. But in terms of application of surcharge, individuals having net personal wealth worth over Tk50 crore will have to pay a 35% surcharge on assets, up from the current 30%.
The present ratio of private investment to GDP stands at 23 per cent. The government has taken initiatives to improve this ratio. Reduction in corporate tax rate is expected to facilitate achieving the target for private investment to GDP ratio.
Health and education are the two areas that needed the best of efforts during this pandemic - the first one overwhelmed with patients, and the second now shut down for more than a year. But the proposed budget shows allocations in these two areas have decreased both in terms of percentage of the budget - compared to this fiscal year's revised allocation - and GDP as well.It was a natural expectation that allocations in these two areas would increase drastically in comparison with the GDP.
In health sector, Tk 32,731 crore has been proposed, which is only 0.95percent of GDP, which is even less than this year's revised budget of 1.02 percent. While the World Health Organisation sets at least 5 percent of GDP spending on health as a minimum requirement for a country to fare well.
Bangladesh has very poor health infrastructure and to help address this problem, the budget has introduced a 10-year tax holiday for new hospitals being constructed outside Dhaka and having a minimum capacity of 250 beds.
In the ongoing pandemic situation, worse suffer is the CSMEs and the income has go down significantly. A huge number of workers and entrepreneurs lost their jobs and businesses. Their situation has worsened amid the second wave, and it is understandable that the sector will continue to suffer as long as the coronavirus stays with us.
The government could facilitate the CMSMEs' recovery by addressing their problems in a better way in the proposed budget that might include announcement of big incentives considering the extent of their contribution to grass root level employment.
In the social safety net program, the FM has increases some more allocation and there is a small change in savings certificate program. At present, e-tin is needed to buy savings certificates worth over Tk1 lakh. The limit for buying savings certificates without e-tin has been extended with the aim of encouraging small savers to invest.
At present, there are four types of savings certificates -Bangladesh Savings Certificates of five-year terms, family savings certificates, profit-based savings certificates of three-month terms and pensioner savings certificates. There are also postal savings certificates. Government may restrict on beneficiary of existing pension scheme from investment in savings certificates and close down the pensioner's saving certificates. One category of citizen should not get double benefit of social safety net where huge population are out any safety nets.
The proposal to raise women-led SMEs' annual turnover ceiling to remain out of tax purview to Tk70 lakh is appreciable. The same should be extended for all cottage, micro and small enterprises without taking into account the gender of the entrepreneurs, as male-led businesses also are going through hard times.
Mr Mustafa Kamal has proposed to allocate Tk 100 billion in the next fiscal year to meet the emergency requirements to respond to the pandemic. The future pandemic situation will tell whether this amount is sufficient or not. In this period of the Covid-19 pandemic, the public expenditure should allocate in some sectors including (a) health facilities for Covid patients; (b) wide coverage of social safety net programmes for poor, new poor and marginalised people; (c) raising allocation for employment-enhancing infrastructure development projects; and (d) supporting non agricultural MSEMEs in rural area and diversified export-oriented industries for retention and creating news job at an early date.
This aforementioned discussed clearly suggest that the budget of FY22 cannot be considered as budget of pandemic period. The common people were expecting a lot from this budget but unfortunately there was no good news for them.
The writer is a Legal Economist