Path to Prosperity: Reflections on the National Budget 2019-2020


A panel discussion was held in that meeting and PANELISTS included

DR. A.B. MIRZA MD. AZIZUL ISLAM, Former Adviser to the Care-taker Government
DR. AHSAN H. MANSUR, Executive Director, Policy Research Institute of Bangladesh (PRI)
MR. SHEHZAD MUNIM, President, Foreign Investors’ Chamber of Commerce & Industry (FICCI)

The discussion was moderated by the AmCham President.

Hon’ble Finance Minister AHM Mustafa Kamal unveiled a Tk 5.23 trillion spending plan for fiscal 2019-20, which is an 18 percent increase from the revised budget of the outgoing fiscal year. AmCham held the meeting to discuss on the proposed budget that was presented in the national parliament on June 13. The participants of the discussion suggested reforms in the National Board of Revenue (NBR) to separate the tax administration from tax policymaking with a view to bringing in more efficiency and fairness in revenue collection.

Former finance advisor of the caretaker government, Dr A B Mirza Azizul Islam expressed concerns over the poor attention the budget paid to address the banking sector problems mentioning the finance minister’s words that “willful defaulters” will be dealt with firmly, “But it was not mentioned how the willful defaulters will be defined and why the stern actions are not taken immediately” He added. Mr. Islam also referred to the problem of falling credit flow to the private sector and said the rate came down to 12.4% until March, much lower than the target set by the central bank. “The mechanism to accelerate the private sector credit growth has not been addressed in the budget,” he said. Without specifying, he noted several important sectors were overlooked in the budget. “Well, there are a number of positive steps in the budget … but the reality is: Are those supported by budgetary allocations and are there enough details of lofty goals?” Mr Islam said. Mr Islam said issues that pose substantial development challenges for Bangladesh have not been addressed properly in the budget for fiscal year 2019-20. He said the private sector investment, in proportion to the GDP (gross domestic product), remains stagnant over the last one decade. In fiscal year 2009, the rate was 21.9% of GDP, which now is 23.1% , he said. He said the budget documents mentioned that the annual rate of poverty reduction has accelerated. But statistics show that between 2000 and 2005 the average reduction rate was 1.8 per cent, which came down to 1.7 percent between 2005 and 2010, and further fell to 1.2 percent between 2010 and 2015. There is no mention about how the poverty reduction rate will be reversed, he said. Mr Islam said the allocation for social safety net is going to be 2.5 percent of GDP, or 12 percent of the total budget. During FY 2009, the allocation was 2.8 percent of GDP. Now the allocation for social safety net has come down both in terms of GDP and the size of budget, he said.

If the local business community does not invest on a massive scale then foreign direct investment will not come as the latter get confidence seeing how the domestic entrepreneurs are faring. “So, firstly we need to enthuse a lot of private investors to invest in the country,” Islam said, while calling for improving the skills of the workers for higher productivity. He also suggested easing the regulatory framework for attracting more FDI to Bangladesh. “Bangladesh is very much a preferred destination for foreign investors for higher costs of production in some neighboring countries,” he added. AB Mirza Azizul Islam, former caretaker government adviser, advocated reforming the NBR. When he was in office, he took some initiatives to separate the tax collectors from the tax administrators that are yet to be implemented. Subsequently, executive director of the Policy Research Institute (PRI) Dr. Ahsan H Mansur in his remarks underscored the need for changing the tax collection method. Administrative conveniences have been dictating the formulation of tax policies, he added. The tariff commission was not empowered enough to determine the tariff on different issues, said the senior PRI official. Ahsan H Mansur said Bangladesh needs much bigger service delivery in terms of range and quality. He said during the last 10 years, former finance minister AMA Muhith tried to enhance the size of budget every year by 16 to 19 per cent but failed to do so due to shortfall in revenue earnings. This year will also not be an exception, he said. “In Bangladesh we will never be able to get out of this revenue trap, unless we reform the National Board of Revenue (NBR) itself,” he said. “The tax policy has to be completely separate from the tax administration.” He was critical of the new VAT law, saying it is not worth calling VAT law. It has become a de-facto excise law and no longer remains a VAT law. To elaborate, he said the input credit mechanism is going to be absent in this law. Dr. Mansur also criticized the proposal for taxing capital unless dividend is paid in cash. Among the many changes, he proposed raising the customs duty on smartphones to 25 percent from the existing 10 percent which was also criticized by the economists. “It is not a luxury anymore to have a smartphone,” Mansur said at the event.

Shehzad Munim, president of the Foreign Investors’ Chamber of Commerce & Industry (FICCI), advised the government to give at least six months to implement the proposed multiple VAT rates so that businesses can adjust their administration accordingly. Initially, the VAT rate was supposed to be a single rate, but later multiple rates were introduced. As a result, businesses need time to adjust to the new system, he said. Regarding corporate tax, Mr. Munim said if companies need to pay 30 percent to 40 percent tax they need to make profits at that level. It will discourage the inflow of foreign investment in the country, he noted. Shehzad Munim, in his remarks, underscored the need for continuity of policies instead of changing frequently.
Economists, diplomats, businessmen and leaders of different trade bodies attended the discussion, which was moderated by AmCham President Md. Nurul Islam.