On the one hand, the government is apparently showing its tough stance against money laundering, given the recent action against Bidisha, under the Anti-Money Laundering Act and on the other hand, the same government has allowed continuation of provision for whitening of black money in the budget. This is self-contradictory. Besides, internationally there are a lot of regulations such as anti-terrorism and anti-money laundering laws. In such a context by allowing ill-gotten money to be whitened the nation will defy its international obligations. A nation cannot allow legalisation of illegal money every year because this does not uphold morality and honesty of its citizens in the eyes of the world community

So the provision for whitening of black money should have been dropped altogether to improve the image of the country, which regrettably is being rated for the last few years as one of the most corrupt countries in the world. It is also a clear violation of Section 26 of the Anti-Corruption Commission (ACC) Act that empowers the ACC to ask anyone to submit all necessary statement of his or her assets, if it thinks necessary. By keeping the provision in the budget the government has directly challenged the very core function of the ACC that has to a great extent belittled the necessity of its formation. Moreover, black money does not play any positive role in employment generation, production or any other sector. But it has a deep impact on inflation, which affects the poor.

The budget does not have any measures that may be effective for local industries or their export competitiveness. With 7.5 percent import duties on basic raw materials along with problems of inefficient infrastructures like ports and roads, it would be impossible for the entrepreneurs to survive in the competitive international market. Because 25 percent import duty is already there on readymade products. Tax difference between raw materials and finished products is 17.5 percent, which is illogical. To maintain the industrial sector's competitiveness either the rates of customs duties on basic raw materials should have been reduced or duties on finished products increased.

On investment in the agriculture sector though the FM predicted it but he did not specifically say how. A national budget is supposed to give the nation a guideline but this document is devoid of any direction to attract investment. The FM has expected increase in revenue by 17.5 per cent but did not mention how he would achieve that. The budget did not spell out any measures for employment of the youths and women. Whereas one of the main objectives of the Poverty Reduction Strategy Paper (PRSP) is to create employment for the unemployed. But how will the government meet the Millennium Development Goal (MDG) ignoring the employment issue? The number of unemployed people would increase alarmingly due to the absence of any significant approach to this regard.

New jobs are created through rural development and industrialisation but there is no indication of industrialisation in the budget. Here comes the question of sector where to utilise huge Annual Development Programme (ADP) of Tk 24,500 crore. By and large, it appears, the huge ADP may be used -- given the fact that the number of projects has also been cut down from 1012 to 856 -- mainly to please the ruling party leaders and activists in the name of development activities that may increase corruption, break financial discipline and deteriorate governance.

Tariff cut in mobile set is just an eyewash because the duties on SIM cards have been raised at the same time. Reducing tax on SIM cards from proposed Tk 1,200 to finalised Tk 900 does not seem to pacify the anger of subscribers. Because a recent writ petition filed in the High Court on this issue shows that even Tk 750 per SIM card is much higher than what the total Value Added Tax (VAT) and supplementary duty (SD) would actually be.

However, there are a number of positive elements in the budget. Higher allocation for education, agriculture, health, rural development and infrastructure are welcome steps along with increased allocation for social security and safety net programmes like creation of seasonal unemployment fund for monga-stricken and fully retarded people, fund for rehabilitation of retrenched and retired garment workers and enhanced honorarium for freedom fighters. Particularly appreciable is the emphasis given and resources allocated for educational facilities of girls and women. Other welcoming steps are a project for improving tax administration and setting up of an oversight regulatory body for private sector account and audit. Besides, introduction of the provision of imposing income tax rebate on donations at welfare and educational institutions is a very good step. Such system of rebate is in practice in most countries.

But the enhancement of corporate tax rate for non-listed companies is not an investor-friendly step. The decision to increase tax rate from 37.5 percent to 40 percent will affect particularly the service sector, as it will have a negative impact on investment. The increase of tax will work against the government's apparent policy of poverty reduction and employment generation since it will affect the small and medium enterprises (SMEs), which do not have the financial footing to be listed on the capital market.

The most alarming aspect of the budget is the increased expenditure in unproductive areas because to meet this increased expenditure the government will have to borrow more money from banks, which will definitely push inflation up further. This is expected to happen by the early next year, as by that time a substantial amount of money will have disbursed. As there is no measure in the budget to contain the inflation so the prices of essentials are likely to be on the rise that will affect the low-income people. As such the ambitious expenditure programme ought to be kept under constant review. Under no circumstances, the government should increase its borrowing from the banking system.

Similarly, the provision of increasing VAT will adversely affect the poor as the prices of essentials will shoot up following the collection of additional VAT that has been fixed at Tk 12, 675 crore which is Tk 2,070 crore higher than the revised budget of FY 2004-05. Already the prices of daily necessities have increased in the city market immediately after the proposing of budget in parliament on June 9. Many essentials including rice, vegetable, oil, pulses, meat, fish, eggs and spices have reportedly marked an increase of Tk 2 to Tk 10 per kilogram. Prices of soaps and stainless blades have also increased. It appears that in a bid to enhance mobilisation of internal resources, taxes and levies, in some cases, have been imposed without considering their economic consequences. But it is well known that imposition of taxes and levies does not automatically improve the tax-GDP ratio.

Finally, the economy is already witnessing a twin shock -- a rising inflation rate and a deteriorating balance of payment situation -- because of domestic price hike and a jump in imports that have become costlier. It is apprehended by the economists that the inflated budget for FY 2005-06 and an increase in oil price in recent times will further fuel inflation.

Saiful Alam is a businessman