Consumers' interest has been sacrificed while framing the various VAT and supplementary duty proposals for the upcoming fiscal year, said the Centre for Policy Dialogue yesterday.
“Attempt to collect revenue from all low-hanging fruits is observed,” said Fahmida Khatun, executive director of the CPD, while presenting an analysis on the proposed budget for 2017-18.
The event, which was held at the capital's Lakeshore Hotel, was attended by ministers, politicians, economists, businessmen, revenue officials and representatives of international development agencies.
The think-tank's observation comes at a time when there is a palpable concern that the implementation of the unified 15 percent VAT would fuel the cost of living for many.
VAT on major items such as electricity, spices and mustard, soap, pest and tooth-brush, branded garments, education at English medium schools, furniture, iron and steel products and restaurants is likely to lead to higher inflation once the new law becomes effective from July 1.
The CPD, instead, has proposed lowering the unified VAT rate to 12 percent.
Besides, it may be difficult for the National Board of Revenue to ensure proper implementation of the new law, Khatun said, adding that there is a need to ensure that all business entities come under the VAT net.
The hike in excise duty on bank deposits would be a disincentive for accountholders and remitters using the banking channel at a time when the interest rate on savings is already falling.
“Soft areas have been targeted to collect more revenue without having strong economic justification,” she said, while calling for the excise duty on account balances to be scraped completely.
“The money is already taxed. Instead of collecting the excise duty, the tax net should be expanded.”
The CPD raised questions about the sluggish trend of private investment and slowing job creation. Furthermore, the proposed taxes might fuel inflation and deal a blow to investment and economic growth.
The country does not have employment policy although it has growth and investment policies, said Rehman Sobhan, chairman of the CPD.
He also criticised the government move to earmark Tk 2,000 crore in the upcoming fiscal year's budget to bolster the state banks' capital base.
“One should examine the opportunity cost of recapitalisation by tallying the volume of resources injected into the state banks,” he said, adding that loan default has become a part of business nowadays.
He also touched upon the delays in implementation of projects and cost hike. “Why are we having the problem of delayed implementation?”
The government would not take any measure that affects people, said Planning Minister AHM Mustafa Kamal.
“VAT should not be imposed in a way that makes people suffer. It will not be wise to impose VAT on items that affect the general people.”
He said investment by South Korea's electronics giant Samsung indicates that there is investment opportunities in Bangladesh. “Private investment has not declined; rather it has increased but slowly.”
The VAT system exists in 169 countries and it is the best system, said MA Mannan, state minister for finance and planning. “It is the least painful for people.”
On recapitalisation, he said the government has taken a “calculated risk”. “The banks have passed through bad times,” he added.
There is need for public sector banks, said Muhammad Abdur Razzaque, chairman of the parliamentary standing committee on finance. Bangladesh is losing opportunity to reap the benefit of its demographic dividend in the absence of proper investment, said Amir Khasru Mahmud Chowdhury, a BNP leader.
“Lots of investments have been made in mega projects instead of human resources.”
The governments, in general, focus more on mega projects when they do not have legality in order to show people that development is taking place, he added.
The budget did not give attention to ensuring quality, reforms and developing implementation capacities of major ministries, said Debapriya Bhattacharya, distinguished fellow of the CPD.
A public investment-driven growth has been forecasted, Khatun said.
Private investment is forecasted to rise 0.2 percentage points to 23.2 percent of GDP in fiscal 2017-18 from 23 percent in fiscal 2016-17. An additional Tk 66,000 crore will be needed to achieve the goal, according to Khatun.
GDP growth and investment have had lower than expected impact in terms of job generation in recent years, she said. Only 4.7 lakh jobs are created a year, which is less than before, according to the CPD.
The government should not collect excise duty as it already collects VAT, said Akbar Ali Khan, a former adviser to a caretaker government. “If you collect VAT, there should not be any excise duty.”
He said the continuation of scope to legalise undisclosed income is immoral.
Khan, a former chairman of the NBR, said when the 15 percent VAT was imposed with the introduction of the system in 1991 it was thought that the rate would reduce with the increase in revenue collection.
The parliamentary standing committee does not have any role in budget-making although lawmakers in countries such as India do take part in the process, he said, adding that there is a lack of transparency in budget-framing. The government has been recapitalising banks since 1991. “You give them money and they suffer loss.”
Citing the government's increased borrowing from various countries, Khan said the country might run into trouble in repaying the loans in the coming years.
Focus must be given on implementation and reforms to encourage private investment, said Asif Ibrahim, a former president of the Dhaka Chamber of Commerce and Industry.Several discussants called for good governance and reforms to accelerate private investment to create jobs and improve the standard of living.
Some wanted the government to ensure transparency and accountability in budget-framing and improvement in implementation capacity of the ministries and agencies.
They also demanded assurance of proper use of taxpayers' money instead of misuse.