Illusive investments
The Centre for Policy Dialogue (CPD), one of the top think-tanks in the country, has stated in its post-budget assessment that we will require Tk 800 billion in investments to implement the proposed budget. It has also stated that the government will have to raise an additional Tk 650 billion in revenue and expend an additional Tk 760 billion to reach the annual growth rate being discussed. Taking those figures at face value for the sake of argument, we face a seemingly Herculean task, which will, in all probability, not be possible to achieve. When we take into account the rather sorry state of revenue collection of the past few years by the national board of revenue (NBR) – for which the NBR itself is not at fault, but rather the very ambitious targets set by policymakers – one wonders precisely how and where these hundreds of billions in new investments are going to come from.
The Independent Review of Bangladesh Development (IRBD), a yearly exercise the CPD goes through after each budget is presented, has brought into question the clarity aspects of the budget. That private investment is down is not news. It has been down for some time now regardless of what policymakers claim to the contrary. What is of import is the fact that no clear picture is given as to how private investment will be boosted, more precisely how investors' confidence will be restored. For without domestic investment, we can forget about foreign investment. Meaningful foreign investment will not come to a country where local businessmen do not feel very encouraged to invest.
Going by what the finance minister has said during the budget speech, we are in complete agreement with him that the country needs investment in both the public and private sectors if we are serious about moving the economy in the right direction. Yes, prices of a whole range of industrial raw materials used in construction may indeed be going down, like cement, fly ash, stone, boulder, cement etc., but the budget still fails to give us clear-cut policy directions as to how private investment will be boosted. Indeed, economists have pointed out that unless we can boost private investment from the current 21 percent to 27 percent, the desired 7 percent plus growth rate will not be forthcoming. The fact that corporate tax slab remains at its previous level may actually be discouraging joint ventures with foreign companies or even holding up local investors from expanding their industrial base. It has also been pointed out that the budget does not specify how we will transform our workforce from a semi-skilled to a skilled one. Bold public statements will hardly suffice.
The question of the Value Added Tax (VAT) Act has drawn much ire from small and medium enterprises. Although its implementation has been deferred for six months, it is of little solace since the increase by 100 percent will come into effect from the beginning of 2017. Hence businessmen in Dhaka and Chittagong city corporations will have to give annual VAT of Tk 28,000 as opposed to the current Tk 14,000. For small entrepreneurs falling under Khulna, Rajshahi, Rangpur, Sylhet and other city corporations, the annual VAT has been raised to Tk 20,000. The package VAT that had been the demand for small businessmen have not been taken into consideration in the proposed budget as NBR does not get desired revenue from that system which amounts to about Tk 100 million. Needless to say, the new system will significantly boost government revenue, but we will have to wait and see to what extent it impacts negatively on small and medium entrepreneurs (SMEs). The general fear is that profitability will be hit significantly and that will make future investments very problematic in terms of expanding businesses for SMEs.
While there has been much hoopla regarding the government decision to allow for whitening of undeclared funds, we should be pragmatic on the issue. Successive governments have tried and failed to address the illicit flow of funds abroad. With the hundi system of illegal money transfer firmly entrenched in countries like Bangladesh, no law (including the anti-money laundering act) has been successful in addressing the issue. It is a fact of life. Perhaps the time has come to rethink our options. Would it not be better for these monies to be invested in the economy instead of sitting in some vault in some European country? This line of thinking of course opens up the Pandora's Box between the ethical and unethical practice. However, we should be realistic and work on a legal framework which would allow for undisclosed funds to enter the mainstream economy. So that the billions of dollars that have been siphoned off or simply not accounted for is invested in productive sectors of our economy instead of some foreign economy.
At the end of the day, we need investments. And local industry and the business community need to feel that their money is safe. The ball is essentially in the government's court and it will have to come forth with solid policy directions that will allow for the basics to be addressed like quality and reliable power followed by access to land and reducing the cost of doing business. Concrete steps like that inspire hope for Captains of industry and business that it is safe to invest again.
The writer is Assistant Editor of The Daily Star.
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