Finance Minister has shown greater realism than before
I see that a number of things, in favour of which I had argued earlier, have been included in this year's budget. Some examples would include the reduction of corporate taxes, the raise the exemption limit of personal income tax, the priorities given to infrastructure (transportation, electricity, rural development etc) generally. I fully endorse these decisions.
There are some challenges, nevertheless. The target that has been set for revenue collection, in my opinion, is unachievable. It has been set at 30 percent or over but that, I think, is very ambitious. In the history of Bangladesh, we haven't ever been able to raise revenue collection over 26 percent. I don't see any dramatic change in the capacity or competence of the administration that will enable them to suddenly achieve wonders.
Moreover, as the tax rate is being decreased in order to increase the tax base, the tax net needs to be expanded. In order to do that, it is important to conduct surveys and hire appropriate people to identify the different groups from both business establishments as well as individuals to expand the tax base. This will definitely need time. I think it will be difficult to do all this within a year and in effect, it seems improbable that a revenue collection rate of over 30 percent will be achievable.
The target of bank loans of around Tk 38,500 crore is also unrealistic. If the government takes a loan of such huge amount from banks then it will affect credit loan to the private sector as well as private sector investments. That is another challenge brought about by the budget of this fiscal year.
I don't see much of an effect on the cost of living of ordinary people at the moment. However, there have been talks of enforcing some advance income tax on food import. That may have some impact on the prices of certain food items. But the government is already planning to increase the price of rice which is why import duty has been imposed on rice import. Nevertheless, as the overall national food production has been good and prices are low in the international market, I don't think that this will majorly influence prices in terms of inflation.
The growth rate projection of seven percent would be another challenge to meet. I would say that the Finance Minister has shown greater realism than before. In previous years he had projected the growth rate to be over seven percent but this time he's been more practical in his approach. However, seven percent would still be a challenge to achieve as the Investment-GDP ratio is still below the expected level. We will need to attain at least 30 to 31 percent investments in order to achieve this seven percent growth rate. That would be around a four percent increase over the current Investment-GDP ratio. Moreover, it would be difficult to solve all the problems and challenges related to investments in the private corporate sector.
The problem with the infrastructure or development plans is with the implementation part of it. The challenge lies in timely implementation of these plans. The failure or lack of foresight on part of the government in this respect is that it is not possible to pay adequate budget for all the projects when you have many projects in hand. It takes more time to implement the projects. And when it takes more and more time to complete a project, the costs also keep increasing.
The commentator is a former Adviser to the Caretaker Government, Ministries of Finance and Planning.
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