One thing is apparent from the budget promises of this year—the “tide of development” that the country seems to be surfing on will be bankrolled by the middle class and even the low-income population.
It is like reverse Robin Hood. Taking from the poor instead of the rich, with the promise of making conditions better for all involved.
There has been a huge deficit of the Annual Development Programme (ADP) that funds all major development projects during fiscal year 2018- 2019 (like all years, really). Time and again economists have warned about how we have not been able to mobilise enough funds to reach our ADP spending targets.
A report, published in Star Business this week, said that in order to reach its ADP spending target, the government will have to spend five times more its average monthly expenditure, during whatever is left of the month of June. The average expenditure per month was Tk 10, 913 crore, and the government will have to spend a whopping Tk 56,577 crore.
Will the target expenditure be attained? Economists say no, since the target revenue mobilisation has not been achieved. How will they spend the money, when there is none?
In another report published last week titled “State of the Bangladesh economy and Budget Challenges”, Centre for Policy Dialogue (CPD) stated, “Following the trend of first six months, it is now obvious that the targets of revenue mobilisation for fiscal year 2019 will not be attained.”
The report went on to say that both tax revenue and non-tax revenue collection had missed their targets during the first half of fiscal year 2018-19. Let’s put a pin on non-tax revenue collection and focus on tax revenue for a moment, because that is precisely where the general populace stands to be squeezed in the upcoming fiscal year.
During the first half of the fiscal year 2018-19, tax revenue collection saw only an 8.8 percent growth. Know that the growth rate targeted by the government? 57.4 percent. That was the breadth of the mismatch. In monetary terms, the think-tank put the shortage at Tk 85,000 crore.
“Sixty-eight percent of the eligible taxpayers did not pay income tax in 2017. Income quartile-wise analysis revealed that more than one-third of the top-earners did not pay taxes,” CPD went on to state. The finance minister’s budget speech claims that income tax is 35 percent of total tax revenue.
While collection of tax revenue is dismal all over, Value Added Tax (VAT) is the better performer of the lot. The finance minister’s speech itself states that Value Added Tax (VAT) “is the single highest contributor to the National Board of Revenue (NBR) tax revenue.” VAT is the one tax paid by people of all socioeconomic backgrounds on goods and services purchased. Not only that, it is paid consistently, because it is deducted during purchase.
That is the sector that the government is choosing to wring out further.
“I am proposing to impose VAT on the products such as plastic and aluminium items, soybean oil, palm oil, sunflower oil, mustard oil etc. which have been enjoying the exemption benefit for a long time. I am also proposing to impose VAT on astrologists, marriage media services and on the supply of entertainment programmes, serials, drama, telefilms etc to be broadcasted in the television channels and online media like YouTube and Facebook,” said the finance minister in his budget speech.
The list does not end here. There will be five percent additional taxes on imported milk powder (for example baby formula), sugar, honey, the glass envelopes of light bulbs, optical fibre cables. There is also an added tax on ice-cream. There is an added 10 percent on deodorants and particle boards, and a 20 percent on ovens. The VAT on essential digital services for the middle-class like bike-sharing has gone up to 7.5 percent. The middle-class commuters without personal vehicles, who were only just beginning to enjoy some ease in travelling with the advent of cost-effective bike-shares, will once again have to face high costs for commuting.
Just this week, Bangladesh Telecommunications Regulatory Commission said that people will now have to pay 40 paisa for checking their electronic wallet balance. Financial inclusion services like bKash, which had brought banking services to the poor who do not have sufficient collateral to enjoy traditional banking, will now be taxed.
“There seems to be a proposal to increase the existing Supplementary Duty, over and above the VAT, on services related to mobile telephony. This will work towards making the indirect tax system even more regressive, since such services are now considered necessary even for the poor,” Professor Wahiduddin Mahmud, former advisor to the caretaker government, wrote in The Daily Star last week.
Food, internet, telecommunications, lighting, recreation, commute—there is barely any aspect of an average middle-class and/or lower-income person’s daily life that will not see an increase in costs.
There is another new addition to the VAT law, because of which the prices of many goods and services in general, can go up by as much 38 percent. This was observed by speakers at a roundtable organised by Institute of Chartered Accountants of Bangladesh at The Daily Star Centre last week.
This is the new addition—businesses cannot claim input tax credit for products and services with less than 15 percent VAT. Input tax is the amount of tax that a retailer for example, had to pay to purchase goods from the supplier. Previously businesses could claim that as tax rebate. What will happen now when they can no longer do so because the VAT rate of that item is below 15 percent? They will pass it on to the customer, and charge them for it. So the final price being paid by the customer will be more.
Meanwhile, as the middle classes struggle, more wealthy people are being relieved of the wealth tax.
“The rich have been given benefits by increasing the surcharge-free net wealth threshold,” said Towfiqul Islam Khan, senior research fellow of the Centre for Policy Dialogue (CPD) to The Daily Star. In the ongoing budget, taxpayers having net wealth above Tk 2.25 crore have to pay a surcharge. “I propose to raise the limit of surcharge to Tk 3 crore,” said the finance minister’s budget speech.
One of the only places where the rich were directly targeted is an increase in VAT for chartered aircrafts and helicopters.
“Chartered aircrafts and helicopters have become popular means of transportation among the very rich people. Therefore, I am proposing to increase the existing supplementary duty from 20 (twenty) percent to 25 (twenty-five) percent on this service,” said the finance minister’s budget speech.
It is unclear who helicopters are popular amongst, but it is definitely not the same group who will be hurt by an increase in soya bean oil prices. Both will see a five percent increase in costs. Surely, if a person can rent a helicopter for Tk 70,000 per hour, he or she should be able to absorb the increase in the rates? Would a person from the bottom socioeconomic stratum be able to absorb the price increase of the same rate with as much ease?
There is more.
In an economy where the wealthy taxpayers are already not declaring their real income and paying taxes, the new budget has developed new ways to reward them.
“I propose a new provision in the income tax law, to accept investment in Economic Zone and High-Tech Parks, without any question on the sources of invested fund, by the income tax department, if the taxpayer pays 10 percent income tax on such invested amount,” proposed the finance minister in his speech. To put into perspective, 10 percent income tax is what a person earning Tk 34,000 a month currently pays. While income tax functions as a progressive tax, with the tax rate going up as a person’s income goes up, those with black money—including those earned from bribes and drugs—can now simply not declare their wealth, and enjoy a much lower tax rate. Essentially, the budget will be rewarding people for breaking the law.
And while we are on the topic of corruption and black-money among the wealthy: remember the pillow suppliers of Rooppur Nuclear Power Plant’s residential project, who would apparently get paid Tk 5,957 for purchasing a pillow, and Tk 760 for carrying it up a building? The budget brings only good news for them, because they can now enjoy a VAT exemption.
All this comes at a time when income inequality is at an all-time high, according to the Bangladesh Bureau of Statistics’ Household Income and Expenditure Survey this year. Centre for Policy Dialogue dug a bit deeper in 2018, and found that while income inequality has deepened, consumption inequality—the coefficient that measures inequality based not on people’s wealth, but by their expenditure—has remained constant in all these years. What this means is that while the poor are getting poorer and earning less, their expenditures have not gone down.