Predictable with a pinch of caution
June 04, 2021 10:01:11 PM
The proposed national budget of more than 6 trillion Taka for the next fiscal year (FY) 2021-2022, placed in the middle of the second wave of the Covid-19 pandemic, appears expansionary. However, he failed to find the right chord, at least in some important areas. Unless there is more focus on specific issues, including immunization and the social safety net, the budget follows the same old path of making big promises versus poor performance. More importantly, the budget is devoid of the “surprises” that finance ministers used to unlock in years past. . In the days before the budget was formally presented to parliament by the finance minister, most of its key features — size, allocations, resource mobilization target, and even tax rate changes — were available. for public consumption, through the media.
The budget for the next fiscal year coincides with the celebration of the country’s golden jubilee of independence. Still, it doesn’t have the right flavor and shade because of the pandemic. The outgoing and upcoming fiscal years are different from previous ones when there was no need to worry about the devastating impact of Covid on lives and livelihoods. . Beyond the usual framework and approach, budgets for such a difficult time must deal with some pressing issues with sufficient diligence. Most importantly, the budget would pay special attention to health, education, agricultural sectors and the safety net program, in addition to the normal fiscal years, to help mitigate the negative impact of the crisis. pandemic. Such an expectation is fully justified in view of the experience gained by all parties concerned, including decision-makers, during the outgoing fiscal year. Allocations for health, agriculture and education, unfortunately, have been routine allocations.
Vaccination and the social safety net, however, received special attention in terms of allocation. Still, there is uncertainty about the vaccine supply. The safety net operation will expand in the coming fiscal year, but it intends to cope with the usual beneficiaries. The pandemic has created millions of new poor and several surveys have revealed it. There is no plan or program in the budget to get them out of the poverty trap. Occasionally handing out a few hundred taka will not be a significant way to help these people in distress.
Planning a budget during a difficult time like today is certainly a daunting task. The Minister of Finance deserves to be congratulated for accomplishing this. He proposed the new national budget for fiscal year 2021-22, setting his overall spending target at an all-time high — Tk. $ 6.03 trillion, with four key goals — achieve gross domestic product (GDP) growth of 7.2 percent, increase overall investment to 33.1 percent (public 8.1 percent and private sector 25 percent), maintain the budget deficit limit at 6.2 percent and contain inflation at 5.3 percent. These are all numbers and there is no certainty that any of these will match the projections at the end of the fiscal year. Budget spending and overall investment targets, as has happened in the past, are unlikely to be met. Lack of capacity of government ministries / divisions / agencies has been responsible for spending below target. Private investment has stagnated in recent years. Lower borrowing rates and other fiscal and policy supports have failed to stimulate private investment. In the proposed budget, the government offered certain tax benefits, including a reduction in corporate taxes. It remains to be seen how the fiscal measures, combined with lower lending rates, will help boost the pace of private investment in the country. next
Since the attack began in March last year, the government has extended stimulus packages to large, medium, small and micro businesses to help them weather the crisis. Large industries and businesses have nothing to complain about the back-up plan. But SMEs would have been largely bypassed because banks are not very interested in lending to this type of client. Banks can choose their customers. Yet the government should find ways to help SMEs hit hard by the pandemic.
As for the head of “recipes”, the government, for the first time in many years, has been cautious and decided not to play the gallery. Experience with tax collection in the outgoing fiscal year — the board is unlikely to meet even the revised target — may have prompted the National Board of Revenue (NBR) to set its objective of mobilizing taxes equivalent to the initial objective set for FY’21. If Covid infections continue to escalate intermittently over the next few months and the government is forced to introduce restrictions, achieving this goal could prove elusive. As usual, the government is placing a lot of hope in value added tax (VAT), the biggest source of tax revenue. But it will all depend on the overall business environment. The problem of the efficiency level of the country’s tax administration remains an obstacle. It is unlikely to go away anytime soon as sporadic efforts to reorganize the tax administration have so far failed to deliver tangible results.
The government has done the right thing by removing one particular irritant — the special facility to legalize undeclared or black money by paying only 10 percent tax. The installation, as expected, aroused a lot of resentment among honest taxpayers. The existing provision — 19E of the Income Tax Ordinance — allows black money to be laundered by paying a criminal tax at the rate of 10 percent with normal tax rates. The agencies concerned are not prohibited from asking questions about the source of these funds. No one objected to such a provision.
The Minister of Finance in his budget speech claimed that there had been a “slight” deviation from the traditional budget to effectively deal with the effects of the pandemic on the economy, life and livelihoods. In this context, he listed five priority areas: managing the impact of Covid by the health sector, implementing recovery plans for different sizes of industries and companies, ensuring safety food, human resource development and the fight against unemployment in industries. The focus on the immunization program, in terms of allocation and effort to purchase vaccines, in the budget is very visible in the budget. But the same cannot be said of the other so-called priorities.
In his budget speech, the Minister of Finance emphasized the positives and the achievements of recent years. These should be enjoyed with an open mind. Certainly, many weaknesses must be taken into account with the utmost seriousness. Nonperforming Loan (NPL) is a chronic problem and a solution to this problem was not in sight until now. The issue has now been left out due to the pandemic. But when normalcy returns, it might appear to be a much more complicated problem.
It is undeniable that the country’s economy was doing remarkably well before the deadly pathogen infiltrated the country. Certain unfavorable exogenous and endogenous factors could not prevent it from making significant economic progress. The pandemic has slowed economic growth. But it has not been able to reverse the growth trend that many countries are experiencing. The second wave of Covid is now hurting the normalization process of business activities. The government will need to deal with the situation effectively without risking the lives that matter most. Businesses will be happy with the tax assistance offered during one of the most difficult times. Now is the time to deliver benefits to the millions of people who have lost their jobs and sources of income in the past 15 months.