CPD: Finance minister's plan to tackle challenges unimpressive – Dhaka Tribune

CPD: Finance minister's plan to tackle challenges unimpressive – Dhaka Tribune

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BUDGET FY23
Experts issue multiple red cards to Kamal’s proposed budgetary measures

Although Finance Minister AHM Mustafa Kamal acknowledged six major challenges in his proposed budget for the upcoming fiscal year 2022-2023, he did not give any clear directions or offer any visible measures to overcome those challenges, said the Centre for Policy Dialogue (CPD) on Thursday.
After discussing weaknesses and good initiatives regarding those six challenges, the CPD showed 3 red cards to the finance minister for what they considered his "weak" budget proposal.
The verdict came out in CPD’s budget dialogue 2022 discussion titled "Addressing Six Challenges: Measures Proposed and Measures Required."
In his keynote paper presentation, Khondaker Golam Moazzem, research director of CPD, said: “The national budget for FY23 has been placed at a time when the economy is facing considerable challenges. Indeed, the macroeconomic stability significantly weakened amid negative developments both on domestic and external fronts.”
Afterwards, he recalled the challenges of the finance minister in his proposed budget.
"He (finance minister) acknowledged the challenges and mentioned the following six points: containing inflation and enhancing domestic investment, financing additional subsidy required for the increased price of gas, power and fertilizer in international markets, utilizing funds available through foreign assistance and ensuring timely completion of high priority projects of ministries/divisions, ensuring timely completion of projects in education and health sectors, increasing collection of local VAT and raising the number of individual taxpayers, and maintaining stability in the exchange rate of taka and keeping foreign exchange reserves at a comfortable level," Moazzem observed.
The very first red card the minister received was for checking inflation. The proposed budget did not offer any significant respite through fiscal measures from the inflationary pressure originating from high import prices and recent significant Taka depreciation, particularly as far as the low-income people were concerned, he noted.
There was no strong move to go for import duty reduction of essential commodities to signal a lessening of imported inflation burden on low- and fixed-income groups, the CPD official also said.
Adequate allocation in social safety net programs (SSNP) is necessary to tackle inflationary pressure for marginalized groups. The SSNP budget did not reflect the reality on the ground, Moazzem added.
Fahmida Khatun, executive director of CPD, said that the fiscal and monetary measures that have been taken to guard the poor, the lower-income groups, the limited-income groups, and the middle-class were inadequate.
There was an opportunity to lessen the burden of higher prices through the cut in duties of imported items and lowering of taxes domestically, she also said.
Anisul Islam Mahmud, chairman of the parliamentary standing committee on the Ministry of Expatriates Welfare and Overseas Employment, said: “I may also question the kind of statistics that have been used in the budget. But now the biggest issues are the budget challenge. Among them, food prices, and declining forex reserves are big challenges.”
“However, this could have been greatly reduced if all stakeholders had been consulted during the budgeting process. Even we are not discussing with public representatives (MP) while making the budget here,” he lamented.
Former commerce minister Amir Khosru Mahmud Chowdhury said that there was a great deal of doubt that the budget was presented with questionable data.
"That is not what I am claiming, but what is emerging from the research of different institutions in the country. The World Bank report also says that Bangladesh lags behind in statistical capacity. We now have a score of 60 out of 100, which was 70 during the BNP’s tenure. Naturally, there is a lack of transparency in the budget that has been prepared. But to be honest, looking at the budget, I do not understand what kind of economy we are in, because there is no price discovery here," said Chowdhury.
The second red card was on subsidy for increased prices of gas, power and fertilizer.
The CPD also said that in the proposed budget, it was stated that the sales price of fossil fuel, gas, electricity and chemical fertilizers would be adjusted gradually and on a small scale.
It reflected the government’s motive of passing on the burden of additional subsidies to the consumers. The government should consider reducing import duties on subsidized commodities, such as fuel for which total tax incidences on import are in the range of 22-34%, before planning any upward price revision, the think tank further suggested.
Socialist Workers Front President Razekuzzaman Ratan said that although the country has a labour force of more than 6.82 crore, the government did not feel the need to discuss with them before formulating the budget.
“We are one of the stakeholders. We are part of society. But we are not part of budget formulation,” he added.
Planning Minister MA Mannan said: “We have a problem with subsidy allocation in this budget. But we are trying to make it more people-friendly.”
About data hegemony, he also said: “We work with big baskets. We do not have the opportunity to work in a small range like various research institutes.”
Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, said that the increase in social safety net allocation was not enough under the current circumstances.
More red cards
The third red card was about utilizing funds available through foreign assistance and ensuring timely completion of high priority projects.
Here, the CPD felt that the government needed additional clarifications.
In one instance, the annual development program (ADP) for FY23 was marked with a high number of projects with "symbolic allocations."
Practice of undertaking projects on political consideration should be discouraged. Completing projects should receive adequate allocation and high priority for timely completion, while priority projects should be intensively tracked, it suggested.
Kazi Nabil Ahmed, member of the parliamentary standing committee on the Ministry of Finance, said: “We have been having a golden time since 2009. However, Covid-19 and the current inflation have caused us some problems. In the meantime, the Russia-Ukraine war has served a death knell. As a result, prices are rising in the international market.”
“However, I believe that under the leadership of Prime Minister Sheikh Hasina, we will overcome this problem quickly,” he reaffirmed.
He also promised to raise many of the concerns at the parliament that were raised in this discussion.
The fourth red card was issued for two sectors, education and health.
The CPD issued a yellow card for timely completion for education sector-related projects, but gave a red card for non-timely completion of health sector projects.
Regarding increased collection of local VAT and raising the number of individual taxpayers’ points, the CPD gave its fifth red card.
While the government continued with corporate tax rationalization in FY23, CPD analysis showed that without parallel initiatives in areas of reforms, ease of doing business, implementation of one stop service and improving business environment, such measures do not translate into enhanced investment, it also said.
The move to make proof of submission of income tax return mandatory for availing of certain services is a welcome measure. However, the proposed measures for whitening of capital flight is not morally acceptable, nor is it economically justified or politically wise, they further said.
The discussants also said that the government should raise the tax-free income limit in the upcoming fiscal to give some relief to people as they have been hit hard by rising inflationary pressures.
Shusmita Anis, vice-president of the Bangladesh Employers’ Federation, said Bangladesh is yet to recover from the Covid-19 pandemic.
The war has added to the woes. The prices, especially of food and gas, have gone up, she also said.
“This will have a tremendous impact on the urban cost of living. We must raise our tax-free income threshold to at least Tk5 lakh," she added.
Regarding Kamal’s sixth challenges of maintaining stability in the exchange rate of taka and keeping foreign exchange reserves at a comfortable level, the CPD believed the initiative taken was somewhat contradictory.
A new provision added in the Income Tax Ordinance 1984 with a view to mainstreaming money earned and assets acquired abroad into the economy. According to the proposed provision, no authority, including the income tax authority, shall raise any question as to the source of any asset located abroad if a taxpayer pays tax on such asset, they also said.
"The proposed rates are 15% for immovable property not repatriated to Bangladesh; 10% for movable property (including cash and cash equivalents) not repatriated to Bangladesh; and 7% for cash and cash equivalents repatriated to Bangladesh. We think it may discourage legitimate taxpayers,” the think tank added.
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