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A mixed bag of populist, pragmatic moves : Muhith unveils Tk 2.22 trillion budget in JS

Thursday, June 6, 2013
In what appears to be a gamble drawn basically on a mix of fiscal measures, Finance Minister AMA Muhith unveiled in the Jatiya Sangsad (JS) last Thursday a Tk. 2.22 trillion national budget for the fiscal 2013-14 with a hope of hitting twin goals of boosting the relatively slowed down economic growth and making the voters happy ahead of the next general election, due early next year. 

The finance minister in the proposed budget has sought to kick-start the engine of growth by bringing about changes in areas of duty and taxes and stepping up expenditure in social sectors. 

Despite the possibility of non-attainment of the tax revenue target set for the outgoing fiscal, he hopes to raise the government's revenue incomes substantially from direct and value added tax (VAT) next fiscal, about Tk. 130 billion in the case of direct tax and Tk. 95 billion in the form of VAT. As usual, the income from import duty will continue to remain stagnant in the coming fiscal. 

The finance minister has apparently banked heavily on tobacco manufacturing and mobile companies and investment of black money in land and apartments for increased income from direct tax revenue. However, the hike in corporate tax rate in the case of listed mobile phone company might be viewed as a step opposed to the government's pro capital market measures. 

The budgetary proposals on individual income tax slabs---the tax exempted income threshold has been raised to Tk. 220,000 from Tk. 200,000---, investment incentives, including the increase in the rate of tax rebate for investment by individual taxpayers and the hike in tax exempted house rent and conveyance allowances for salaried and low income people, though likely to be seen as populist moves ahead of next election, would go well with the people. 

The proposals to reduce duty on capital goods and intermediate raw materials, rationalization of the present slab of supplementary duty structure and extension of tax holiday facility up to 2015 are aimed at boosting investment which has been sluggish for quite sometime. 

Mr. Muhith has set a gross domestic product (GDP) growth target at 7.2 per cent for the upcoming fiscal against the backdrop of a lower-than-projected growth (6.0 per cent) in the outgoing fiscal and an uncertain political climate prevailing in the country. 

He does also expect the inflation rate to come down to 7.0 per cent in the next fiscal despite the fact the same was 8.37 (point-to- point) in April last.

In the proposed budget, the total expenditure has been estimated at Tk. 2.22 trillion (18.7 per cent of the GDP), including non-development expenditure of about Tk. 1.57 trillion and development expenditure of Tk. 658.7 billion. 

Mr. Muhith has proposed to fetch Tk.1.41 trillion as tax revenue and Tk. 262.40 billion as non-tax revenue to finance the next fiscal's budgetary expenditures. 

The overall budget deficit has been estimated at Tk. 550.3 billion or 4.6 per cent of the GDP. The government has proposed to finance the deficit largely by borrowing from the country's banking and other sources. It plans to borrow nearly Tk. 260 billion from the banking system and Tk. 79.71 billion through savings tools and other non-banking sources. 

The possible size of the borrowing in the next fiscal, according to experts, would largely depend on the spending on 'virtual allocations' made in the budget and the people's response to the tax cut and the hike in yield rates of government's savings tools. 

The response from general people to the savings tools in the outgoing year has been very poor. As against the government's projection to fetch Tk. 74 billion from the tools, a paltry of amount of Tk. 19.73 billion has been mobilized from the sale of the same in the outgoing fiscal. 

In the proposed budget, 23.17 per cent of the overall resources have been allocated to social infrastructure sector, mainly to human resources, 30.18 per cent to physical infrastructure sector and 22.45 per cent to general services. The government has set aside 3.29 per cent of the budgetary resources for the public-private partnership (PPP) initiative, financial assistance to different industries, subsidy and equity investment in nationalized banks and financial institutions. 

The government will have to spend in the next fiscal 12.47 per cent of the budget resources or Tk. 277.43 billion on interest payments. 

The subsidy expenditure in the outgoing fiscal will be Tk. 23.63 billion more than the amount (Tk.Tk.144.45 billion) estimated originally. However, the government has estimated the subsidy expenditure in the next fiscal on the lower side at Tk.154.43 billion.
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