Virtual Post Budget Discussion organised jointly by ICAB and The Business Standard
On 11 June 2020 the government has announced the very big budget BDT 5,68,000 Crore equivalent to 17.9% of the GDP and which is increased by 13.24% as compared to revised budget 2019-20. The deficit of the budget is also huge BDT 1,90,000 crore which is 33.45% of total budget.
Unlike on previous occasions, this time, analysts are very critical on the budget while slightly soft on whiten black money offered as they understand the economy is in dire need of money during this pandemic COVID 19 .
Economists, businesses and professionals took part in a virtual post budget discussion organised jointly by The Business Standard and The Institute of Chartered Accountants of Bangladesh (ICAB) on Sunday, 14 June 2020. Planning Minister MA Mannan, MP attended the event as chief guest. ICAB Secretary Major General Muhammad Imrul Quayes, ndc, psc (Retd) and The Executive Editor of The Business Standard Shariar Ahmed delivered welcome speeches from their respective sides. ICAB Past President and Chairman TCLC of ICAB moderated the session while ICAB President Muhammad Farooq FCA spoke on the session. ICAB Council Member Md. Shahadat Hossain FCA and Fellow Member Snehasish Barua FCA gave brief presentations on the National Budget 2020.
The analysts are in favor of the facility to whiten black money. However, the finance minister surprised them with the way he has given the blanket facility – with huge tax benefits. The opportunity should be given for two to three months instead of one year, many of them think.
Speaking as the chief guest, Planning Minister MA Mannan said, "Listening to today's discussion, the budget seems to be a business-friendly budget." He said, the prime minister has described it as a recovery budget. The agriculture and health sectors have been prioritised. The increase in tax on mobile recharges, increase in excise duty on bank deposits are popular items. There is an opportunity to discuss this before the budget is passed. "We have a challenge in financing the budget," he added. Efforts should be made to solve this by increasing the tax net. There has been a discussion of unrestricted opportunities to invest black money. There is also a discussion about the effectiveness of this opportunity given by the government. "We are ready for reform. We are taking your feedback."
"It is an injustice to those who pay taxes regularly," Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue, said on the way the government has given a blanket immunity to individuals holding black money. She said, this facility was given at different times in the past but people did not use it that much. She said, only Tk16,000 crore has been whitened through this facility provided by different governments since the independence of the country. Of this, Tk 9,000 crore was whitened in 2007-2008 alone during the caretaker government. She said, "No one would use this opportunity again this time if the government just kept the option without forcing it on anyone."
Dr. Fahmida Khatun identified this system of equal taxes for both the rich and the poor as a social injustice. She said in almost all the countries of the world, more than 50 percent of the total revenue is collected from direct taxes. "This is only 30 percent in our country."
Mosharraf Hossain Bhuiyan, the immediate past chairman of the National Board of Revenue (NBR) said, it was not the right move to give a chance to whiten black money with just 10 percent tax. He said, "It could be in line with the regular rates plus a penalty – it may be symbolic." He said a flat 10 percent tax cannot be imposed on all amounts. If someone is whitening Tk100 crore and another Tk10 lakh, it is not the same. Mosharraf Hossain Bhuiyan said the tax system globally is direct taxes. "That means collecting money from the rich and spending it on the development of the state and poverty." Mosharraf Hossain Bhuiyan also proposed the excise duty on bank deposits and supplementary duty on mobiles be withdrawn.
"In our country, burdens are placed on ordinary people by levying indirect taxes on goods and services. We tried to change it. However, in this year's budget, reliance on indirect tax has increased again."
Shams Mahmud, president of the Dhaka Chamber of Commerce and Industry said, the opportunity to whiten black money should be given for two to three months instead of one year. "It should have been given only in investment, not wholesale. It could increase the flow of money if the opportunity was given for a maximum three to four months to overcome the novel coronavirus crisis," he added. Shams Mahmud demanded the speedy disbursement of the incentives packages announced by the prime minister to provide working capital support to companies affected by the novel coronavirus. He added that businesspeople are in fear about the capital support of banks in the private sector as the government has set targets for a large borrowing from the banking sector.
The panelists criticised the budget's reliance on indirect taxes instead of direct taxes for revenue collection. Economists have termed the new imposition of a five percent supplementary duty on mobile recharges and the increase in excise duty on bank deposits unjust.
Ahsan H Mansur, executive director of the Policy Research Institute, said, "Mobile companies currently give 54 percent to the government. Following a five percent increase, it will be 59 percent. This will disrupt the business of mobile companies and increase the suffering of the public as well." Criticising the increase in excise duty on bank deposits, he said, "A common man will deposit his hard-earned money in banks. Why should excise duty be paid on it at a compounded rate? Why should it increase every year?""On the one hand, the opportunity is being given to whiten black money and, on the other hand, a fine is being imposed for keeping hard-earned white money in banks," he added. Calling it a bizarre structure, Mansur criticised the NBR for changing the system of income tax, VAT and customs sectors. He recommends a cost-benefit analysis before making any changes.
Dr Nazneen Ahmed, a senior research fellow at the Bangladesh Institute of Development Studies, said the increase in supplementary duty on mobile recharges would hamper the advancement of e-commerce and online activities. She said people in villages are using the Internet through mobile phones – many are doing e-commerce business with mobile internet and many are studying through this. The supplementary duty will increase the cost of talking as well as disrupt this work. Internet cost will also go up due an increase in import duty on WiFi routers. Nazneen Ahmed said, the five percent increase in the supplementary duty on local cosmetics would have a negative impact on the business of women entrepreneurs and beauty parlors and demanded it be withdrawn.
Rakibur Rahman, director of the Dhaka Stock Exchange, said the announced budget did not give anything to the capital market. He said none of the stock exchange's demands for the stock market were kept. He said a condition of a three-year lock-in for investing black money in the stock market has been imposed. On the other hand, if one keeps black money in the banks, there is no condition for a lock-in. In such a situation, no one will go to the stock market. In his budget speech, the finance minister said it was not the government's responsibility to improve the stock market. The government will boost the economy and achieve growth. Criticising this statement, Rakibur Rahman said, "All the countries of the world keep the stock market well with incentives."
ICAB President Muhammad Farooq praised the budget for raising the minimum tax rate to five percent and the provision of a 50 percent fine for money laundering. He, however criticised the provision of 20 percent advance payment to appeal to the NBR in VAT cases. He also mentioned, in the proposed budget, there is no direction of any government initiative to bring in foreign investment.
He said, it is our concern that the collection of revenue as targeted Taka 3,78,000 crores will be challenging task due to the negative impacts of current pandemic on trade, commerce, industries, import, export and services. Achieving such a huge target is a big challenge for NBR too.
GDP Growth has been predicted to be 8.20% For FY 2020-21 while GDP Growth of FY 2019-20 has been revised to 5.20%. Obviously, it is ambitious and would be very challenging to achieve due to COVID-19 pandemic situation, he added. We highly appreciate the government focus and prioritization on the allocation of budget in the four key areas namely health, agriculture, social safety net and job creation for recovering from the current pandemic crisis, he further added.
On the Income Tax related issues he said, reduction of personal tax rate including the changed structure is very welcoming during this situation. As our corporate tax rate is higher compared to tax rates of similar economies including the neighboring countries, reduction of such rate for private sector entities from 35% to 32.5% will become more comparable now and much appreciated. ICAB has been addressing this issue to the NBR over the years.
The threshold of tax-free income has been raised to Tk 3 lakh for individual taxpayers and a 5 percent tax slab has newly been introduced. The highest tax slab has also been reduced to 25 percent. This will give a relief to low-income people and encourage to disclose the actual income by the tax payers, he said.
He said, advance Tax on import of raw material for production purpose has been reduced to 4% from 5% and time limit to claim both input VAT rebate and decreasing adjustment of AIT has been extended from next two tax period to next four tax period are appreciable. However, restriction on the time for consumption of the materials, purchased or imported, within four tax period will be difficult in implementation and monitoring which may increase the disputes and harassments. Rather the existing provision in this regard is more business friendly.
ICAB also welcome the exemption of VAT on COVID-19 medicines, test kits, PPE and surgical accessories at import, manufacturing and trading stages.
ICAB Vice President Mohammed Forkan Uddin FCA said, operational expenditure of the government is huge. Government may think to cut some extent of this expenditure to meet up the pandemic driven economic crisis. The provision of whiten black money may spur the economic activity. He also stressed for preventing money laundering, strengthening alternative dispute resolution(ADR), etc.
ICAB Past President and Council Member AF Nesaruddin FCA proposed lifting the three-year lock-in for the stock market investment of black money. He said, the size of the economy has become larger in last few years. The government’s expenditure as well as the allocation for ADP have increased substantially. There is a challenge to increase the revenue to finance the ADP and the recurrent expenditure of the government. If the pandemic situation continues for long time, both the revenue target, and the export target will not be achieved.
Emphasizing on employment management, Mr. Nesar said we need to expand the tax net and IT driven tax administration. Otherwise, uncertainty will grip the economy. He also put emphasize on steps for attracting more foreign direct investment(FDI) into the country.
Speaking on the reformation of financial sector and the corruption, ICAB Past President Kamrul Abedin FCA said, loan defaulters could reap the benefit of stimulus package during the pandemic COVID 19. He said, there is an ardent need for formation of banking commission to bring discipline in the banking sector. The other side is rampant corruption which cripples the economy. We need some directions to address those issues in the budget, he added.
At the discussion, ICAB Council Member Md. Shahadat Hossain FCA spoke about budget revenue and expenditure in macro economic aspect. Snehashis Barua then spoke about changes to income tax, VAT and customs – as well as their impact on public life and business.