IBFB Press Conference on “প্রস্তাবিত জাতীয় বাজেট ২০২৩-২৪: প্রত্যাশা ও প্রাপ্তি”

Hon'ble Finance Minister of the People's Republic of Bangladesh Mr. AHM Muftafa Kamal, M.P. presented the supplementary budget for the 2022-23 budget year and the national budget proposal titled Smart Bangladesh's progress after a decade and a half of the development journey for the next fiscal year 2023-24 at the Bangladesh National Parliament on Thursday, 01 June 2023. IBFB salutes and thanks the Hon'ble Finance Minister for presenting the National Budget 2023-24 at the moment of facing various pressures and challenges including high inflation, rise in commodity prices, global crisis, dollar crisis, slowdown in business-investment and employment, National Parliament elections.

The International Business Forum of Bangladesh (IBFB), a research and advisory organization coordinating the introduction and linkage of the business and investment environment of Bangladesh in the international environment, believes that the recovery of the economy affected by the Corona epidemic, the impact of the Russia-Ukraine war, and the turmoil of the world economy by protecting the economy of Bangladesh. There is no alternative to a multifaceted, implementable and directional budget to promote sustainable development in developing countries.

In this context, a budget proposal of Rs 7 lakh 61 thousand 785 crore has been proposed for the financial year 2023-24 where the expected GDP growth rate is 7.5% and the inflation rate is 6.0% The main objective of this year's budget is to control inflation and maintain higher GDP growth, said Humayun Rashid, President of IBFB and Managing Director & CEO of Energypack Power Generation Ltd., at a press conference.

To achieve the goal of a developed Bangladesh by 2041, the Hon'ble Finance Minister has outlined the vision of 'Smart Bangladesh' based on (1) Smart Citizens (2) Smart Government (3) Smart Society and (4) Smart Economy.

International Business Forum of Bangladesh, being the champion of the dream of Smart Bangladesh, we are also firmly convinced and hopeful with the Honorable Finance Minister that in Smart Bangladesh, the per capita income will be at least 12 thousand 500 million dollars, less than 3 percent of people will be below the poverty line and extreme poverty will come down to zero; Inflation will be limited to 4-5 percent; Trade deficit will be 5 percent; The revenue-GDP ratio will be over 20 percent; Investment will be 40 percent of GDP... paperless, cashless society will be created.'' (Budget Speech, paras 8-9)

In the budget speech, there is a success story of the development journey of the past one and a half decades, there is a summary of the table of praise for foreigners, but because there is no explanation of the context of the challenges that are currently visible, the government seems to be helpless in dealing with the challenges and there is no roadmap to implement the strategy to deal with it.

Witnessing the success of the last decade and a half, the first budget was announced in the election year with the slogan of Smart Bangladesh's progress. The aspiration to stay in power has been revealed by avoiding responsibility for rescuing the economy plunged into various crises.

Ways to stop or reduce the huge government expenditure Occasional expenditure The huge amount of expenditure to start new mega projects shows that development without good governance must continue. There is no concern in the budget about the recent Moody's downgrading of global business investment, loans or grants.

Rather, it is supposed to pass the difficult time in comfort and self-satisfaction by showing it to another sector to make the traditional expenditure of one sector palatable. Blaming the effects of the Corona epidemic and the Ukraine-Russia war, in the context of the present times, 'to keep the almost stagnant economy running, to prevent unemployment and hunger, to control price inflation, to deal with the recession caused by Corona and the war, and to develop potential opportunities (in agriculture, health, IT, skilled manpower sectors). (more focus and efficient water resources generation) did not appear to be consistent with good behavior and coping with uncertainty. In the budget announced in the fiscal year 2022-23, the fear, conflict and situation of Corona and war were mentioned in the implementation of the budget, the distribution of income and expenditure was not reflected. The size of the budget, the allocation of the budget, the target set for tax collection have not been consistent.

Features of Budget: Positive and Negative Trends

IBFB feels that there is no other option but to encourage industrialization in the country to create employment and bring low-cost goods to the masses. We welcome the proposal to reduce customs duties on raw materials required by certain industries.

Health and education sectors were not taken seriously in the budget.

The social safety net has been somewhat widened.

The finance minister said that inflation will remain largely under control in the coming financial year and the annual average inflation is expected to stand at around 6 percent. He opined, “Inflation will continue due to reduction in fuel, food and fertilizer prices in the global market as well as adjustment of fuel prices in the domestic market and government initiatives to keep the food and supply system normal.

The proposed budget expands the spending target by 15.3% against global recessionary trends and this year's spending actually shrinks by 2.6%. Development expenditure for the next financial year is also targeted at 14.7% higher as against this year's revised expenditure which is only 0.7% higher than the original target.

The budget proposes a minimum tax of Rs 2,000 on individuals who file tax returns even if they have no taxable income but are obliged to file income tax returns for availing services from the government to promote this participation in government welfare. The minimum tax is expected to generate additional revenue of Rs 1,240 crore. The process of collecting minimum tax will create administrative complexity, fraud will increase. The objective will not succeed.

The budget contains a landmark announcement to introduce a universal pension scheme. The Universal Pension Management Act, 2023 has already been passed.

To increase the property registration tax in various areas including Dhaka, Chittagong, Narayanganj and Gazipur from the existing 4 percent to 8 percent in the fiscal year 2023-24, 8 percent of the deed value or Tk 20 lakh, whichever is higher, now 3 percent of the property under the jurisdiction of any district municipality. Taxation which is proposed to be raised to 6 percent.

The surcharge-free asset limit has been raised from Rs 3 crore to Rs 4 crore in the latest budget for 2023-24, though a minimum surcharge of 10% has been proposed, where an individual's total assets exceed Rs 4 crore and 35% surcharge for individuals whose assets exceed Rs 100 crore. In this case asset valuation should be based on the current market value of the asset. For example, if someone buys a house in Gulshan area 40 years ago, he pays tax on its market value at that time, which is not reasonable. They have to pay tax on an estimated present value. If the government evaluates the assets as per the current market conditions that will help in generating more revenue.

A road map is being formulated for establishing a permanent system of formula-based price adjustment in the energy sector. We hope to finalize the formula-based price adjustment mechanism by September this year. Total subsidies will gradually decrease in the medium term after the recent price hike and the implementation of the upcoming adjustment measures.

The amount, referred to as direct tax expenditure, is over 41 per cent from Rs 1,25,813 crore in 2020-2021, accounting for 3.56 per cent of GDP. At the same time, efforts are underway to explore alternatives to cash incentives to ensure that the growth of the export sector is not hampered.

Another new major is proposed for risk management. A separate allocation of Rs 4,000 crore has been proposed in case of risks to the economy in situations like the Covid-19 pandemic or the Russia-Ukraine war. A new step to deal with any adverse situation is the proposal for separate allocations in case of risks to the economy, such as the Covid-19 pandemic or the Russia-Ukraine war.

The government is providing policy support to exports by identifying the highest priority sectors, special development sectors and special development service sectors. However, in the post-LDC graduation period after 2026, measures such as rationalization of tariff structure and phasing out of cash support on export accounts will have to comply with the norms set by WTO norms, the budget said.

Bangladesh Bank has already reduced loans from reserves to exporters through the Export Development Fund (EDF). A $7 billion fund has been reduced to $5 billion. Besides, the interest rate on Uuri loans has been increased to discourage exporters from taking loans.

Besides, the Central Bank has formed a local currency fund called Export Facilitation Pre-Finance Fund (EFPF) of Tk 10,000 crore for exporters. Finally, there is a commitment from the FM to reform the tariff structure. The government is considering reforming the tariff structure and phasing out cash assistance for Bangladesh's sustainable graduation from least developed country (LDC) status.

Currently, the process of strengthening the manpower structure of the National Board of Revenue (NBR) is underway. A study is being conducted to help rationalize the scope, extent and nature of tax exemptions. NBR is preparing a 'Medium Term Revenue Collection Strategy (MTRS)' to help achieve revenue collection targets in the medium term. Income tax and customs laws are being modernized. The government is also trying to increase non-tax revenue. Updating of fees/rates, awareness and activation of Ministries/Departments to collect revenue from other sectors including identification of potential sources is in progress.

It is good news in the budget that, to reduce supply costs and strengthen financial stability in the power sector, the government will phase out the minimum capacity charge payment clause at the time of contract renewal for existing rental power plants or rental-operated power plants.

The government will aim to ensure sustainable debt management in the medium term. Hence, during the pre-transition and post-transition period, we will continue to seek sources of bilateral and multilateral foreign financing for credit facilities on the easiest possible terms. The Finance Minister has announced that the gap between the existing multiple exchange rates is being brought to a minimum with a view to gradually market-oriented exchange rates. Apart from this, the process of market-based interest rate and exchange rate is going on. Tariff rationalization, domestic resource mobilization to meet fiscal deficit, withdrawal of subsidy/cash assistance or exploration of alternatives etc. should now be considered.

The budget announced that tax exemptions and concessions, though rationally implemented, should be continued and existing tariff rates at the import level should be gradually reduced to meet the challenges of graduation from the category of least developed countries. Incentives to encourage capacity building of domestic industry need to be reduced accordingly. Proper identification and remedy of anti-export biases and gradual reduction of tariff rates will be a key factor for signing preferential trade agreements (PTAs) or free trade agreements (FTAs) with our important trading partners. These forward-looking steps will also help us address the post-graduation challenges. Hope the government fulfills the promise of reforms.

There is no good news for the fixed income group and there is almost no significant improvement in barriers to doing business in the budget. The budget mentions LDC graduation, but does not specifically mention any reforms except a promise to reform the tax structure.

IBFB's feedback, comments and recommendations on the overall review of the budget are as follows:

• Foreign Exchange Reserves: No significant economic growth can be envisaged without a sustained increase in foreign exchange reserves. Therefore, instead of gross import bans, we should speed up the implementation of foreign-financed projects and reconsider self-financed projects that have a large import component to help offset the balance of payments deficit by ensuring protection against economic shocks caused by volatile energy inputs.

• Alternatives to Increase Export Earnings: Instead of the traditionally single commodity dependent export basket, policy support should be extended towards business/industry for effective implementation of existing policies, creating a user-friendly process and allocating more national funds to develop this potential source.

• Import duty and minimum tax: Considering advance tax as minimum tax paid by an industrial enterprise at the stage of importation of raw materials of certain industries and fixed (5%) minimum tax on gross receipts will be detrimental to existing investors, hence best results for business and consumers alike. Request a review of this proposal

• Renewable energy to offload existing supply chains: Investing in renewable energy not only benefits us environmentally but also contributes to economic growth by creating jobs, expanding markets in related industries supporting clean-energy technologies. We recommend favorable initiatives.

• Variation in income tax policies: Different policies on individual tax rates, exemptions, exemptions, and credits affect different taxpayers based on their income level, type of income source, and other personal circumstances. Strongly recommend the National Board of Revenue (NBR) to focus more on tax net expansion while simultaneously adopting automation at all possible levels. We want to emphasize on introduction of e-payment and e-TDS system and digital payment incentives to ensure accountability and transparency throughout the process.

• Reduction of per capita liabilities: Raising debt or conditional budget support from domestic and foreign sources is an important issue for developing countries. We recommend adopting prudent debt management strategies that promote transparency, accountability and financial discipline.

• Projects Focused on Climate Vulnerability: All projects that are anti-environmental and go against the concept of green economy should be abandoned. We strongly recommend increasing budget allocation for projects on climate risk as Bangladesh is already experiencing erratic weather patterns.

• We would like to express our sincere appreciation for the development of new and improved logistics infrastructure with the assistance of the Logistics Infrastructure Development Working Committee (LIDW) from the Prime Minister's Office. We recommend expediting Dhirashram ICD building to reduce pressure on highways and increase Dhaka-Chittagong rail connectivity to shift pressure to Kamalapur ICD, the heart of Dhaka city. The logistics industry is an important key to our economy attracting domestic and foreign direct investment (FDI), which is growing at a high pace.

• Investing in a smart Bangladesh is not just an economic imperative, it is a moral one. By prioritizing the right budget allocations to infrastructure, education, technology, energy and social inclusion, we can build a sustainable, prosperous future for all.

• Targets set for revenue, GDP growth and some indicators of the economy need to be realistic. Self-contradiction emerges when it comes to the specialization of the mutual applicability of all these. This stated high goal of the budget will be fulfilled if (1) the global recession ends quickly and the Ukraine-Russia war stops, the demand for Bangladeshi clothing increases in the United States and European countries, (2) In countries like Malaysia, the sending of workers by way of syndicates will start quickly (3) Common people will have cash in their hands within the country, (4) Demand will increase, (5) No one will lose their job, no one's salary will decrease. Overall (6) Private sector investment will increase from 12.7 percent to 25.3 percent of GDP. While private investment has to wait up to 5 years to increase 1 percent of GDP in that economy, when in that economy, the private investment dependent on the private sector has already done damage like falling from 24.2 percent of GDP to 12.7 percent in one fiscal year and the GDP growth flag is 8. Had to downgrade from 2 scale to 5.2.

• The challenge of reforms and capacity building in revenue collection and increased expenditure in various sectors remains. However, if the challenges are overcome, it will be possible to reduce the damage done to the state of the economy or the pace of development.

• Positive aspects of the budget given priority to health, social security, agriculture sector, health sector allocation should not be increased, there are questions about the spending capacity and good governance of this sector. Those places will be challenging.

• Sectors such as health, education, dealing with natural disasters, which have been heavily affected by the Corona crisis, have not been prioritized. Due to the impact of Corona, the importance of health and agriculture sector was discussed in the budget process, but there was a relative increase in the allocation in nominal terms, but due to natural disasters caused by climate change, education, creation of skilled human resources, job-creating industrial initiatives in the formal and informal sectors, it was necessary to increase the allocation in the IT sector. These will play an instrumental role in recovering the economic and social damage caused by Corona.

• Welcoming the decision to provide equal benefits to all manufacturing sectors like garment industry.

• Mobile phone users will have to pay higher bills as the proposed budget for the fiscal year 2022-23 increases the supplementary duty from the existing 10 percent to 15 percent. When the country, society and economy are forced to lean towards digital and virtual connection culture, the review of additional taxes on the use of mobile phones and internet has not been born. Considering the current corona situation, it was necessary to reduce it further.

• Despite the budget's tough stance against corruption and good governance, continuing to launder black money is suicidal, unethical and unconstitutional. Regular tax payers will be further discouraged if there is an opportunity to whiten black money by paying only 7 percent tax. Time to whiten black money needs to be specified. Then there will be a need to go through strict procedures to recover black money. Because when there is a chance to get away, there is no urge to whitewash. And the source of the laundered money will not be questioned, if this type of amnesty is granted, the ethical balance in the economy will be seriously damaged, and the international organizations / bilateral agreements with the countries to prevent money laundering will have to face objections.

• A lot has been said in the budget for employment. However, it would be better if there was budget allocation and guidance on the creation of new entrepreneurs and the opportunities that have been created for various online jobs at the moment, how to take them, what other measures should be taken, including training.

• The allocation under social security for rural employment should be increased and the scope of the ongoing 100 days program should also be extended.

• All in all, the proposed budget for the next financial year presents many challenges in dealing with the challenging situation. We are hopeful that the promises made in the budget vision for good governance, transparency and development of people and health will be fulfilled.

• In the previous budget, a direction of disbursement was given at the beginning of the financial year to solve the problem of disbursement and expenditure flow in order to eliminate inefficiencies and delays in the implementation of the development budget. However, the medium-term budget framework introduced since 2006, apart from the decentralization of the budget (three years), it is enough to follow the method that is prevalent as the medium-term budget framework. Complexity in coordination between project manager and banker should be brought under reformation in the process of payment or reimbursement to the development project contractor (to avoid classification in CIB). In this case, changing the timing of the financial year (January-December or April-March) can be a balanced solution to the eternal problem of conducting development activities with transparency while maintaining quality.

• There is no high demand for reforms and remedial measures in the backbone financial sector of the economy, i.e. the banking sector (such as the formation of the Bank Commission mentioned in the budget of a few years ago) in this budget as well. If the financial sector does not turn around, the entire economy will become more fragile.

• The need to enable Bangladesh as a destination in the situation where Japanese investment from many countries, including China, was missed in the post-Corona environment and conditions, but no action plan or effective action was confirmed in this year's budget. IBFB calls for necessary action in this regard. IBFB expects to play a proactive role with the government through the Investment Funding Institution in this regard.

• Centenary colonial income tax law is getting the wording as a new law. (Budget Speech, Para. 244) It is hoped that the all-important Income Tax Act will be taken up responsibly with due public scrutiny and greater scrutiny by the legislators themselves, lest it result in delays and sweeping changes like the new VAT Act of 2012. Or will not accept the fate of lifelong exile or mutual blame.
  
  

Finally, IBFB feels that the proposed budget should be regularly checked and reviewed on a quarterly basis to ensure that it is properly implemented. Parliament's authority and role in ensuring accountability can be made meaningful during the passage of the supplementary budget. A high-powered advisory committee involving the private sector may be constituted to review and monitor the implementation of the annual development programme. The said advisory committee will present to the government the guidelines for the proper implementation, review and scrutiny of the budget through the respective parliamentary committees of the national parliament.

The budget size of Bangladesh is increasing. As a result, the pressure to manage the budget and increase the implementation capacity is also increasing. We must improve the efficiency in budget allocation along with increasing the capacity of appropriate use of allocated funds. In this case, appropriate use of technology, proper monitoring of budget execution, coordinated communication between various ministries and increased consensus in reaching goals, increased ability to make quick decisions, learning from the experience of other countries and working together with development partners can help the country even in these difficult times. It is possible to move forward. Besides, we have no choice, now the burning issue is to control price inflation, deal with crisis of international food and fuel oil. The question of saving life is first, the second issue is livelihood. Needless to say, this is a new Bangladesh. The previous situation will not return. New situations, new problems, new possibilities. We still hope, avoiding the legacy of the past, the finance minister will take the initiative to implement accountability while passing the comprehensive budget and come forward to change the structure of the economy by restoring order in the financial sector.