Finance Minister Kamal eyes 8.2% growth despite gloomy outlook
In his 52-minute digitally presented budget on Thursday, Finance Minister AHM Mustafa Kamal made strenuous efforts to please all sections of the country’s population.
He proposed bringing all the poor in 100 upazilas, those worst-affected by Covid-19, under the government’s Social Safety Net Programs. He also held out assurances of continuing existing welfare programs catering to roughly 9.7 million poor across the country.
The yearly projected cost for the program has been estimated at Tk95,574 crore in the draft budget for the 2020-21 financial year.
The budget also makes an attempt to boost consumption by leaving people with higher disposable income through cuts in income tax.
The lowest 10% tax slab has been reduced to 5% in the budget, while a tax-free income threshold has been proposed at Tk3 lakh from Tk2.50 lakh.
Corporation tax has been slashed from 35% to 32.50%. Tax at source for all types of export proceeds has been proposed at 0.5%, from the current 1% rate.
The finance minister proposed reducing advance tax on industrial raw materials from the current 5% to 4%. He proposed a huge tax relief for the country’s heavy industries and textile mills – scrapping 5% VAT and introducing only Tk6 as VAT for producing per kg cotton, respectively.
The budget offered money whitening facilities for investing in the stock market at 10% rate. It also offered the facilities for those who have invested their undisclosed and black money in land, buildings, flats, bank deposits, share and savings certificates at nominal rates.
Besides proposing a Tk41,027 crore health budget to be implemented through 13 ministries and divisions, Kamal proposed another Tk10,000 crore emergency fund for the health sector.
The fund is included as block allocation for the Finance Division.
The projected cost of countering the economic, social and health impact of the Covid-19 pandemic is set to lead to a sharp spike in the fiscal deficit for FY21.
The budget estimated Tk190,000 crore, or 6% of the gross domestic product(GDP), as the deficit. If the government can generate a staggering revenue income of proposed Tk382,013 crore in the next fiscal year, then only the deficit amount will be required to finance the budget.
However, both the National Board of Revenue (NBR) and economists are of the opinion that the revenue shortfall in the next budget will be more than Tk150,000 crore.
In that case, if the government can implement a Tk202,000 crore Annual Development Program (ADP), then the deficit could soar to as high as Tk340,000 crore, or above 10% of GDP.
In the budget speech, Kamal failed to make it clear how he would be able to generate the projected revenue income of Tk382,013 crore under an economy battered by the Covid-19 pandemic.
While the World Bank (WB) has projected the next GDP growth at 1%, and the International Monetary Fund has projected a figure of 1.9%, the finance minister estimated the economic expansion at 8.2%.
He did not seem willing to clarify his confidence and his understanding of economic strength in attaining the growth. The proposed budget estimated 5.2% GDP for the current fiscal year, against the WB’s projection of 1.6%.
“However, due to the fall in exports and lower than expected growth in remittances as a result of long and sustained worldwide lockdowns arising from the impact of Covid-19, the GDP growth rate of the current fiscal year has been revised downward at 5.2%,” said the finance minister in his budget speech.
“However, in view of the post-Covid-19 recovery, the growth rate is projected at 8.2% for FY2020-21 in line with the long-term plans. We expect that inflation will be 5.4% during the period.”
Supplementary budget for 2019-20
The revenue budget has been revised from Tk377,810 crore to Tk348,064 crore. Of the total, the NBR’s estimate has been slashed to Tk325,600 crore from Tk330,000 crore.
The revised ADP has been slashed from Tk202,721 crore to Tk192,921 crore, budget deficit increased from Tk145,380 crore (5% of GDP) to Tk153,513 crore (5.5% of GDP), foreign borrowing reduced from Tk68,016 crore to Tk56,163 crore, bank borrowing increased from Tk47,364 crore to Tk82,425 crore, and revenue expenditure has been slashed from Tk277,934 crore to Tk274,907 crore.
Proposed budget for 2020-21
The budget outlay has been proposed at Tk568,000 crore, with deficit financing of Tk190,000 crore, which is equivalent to 6% of the next GDP. The size of the ADP has been estimated at Tk215,043 crore, while the non-development expenditure (revenue spending) at Tk348,180 crore.
The draft budget has proposed a Tk382,013 crore in tax-revenue income. Of the total, Tk330,000 crore is to come from the NBR, Tk33,000 crore from non-tax revenue, and the remaining Tk15,000 crore to be sourced from non-NBR tax revenue.
The major portion of the Tk190,000 crore deficit will come from domestic borrowing. The amount has been estimated at Tk109,983 crore.
Of this, Tk84,980 crore is to be sourced from the banking sector, and the remaining amount will come from the non-bank sector, including the lion’s share of Tk20,0000 crore from savings instruments.
The highest development expenditure of 25.2% will go to the transport and communication sector, followed by 19.4% of ADP against education and technology, 15.7% for local government and rural development.
Projects under energy and power will get 12.4% of the ADP allocation, others 7.1%, 5.8% for public administration, another 5.8% for the health sector, 5.5% for agriculture and the rest 3.1% of the ADP will be spent on projects in the social security and welfare sector.
The finance minister in his budget speech described measures for the health sector and in particular containing the Covid-19 pandemic.
He said currently Covid-19 dedicated hospitals were in function and 55 laboratories were testing samples. Besides, he said, two projects at a cost of around Tk2,500 crore for Covid-19 financed by the ADB and the WB had been undertaken.
“We have taken all-out measures to improve the health sector. To combat the Covid-19 pandemic, we are implementing different programs worth Tk5,500 crore under the Health Services Division. The government will do whatever is required to be done to address the pandemic,” said Kamal.
“To meet emergency requirements, I propose to allocate Tk10,000 crore as a lump sum.“
In the budget, Kamal vowed to increase the number of taxpayers to increase taxes to the GDP ratio in the economy, which is one of the lowest in the world.
“Although a large section of our population can afford to pay taxes, the number of taxpayers is only 20-22 lakh. Therefore, necessary steps will be taken in the next budget to prevent tax evasion and bring the rest of the eligible taxpayers under the tax net,” the finance minister said.
The budget proposed to increase car registration to 15% from the current 10%, and supplementary duty is to be increased on SIM cards from 10% to 15%.
Import duties on 10 types of raw materials used in the agriculture sector have been reduced to 1% from 5%.
On Covid-19 pandemic, he said: “We will have to overcome the situation with patience and courage without being distracted and panicking at this critical moment. The Almighty has decreed in Surah Al Baqarah, verse 155:
“And we will surely test you with something of fear and hunger and a loss of wealth and lives and fruits, but give tidings to the patients.”
At source on rice,wheat, onion, garlic supply, duty will be reduced to 2% from current 5%.
Seven new sectors have been included with the existing 35 sectors enjoying tax holiday.
The seven are electrical transformers, artificial fibre manufacturing, automobile parts, manufacturing, automation and robotics designs, manufacturing, artificial intelligence based system design and manufacturing, nanotechnology-based products, manufacturing, aircraft heavy maintenance services.