Finance minister relying on VAT-collection in a projected 35% revenue growth in his 'best' budget

Finance Minister Abul Maal Abdul Muhith is going to present a Tk4 trillion budget for fiscal 2017-18 with a projection of 35 percent growth in revenue earnings mostly relying on VAT collections.

Of the total expenditure, Tk 2.88 trillion is expected to come from the revenue earnings. But, the budget, which Muhith claimed to be his best among the 11, will have a deficit of Tk 1.12 trillion, which is around 5 percent of the GDP.

The Finance Minister is expecting to cover the shortfall with loans from internal and external sources. The budget is 17 percent larger than the previous year.

Earlier, Muhith told bdnews24com that the budget of 2017-18 fiscal would be the ‘best’ he had so far been presented as finance minister.

“Next year it will be an election budget. And then I will go on retirement – even if the Awami League comes to power I will not take any cabinet berth,” the 83-year-old minister said, adding “I already informed it to the prime minister.”

The AL came to power on Jan 6, 2009, under the leadership of Prime Minister Sheikh Hasina. For the first six months of the tenure, it implemented the budget it inherited from the caretaker government.

Muhith placed his first full budget for 2009-10, and the size of the budget was less than Taka one trillion (Tk 951 billion), which has shot up to Tk 4 trillion now.

The finance minister, who is credited for presenting nine budgets in a row, was not ready to accept the criticism that the jumbo-size budget was having 'problem' in its implementation phase.

All eyes on VAT again

As it was last year, a major concern for Muhith’s budget is the new VAT. Concerns about the impact the new VAT law, which will take effect on Jul 1, have been heard both at the stock market and in the streets of the capital.

“One kg of short-grained rice is Tk 50,” Norshundor Selim of Evergreen Saloon in Dhaka’s Shaoraparha told bdnews24.com. “Will the new budget cause the price to fall? From what I hear the new VAT will raise the price further. What will we do then?”

“No prices will rise because of the VAT,” Finance Minister AMA Muhith assured bdnews24.com. “Prices have not risen after any of my budgets. The recent increase in the price is the result of traders hoping to increase profits during Ramadan.”

The new VAT law will finally take effect from the start of the next fiscal year.

Businesses have continued lobbying efforts for a lower rate of VAT than the 15 percent proposed by the government.

The finance minister, however, has not been particularly receptive to these efforts, announcing his commitment to the 15 percent rate. The issue has been the subject of prolonged tensions between the businesses and the government.

Despite its refusal to compromise on the rate of the VAT, the government may appease businesses by increasing the number of VAT-free goods and services.

Approximately 200 new goods and services could be granted VAT exempt status under the new law, adding to the current list of almost 1,900. The official list is being finalised, National Board of Revenue (NBR) officials said.

The new VAT looks to be the main tool in the finance minister’s arsenal to raise the huge revenue targets set for the upcoming fiscal year.

The government hopes to collect Tk 2.48 trillion in FY 2018, nearly 35 percent greater than the amount collected in the current fiscal year.

The NBR aims to raise nearly Tk 880 billion of this amount from the new VAT alone compared to the Tk 650 billion revised VAT revenue target for the current fiscal year.

The income tax target has been set near Tk 870 billion, while the customs tax revenue target is Tk 730 billion.

The new VAT law

Existing tariffs to support domestic industries are expected to continue. Supplementary duties are supposed to be levied on 170 goods and services under the new VAT law. Instead, the supplementary duties will apply to the 1,400 goods and services on the list.

Goods and services to gain VAT exemption status under the new law include motorcycles, refrigerators and air conditioners, structural equipment, edible oil, software, bus train and ferry tickets, all types of training services, rings for heart disease patients and dialysis machines.

VAT exemptions on 1,874 products and services, including basic foodstuff, life-saving medicines, public transport, medical treatment and education, agriculture, fisheries and other essential sectors, will also remain in place.

There will be changes in tax system too

In the budget, the ceiling of tax-free personal income is likely to be increased from Tk 250,000 to 275,000. Currently, a person is liable for paying a 10 percent surcharge on having a net asset worth TK 22.5 million. It may be increased to Tk 25 million.

There may not be any good news for the Ready-made Garment or RMG sector in the budget. The finance minister is likely to propose to raise the tax at source to 1 percent from the current 0.7 percent.

A supplementary tax might be levied on vehicles below 1000cc and higher than 2000cc. Moreover, the tax might be imposed on imported motorbikes.

The finance minister will place his budget in parliament at 1:30pm on Thursday.

This will be the fourth budget of the government in its second term.

The budget has special significance as it is being placed ahead of the 2019 elections. This is Muhith’s ninth budget in a row and 11th in total. He prepared two budgets when HM Ershad was in power.