Bangladesh to expand social safety net, ‘limit’ tax holiday in FY25 budget

Amid high inflation, the first budget of the fourth consecutive Awami League government is expected to increase the number of beneficiaries and scope of social security programmes.

State Minister for Finance Waseqa Ayesha Khan said education, health and rural infrastructure sectors will have maximum allocation in this year's outlay.

The budget is being tailored keeping in mind a set of economic reforms, including commodity price control, employment growth, diversification of export products, according to her.

Some officials have indicated that the next budget to be presented in parliament on Jun 6 will have an over Tk 7.9 trillion outlay for the financial year 2024-2025.

This will be the first budget of former foreign minister Abul Hassan Mahmood Ali, who is currently in charge of the finance ministry.

For the current fiscal year 2023-2024, the Tk 7.61 trillion budget includes spending on management at Tk 4.98 trillion and Tk 2.63 trillion Annual Development Plan.

According to the budget implementation progress report of the second quarter of the fiscal year, the total expenditure for the first half has been Tk 1.94 trillion, or 25.58 percent of the total, and a 5.62 percent increase from the same time last fiscal year. This includes management and other expenditures of Tk 1.53 trillion.

Other expenses including management increased by 1.09 percent. And the implementation of the Annual Development Programme increased by 26.36 percent.

Finance ministry officials presented an update of their work on the next budget to Prime Minister Sheikh Hasina in her office and took necessary directions on Monday.

Officials of the Internal Resources Division will meet with her on Tuesday to discuss their plans to collect tax and other resources.

When bdnews24.com contacted Waseqa for details, she declined to reveal any numerical data.

"On the whole, inflation control, diversification of export products, employment generation and increasing the opportunities for the marginalised people will be the priorities of this year's budget," she said.

In the last budget planned by former finance minister AHM Mustafa Kamal for the current financial year, he spoke about controlling inflation and the plan to build a Smart Bangladesh as envisioned by Hasina.

It also included a bunch of reforms suggested by the International Monetary Fund under a $4.7 billion loan programme, which prioritises cutting energy subsidies and divert the funds to social safety.

In this year's budget, social safety net programmes have an allocation of Tk 1.26 trillion, which is 16.58 percent of the budget and 2.52 percent of the GDP.

As part of increasing the coverage of social security, the number of beneficiaries has been increased to 850,000. The allowances of beneficiaries of different social safety net programmes have been increased by up to Tk 200.

The universal pension system was also launched in August last year as part of social security and services.

Stating that the number of beneficiaries under the social security programmes will increase in the new budget, Waseqa told bdnews24.com: "Inflation control is getting priority in the budget this time. The number of beneficiaries under the social security programmes is being increased to provide relief to low-income people.”

“We’re giving utmost importance to controlling inflation.”

In the budget of the current financial year, the government planned to limit inflation to 6 percent, but it was revised to 7.5 percent as the rate remained above 9 percent.

The Awami League's election manifesto also focussed on, among other issues, controlling inflation.

The government has been working accordingly after its new term began in January.

The head of government has entrusted several senior members of the cabinet, including Finance Minister Ali, State Minister for Commerce Ahasanul Islam Tipu, Food Minister Sadhan Chandra Majumdar, and Fisheries and Livestock Minister Abdur Rahman to take coordinated steps to control inflation.

Yet inflation is not coming down to bearable levels. In the last month of April, the inflation on a point-to-point basis was 9.74 percent compared to the same month of the previous year.

Waseqa said Hssina gave utmost importance to inflation control. Besides that, she instructed officials to implement the Awami League's election manifesto.

Dhaka University Economics Professor Salim Raihan applauded the government's plan to increase the scope of social protection programmes.

"I don’t see an alternative to expanding the social safety net, considering the current situation about price rise. Because inflation doesn't seem to be coming down anytime soon,” said the executive director of research institute South Asian Network on Economic Modeling or SANEM.

“So if it [expansion of social safety net] happens, that's good news. This is necessary to deal with inflationary pressures. It should be widespread. A large number of vulnerable poor are under pressure due to inflation. There isn’t any adequate social security programme for them.”

He continued, “Conventional programmes target the poor population. There are no programmes for the urban ultra-poor or the new poor. This year's budget coverage should also include that.

“Many lower middle class families are also under pressure. Some relief will be provided if rice and daily necessities are marketed through TCB [Trading Corporation of Bangladesh] or open sale.”

Salim Raihan feels that the 10 million family cards introduced by the government through TCB for selling daily commodities at low prices among the poor need to be regularly updated.

“There are many institutional weaknesses in the way data is collected. Those who are not supposed to be are getting in, while those who need it may not be able to come under the card programme for some reason. These are very challenging factors in a place like Bangladesh.”

TAX HOLIDAY

Reforms to the financial sector was one of the promises the Awami League made in its election manifesto before the 12th parliamentary election. Several steps have already been taken as part of the IMF loan agreement.

When asked what the reformative measures in the new budget are, Waseqa said: "We’re specifically looking into the matter of removing tax exemption from those sectors which have been enjoying tax holiday benefits for a long time.

“Several sectors have been getting tax holiday benefits for the past 20 to 25 years. They have already gained enough capacity in the domestic market. So, they should focus on exports. If the additional benefits of tax holiday are removed, the entrepreneurs of these sectors will focus on exports.”

IT services in 27 different sectors now get tax holiday benefits. This facility will expire on Jun 30.

The IMF has given the condition of not extending that period. There have already been reports in the media that the tax holiday benefits of dozens of sectors may go away in the upcoming budget.

“We need to diversify our export products. Companies and products that have achieved good domestic market potential will now have to look for international markets.”