Taking reformative steps in election year is a challenging job: Sayema Bidisha

With the election approaching, the Bangladesh economy has been facing numerous challenges

Faysal AtikSenior Correspondentbdnews24.com
Published : 29 May 2023, 07:51 PM
Updated : 29 May 2023, 07:51 PM

Finance Minister AHM Mustafa Kamal has a daunting task ahead of him on June 1.

With the election approaching early next year and Bangladesh economy facing numerous challenges from all aspects at present, the budget proposals he is set to deliver next Thursday might be one of the crucial ones in his four and a half years on the job.

According to projections, the size budget of the upcoming fiscal year may reach Tk 7.5 trillion.

Dr Sayema Haque Bidisha, a Dhaka University economics professor, believes Kamal would be better off by focusing on two important things being debated in the public sphere at the moment - inflation and collecting direct taxes to reduce income and wealth inequalities.

The UK-trained economist, who also works as the research director at the South Asian Network on Economic Modeling, or SANEM, believes the minister should also concentrate more on economic balance, creating jobs and keeping the growth level steady to get the overall Bangladesh economy out of the quagmire it is currently in.

In an exclusive interview with bdnews24.com, Dr Bidisha highlighted some of the other challenges for Kamal, as- increasing the collection of revenue to pay for the skyrocketing budget bills while the economy is facing soaring inflation, implementation of annual development plans and other mega-projects during a period of cash crunch.

“A progressive direct tax structure would be people-friendly and will satisfy the voters in an election year. Such a structure would definitely help boost direct revenue collection as well,” she said.

However, as an economist, Dr Bidisha’s main priority is what Kamal would do regarding inflation.

“The government must focus on reducing indirect import tax and duty on daily essentials so that pressure on people in the middle and low-income bracket can have a little relief. The minister [Kamal] could consider increasing import tax and duty on luxury products exponentially since the chances of declining sales of those products are next to none.

“Overall, the government must focus on reforming the tax collection protocol in the country so that the pressure on indirect tax collection could be lessened and income and wealth inequality could be reduced.”

However, information gathered from the officials at the National Board of Revenue has not been painting a pretty picture so far.

The Bangladesh government, under pressure to reform the tax collection system by the International Monetary Fund, is likely to rely on the indirect tax to generate the bulk of the revenue in the next fiscal year.

Since the introduction of value-added tax, or VAT, in 1991, all consecutive governments have relied heavily on the indirect tax to generate revenues as the National Board of Revenue, or NBR, hardly ever reached the target for direct tax collection, set in national budgets yearly.

This year, the Sheikh Hasina-led administration is under severe pressure as one of the conditions by the global lender for extending credit of $4.7 billion was a complete reform of the tax collection system, especially direct tax.

According to NBR sources, the board plans to collect Tk 4.3 trillion in revenue in the next fiscal year, and the target is to collect at least 64 per cent of it from indirect taxes, which are VAT and customs.

In the last fiscal year, Tk 3.016 trillion of revenue was collected; of the amount, about 65- 67 percent of revenue had been derived from indirect taxes.

The target is 67 percent of the total revenue in the ongoing fiscal year, which will end on June 30.

SOCIAL SAFETY

Dr Bidisha observed that social safety does not get importance in Bangladesh’s national budget overall, except for pensions and interests on savings certificates. “There’s no alternative to increasing allocation for this sector,” she said.

To spend more on social safety, she suggested cutting operational expenses by halting projects that are not much important now, and prioritising those related to the target of long-term development.

Besides these, she suggested monitoring and evaluation of the projects every three months and using the quarterly reports to implement the Annual Development Plan. “Because there’s no place for unnecessary spending in the projects now.”

Dr Bidisha said the National Social Security Strategy, designed in 2015 and adopted in 2019-20, is a comprehensive strategy and the government should start implementing it quickly.

She said the beneficiaries of the social safety net programmes should be chosen carefully, not on backdated information.The government can build a digital database to reduce the cost of distribution among the beneficiaries of these programmes.

People who have recently slipped below the poverty line in urban areas should be prioritised, she said.

Social insurance and strengthened employment-based training programmes under the social safety net may help the beneficiaries more, she observed.

SUBSIDIES

The national budget indicates how much the government is ready to provide as subsidies. The government is expected to announce cuts in subsidies this time as suggested by the International Monetary Fund.

Dr Bidisha said the government needs to be careful so that the subsidy cuts do not affect the agriculture sector, especially the marginal farmers.

In that case, the government can categorise the facilities for which subsidies are given. “For example, the users will need to pay more per unit of gas and power if they cross a limit. The rate will increase along with the use.”

To readjust fuel prices with the international market, a scientific system should be followed, the researcher said. “It can be done every three months and the users will be notified of possible price hikes. It’ll help businesspeople chalk out their plans.”

“And incentives are a large part of subsidies. We need to carefully noticel who are getting these incentives; whether those enjoying the incentives are increasing their capabilities; whether the incentives are going to labour-based industries.”

Minimum wage, number of female workers, rations, spending on research, development and workers’ health should also be taken into account while giving the incentives, Dr Bidisha said.

INEQUALITY AND TAXES

Dr Bidisha said tax structure is a very important factor in reducing inequality. The current tax structure of Bangladesh is progressive but it needs to be restructured to ensure systematic collection of taxes in a more progressive way.

“It seems the minimum taxable income is going to Tk 350,000. The upper thresholds should be implemented more strongly. The people with taxable income in Upazilas should be brought under the tax net. The officials in the districts, Upazilas and unions should be given targets. Tax fairs need to be organised at the Upazila-level outside Dhaka. They can be given some waivers in the begihnning.”

She emphasised coordination between the NBR and the Tariff Commission to fix the taxes.

She said people in the upper tax threshold have a tendency to dodge taxes by passing their income as that of their company. “So, the assets of individuals and companies need to be defined more specifically.”

“The tax officials should work at the household level as well. They need to identify the assets of people who use two-three cars.

“In the agriculture sector, many big farmers are not honest. They dodge taxes in different ways. These need attention.”

She said many professionals do not give receipts against the money they charge their customers. Digitalisation can stop this trend. “These transactions will have to be done through bank accounts or other ways.”