Wednesday, February 20, 2019 | ePaper
Proposed budget may induce disparity
In the proposed budget for upcoming fiscal year 2018-19, the overall budget deficit will be TK 1,25,293 crore. Of the amount, Tk 54,067 crore will be financed from external sources while a measure of Tk 71,226 crore will be financed from domestic sources. Considering the internal sources of the fund, almost tk 42,029 crore will be collected from the banking sectors and the rest portion tk 29,197 crore from National Savings Schemes and other non-bank sources. The reliance on the banking sectors is high enough to handle the budget deficit that is criticized by several business experts and developers. But in the present juncture, bank has been confronting major issues identified with its mounting debt levels. The developing heap of bad loans has raised warnings to the economy. Bad debts grew quicker than credit over the last five years due to the lack of accountability and transparency. A bank can run when it faces capital shortage yet it can't run when it faces liquidity deficiency. It may not be efficient measurement for the government to handle budget deficit as the government has become failure to mobilize resources from domestic sources at a needed level.
New tax cut proposal for the banks, financial institutions and insurance agencies will please high income earners as the government decided that corporate tax will have been sliced and the perquisite allowance will be raised to Tk 5.50 lakh from Tk 4.75 lakh. On the other, it is criticized by the corporate bodies, why the tax cut proposition is only for the banks and financial institutions. The rate of corporate tax in Bangladesh is higher than the Asian average of 21 percent and the worldwide average of 24 percent, as indicated by KPMG. Bangladesh's tax rates for companies are likewise higher than those of Vietnam, Thailand, Malaysia, China, Indonesia, Sri Lanka and Pakistan. Vietnam and Thailand charge 20 percent for organizations. It is surprising that only 24 percent in Malaysia and 25 percent in Indonesia. On the off chance that the government only deal with the financial institutions by cutting extra corporate tax, the economy will confront unevenness condition. Therefore private and foreign investment won't be created proportionately with the financial institutions.
Terrible news is for the middle class in the case of acquiring little apartments. The demand for small apartment is high in our country on the point of view. The middle income dwellers spend 11.98% of income on housing and another 5.38% on fuel and lighting (BBS,2005,). One-fourth of income for housing contributes to 24% and 55% from lower-middle and middle-income people respectively to afford the cheapest housing cost. The additional cost the family will have to pay to get a permanent address, as flats up to 1,100 square feet are likely to become more expensive. It has brought the good news for those with higher income earners, who are searching for flats between 1101square feet and 1600square feet, as VAT has been lessened to 2 percent from 2.5 percent on such apartments. VAT for flats above 1,601sft will stay unaltered at 4.5 percent next fiscal year. At present, the new enrollment cost of a flats hovers between 14 and 16 percent of the cost, depending on the size. It will be troublesome for buyers to buy little apartments, as the registration cost will likewise increase if the new VAT rate is actualized.
The new budget has also brought awful news for individuals who are planning to purchase furniture for home decoration as an increased VAT rate is proposed on both sale and manufacture of furniture. The proposed budget for fiscal 2018-2019 imposed 5 percent VAT on selling of furniture from existing 4 percent, and 7 percent on manufacturing rather than 6 percent at present. So the ultimate conveyor of the burden is middle income groups. Presently they may need to shorten the list of things to purchase, to oblige their budget.
The government this year has imposed VAT on ride-sharing services like Uber, Pathao, Amarbike, and Chalo. These online ride-sharing have turned into a vital part of the middle-income groups who have no capacity to buy a private car. Anyway these ride-sharing services are much more convenient to the city dwellers since public transport takes more time and is constantly overcrowded. Considering the business opportunities the app-based services have created, the National Board of Revenue in a circular said 5 percent expense would be gathered from the amount paid to the ride-sharing companies for the services. Normally, the fear is that extra charge will additionally trickle down to those who are availing services .I think before charging vat on these ride-sharing services, The government should guarantee the safe and smooth travel in public transport first.
Our Finance Minister AMA Muhith tried to impose 4 percent VAT on e-commerce, finally he was forced to withdraw following pressure from the stakeholders. But the proposed VAT will be applicable just for digital platforms- Facebook, Youtube, Google, and so forth. People are considering this to be a chance of being self-sufficient. It is a easiest way to find out a profitable employment and numbers of unemployed people have been self-reliant by dealing necessary dailies by creating pages or promoting products in these sites. Even a housewife has also found out the sources of earnings in the Facebook. Neither their investments nor their overall earnings are huge. Somebody will lose their jobs from these sites or may impose higher charge in purchasing items from these platforms.The extra cost burden will demoralize customer to purchase items in online. So I think It won't be useful for either customers or these small-scale businesses.
The proposed rise in corporate tax will hurt the stream of crisp speculation into the garment sectors a as business entrepreneurs will feel debilitated to infuse fresh fund. the corporate tax for non-listed garments producers will be 15 percent in the next fiscal year from 12 percent now. Finance minister likewise raised the rate for green garments industries to 12 percent from 10 percent. But it is somewhere praise worthy that finance ministry provided 100 percent duty exemption or export-oriented textile raw materials and extended the similar advantage to the imports of textile raw material crude, for example, flax fiber and flax tow.
The new budget, if it is implemented, will likely increase the cost of daily life as the prices of imported products will go up because of the imposition of 5 percent Advance Trade VAT (ATV) at both import and trading stages, rather than the current 4 percent. ATV is basically business stage vat.NBR generally collects 15% VAT estimating 26.6 % value addition on business stage. Thousands of imported goods will become costlier due to increase in ATV. As a result it will hurt many business firms, particularly small and medium enterprises, and increase VAT burden on consumers. It will increase price thereby inflation. Government decided to withdraw tariff value benefits for some product and imposed VAT at regular rates. The purpose of the government in the case of withdrawing tariff value benefit is to encourage the local enterprises and small business firms in the country. On the other hand it may discourage the small importers. The importers are now confronting high costs because of rising exchange rate in the midst of dollar crisis in the market.
The proposed budgetary measures for fiscal 2018-19 will benefit the high and low income individuals, leaving the middle and lower middle class, which form the larger part of Bangladesh's populace, stressed. The middle- and lower middle-class have a direct connection with the market, as indicated by the CPD. For this reason, the rise in indirect tax by way of VAT will create excessive burden on the shoulders of these individuals. The present tax approach will crush the middle- and lower middle-class. I think before imposing tax burden on the shoulders of the people, government should analyse the whole impact of the tax burden, identify who are the real beneficiary of the tax advantage and the bearer of the tax burden, finally reform tax rate if it is necessary considering the interest of the countrymen. Moreover sound and strong monitoring from the beginning of the year is necessary in order to materialize the proposed budget. Transparency and accountability are of maximum importance for ensuring the execution of proposed budget.
(Soniya Akter Lima is studying BBA, Accounting and Information Systems, Faculty of Business Studies, University of Dhaka).