MBR had the privilege to get the insight from Dr. Ahsan H. Mansur, Executive
Director at the Policy Research Institute, and a former Economist of International
Monetary Fund (IMF), regarding Budget, FY 2019-20.

MBR: How is the budget of FY 19-20 different from the previous ones?

Dr. Ahsan H. Mansur: Qualitatively the new budget is very similar to the past budgets. It’s a continuation of the Government’s optimistic expectation on revenue side and thereby increasing the size of the budget through higher spending. As always, the revised estimates for FY19 budget, presented in the budget speech are highly optimistic.

The end result is that when the actual data comes, that figures for revenue are well below the base for the preceding (just ended) fiscal year and consequently the targets in the new budget become way above what could be realistically unachievable. Similar development is going to unfold in the coming year. The authorities have estimated NBR revenue collection to be Tk. 280,000 Crore in FY19, but already provisional estimates of the NBR at the end of June puts the provisional figure at Tk. 222,000 crore—pointing to about Tk. 70,000 crore shortfall in FY19. So there is a huge gap in the base of this budget and to realize the NBR revenue target for FY20 would require more than 45% growth, which Bangladesh never achieved in its history. Accordingly, this major problem which characterized every recent budget continues to undermine the Fy20 budget.

Some people say that the Government should be optimistic to achieve its visions and ambitious targets. I agree with that but undershooting the revenue targets every year by huge margins is not an acceptable good practice. So the unrealistic expansion in the budget in terms of higher spending is not going to happen. In past you have seen, Government always targeted 19% GDP as the size of the budget but when the fiscal year ended it invariably came down to 16%-17% of GDP, falling short by 2%-3% of GDP. The government could not achieve the 19% of GDP spending in any year in the last 10 years, and there should be no unrealistic expectation that it will be any different in the coming year.

The only major reform effort in FY19 budget was the introduction of the VAT Law 2012. After 7 years of delays since its enactment, in the event what we got is essentially a bit of a worse version than what we had under the old 1991 VAT Act. Under the VAT Act of 1991, there were few items which were being subjected to rates different from the standard 15% VAT rate. Similar characteristics are maintained under the new VAT Law but probably on a wider scale. VAT registered persons have been given the option to charge VAT at the 15% rate for all goods and across all levels. Additional complication this year that, the VAT registered persons would also have the option to charge 10% at manufacturing stage and at other different rates for certain products specified in Schedule 3. If VAT is levied at rates different from 15%, the enterprises would not be able to get input tax credit. So it created a parallel structure all the way. Bangladesh is the only country where you have different rates at different stages of products and different rates on different kinds of products. No country in the world has this kind of complicated VAT structure. It is completely unique but I would say very difficult and inefficient to administer.

MBR: According to you, what is the impact of Budget FY 2019-20 on basic pillars of the economy: Agriculture, Remittance, and Readymade Garments?

Dr. Ahsan H. Mansur: Budget allows some subsidy or continuation of subsidy for the agriculture inputs like all type of fertilizers and pesticides. It allows for procurement of rice up to a limit, but nothing special for rice producers. So the price would not be much high for rice farmers this year. Government procurement price at BDT 1040 per maund is high, but perhaps too high for the farmers to get that. Farmers are getting up to BDT 700 while the rent seekers are getting the remaining 33% of the official support price. The government will provide input subsidy for mechanization by subsidizing harvesters and planters, which should help farmers in reducing their cost of production.

It is unlikely that Bangladesh is globally competitive to become a rice exporting country soon. Our production cost is very high and thus even after the collapse of rice prices our export price will be significantly above the export price of major rice exporting countries like India, Thailand and Vietnam. Bnagladesh need to improve efficiency and productivity of our farming sector to be competitive in the global rice market. Technology, mechanization, and improvement in seeds will contribute to increased productivity and reduced cost and make us competitive. So, we should think about exporting rice in future but not for now.

Coming to the Remittance – the ne Government policy of giving 2% incentive to remitters is not right. They should directly go for the devaluation of the currency and give the same or more return to the exporter as well as remitters. rather than providing export incentives to different sectors which is not an efficient way. The government policy of giving export incentives to RMG and other sectors are not efficient, instead a market based competitive exchange rate should be the way to go. We should not use taxpayers’ money for maintaining the elaborate export incentive structure. This is an unnecessary expenditure and we can save it to utilize for some other purposes.

MBR: The corporate sector is worried about the decision of tax imposition on reinvestment opportunities (Stock Dividend and Retained Earnings), in order to promote cash flow into the stock market. What is your take on this initiative?

Dr. Ahsan H. Mansur: That is again a very bad policy. It only shows that we do policies without thinking about the consequences and without going through a broader stakeholder consultations and analyzing the implication of this policy. This policy is contrary to what we see internationally. Globally large firms become large by not giving cash dividends but reinvesting the profits and get bigger. Today two big companies Apple and Amazon are trillion dollar companies. They are bigger because they never gave cash dividends. This practice increased the value of these companies and their stockholders are very happy as stock values go up; they never care about cash dividend. If they want money they can sell the shares and get money. So this type of cash dividend policy goes against the spirit of making the company bigger. Secondly, it is going to be detrimental for our foreign investors as 48% FDIs are retained investment and if you tax this amount then obviously they would like to cash out and transfer the cash out of Bangladesh as dividend to foreign investors. Certainly this cannot help Bangladesh.

MBR: What will be the impact of the additional tax burden on digitization?

Dr. Ahsan H. Mansur: I always see that the government prepare tax policies without having a good understanding of the sector and the sector’s impact on the overall economy NBR prepares policies on taxation of a particular sector without proper consultation with sector specialists. What NBR is always looking is, how it can get huge fund without much effort- very simple approach. So they impose taxes on telecom, tobacco, banks and other sectors from where they can easily get money. And that is why we are seeing series of taxes impacting the telecom sector. And what is the result – the consequences is that, the telecom sector in Bangladesh is already the most heavily taxed. They are paying 45% tax on profit even if they are listed. It is the most productive sector that helps us to make our nation globally digitalized and we are penalizing it. It comes from the narrow mentality of collecting tax. Some telecomcompanies are not making any profit but NBR still thinks they can make money from them so they introduce a minimum tax on turnover. Even if you make loss you have to pay 2% turnover tax. If you are making loss why you need to pay tax. This is against the spirit of tax policy. The NBR is destroying industries in such a manner. The Supplementary Duties on talk time is again another one. The government wants to promote the use of internet and mobile phones, but the tax policy is in no way supporting the objectives. It will lead to reduction of investment in telecom sector and discourage new investors from coming to Bangladesh.

MBR: Can you share some positive aspect of the Budget?

Dr. Ahsan H. Mansur: The positive side is the agriculture sector, I have mentioned that subsidization of mechanized cultivation and harvesting is a timely response. Broadening the social safety net is another one that would be helpful, although in future we would like to see the social security program to be consolidated into a few major social security programs compared with more than 155 programs that we now have. These all will be helpful for the country. The size of ADP is large at BDT 200,000 crore and its efficient implementation will be test for success. The spending should be effective to ensure value for money. Infrastructural improvement has got the highest priority in the budget which is welcome, and this also makes government’s budgetary policy investment friendly.