New jobs to stay elusive
The parameters of employment generation show it would be a tough task for the government in the next fiscal year to create adequate jobs, which is a key element for higher economic growth. A slowdown in private investment, checking declining trend in remittance and transforming potential workforce into skilled manpower will be major challenges for the government. The finance minister identified inadequate employment generation as a major concern in his budget speech yesterday (Thursday). The minister also stressed employment generation growth in various sectors to attain the targeted 7.2% GDP growth in the coming fiscal year.
The unemployment rate stood at 4.3% at the end of September last year, according to Bangladesh Bureau of Statistics (BBS) Labour Force Survey. The Centre for Policy Dialogue last week said Bangladesh had failed to create adequate jobs despite higher economic growth in recent years. The economic growth, particularly since 2013, could not result in enough job creation, it said, adding that the number of jobs rose impressively during 2002-2013, by 13.6 lakh per year. According to BBS, private sector investment came down to 21.78% in this fiscal year, from 22.07% in the last fiscal year. The inward remittances fell 7.75% year-on-year to $1.19 billion in April. In the first 10 months of this fiscal year, $12.23 billion was received as remittance, down 2.39% year-on-year, according to the central bank data.
Revenue target very ambitious
While economists have praised the proposed budget’s emphasis on mega projects, skill development and job creation, they have termed the revenue generation target very ambitious. “The emphasis on mega projects is appropriate and timely. But the success will hinge on their implementation,” notes Ahsan H Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh, a think-tank. “In the past, we have seen good initiatives, but they were not successful,” he said, referring to the public-private partnership which he thinks has not produced any positive result yet. AB Mirza Azizul Islam, a former finance adviser to caretaker government, said the targets set in terms of some critical indicators were unlikely to be achieved.
The proposed budget projects that the tax revenue collection by the National Board of Revenue (NBR) would grow by 35%. “This is something which, I think, will be impossible to accomplish,” observes Mirza Azizul. The year-on-year revenue growth, he elaborates, was maximum 22% in the history, and it ranged between 8 and 12% in the recent years. The same is also true in case of non-tax revenue, the growth target of which has been set at over 35% from that in the revised budget of the outgoing fiscal year, said the former adviser. Historically, the revenue generated by the NBR did not grow by more than Tk 20,000 crore a year. But the proposed budget sets the goal at more than Tk 53,000 crore from the existing revised budget.
Middle-class hit by tax burden
Corporate tax remains unchanged despite demands from businesses for a reduction. Taxmen say the previous reduction to 35% did not bring expected benefits in terms of compliance. Only readymade garment makers, who have been demanding for tax cut, will get a slash to 20% from present 35%. 
The reduction, however, could not make the apparel makers happy. But honest taxpayers may feel happy to see various measures taken to ensure compliance and curb tax avoidance and evasion. Any person working in public entities, including semi-govt and autonomous bodies, and draw a monthly salary of Tk 16,000 and above will have to submit income tax returns. Those working at supervisory positions in non-government entities must have Taxpayers Identification Number. In addition, withholding tax returns submitted by companies and cooperative societies will face audits. About 250,000 public and private entities are responsible for deducting withholding or source tax, which accounts for 57% of the total direct tax collected. If any taxpayer enjoying tax exemption or reduced tax rate fails to submit return in any year, he will lose the privilege. The tax authority collects the withholding tax from 58 sectors by charging various rates, and the rates will rise. For example, exporters, including apparel makers, are likely to pay 1.5% tax at source, up from 0.6% this fiscal year — a move which a senior tax official said might bring the state Tk 3,000 crore. In fiscal 2014-15, the tax authority collected Tk 1,100 crore in source tax from the export-oriented sectors. Similarly, the rate of minimum tax for companies, mainly those having yearly gross receipts of more than Tk 50 lakh, has been proposed to increase to 0.6% from present 0.3%. However, the rate will be 0.75% for mobile phone operators and 1% for tobacco producers. Taxmen said the minimum tax has been imposed as many corporate taxpayers take advantage of loopholes in tax laws, rebates and exemptions to avoid tax. However, the concessional rate of 0.1% will continue for newly established manufacturing entities in the first three years to facilitate industrialisation.
Vat to push up cost of living: new law proposed to be partially effective
The government has backtracked from its decision to roll out the new VAT law from July due to resistance from businesses and a section of revenue officials and inadequate preparation from the National Board of Revenue.
The VAT and Supplementary Duty Act 2012, which envisages a universal 15% VAT rate, will now take effect from July 1, 2017. Instead of going for the new law, Muhith sought to continue collecting the indirect tax under the existing VAT law of 1991 but proposed tight measures for various sectors. Small businesses in Dhaka and Chittagong city corporations will have to pay package VAT of Tk 28,000, instead of Tk 14,000. The rate has also been increased for shops in other city corporations and towns. However, the existing trade VAT of 4% at all levels of wholesale and retail sales will remain unchanged. The VAT rate will be 15% for the traders, who are willing to pay VAT on actual value addition. For them, input tax credit and adjustment facility on easy terms would be available. Abdul Matlub Ahmad, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), welcomed the continuation of existing VAT law and package VAT. VAT determined by tariff value on nearly 30 products will go up, depending on the type of item. The items include corrugated iron sheet, rod, paper and tissue, a move which is likely to disappoint related industrial sectors. Prices of these items may increase. Besides, VAT exemption benefits have been withdrawn on some items such as generator, hardboard, cake and bread worth above Tk 100, biscuits, clothes made by power looms, and plastic and rubber sandals. VAT on rents of office space and installation services will also go up to 15% from 9% now. The new law will boost the state’s revenue collection by as much as 20% from Tk 32,276 crore in fiscal 2014-15, finance ministry officials said.
Focus on fast-track projects
The government has given top priority to eight fast-track mega projects in the upcoming budget, setting aside Tk 18,727 crore for them. For the first time, a special booklet was placed in parliament, along with the proposed budget.
The mega projects are the Padma bridge, metro rail, Rooppur nuclear power plant, Rampal power plant, Payra sea port, Matarbari power plant, Padma bridge rail link and Dohazari-Cox’s Bazar-Gundum rail line. However, no allocation was made for the two other fast-track projects — Sonadia deep sea port and LNG terminal — as they will be implemented on govt-to-govt (G2G) basis. Also plans to include three more projects in the list of mega projects. They are Matarbari coal terminal, Bhola gas pipeline, and petrochemical industry in coastal area. Experts have welcomed the government initiative, saying it would speed up implementation of the priority projects.
PADMA BRIDGE
Tk 6,026.48 crore is allocated, up by around 68% from outgoing fiscal year. An allocation of Tk 3,592 was made for the Tk 28,793 crore project in FY 2015-16. 34% of the project work has already been completed. The govt wants to inaugurate the bridge by December 2018.
PADMA RAIL LINK
The govt last month incorporated the Tk 34,989-crore Padma bridge rail track project in the list of fast-track project. Under the project, a 172-km rail track would be built between Dhaka and Jessore. Of the funds, the govt will provide Tk 10,239 crore and China Tk 24,794 crore.
DOHAZARI-COX’S BAZAR-GUNDUM RAIL LINE
The country’s largest railway project, taken up in July 2010, has seen only 2.1% progress. Under the project, single-line dual gauge railway tracks would be built from Dohazari to Cox’s Bazar via Ramu, and Ramu to Gundum near Myanmar. The Asian Development Bank will provide Tk 13,115 crore for the project, and the rest will come from government funds.
METRO RAIL
The government plans to commission the Metro Rail Project [MRT line-6 from Uttara to Motijheel] ahead of its 2024 deadline. Work on the first part of the 20-km vital rapid transit project from Uttara would be completed by 2019. Japan International Cooperation Agency (JICA) will provide Tk 16,594 crore for the project.
PAYRA SEA PORT
The government has allocated Tk 200 crore for the upcoming fiscal year for primary work of the project, which has 19 components. Last week, the government signed the first memorandum of understanding (MoU) for the project with Belgian company Jan De Nul for capital and maintenance dredging involving an estimated $2 billion.
ROOPPUR NUCLEAR POWER PLANT
The first phase of the 2,400 megawatt nuclear power project has seen considerable progress since Bangladesh signed the project agreement with Russia in January 2013. A company has been set up to run the plant. The government wants to complete at least one unit of the project by 2018 while the deadline for its completion is 2023.
MATARBARI POWER PLANT
Land acquisition has already been completed. JICA will provide Tk 28,939 crore for it.
RAMPAL POWER PROJECT
Work related to land development and construction of boundary walls in the 1,320MW project is almost finished. It was launched by a Bangladesh-India joint venture company in 2010.
