BUDGET 2016-2017 REALITIES OF BANGLADESH ECONOMY National Budget 2016-17: will Economy Really March 55 Towards Growth, Development and Equitable Society? - Mohammad Zahid Hossain FCA

Zafar HalimActuaryFully Regulated Member of UK Actuarial Profession

April - June 2016

Budget 2016-2017: Realities of Bangladesh Economy

April - June 2016

BUDGET 2016-2017REALITIES OF BANGLADESH ECONOMY

From the Editorial Board 2President’s Desk 4

ARTICLESInterview of MCCI President Syed Nasim Manzur 6Progressive and Ambitious Budget, 11But Implementation May Be Tough - M. Idris Ali FCA

National Budget 2016-17: Marching Towards Growth, 16Development and Equitable Society- Tofazzul Hussain FCA

Profligate Interest Rate: The Reticent Assassin to 25Investment Growth in Developing Countries- M Jalal Hussain FCA

Budget 2016-17: Analysis and Critique on 30Efficiency and Effectiveness- Dipok Kumar Roy ACA

A Fat But Not Healthy? Budget 2016-17 37- SK Md Tarikul Islam FCA

The Macroeconomic Indicators, 42The Budget and Its Economic Impact - Kazi Mustaid Murshed FCA

Budget 2016-17: Inconsistent with the Economic Policies 51- Md. Shahadat Hossain FCA

National Budget 2016-17: will Economy Really March 55Towards Growth, Development and Equitable Society?- Mohammad Zahid Hossain FCA

The Concept of PPP: Bangladesh Perspective 59- Shah Md. Jubaer ACA

A Brief Review of Taxation System and 68Investment in the Budget of 2016-17- A F Nesaruddin FCA

The National Budget of FY 2016-17: 72Taxpayers under Hammer- Muhammed Omar Faruk Ripon ACA

New Budget, New Dream, New Perspective 81- Raihan M Chowdhury

Impact of Education Budget on Literacy Rate: 87A Study on 75 Countries in the World- 1Sujan Chandra Paul ACA- 2Mallika Saha

A Comprehensive Analysis of Proposed 96National Budget 2016-17- Md. Mustaq Ahmed ACA

Integrated Report: 105An Emerging Trend in Corporate Reporting- 1Dewan Mahboob Hossain- 2Amirus Salat- 3Al-Amin

Importance and Practice of Ratio Related 111Disclosures in the Corporate Annual ReportEvidence from Selected Companies Listed in DSE- 1Md. Ahasan Uddin- 2Rana Mazumder

CONTENTS ISSN 1993-3649

"The opinions expressed in this publication are those of the respective authors themselves and do not necessarily reflect the views of the Editorial Board of the Institute of Chartered Accountants of Bangladesh (ICAB) or ICAB itself."

DISCLAIMER

EDITORIAL BOARDChairmanMasih Malik Chowdhury FCA

Co-ChairmanDr. Jamshed Sanyiath Ahmed Choudhury FCA

EditorHarun Mahmud FCA

MembersAkhtar Sohel Kasem FCAA F Nesaruddin FCA Nasir Uddin Ahmed FCA Parveen Mahmud FCAMd. Shahadat Hossain FCAGopal Chandra Ghosh FCAModdassar Ahmed Siddique FCAMd. Mahamud Hosain FCA Amanullah Khan FCA (56)M Idris Ali FCA (95)Dr. Md. Abu Sayed Khan FCA (401)Md Abdus Salam FCA (570)Mohammad Zahid Hossain FCA (808)Mohammed Jashim Uddin FCA (863)S. M. Rafiqul Islam FCA (867)Md. Saiful Islam FCA (952)Mohammad Redwanur Rahman FCA (999)Md. Abu Khair Hasanul Hasif Sowdagar FCA (1054)Muhammad Aminul Hoque FCA (1129)Abdullah-Al-Mamun FCA (1142)Zareen Mahmud Hosein FCA (1152)SK. Md. Tarikul Islam ACA (1238)Mohammad Golam Sarwar ACA (1300)Dhali Tanvir Ahmad Siddiqui ACA (1391)Mohammad Main Uddin ACA (1454)Anika Sultana ACA (1484)Bidhan Chandra Mandal ACA (1579)Ismat Jahan ACA (1600)Md. Tarique Abdullah ACA (1701)Mustaq Ahmed ACA (1715)Chairman DRC-ICABChairman CRC-ICAB

Member SecretaryMohammed Emdadul Haque FCATechnical Adviser, ICAB

Published by the Editorial Board of the CouncilThe Institute of Chartered Accountants of Bangladesh (ICAB)CA Bhaban, 100 Kazi Nazrul Islam Avenue, Dhaka 1215Tel : 9117521, 9112672, 9115340, 9137847Email : [email protected] : www.icab.org.bd

EDITORIAL BOARDFROM THE

The TBA issue of January-March quarter was published with the theme “Budget of an Emerging Economy- Bangladesh”. In the sequence and act, the pre-budget time TBA issue (April-June) gave top priority on the recurrent national budget. This was passed by the Parliament on June 30, 2016. This year, at and before the time of placing the Budget 2016-2017 in the Parliament, efforts of all sections of businesses have remained mainly concentrated in restraining the government from putting into effect a new VAT law, styled, The Value Added Tax and Supplementary Duty Act-2012. Additions of some new provisions to the 1991 Act have been put in it. The full implementation of this was however deferred. It will now be in effect from FY 2018. However, it is apprehended that the achievement of increased revenue (34.5 percent increase) target in the next fiscal year will be very difficult, if not impossible. Indeed with the same NBR, without its capacity building to infuse dynamism & efficiency needed in an Emerging Economy, civil society & professionals are ambivalent about accomplishment of Target. With the instant NBR it appears to be not fully achievable, if not a utopia.

The total size of the budget at Tk. 3,40,605 cr is logical considering

April - June 2016 The Bangladesh Accountant02

the emerging magnitude of the economy. Against the backdrop of expected elevation into a middle income country, the budget has given priority in education which would get a big boost. Priority sectors include health, employments and building of infrastructure especially in communication and power sectors. These include Padma bridge, Metro rail, Rooppur nuclear power plant, Rampal power plant, Payra sea port, Matar bari power plant, Padma bridge rail link and Dohazari Cox’s Bazar Gundum rail line. Candidly speaking the mechanism to expedite the boatmanship of revenue collection by NBR has not been unveiled. Obviously before presenting the Budget in JS, the honorable Finance Minister was not supposed to draw plans for action to reap collection target by NBR. Now that Budget has been passed through, the honorable Finance Minister will take this in concern, failing which the accomplishment would remain a far cry. The ambivalence at large about NBR’s capacity persists among all other stakeholders. This may, we hope not, effectively make the budget a mere document which would again impede the timely elevation of emerging economy into MIC.

While excorticating the economy at the concluded FY-16, a few tidbits had floated on, in our assessment at the wee hours of the

incumbent budget passed in JS. Private sector lending stood at 15.59 percent in April, 15.16 percent in March and 15.11 percent in February-2016. Credit growth in the first 11 months of the fiscal year stood at 13.80 percent, 1 percent below the monetary policy target of 14.80 percent. Loans at larger quantum to the SMEs, mega projects floated by the government and declining cost of funds have been pushing the credit growth up due to low fund cost & supply demand interactions. Demand increase in loans for import of capital machinery in FY 2016 is encouraging for the economy. For three years since January 2013 private sector credit growth has remained subdued at 14.40 percent. The credit growth went down to as low as 8 to9 percent as private sector shelved their investment plans mostly due to state of law & order situation or its apprehended vulnerability. High interest rates in the local market also compelled entrepreneurs resorting to take low-cost foreign currency loans. This brought down loan disbursement by local lenders. This was exorbitantly high before. The weighted average lending rate came down to 10.64 percent in March 2016 from 11.93, a year before. The deposit rate also saw a sharp fall due to excess idle liquidity with banks. The interest rate on deposit came down to a

Budget FY 2017 Goals:Realities for Accomplishment

The Bangladesh Accountant April - June 2016 03

Masih Malik Chowdhury FCAChairman, Editorial BoardPast President-ICAB

Harun Mahmud FCAEditor

mere 5.00% in March 2016 from 7.06 percent a year before. The increase in absorbing strength of the economy at present is highly appreciated now.

A large ADP was undertaken last fiscal year, which was later slashed. The government has big plans to speed up the implementation of the annual development programme this fiscal year. Against the backdrop of poor performance last year, doubts about whether or not NBR is exigible to match the need persist at large. Should NBR be so , we hope yes, it would exhilarate the government & the nation. However, the fact is otherwise. A major portion of the outlay could not be spent in the first 11 months of FY 2016. Between July and May, implementation spending stood at Tk. 55,317 crore or 60.79 percent of the revised ADP Tk. 91,000 crore. It is said that in FY 2017, a separate pool will be formed. A Project Director will be appointed from it to expedite the implementation. Such an initiative was taken in 2015 but did not

materialize. As such this will be requiring more intensive measures of the GoB. The size of the total ADP in FY-2017 has been set at Tk. 110,700 crore. This means a 21.64 percent increase over the revised ADP of FY 2016 (Tk 91,000 crore).

Between July 15 and May 16, trade deficit stood at $ 6.27 billion in contrast to $6.69 billion a year earlier, according to Bangladesh Bank’s balance of payments data. Trade deficit has narrowed by 6.33 percent. In the first 11 months of the passed out FY-2016, export growth surpassed that of imports. Consequently the balance of payments surplus has widened by about 14.88 percent. Foreign direct investment swelled by 12.35 percent to $1.87 billion from a year earlier in those 11 months.

Without proper measures to handle the poor governance, the long-term sustainable development would not be in the offing. Moreover, strict monitoring & the auditing of public fund is a sine qua non for transparency & accountabilility. The investment should have been more

intensely prioritised in the proposed Budget. We find the challenges are well known to the erudite octogenarian Finance Minister.

We feel that the recently passed budget with necessary structural reform will accelerate investment, improve the business environment and socioeconomic condition of the country. Bangladesh has got immense development potentiality especially for its vibrant private sector. And rightly we can hope that we would not have to wait too long for seeing Bangladesh in the coveted MIC. It will happen within the vision 2021 we fervently hope.

If we convolve on the final Budget accomplishment possibilities, one may beget ambiguities. Yet however, we aspire in the lines from ‘Ode to the West Wind’ by Percy Bysshe Shelley.

“The trumpet of a prophecy! O wind,

If winter comes, can spring be far behind?”

NB: Some Articles relating to Budget are included in this Journal, were written before the Budget was passed in Jatiyo Sangshad.


jointly with Prothom-Alo, arranged a Pre-Budget Roundtable discussion where country’s prominent economists, journalists, bureaucrats and our CA professionals took part. I must mention that the unique and thought provoking ideas generated by CAs were really illuminating and equally appreciated by the guests. Important suggestions/ recommendations on government’s borrowing, budget deficit, ADP, inflation, investment, FDI, use of foreign loan, etc. that emanated out of this discussion must have been helpful for the government in bringing necessary modifications or adoption subsequently.

I would like to further mention that, before passing the Finance Bill 2016 in JS, ICAB organized members’ conference on 'An Analytical Study of Significant Amendments by the Finance Bill 2016 and Amendments Enacted through SROs on Income Tax and VAT Regulations' which was timely and held as part of our responsibilities to advise and suggest the related bodies to guide in the promulgation of laws or policy. We also were able to ensure the presence of policy makers of different stratus in ICAB and made them heard our valuable submissions. This effort of ICAB was greatly appreciated by the invitees. Members of the Institute also

flooded with recommendations on amendments of Income Tax Ordinance 1984 and Value Added Tax (VAT) 1991 for the Finance Bill 2016 which were credit worthy.

Finally, we want to reiterate that our efforts and endeavors in ensuring professionalism, transparency and accountability will be tireless. We once again vow to uphold ethical values at any cost. Thank you all.

ProfessionalExcellenceand beyond...

PRESIDENT’S DESK

I welcome the Editorial Board’s decision to choose two consecutive issues (January-March and April-June) of the journal The Bangladesh Accountant on National Budget and the emerging economy of Bangladesh considering the progressive manner of our economy toward MIC (middle income country). Accountancy projects a clear picture on country's fiscal activities and assists in ensuring corporate good governance. Accountancy is essential for banks, insurance companies, securities, dealers and others who need them. As trade and commerce of the country increases, so does the responsibility of the accountants. In the financial sector of our country, ICAB has a major role to play. Rightly so the institute is pro-active in creating awareness, generating ideas and thoughts, promoting transparency and accountability not only in its

own area but also in overall economic affairs of the country.

We believe we have been able to bond good ties with all related Government, autonomous or regulatory bodies. We are in touch with NBR, Bangladesh Bank, BSEC, Ministry of Finance, Ministry of Commerce, LGRD and others. We are ready to work with them in any matter related to training or for the cause of national interests.

Now on a different note, I would like to say that ICAB members are working at home and abroad in many decision making positions; so it is imperative that they are adequately equipped in terms of knowledge and skills to take up versatile role for which training is key. In other words there is hardly any alternative to knowledge based training. They must constantly pursue for the best.

Institute is trying to explore the untouched avenues essential for the CAs to grow more with knowledge and confidence. Accordingly we are organizing CPDs and other time demanding trainings related to our profession to ensure professional excellence and beyond. I am happy to note that our Chittagong office is doing the same.

We are proud to say that our Taxation and Corporate Laws Committee (TCLC) every year sends proposals on tax policy to NBR aiming to contribute to yearly national budget. In this year also, we submitted proposals on VAT policy to the NBR. We are happy to note that some of them got due attention and incorporated eventually.

This quarter of the year, as I indicated at the outset, saw the national budget of 2016. I should mention that ICAB,


jointly with Prothom-Alo, arranged a Pre-Budget Roundtable discussion where country’s prominent economists, journalists, bureaucrats and our CA professionals took part. I must mention that the unique and thought provoking ideas generated by CAs were really illuminating and equally appreciated by the guests. Important suggestions/ recommendations on government’s borrowing, budget deficit, ADP, inflation, investment, FDI, use of foreign loan, etc. that emanated out of this discussion must have been helpful for the government in bringing necessary modifications or adoption subsequently.

I would like to further mention that, before passing the Finance Bill 2016 in JS, ICAB organized members’ conference on 'An Analytical Study of Significant Amendments by the Finance Bill 2016 and Amendments Enacted through SROs on Income Tax and VAT Regulations' which was timely and held as part of our responsibilities to advise and suggest the related bodies to guide in the promulgation of laws or policy. We also were able to ensure the presence of policy makers of different stratus in ICAB and made them heard our valuable submissions. This effort of ICAB was greatly appreciated by the invitees. Members of the Institute also

flooded with recommendations on amendments of Income Tax Ordinance 1984 and Value Added Tax (VAT) 1991 for the Finance Bill 2016 which were credit worthy.

Finally, we want to reiterate that our efforts and endeavors in ensuring professionalism, transparency and accountability will be tireless. We once again vow to uphold ethical values at any cost. Thank you all.

I welcome the Editorial Board’s decision to choose two consecutive issues (January-March and April-June) of the journal The Bangladesh Accountant on National Budget and the emerging economy of Bangladesh considering the progressive manner of our economy toward MIC (middle income country). Accountancy projects a clear picture on country's fiscal activities and assists in ensuring corporate good governance. Accountancy is essential for banks, insurance companies, securities, dealers and others who need them. As trade and commerce of the country increases, so does the responsibility of the accountants. In the financial sector of our country, ICAB has a major role to play. Rightly so the institute is pro-active in creating awareness, generating ideas and thoughts, promoting transparency and accountability not only in its

own area but also in overall economic affairs of the country.

We believe we have been able to bond good ties with all related Government, autonomous or regulatory bodies. We are in touch with NBR, Bangladesh Bank, BSEC, Ministry of Finance, Ministry of Commerce, LGRD and others. We are ready to work with them in any matter related to training or for the cause of national interests.

Now on a different note, I would like to say that ICAB members are working at home and abroad in many decision making positions; so it is imperative that they are adequately equipped in terms of knowledge and skills to take up versatile role for which training is key. In other words there is hardly any alternative to knowledge based training. They must constantly pursue for the best.

Institute is trying to explore the untouched avenues essential for the CAs to grow more with knowledge and confidence. Accordingly we are organizing CPDs and other time demanding trainings related to our profession to ensure professional excellence and beyond. I am happy to note that our Chittagong office is doing the same.

We are proud to say that our Taxation and Corporate Laws Committee (TCLC) every year sends proposals on tax policy to NBR aiming to contribute to yearly national budget. In this year also, we submitted proposals on VAT policy to the NBR. We are happy to note that some of them got due attention and incorporated eventually.

This quarter of the year, as I indicated at the outset, saw the national budget of 2016. I should mention that ICAB,

Kamrul Abedin FCAPresident-ICAB


Founded in 1904, the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) is the oldest and the pre-eminent trade organization of Bangladesh. Presently, almost all major enterprises of the manufacturing and service sector are among its members. The Chamber provides a wide range of professional services to its members. Syed Nasim Manzur, Managing Director, Apex Footwear Limited, is now the President of the Chamber. A leading entrepreneur, Mr Manzur has also investments in Apex Tannery Limited, Apex Pharma Limited, Apex Investments Ltd., and joint-venture companies, Blue Ocean Footwear Ltd., Grey Advertising Bangladesh Ltd. and Quantum Consumer Solutions Ltd. Currently, he is a member of the Board of Pioneer Insurance Limited, Guardian Life Insurance Co., International Publications Limited, Society for Promotion of Bangladesh Art and Friendship, a non governmental development organization, Savar Golf Club, and an independent Director of the Board of Western Marine Shipyard Limited. Mr Nasim Manzur is also the former President of Leather goods and Footwear Manufacturers & Exporters Association of Bangladesh. We recently talked to him to know his views on country’s overall economy, investment scenario and governance issues.

Revenue Oriented BudgetInterview of MCCI President Syed Nasim Manzur

TBA: What is your impression on the overall economy of the country?

Syed Nasim Manzur : Our mission has always been to be a voice of responsible business. We always say this. We are responsible to our stakeholders, our shareholders. We are responsible to create value for the business community and we are also responsible to the society. But I think our primary responsibility is to create a value, and to create value ethically. We know there are many examples that businesses can make profit by doing business ethically. Unfortunately these examples, in most cases, remain less visible. Somehow we see wrong impression expressed in media. So, today the key word is everybody’s sustainability (sustainability of businesses).

A sense of complacency developed among us over the 6 percent economic growth in the past few years. But we think 6 percent growth is not enough, it is not even close to enough. We need to have 8-10 percent growth. The entire world is facing a single crisis – lack of adequate employment generation. To create job we need investment and further growth.

If we come back to budget, we always hope that the budget will be


business-friendly and pro-investment ones. Traditionally our budget has been very revenue-oriented. This time we have seen the same focus. If we want to attract more investment, whether it is local or foreign, we need to make sure that there will be returns. And the returns will come from profitability. The key factor behind profitability is cost of doing business. If cost of doing business gradually increases only and the profitability and returns come down why will I invest in Bangladesh? We need to be realistic. Investment flow will increase if the returns are attractive compared to risks. In terms of risk, I think Bangladesh has made tremendous progress. I find our political environment is almost stable of which there are advantages and disadvantages.

What we do not say is that Bangladesh is not the easiest place to make profit ethically. There is high bank interest rate. Spread (difference between lending and deposit interest rates) is ridiculously high. Land is too much expensive. There is lack of adequate logistic supports. And those who are trying to do business ethically and trying to be compliant, their costs of doing business are increasing.

TBA: Before I go into other issues, do you think that the recent budget has fulfilled the expectation of common people?

Syed Nasim Manzur : We are a bit disappointed with the budget, already passed, for the new fiscal year. Some of our specific suggestions remained missing in the budget. Those suggestions were placed to help reduce the cost of doing business and ease the process of doing business. Tax net should be expanded instead of mounting tax burden on the existing taxpayers.

The good thing is that the overall inflation came down and it is now below 5.5 percent.

There has been a commodity price-crash globally. We have recently seen in two neighboring countries that they have comparatively lower petroleum price. The price is 38 percent and 25 percent lower in those two countries respectively compared to Bangladesh. The petroleum price hits consumers directly. We have seen an adjustment recently, though it was late. But the price of kerosene and diesel did not see any adjustment. So, cost of living for commoners will not come down.

We want to see further growth of the manufacturing sector. It will help boost employment generation. We can not jump onto service sector skipping manufacturing sector as manufacturing is the first stage of phases of development. Duty on raw materials should be reduced further for manufacturing sector’s growth. Consumers will be benefited if cost of doing business comes down. Our local manufacturers are doing a tremendous job. They should be encouraged more.

IF WE WANT TO ATTRACT MORE INVESTMENT, WHETHER IT IS LOCAL OR FOREIGN, WE NEED TO MAKE SURE THAT THERE WILL BE RETURNS. AND THE RETURNS WILL COME FROM PROFITABILITY. THE KEY FACTOR BEHIND PROFITABILITY IS COST OF DOING BUSINESS. IF COST OF DOING BUSINESS GRADUALLY INCREASES ONLY AND THE PROFITABILITY AND RETURNS COME DOWN WHY WILL I INVEST IN BANGLADESH?

TBA: The size of national budget is huge; experts are critical about the efficiency for implementation looking at its bigger size; do you think we are able to handle budget of such size?

Syed Nasim Manzur : There is a saying in English – size matters. In this case (budget) size does not matter. I think quality or implementation capacity matters. I completely agree with our Finance Minister AMA Muhith that our budget can be bigger. But we must have the capacity to implement or execute the big budget.

Another point is that those who are paying taxes will shoulder more tax burdens. Tax nets needs to be expanded. I think budget size should grow considering Bangladesh’s economy. If we look at the quality of the administrative capacity of the government, we find a very big problem. I am sorry to say we do not see any satisfactory sign. The government may suffer in spending allocation for mega projects if the government does not invest in improving the administrative capacity.

TBA: ADP implementation rate is frustrating. There is a big question on the transparency in ADP expenditure. BDT 29K Cr. spent during first 9 months while 91K Cr. is targeted to spend in FY 2015-16. To what extent do you consider this is utilized for the infrastructure development that boosts trade and commerce of the country?

Syed Nasim Manzur : The government is giving importance on education and skill development projects. We must produce skilled manpower. We need a deep seaport and we never know or get justification report on who are getting the work under what basis. We see excessive delay in imported air cargo clearance. There are many reports that businesspeople are facing difficulty in finding their cargos at the cargo terminal. In some cases, it takes 11-19 days to release an imported air cargo. This problem can easily be addressed. We want to see that the government appoints private operator to handle cargo like airport security. National carrier Biman can not do it. Biman is a bankrupt and defunct organization. It needs to be shut down today. I have no problem saying this. If you (Biman) want to operate airlines, you do it but handover the job of cargo handling to someone else. You should not hold it back what you can not handle.

There are some 20,000 factories in Gazipur. So, steps need to be taken to improve Dhaka-Gazipur highway, airport cargo handling and BSTI certification process. We spend close to US$ 1 million for conducting various lab tests abroad. So, BSTI must turn into an international standard one. It is

time for government to take partners. The government can even go for outsourcing. In this area the government seems to be reluctant. The government wants to control the whole expenditure. The government needs to come out from such practice.

TBA: GDP rate for 2015-16 estimated as 7.05% by Govt. while WB estimated as 6.5%. Again, GDP for 2016-17 estimated by Govt. as 7.20% while WB estimated as 6.3%. Many researchers questioned the accuracy of state owned statistics dept. (BBS). As a Business leader, what is your suggestions to gain higher GDP growth?

Syed Nasim Manzur : There are some major infrastructure projects with large budget. Our trade and overall export and import will immediately see a big boost if Dhaka and Dhaka-Chittagong highways’ competitiveness can be boosted connecting road, rail, cargo and passengers. There are non-physical infrastructure sides, too. The governance is the key. Still there is enough room for improvement in terms of governance - in every stage – from


it has increased in many ways. Do you think this is likely to affect the export business?

Syed Nasim Manzur : I personally have a problem with tax at source on exports. At the same time, I think exporters need to pay tax. But the export is driven by demand. Bangladesh’s 80 percent products are destined to European, American and Japanese markets. These three markets are now at risk to some extent. We see vulnerability in these three markets. The proposed 1.5 percent tax at source on exports was not justified. However, the Finance Minister paid heed to the businesspeople and it was finally made 0.7 percent. Time should be given before taking new decision. Now the government may announce beforehand that the tax will be hiked at a particular rate in 2017-2018. The entire tax process needs to be transparent and equitable.

TBA: In many areas of the budget speech, Finance Minister talked about the tax evasion of the taxpayers and highlighted Govt. initiatives to handle those issues. As a business leader what do you think the business community can do about it?

Syed Nasim Manzur : We, from MCCI, are opposed to whitening black money. We never support it. We understand avoiding tax is illegal. We never support any illegal act. If anybody tries to dodge tax, we condemn it. We need a painless, easier and transparent process. Tax collection process should be easier and more user-friendly so that people can


gas connection to financial sector. There are some good borrowers and lenders. They should be given incentives. Investment will further increase if both good borrowers and lenders are evaluated encouraged with incentives.

The country’s growth will be boosted but we need to put emphasis on education and skills development. We are lagging behind in this particular area. We are giving away GPA-5 (Grade Point Average) to our children. But I am very sorry to say the quality of education has deteriorated drastically. We are facing difficulty in recruiting quality workforces. We must address it now to give our youngsters a better future. Our education system will have to be remodeled. We can not blame our children, we blame on the education system. We need people who have analytical and communication ability. The government has a focus on skill development projects. But again we need quality monitoring. Private sector can be involved in this area. We must address governance issues. If good governance prevails, confidence will grow. We need to have smooth Dhaka-Chittagong highway, modern airports and rail connectivity. These will help accelerate growth.

TBA: In order to make the budget size bigger, revenue target is also aimed higher. Revenue target has been set 36% higher than revised budget of 2015-16. To what extent do you think it is justified?

Syed Nasim Manzur : The country’s businesspeople will have to come out from the culture of tax evasion. If you go for an

assessment, you will find thousands of people who are able to pay tax but they do not. Usually, taxpayers remain in a panicky state fearing harassment by the tax collectors. Many people think that paying tax is more difficult than dodging tax. Tax collection process can be made smoother so that taxpayers feel encouraged to come forward. People will not come forward willingly to pay tax if the current practice remains unchanged. We need to go for tax net expansion instead of increasing tax rate. The government’s target should not be the amount but the numbers of taxpayers. If the government realizes it, we will get sort of relieve. Otherwise, taxpayers might get harassed as the tax collectors will be desperate to fulfill their high revenue collection target.

TBA: Rate of VAT has been proposed as 15% across-the-board. It is higher than India, Singapore and Sri Lanka. Many suggest more VAT could be collected by making the system more efficient instead of fixing the high rate 15%. Do you agree?

Syed Nasim Manzur : I personally think the rate definitely should be lower. We need two-stage VAT (Value Added Tax). Given the reality of Bangladesh, VAT is absolutely the right way but the rate should be lower instead of flat 15 percent VAT. Still there are some fundamental contradictions in the Act. There are scopes to revise those. I hope the government will take our concerns into their consideration.

TBA: Tax rate has increased, in export oriented business

Interviewed by:Mohammad Zahid Hossain FCAAssisted by: Abu Taher andUNB Journalist AKM Moinuddin

sleep well without any tension. Those who prefer to dodge tax they should be given exemplary punishment. At the same time, the government should do something meaningful for the genuine taxpayers having good track record instead of giving a crest only.

TBA: Investment is not at satisfactory level. That’s the reason GDP is hovering at 6-7% but not moving towards 8%. What’s the main reason for unsatisfactory level of investments?

Syed Nasim Manzur : So far investment has been very sluggish. I think this notion is already established. Investment is not picking up. We are yet to see any sign honestly. But there has been credit growth in the private sector as interest rate is coming down gradually. I am not worried about political instability. We are concerned about governance. There is no good sign in financial sector, not even in the country’s capital market. We have seen problems in the areas of quality, implementation and predictability.

You have to boost confidence among investors if you really want an increased investment. You must demonstrate there are adequate efforts to improve governance – law and order, financial sector, specially state-owned banks. We have said this publicly that they should be shut down. If there is strong political will, governance will be improved. Investment will continue to increase if effective measures are taken to reduce the cost of doing business.

TBA: It is reported that USD 9 B was siphoned off from Bangladesh in recent past. Based on this reality, do you think business community could be given opportunities to invest undisclosed money?

Syed Nasim Manzur : There are many reasons behind the reported siphoning off huge money. I do not know them personally who allegedly siphoned off money. So, I do not want to make any comment on those individuals. If you allow siphoning off money it means you are discouraging good behaviors. These capital flights must stop. To

that end, we are looking for some signals from the government.

TBA: A significant amount of Bank Lending has been classified as Nonperforming Loan (NPL). What do you suggest to overcome those?

Syed Nasim Manzur : We have not seen any action against the willful defaulters. This is unfortunate. The year 2016 is a challenging year globally. We have huge bank reserve. This reserve can be deployed more cleverly, efficiently and effectively. Huge investment is being done for RMG sector’s remediation. This sector can be supported through a special fund. It will help make our economy a jump start. We need coordination between fiscal measures and monetary measures. We hope to get back momentum in 2017. To cash in the advantage, we must boost coordination and efficiency at all levels.



The national budget of fiscal year 2016-17with a size of 3,40, 605 crore Taka is a courageous step. No doubt compared to previous year a bigger budget with increased revenue target of Taka 2,48,337 crore and increased non-development and development expenditure target of3,40, 605 crore depicts a progressive and courageous compilation. Obviously deficit amounts to Taka 97,337 crore. As anticipated this deficit will be financed by Government borrowing from Banking system, sale of Sanchaypatras, foreign loans and grants etc. But deficit financing has negative repercussion in the economy. Govt. borrowing from banking system involves interest payment that increases non-development expenditure, deprives the private borrowers who look forward to

Progressive and Ambitious Budget,But Implementation May Be Tough

M. Idris Ali FCA

banks for financing their new investments, working capital, as well as expansion of business. Interest paid on Sanchaypatras is high which inflates the public expenditure creating hindrance to non-development and development expenditure. Hence revenue from tax, profit, VAT, CDST, etc are the only cost-free source of financing public expenditure for the Government. Now let us see how the revenue target will be fulfilled.

Revenue Collection

NBR is the prime collector of revenue. But continuously it is lagging behind its target in collection. Let us have a look at the actual picture of collection against given targets:

Period Target fixed Actual collection Shortfall Percentage

FY15-16 (July-Feb) 1,04,165 90,684 13,481 12.94FY 14-15 1,49,720 1,36,724 12,996 8.68FY 13-14 1,67,459 1,41,603 25,826 15.42FY12-13 1,39,670 128,823 10,847 7.76

Taka in crore


From the above data it transpires that there is a declining trend of collection of revenue. NBR has failed to fulfill its given targets in all the past years. How can one imagine that a miracle will happen and it will fulfill its ambitious target of Taka 1,76, 350 crore and achieve 30% growth during the forthcoming FY 2016-17? But nothing is impossible for a state. A person cuts his coat according to his clothes, but the state procures clothes according to size of its coat. The state can formulate following methods and policies in order to achieve its target of revenue.

a) In a country where there are about 40 lakhs of E. TIN holders , and it is increasing every day, how can only 9 to 10 lakhs income earners submit their returns? NBR has to find out ways and means to reach the E.TIN holders and approach them politely. Ten calls made in ten months is bound to be responded in the 11th month. E returns should be sent to those E TIN holders with option to submit it online. Expanding tax net yearly by 10% will double the number in ten years. If the Government asks for E.TIN at the time of renewal of vehicles fitness and imposes double tax for owning a second car, why does not it do the same at the time payment of holding tax? In the budget no indication of how the tax net will be expanded is Found.

b) Burden of indirect tax ultimately falls on the public in general. VAT,CDST,ST, imposed on necessities increases cost of living, pour out hard- earned savings of the poor class and intensifies poverty. Although per capita income is now $1466 ,it is built up of income of the super wealthy, ultra rich and high income group. Farmers of village areas earn no more than $400 a year. If rational distribution of income and wealth is not encouraged and ensured, poverty will not diminish. Direct tax can do a lot in increasing the revenue . By increasing last tax slabs, ultra rich and high income group will be added to pay more tax that will help achieve the revenue targets. In the budget proposal this should be incorporated.

c) Loans and grants from World bank, loans from IMF, IDB,ADB and other development partner countries are generally cheaper than internal loans from banking system, Government securities like sanchaypatras, treasury bills, Government bonds etc. Payment of interest on these securities has been budgeted at Taka 38,240 crore against Tk 30,044 last year, representing a rise of 21.44 %. This rise indicates payment of higher rate and amount of interest that will inflate debt servicing expenditure which otherwise would curtail development and

ALTHOUGH PER CAPITA INCOME IS NOW $1466 ,IT IS BUILT UP OF INCOME OF THE SUPER WEALTHY, ULTRA RICH AND HIGH INCOME GROUP. FARMERS OF VILLAGE AREAS EARN NO MORE THAN $400 A YEAR. IF RATIONAL DISTRIBUTION OF INCOME AND WEALTH IS NOT ENCOURAGED AND ENSURED, POVERTY WILL NOT DIMINISH.

Growth of Revenue Achieved Against Targets(In percentage over total revenue) PERIOD: July-Jan, FY 15-16

Head of revenue Target fixed Achieved

Tax on income and profit 48.3 8.9VAT 33.9 12.0Import duty 11.4 11.6Supplementary duty 19.o 19.1Non- NBR tax 20.9 8.2Non-tax revenue 13.6 -32.2(Source-MOF)

non-development expenses. This will hamper creation of jobs, reduction of poverty and boosting investment by private sector etc. In order to finance the annual development plan (ADP) projects ,cost may be lower , so financial burden of

the country may be less. Had Padma Bridge been financed partly with WB loans the cost would have been much, much lower. In financing ADP projects, specially mega projects ,there is no indication in the Budget as to how much

funds will be available from these cheap sources.

However revenue income being free source of all financing ,the government should turn all stones in order to achieve the revenue targets.

Education is the backbone of a nation , a poor but educated nation is more productive and happier than an illiterate rich nation. Many countries like Nigeria, Zambia have huge natural resources , but want of good governance, human rights, existence of tribal and ethnic clashes have spoiled their capability to exploit and reap benefit of these resources. Literacy arouses competence in productivity and teaches giving value to humanity. It is a good sign that budget allocation has gone up in Primary and Mass Education Ministry by 19.72% over last year. But this dose not seem enough in the context of implementation of new education policy. Higher education is mostly in the private premises , hence requires less Govt. funds. According to new policy Primary education has been upgraded up to class viii,

implementation of which needs huge development and non development expenditure. With the aim of achieving Sustainable Development Goal(SDG) of the UN, literacy rate must be accelerated by providing more facilities like stipends, free meals etc to students of primary schools. This might reduce drop-outs in the primary schools . Inadequate number of trained teachers in primary levels which is a regular phenomenon should be solved soonest. Honourable Prime Minister herself said that spending in education is an investment. In the budget gravity of the matter seems to have been ignored.

Health Ministry has received 13.89 % higher allocation compared to last FY which seems not to be enough. Community clinics in the rural areas on which

almost 13 crore people depend for their medical treatment are not enough in number. Moreover, doctors and medicines are very often not available in the existing clinics. As a result ,poor people have to go to private clinics with exorbitant charges that drains out their hard earned savings and makes them more poor. Healthy people contributes more to national productivity and GDP. Spending state’s resources in health sector is an investment, Health sector should, therefore get more allocation in the budget.

Allocation of Tk 16,044 crore in social welfare and safety net for the marginal poor like previous years is praiseworthy. The beneficiaries of this funds are beggars, pregnant women, widows, husband- abandoned women, old-aged people, freedom


FY 2016-17 FY 2015-16(Rev) growth %Min. of Pry and Mass Edu 14,451 11,600 19.72M. of Edu 20,681 16,001 22.63inMin. of Health 11,254 9,690 13.89Min. of Sec. and Soc. Welfare 16,044 13,316 17.0Min. of Agriculture 15,470 9,327 39.7Min. of Agriculture- Incentives 9,000 7,000 22.2ExptWelf. andovss. employ 936 844 9.8Debt servicing(Interest- Domest.) 38,240 30,044 21.43Finance Divn-Rev.Exp 18,593 8,687 53.28Finance Divn- CAP Exp 16,831 4,627 72.5

Public Expenditure (Non Development)

Allocations of funds in non-development expenditure in the budget of FY 2016-17 are as follows:Taka in crore


fighters, orphans, disabled, retarded etc. Last year number of old-aged people was 30 lakhs, currently it is almost 60 lakhs and by the year 2051 this figure may rise to 3 crore. Out of them allocation for the financially unstable ones should be increased. Allowance of freedom fighters above 65 years has been doubled from Tk 5,000 to Tk 10,000. These, along with allocation for one house-one farm, jobs for the very poor, VGD, VGF, food for work being direct spending in cash for the poor ,must eradicate poverty, increase per capita income. But unluckily, the cash benefit, in many cases, does not reach or reach the beneficiaries partly after having been intercepted or pocketed by the dishonest public servants. Hence the purpose is defeated. There should be comprehensive database and bank accounts to which the cash should be disbursed. The budget remains silent about this corruption and its eradication almost every year.

50 Lakhs garments workers who earn 80% foreign exchange of the country live deplorable lives in respect of food and housing. BGMEA is a private organization which ignores their rights and needs. Allocation should be made under this ministry for building some cheap houses in collaboration with BGMEA.

Since Ministry of Agriculture has received increased allocation in FY 2016-17, it is high time that the Ministry ensures that the farmers get reasonable prices for their products. Direct purchases from farmers, storages facilities, transportation facilities should be provided by the Govt. Otherwise our surplus rice stock may deplete and the country may become a deficit rice producer. Allocation of incentive has increased from 7,000 crore to 9,000 crore Taka in this

budget. This is proper. But the incentives in fertilizer and irrigation does not benefit the farmers, because the dealers of fertilizers play in price and the real owners of irrigation pumps overcharge the farmers. Hence I recommend that instead of disbursing incentives the Govt. through BADC, should distribute fertilizers free of cost and operate irrigation pumps by themselves. This will benefit the farmers directly, increase their per capita income rationally and eradicate poverty.

Our expatriates are bringing in over 1,20,000 crore Taka in remittance every year in to the country which boost the economy. They face innumerable problems at home and abroad, they find no secure place for investment in the country, they die neglected abroad. The Ministry of expat. welfare and overseas employment does not perform any notable welfare work except carrying back the dead bodies from abroad. Allocation of funds in the budget

for this purpose, does not also seem to be enough. This Ministry can double the remittances in a few years merely by training the unskilled workers, making them skilled and exploiting new avenues for employment before other countries fill in the blanks. Allocation of funds for this Ministry should be increased in the budget.

Per Capita Income

Let us have a look at the following information relevant to the above topic. As per research of Power and Participation research Centre (PPRC):

Average Per Capita Income

Poorest 40% $ 359Middle 40% $ 867Richest 10% $ 4,962Riches of the 10% $ 11,791Capital city

Current average per capita income of $ 1,466 is irrelevant and far low as compared to the from real income of the richest class. In order to reduce this disparity,

The Author is a Fellow Member,ICAB and Consultant, Hospitalityand Financial Consultants

rationality in distribution of income between the rich and poor should be brought about through taxation system in the budget. Exemption bracket of tax should be enlarged from Taka 2.5,3.0, 3.5 ,4.0 lakhs respectively to higher levels so that the poor and middle class people can save more . Minimum tax payable should also be withdrawn for the same group. Last tax slab of 30% should be increased so that large income earners pay more tax to the state in order to bring about rationality in distribution of income.

Banking Sector

Banking sector of Bangladesh is currently in a mess. During the budget debate in the J.S the Finance Minister himself has uttered that stealing of not pond but sea has taken place, but he has not indicated how the culprits will be punished. Other M.Ps have pointed out that Tk 30,000 crore has been syphoned out from the banks, most of the culprits are yet to be brought to books. In fact the biggest four state-owned banks-Sonali, Janata, Rupali and Basic are captivated for Tk 5,867 crore by top ten loan defaulters. In the Asia pacific region, bad debts rate in Bangladesh is the highest (8.79%) while S. Korea has the lowest rate( 0.6%):The bad debts as well as provision for bad debts of the state-owned banks have eaten up all profits and the capital too. Hence Finance Ministry has possibly budgeted a part of the lump amount of Tk 16, 831 crore in order to inject as capital or loan. The lump amount was only Tk 4,627 crore in the last FY. This

injected capital or loan for lost capital is the tax payers’ money paid to the state for spending towards public welfare expenditure, not to replace the stolen funds of the depositors embezzled by the defaulters. A high powered commission with banking experts is urgently needed to be formed for recovery of the bad debts soonest. It should have been highlighted in the budget.

Investment

Investment is at dead point, banks have reduced their lending rates from 10 to 13%, liquid cash amounting to Tk 2,00,000 crore is lying idle in the banking system ready for lending, but entrepreneurs are not showing up. A position of investment for 5 last years as % of GDP is shown below:

Year Private Public2011 22.16 5.252012 22.50 5.762013 21.75 6.642014 22.03 6.552015 22.07 6.42

Much has been talked about, almost all stones have been turned to attract investment, but very little progress has been seen. So a burning question is looming what should be done. The Finance Minister is silent. Land, infrastructure, power, electricity, gas, democratic environment, political or law and order situation, what is the hindrance? The Govt. should discover through an expert committee and reflect the result in the budget. But Govt. itself should boost up its own investment.

ADP Projects

Every year allocation for ADP projects is going up which is appreciable. But all problems lie in the implementation. A chart of implementation rates is shown below:

FY 2011-12 55%FY 2o12-13 54%FY 2013-2014 54%Fy 2014-15 56%FY 2015-16 50%

Allocation of increased amount of Tk 1,23,245 crore for the FY 2016-17 in the budget is appreciable, but it would be useless if implementation can not be done and the funds are made redundant or returned. Materialization of ADP projects is the life blood of Govt. spending in development activities which lead to creation of jobs, boosting economy, addition to per capita income, savings and ultimately to GDP. Govt. spending in development activities is a public investment which encourages private investment too. Hence initiatives, efficiency, dynamism of the project directors, their team and public officers must be improved.

Before the budget of FY 2016-17 is passed in the J.S the comments and recommendations should be considered.



A national budget is the proposal of revenues and expenditures a government expects for a given fiscal year. It is much like any budget in that it estimates necessary spending against necessary income, only on a much larger scale. In early June the current government announced details of its budget for fiscal year 2016/17 with a view to building a prosperous, equitable Bangladesh. It is current government’s eighth spending plan to date.

Special Key Features of the Budget Highlights Including Hopes and Doubts

The vision of government budget and all activities of the government reflect the values of a majority of stakeholders. The proposed budget is also hoped for the welfare of the people of the country. Although we assume we understand great deal of things about economy and government spending and collection mechanism, often, government excels us in decision-making with their information-processing prowess. Instances abound to prove that regulation works, especially in complex areas like multiple streams of revenue collection in a modern economy hosting sophisticated business and financial market. Regulations work

National Budget 2016-17Marching Towards Growth,

Development and Equitable SocietyTofazzul Hussain FCA

not because the government has superior knowledge but because it gives us choices and thus the complexity of the problems at hand is reduced, so is the possibility that things may go wrong.

Let’s Look at the Key Features of the Budget

• The extensive size of the budget that total revenue of 2.42trn, total expenditure of 3.40trn taka ($43 billion). It may seem difficult to implement initially but does good in the long run.

• Tremendous GDP growth rate target of 7.2% is a positive sign indeed.

• Huge allocation on education ,health ,development and non-development programs and delineating a set of programs to transform the country into a role model of modern and welfare state by 2041.

• Separate budget for the Padma bridge is a good sign of development.

• Larger amount of revenue collection from VAT, taxes and other duties. Tax-GDP ratio aimed to raise the tax-GDP ratio to 13 percent by 2016. While there has been progress in VAT reforms, questions remain as to


whether the new VAT law would become effective from fiscal 2016-17.

• Development of public private partnerships, EPZs, FDIs and various employment opportunities to make our country business and investment friendly.

• This budget contains Taka 97 thousand 835 crore of deficit balance. Having a small percentage of deficits in the budget may work as stimulator for the economy.

• Manpower development is not getting into action as many organizations are hiring manpower from other countries. Therefore, work permit rule and tax on non-resident income is gaining momentum.

• Emphasis on mitigation of power, energy, gas crisis.

• The security issue and instances of corruptions in banking sectors have been taken into consideration.

• Unfortunately, the budget is inadequate for 40 million coastal people living in respective 24 districts.

• New pension scheme for semi-govt. and public sector employees and tax free income limit remains unchanged. However, investment allowance is under slab.

• The prices of bakery products, shoes and slippers made of rubber and plastic will go up and textile products will get cheaper.

• Duty exemption on essential commodities remains unchanged. The government will continue the existing duty exemptions or concessions to the essential commodities including

edible oil, sugar, pulse, onion, garlic etc.

• Using mobile phones will get costlier as budget proposes to raise duty on SIMs. In order to enhance revenue collection from this sector, finance minister proposed to increase the rate of supplementary duty on SIM card related services from 3 percent to 5 percent.

• The government has allocated Taka 13,678.85 crore for agricultural sector by increasing Taka 9,000 crore as subsidies in the proposed budget.

• A cash incentive scheme has been proposed for 16 export goods in the budget for next fiscal to boost the demand for those goods in external markets.

• Tobacco products price is up. The lowest slab of cigarette price has been set at Tk 23. The supplementary tax of two other tobacco products ‘Jarda’ and ‘Gul’ has been increased 100 percent from 60 percent, pro-heath decision; good for young generation.

• Inflation rate target is 5.8% as the government would like to ensure the continued harmonization of fiscal and monetary policies.

• poverty declined; Per capita income is expected to increase to USD 1,466.

• we are a lower MIC country under leadership of Hon'ble Prime Minister Sheikh Hasina, who has also been included in the list of 50 international leaders published by the 'Fortune Magazine' who are playing vital role in making the world a better place.

• stepping towards the SDGs (Sustainable Development Goals) of 17 goals and 169 targets.

REGULATIONS WORK NOT BECAUSE THE GOVERNMENT HAS SUPERIOR KNOWLEDGE BUT BECAUSE IT GIVES US CHOICES AND THUS THE COMPLEXITY OF THE PROBLEMS AT HAND IS REDUCED, SO IS THE POSSIBILITY THAT THINGS MAY GO WRONG.


Budget Highlights and Interesting Parts of the Budget of FY2016-17

Sl Head of expenditures Crore Tk % oftotal exp

Cause Sector

1 Human Development- Ministry of Education

26,847 8% Human Development Social Infrastructure

2 Human Development- Ministry of Primary and Mass Education


3 Human Development- Ministry of Health and Family Welfare


4 Human Development- Others 19,423 6% Human Development Social Infrastructure

5 Food and Social Safety- Ministry of Food 2,442 1% Food and Social Safety Social Infrastructure

6 Food and Social Safety- Ministry of Disaster Management

8,005 2% Food and Social Safety Social Infrastructure

7 Agriculture and Rural Development-Ministry of Agriculture

13,675 4% Agriculture and Rural Development

Physical Infrastructure

8 Agriculture and Rural Development-Ministry of Water Resources



9 Agriculture and Rural Development-Local Government Division



10 Agriculture and Rural Development-Others



11 Agriculture and Rural Development-Power and Energy



12 Road Transport and Highways Division 10,910 3% Transport and Communication


13 Ministry of Railways 11,950 4% Transport and Communication


14 Bridges Division 9,290 3% Transport and Communication


15 Others 2,603 1% Transport and Communication


16 Other Sector 5,258 2% Transport and Communication


17 Public order and Safety 21,062 6% General services General services

18 Others 62,446 18% General services General services

19 Interest payments 39,952 12% Accumulated Budget deficit funds

Varied

20 PPP Subsidy and Liability 7,506 2% Management Inefficiency Varied

21 Net Lending and Other Expenditures 11,981 4% Obscure Varied

Total Expenditures 340,606

7th Five-Year Plan

Starting from last fiscal year-- significant issues included in this plan are:

• Removal of infrastructural bottlenecks in power1, energy and transport2 sectors

• Development of technical and IT knowledge based human resources

• Determination of development strategies for agriculture and small and medium industries

• Formulation of strategies for exporting ICT, health and education services

• Revitalization of public-private partnership initiatives

• Increase of export and diversification of export products

Macro-Economy in Global Context

o Global and Asian Economic Trend Global economy

- Recovery in global economy is still sluggish

- IMF projected global growth at 3.2% in 2016 due to lower growth of Chinese economy resulting from its structural changes, and projected growth in emerging economies 6.4%, advanced economies 1.9%

o Money and credit available @reduced interest rate

o Overseas employment increasing

o Next year GDP target is 7.2%

o Inflation target 5.8%

o By the year 2041 (in 26 years), we become a developed nation

o Annual Development Program of 110,700 crore Taka

o Stable foreign exchange rate

o Bangladesh recognized as potential (ref: last fiscal budget speech):

‘prospective 11 countries’ by the Citi group

‘Frontier Five’ by JP Morgan

‘23rd largest economy’ PricewaterhouseCoopers

‘satisfactory credit rating’ by Standard & Poor’s, Moody’s and Fitch

‘Tk bonds’ issuing country by IFC

o Power generation capacity to rise in years

o Increased participation by women in all sectors

Thoughts and Strategies on Growth, Development and Equitable Society

o Ultimate goal to be a prosperous country by 2041

o Employments created for half crore people in last year

o Bangladesh Labour Rules 2015


1 Power generation capacity has increased to 14,539 MW2 Among others, construction of Metro Rail-6 has been started

Prosperous country by 2041

Economy Transforming MegaProjects

Demographic dividend

GDP-Economy wise

Advanced

Emerging

Global

0.0% 2.0% 4.0% 6.0% 8.0%

GDP


o Labour market expansion and safe migration

o National Social Security Strategy

o Macroeconomic stability

and

o 9,000 Crore Tk for Agriculture development

o Trade and industrialization:

- National Industry Policy 2015

- Trademarks Rules 2015

- Handicraft Industry Policy 2015

- Shipping Recycling Law 2015

o Nationally Appropriate Mitigation Actions (NAMA) for Climate Change and Environment

o Increased On line services and IT-based education

March towards Future Sector-wise Work Plan

Priority Sectors

- Agriculture

- Power and energy

- Communication and transportation, Port development

- Education including e-education, ICT

- Skills development to transform human into resources

- Women entrepreneurships, etc

Reforms and Good Governance

Good Governance

2016-17 plan

o Public Expenditure and Financial Accountability (PEFA) 2015 assessment

o Budget and Accounts Classification System (BACS)

o Integrated Budget and Accounting System (iBAS ++)

o National Pay Scale 2015

o SoE management efficiency

o e-Filing, e-Service, land management, survey

o BASEL III

o Real Time Gross Settlement (RTGS) system to conduct transactions in five foreign currencies

o Bangladesh Securities and Exchange Commission (Public Issue) Rules, 2015

o Social safety insurance with Tk. 100 monthly premium

Revenue for the People

General

From last budget speech

- Introduction of upazilas Tax offices

- Compliance with the standards and systems introduced by WCO (World Customs Organization)

- New Value Added Tax and Supplementary Duty Act, 2012 effective from July 2016.

- Customs Duty diminishing due to trade liberalization.

- VAT registered significant growth

- Corporate Tax increased

- Wealth Tax is there for the most affluent section of the country comprising industrialists, large businessmen, owners and directors of mobile, tobacco and banking sectors.

- Separate TDS zone

Direct Tax: Income Tax

o Individuals

- Tax offices at Upozilla since last year

- Tax rates:


Total Income EXEMPTED(capped limitin Tk.) from Tax

For Eligible Person

250,000 General tax payers300,000 Women and seniors aged 65 years and above375,000 Disable person425,000 Freedom fighter (war wounded gazette)

Personal tax rate slab: Average rate 18% upto income of Tk 4,750,000

Taxable income Taka Tax rate

On first Taka 250,000 0%On next Taka 400,000 10%On next Taka 500,000 15%On next Taka 600,000 20%On next Taka 3,000,000 25%On rest Taka >4,750,000 30%

However, separate rates for Non-Resident person, individual engaged in tobacco business, co-operative society as follows:

Type of specialized individual person Tax rate

Non-resident 30%Individual engaged in tobacco business 45%Co-operative society 15%

- Minimum tax 3,000/ 4,000/ 5,000 based on city corporation - Average rate is 18% for a resident person earning more than Taka 4.75 million a year - Investment allowance slab introduced (10%, 12% 15%) for eligible investment (lesser of 20% of

taxable income or actual investment or Tk 15 million)


Companies and Firms

- Tax rates remained same except for RMG sector, and local tobacco industries:

Minimum Tax (%) of Gross Receipts

Uniform 0.60% (0.10% for new company in first 3 years

Tobacco industry 1%Mobile phone operator 0.75%

- 20% tax rate for RMG sector (from earlier 35%)- Tax on Foreigners in trade and commerce: additional tax (higher of 50% of tax payable or Tk 5 lac)

for employing expatriates without work permit- BFRS/ IFRS mandatory for financial reporting; emphasis on WHT management - Withholding rates to apply by corporate companies (while making payment to parties):

10% on contractors payment (15% for parties not having e-Tin)Royalties 10% on first 2.5 million Tk; then12% on Tk> 2.5 MillionCertain services u/s 52AA:service providers having e-TIN

Description

Publicly Traded Company 25 percent 25 percentNon-Publicly Traded Company 35 percent 35 percentPublicly Traded Bank, Insurance and Financial Institution (other than 40 percent 40 percentMerchant Bank)/Newly established Bank, Insurance, and Financial institutions approved byGovernment in 2013Non-publicly traded Bank, Insurance and Financial Institution (other than 42.5 percent 42.5 percentMerchant Bank)Merchant Bank 37.5 percent 37.5 percentCigarette manufacturing Company: 45 percent 45 percentBidi, zarda, chewing tobacco, gul or any other smokeless tobacco 25 or 35 45 percentManufacturing Company: percentMobile Phone Operators:Publicly Traded ................... 40 percent 40 percentNon-Publicly Traded ............ 45 percent 45 percentDividend Income 20 percent 20 percent

Existingrates

Proposedrates

Amount of net wealth and rate of surcharge (as percentage of income tax)Existing Proposed

Net welth up to Tk. 2 crore 25 lakh-NilNet wealth exceeds Tk. 2 crore 25 lakh butdoes not exceed Tk. 10 crore - percentNet wealth exceeds Tk. 10 crore but does not exceed Tk. 20 crore - 15 percentNet wealth exceeds Tk. 20 crore but does not exceed Tk. 30 crore - 20 percentNet wealth exceeds Tk. 30 crore - 25 percent

Net wealth up to Tk. 2 crore 25 lakh - NilNet wealth exceeds Tk. 2 crore 25 lakh but does not exceed Tk. 5 crore - 10 percentNet wealth exceeds Tk. 5 crore but does not exceed Tk. 10 crore - 15 percentNet wealth exceeds Tk. 10 crore but does notexceed Tk. 15 crore - 20 percentNet wealth exceeds Tk. 15 crore but does notexceed Tk. 20 crore - 25 percentNet wealth exceeds Tk. 20 crore - 30 percent


Description of service and payment

Rate of deduction of tax(% of base amount)

Base =< 2.5 M Tk Base > 2.5 M Tk

Advisory or consultancy 10% 12%

Professional service ,technical services fee, ortechnical assistance fee

10% 12%

Catering service; cleaning; recovery agency; event management, workshop organizer; Private security; supply of manpower

(a) on commission(b) on gross amount

10%1.5%

12%2%

Indenting commission 6% 8%

Meeting fee, training fee, honorarium 10% 12%

Mobile network operator,technical support serviceprovider or service deliveryagents engaged in mobilebanking operations

10% 12%

Credit rating agency 10% 12%

Motor garage or workshop; Private container port ordockyard service; Shipping agencycommission 6% 8%Stevedoring/berth operationcommission

10% 12%

Transport service, car rental 3% 4%

Any other service which isnot mentioned in ChapterVII of this Ordinance and isnot a service provided byany bank, insurance orfinancial institutions

10% 12%

Cigarette company bandrole 10%Saving instrument 5%Travel agent 0.30% of value of ticketsIGW service provider 1..5%53BB/ 53BBBB for export of knitwear and woven garments- 1.5%53CCC Courier business of non-resident 15%Oil marketing company5% on formula5% on bank interestNon-resident income 20%; salary 30% and others ranging 5.25%-15% u/s56

- u/s 75- Return of income for required persons- Audit of the return of withholding tax- Section 82C still here- Transfer Pricing Rule 107I- accountant provision changed

The Author is a Fellow CharteredAccountant of ICAB and Chairman, HUSSAINS™Business Consultants Ltd.


Value Added Tax (VAT)

o New Value Added Tax (VAT) and Supplementary Duty Act, 2012 from 01st July 2017 though it is declared to be 01st Jul 2016 earlier for good reasons

o New Act to allow input tax credit

o VAT at source rates increased for some service providers:

o Garage workshop, Dock yard,

o Construction company/ firm 6% VAT

o Immigration service 15%

o VAT rate of rental of office 15%

Customs Duty

o Textile sector 5% for fiber.

o Rates reduced for construction sector, agriculture and infrastructure.

o SD 0%-500%

o Increasing the effectiveness and efficiency of ASYCUDA World – the customs processing system - through completion of the modules on e-Export Permit (EXP), e-Payment, bond management, valuation, auction, litigation and establishing connectivity with other agencies like port authority.

o Building partnership with other relevant stakeholders like bank, port, BEPZA, BEZA etc. to ensure synergy in customs management.

Despite all concerns, let’s hope for the best and work together to make our country a developed nation on this planet earth.

Thank you for being with us!


Introduction

The world-shattering vicissitudes in the fields of industry, trade and commerce had taken place in most of the developed and developing economies due to rapid investment growth during the 21st century. The modern science and technology with the pertinent financial systems helped the developed economies to reach the economic ne plus ultra position. For any investment in any industry or business, men, materials, money and markets (the well-known four M’s) are exceedingly essential for the entrepreneurs of any country. The developed economies, generally don’t have impecuniosity of money, but the developing countries’ main precinct to investment in business and industry, is the cryonic shortage of money. The source of finance for investment is: either from stock market through Initial Public Offer (IPO) or from borrowing from banks or financial institutions (FIs) or from own capital. The prominence of investment in productive sectors-private and public, has reached the sky-height in recent times.

Investment helps create employment openings, increases productivities of firms and undoubtedly help achieve sustainable economic growth of a country. Every business people needs capital from

Profligate Interest RateThe Reticent Assassin to Investment

Growth in Developing CountriesM Jalal Hussain FCA

incorporation to finishing of goods and services and their deliveries. Capital has its cost and the investor has to bear the cost. Investor while prepares a project profile and feasibility report on the project, in-depth analysis is made about cost of capital, cost of production, marketability and viability of the project. The main constraint faced by most of investors in the developing countries on the arrangement of capital and its cost. High cost of capital like high borrowing rate of interest, thwarted many investors vehemently from investment decision at the prefatory stage. The rate of interest on borrowing always plays a leonine role in investment decision making and many investors make a U-turn while viewing the sky-high cost of finance like interest rates, bank charges and commission.

The level of interest rates seriously matters for all types of people and businesses, an investor, a consumer and a business entity. A fundamental precept of investment theory and the traditional

view of monetary policy transmission is that a rise in interest rates has a munificent negative effect on capital expenditures by businesses. In particular, the market interest rate is considered to be a key building block in the firm’s user cost of capital, which, combined with the resulting stream of expected cash flows,


constitute the primary determinants of whether and how much to invest.

Consanguinity between Interest Rate and Investment

There is recusant relationship between interest rate and investments meaning that as interest rate falls investment upswings. And the opposite happens when interest rate rises. Real interest rate helps to determine the trend of investment in an economy. When the interest rates are high, borrowing becomes quite costly for the investors so they make less real investment. The high interest rates make it difficult to facade their expenditure because their products become more hedonistic and less competitive in both the domestic and international market. On the other hand, if the interest rate is low, more and more investment takes place in the economy which results in more production, more employment opportunities and increase in the potential GDP. Thus the real interest rate through their effect on investment improves growth and future living standards of a nation. According to the survey of the World Bank, GDP growth is higher for those countries that have relatively higher investment/GDP ratio.

The economists, analysts, sane and sensible investors always keep their

eyes on the fiscal and monetary policies of a country and make thoroughgoing analysis of the trend of interest rates before taking any positive decision for short term and long term investment. Virtually, interest is nothing more than the cost someone pays for the use of someone else's money. Investors in housing and real estate know this scenario quite very well. They have to use a bank's money, through a hypothecation, to purchase a home, a plot for housing and they have to pay the bank for the privileges. Credit card users also know this scenario quite well - they borrow money for the short-term in order to buy something right away. Generally, investors are petrified of interest hike and never welcome interest rates hike. Justifying slashing of interest rate on small saving instruments like PPF, Finance Minister Arun Jaitley of India said “interest rates in India are "extraordinarily" high and the country risks becoming the most sluggish economy if lending rates continue to rule high”.

How High Interest Rates Affect Stock Market

Obviously, changes in the borrowing rate upset the behavior of consumers and businesses and the stock market is also affectedexcruciatingly. The method of valuing stock of a

A DEPOSIT HOLDER OF A COMMERCIAL BANK THAT LENDS MONEY TO BUSINESSES AND INDUSTRIES FOR CREATING EMPLOYMENT OPPORTUNITIES, INCREASING PRODUCTIVITY OF GOODS AND SERVICES FOR THE ECONOMY, AT PRESENT GETS INTEREST @ 6% TO 7% PER ANNUM (PA). THE SAME DEPOSIT HOLDER GETS @10% TO 11.5% PA IF HE/SHE INVESTS IN GOVERNMENT SAVINGS INSTRUMENTS. IN THIS CRAGGY AND INIQUITOUS ECONOMIC SCENARIO, THERE’S LESS POSSIBILITY OF INCREASE IN INVESTMENT IN PRODUCTIVE SECTOR, IN STOCK AND REAL ESTATE MARKETS.

company is to take the sum of all the expected future cash inflows from that company discounted back to the present. To arrive at a stock's price, take the sum of the future discounted cash flowand divide it by the number of shares available. This price fluctuates as a result of the different expectations that people have to know about the company at different times. Because of those differences, they are willing to buy or sell shares at different prices. In other ways, increase of debt-service costs affect the profitability and dividend of a company. When investors start getting less Return on Investment (ROI) in stocks, they will look for substitute source of investment where ROI is higher than that of stocks.

In the developing countries like Bangladesh where the monetary and fiscal policy allow more ROI in investment in government savings instruments meant for financing the public expenditure, investors diligently sidetrack their investments from stocks where ROI is less, uncertain and risk-bearing. A deposit holder of a commercial bank that lends money to businesses and industries for creating employment opportunities, increasing productivity of goods and services for the economy, at present gets interest @ 6% to 7% per annum (pa). The same deposit holder gets @10% to 11.5% pa if he/she invests in government savings instruments. In this craggy and iniquitous economic scenario, there’s less possibility of increase in investment in productive sector, in stock and real estate markets. We came across a headline in a renowned Bangladesh daily that the government of Bangladesh (GOB) has planned to sit with the stakeholders to find out the causes, reasons for decline of exports in terms of value and volume. The

decline in export is a clear sign of aberrant debt-services costs, are ubiquitous in the country.Rising or falling interest rates also affect consumer and business psychology. When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.

Low Interest Rates in Developed Economies

From the various analyses of the trend of interest rates in developed economies, interest rates are found to be very low around the developed world; near-zero in nominal terms and negative in real terms. This is part of a deliberate policy by central banks of those countries to discourage savings and encourage borrowings. It has also been seen as a way of boosting the stockmarket and investments in businesses and industries and thus as creating a wealth effect for individuals, and boosting confidence of the general investors. Interest rates hike works as trauma, even to the people of developed economies. The mere prospect of raising interest rates has delivered a shock to US markets due to a lack of liquidity – so what can investors expect when the inevitable rate hikes actually come to pass?When a central bank lowers its interest rates, it’s trying to stimulate growth. If money is cheaper to borrow, people will set up businesses, industries, spend, consume and invest. That’s the theory that has been following by many developed economies during few decades.

Interest rates around the world, both short-term and long-term, are

exceptionally low these days. The U.S. government can borrow for ten years at a rate of about 1.9 percent, and for thirty years at about 2.5 percent. Rates in other industrial countries are even lower: For example, the yield on ten-year government bonds is now around 0.2 percent in Germany, 0.3 percent in Japan, and 1.6 percent in the United Kingdom. In Switzerland, the ten-year yield is currently slightly negative, meaning that lenders must pay the Swiss government to hold their money! The interest rates paid by businesses and households are relatively higher, primarily because of credit risk, but are still very low on an historical basis.

High Interest Rates in Underdeveloped and Developing Economies

Interest rates on deposit and on lending in banks and financial institutions are abnormally high in the underdeveloped and developing economies in comparison to the developed and advanced economies. This is due to lack of leadership qualities, lack of foresightedness of the fiscal and monetary policy makers, personal gains of the corrupt politicians and black money holders. The underdeveloped and developing countries may follow the modern economic theory that extraordinarily benefited the developed countries and bring down the interest/yield rates on government bonds, securities and other saving tools at an economically desirable rate. Similarly, the interest rates on deposit and lending by banks and financial institutions need to be revised at an equanimity level that helps greatly to stimulate the fragile economies of the underdeveloped and developing countries.



The monetary policy makers of the underdeveloped and developing countries, that’s the central banks, may come forward and take the lead, as the central banks of developed countries do and revitalize the interest rates trend to boost investments in stock and businesses. In a market economy, resources tend to flow to activities that provide the greatest returns for the risks the lender bears. Interest rates serve as market signals of these rates of return. Although returns will differ across industries, the economy also has a natural rate of interest that depends on factors such as the nation’s saving and investment rates. When economic activity weakens, the central banks can push the interest rate target temporarily below the economy’s natural rate, which lowers the real cost of borrowing. To most economists, the primary benefit of low interest rates is their simulative effect on economic activity. Some underdeveloped countries in Africa and Latin America, interest rates vary from 20% to 35% that keep the investment in these countries in tumble.

How Interest Rates Affect Everyone’s Spending

Interest rates affect the decisions everyone makes with money. Some of these are obvious – how much more money people would

stick in his savings account if it paid 15% interest instead of 2.50%?Everyone would be interested to take a new Credit Card at 3%, none will be interested to keep the same credit if interest rate goes up by 15% unless there’s an absolute necessity. For instance, it's easy to enter the capital markets and finance a new project when interest rates are at historic lows, but the same project might not be a money maker long term if expected interest payments double. This, in turn, affects which products and services are offered in the economy, which jobs become available and how investments are structured.The lower the interest rate, the more willing people are to borrow money to make big purchases, such as houses or cars. When consumers pay less in interest, this gives them more money to spend, which can create a ripple effect of increased spending throughout the economy.

Conversely, higher interest rates mean that consumers don't have as much disposable income and must cut back on spending. When higher interest rates are coupled with increased lending standards, banks make fewer loans. This affects not only consumers, but also businesses and farmers, who cut back on spending for new

equipment, thus slowing productivity or reducing the

number of employees. The tighter lending standards mean that consumers will cut back on spending, and this will affect many businesses' bottom lines. The Bank of England's monetary-policy committee (MPC) once raised interest rates by 0.25%, the first increase in almost four years. With hindsight, it seems a straightforward decision. The economy was growing steadily, unemployment was low, house prices were shooting up and banks were lending freely. Yet at the time there was great anxiety about the change. The fear was that the increased burden of consumer debt would make even a small rise in interest rates bear down heavily on spending.

Interest Rate’s Etymology in Bangladesh

The deposit and lending rates are anomalously high in Bangladesh varying from 6% to 10% and 11.5% to 18% respectively. In dissimilarity, the deposit and lending rates are much lower in many developed, emerging and developing countries. The chart shown below depicts the recent interest rates of some countries.

Country Deposit rates Lending rates Country Deposit rates Lending rates

Australia 2.5%-6.03% 5.99% -7.49% USA 1.98% -4% 6.5%-9%

New Zealand 2% -7.75 2% - 9.75% Canada 0.70% -2.1% 4.7% -6.6%

Malaysia 3.1%-6.6% 3.1% -6.6% Singapore 0.1875% -0.4% 0.61%-4.53%

China 3.5%-6.3% 4% - 7.05% India 6.25% - 9% 6.25% -11.75%

Japan 0.5% - 0.6% 1.9% -2.8% Bangladesh 06% -10.50% 11%-18.0%

NB: Deposit and lending rates difference is due to type/class and length of period.

The Author is aFellow Member, ICAB andCFO of a Private Group of Industries

The freefall in the capital market has prompted many individual investors to switch over to various saving schemes, increasing the revenue flow to the national exchequer, reports UNB. According to data provided by the National Board of Revenue (NBR), collection of tax from the interests of bank deposits marked a rise by nearly 22 percent in the current fiscal. High interest rates and stock market are inversely related. The immediate impact of rise in interest rate is on companies with high debt in their balance sheet. The interest payment made by them rises which reduces their EPS. Thus there would be unenthusiastic sentiments for such stock; resulting into depleted stock price.

When the businesses of a country face serrate, unjustified and spasmodic situation, the production, the local and export sales and the profitability are drastically affected and the investors have to bear the pains of high interest rates on debt-services. In the cyclic order, it affects the whole of the economy and investors and consumers become the worst suffers. Rising interest rates translates into increased borrowing costs for businesses

which reduces profits and slows expansion.

Conclusion

Higher deposit rates generally influence the investment psychology and make the people apathetic about taking investment risks and high borrowing rates work as a deterrent to investment. People generally don’t want to take risk and intends to maintain easy-riskless- life. When they find the lucrative deposit rates of various saving instruments of government, commercial banks and other financial institutions, they will not go for investment in businesses, industries, shares and stocks where there is potential risk of loss and gain. This human propensity affects the long term investment strategy and perilously hampers the investment growth of any country. The cataclysmic effects of exorbitant deposit and lending rates on investment have visibly seen in developing and underdeveloped economies around the world.

If investment is withdrawn from a country – as is likely to happen when interest rates rise – this will leave a cavernous hole in the

financial system of the recipient countries. Investment in everything from infrastructure to health, education and manufacturing in these countries would be left persistently underfunded, as a colossal amount of money would need to be routed towards debt-servicing for many years to come. Not only this, an increase in interest rates could trigger a massive capital outflow from developing countries to where the return on investments has suddenly increased. This is likely to cause a massive shortfall in market capitalization and bubble-busting in the developing countries. 21st century is the century of stiff competition and only the strongest survives. It’s wise and prudent that the policy-makers of developing countries with extortionate interest rates, may review the interest rates and slash to the optimum minimum level to boost the investment growth, to bring the economy from chronicle to acute and make the gloom economy to bloom.



The budget 2016-17, a document of government annual plan for 2016-17, was presented in the parliament house on 02 June, 2016 with a hope of brighter future and making Bangladesh a role model of modern and welfare state in the comity of the world. We started our journey with a budget of TK. 786 crore in 1972 and today we have planned for Tk. 340,605 crore for 2016-17 with revenue of Tk. 242,752 (71%)excluding foreign grants of Tk. 5,516 crore (2%),and deficit of Tk. 92,337 (27%). Upon review the previous size of the budget, its implementation, the present size, exiting administration of implementation etc., we may analyze the budget under three broad category– (I) No matter of size, the matter is efficiency and effectiveness of implementation (II) The dark side of budget 2016-17 and finance bill 2016 and (III) Important and potential issues untapped for better efficiency and effectiveness.

No Matter of Size, The Matter is Efficiency and Effectiveness of Implementation

Budget 2016-17Analysis and Critique on

Efficiency and EffectivenessDipok Kumar Roy ACA

Whenever the budget is presented in the parliament house, the very common comment we observed is ‘big size’ or ‘big dream’. The reason behind the comment is the rationality of implementation. It is agreeable that reforms and strategic moves with sector prioritization are needed for planning and implementation of such big budget. With increase of size of budget of each year, we see the lack of such reforms and proper strategic initiatives for planning and implementation. As such, people confuse on budget planning and express frustration on implementation thereof. Two points appear to them. The first one is – the revenue target, generally incremental without any prudent basis, are not achievable based on the existing administration and system. The second one is – both revenue and expense will not be collected and expended efficiently. Yet, we budgeted bigger in size from year to year and achievement was not dissatisfactory in terms of percentage as per the following table for the past years:

(Amount in crore)

BudgetHeads

2016-17 2015-16 2014-15 2013-14Original Budget

Revised Budget

Target of Achievement (%)

Original Budget

Actual Achievement(%)

Original Budget

Actual Achievement(%)

Revenue 242,752 208,443 177,400 85.11% 182,954 145,965 79.78% 167,459 140,375 83.83%

Expenditures 340,605 295,100 264,565 89.65% 250,506 204,376 81.59% 222,491 188,208 84.59%


The implementation was not frustrated at all in terms of above percentage (more than 80% for both revenue and expenditure) of collection and spending. Rather it is much appreciated. The growth is steady as well over the last ten years over 6%. But both revenues earned and expenses made are not beyond the question of efficiency. The growth of revenue collection was not consistent in line with the growth of GDP. The living standard of mass people has not been changed significantly. The people below the poverty line and unemployment rate are still 31.5% and 4.3%respectively as per record of World Bank. As such, the budget could address a strategy movement of revenue collection and spending for equitable betterment of the mass people.

Efficiency in Revenue Collection

If we overview the revenue collection of last 3 (three) years, the rate of revenue collection is over 80%. As stated earlier, it may be appreciated but not efficient even the collection is over 100% under the present systems and strategy of revenue collection. Collection efficiency should not be measured with only administrative costs of National Board of Revenue (NBR) including the cost of recovery. The

administrative cost of revenue earned by NBR for 2013-14 was BDT 0.78 for every BDT 100, a very reasonable cost, which was less by BDT 0.57 or 42.22% compared to previous year 2012-13. This should not be only a measurement yardstick of efficiency of revenue collection. It should include (a) the costs of hassle generally paid by the assesses and (b) amount of tax which is out of tax net, as opportunity cost, being taxable persons (individual, corporate or any association) not paying tax at all and keeping themselves out of tax net from year to year. Under these two criteria, collection efficiency of tax is questionable. If the collection, whatever the rate is, either 80% or 100% or more, becomes hassle free for the existing assesses and the all persons liable to pay tax could be brought under tax net under effective implementation of tax laws, the collection could get the momentum of efficiency.

Collection process brings sufferings of the assessees in many cases. The tax authority should be fair under the tax laws instead of creating any hassle and making delay of settlement with a view to ensuring prudential assessment. Here the assessees must be fair as well in presenting their taxable income. The auditors have to ensure proper

THE GROWTH OF GDP IS SIGNIFICANTLY CAPTURED IN BIG HANDS AND THE RESULT CANNOT REACH THE GENERAL PEOPLE. IT COULD BE MORE BALANCED FOR THE GENERAL PEOPLE IF THE GOVERNMENT SPENDING COULD BE MORE RESULT ORIENTED AND EFFICIENT. THE BUDGET COULD FOCUS POVERTY ALLEVIATION PROJECTS AND PROGRAMS FOR REMOTE AREAS IN ADDITION TO DEVELOPMENT OF INFRASTRUCTURE AND INDUSTRIAL UNDERTAKINGS. WHO CARE THE GROWTH OF GDP OF OVER 6% WHERE THE INCOME INEQUALITY IS SIGNIFICANTLY EXISTED IN THE SOCIETY IN EMERGING ECONOMY LIKE BANGLADESH?

professional services in auditing and expressing the opinion on the financial statements and tax authority must exercise tax laws for ensuring prudent and efficient assessment of tax. If these are possible, there will be very little change of hassle in assessing and evading tax for the existing assessees.

In order to increase revenue and efficiency of collection thereof, the persons (corporate or individual) liable to tax have to be brought under tax net as stated earlier. Tax to GDP ratio was approximately nine and total revenue to GDP was approximately 11 over the last 04 (four) years as per annual report of NBR for 2013-14 where India registered over 17% and Sri-Lanka over 15%. In developed countries Tax-to-GDP Ratio is significantly higher, generally more than 40% and for some countries even more than 50% of GDP, because the people encourage to pay tax from the belief that the paid tax would be back to them with better value which they could not generate or buy with the money they pay as tax. In our country the growth of tax to GDP ratio is not consistent at all with the growth of GDP more than 6% over last 10 years. In one of my articles published in the Financial Express, I concluded to widen tax net instead of raising tax rate. It was intensively discussed as well in pre-budget discussion to widen tax net and to reduce tax rate to increase the tax to GDP ratio. Practically tax rates were reduced by US governments for several times and they obtained significant growth of revenue in their tenor of presidency in USA. As such, John F. Kennedy stated ‘“It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates.” Here are some examples of

USA: (i) President Calvin Coolidge, 30th president of USA, cut taxes drastically in 1929, resulting in growth of 61 per cent in total revenue; (ii) John F. Kennedy, 35th President of USA, significantly cut income tax rates in 1961, leading to GDP growth and increased federal revenues of 62 per cent; and, (iii) Ronald Reagan, 40th President, cut taxes for all classes of the population in 1982, resulting in double federal tax revenue. So, apparently reducing the tax rates can ensure growth of revenue collection and tax-GDP ratio. The reason behind it is that the people have more money in hand for investment and spending. The economic activities take place stronger and income comes from investment. Such economic activities and incomes generate revenues for Government.

The tax base in Bangladesh is below 1.0% of the total population where the India is 5%. In accordance with the above annual report of NBR, total submitted return of income was 10, 01,559 in number in 2013-14 where total assessees having Tax Identification Number (TIN) was 23, 28,457. Some of TIN holder may be out of tax bracket due to income not liable to tax for any reason or may apply for time for submitting the return later. In addition to that, NBR has to endure a rigorous drive to bring new persons liable to tax under tax net. A newspaper states as appeared in the archive of NBR that only 32 thousand institutions pay VAT where about more than 8 lakh and forty thousand institutions got the Business Identification Number (BIN). So, we have large scope to increase tax revenue by bringing the persons evading tax and VAT under tax net. By doing so, it will ensure the collection efficiency as well.

The Budget 2016-17 could address

reform based revenue collection strategy as a plan of revenue enhancement significantly. The strategic plan could be a ground of bigger size of revenue planning and implementation thereof accordingly could ensure the efficiency of collection.

Efficiency in Expending

As stated earlier, the expenditure was made more than 80% or 90% of budget over the years. But question comes- how far was this result oriented? This is the first time- the Finance Minister declared that the expenditure will be result oriented instead of spending in any way. Non-development expenditure mainly on salary and wages paid to government employees may not be excessive considering the evaluation of rank but the output comes from them may not be cost effective. As such, modernization of each department with training and monitoring should be emphasized to make it output based rather than simply paying as salaries and wages. In respect of development expenditures, it is simply a field of expenses with little records of output and cost of output is much higher. We have seen in a daily newspaper that the cost of per kilo meter road and bridge in Bangladesh is much higher than any country in the world. The government administration gripped two things. The first one is- the workforce is not work oriented and as such, very poor performance is rendered by the talented national workforce for the development of the country. The second one is- the corruption. We are well known about corruption- where, when and how it happens. Sitting on a bomb of corruption, the devastating device for the nation, we blame others saying ourselves very pious. The effective rule of law can ensure the elimination of



corruption and to ensure its effectiveness, we must agree that corruption is at our door. We need to clean it from my door, my home and then move it to the nation for a movement. Corruption eats up more than 2% GDP each year and we, the whole nation, must act together to kill this wild animal of corruption. If we can kill it or at least keep it in a case by controlling, the corruption will not eat our fate and economic activities will be sharpened and speeded. The functions of Annual Development Plan (ADP) will be result oriented and we will be in a good position to remove the bottleneck of investments like power crisis and other facilities for investors. The investments from both local and foreign will be attracted. The emerging nation Bangladeshi will reach a good destination of life.

To ensure efficiency in spending, the priority based sectors reforms is another strategy for effectiveness of the expenses. There is a saying by Peter Drucker, an Austrian-born American management consultant, educator, and author,- ‘Efficiency is doing things right; effectiveness is doing the right things.’ When the right things are done rightly, of course the effectiveness shows more efficiency as well. As such, sector prioritization with reforms is essential for better efficiency. We found missing of it in each year budgeting. However, education sector has given top priority in budgetary allocation this year. This allocation is simply incremental without required reforms with a view to focusing quality education. In some of my articles, I stated to emphasize ARMS and LEGS as a tool of prioritization. The term ARMS means Agriculture (A), Readymade garments (R), Manpower (M)and Second-best sectors (S), and the term LEGS means Liberty and democracy (L),

Education (E ), Governance (G) and Seminal infrastructure (S). The LEGS are basement or ground for standing on the ground strongly and ARMS are hands for income generating of peoples and of the state. We should have specially taken care of the ARMS and LEGS with reforms prioritized in the budget 2016-17.

In terms of GDP growth over 6% over the last ten years, it is of course appreciable. The growth of GDP is significantly captured in big hands and the result cannot reach the general people. It could be more balanced for the general people if the government spending could be more result oriented and efficient. The budget could focus poverty alleviation projects and programs for remote areas in addition to development of infrastructure and industrial undertakings. Who care the growth of GDP of over 6% where the income inequality is significantly existed in the society in emerging economy like Bangladesh? The process of tax collection and spending should be for the benefit of the mass people. Mass people reside in the village and they need employment. The spending should cover such initiatives for employment of the people in the village. Regional hub could be established for agro processing

industry for local needs and exporting to other countries.

The size of the budget of BDT 340,605 core for 2016-17 is not a bigger one at all for a country of people of 16 crore with an enthusiastic youth in the workforce. We are saying it bigger as we have shown our inability to do the things right (efficiency) and right things (effectiveness) from year to year. This is not for our people, this has happened for our leaders. As such it is said -we are not poor, we are poorly managed.

Dark Side of Budget 2016-17 and Finance Bill-2016

The slogan of the budget was ‘marching towards growth, development and equitable society’. When the employment is created for general people, earning increases in their hand and the living standard of them gets momentum towards upper scale day by day, it represents that the result of growth and development has reached them. Under this process of development, all people contribute to the development and avail the output of development. The nation becomes enlightened and happy. Our growth and development reached to the mass

people to some extent over the years but not as much as it could be in line with the steady rate of growth. Assets have been grabbed by the rich due to our faulty policy, rule of law and corruption supportive administration. As such, equitable society has not been established and still is in dream. Under this circumstance, the slogan inspires us towards a light but some contents of the budget and proposed finance bill 2016 bring the spirit of slogan in the dark. The following points are dark side of the budget 2016-17 and finance bill, 2016, and may create bottlenecks for making an equitable society:

Excessive Tax Burden for Lower Income Group

As stated earlier, the budget has no strategy to enhance revenue collection efficiently, but the contents of finance bill have some brutality in collecting tax from lower income group. These are: (a) Taxable limit has not been increased as per finance bill 2016 and the limit of investment allowance has been decreased to 20% from of 30% in 2015-2016. In addition to that, rate of tax rebate has been re-fixed from 15% to 10% depending on the level of income instead of flat 15% for all of earlier year. In accordance with these provisions, tax increase in the hand of individual assessee abnormally and lower income group affects significantly. The salary paid employees are paying tax fully as the Company pays salary after deducting tax at source as required on an annual average rate. They have no way out of paying tax like other professional and businessmen. It is really very surprising when we see escaping or evading tax in many ways of many professional and businessmen. A survey or research paper should be published on tax

evasion specially by different professionals practicing in Bangladesh. We see very little effective efforts or strategic plan to bring them under tax net. (b) In case of salary of BDT 16,000 from the government under Monthly Payment Order (MPO), which is not taxable, must have Tax Identification Number (TIN). This is really ridiculous and contradictory with the slogan to create an equitable society. (c) Paying tax on car based on capacity of motor would be considered as tax on income of the assessees and allowed to adjust with tax payable in 2015-16. By inserting a new section 68B in the proposed bill 2016-2017, this has been diluted by imposing additional tax for having more than one car and such tax deducted at source will not be refundable in spite of having no taxable income(d) A new section 82C has been incorporated stating that minimum tax will not be less than tax deducted at source. In other way, no tax will be refunded or allowed to adjust in the next year. (e) In term of Value Added Tax (VAT), it is regressive method of tax collection for lower income group where whatever income we have we have to pay equal rate of tax irrespective of poor or rich.

Higher Income Group in Relax

The rate of surcharge for well off people are not rational at all. How will the equitable society be created by imposing surcharge on tax payable instead of paying wealth tax separately? No wealth owner talks on this as they will fall in this trap. The number of payer of surcharge is not more than six thousand where the valuable car registered with Bangladesh Road and Transport Authority (BRTA) may be more than about hundred thousand. Owning a car will be termed as income and car owners have to pay tax, then why will well

off people pay surcharge on the assets? Higher income group has to pay tax of higher rate of income tax but they are relaxed in paying tax of assets they acquired. Having apartments, houses and plots should be treated as deemed income and should be taxed separately. It should be taxed at higher rate. It is not difficult to find out the surcharge payable people all over the country. By no means, it will be five or six thousand only. It could be five hundred thousand or more. Most of the people under this group hold black money and they are allowed to legalize it under the tax law.

Whitening the Black Money

How a nation could establish equitable society by allowing black money in the business? This is a process of institutionalizing corruption. Corruption will never be controlled rather corruption will be established and increased. The general people will be deprived of the result of growth and development. Corruption is a germ. Where elimination of it is much talked about for the betterment of the society, how can the govt. allow it to legalize the corrupted earnings instead of bringing them under legal action? Section 19BBBBB of the Income Tax Ordinance 1984 allowed the black money in investing housing sector by paying tax at different rate based on the locations of buildings/apartments. This should be stopped.

Irrational Revenue Target for 2016-17

Total revenue target for 2016-17 is BDT 242,752 crore which is 37% more compared to revised target of 2015-16 of BDT 177,400. In case of big chunk of collection planning, the contents of planning must have the strategy of reaching



the target or the basis how and why such estimation is deemed to be achievable. It is simply incremental by imposing tax, increasing tax and bringing more product and services under income tax and VAT which affect lower income group or poor people adversely. Rather, as stated earlier, it could state the way of widening tax net by brining all taxable persons under tax net with prudent assessment of tax.

Incremental Spending Planning, not Reformed and Priority Basis

It is simply incremental traditionally. As stated earlier, what we see the weakness in government spending is efficiency and effectiveness. Efficiency is doing the things right and effectiveness is doing right things. Corruption and lack of good governance create bottlenecks to ensure efficiency and effectiveness. Unless the budget contains any reform measures of ensuring efficiency and effectiveness of spending, the taxpayers are in dark about proper utilization of their tax money.

The proposed finance bill may be modified to some extent in

consultation with stakeholders. The same should also be done as regards a good number of contentious provisions in the proposed budget for ensuring efficiency and effectiveness.

Important and Potential Issues Untapped for better efficiency and effectiveness:

Budget 2016-17 has a lot of indicatives for the betterment of the society subject to efficient implementation thereof. The following initiatives could be focused specially for equitable growth, development and society:

Narrowing the Gap of Social Inequality

The term social inequality means the gap between rich and poor in terms of income and wealth. Such inequality comprises disparities of income and wealth among individuals and groups within a society. The narrower the gap between rich and poor, the better is efficiency in governing the state by the government. The budget has the slogan for an equitable society by narrowing such gap through employment and providing

services to all. In emerging market economy like Bangladesh, with a view to removing social inequality the Government has to focus on (a) welfare benefits (b) progressive income taxes (c) minimum wages at all level (d) using legislation to restrain top incomes (e) better oversight of the financial markets specially the banks and FIs and capital markets and (e) giving high priority to maintaining full employment. The govt. has continuation of planning of welfare initiatives, social safety net programs, minimum wages and some limited programs and projects for manpower development. Some more initiatives could be taken especially on welfare benefits for ultra-poor, progressive income tax including imposing wealth tax instead of surcharge tax as a token of distribution of wealth to all in a balanced way and training and development program for youth development and effective steps for employment and exporting of them. In supporting the development of banks, FIs and capital market, the budget could have plan and program for effective regulations and corporate governance.

Tax Incentive for FIs

The financial institutions (FIs) especially the leasing companies regulated by Bangladesh Bank under the Financial Institution Act, 1993 are at a cross road of four (4) problems. These four problems are- (i) higher cost of fund (ii) limited scope of income (iii) higher rate of income tax and, (iv) disallowance of depreciation for tax purpose for computing taxable income. The industry is suffering from those acute problems and unless the government works on it, the FI industry may be sick in near future. They are borrowing money from banks and lending to the

The Author is anAssociate Member, ICAB

same borrowers of banks which creates uneven competition with banks. The FIs have limited scope of income compared to banks. The rate of income tax of FIs is as same as for banks in spite of less profitability for high cost of funds and limited scope of income. In computing taxable profit of FIs, the depreciation on finance lease is not allowed as allowable expense in computing tax liability. In Bangladesh, about 100% of portfolio is finance lease and such tax inefficient regulation weakens the industry performance. In India the court verdict on this allows depreciation allowance on finance lease to lessor for tax purpose.

Youth Development and Specific Project

In the budget speech, youth’s power has been recognized to build the nation. It has been stated about youth’s education and training for skilled workforce and creating employment opportunities. Youth is our asset. We have failed to give them quality education, make them trained up in skill/merit based work, and create employment opportunity properly and efficiently. Our growth could be more if we can use our youth as skilled workforce. Upon proper training of the youth, they may be used in land and exported outside for better performance. We may have some projects under Ministry of Labour and employment that should be expanded more with a long term plan of youth development and utilization.

Promotion of Private Equity and Venture Capital

Fund injection to Small and Medium Enterprises (SMEs) by banks and financial institutions are not adequate. Over the last five-six years, Bangladesh Bank review the target based SMEs financing by each bank and financial institutions to make the fund available for SMEs business all over country. Practically, the banks and FIs could not reach SMEs at remote area having no branch to deal with these and the Micro-credit Financing Institutions (MFIs) could not serve SMEsas MFIs finance small size of fund and SMEs need a bigger size than MFIs offer. In other words- SMEs are too big for MFIs and too small for banks and FIs, and they cannot get adequate funds. As such, it is called ‘Missing Middles’. Private equity and venture capital fund could play active role in supporting SMEs by investing in the form of equity and quasi-equity. Bangladesh Securities and Exchange Commission (BSEC) introduced a rule on alternative investment fund covering such private equity and venture capital fund in June, 2015. The budget could express the milestone of reaching with this fund for strengthening SMEs and industrialization. The Budget could provide some tax incentives for such funds with a view to ensuring a better model of financing to SMEs.

Ensuring Rule of Law

Rule of law at all level especially in case of national and corporate

level should be ensured. All initiatives and efforts will not trigger the best benefit unless the effective rule of law is there. Whatever reforms made or strategy taken for planning and implementation of the budget, it will not bring the expected output if the rule of law is weak. The effective rule of law will control corruption, ensure good corporate and state governance and ensure better performance of equitable growth, development and society. As such, the budget could have some special initiatives beyond any traditional approach on rule of law.

As a nation we are moving forward. The implementation of past budgets may have the lack of efficiency and effectiveness. What comes up in discussion on budget 2016-17 and the proposed Finance bill 2016, the government should consider it upon review carefully. Some more important and potential issues not considered in the budget as pointed out by stakeholders should be reviewed critically either to include in planning of the budget 2016-17 or in the proposed finance bill 2016 or note for future planning and budgeting. Finally, we want something better in 2016-17 in terms of efficiency and effectiveness for equitable growth, development and society. Let’s start better today for the brightest future tomorrow.



Introduction

Another highly ambitious budget is placed by Finance Minister AMA Muhith setting a valiant 7.2 percent GDP growth rate target with a manageable inflation rate of 5.8 percent. Not so much debate, gradually Bangladesh is marching towards middle-income threshold where basic needs of the people will be ensured by 2021. A guesstimated 89.65 percent (provisional) achievement of outgoing

A Fat But Not Healthy?Budget 2016-17

SK Md Tarikul Islam FCA

fiscal year 2015-16 (Budget Tk 295,100cr which is revised at Tk 264,565cr) has driven the Government of Bangladesh (GoB) to dream big in every aspect from expenditure to revenue generation. Following the tradition the present Awami League led Govt. unwrapped the third budget of its 2nd tenure in June 2016 targeting the budget size of Tk 340,605cr for fiscal year 2016-17 from Tk 264,565cr (revised budget) in 2015-16. Not on any surprise this heavy budget would put extra pressure on people and industry across the

Source: Ministry of Finance

Allocation of Expenditures by Sectors Source of Resources

Tk [VALUE]

cr

Tk [VALUE]

cr


country stemming out of its strive to collect penny from every possible pocket. Pressure however is a necessity in an economy like Bangladesh in transformation.

Budget Framework

Of total expenditure, Annual Development Programme (ADP) size has accounted for Tk 110,700cr with an awfully high non-development & recurring expenditure of Tk 229,905cr which has been projected to be backed by an ambitious revenue collection of Tk 242,752cr, resulting in a massive deficit of Tk 97,853cr. Now let’s have a pictorial view on the proposed budget structure for 2016-2017.

Thankfully Education and Technology budget targets a staggering boost with a 34.55 percent increased allocation compared to 2015-2016 to Taka 52,920cr. Traditionally since 2011 the year-on-year rise has been in the range of 10 to 11 percent except in 2013-14 with a 17 percent rise. Pressures and advocacies from educationists as well as experts have motivated the GoB for this increased

allocation. However, the proper implementation of it, if possible, would bring forth new hope in imparting quality education in the long run. With an exception for Housing and Fuel & Energy all other sectors got higher allocation this year, among those Transport & Communication, Public Services and Agriculture are on the forefront.

Revenue

Not being an exception, NBR tax collections target remains the major source of revenue in 2016-17. It represents nearly 59.6 percent of budget size (10.4 percent of GDP). In other words, 83.7 percent of total revenue is set to be emanated from NBR sources. This composes of income tax 29.6 percent, VAT 30 percent and import duty 24.1 percent - leaving immense pressure on NBR. This target is around 35.4 percent higher than previous year. Tax revenue from non-NBR sources and non-tax sources has been estimated as little as 0.4 percent and 1.6 percent of GDP respectively but still they are collectively 44.5 percent higher compared to previous budget.

THE PROPOSED BUDGET TARGETS NBR REVENUE COLLECTION TO GROW BY 35.4PERCENT THOUGH HISTORICALLY IT RANGES BETWEEN 8 AND 12 PERCENT WITH AN EXCEPTION IN OUTGOING YEAR WHERE IT RECORDED A 22 PERCENT (PROVISIONAL) GROWTH. SIMILAR SCENARIO PERSIST WITH NON-TAX REVENUE ALSO.

The proposed budget targets NBR revenue collection to grow by 35.4percent though historically it ranges between 8 and 12 percent with an exception in outgoing year where it recorded a 22 percent (provisional) growth. Similar scenario persist with non-tax

revenue also. However, expansion of tax net, curbing of tax evasion through proper monitoring and system, raised social awareness and ethical standards could well bring in some positive impacts in tax collection.

Deficit FinancingThe gap between revenue and expenditure shows a budget deficit of Tk 97,853cr (5 percent of GDP) which will be channeled through a blend of domestic borrowing of Tk 61,548cr and foreign borrowing of Tk 36,305cr.

As we all know there are some major risks of huge borrowings from domestic sources. As for an example Government may opt to issue securities at higher interest

rate for funding into mega projects like Padma Bridge which will of course lure general people to invest in capital market or keeping the deposits with financial

institutions. It will impact private investment with the slowdown trend which has been of paramount concern in the outgoing budget.


Sources of Revenue(In Crore Tk)


[CATEGORY NAME]29.6%

[CATEGORY NAME]

30%


Tax revenue (Non-NBR)

3%


NBR Tax revenue 203,152

Income tax 71,916VAT 72,728Import duty and others 58,508

Non-NBR revenue 39,600

Tax revenue (Non-NBR) 7,250Non-tax revenue 32,350Total revenue 242,752

Sourcing of Deficit Financing

(In Crore Tk)


Domestic borrowing: 61,548

Bank borrowing38,938

Non-bank borrowing22,610

Foreign borrowing: 36,305

Budget deficit 97,853

Domestic borrowing

63%

[CATEGORY NAME]

37%


Fast Track Projects

A special booklet on Mega Projects was placed in the parliament for the first time aside from proposed budget. The booklet outlines among others the economic and social rationale, financing and implementation of the “economy transforming projects” which budgets the total cost of Tk 161,268cr. However, in the upcoming budget priority has been given on eight fast-track mega projects allocating Tk 18,727cr for them. The mega projects are Padma Bridge, Metro Rail, Ruppur Nuclear Power Plant, Rampal Coal-based Power project, Paira Sea Port project, Matarbari Power project, Padma Bridge Rail Link and Dohazari-Cox’s Bazar-Gundum Rail Line. Fast-Track Project Monitoring Committee is headed by the Prime Minister since 2013.She has been overseeing it with top priority in her splendidly candid manner as always.

Economic Zone

Public-Private Partnership (PPP) project implementation got its momentum upon enactment of the Bangladesh Public-Private Partnership (PPP) Act, 2015. According to budget booklet, implementation of six PPP projects worth USD 1.5 billion has already taken off following the signing of contracts. Implementation of another five projects would likely commence this year after finalization of the contracts. Meanwhile, the Government has accorded approval to the establishment of 46 economic zones. Both local and foreign investors have already started constructing industries in some of these zones. Development of Mongla Economic Zone and the first subzone in Mirsarai EZ is expected to be completed within

this fiscal year. In addition, GoB has already earmarked land area for setting up economic zones by India, China and Japan. The Initiatives to establish economic zones in prospective regions with a view to encouraging industrialization, generating employment opportunities, enhancing production and ensuring export promotion and diversification have also been taken.

Key Fiscal Measures

The budget has caused dismay and discontent for almost every taxpayer. Taxpayers do not have much to celebrate as most of their demands and recommendations remained unfulfilled. Evidently the budget is eyeing on squeezing the existing taxpayers further down instead of bringing in new payers in the net. According to World Bank, Bangladesh’s Tax-GDP ratio, a measure of the state’s capacity to finance its programmes, is just above Afghanistan among South-Asian countries. Currently the ratio stands at 8.73 percent as opposed to the highest of the region 15.3 percent (2013) for

Nepal. The ‘NBR Modernization Plan’ for 2011-2016 aimed to raise the ratio to 13 percent by 2016 is still an ambition. Without faster reforms, modernization of tax policy and upbringing the NBR administration the target will remain elusive.

Individual Tax Payers

Middle-class fixed earning group will be ruthlessly tax burdened. Minimum tax-free income threshold remained unchanged although value of money has diminished due to continuing inflation and also declining trend of rise in income is a concern too. Investment allowance has been set to 25 percent on taxable income, down from existing 30 percent with proposed tax rebate of 10 percent mostly from 15 percent. Such astronomical rise in tax is unjustified and regressive according to many experts as real income growth is low in present economical context. Progressive wealth surcharge rate is set for the super-rich and budget increases the maximum rate to 30 percent from existing 25 percent.

The Authors is aFellow Member, ICAB


Corporate Tax

Most of the company tax rates remain unchanged with exception for tobacco manufacturers who will see tax rate hike to 45 percent from existing 25 percent or 35 percent. Ready-made garment (RMG) sector being the main exporting sectors of Bangladesh, the Government has proposed to reduce the tax rate of 35 percent to 20 percent to acknowledge its contribution to GDP.

Minimum tax rate has been revised from uniform 0.30 percent on gross receipts to 1 percent for tobacco manufacturers, 0.75 percent for mobile phone operators and 0.60 percent for others. The concessional rate of 0.10 percent will continue for newly established manufacturing entities for the first 3 years.

Value Added Tax (VAT)

Resistance from businesses and a section of revenue officials exacerbated further by inadequate preparation of the National Board of Revenue have forced government to backtrack the enactment of the VAT and

Supplementary Duty Act 2012 until July 1, 2017. VAT will continue to be collected under existing law of 1991. Online registration and online return submission will start soon. Unlocking of fully automated new VAT and SD system will still remain a challenge. It needs institutional capacity building and mass awareness building and training initiatives.

Conclusion

Expectedly the proposed budget is being criticized heavily by different corners including the World Bank (WB), leading trade bodies, leading economists, professionals and people at large. The WB questioned the feasibility of the budget criticizing that revenue collection target with an additional Tk 45,000cr is clearly very hard-driving. A leading economist pointed out that proposed budget will create a clash between tax collectors and taxpayers. The WB analysis also found that Bangladesh is gradually shifting towards costlier sources of funds to make up its budget deficit. There are also not enough measures to boost falling private investments. It will

surely hamper the much-needed job creation. Though in Bangladesh FDI grew an impressive 44 percent in the outgoing fiscal to account for USD2.2bn, Cambodia and Myanmar are far ahead of us. This means our country is not competing well to attract FDI. Naturally investors always look at infrastructure, energy, regulations, tax system, and political stability where we are far behind those comparable countries. On the other hand, in a meeting with the Foreign Investors’ Chamber of Commerce & Industry delegates the Finance Minister AMA Muhith said “one could find so many flaws and loopholes in the budget - But I thought this was my best budget so far, which means a great deal of work went into it before it was finalized.” However, in order to see the reality we do not have to wait for long. We are doubtful if the Government could achieve this. Yet however nothing would make us happier and complacent if such perception turns wrong.


Abstract

This article aims to attain following objectives:

It will briefly explain the important economic indicators that help the analysts, economists, policy makers and investors alike to make a valued judgment about a country’s economic state of affairs. This makes reference to how these indicators are entwine.

It also attempts to explain the compulsions and restrains imposed on the budget by legal and constitutional means and how a budget is inadequate in bringing about the necessary or desired changes in the economic indicators.

It expounds on the state of Bangladesh economy and how the budget can impact on it given the obligatory objectives of the budget.

This article aims to be of some use to the readers of this journal, particularly to those who had limited exposure to the study of economics prior to becoming accountants.

Economic Indicators

Economic indicators are also known as macroeconomic factors which are relevant

The Macroeconomic Indicators,The Budget and Its Economic Impact

Kazi Mustaid Murshed FCA

to the economy of a country as a whole and affects a large population. Macroeconomic factors such as economic output of a country, as measured by the GDP, unemployment that exist amongst its population, inflation as measured by Consumer Price Index, as well as savings and investment are key indicators of economic performance which are closely monitored by governments, businesses and consumers.

Gross Domestic Product (GDP)

Expressed in monetary value, GDP is the measure of an economy size. It may be stated as comparative with other economies or for a single economy over a period of time to its progress. So where the year-to-year GDP is up by 5%, this means the economy has grown by 5% over the last year.

GDP has a large impact on nearly everyone within that economy. When an economy grows, unemployment goes down which this creates higher demand for labor and increase in wage, which then trigger inflation. GDP also affect the stock market: a poor economy means lower profits for companies, lowering stock prices. Negative GDP growth is one of the factors to determine whether an economy is in a recession.


Sometimes the GDP is referred to as real GDP which means it reflects only changes in prices. Nominal GDP considers inflation and therefore is indicative of both higher output levels as well as of higher prices.

A country’s GDP is always based on historical figures. GDP cannot be forecasted; however, it is possible to trace a trend in the movement of GDP. GDP is often used as a platform for macroeconomic analysis.

Genuine Progress Indicator (GPI)

From a numerical perspective, GDP is an easy-to-follow indicator of economic health but from the perspective of an ordinary person GDP can be misleading. And to address its drawbacks Genuine Progress Indicator (GPI) variables were introduced that applies monetary values to non-monetary aspects of the economy. Broadly they are:

Income Distribution–when the nation's income goes to the poor or income increase provides a tangible benefit to the poor.

Housework and Higher Education–When the labor goes into housework and increase in education which in turn is beneficial to economy.

Service of Consumer Durables and Infrastructure - GDP views all expenditures as positive but GPI views monies spent on durable costs as cost, and on long lasting goods as benefits. Infrastructure spending that provides long lasing benefits GPI views it as a positive; if spending drains the government's coffers; GPI views it as a negative

Crime, environment damage, resource depletion pollution all have social and long-term costs.

GPI views an increase in leisure as a positive

In the calculations of GDP as adjusted by GPI, these factors are given monetary value and the GDP is adjusted to give what is known as realGDP

GDP and Economic Cycle

In the developed economies, it has always been aspirations of its politicians to prolong the economy of expansion. Ideally, GDP should be rising steadily, the working population should be employed fully, inflation should be in pace with income increase and export income should exceed import expenditure. However, these variables have a tradeoff factors work amongst them. When the economy is on the wax, the demand for labor goes up resulting in higher inflation. The property price goes up. These results in excess of goods being produced, and rise in share prices. And when the market corrects itself the slump follows, leading to bankruptcies in companies.

This cycle of boom bust in the economy is politically and socially unsettling. To find a solution the economist and analysts compare figure from different periods and begin to decipher the business cycles out of them.

Cycles happen because of government policies, consumer behavior or international phenomena, among other things. These figures can be compared across economies and based on what they learn from the past, analysts can then begin to forecast the future state of the economy. It is important to remember that what determines human behavior and ultimately the economy can at best be judged or guessed, bur never be foretold.

FROM 1994 TO 2015 THE AVERAGE GROWTH IN THE GDP WAS 5.66%. THERE WAS AN ALL-TIME HIGH 6.63% IN 2006, A RECORD LOW OF 4.08% IN 1994, AND IN RECENT TIME IT WAS 6.51% IN 2015.


Bangladesh GDP Growth Rate 1994-2016 | Data | Chart | Calendar | Forecast

The central bank of Bangladesh, the Bangladesh Bank, reports the country’s GDP growth rate. From 1994 to 2015 the average growth in the GDP was 5.66%. There was an all-time high 6.63% in 2006, a record low of 4.08% in 1994, and

in recent time it was 6.51% in 2015.

These figures below must read with a qualification that 1/3rd of the population of the country live below poverty line. This impressive growth in the GDP is attributed to the development of readymade garments and its export and the development of micro

credit. It should be noted that Bangladesh is densely populated country which has 60% of its population working in the agriculture sector. Its infrastructure is poor and it rife with corruption, political instability where economic reforms are very slow to take root.

Bangladesh GDP Last Previous Highest Lowest Unit GDP Growth Rate 6.51 6.12 6.63 4.08 percent [+]

GDP Annual Growth Rate 7.05 6.55 7.05 4.08 percent [+]

GDP 195.08 172.85 195.08 4.30 USD Billion [+]

GDP Constant Prices 8245.32 7745.39 8245.32 2372.59 BDT Billion [+]

Gross National Product 8261.49 8261.49 8261.49 2483.46 BDT Billion [+]

Gross Fixed Capital Formation 4384.38 3875.14 4384.38 594.12 BDT Billion [+]

GDP per capita 972.88 924.06 972.88 317.79 USD [+]

GDP per capita PPP 3136.60 2979.20 3136.60 1290.40 USD [+]

GDP From Agriculture 1892720.00 1764997.00 1892720.00 976905.00 BDT Million [+]

GDP From Construction 1257537.00 1084839.00 1257537.00 441805.00 BDT Million [+]

GDP From Manufacturing 2922821.00 2544831.00 2922821.00 1161971.00 BDT Million [+]

GDP From Mining 288797.00 238757.00 288797.00 109261.00 BDT Million [+]

GDP From Public Administration 701031.00 506741.00 701031.00 224643.00 BDT Million [+]

GDP From Services 1945345.00 1764017.00 1945345.00 734214.00 BDT Million [+]

GDP From Transport 1693965.00 1500253.00 1693965.00 687386.00 BDT Million [+]

GDP From Utilities 224585.00 198682.00 224585.00 69975.00 BDT Million [+]

Unemployment

When people in their working age are actively looking for jobs but are unable to find then unemployment occurs. The rate of unemployment is a measure of the health of the economy.

In an ideal economic situation there should be minimum unemployment within a population. However it is also argued that there should always be a “natural rate" of unemployment because the skills of work force and the positions available are slightly out of sync even under the best economic conditions. The labor market is efficient if it is allowed to operate on its own device. But outside interventions such as labor laws, minimum wage laws and formulation of collective bargaining agents puts the working of supply and demand out of balance.

Some of the well-known effects of unemployment on the economy are:

Financial Cost: There are financial costs of unemployment in giving unemployment benefit to people who are out of work. A nation also has to deal with the lost income, lost tax revenue and decreased production.

Spending Power Decline: Decrease in the Spending power of the unemployed which affects the economy adversely. Even the spending power of the employed is affected as their work insecurity and tax expenditure rises as they too may spend less, affecting the economy in negative manner.

Recession: Rise in unemployment affects other economy factor such as: the income per person, health costs, quality of health-care, standard of leaving and poverty. These affect the economy as well as the society and the systems and the society in general.

In a developed economy it is much easier to obtain statistics on unemployment because of their social security system. Number of

people of the population who are in their working age and who are actively searching for work can be found from the data held in benefit offices and other government agencies counting the people who are claiming unemployment benefit, disability pensions and other social security handouts.

In Bangladesh this forecast is prepared on a model that use a large historical data based on past behavior of unemployment rate. The coefficient of the econometric model is adjusted by the analysts’ expectation and assessment.

Bangladesh Unemployment Rate Forecast 2016-2020

According to Trading Economics global macro models and analysts expectations unemployment rate in Bangladesh is expected to be around 4.40% this year. The long term trend is this figure to hover around 4.47% in 2020.


Inflation

when the general level of prices for goods and services rise, the rate at which it rises is known as inflation. This also means that the purchasing power of money is falling. In an economy when there is a reduction in the supply of money or credit price of goods tend to fall, the state is known as deflation. This can be caused by a decrease in government, personal or investment spending. As a result there is a lower level of demand in the economy which in turn will give rise to unemployment. Governments and its agencies attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly

Inflation is primarily measured in two ways: through the Consumer Price Index (CPI) and the GDP deflator. The CPI gives the current price of a selected basket of goods and services that is updated periodically. The GDP deflator is the ratio of nominal GDP to real GDP.

When the nominal GDP is higher than real GDP, it is because the prices of goods and services have

been rising. Both the CPI and GDP deflator tend to move in the same direction and differ by less than 1%.

Demand and Disposable Income

A demand matures on the fulfillment of an essential condition which is affordability of the consumers. Demand comes from consumers (for investment or savings - residential and business related), from the government (spending on goods and services of federal employees) and from imports and exports. Demand is what ultimately determines how much goods and services would be produced. However affordability is a function of whatever income is left in the hands of consumers after all the essential has been paid for i.e., their disposable income, which is the amount of money after taxes left for spending and/or investment.

There are two main components of earnings: the minimum amount for which a person will put his labor into a work and the amount the market will pay for his effort. During the time of high unemployment his earnings will

suffer and it will prosper when unemployment is low.

Demand will determine production levels and equilibrium will be reached. In order to feed demand and supply, government will print money which will be circulated in the economy. Sum of individual demands will determine how much will be in circulation in the economy. This can be assessed by looking at the nominal GDP, which measures the aggregate level of transactions, to determine a suitable level of money supply.

Bangladesh Consumer Price Index (CPI) 1993-2016 | Data | Chart | Calendar

In Bangladesh, the Consumer Price Index or CPI measure changes in the prices paid by the consumers for a basket of goods and services.

From 1993 until 2016, CPI in Bangladesh averaged 113.63 Index Points and reached an all-time high of 223.37 in April of 2016. All-time low of 51.99 Index Points was recorded in July of 1993.


Forecast Actual Q3/16 Q4/16 Q1/17 Q2/17 2020 UnitUnemployment Rate 4.3 4.36 4.36 4.37 4.38 4.47 percent

Bangladesh Unemployment Rate Forecasts are projected using an autoregressive integrated moving average (ARIMA) model calibrated using our analysts expectations. We model the past behaviour of Bangladesh Unemployment Rate using vast amounts of historical data and we adjust the coefficients of the econometric model by taking into account our analysts assessments and future expectations. The forecast for - Bangladesh Unemployment Rate - was last predicted on Monday, July 25, 2016.

Bangladesh Labour Last Q3/16 Q4/16 Q1/17 Q2/17 2020Unemployment Rate 4.3 4.36 4.36 4.37 4.38 4.47

Employed Persons 54.1 53.17 53.13 52.91 52.69 48.82

Wages 2553 2682 2737 2780 2823 4176

Wages in Manufacturing 243 249 259 269 272 260

Population 158 160 160 161 161 169

Retirement Age Men 59 59 59 59 59 59

Retirement Age Women 59 59 59 59 59 59


Actual Previous Highest Lowest Dates Unit Frequency 220.15 223.37 223.37 51.99 1993 - 2016 Index Points Monthly

2005/06=100, NSAIn Bangladesh, the Consumer Price Index or CPI measures changes in the prices paid by consumers for a basket of goods and services. This page provides - Bangladesh Consumer Price Index (CPI) - actual values, historical data, forecast, chart, statistics, economic calendar and news. Bangladesh Consumer Price Index (CPI) - actual data, historical chart and calendar of releases - was last updated on July of 2016.

Bangladesh Prices Last Previous Highest Lowest Unit Inflation Rate 5.53 5.45 16.00 -0.03 percent [+]

Consumer Price Index CPI 220.15 223.37 223.37 51.99 Index Points [+]

GDP Deflator 174.42 174.42 224.46 126.35 percent [+]

Producer Prices 2180.00 2082.00 2180.00 1233.00 Index Points [+]

Export Prices 182.34 172.09 182.34 78.90 Index Points [+]

Import Prices 211.90 200.37 211.90 89.90 Index Points [+]

Inflation Rate Mom -1.44 0.05 2.08 -1.44 percent [+]

Food Inflation 4.23 3.81 9.09 3.77 percent [+]

Cpi Transportation 205.80 206.44 206.44 131.01 Index Points [+]

http://www.tradingeconomics.com/bangladesh/consumer-price-index-cpi


As it has been explained above managing an economy is a balancing act between the major macroeconomic factors and the interplay between them. Economic growth is measured by the GDP. A higher GDP growth will lead to higher employment which may lead to price rise and inflation. If inflation goes out of control the government may be forced to take anti-inflationary measures by controlling money supply and government expenditure, risking the possibility of an economic slump and rise in unemployment.

The Budget

Apart from being the process of estimating revenue and expenses during a specific period of time for a country, the budget is also a tool that is used to impact on macro-economic policies.

Like most countries, the sources of budget revenues of Bangladesh have been the tax payers and consumers of the country. These funds are collected from the people to pay for government expenditures which include consumptions, development

expenditure on research and infrastructure.

Government expenses include spending on current goods and services, otherwise known as government consumption; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment or retirement benefits, social safety nets.

When it comes to formulation of budgets, priorities are set more on political ground and targets. Budgets are not necessarily allocation of scare resources to their best economic use.

In Bangladesh the formulation and implementation goes through various stages. After collecting of departmental budgets they are compiled and presented to the parliament for discussion and approval. After that the budget resources are passed on to their respective stake holders within the government and are spent. The budget implementation is monitored for its expediency, which is done throughout the budget period. It is also audited.

The Legal Compulsions

Constitution of Bangladesh, 1972 (Ch.II, Legislative and Financial Procedure, article 87) on Annual Financial statement provides:

There shall be laid before Parliament, in respect of each financial year, a statement of the estimated receipts and expenditure of the Government for that year, in this Part referred to as the annual financial statement.

The Annual Financial Statement Shall Show Separately –

(a) the sums required to meet expenditure charged by or under this Constitution upon the Consolidated Fund; and

b) The sums required to meet other expenditure proposed to be made from the Consolidated Fund;and shall distinguish expenditure on revenue account from other expenditure.

Apart from the constitutional compulsions stated above, there are other legislative guidelines that govern the budget formulation and execution, such as

• General Financial Rules, 1951, updated 1998 (Budget, Grants and Appropriations)

• Preparation of the Budget (Secretariat Instruction, 1976 updated 2008)

• The Public Moneys & Budget Management Act, 2009

The government department through which the budgetary activities are processed is the Ministry of Finance and its wings or divisions such as Finance Division, Economic Relations Division and the National Board of

Revenue. To some extent the Planning Commission and the Line Ministries and other relevant statutory authorities, autonomous bodies, nationalized entities or local government institutions established under the Act of Parliament are also involved.

It is important to bear in mind the constrains that are imposed upon the bodies as regards to goals and objectives of national budgets enumerated in The Public Moneys And Budget Management Act, 2009 described as the act for the custody of public moneys, deposit and withdrawal of money from the Consolidated Fund or deposit and withdrawal of money from the Public Account of the Republic and for other related issues

Salient Points of Fiscal Management

• The Government is required to take all appropriate measures for the improvement of macro-economic stability and maintain the annual budget deficit to a sustainable limit.

• The Government should pursue sound fiscal and public debt management procedures so that:

(a) Domestic borrowings are gradually reduced and domestic annual borrowings remain within reasonable limit;

(b) Domestic and external debts are reduced gradually every year as percentage of GDP.

• Ways and Means of advance from Bangladesh Bank to meet regular cash requirements remains within specified limit, and where it exceeds the excess is obtained as overdraft, other than which the Government shall not borrow from the Bangladesh bank.

• Most importantly, it places specific onus on the government in the budget to ensure equity in resource distribution to alleviate regional and gender disparity, and poverty

• Enhancing competency in fiscal management: The Government, in specified methods, shall arrange necessary education and training to establish a sound and effectivefiscal administration and shall ensure maximum utilization of efficiency, experience and services of the trained and educated manpower.

The 2016-17 Budget

The budget has been variously criticized for aiming to raise unrealistic revenue targets. This they propose to do by squeezing more tax out of existing tax payers rather than to widen the tax net.

Just citing one example of it, this budget has proposed to curb Investment Allowances by 10 %. So far the taxpayers were entitled to deduct 30% of their investments from their taxable income, which now has been reduced by 33.3% to 20% and the tax rebate has been reduced from 15% to 10%. This

will no doubt hit the tax paying middle income group very hard. There are other areas where it will hurt the tax paying middle income group.

Taxable limit has not been increased. Revenue targets have been set impracticably high. And a number of tax benefits and concession has been withdrawn etc.This goes against some of the core principles as enumerated in the legal framework set out for the budget

It should be noted that the level of public expenditure is large determined by the fiscal measures of the government as planned in the budget. An increase in direct taxes would adversely affect the disposable income which in turn will reduce demand for goods and services. This decrease in demand will then shrink production, affecting economic growth.

On the other side of the coin, more taxes in the coffer of the government will allow it to spend larger amount in the development expenditures, take up development projects and pay for consumption. The governments had already increased wages and salaries of the public sector worker to an unprecedented scale. There are


The Author is a Partner in MARHK & Co,Chartered Accountants


also wide spread allegation of corruption in the public sector. As it has already been mentioned elsewhere in this write up priorities in selecting projects are not always with the economic objective to allocate scare resources to the economic use. In Bangladesh, there are allegations that they are set more on political ground and targets, thus making ways of siphoning funds away from them for personal uses by the high government official and party political men.

Upsurge in indirect taxes would also have similar effect on the level of demand as this is mostly paid off by the consumers in the form of higher prices. Apart from this affecting their state of well-being, this will likely to impact on the overall demand for goods and services, which will in turn reduce profit margins of companies. Businesses will be laid off, or their

production and growth will be slowed off creating unemployment and lesser tax will be collected in the government treasury.

The consecutive budgets of Bangladesh have been criticized for having comparatively lesser amount of fund allocated, as percentage GDP, for the poor and backward section of the population and on sector like public health, education and human development. There are also allegations that government projects in public sector are more costly and gradually their cost increase over longer period of time as they are often delayed in their implementation. Good governance, tightened accounting and fiscal control and accountability and transparency are therefore essential pre conditions in order to ensure maximum benefit out of taxpayers’ hard earned money.

References

1.http://www.tradingeconomics.com/bangladesh/consumer-price-index-cpi

2.http://www.tradingeconomics.com/bangladesh/gdp-growth

3.http://www.tradingeconomics.com/bangladesh/unemployment-rate

4. http://www.investopedia.com/

5.http://www.thedailystar.net/op-ed/finance/budget-2015-2016-gdp-growth-and-private- investment-98635

6. http://cpd.org.bd/


Traditionally national budget is the forecast of government expenditures and revenues for the ensuing financial year but in modern industrial economies, budget is the key instrument for the execution of government economic policies. Budget of the country is a very important document. It is not only a statement of annual Income and Expenditure but also a document

Budget 2016-17Inconsistent with the Economic Policies

Md. Shahadat Hossain FCA

which impacts on a nation's citizens in terms of the amount of taxes needs to be paid and in terms of the benefits individuals and groups receive from the government. On 2nd June 2015 the national budget of the government of Bangladesh for the financial year 2016-17 was placed to the National Parliament for approval. Summary of the budget is as follows:

2016 -2017 2015 -2016 % of(Tk. In Crore) (Tk. In Crore) Increase/

DecreaseRevenueNBR Tax 203,152 150,000 35%Non -NBR Tax 7,250 5,400 34%Non -Tax revenue 32,350 22,000 47%Total Revenue 242,752 177,400 37%

ExpenditureNon development expenditure 188,966 150,379 26%Development expenditure 117,027 95,908 22%Other expenditure 34,612 18,278 89%Total expenditure 340,605 264,565 29%Budget deficit 97,835 87,165 12%Foreign Loan/grant 36,305 24,990 45%Bank Loan 38,938 31,675 23%Others 22,610 30,500 -26%

97,853 87,165 12%


From the above summary of the budget it appears that total revenue for the financial year has been projected 37% higher compared to that of revised budget for the year 2015-16. Out of total revenue major part i.e. almost 84% represents tax related to the National Board of Revenue. NBR tax includes Income tax, Value added tax, Supplementary duty and Custom duty. NBR tax for the financial year 2016-17 has been projected 35% higher than NBR tax for the year 2015-16. Expenditure has been projected 29 percent higher than that of the revised budget for the year 2015-16. From the projection of revenue and expenditure it reveals that revenue has been projected at higher rate compared to the increasing rate of expenditure. Amount of increasing expenditure at lesser rate compared to the increasing rate of income represents less pressure on deficit finance. From the information mentioned above it is observed that deficit finance has been projected Tk. 97,853 crore against Tk. 87,165 crore of last year's revised budget, which represents only 12% growth. Less dependence on deficit financing is a good sign for the economy of the country. Deficit financing is inflationary in nature. So, less dependency on deficit financing will help to keep the inflation in control. But benefit of less dependency on deficit financing also depends on success of recovery of tax revenue. As earlier mentioned NBR tax revenue has been projected at 35 percent higher than the previous year's revised projection which is undoubtedly high. Inflation has been expected to some extent higher than five percent, so revenue growth in reality has been projected at 30 percent. Now, if we analyse how this growth will be achieved, it can be seen that in some cases, rate of tax has been increased, in some cases,

scope of tax has been increased, in some cases scope of charging interest, penalty has been expanded. For example rate of tax deduction at source on export of readymade garments has been increased. Due to such increase tax revenue of the Government will increase, but question may be raised what will be its impact on the society. After deducting tax by the realising bank from the export proceeds the company will get less amount compared with the previous realisation. To cover that less realised amount the owner/ management of the company will try to reduce the cost. Main cost of the company which may come under reduction is wages, overtime, bonus of the employee and workers. So, the impact of charging more tax on export proceeds is to reduce the earnings of the poor workers of the industry. Secondly, maximum rate of tax deduction at source on contract bill previously was five percent but in the finance act of this year it has been mentioned that rate will not be exceeding ten percent. This provision indicates that the rate of tax deduction at source on contract bills may be increased to some extent. Due to such increase tax revenue may be increased but those will have no positive impact on the society, because the work of Annual Development Plan (ADP) will be reduced to that extent the amount of tax has been increased due to increase of rate.

Regarding expenditure budget it is mentionable that total expenditure including development and non development is Tk. 340,605 crore which is almost 29 percent higher than the previous years revised budget. Main sector wise details of expenditures and their Graphical presentation are as follows:

DURING THIS YEAR ALSO BUDGET HAS BEEN KEPT UNDER THE HEADING ‘GENERAL SERVICE OTHERS’ TK. 62,446 CRORE WHICH IS MORE THAN 18 PERCENT OF TOTAL BUDGET BUT THERE IS NO DETAILS. FROM THIS PRACTICE IT APPEARS THAT THE POLICY OF THE GOVERNMENT IS TO PRESENT THE BUDGET ARTIFICIALLY HEAVY AND HEALTHY.


2016-17 2015-16 2015-16budget Revised Budget

1. Social Infrastructure 96,365 76,267 69,182 2. Physical Infrastructure 101,292 86,767 90,422 3. General Service 83,508 58,110 82,559 4. Interest Payment 39,951 31,669 35,109 5. PPP, Subsidy & Liabilities 7,509 4,159 6,509 6. Net lending & other expenditure 11,981 7,593 11,321 Total: 340,606 264,565 295,102

Public Order & Safety Others

2016-17 Budget

Social Infrastructure


General Service

Interest Payment

PPP, Subsidy & LiabilitiesNet lending & other expenditure


2015-16 Budget



General Service

Interest Payment


There is no other head of expenditure which was reduced by so substantial amount rather in some cases expenditure was increased despite decreasing revenue collection. Last year's

revenue budget was revised by reducing revenue to the extent of Tk 30,643 crore. This shortfall of revenue was covered by reducing the expenditure budget by the amount of Tk 30,535 crore. Out of

this reduced expenditure only one head i.e ‘General service-others’, represents 28,238 crore which is equivalent to more than 92 percent.

Main feature of expenditure budget is Tk 62,446 crore which is 18.33 percent of the total budget remain undesignated i.e‘ General service- others.’ The details of nature of expenditure under heading

`General service-others' have not been explained in the budget .If we compare the original budget and revised budget for the year 2015-16 under the heading ‘General service others' it may be

observed that original budget was Tk 68,929 crore and that was revised to Tk 40,238 Crore which is 41 percent of the original budget.

The Author is a Council Memberand Ex. Vice President of ICAB



2015-16 Revised Budget


Physical InfrastructureGeneral Service

Interest Payment


From this scenario it appears that in one hand there is no details or specific purpose of the head ‘General service- others,’ on the other hand the amount is reduced as much as required to match with the collection of the revenue. During this year also budget has been kept under the heading ‘General service others’ Tk. 62,446 crore which is more than 18

percent of total budget but there is no details. From this practice it appears that the policy of the Government is to present the budget artificially heavy and healthy. At the beginning of this write up it has been mentioned that the budget is the key instrument for the execution of economic policies, so budget should be prepared in such a

manner that it can achieve confidence of the general people and should not contain any artificial issues which refrain general people from understanding the government economic policies.


“The desire to reach for the stars is ambitious. The desire to reach hearts is wise.”

(American Poet: 1928-2014)

Only Success, No Failure!

The recent budget speech of Finance Minister of Bangladesh could not be presented coming out of the traditional format. The document described the success stories one after another but all of them were not backed by sufficient convincing historical information. Though success is always welcomed, we cannot but accept the failure because it is the flip side of success. Finance Minister ignored some critical failures which are closely associated with his long list of success. He claimed the admiration for ever highest amount of foreign reserve in the history of Bangladesh but he did not talk about failure of Government to protect the reserve funds from robbers. Bangladesh became a familiar country on the globe overnight for such rare incident of heist. Nothing has been recovered so far from the robbers and there is no positive sign of getting that in future. People are unaware of the fate of their money. It was stated in the budget document that Government decided to introduce many corrective measures to bring discipline in state owned banks in

National Budget 2016-17Will Economy Really March Towards Growth,

Development and Equitable Society?Mohammad Zahid Hossain FCA

financial sector. But that masterminds behind multiple robberies that took place in broad daylight could not be accused due to political reasons. In recent past, nonperforming loan touched the landmark of BDT 1 trillion which is almost 30% of total budget size of FY 2016-17. BASIC Bank, one of the state owned commercial banks got BDT 16 billion of public money from Government to repair their faulty capital. Finance Minister could not justify the reason of keeping state owned banks operational at a cost of public money. The success of Government in preservation of biodiversity was highlighted in budget document while the failure to transfer tanneries to Savar from Hazaribagh could not take place within the deadline of 31st December 2014. A list of initiatives was described to bring discipline in the Capital Market. It was hoped that the market would become vibrant again and massive speculation opportunities would be removed. I am sure Finance Minister knows very well that unless the exemplary legal action is taken against the identified manipulators of the market, confidence of investors cannot be regained. So, mere distribution of BDT 6.37 billion taka to small investors will remain as bad investment. However, the reasons of such failures along with the action plan to fix those issues would make the budget document more meaningful to the intended users.


Correctness of BBS Information is Questioned

According to Bangladesh Bureau of Statistics (BBS), GDP growth rate is estimated as 7.05% for FY 2015-16 while World Bank (WB) estimated 6.50% as GDP growth rate. Again, GDP rate for FY 2016-17 is estimated by Government as 7.20%. Taking into account the lesser harvests and slower credit growth, WB is estimating it as 6.30%. There may be a gap in estimating the future growth rate but the historical estimation should not end up with such significant gap. Some renowned economists have strongly disagreed with the numbers given by BBS on employment of last 5 years. BBS being Government’s agency should clarify its stand in case of such controversies. No economy can take sustainable strategy based on inaccurate information. Such inaccurate and fluffy numbers can only generate bubbles, not solid development. So, the obsession of “GPA 5” in education sector should not contaminate our macro economy and permanently put us in “satisfaction zone” with fiddled numbers.

Budget Size Compulsorily Needs to be Massive?

The size of the Budget of Bangladesh has been increasing every year. In order to meet the large expenditure budget, our revenue budget also targets a big jump every year. Budget numbers are formulated ignoring the capacity of the tax administration. Since there is always a big gap between the budget numbers in papers and ultimate achievement, we all love to address Revenue Target as “ambitious”. Most interestingly, people behind this budget exercise do not have the intention to make this budget realistic, they just wish to show that they are efficient enough to make a

bigger budget than previous years. Recently, Finance Minister expressed his wish to take the budget size within next 2 years to BDT 5 trillion landmark which is 47% jump from the budget size of FY 2016-17. Proposed budget size is already 28% higher than the revised budget size of FY 2015-16.

How Equitable Society will be Built?

Budget 2016-17 prepared with an objective towards Growth, Development and Equitable Society. The plans of the Government in many sectors have been described with carefully selected words to achieve the objective. But the proposals submitted for many areas to raise revenue is not evident that Government wants equitable society. The way investment allowance and investment rebate were reduced, it cannot demonstrate the honest intention of Government to build an equitable society. Without increasing the number of taxpayers significantly, Government cannot ensure the fair distribution of income growth. Target was set to increase the numbers of taxpayers to 1.5 million from current level of 1.2 million. It gives a negative signal to existing taxpayers that their take home income is going to be chopped more. This will induce them either to evade tax or suppress income. Whereas, Government can give priority in bringing more people within tax purview instead of increasing tax burden on existing taxpayers. This initiative could place the tax revenue system on a strong platform.

Should All Ventures Make Profit?

Profit or loss forms an integral part of a commercial venture. This had been ignored since the enactment of Section 16CCC in Income Tax law.

BUDGET 2016-17 PREPARED WITH AN OBJECTIVE TOWARDS GROWTH, DEVELOPMENT AND EQUITABLE SOCIETY. THE PLANS OF THE GOVERNMENT IN MANY SECTORS HAVE BEEN DESCRIBED WITH CAREFULLY SELECTED WORDS TO ACHIEVE THE OBJECTIVE.


This provision being conflicting with basic rule of income tax was criticized by all vested quarters while Government did not remove it. Though this provision is proposed for removal in Finance Bill 2016, it is again appeared in Section 82C. We urge and welcome foreign investors but we are not ready to accept the reality of losses. Anything in the form of minimum tax should not remain in the law to build an equitable society.

Lump Sum Allocation: Political Spending?

Allocation of funds under lump sum basis may trigger improper spending of public money. In this budget such type of allocation was proposed for Environment-friendly Brick Field (BDT 1 billion), physical infrastructural facilities for Hindu community (BDT 2 billion), sports training programmes (BDT 1 billion). In most cases, political influence play a significant role in spending money allocated under lump sum basis.

Significant Raise in Education Budget: Worthy Indeed

The allocation of budget in education sector is 32% higher

than last year. It’s undoubtedly appreciable because without having a skilled, capable and world-class work force, the challenge of a growing economy cannot be managed. With the ultimate objective to develop solid Human Resource, budgeted amount on Education should be spent. If the number of school goers is increased by merely establishing MPO schools and colleges to keep political leaders smiling, the overall target to create sufficient skilled manpower will remain far-fetched. People of neighboring country are earning and remitting significant amount of money from Bangladesh. So, our decisive target should be the development of an education system which creates qualified human resources to satisfy the local requirement.

Revenue Collection: Capacity Considered?

NBR Revenue target is 35% higher than revised budget of 2015-16. The revised budget of 2015-16 has been set at BDT 1.5 trillion which is 21% higher than that of FY 2014-15. Again, the actual collection up to March 2016 represents only 67% of revised target for 2015-16. Though Finance Minister has huge confidence on

the “capacity” of Taxmen in collecting such large amount, taxpayers are apprehending harassment from them. There was no clear guideline to bring transparencies in tax administration which could make taxpayers satisfied and hold taxmen accountable to the Administration.

Commitment vs. Achievement

Traditionally, many lavish commitments are stated in the budget document with an objective to amaze people. Plan to implement “comprehensive pension system for all including the self-employed as well as those formally or informally employed in semi-government organizations and the private sector” is such an example of Budget 2016. Neither any specific timeline nor modality was given in this regard. To keep Government Servants accountable to people and refrain them from giving any rosy pledges, the progress of commitments of each year must be presented in the subsequent year’s budget paper. Any reason of non-performance should be stated and clarified. A roadmap to reduce the gap should also be presented and regularly monitored.

Bank Interest Rate: Unsatisfactory

Though the interest rate on lending and deposit has decreased significantly, the spread is still very high (4.9%). If Government wants to see the banks richer, they are directly discouraging the new investments and making the business more challenging. In advanced countries, the average spread has come down over the years to around 1 percent.

The Author is aFellow Member, ICABAnd Board Member, BAPEX


Introduction of New Budget Framework

Government is planning to introduce fundamental changes in budgetary framework. Future budget framework will comprise total receipts on one side and total expenditure on the other. Under these heads, accounts of income and expenditure of the government and its subordinate agencies will be separately shown. It gives an impression that this will make the budget presentation more comprehensive and understandable. Hope, this appreciable initiative will be rolled out within reasonable time.

Public Financial Management

Transparency has been an issue in Public Finance. Government has declared to finalize ‘Public Financial Management Reform Strategy 2016-21’. Three important issues have been prioritized. These are capacity development in revenue mobilization, implementation of new classification of Budget and Accounts Classification System (BACS) and use of modern information technology i.e. Integrated Budget and Accounting System (iBAS ++) in preparation of budget and accounts. Besides, existing initiatives to improve auditing system and ensure transparency and accountability in government expenditure will be continued. Once these plans are implemented, Public Financial Management system will be more pragmatic and result-oriented.

Tax Deduction at Source on Export Business: 150% Hike Proposed

Sudden revision of TDS rate from 0.6% to 1.5% is a big surprise for the exporters. Before fixing the rate at 1.5%, I am sure convincing profitability analysis of various export businesses was carried out by Tax department. If so, underlying reasons of such massive revision should be shared with pertinent exporters association and their nod to be obtained before the new rate becomes effective. There are few lifelines of Bangladesh economy. RMG Export is one of them. It is now faced with multiple challenges. In order to patronize this industry, Government can gradually revise this TDS rate. The initiative of India Government to meet the RMG export target of USD 43 billion is quite relevant. Government approved a special package of USD 884 million for textiles and apparel sectors to create 10 million new jobs in 3 years, attract investments of $11 billion and generate $30 billion in exports. If Bangladesh RMG export business wishes to remain competitive in this industry, Government should help them instead of increasing the burden of tax.

Spending for Social Protections Require Accountability

Government has been taking various social protection programmes to reduce poverty and thus establishing justice of the

country. An amount of BDT 462 billion has been allocated for this purpose in Budget 2016-17. The transparency of spending this huge amount of public fund is in question. Yet such programmes will not only vibrate the rural economy but also help disadvantaged sections of the country to survive. Government should engage continuous efforts to reduce political influence of such spending.

Finally, Bangladesh is a country of enormous potentials. A visionary political Government can capitalize the advantages. Country’s strategies should be set carefully considering long term objective. Large amount of private investments including FDI and creation of employment will be the most critical factors to achieve the target GDP rate as well as sustainable development of Bangladesh. Unfortunately, the National Budget 2016 could not articulate any clear guideline to remove drought in Investments.

Instead of “touching the star” by formulating large budget, there are many other ways for Government to reach the hearts of common people.


A public–private partnership (PPP, 3P or P3) is a government service or private business venture that is funded and operated through a partnership of government and one or more private sector companies.

The Asian Development Bank (ADB) defines a PPP as a contractual arrangement between public (national, state/provincial, or local) and private entities through which the skills, assets, and/or financial resources of each of the public and private sectors are allocated in a complementary manner, thereby sharing the risks and rewards, to seek to provide optimal service delivery and good value to citizens.

Origins of PPP

Demand for changing the public procurement processes arose initially from the level of public debt, which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s. Governments sought to encourage private investment in infrastructure, initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditures.

Initially, most public–private partnerships were negotiated individually, as one-off

The Concept of PPP:Bangladesh Perspective

Shah Md. Jubaer ACA

deals, and much of this activity began in the early 1990s.

Not only developed but more than 134 developing countries also started PPP programs of their own and thereby contributing to 15–20 percent of total infrastructure investment.

Models of PPP

There are different models and approaches for PPPs. While different countries have adopted a wide range of models, the following are among the common models:

1. Build-Own-Operate (BOO): In this model, the private sector manages the infrastructure on a build-own-operate basis. The government usually does not manage the infrastructure developed under this model. The Independent Power Producer (IPP) is an example of the BOO model in Bangladesh.

2. Build-Operate-Transfer (BOT): Here the private sector manages the infrastructure on a build operate-transfer basis. The private sector manages the infrastructure until a specified time, after which the government is responsible for its management.

3. Build-Own-Operate-Transfer (BOOT): This is an extended version of the BOT


model. Under this model the ownership and management belongs to the private sector until a specified time. After expiry of the term, ownership and management is transferred to the government.

Challenges and Barriers in PPP

Entering into a public-private partnership can be rewarding as well as destructive if not done with caution and proper education. Partnerships need balance from both parties as well as continuous maintenance. If entered into lightly, one can find its organization falling in various areas proving to be one of many partnership failures.

Flexibility between the two partners as well as the contract and staff involved throughout the process. If one party feels they are losing some of the control they may work on adopting more rules and regulations throughout the process instead of working together to be flexible and mediate an issue.

Timeline for non-profits are long-term horizontal while for-profit organizations are short-term oriented which predominantly focus on profitability.

Focus of the project Partners may not have the same focus when entering into a partnership even though they think they might be.

Funding priorities When parties can't agree on where funding should go this can sometimes lead to losses in time, resources, and the overall funding for the project.

Accountability rises in public- private partnerships with the rise in the responsibility as well.

While the government relying on these organizations to provide the public services which they cannot afford themselves to do so for non-profits responsibility. This leaves an unbalance of work causing more problems such as a lack of focus for the projects, mismanaged funding, and miscommunication.

Communication or understanding can be a huge downfall and can contribute to the other risks within partnerships. It can be said that when entering into a cross-sector partnership it is difficult to understand and collaborate due to the diversity and differing languages spoken amongst the sectors. Items like performance measures, goal measurements, government regulations, and the nature of funding can all be interpreted differently thus causing blurred lines of communication.

Autonomy within the partnership begins to happen more with the privatization of public-private partnerships where the private organization may own the partnership itself and the government keeps full responsibility for it. This keeps parts of the partnership separate for focus.

Conflicts may arise from any of the above topics but outside issues or forces may also bring a partnership to a halt. Having no understanding and communication between parties can cause conflicts with use of language, stereotyping, negative assumptions, and prejudice about the other organization. These conflicts can be related to territorialism or protectionism, and a lack of commitment to working within the partnership.

ENTERING INTO A PUBLIC-PRIVATE PARTNERSHIP CAN BE REWARDING AS WELL AS DESTRUCTIVE IF NOT DONE WITH CAUTION AND PROPER EDUCATION. PARTNERSHIPS NEED BALANCE FROM BOTH PARTIES AS WELL AS CONTINUOUS MAINTENANCE. IF ENTERED INTO LIGHTLY, ONE CAN FIND ITS ORGANIZATION FALLING IN VARIOUS AREAS PROVING TO BE ONE OF MANY PARTNERSHIP FAILURES.


Keys to Successful PPP

Planning and Implementation

It is important not to go for any shortcut in PPP projects. A proper process and perseverance are among the keys to success. 'Emergency procurement' or 'fast track processes' rarely result in equitable, transparent, or sustainable results. Focusing on fundamental details - technical, commercial, financial, legal, and social - are important alongside planning for payments. If affordability is an issue for constituents, it is necessary to explicitly plan and budget for Viability Gap Financing (VGF) support and subsidies.

Balancing risks, managing expectations, and providing certainty are important in the planning and implementation process. Responsibility should be allocated only to those who have a reasonable chance of being able to handle it. Infrastructure projects take time; early announcements of tendering and completion without delivery will lead to mistrust of the entire system. Predictability and longevity are the surest ways to achieve good results.

Working towards Certainty

It is critical to define the boundary of a project in PPP. Risk variables should be identified and necessary steps should be taken to fix as many as possible. However, it is important to avoid over-specifying to the extent that competition and innovation is hindered. Where uncertainty exists, deliberate steps should be taken to address it. The government, and ultimately, the people, will pay the price of uncertainty in the form of failed bids, selection of unqualified bidders, substandard and/or unsustainable projects, etc.

Funding and Budgeting

The funds of the government and those from development financing institutions are limited in most cases. Therefore, it is important to assess where such funds will be best spent. There might be places where private sector cannot or is not willing to go. Potential funding gaps should also be considered.

Affordability of each project needs to be analyzed. In case of doubt, possible ways should be worked out to make critical projects affordable, for example through subsidies, government's explicit provision of finance to bridge gaps, etc. Government needs to work with the PPP planners to assure tariffs and subsidies are reasonable and provided for. Untapped or under developed sources of funds also need to be identified, such as bond markets, equity markets, etc.

Funds from development financing institutions need to be utilized for maximum impact. In most cases, the developing economies are growing faster than the budget of development financing institutions; and thus, such funds are likely to

have a shrinking role. A country like Bangladesh needs many critical infrastructure projects and donor funding cannot finance these. Donor funds might be used for project preparation (e.g. feasibility and environmental studies, preliminary engineering and project development, land identification and acquisition, etc), co-financing (e.g. to attract broader range of capital and participants), and planning (e.g. project identification, resource development and allocation, fiscal assessment, oversight and management, etc).

Monitoring and Evaluation

The monitoring and evaluation role of the government in PPP does not stop at the financial close; the post-completion operations and results must continue to be monitored. The main areas should include:

Construction monitoring: Relevant government agencies need to assure that the project stays on time and on budget. The government also needs to


be prepared for addressing unforeseen roadblocks to the project.

Operations monitoring: It is highly important that PPP infrastructure and services are delivered as agreed. Sustainability of the infrastructure and services must be monitored with consideration for performance efficiency and affordability.

Impact assessment: Results of PPP process at all stages should be used to continually inform the future. The fiscal impact of each PPP concession should be monitored. There needs to be a continuous assessment of natural, human, and financial resource requirements. The results from PPP monitoring and related feedback should inform planning and updating of existing plans.

For proper monitoring and evaluation, the private sector needs to structure itself to respond to the needs of the government, people, and the society. The relationship among these actors must be symbiotic, balanced, and sustainable.

Public–Private Partnership in Bangladesh

PPPs are not new in Bangladesh. Before the mid-1990s, the Government of Bangladesh had entered into a number of individual PPP transactions. However, 1996 marked the first time that a policy framework was introduced for PPPs in order to enable private sector partnerships in power generation.

Through this policy, Bangladesh witnessed early success in PPPs. By 2001 – with the support of the Asian Development Bank (ADB)

and the World Bank – two large power projects, the 450MW Meghnaghat and 360MW Haripur power plants, were successfully contracted. This success in the power sector has continued with approximately 2000 MW of installed capacity through Independent Power Producers (IPPs), nearly 2500 MW of IPP projects in implementation and more than 3000 MW of IPP projects in procurement.

To build on this success in other areas of infrastructure, the Government of Bangladesh introduced the Private Sector Infrastructure Guidelines in 2004. This marked the start of the program-based PPP initiatives in Bangladesh. However, the results during this period were more modest, with only a handful of projects coming to fruition. There was an urgent need to revise the PPP program so that it could match the Government’s long term vision of growth and prosperity.

In 2009, the Government of Bangladesh announced the introduction of a revised PPP program in the 2009-10 Budget Session, and then introduced a new PPP policy in August 2010 (PPP Policy 2010).

In 2010, the 6th Five-Year Plan was launched, outlining the Government’s vision to improve the country’s trajectory of economic growth and lead the country to an enhanced level of prosperity by reaching Middle-Income Country status by 2021.

The Plan focuses on the enhancement of infrastructure investment from approximately two to six percent of GDP, using PPP as a key tool in meeting this infrastructure gap. PPPs would supplement traditional procurement in the development

of social and economic infrastructure in Bangladesh to deliver the public services that can enable private sector entrepreneurship and unlock the country’s growth potential.

The PPP Policy 2010 introduced a comprehensive range of reforms, including tax incentives for PPP projects, designed to develop a sustainable PPP program across multiple sectors. These reforms were reinforced by the strong demonstration of government commitment through the allocation of more than US$300 million for PPPs in the 2009-10 Budget to support the development, financing and funding of PPPs. The Ministry of Finance prepared a Viability Gap Fund for financing up to 30 percent of capital costs of PPP projects.

The PPP Office became operational in 2012 under the Prime Minister’s Office, and has been a key component of the new reforms. Since then, with the support of ADB’s technical assistance project and the World Bank’s IPFF project, the PPP Office has spearheaded the development of PPPs in Bangladesh.

Starting from a handful of projects in 2012, the PPP Office is now supporting the development and implementation of more than 40 PPP projects with a capital value of around US$13 billion; this supplements a pipeline of over 20 projects in the power sector. Projects in many new areas are being developed such as the hemo-dialysis project, structured with the support of IFC and recognized as a pioneering PPP in KPMG’s Infrastructure 100: World Markets Report.

With strong political support and enhanced institutional capability, underpinned by real financial commitment and “The Bangladesh


Public-Private Partnership (PPP) Act, 2015” has already been enacted; the key fundamentals are in place for an enabling PPP environment in Bangladesh. The first signs of success are there, and a clear path has been laid out for this success to continue and grow in the years ahead.

Applicability of PPP

According to the Policy and Strategy for PPP, 2010, of the GoB, public-private partnership models can be considered for any project that generates public goods and services if at least one of the following circumstances exists for the project:

The implementation of the project is difficult with the financial resources or expertise of the government alone;

Private investment would increase the quality or level of service or reduce the time to implement compared to what the government could accomplish on its own;

There is an opportunity for competition, where possible, among prospective private investors, which may reduce the cost of providing a public service;

Private investment in public service provides an opportunity for innovation; and

There are no regulatory or legislative restrictions on private investment in the delivery of the public service.

PPP will not be applicable to the following actions/activities: (a) Outsourcing of a simple function of a public service; (b) Creating a government owned enterprise (State Owned Company); and (c)

Borrowing by the government from the private sector.

Eligibility of Private Sector

According to the PPP Policy and Strategy of the GoB, any for-profit or not-for-profit entity legally registered in Bangladesh or abroad at the time of submission of proposals in response to Request for Qualification or unsolicited proposals is eligible for participation in PPP projects. However, at the time of contract awarding, the foreign entity is required to be registered as a legal entity in Bangladesh. The government plans to specify detailed and specific eligibility criteria in relevant Request for Qualification (RFQ) and Request for Proposal (RFP) documents for any partnership.

Types of Financial Participation of the Government

The financial participation of the government in the PPP projects may be in at least three forms, depending on the nature of the projects and models of PPP adopted for a particular type of project.

1. Technical Assistance Financing: The Technical Assistance Financing is designed for the following purposes:

a. Pre-feasibility and Feasibility study for projects;

b. Preparation of RFQ and REP documents for projects;

c. Preparation of concession contracts for projects;

d. PPP related capacity building in the line Ministries/implementing

agencies and other relevant agencies;

e. PPP related awareness building such as road show, exhibition, etc.

2. Viability Gap Financing: Viability Gap Financing (VGF) is meant for projects where financial viability is not ensured but their economic and social viability is high. VGF could be in the form of capital grant or annuity payment or both. VGF in the form of capital grant shall be disbursed only after the private sector company has subscribed and expended the equity contribution required for the project. The VGF is to be managed by the Finance Division and is for disbursement to the PPP Project Company, upon request by the line Ministry/implementing agency, as per the terms of the concession contract.

3. Infrastructure Financing: The infrastructure financing is an arrangement for extending financing facilities for the PPP projects in the form of debt or equity through specialized financial institutions such as Bangladesh Infrastructure Finance Fund (BIFF) and Infrastructure Development Company Limited (IDCOL). The government may participate in such financing arrangements through necessary budget provision.

Incentives to Private Investor

The government is keen to provide various fiscal and non-fiscal incentives to the private investors for launching PPP projects in priority sectors. All incentives in


PPP, including fiscal and monetary incentives are to be considered and granted by the government, through the appropriate agencies of the government. The incentives may be in the areas of reduction of cost and protection of return to the private sector.

a. Fiscal Incentives

All PPP projects will receive the applicable incentives, provided by the government, from time to time which may, inter alia, include:

Reduced import tax on capital items under PPP projects; and

Tax exemption or reduced tax on profit from operating/managing for a specific time period.

b. Special Incentives

Any specific project may get special unique incentives with the approval of the Cabinet Committee on Economic Affairs which shall be declared in the RFP documents. Special incentives may be extended to PPP projects targeted for rural or/and underprivileged population. Special incentives may

be given to Non-resident Bangladeshis (NRBs) to invest in PPP projects.

Classification of Projects in PPP by Investment Size

The GoB plans to carry out different sizes of projects under PPP. In order to ensure quick approval and implementation of all projects, PPP projects will be classified into three groups: Large, Medium, and Small. The threshold investment values may be reviewed, as and when required, and modified by the Cabinet Committee on Economic Affairs (CCEA).

Sectoral Coverage of PPP & Approved PPP Projects mentioned in Annexure-A and Approved PPP Projects mentioned in Annexure-B respectively.

Allocation for PPP in Budgets

An allocation of Tk. 2,000 crore has been proposed for the Public-Private Partnership (PPP) projects in the Budget 2016-17 for the next fiscal year placed in Parliament by Finance Minister Mr.

AMA Muhit on 02 June 2016. In the 1st year (Budget 2009-10) the allocation was Tk. 2,500 crore and allocation remains Tk. 2,000- 3,000 crore since the budget of 2009-10 to this budget.

“The Bangladesh Public-Private Partnership (PPP) Act, 2015 has already been enacted which has fairly added momentum to PPP project implementation. In fact, implementation of six PPP projects worth USD 1.5 billion has already been started following the signing of contracts. Hopefully, implementation of another five projects will commence this year after finalization of the contracts. Meanwhile, we have accorded approval to the establishment of 46 economic zones. Both local and foreign investors have already started constructing industries in some of these zones. Development of Mongla Economic Zone and the first subzone in Mirsarai EZ is expected to be completed within this fiscal year. In addition, we have already earmarked space for setting up economic zones by India, China and Japan,” the minister mentioned in his budget speech.

Data Source: Finance Division, Statement III, Broad Details of Non-Development Expenditure

0

500

1,000

1,500

2,000

2,500

3,000

2016-17 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

Budget allocations for PPP projects

Crore Tk.


ANNEXURE-ASectoral Coverage of PPP

The Policy and Strategy for Public-Private Partnership covers vital sectors of the economy where the PPP construct will be applied in support of national development objectives:

Roads and highways Mass-transit Railways Ports Airports Electricity Tourism Irrigation and

agricultural services Industrial estates

Water supply and distribution

Wastewater management Waste management Information and

communications technology

Land reclamation and dredging

Oil and gas downstream production

Mineral resources Health Education Public facilities, social

infrastructure and other social services

Other urban, municipal and rural projects that the Government views as priority areas for development.

ANNEXURE-BApproved PPP Projects

The list of Cabinet Committee-on-Economic-Affairs (CCEA) / Line Ministry (LM) approved projects under the Public Private Partnership Programme is set out below:

SL Sector Project Name Status1. Transport Dhaka-Elevated Expressway. Construction Stage2. Health Hemodialysis Centre at Chittagong Medical College

Hospital.Construction Stage

3. Health Hemodialysis Centre at National Institute of Kidney Diseases and Urology (NIKDU).

Construction Stage

4. Zone Hi-tech Park at Kaliakoir. Award Stage - Contract Signed

5. Zone Economic Zone 4: Mongla. Award Stage - Contract Signed6. Transport 2 Jetties at Mongla Port through PPP. Procurement Stage -

Negotiation Completed7. Zone IT Village at Mohakhali. Procurement Stage – Request

for Proposal (RFP)8. Tourism Development of Integrated Tourism & Entertainment

Village at Cox’s Bazar.Procurement Stage – Request for quotation (RFQ)

9. Transport Upgrading of Dhaka Bypass to 4 Lane (Madanpur-Debogram-Bhulta-Joydebpur).

Procurement Stage – RFQ

10. Civil Accommodation

Construction of Satellite Township with Multi-storied Flat Building at Section 9, Mirpur, Dhaka.

Procurement Stage – RFQ

11. Tourism Development of a Five Star Hotel in Chittagong. Procurement Stage – RFQ

12. Transport Supply, Installation and Commissioning of a Multi Mode Surveillance System (Radar,etc. at Hazrat Shahjalal International Airport, Dhaka).

Procurement Stage - RFQ and RFP

13. Health Oboshor: Senior Citizen Health Care and Hospitality Complex at Sreemangal, Sylhet Division.

Procurement Stage – IFT

14. Transport Flyover from Santinagar to Mawa Road via 4th (New) Bridge over Buriganga River.

Project Development Stage -Feasibility Study

15. Transport Hemayetpur-Singair-Manikganj PPP Road. Project Development Stage -Feasibility Study


SL Sector Project Name Status16. Zone Economic Zone 2: Mirersharai. Project Development Stage -

Feasibility Study17. Transport Dhaka-Chittagong Access Controlled

Highway.Project Development Stage -Feasibility Study

18. Zone Economic Zone 3: Sreehatta. Project Development Stage -Feasibility Study

19. Zone Economic Zone 5: Anowara, Chittagong. Project Development Stage -Feasibility Study

20. Transport Construction of Laldia Bulk Terminal. Project Development Stage -Feasibility Study

21. Transport Construction & Operation of Inland Container Terminal (ICT) at Khanpur.


22. Education Medical College and Modernization of Railway Hospital at CRB in Chittagong.



Shopping Mall with Hotel-cum-Guest House on the unused land in Chittagong.



Shopping Mall with Hotel-cum-Guest House on the unused Railway land in Khulna.


25. Tourism Establishment of Intl. Standard Tourism Complex at Existing Motel Upal Compound of BPC at Cox’s Bazar.


26. Zone Hi-Tech Park in Sylhet. Project Development Stage -Advisor Appointment

27. Education Medical College & Nursing Institute and Modernization Railway Hospital of Kamlapur.

Project Development Stage -Advisor Appointment

28. Transport Construction of a New Inland Container Depot (ICD) near Dhirasram Railway Station.


29. Energy Construction of LPG Import, Storage and Bottling Plant at Kumira or any Suitable Place at Chittagong Including Import Facilities of LPG, Jetty, Pipeline and Storage Tanks under PPP.


30. Transport Improvement of Hatirjheel (Rampura Bridge)-Shekherjaiga-Amulia-Demra Road.

CCEA Approved

31. Zone Development of Economic Zone (EZ) at Jamalpur with Private Sector participation.

CCEA Approved

32. Tourism Establishment of 5 Star Hotel with other Facilities at Existing Parjatan Motel Sylhet Compound of BPC Sylhet.

CCEA Approved

33. Zone Economic Zone 1: Shirajgonj. CCEA Approved

34. Tourism Establishment of Sabrang Exclusive Tourism Zone.

CCEA Approved

35. Health Medical College and Modernization of Railway Hospital at Saidpur in Nilphamary.

CCEA Approved

36. Health Medical College and Modernization of Railway Hospital at Paksey in Pabna.

CCEA Approved

The Author is an AVP, Treasury DivisionDutch-Bangla Bank Limited


SL Sector Project Name Status37. Health New Modern Medical College & Hospital of

250 beds on the unused land in Khulna.CCEA Approved

38. Transport 2nd Padma Multipurpose Bridge at Paturia-Goalundo.

CCEA Approved

39. Transport 3rd Sea Port. CCEA Approved40. Social

InfrastructureDevelopment of Occupational Diseases Hospital, Labor Welfare Center and Commercial Complexes at Tongi, Gazipur, PPP Basis.

CCEA Approved

41. Social Infrastructure

Development of Occupational Diseases Hospital, Labor Welfare Center and Commercial Complexes at Chasara, Narayanganj, PPP Basis.

CCEA Approved


Construction of multistoried Commercial cum Residential Apartment complex with modern amenities at Nasirabad, Chittagong Under Public Private Partnership (PPP)

CCEA Approved


Construction of High-rise Residential Apartment Building for Low and Middle Income Group of People at Jhilmil Residential Project Dhaka

CCEA Approved

44. Housing Installation of Water Supply, Sewerage, Drainage System & Solid Waste Management System in Purbachal New Town

CCEA Approved

References

1. How public private partnerships are delivering in Bangladesh, World Economic Forum, May 2015.2. Invigorating Investment Initiative through Public Private Partnership: A Position Paper. Finance

Division, Ministry of Finance, Government of the Peoples' Republic of Bangladesh, June 2009.3. Policy and Strategy for Public-Private Partnership (PPP), 2010, The Prime Minister's Office of the

Government of the People's Republic of Bangladesh, August 2010.4. Promoting Public-Private Partnership in Bangladesh: A brief guide for partners, The Asia Foundation,

December 2010.5. Budget Speech of 2016-176. www.wikipedia.org7. www.pppo.gov.bd8. www.mof.gov.bd


The budget for 2016-17 placed recently by the finance minister is now the main subject of discussion for all the stakeholders, especially the taxpayers all over the country. For last few years, the size of the economy and budget has increased significantly with an aim to reduce dependency on foreign sources which is no doubt a remarkable improvement. The target revenue size is too high and many of us are apprehensive about the success and there are logic behind this uncertainty.

There is no denying the fact that during the current budget year, revenue expenditures of the government have increased significantly specially for implementation of new and revised pay scale. In such a situation, there is no alternative but to increase additional tax revenue to match with growing expenditures.

First of all, revenue has to be increased; but how? Generally, it can be increased by imposing new taxes and expanding tax net. Incidentally, the tax base in Bangladesh is still very narrow as compared to size of the economy, level of per capita income, business volume, diversified sectors and usual growth of the economy. The scope of imposing new taxes is limited but no doubt, there are

A Brief Review of Taxation System andInvestment in the Budget of 2016-17

A F Nesaruddin FCA

ample scope for expanding tax net. It would not be out of turn to say that most of the taxes are collected through withholding tax and VAT and tax officials have little efforts and contribution in this area. Tax payers are basically supporting in this area. The main focus for the expanding tax net is to search for new avenues and bringing potential tax payers to tax net.

The Tax – GDP ratio is around 10% but it should be above 15% for a country like Bangladesh to continue its desired growth rate. Further, currently less than 40% are collected as direct taxes and remaining 60% from indirect taxes. Moreover, there are concealed indirect taxes like tax on contractors and suppliers and specially AIT on import, presumptive tax on transport plying on hire etc. All these are in reality becoming indirect tax and burdens are transferred to consumers/users. Final settlement systems is the barrier. Withholding system is fine but final settlement can be avoided and regular assessments should be followed to maintain its character of direct taxes.

If someone looks at Bangladesh scenario, following are the areas where more efforts and reforms are to be made for increasing revenue.

There are more than 30 lakh TIN holders


both individuals and corporate but only about 40% of them file the tax returns. There is no follow up on remaining 60%TIN holders. It is evident that all of them may not be tax payers or do not fall under tax bracket but it can be said without any hesitation that majority of them are likely to be tax payers. Besides, there are lack of efforts for effective survey and effective follow up for capturing new tax payers. Penetration in semi urban areas and growth centers in the upcountry is also important.

It is an admitted fact that a large section of business houses are evading taxes in connivance with few unscrupulous tax officials producing fake documents and 2nd set of financial statements. This kind of unholy practice should not be allowed to continue. It is now very easy to track on those business houses with developed computerized environment where they produce 2/3 sets of financial statements for different purposes.

Transport sector both roads and waterways is also another important sector, where taxes are settled at a presumptive pre-fixed amount. Tax collection is very poor from this

sector as compared to volume of business and profit earned. Another important issue is that the burden of this amount of presumptive tax is shifted to users by increasing fares resulting virtually in zero tax burden for transport business. Based on the route permits, computerized travel records at various toll points, fuel consumption, payroll and other expenses, it should not very difficult to assess their gross revenue and profit apart from reliable audited financial statements.

It is seen that many small traders and shopkeepers collect the VAT with loose documents other than MUSHAK Challans but the payment to government exchequer is uncertain presumably for lack of proper monitoring. This situation warrants a dispassionate review.

It is generally alleged that businessmen evade taxes. If it is seen dispassionately, it is not true in general. A section of small businessmen/houses are obviously evading taxes with false and fabricated documents in connivance with a few corrupt tax officials. Among many other things, the image of the tax department is being tarnished and confidence level is

THE TAX – GDP RATIO IS AROUND 10% BUT IT SHOULD BE ABOVE 15% FOR A COUNTRY LIKE BANGLADESH TO CONTINUE ITS DESIRED GROWTH RATE. FURTHER, CURRENTLY LESS THAN 40% ARE COLLECTED AS DIRECT TAXES AND REMAINING 60% FROM INDIRECT TAXES. MOREOVER, THERE ARE CONCEALED INDIRECT TAXES LIKE TAX ON CONTRACTORS AND SUPPLIERS AND SPECIALLY AIT ON IMPORT, PRESUMPTIVE TAX ON TRANSPORT PLYING ON HIRE ETC.


going down while there are many good efforts and contribution by majority of the tax officials specially in increasing the tax revenue at today’s higher level. These need to be addressed properly. The tax return of a company should be supported by audited financial statements and it should be taken into cognizance for obvious reason. But the tax officials intentionally reject the audited financial statements and the tax assessment according to his/her choices. Here lies the problems and it is obviously against the revenue generation procedures and give ample scope for tax evasion and increase corruption. For any valid reason, if the audited financial statements and amount stipulated in tax return are not reliable, the tax department specially the relevant circle should conduct an independent audit on their own for arriving at the specific findings before making the assessment. For example, when Large Taxpayers Unit came into existence, there was a system of audit in LTU and according to the specific findings, tax assessments were finalized – there is no major conflict in it. But as we are observing LTU has been losing its original character for which it was established. So this area need to be addressed properly. In the

prevailing situation of another tax reform is becoming prominent.

Frequent visit by tax officials for the purpose of inspection and inquiry at business houses, residential apartments/complexes specially at posh areas and in the absence of tax files, spot assessment system need to be activated and seems to be more effective.

Now the most important part is the tax assessment process specially for FDI perspective. When any foreign investor invest money in Bangladesh, he/she recognizes that tax at the prescribed rates has to be paid but in reality, the scenario is different. Some of these are -

• Tax returns filed U/S 82BB and files selected for audit are not transparent – in reality depends on personal likings and dis-likings of the tax assessing officers. In fact, 82BB self-assessment system is not effective in the absence of proper audit selection systems although there is clear stipulation n tax law;

• Too much discretionary powers are exercised by the assessing officers and as a result, income is unrealistically

estimated high and there are huge arbitrary disallowances of expenses without assigning proper reason and logical explanations. Arbitrary disallowances make effective tax rate very high apart from harassment of the tax payers;

• Treatment of exchange loss not allowed but exchange gain is taxed;

• Too many stages beyond legal necessity are now involved in the name of so called approvals resulting in increasing harassment of the taxpayers and corruption;

• Attachment of bank account without proving assesse in defaults even not informing the assessee is now a common phenomenon.

• Opening of file U/S 120 (revising order of DCT) by the supervisory officers – even without assessment orders in case of self-assessments u/s-82BB. This is misuse of power that leads to harassment of tax payers;

• Neutrality of tribunal is compromised sometime in the total absence of outside members in the tax tribunals and also mindset for increasing revenue in the absence of independence.

In any budget and even in any taxation system, it is common goal to make it business and investment friendly. If there is investment either local or foreign, there will be contribution to GDP, employment generation and ultimately income increases thereby tax also increases and there will be so many multiple effects. The proposed budget needs to be reviewed to address these situation appropriately.

First of all, current corporate tax rate of 35% is high as compared to our FDI competitive countries like Vietnam, Indonesia, Malaysia, India and Thailand. The rates in average range from 20-30% in those countries. When the foreign investor takes any investment decision, tax rate among other things, is an important factor. Our policy on tax and fiscal matters are changed frequently but at least, it should remain unchanged for 10-15 years. Since last few years, tax holiday benefits have been squeezed, new fiscal incentives should be in place. It is important that lack of physical infrastructure like roads, ports, communications, power and gas connection, and land is the main impediments to FDI in Bangladesh. Special economic zones like EPZ and others becomes helpful as we have seen in the past. In the recently announced budget, there is no mention about these. For the last few years our capital market is going through a slump. Investment in stocks has sharply declined. It was naturally expected that the Government would take some fiscal measure with the intention of helping the bourses to come out of this situation. But, unfortunately, in the proposed budget no significant measure in this regard is visible.

The tax structure for individual remains practically unchanged. Taxable threshold for individual tax payers (general) is kept unchanged at 250,000 where it should have been increased reasonably keeping in view normal inflation and price-hike. Maximum rate of wealth surcharge has been raised to 30% from the existing 25%. This is all right because this will affect only the ultra-rich. But, unfortunately, some negative changes have been suggested to the provisions for investment tax-rebate. The limit of allowable investment has been reduced to 20% from 30% of total income. Moreover, the current rate of rebate is 15% flat on the allowable investment. But the budget proposes a slab rate of 15% to 10% depending on the tax payers total income. The calculation also is rather complicated. This changes will directly affect fixed income groups like salaried persons, retired individuals and recipient of house property income. It will definitely antagonize a large group of honest and regular tax payers.

Overall environment should be tax friendly that will definitely for help both assesse and tax collectors in increasing tax revenue as well as lesser the harassment of the tax

payers. No doubt, certain proposals in the proposed Budget are realistic in the context of Bangladesh and this will help boosting our tax revenue. A number of tax reforms are becoming overdue to address the unfriendly tax situation as discussed above. Powers of the tax official should be balanced and discretionary powers need to be curtailed for minimizing the harassment of the tax payers and combating corruption. Undesirable arbitrary disallowances and unrealistic sales/turnover estimate without assigning proper reasons and logical explanation should be avoided for obvious reasons. Care must be taken so that effective tax rates do not go beyond tolerable levels. Similarly, tax evaders need to be handled toughly so that tax evasion can be minimized. There is no alternative to expanding tax net. Ultimately, the success of budget will mainly depend on success of revenue collection. As such, there is no alternative to expanding tax net as indicated earlier but pressurizing existing honest and regular tax payers will not be helpful. Tax department need to consider this point with due importance.


The Author is a Council Member, ICAB


Introduction

Government needs to perform various functions to maximize social and economic welfare. In order to perform these duties, Government requires large amount of resources called Public Revenue which consists of taxes revenue and Non-Tax revenue. Taxes are the first and foremost sources of public revenue and major source of mobilizing internal resources of an economy. Bangladesh revenue structure has been burdened by taxes from indirect sources for long time and usually characterized by heavy import and excise duties. To cope with the challenge due to globalization, Government of many countries has to cut down such duties and levies. It seems that Government might have to collect more money either through VAT or from direct taxes. In Bangladesh VAT introduced in 1991 by replacing the sales taxes, is still known as the vital reform in Bangladesh revenue structure. The remaining potential sector is the income taxes sharing almost all taxes coming through direct sources. Still tax base is too narrow and the tax law is full of exemptions and allowances. Total taxes in Bangladesh are divided into direct and indirect taxes. Direct taxes consist of income tax, gift tax, capital gains tax, immovable property tax, land revenue, registration and non-judicial stamp,

The National Budget of FY 2016-17Taxpayers under Hammer

Muhammed Omar Faruk Ripon ACA

corporation tax, etc. and indirect taxes consist of VAT, CD, SD, Excise Duty, foreign travel tax, TT, electricity duty, advertisement tax, motor vehicle tax, narcotics and liquor duty, etc. An analysis of the revenue from taxes shows that the indirect taxes pre-dominate the revenue yield of the country; nearly 63% of the tax revenue is from indirect taxes. NBR is the central authority for tax administration in Bangladesh and collects more than 80% of total revenue for the country.

Objective of FY 2016-17 Budget and Future Tax Plan

The main objective of the 2016-2017 financial years’ budget is to increase revenue through compliance rather than by enhancing the tax rates. Honorable Minister, in his budget speech, termed the revenue target of the FY 2016-17 as “High Ambitious”, but it is proposed. This high ambitious revenue will be collected, ultimately hammering by existing taxpayers, mainly from four (04) sources - Income Tax, VAT, Supplementary Duty and Import Duty.

Considering tax-GDP ratio of developed countries, the Government has determined to raise this target to 15.3% of GDP in 2018-19 by moving away from the exemption-culture, which at present is


10.3%, lowest in the world. The rate is 20%-32% in our neighboring countries. Earlier direct taxes provided less than 10% of total NBR revenue. Now the NBR collects around 37% of the total revenue from direct taxes. Government is aiming to collect 50% of the total revenue from the direct taxes in the year 2020-2021. Therefore, in coming year/s taxpayers will have to take further huge pressure of taxes, not with standing getting any benefit or return against compulsory tax payments to the Government comparing developed countries.

Estimates of Revenue Receipts, Total Expenditure and Budget Deficit for FY 2016-17

o The revenue receipts have been estimated at Tk. 2, 42,752 crore

which is 12.4% of GDP and 36.84% higher than latest revised budget.

o NBR tax revenue is estimated at Tk. 2, 03,152 crore which is 83.69% of total target revenue and 35.43% higher than latest revised budget.

o Total expenditure has been estimated at Tk. 3, 40,605 crore (17.4% of GDP). Of total Tk. 2, 23,578 crore has been allocated for non-development and other expenditure.

o Resulting budget deficit Tk. 97,853 crore which is 5% of GDP. Of which, Tk. 36,305 crore will be financed from the external sources and Tk. 61,548 crore from the domestic sources.

Details are shown in following two Tables -

NOW THE NBR COLLECTS AROUND 37% OF THE TOTAL REVENUE FROM DIRECT TAXES. GOVERNMENT IS AIMING TO COLLECT 50% OF THE TOTAL REVENUE FROM THE DIRECT TAXES IN THE YEAR 2020-2021. THEREFORE, IN COMING YEAR/S TAXPAYERS WILL HAVE TO TAKE FURTHER HUGE PRESSURE OF TAXES, NOT WITH STANDING GETTING ANY BENEFIT OR RETURN AGAINST COMPULSORY TAX PAYMENTS TO THE GOVERNMENT COMPARING DEVELOPED COUNTRIES.

Table Showing Budget Comparison for FY 2016-17 & 2015-16(In crore Tk.)

SectorBudget Revised Budget Budget-Revised Budget-Budget

2016-17 2015-16 2015-16 A-B A-CA B C Taka % Taka %

Total Revenue 242,752 177,400 208,443 65,352 36.84 34,309 16.46 NBR Tax 203,152 83.69% 150,000 176,370 53,152 35.43 26,782 15.19 Non-NBR Tax 7,250 2.99% 5,400 5,874 1,850 34.26 1,376 23.43 Non Tax Receipt 32,350 13.33% 22,000 26,199 10,350 47.05 6,151 23.48 Total Expenditure 340,605 264,565 295,100 76,040 28.74 45,505 15.42

Proposed Budget Structure for FY 2016-17(In crore Tk.)

Sector Budget 2016-17 Revised 2015-16 Budget 2015-16 Actual 2014-15Total Revenue 2,42,752 (12.4) 1,77,400 (10.3) 2,08,443(12.1) 1,45,965 (9.6)NBR Tax 2,03,152 1,50,000 1,76,370 1,23,977Non-NBR Tax 7,250 5,400 5,874 4,821Non Tax Receipt 32,350 22,000 26,199 17,167Total Expenditure 3,40,605 (17.4) 2,64,565 (15.3) 2,95,100 (17.2) 2,04,376 (13.5)Non-DevelopmentRevenue Expenditure 1,88,966 (9.6) 1,50,379 (8.7) 1,64,571 (9.6) 1,18,992 (7.9)

Development Expenditure 1,17,027 (6.0) 95,908 (5.5) 1,02,559 (6.0) 63,676 (4.2)In which, ADP 1,10,700 (5.6) 91,000 (5.3) 97,000 (5.7) 60,376 (4.0)Other Expenditure 34,612 (1.8) 18,278 (1.1) 27,970 (1.6) 21,708 (1.4)Budget Deficit 97,853 (5.0) 87,165 (5.0) 86,657 (5.0) 58,411 (3.9)Financing 97,853 87,165 86,657 58,411External source 36,305 (1.9) 24,990 (1.4) 30,135 (1.8) 7,280 (0.5)Domestic source 61,548 (3.1) 62,175 (3.6) 56,522 (3.3) 51,131 (3.4)In which, Banking source 38,938 (2.0) 31,675 (1.8) 38,523 (2.2) 514 (0.0)GDP 19,61,017 17,29,567b 17,16,700a 15,15,802

Source: Finance Division, figures in parenthesis indicate percent of GDP;a= nominal GDP at the time of budget preparation,b= Provisional estimate of nominal GDP


Administrative Reforms to be Undertaken

Following administrative reforms will be undertaken to increase revenue through compliance rather than by enhancing the tax rates –

o To be introduced machine readable returns, forms, and certificates.

o For a robust withholding tax management, a new Withholding Tax Unit will be established.

o Electronic at-source tax management system will also come into effect soon.

o A modern and automated tax information unit will be formed which will have connection with other online systems nationwide and collect information automatically to identify potential taxpayers and to address tax evasion.

o NBR has already established a Transfer Pricing Cell to combat cross border tax evasion and avoidance.

o Separate unit will be established in the NBR to address the transfer mispricing, taxation of foreign nationals, and combating money laundering.

o Value Added Tax (VAT) system will completely be automated under the VAT online Project (VoP).

o NBR is going to implement Authorized Economic Operator (AEO) system so as to ensure easier and quicker disposal of import-export activities of the traders.

Overall Expenditure Framework

o Social Infrastructure Sector-28.3%, of which 25.2% has been proposed for the human resource sub-sector [education, health and other related sectors]

o Physical Infrastructure Sector-29.7%, of which 13.6% will go to the overall agriculture and rural development, 10.2% to overall communication and 4.4% to power and energy sector

o General Services Sector-24.5%

o Public-Private Partnership (PPP), Financial Assistance for various Industries, Subsidies and Equity Investment in State-Owned Banks, and Financial Institutions-2.2%

o Interest Repayment-11.7%

o Net lending and Miscellaneous Expenditure-3.5%

Tax Payers are under huge pressure of incremental tax target with nominal Benefits: To fulfill ambitious revenue target, higher taxes are imposed on persons in different ways allowing a few benefits, are discussed under different headings as follows -

Scope of Taxes on Income to Widen

o In spite of having no income generating activities for its own, to enlarge the scope of Government Revenue, Trust and Funds are included in the definition of persons[Section – 2 (46)]

o Widen Tax Base by substituting the definition of Income u/s 2 (34): Income shall include “any amount which is subject to collection or deduction of tax at source.

o Fixed deadline for return filing is proposed which will be called ‘Tax Day’. Every return shall be filed on or before the Tax Day, unless the date is extended. If there is a public holiday, the next working day will be the ‘Tax Day’. The DCT may extend the date up to 2 months and further extend up to 2 months with the approval of the IJCT, but subject to interest @2% per month on default amount. [Section 2 (62A)]

o Salaried employees should have ETIN [12 digits TIN] at the time of making such payment, if required, otherwise, salary shall not be treated as admissible expenses for the employer, will be taxed.

o Every person owning a private motor car shall be deemed to have an income by which the motor car is maintained and shall pay advance income tax to be collected at the following rate, which shall be 50% higher for each additional motor car owned either sole or joint names. The advance tax paid by motor car owner shall not be refundable.[Table A– Shows Chart of Tax according to CC of MC]

28%

30%25%

2% 12% 3%

AllocationSocial Infrastructure


General Services

PPP

Interest Repayment

Net lending and Miscellaneous

o Threshold limit for non-company assesse is remain unchanged where in 2015, it was increased 13.64%, resulting scope limiting of showing 20% or higher income to avoid selection of return for audit u/s-82BB. Three (03) years tax rate, slab and threshold limit for non-corporate are tabulated below –

o Income shall not be exempted from tax or be subject to reduced rate of tax, if the person fails to submit return u/s -75

o Provision of furnishing certificate in place of return u/s-76 is withdrawn, currently enjoys by salaried persons.

o Tax shall be charged at the regular rate on any disallowance of expenditure u/s – 30, in case of tax exempted income and reduced tax rated income.

o Cigarette manufacturer shall have to pay advance tax @ 3% on net sale price [Gross Sales – (VAT+SD)] in every month. [New inserted section 68A]

o Interest payable by the assessee on deficiency in payment of advance tax shall be 50% higher if the return is not filed on or before the Tax Day, currently simple interest @ 10% per annum on shortfall [75% of Assessed Tax - Advance Tax]

o To ensure level playing field with traditional businessmen, online shopping or e-Commerce shall be brought under tax.

o List of TDS Authority is extended by adding new Authorities, like - Trust or Fund; Firm; PPP; Artificial Juridical Person.

o Returns of withholding tax shall be audited by the DCT with the approval of the Board selectively, but not after the expiry of 04 years from the end of the year in which the return was filed [Newly inserted section-75AA].

o Ensure increasing tax compliance and decreasing tax avoidance: Return Submission shall be compulsory by -

All Co-operative Societies

Taxpayers enjoying tax-holiday benefits

Taxpayers with reduced-rate tax benefits

All shareholder directors or shareholder employees of companies

All members of the board of directors of companies and group of companies

All partners of firms and

All employees of government, non-government, semi-government and autonomous bodies with monthly basic pay of Tk. 16,000 or higher

o Submission of Acknowledgement Slip:Person shall be required to submit an acknowledgement receipt containing 12 digit TIN -

Receiving any amount exceeding Tk. 16,000 per month from the Government under the Monthly Payment Order (MPO)

Receiving salaries by any person employed in the management or administrative function or in any supervisory position.

Adverse Impact on Taxpayers for Investment Credit Layer: Tax Credit eligibility has been divided into 3 layers, lead to huge tax pressure on individual, being a resident or a non-resident Bangladeshi. Following simple example shows weight of adverse impact of reducing investment limit to 20% from existing 30%. Mr. X will have to pay 32% higher tax than previous Assessment year, even though, his total income is Tk. 10 lakh in both income years and he attains qualifying investment in both I/Y. [TableB–shows comparative of 2 years Investment Tax Credit]


RateSlab of Income

2014 2015 20160% 2,20,000 2,50,000 2,50,00010% 3,00,000 4,00,000 4,00,00015% 4,00,000 5,00,000 5,00,00020% 5,00,000 6,00,000 6,00,00025% 30,00,000 30,00,000 30,00,00030% Rest Rest Rest

ParticularsAssessment Year

2016 -17 2015 -16Taxable Income 10,00,000 10,00,000 Qualifying Investment-30% - 3,00,000 Qualifying Investment-20% 2,00,000 Qualifying Rebate-15% 30,000 45,000

Tax PayableOn 1st Tk. 2,50,000 @ 0% - -On next Tk. 4,00,000 @ 10% 40,000 40,000 On the rest Tk.3,50,000 @ 15% 52,500 52,500 Gross Tax Liability 92,500 92,500 Less: Rebate/Investment Credit 30,000 45,000 Net Tax Payable 62,500 47,500 Excess Tax Payable (Tk.) 15,000 Excess Tax Payable (%) 32%

Harmonize Tax Rate for all Tobacco Goods Manufacturing Companies: Company Tax Rates proposes to remain same like AY2015-16 with harmonizes tax rates for all tobacco goods-manufacturing companies, considering public health, which is currently 45%. As impact, many of organizations in this industry may shut down. [Table C–shows 2 years comparative tax rate of different type of companies]

Growth and Business Facilitation

o As part of continued support, reduce tax rate for RMG sector is proposed from 35% to 20%. Withholding rate should also reduce.

o To encourage people to buy small sized flats or apartments, reduced withholding tax rate is proposed for Real Estate Sector. What is the percentage of persons having capacity to buy flat or apartment after fulfilling daily necessities?

o Other proposals to support business growth and to encourage entrepreneurship are as follows -

Increases the tax-exempted turnover limit for SME from Tk. 30 lakh to Tk. 36 lakh [Para 39 of 6th Schedule, Part A].

Small investors of the share market will be exempted from income tax on any waiver of margin loan and its interest, if the waiver benefit is up to Tk. 10 Lakh. [Section 19 (11)].

Alternative Dispute Resolution (ADR) facility shall be extended for the assessee who did not submit their tax returns.

Surcharge for Individual

o Minimum Surcharge Tk. 3,000/- is remain unchanged where Net Wealth exceeds Tk. 2.25 crore, irrespective of availability of income generating activities and residing location.

o To reduce income gap, Surcharge payable is reclassified, six slabs are proposed with varying rate from 0% to 30% in place of existing five slabs with rate from 0% to 25%

o No special provision is kept for Disabled and War Wounded Freedom Fighter.

Nominal Benefits for Taxpayers o Return submission date is

extended by 01 month for non-company taxpayers, but due to universal income year, corporate are not in advantageous position.

o Perquisite under clause (e) of section – 30 is increased to taka 4.75 lakh in general and for employee with disability taka 25 lakh. [May not be seen in practice, most employers compel employees to resign when they are seriously ill]

o Allowable limit for overseas travelling expenses is increased to 1.25% from existing 1% of disclosed turnover [Clause (k) of section-30]

o Return of withholding tax shall be filed half yearly [by 31st January and 31st July] by company, co-operative society, NGO registered with NGO Affairs Bureau, currently submits quarterly only by company [Section-75A]

o Simplification of Return Submission: Wealth Statement submission shall be optional for Marginal Taxpayers having gross wealth not exceeding Tk. 20 lakh. Presently, all taxpayers have to submit wealth statements. The word “Gross Wealth should substitute by “Net Wealth”!

o Special Tax Benefit for Disabled: To support employees with disability, perquisite limit for the employer of a disabled employee has been proposed to Tk. 25 lakh. Moreover, Medical allowances up to Tk. 10 lakh to be tax exempted for a disabled employee. Such employment is rarely seen in our country. So what will be percentage of benefited salaried tax payers?!


Net Wealth Value (Tk.)Surcharge (%)

2016 2015 2014

Up to Tk. 2.25 Crore [FA 2015] 0% 0% N/A

Up to Tk. 2 Crore N/A N/A 0%

>2.25 Crore to 5 Crore [FA 2016] 10% N/A N/A

>2 [2.25 FA 2015] Crore to 10 Crore N/A 10% 10%

>5 Crore to up to 10Crore [FA 2016] 15% - -

>10Crore to up to 15Crore [FA 2016] 20% - -

>15Crore to up to 20Crore [FA 2016] 25% - -

>20Crore to any amount [FA 2016] 30% - -

>10 Crore to <20 Crore N/A 15% 15%

>20 Crore to <30 Crore N/A 20% 20%

>30 Crore N/A 25% 25%

o Submission of Life Style Statement is optional for individual, not being a shareholder director of a company, having income from salary or from business or profession, if his total income does not exceed 03 lakh Tk. in the I/Y.

o In case of failure to deduct, collect or credit withholding tax as per prescribed rate and in time, the assessee in default shall be liable to pay an additional amount @ 2% per month, but the period shall not

exceed 24 months, currently up to actual payment date.

o Considering requirement of extra living cost, Non-Assessable income limit for parents or legal guardian of disabled individual will be higher by taka 25,000/- than others, but either father or mother will get the benefit where both of them are Taxpayer. For others, no change is proposed in threshold limit and tax rate. Three (03) years threshold limit for different individual taxpayers are tabulated below -

Withholding Tax Management

In developed countries, the largest part of income tax revenue is collected through withholding taxes. In Bangladesh, on average 50% of the income taxes comes through TDS, having persistent non-compliance. For instance, pay-roll tax contributes only 4%-5% of total withholding taxes in Bangladesh, whereas in developed countries, it is more than 30%. Year after year, rate and area is widening considering scenario of developed countries!

Massive upward changes in TDS management are proposed, specifically in some sections, shown in the following table –


Types of Assessee Non-Assessable Income Limit2014 2015 2016

Female 2,75,000 3,00,000 3,00,000Aged 65 or above 2,75,000 3,00,000 3,00,000Disabled 3,50,000 3,75,000 3,75,000War Wounded Freedom Fighter 4,00,000 4,25,000 4,25,000

Section Source Head 2016-2017 2015-2016

52 Deduction from payment to contractors, etc.o Max. 10%o Max. 15%,ifN/AETIN

o Up to bill Tk. 2lac – Nilo Exceeding Tk. 2lac to 5 lac - 1%o Exceeding Tk. 5lac to 15 lac - 2.5%o Exceeding Tk. 15lac to 25 lac – 3.5%o Exceeding Tk. 25lac to 3crore - 4%o Exceeding Tk. 3 crore - 5%

52A

Deduction from payment of royalties, franchise, or the fee for using license, brand name, patent, invention, formula, process, method, design, pattern, know-how, copyright, trademark, trade name, literary or musical or artistic composition, survey, study, forecast, estimate, customer list or any other intangibles.

o Base amount up to Tk. 25 lakh –10%

o Base amount exceeding Tk. 25 lakh – 12%

o Rate is 50% higher, if ETIN not available[15% or 18%]

o If having ETIN - 10%o Not having ETIN- 15%

52AA Deduction from the payment of Certain Services

o 18 Services Category indicatedo Base amount up to Tk. 25 lakh:

3%-10% [1.5% on gross receipt]o Base amount exceeding Tk. 25

lakh: 4%-12% [2% on gross receipt]

o Rate is 50% higher, if ETIN not available

o 19 Services Category identified o Irrespective of base amount, 3%-10%

[1.5% on gross receipt]

52B Collection of tax from Cigarette manufacturers o 10% o 10%

o 3% of MRP

52RDeduction from International Gateway Service in respect of international phone call.

o 1.5% when bank receives for IGW operator.

o 7.5% when IGW pays to ICX, ANS or other

o 1% when bank receives for IGW operator.

o 5% when IGW pays to ICX, ANS or other

53BBExport of Knit-Wear and Woven Garments, Terry Towel, Carton & Accessories of Garments

o 1.50% o 0.80%o 0.60% [SRO:224-AIN/2015]


Minimum Tax, substitution of Final Settlement [Substituted Section - 82C & New Inserted Section - 16BBB by deleting Section 16CCC]

As internationally recognized best practice, minimum tax system is accommodated instead of final settlement of taxes.

Present Section 16CCC has been

deleted but provision for Minimum Tax is further inserted by Section 16BBB and by substitution of section 82C. Hence, withdrawn the facility of final settlement of tax. It is the most hazardous AIN for Taxpayers, creating room for estimation of income by Tax Officials!!!!

Area of imposing minimum tax is

extended by substituting section 82C, which will be very complicated to understand by general taxpayers and of course will create room for debate in Assessment of tax.

Regular way Minimum Tax for Company &Firm[on Gross Receipts]–5 years rate chart presented below -

53BBBB

Export of any goods except Knit-Wear and Woven Garments, Terry Towel, Carton &Garments Accessories [Export of Jute goods, frozen food, vegetables, leather goods, packed food, etc.]

o 1.50% o 0.80%o 0.60% [SRO:224-AIN/2015

53CCC Deduction from courier business of a non-resident 15% New inserted by FA 2016

53FFDeduction from Real Estate or Land Development Business at the time of Registration

Rate per SM for -o Residential Building or

Apartment: Tk. 1,600/-; 1,500/-or [1,000/- for Dhaka-North, Dhaka-South and Ctg. City Corporation; 700/- for other C.C and 300/- for other areas]

o Rate will be 20% lower up to 70 S. M size apartment and 40% lower up to 60 S. M size apartment.

o Commercial Building or Apartment: Tk. 6,500/-; 5,000/-or [3,500/- for Dhaka-North, Dhaka-South and Ctg. City Corporation; 2,500/- for other C.C and 1,200/- for other areas]

o For Land: 5% or 3% of Deed Value

Rate per SM for -o Residential Building or Apartment:

Tk. 1,600/-; 1,500/-or 600/-.o Commercial Building or Apartment:

Tk. 6,500/-; 5,000/-or 1,600/-.o For Land: 5% or 3% of Deed Value

56 Deduction from income of non-residents. o 27 Services Category identifiedo 5.25%-30%

o 25 Services Category identified o 5%-30%

Types of Organization 2016 2015 2014 2013 2012Firm [if gross receipt exceed Tk. 50 Lac]

Tobacco goods-manufacturers-1%Mobile Phone Operator – 0.75%Any Other Cases - 0.60%

0.30% 0.30% 0.50% N/A

Company, irrespective of profit or loss [0.10% for new manufacturing industries, first 3 years from the date of commercial production]

0.30% 0.30% 0.50% 0.50%

Minimum Tax liability of Tax Payers other than company and firm living DCC, other than Dhaka - North & South has been reduced to taka 4,000/- in place of existing taka 5,000/-. Five (05) years’ comparative rate chart is presented below -

Area Minimum Tax Liability2016 2015 2014 2013 2012

Tax payers in Dhaka-North & South and Ctg. City Corporation 5,000 5,000 3,000 3,000

3,000Tax payers in others City Corporation in Dhaka

4,0005,000 3,000 3,000

Tax payers in other City Corporation 4,000 3,000 3,000Tax payers in Paurasava of District Level

3,0003,000 2,000 2,000

Tax payers in other area except above 3,000 1,000 1,000

Substance of Minimum Tax

1) Scope of Application: Any tax deducted/collected at source shall be the minimum tax on income from 28 sources u/s 52, 52A, 52AAA, 52B, 52C, 52D, 52JJ, 52N, 52O, 52R, 53, 53AA, 53B, 53BB, 53BBB, 53BBBB, 53C, 53CCC, 53DDD, 53EE, 53F, 53FF, 53G, 53GG, 53H, 53M, 53N and 55.

2) Non-Application: TDS from the following sources shall not be the minimum tax –

(i) Tax collected u/s 52 from the following persons-

o a contractor or a sub-contractor to the contractor of an oil company

o an oil marketing company and its dealer or agent excluding petrol pump station

o any company engaged in oil refinery

o any company engaged in gas transmission or gas distribution

(ii) Tax deducted u/s53 from import of Raw Materials by an industrial undertaking for its own consumption

(iii)Tax deducted u/s 53F from a source other than interest received by a public university, professional institute, educational institute whose teachers are enlisted for MPO, interest on DPS, interest to payee exempted by the Board by order.

3) How to Determine minimum tax from specified 28 sources: Minimum tax shall be determined in regular manner and tax shall be calculated by

using regular rate on income from specified 28 sources. If the tax so calculated is higher than the minimum tax [TDS], the higher amount shall be payable on such income.

4) Exception to Minimum Tax: Income shall be determined and tax shall be calculated for five (05) sources u/s - 52C, 52D, 53DDD, 53F (1) (c), 53F (2) and 53H by using specified rate in those sections on income under those sections [Income = TDS ÷Rate of TDS].

5) Tax Liability shall be the aggregate of minimum tax and regular tax

6) Determination of Aggregated Gross Receipts: Gross Receipts from source/s exempted from tax or subject to a reduced tax rate, shall be shown separately, and the minimum tax [A+B] in this case shall be calculated in the following manner-

A) Gross Receipts from Regular Source/s X 1% or 0.75% or 0.60%

B) Gross Receipts from sources that enjoys tax exemption or reduced tax rate X Tax Rate*

*Tax Rate = a/b X c, where –

a = amount of tax under reduced rate or under tax benefit that the source or person enjoys.

b = amount of regular tax [where no exemption or reduced rate]

c = Rate of Minimum Tax [1% or 0.75% or 0.60%]

Others

Where both way minimum tax (based on TDS and based on Gross Receipts) apply to an assessee, minimum tax payable by the assessee shall be the higher of - minimum tax based on TDS or minimum tax based on Gross Receipts.

Income or loss computed shall not be set off with loss or income computed for any regular source.

Minimum Tax u/s-82C shall not be refunded, nor shall be adjusted against refund due for earlier year/s or refund due for the A/Y from any source, i.e. must be paid to the Government.



Conclusion

Only 2.4% of total population has TIN in Bangladesh which is around 38 lakh and of which only 1/3rd[12 lakh] submits their income tax return regularly. The number should be higher in consideration of the size of

population. Initiative will be taken to add 3 lakh more taxpayers with the existing 12 lakh. Affluent people lying in the category of agricultural income should be identified and brought under proper tax, not the marginal farmer. Floating businessmen in many cases earn more than

salaried persons, so such businessmen should be brought under tax net. Same principle should apply to determine tax liability for both of Govt. and Pvt. Sector salaried person.

TABLES on Previous Discussion

TABLE-A

TABLE-BF. A Investment Limit Invest % Rebate % Lower of Condition

2016 Tk. 1,50,00,000 20%

15% 20% of Income [excl. tax exempted, reduced tax rated, 82C income, Employer’s Contribution to RPF] or 1.5 Crore or Actual Investment

Total income up to Tk. 10 Lac

15% for 1st 2 lakh 12% for Rest

Total income exceeding Tk. 10 Lac to 30 lac

15% for 1st 2 lakh12% for next 4 lakh

10% for Rest

Total income exceeding Tk. 30 lac

2015 Tk. 1,50,00,000 30% 15% 30% of Income or 1.5 Crore or Actual Investment

Table-C

Types of Assessee Tax Rate2016 2015

NRF except Company 30% 30%Local Authority 35% 35%Dividend 20% 20%Cooperative Society 15% 15%Private & Non-Publicly Traded Company 35% 35%Non-Publicly Traded Company [If 20% of Capital transferred to Capital Market] 10%RebateCompany Listed with S/E/ 25% 25%Bank, Insurance, Leasing, Finance: 42.5%-if not listed and 40%-if listedMerchant Bank 37.5% 37.5%Mobile Phone Company [Not Listed] 45% 45%Mobile Phone Company [at least 10% of Paid up Capital transferred to Capital Market] 40% 40%Mobile Phone Company [Transferred more than 20% of Capital]–for Year of Transfer 36% 36%All Cigarette Manufacturer 45% 45%

Types of Car on the basis of CC Tax per UnitFA-2015 FA-2016

Motorcar or Jeep up to 1,500 CC 15,000 No Change proposes in rate.The advance tax paid by motor car owner shall not be refundable, if income from regular sources of the person results in a tax liability less than the said advance tax. The income of such person shall be deemed to be the amount that results a tax liability equal to the said advance tax.

Motorcar or Jeep > 1,500 CC to 2,000 CC 30,000Motorcar or Jeep > 2,000 CC to 2,500 CC 50,000Motorcar or Jeep > 2,500 CC to 3,000 CC 75,000Motorcar or Jeep > 3,000 CC to 3,500 CC 1,00,000Motorcar or Jeep > 3,500 CC 1,25,000Microbus 20,000

Inserted by SRO: 99--/2015 Section 68B



The proposed budget for fiscal 2016-17 of Taka 340,605 crore, which is 35.4% higher than that of revised budget of last fiscal year is challenging in comparison to the estimated 16% growth in the immediate preceding year. Trade bodies and stakeholders feel that the GDP growth target of 7.2% is achievable provided that GDP-Investment ratio should increase to a desired level. They also appreciate an increase in the allocation for education, social security and welfare program including widening of social safety net which will mitigate extreme poverty situation. However, the reduction in the allocation for agriculture and health will be detrimental to the desired socio-economic impact in the economy.

The Foreign Investors’ Chamber of Commerce & Industry (FICCI) particularly appreciates withdrawal of excess profit tax from banks, expansion of the limit of perquisites from Tk. 450,000 to Tk. 475,000. (However, perquisite attracts tax twice, once on the employees and again on the employers. Therefore, a complete withdrawal of tax liability from the employer is recommended), withdrawal of the provision for approval of product price by divisional-in-charge on declaration of the same by a VAT registered manufacturer, provision for the filing of appeal against unilateral cancellation of

New Budget, New DreamNew Perspective

Raihan M Chowdhury

input VAT rebate by concerned official, widening of the provision for central registration under VAT, proposal for reduction of Regulatory Duty from 4% to 3% on imported goods which attracts 25% Customs Duty.

The FICCI Expresses its Concern About the Following

• The corporate tax rate in Bangladesh is much higher in comparison to other countries. The Chamber had strong recommendation for the reduction of corporate tax rate but the proposal has not been considered in the proposed budget.

• The Chamber views that the tax rates for individual asseessees are at much higher levels in comparison to other countries. It had recommendation for reduction of individual tax rates but that have not been considered. The Chamber understands that the higher rates of tax attract more evasion.

• Whitening of black money on payment of minimum tax is highly discouraging for the honest tax payers. The Chamber had strongly recommended for the withdrawal of the scope of such provision. Instead of withdrawal the provision the government has proposed to reduce


the rate of tax for such whitening of black money which will encourage more evasion of tax as well as this will frustrate the honest tax payers.

• The proposal for reduction of the amount of investment allowance along with the rate of tax credit thereon for individual asseessees will significantly enhance the tax burden of the asseessees. To ensure conformity with the change, in many cases a private sector employees will require to surrender the lion’s share of their current month’s salary to bridge the gap between tax deducted till May 2016 and tax liability to be discharged for the income year 2015-16. This will also discourage investment.

• In principle there should not be any cascading effect in taxation system. The proposal for the deduction of income tax from the bill amount plus VAT is conflicting with the fundamental principle of taxation. Accordingly, withdrawal of this provision is highly recommended.

• Tax on distributors has been increased from 3% on the differential between retail price and selling price to 5% on a notional profit of 12% on that price. Consequent to this change the effective rate of withholding tax has almost doubled. Further, some manufacturer will require deduction of tax on said differential as well as on the commission and benefit allowed by them to their dealer and distributor.

• The scope of provision for deduction of income tax by withholding entity has been widened. Further, deduction of income tax is proposed to be audited by the tax authority. Widening of the scope of withholding tax and bringing of the same under the purview of audit will impose an additional burden upon existing taxpayer in respect of the cost of doing business.

• For private sector employees gratuity and provident fund are the retirement benefits. The

THE PROPOSAL FOR REDUCTION OF THE AMOUNT OF INVESTMENT ALLOWANCE ALONG WITH THE RATE OF TAX CREDIT THEREON FOR INDIVIDUAL ASSEESSEES WILL SIGNIFICANTLY ENHANCE THE TAX BURDEN OF THE ASSEESSEES. TO ENSURE CONFORMITY WITH THE CHANGE, IN MANY CASES A PRIVATE SECTOR EMPLOYEES WILL REQUIRE TO SURRENDER THE LION’S SHARE OF THEIR CURRENT MONTH’S SALARY TO BRIDGE THE GAP BETWEEN TAX DEDUCTED TILL MAY 2016 AND TAX LIABILITY TO BE DISCHARGED FOR THE INCOME YEAR 2015-16. THIS WILL ALSO DISCOURAGE INVESTMENT.


scope of investment of gratuity and provident fund is very limited and return from there is lower than prevailing inflation. The Chamber had strong recommendation to allow investment of gratuity fund in Bangladesh Sanchaya Patra (BSP) which yields relatively much better return. Unfortunately, instead of allowing investment of gratuity fund in BSP the government proposed to deduct 5% tax on the interest earned from the said funds.

• Appeal is a fundamental right for any aggrieved person and a decision subject to appeal is not a judgement. For VAT appeal, the government has proposed deposit of 50% of claimed amount prior to submission of the appeal to concerned authority. This proposal is against the said fundamental right and natural justice.

• The government proposed to include benefits received by employees from WPPF exceeding Taka 50,000 in their

total income. The benefit from WPPF is exempted from tax under labour law, 2006 and, therefore, imposition of tax on the benefit from WPPF is conflicting with that law.

• The government proposed minimum tax withdrawing the provision of treating the tax deducted at different sources as final discharge of tax liability. Proposed minimum tax comprises the tax deducted from different sources but in case of excess deduction the rights of refund has been denied.

Business Initiative Leading Development (BUILD) in its reaction highlighted some important features of the Budget terming it as usual incremental with some positive stand of increasing electricity, highest budget for transport and electricity, initiation of some mega transformational project, additional support for women’s participation in the economy, delay in implementing new VAT Act from July 2017 including package VAT as per the request of the private

sector, reduction of ADR resolution timeframe, etc. It is quite pleasing to see that the Government has responded our requests and we thank the Government to answer our concern in 2016-17 Budget which is a breath of fresh air for the SMEs.

In the Budget speech there was an intention to go for a new framework to bring more transparency in the Budget framework but in fact the implementation delayed, we would expect in the coming years more transparency will be ensured. Last year, budget deficit was 28% and this year it is 29%, which will produce a spiral impact on investment and our economy will face in unwinds in a number of ways. So, we urge the government to revise the budget. Since last few years, private sector investment has not hit our expectations and not bred investments. For, many private industrial companies saw headwinds in making their investment projects operational due to unavailability of basic utility connections such as gas, water and electricity. As well as the infrastructure, the cloud of


uncertainty in the business environment has been quite heavy that could not help the private sector grow expectedly. Investment in the public sector in FY 2015-16 was 27%, while the investment in the private sector in FY 2015-16 was less than half of the public sector which is 12.66%. The 7th FYP targets at least 34.4% of GDP in order to attain 8% growth rate. The private sector is estimated to contribute 78% in the 7th FYP but the 2016-17 Budget has not paid much heed for the private sector investment.

2016-17 Budget kept the number of slabs for custom duty same which is six, but slab 3 was increased to 5% from 2%, slab 4 also seen an increase from 5% to 10% and the slab 5 was increased to 15% from 10%. It is apparent that, raw materials import for manufacturing Industries would be costly and it will not blow tailwinds in the cost of doing business.

The legal transition of VAT and SD Act is a bit delayed, a long list of activities has been articulated in the Budget Speech but, the private sector is still afraid about its implication without preparation. Automation was one of the main feature for streamlining the tax administration and tax collection process, but the commitment was not fulfilled. Direct Tax code was one of the earlier committed policy not implemented yet.

The Govt. has taken some courageous steps to implement some of the mega transformational projects such as Padma Bridge, Rampal Power plant, Ruppur Atomic power plant, LNG terminal, etc. The allocation of the budget has to be made clear depending on the last year implementation and unaffordable non-concessional foreign loan may be burdensome for the economy.

Meanwhile, chartered accountants were unhappy as the government reduced investment tax rebate facility for individual taxpayers saying that the measure would increase income tax liability for them in the next fiscal year.

At a recent seminar on Finance Bill for the FY 2016-2017 organised by the Institute of Chartered Accountants of Bangladesh, they said that the government should apply income tax measures with prospective effect instead of retrospective effect.

At the seminar held at ICAB auditorium in Dhaka, the ICAB also recommended for upward revision of investment tax credit scheme considering the tax planning of individual taxpayers.

The ICAB also recommended the government for reduction of the rate of tax at source on export to 0.80 per cent from the proposed 1.5 per cent, withdrawal of tax on investment income of several funds including gratuity fund, provident fund and workers participatory fund and reduction of minimum tax for companies from the proposed 0.60 per cent to 0.40 per cent.

ICAB member Snehasish Barua presented a keynote paper titled ‘An analytical study of significant amendments to the Finance Bill 2016 and amendments enacted through SROs on Income Tax and VAT Regulations’ at the seminar.

The government through the proposed Finance Bill 2016 brought an amendment to the Income Tax Ordinance reducing the rate of investment ceiling eligible for tax rebate to 20 per cent of income from earlier 30 per cent.

Snehasish said that an individual taxpayer should know about the

tax rate, investment rebate and other issues affecting their income when income is generated so that they can prepare tax planning properly.

But in Bangladesh, income tax measures are applied for previous income year which should not happen, he said.

The income tax measures which will be approved by the parliament for the next fiscal year will be applicable on income of outgoing fiscal year, he explained.

‘The proposed reduction of investment ceiling eligible for tax rebate will affect many taxpayers as their tax liability will increase,’ he said.

Many people have already made their investment for the purpose, he added.

ICAB Council member AF Nesar Uddin urged the government for upward revision of investment rebate measures.

Speakers at the seminar also said that salaried persons would be heavily affected due to the reduction of tax rebate benefit.

Employers have already deducted tax at source for 11 months at lower rate on salary income taking 30 per cent investment facility into account but sudden reduction of investment benefit would increase tax liability for the last month of the fiscal year.

State minister for Finance MA Mannan said that the parliament would consider the recommendations given by different stakeholders including ICAB before approving the budget.

He asked the officials of the National Board of Revenue for


taking steps to make the tax payment procedures least painful for taxpayers so that they feel satisfied while paying tax.

NBR member (income tax policy) Parvez Iqbal said that the revenue board would try to adopt the rational recommendations of the institute.

NBR first secretary (income tax policy) Shabbir Ahmed said that the NBR tried to give an idea about the new income tax law which the NBR was going to frame through the proposed income tax measures for the next year.

He said that the tax authority emphasised on issues related to compliance, increase the number of taxpayers and revenue collection through the proposed tax measures.

ICAB president Kamrul Abedin, vice-president Mahmudul Hasan Khusru, council members Mohammed Humayun Kabir, Haider Ahmed Khan, Shahadat Hossain, among others, spoke at the seminar.

Blue Economy Ignored

The proposed budget has said nothing about the blue economy

although the area in the Bay of Bengal offers huge potential for harnessing offshore resources.

GUNTER Pauli designed the blue economy concept, which came out of the 2012 Rio+20 Conference. In Bangladesh, discussions on blue economy started after the settlement of maritime boundary delimitation dispute with Myanmar and India. Proliferation of marine resources in this area offers Bangladesh scope for sustainable economic development, which needs an integrated maritime policy.

According to Article 56 of the United Nations Conventions on the Law of the Sea (UNCLOS) 1982, the coastal state (Bangladesh) has sovereign rights in the exclusive economic zone for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters superjacent to the seabed and of the seabed and its subsoil, and with regard to other activities for the economic exploitation and exploration of the zone, such as the production of energy from the water, currents and winds.

Article 56 grants coastal states jurisdiction over the establishment and use of artificial islands,

installations and structures; marine scientific research; protection and preservation of the marine environment etc. Article 77 of UNCLOS says that the coastal state exercises sovereign rights over the continental shelf for exploiting the minerals and other non-living resources of the seabed and subsoil, together with living organisms.

The concept of blue economy in our country can be developed in emerging sectors such as shipping and port facilities, seaborne trade, fisheries, coastal tourism, aquaculture, renewable blue energy, biotechnology, submarine mining, etc. Oceans offer enormous potential for the generation of renewable energy -- wind, wave, tidal -- biomass and thermal conversion, and salinity gradients. According to Article 56 of UNCLOS, Bangladesh is entitled to explore such renewable blue energy of EEZ to produce energy.

This renewable energy source could help diversify our energy portfolios and secure higher levels of energy security. Like other coastal states, particularly in the EU, the highest potential for electricity generation can be in the offshore wind turbines sector. Global offshore wind capacity is growing at the incredible rate of 40% per year, producing 7,100 megawatts of electricity in 2013. From this, it can be predicted that the growing demand of electricity can be mitigated using wind for producing electricity in Bangladesh.

Eighty percent of global trade by volume, and 70% by value, is carried out by sea and handled by ports worldwide. According to the 2013 edition of the Review of Maritime Transport of UNCTAD, global seaborne trade has increase by 4.3%, with the total reaching

The Authors is a Senior Journalist,Working on Business andEconomic Affairs


over 9 billion tons in 2012 for the first time ever. If we want to be benefitted from China's economy, the world's largest economy according to International Monetary Fund (IMF), and to develop blue economy based on global seaborne trade among coastal states, the three ports -- Chittagong Port, Mongla Port and Paira Port -- have to be developed as transit points.

Globally, 350 million jobs are linked to marine fisheries, with 90% of fishers living in developing countries. Marine fisheries contribute at least 20% of total fish production in Bangladesh and

500,000 people are fully and directly dependent on the sector. According to the Bay of Bengal Large Maritime Ecosystem Project run under the supervision of FAO in 2009, about 60 lac tons of fishes that constitute 16% of world production are produced annually from the Bay of Bengal, and about 45 lac people are engaged in fishery.

Sustainable blue economy and blue growth for sustainable development are not possible without ensuring maritime security, protecting and preserving marine environment, conserving marine living and non-living resources and

preventing marine pollution. Piracy, trafficking of drugs, humans and arms, and narco-terrorism have become common in the high seas and EEZ areas of Bangladesh.

The trade bodies, economists and other stakeholders feel that the proposed budget with necessary amendments as suggested by them will accelerate investment, improve the business environment and socio-economic condition of the country.


Abstract

The aim of the study is to examine the impact of Education Budget as on percentage of Gross Domestic Product (GDP) on Literacy rate of 75 countries in the world. The data were collected from the website of World Bank from the year 2010 to 2014. Collected data were analyzed using different descriptive statistics such as mean, standard deviation, maximum, minimum etc. and were graphically presented in line chart to meet the objectives of the research. The result of the analyses showed that there are some impacts of education budget as on percentage of GDP on literacy rate but in spite of having some impacts of education budget on literacy rate, literacy rate does not depend on education budget only.

Keyword: Education budget, Literacy rate, Gross Domestic Product (GDP)

Introduction

Human being is the best creation of God. Without education, human being can not be the human capital of the world. Education helps for developing human capital, reducing poverty and achieving sustainable economic growth and development. Literacy and education is among the most necessary elements for

Impact of Education Budget on Literacy RateA Study on 75 Countries in the World

1Sujan Chandra Paul ACA | 2Mallika Saha

human development in today’s knowledge world or as Nelson Mandela (2003) put it “Education is the most powerful weapon, which we can use to change the world”. Education is the cornerstone for the economic growth and social development of a country. It creates greater social cohesion and a strengthened foundation for democracy. Sen (1999) stated that schooling is desirable not only for individuals but for society as a whole.

Budget is the government’s most powerful instrument to address development challenges and ensure effective coverage of quality social services for its citizens. Effective literacy skills, open the doors to more educational and employment opportunities so that people are able to pull themselves out of poverty and chronic under employment. Public financing of education has been a priority for governments in developing countries for several decades. However, in recent years, the education sector has faced stronger competition from other sectors also seeking financial government support.

The most commonly used definition by countries to measure the literacy rate is the one used in Education for All (EFA) 2000 Assessment: “Literacy is the ability to read and write with understanding a simple statement related to one’s daily life. It involves a continuum of the reading


and writing skills, and often includes basic numeracy”. An augmented definition was proposed during an international expert meeting in 2003 at UNESCO which added that: “Literacy involves a continuum of learning in enabling individuals to achieve their goals, to develop their knowledge and potential, and to participate fully in their community and wider society” (UNESCO 2004:13).

The educational development is moving in a positive direction when looking at the total number of illiterates but fast population growth in developing countries contributes to the disequilibrium between demand and supply in the education market. The year 2000 almost one billion people where illiterate, where of 2/3 were women. Their illiteracy will strongly affect the possibilities to get a wage job and affect other social and economic variables, such as health and possibility to run a company. Of the world’s illiterate people 95% live in developing countries and 70% are women.In Bangladesh, education gets the second largest allocation after public administration with 11.16 per cent of total budget in 2012-13 while public administration received 12.6 per cent (Budget in Brief 2012-13, MoF, GoB).

The purpose of the study is to investigate the relationship between the education budget and literacy rate of 75 countries in different continents of the world during the time period 2010 to 2014. The dependent variable literacy rate will be measured against the independent variable of education budget as on percentage of GDP. The largest limitation to this paper is the lack of available historical data on literacy rates and education budget as on percentage of GDP. That’s why, five years’ data of 75 countries are used for the study.

Research Objective

The study focused on an examination of the impact of Education Budget as a percentage of Gross Domestic Product on the Literacy Rate considering previous research in this area. This research had the objectives to analyze the impact of Education Budget as a percentage of Gross Domestic Product on Literacy Rate.

Literature Review

Riddell W.C. (2006) stated that education is a key determinant for enhancing the productive capacities of individuals. T.A. Islam, M.A.

FROM THE ANALYSIS OF 75 COUNTRIES OF THE WORLD, IT IS FOUND THAT 16 COUNTRIES HAD EDUCATION BUDGET WHICH WAS LESS THAN 3% OF THEIR GDP AND AMONG THESE 16 COUNTRIES, 9 COUNTRIES HAD LESS THAN 90% LITERACY RATE. BUT THE OTHER 7 COUNTRIES HAD MORE THAN 90% LITERACY RATE IN SPITE OF HAVING LOWER EDUCATION BUDGET.


Wadud, and Q.T. Islam (2007) found the positive links between improved level of education and higher level of growth. Belfield (2008) demonstrate that childhood education is the sound intellectual, psychological, emotional, social and physical foundation for children to become more productive citizens in adulthood.

Psacharopoulos and Patrinos (2004) stated that among the different levels of education, primary education has been found to yield the highest social rates of return, especially in developing countries.

Pritchett and Filmer (1999) show that educational achievements (test scores) are higher in schools where there is greater parental involvement in school management to counteract teacher power.

Using panel data from 118 developing countries in 1971–2000, Baldacci et al. (2008) estimate a non-linear model to capture the spending-outcome relationship. They account for the interaction between education and health, and control for governance and the higher growth attributable to better human capital and country income levels. The fixed-effects model is utilized to make the most out of limited cross-country time series data, and minimize distortions from heterogeneity. Baldacci et al. find strong evidence that public expenditure on education directly results in increased better educational outcomes.

Rajkumar and Swaroop (2008) empirically examine whether public expenditure on education is more effective in improving educational outcomes in countries with good governance. Their education results are based on a

sample that has 101 observations from 57 countries using annual data for 1990, 1997 and 2003. The authors capture the direct effects of governance on educational outcomes by using the governance variable, Gi, as an independent regressor, and the indirect effects of governance by interacting Gi with the share of public primary education spending in GDP.

Horton, T., & Reed, H. (2011) states that one of the most notable negative impacts of education budget cuts is an increase in the disparity between lower income students and higher income students. According to Schunk, (2006) the quality of education is an increasing concern of the negative effects of education budget cuts. With state secondary education institutes decreasing the number of active teachers employed, there is an increase in the number of students per class. This increased student to teacher ratio leads to less individual attention to students.

At the state level, Kaur and Misra (2003) have done a similar empirical analysis for fifteen states in India. They analyze the impact of public expenditure on primary and intermediate, and secondary school enrollment rates, controlling for variables such as the level of economic development

and quantity of physical infrastructure in a state. Their panel regression results from 1985-86 and 2000-01 indicate that public expenditure on education has been generally productive, especially in poorer states. In terms of outcomes, public expenditure has a greater effect on primary education than secondary education.

Data and Methodology

Both quantitative and qualitative secondary data are utilized in this study. According to Panneerselvam (2006) secondary data is data collected from sources which have already been created for the purpose of first-time use and future uses. This study collects quantitative data in form of literacy rate and education budget as on percentage of Gross Domestic Product of 75 countries from the World Bank Website for the year from 2010 to 2014. In addition, the qualitative data consists of different journal, and working papers. A descriptive study has been performed by applying different descriptive statistical tools i.e., mean, median, standard deviation, maximum, minimum etc. Line chart is used to show the graphical relationship between literacy rate and education budget of different continent.


Findings and Results

Descriptive Analysis

Education budget as a percentage of Gross Domestic Product

Table-1 shows different descriptive statistics of education budget as a percentage of Gross Domestic Product (GDP) of 75 counties of different continents of the world. In Asia, 16 countries are taken for the study and it is found that the mean value of the education budget as a percentage of GDP is 3.68%, the standard deviation is 1.21%, the

maximum is 6.29% and the minimum is 1.72%. From 23 counties in Africa, it is found that the average education budget as a percentage of GDP is 4.38% with the standard deviation of 1.86%. The minimum education budget as percentage of GDP is 1.23% whereas the maximum is 8.64%.

In Europe, 20 countries are taken for the study and it is found that the mean value of the education budget as a percentage of GDP is 4.49%, the standard deviation is 1.56%, the maximum is 7.50% and the minimum is 1.98%. From

7 counties in North America, it is found that the average education budget as a percentage of GDP is 5.63% with the standard deviation of 3.43%. The minimum education budget as percentage of GDP in the 7 countries of North America is 2.84% whereas the maximum is 12.84%.In South America, 9 countries are taken for the study and it is found that the mean value of the education budget as a percentage of GDP is 4.96%, the standard deviation is 1.02%, the maximum is 7.04% and the minimum is 3.66%.

Literacy Rate

Table-2 shows different descriptive statistics of literacy rate of 75 counties of different continents of the world. In Asia, 16 countries are taken for the study and it is found that the mean value of literacy rate is 83.56%, the standard deviation is 21.03%, the maximum is 99.75% and the minimum is 31.74%. From 23 counties in Africa, it is found that the average

literacy rate is 62.97% with the standard deviation of 22.37%. The minimum literacy rate in the 23 countries of North America is 15.46% whereas the maximum is 93.95%.

In Europe, 20 countries are taken for the study and it is found that the mean value of the literacy rate is 98.57%, the standard deviation is 1.77%, the maximum is 99.90% and the minimum is 93.31%. From

7 counties in North America, it is found that the average literacy rate is 89.53% with the standard deviation of 7.27%. The minimum literacy rate in the 7 countries of North America is 77.04% whereas the maximum is 99.75%. In South America, 9 countries are taken for the study and it is found that the mean value of the literacy rate is 94.92%, the standard deviation is 2.29%, the maximum is 98.36% and the minimum is 91.48%.

Table-1: Descriptive Statistics (Education budget as a percentage of Gross Domestic Product)

Continent Observations Mean Median Standard Deviation

Minimum Maximum

Asia 16 3.68% 3.68% 1.21% 1.72% 6.29%Africa 23 4.38% 4.33% 1.86% 1.23% 8.64%Europe 20 4.49% 4.40% 1.56% 1.98% 7.50%North America 7 5.63% 5.15% 3.43% 2.84% 12.84%South America 9 4.96% 4.67% 1.02% 3.66% 7.04%

Table-2: Descriptive Statistics (Literacy Rate)

Continent Observations Mean Median Standard Deviation

Minimum Maximum

Asia 16 83.56% 93.84% 21.03% 31.74% 99.75%Africa 23 62.97% 70.20% 22.37% 15.46% 93.95%Europe 20 98.57% 99.10% 1.77% 93.31% 99.90%North America 7 89.53% 87.90% 7.27% 77.04% 99.75%South America 9 94.92% 94.46% 2.29% 91.48% 98.36%

Asia

It is found that Malaysia had the highest education budget as on percentage of GDP (6.29%) among sample 16 countries in Asia and its literacy rate is 93.12% which was not highest but significantly better than the other countries. Other than Malaysia, Thailand, Nepal, Afghanistan, Mongolia, Russian Federation and Tajikistan’s education budgets were more than 4% of the GDP and these countries literacy rate is above 90% except Nepal and Afghanistan. Bangladesh and Pakistan had lower education budget (less than 3% of GDP) and these counties literacy rate was below 60%. But in spite of having lower education budget as on percentage of GDP (less than 3%), Sri Lanka, Bahrain and Singapore had a higher literacy rate (above 90%).

Africa

From the study of 23 countries in Africa, it is found that Swaziland, Malawi, Niger, Tunisia and South Africa had education budget more than 6% of these countries GDP. But these countries’ literacy rates were not above 90% except South Africa. On the other hand, Central African Republic, Zimbabwe, Uganda, Guinea-Bissau, Sierra Leone and Chad’s education budgets were less than 3% of these countries’ GDP and their literacy rate were less than 60% except Zimbabwe and Uganda.

Europe

From the study of 20 countries in Europe, it is found that all the countries take in the sample having literacy rate above 90% and the mean value of the literacy rate of these 20 countries is 98.57%. Among the 20 countries, four countries had education budget of more than 6% of GDP and 7 countries had less than 3% of GDP. So, it can be stated that there is no significant impact of education budget as on percentage of GDP on literacy rate.


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Chart-1: Impact of Education Budget as on percentage of GDP on literacy rate (Asia)

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Chart-2: Impact of Education Budget as on percentage ofGDP on literacy rate(Africa)

Chart-3: Impact of Education Budget as on percentage ofGDP on literacy rate (Europe)

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Impact of Education Budget as a Percentage of GDP on Literacy Rate


Chart-4: Impact of Education Budget as on percentage of GDPon literacy rate(North America)

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Chart-5: Impact of Education Budget as on percentage ofGDP on literacy rate(South America)

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North America

From the study of 7 countries in North America, it is found Cuba’s education budget is 12.84% of GDP and its literacy rate is 99.75%. Guatemala’s education budget is 2.84% of GDP and its literacy rate is 77.04%. The other five countries of the study had education budget 3-6% of their GDP and their literacy rate is also 85-95%.

South America

From the study of 9 countries in South America, it is found that there is no country in the sample which had education budget below 3% of their GDP. Bolivia’s education budget was 7.04% of GDP and its literacy rate was also 94.46%. Other the Bolivia, the other eight countries of the study had education budget 3-6% of their GDP and their literacy rates were above 90%.

Overall Commentary Impact of Education Budget as on Percentage of GDP on Literacy Rate

From the analysis of 75 countries of the world, it is found that 16 countries had education budget which was less than 3% of their GDP and among these 16 countries, 9 countries had less than 90% literacy rate. But the other 7 countries had more than 90% literacy rate in spite of having lower education budget.

On the other hand, 12 countries of the sample 75 countries had education budget more than 6% of their GDP and these countries literacy rates are above 90% except 4 countries (Swaziland, Malawi, Niger and Tunisia). So, on

the basis of the above analysis, it can be stated that there are some impact of education budget (percentage of GDP) on literacy rate. But literacy rate does not depend on education budget only.

Conclusion

The result of the analyses showed that seven countries are taken from the North America have the highest average education budget (5.63%) as on percentage of GDP, where literacy rate is 89.53%. In spite of having a healthy average budget on education in the 23 countries of Africa, there are lower average literacy rates in these counties. In these countries, the other factors may be related for their lower literacy rates. In Asia, average literacy rate of the 16 countries was 83.56%, where

these countries on spent average 3.68% for their education budget as on percentage of GDP. In Europe, both the average literacy rate and average education budget is good enough to find a positive correlation between them.

If we look at country wise analysis, we found that Cuba has the highest education budget as on percentage of GDP (12.84%) and their literacy rate is almost cent percent (99.75%). Swaziland, Moldova, Bolivia, Malawi, Niger, Malta, Ukraine, Cyprus, Malaysia, Tunisia, South Africa had the more than 6% education budget as on percentage of GDP, these countries’ (except Swaziland, Malawi, Niger) literacy rate were above 90%. On the other hand, Bangladesh and Central African Republic had less than 2%


education budget as on percentage of GDP and there literacy rate were below 60%. In spite of having low education budget in Georgia, Zimbabwe and Sri Lanka, there was a satisfactory literacy rate in these countries. But in spite of having some impacts of education budget on literacy rate, literacy rate does not depend on education budget only.

References1. Belfield C.R.(2008), The Economic

Benefits of Investments in Early Education for Hawai’i, Queens College, City University of New York, New York;

2. Baldacci, E., Clements, B., Gupta, S., and Cui, Q. (2008). Social spending, human capital, and growth in developing countries. World Development, 36(8), 1317- 1341.

3. Finance Division, Budget in Brief 2012-13, Ministry of Finance, Government of Bangladesh, Dhaka, 2012.

4. Horton, T., & Reed, H. (2011). The distributed consequences of the 2010 spending review.Journal of Poverty & Social Justice, 19(1), 63-66.

5. Kaur, B. and Misra, S. (2003). Social sector expenditure and attainments: An analysis of Indian states.Reserve Bank of India Occasional Papers, 24(1), 105-143.

6. Panneerselvam R. (2006). Research Methodology. Third Edition. Prentice Hall.p.14.

7. Psacharopoulos, G. and Patrinos, H. (2004), Returns to investment in education: A further update. Education Economics, 12(2), 111-134.

8. Pritchett, L. &Filmer, D. and (1999). What education production functions really show: A positive theory of education expenditures. Economics of Education Review, 18(2), 223-239.

9. Rajkumar, A.S. and Swaroop, V. (2008). Public spending and outcomes: Does governance matter? Journal of Development Economics, 86(1), 96-111.

10. Riddell W.C(2006), “The Impact of Education on Economic and Social Outcomes: An Overview of Recent Advances in Economics”, Paper written for the workshop on An Integrated Approach to Human Capital Development, sponsored by Canadian Policy Research Networks (CPRN), the School of Policy Studies at Queen’s University and Statistics Canada, Department of Economics, University of British Columbia.

11. Sen, A. (1999). Development as Freedom. New York: Alfred A. Knopf Inc.

12. Schunk, D. (2006). South Carolina's child care industry. Business and Economic Review, 52(4), 15-18.

13. T.A. Islam, M.A. Wadud, and Q.T. Islam, “Relationship between Education and GDP Growth: A MutivariateCausalityAnalysis for Bangladesh.” Economics Bulletin, Vol. 3, No. 35, 2007, pp. 1-7.

14. UNESCO. 2004. “The plurality of literacy and its implications for policies and programmes”. UNESCO Education Sector: Paris

1. Annexure-I: Asia

S.L Country NameEducation Budget

(% of GDP) Year Literacy rate Year1 Afghanistan 4.62% 2014 31.74% 20112 Bangladesh 1.97% 2013 59.72% 20133 Bahrain 2.64% 2012 94.56% 20104 Indonesia 3.37% 2013 92.81% 20115 India 3.83% 2012 69.30% 20116 Sri Lanka 1.72% 2012 91.18% 20107 Mongolia 4.61% 2011 98.26% 20108 Malaysia 6.29% 2013 93.12% 20109 Nepal 4.72% 2014 59.63% 2011

10 Pakistan 2.45% 2014 56.76% 201211 Qatar 3.53% 2014 97.75% 201412 Russian Federation 4.15% 2012 99.68% 201013 Singapore 2.91% 2013 96.54% 201314 Thailand 4.93% 2012 96.43% 201015 Tajikistan 4.02% 2012 99.75% 201316 Turkmenistan 3.05% 2012 99.65% 2013

Source: World Bank Website

Annexure


2. Annexure-II: Africa


(% of GDP) Year Literacy rate Year1 Angola 3.48% 2010 70.78% 20132 Central African Republic 1.23% 2011 36.75% 20103 Cameroon 3.03% 2013 71.29% 20104 Comoros 4.89% 2012 76.55% 20135 Ghana 5.93% 2013 71.50% 20106 Guinea 3.54% 2013 25.31% 20107 Guinea-Bissau 2.36% 2013 57.80% 20138 Mali 4.33% 2014 33.56% 20119 Mauritius 4.99% 2014 89.25% 2011

10 Malawi 6.88% 2014 61.31% 201011 Niger 6.78% 2014 15.46% 201212 Rwanda 5.03% 2013 68.33% 201213 Senegal 5.60% 2010 42.82% 201314 Sierra Leone 2.73% 2014 45.65% 201315 Swaziland 8.64% 2011 83.10% 201016 Seychelles 3.61% 2011 93.95% 201017 Chad 2.85% 2013 38.23% 201318 Togo 4.84% 2014 60.41% 201119 Tunisia 6.22% 2012 79.65% 201120 Tanzania 3.48% 2014 78.98% 201221 Uganda 2.20% 2013 70.20% 201222 South Africa 6.06% 2014 93.73% 201223 Zimbabwe 1.97% 2010 83.58% 2011


3. Annexure-III: Europe


(% of GDP) Year Literacy rate Year1 Albania 3.50% 2013 97.25% 20122 Armenia 2.40% 2014 99.74% 20113 Azerbaijan 2.46% 2013 99.79% 20144 Bulgaria 3.59% 2012 98.35% 20115 Cyprus 6.64% 2011 98.68% 20116 Spain 4.37% 2012 98.08% 20137 Estonia 4.79% 2012 99.86% 20118 Georgia 1.98% 2012 99.75% 20139 Croatia 4.16% 2011 99.13% 2011

10 Hungary 4.65% 2011 99.05% 201311 Italy 4.14% 2011 99.07% 201312 Latvia 3.20% 2012 99.90% 201113 Moldova 7.50% 2014 99.17% 201314 Malta 6.76% 2012 93.31% 201115 Poland 4.86% 2011 99.76% 201316 Portugal 5.12% 2011 94.48% 201117 Romania 2.99% 2012 98.60% 201118 Serbia 4.43% 2012 97.96% 201119 Slovenia 5.66% 2012 99.71% 201320 Ukraine 6.67% 2013 99.74% 2013



4. Annexure-IV: North America


(% of GDP) Year Literacy rate Year1 Cuba 12.84% 2010 99.75% 20122 Guatemala 2.84% 2013 77.04% 20133 Honduras 5.87% 2013 87.20% 20144 Jamaica 5.98% 2014 87.90% 20135 Mexico 5.15% 2011 93.96% 20136 Panama 3.29% 2011 94.09% 20107 El Salvador 3.42% 2011 86.77% 2013


3. Annexure-V: South America


(% of GDP) Year Literacy rate Year1 Argentina 5.34% 2013 97.97% 20132 Bolivia 7.04% 2014 94.46% 20123 Brazil 5.91% 2012 91.48% 20134 Chile 4.56% 2013 96.70% 20115 Colombia 4.67% 2014 93.58% 20116 Ecuador 4.18% 2012 93.29% 20137 Peru 3.66% 2014 93.84% 20128 Paraguay 4.96% 2012 94.62% 20149 Uruguay 4.36% 2011 98.36% 2013


The Authors are:1Assistant Professor, Department of Accounting and Information Systems, University of Barisal2Lecturer, Department of Accounting and Information Systems, University of Barisal


Preface

Government’s forecast of its expenditures and revenues for a specific period of time in generally known as budget. The period covered by a budget of the Government of Bangladesh is a financial year that starts on 1 July of a calendar year and ends on 30 June of the following. Government budget contains the strategies for mobilization, allocation and disbursement of public money by means of fiscal and monetary operations with due consideration of political, economic and bureaucratic decision making process. It is prepared in Bangladesh on the basis of legal requirements, economy’s management needs, conventions, functional conveniences as well as accounting and auditing requirements including transparency and accountability.

Government budget in the country has two parts: Revenue and Development. The former is concerned with current revenues and expenditures i.e. maintenance of normal priority and essential services while the latter is concerned with development related activities and expenditures.The financing pattern of Government and the delegated authorities of incurring expenditure in different tiers in them are also different. Receipts in revenue budget are: domestic

A Comprehensive Analysis of ProposedNational Budget 2016-17

Md. Mustaq Ahmed ACA

receipts (tax & non-tax), capital receipts (foreign loans), domestic capital (net of current receipts & expenditures in public accounts), extra-budgetary resources (debenture of autonomous bodies, their self-financing and accumulated balance& materials at stock) and domestic loans & advances (net).

The finance minister places the budget before parliament in June. It accompanies an introductory speech known as budget speech consisting of two parts. The first part deals with the overall financial and economic conditions prevailing in the country, Government economic performance during the last one year andGovernment economic plans, programs & the budgetary allocation. The second part deals with taxation measures. After budget discussions, money bill, supplementary bill and appropriation bill are placed before the parliament. If, for any reason, it is not possible to pass the appropriation bill within 30 June, a vote on account bill has to be placed before the parliament. Usually, through this bill an amount equivalent to two months expenditure is sanctioned.

Executive Summary

Budget for FY2016-17 has been presented at a time when there is the necessity of


accelerating economic growth, reducing poverty, creating higher employment opportunities to implement Sustainable Development Goals (SDGs) and formulating Least Developed Country(LDC) graduation strategy as Bangladesh is well positioned to graduate from current position in next few years.

The tax rate is going up for the tax payers, but the tax net is not being widened. There are only 12 lakh taxpayers in Bangladesh who submit their tax returns regularly. That means less than one percent of the population pay tax. There is no alternative to widening the tax net.The tax to gross domestic product ratio is 10-11% in Bangladesh which is the lowest in Asia.

Other than widening the tax net, Government is imposing more tax on the current tax payers. Reduction of investment allowance and imposition of more surchargeas well as imposition of tax on interest payments on approved savings instruments, superannuation fund, pension fund, gratuity fund, recognised provident fund or workers’ profit participation fund will affect the individual tax payers a lot. It will be burdensome to the honest individual salary holders to cope up with these changes and they will face significant difficulties to maintain their standard cost of livings.

There is no significant change in tax rate of Companies in current year’s proposed national budget. However, minimum tax has been well described and has been increased whereas it was uniform at the rate of 0.30% on gross receipt in the last year. Tax at source of exports has been raised to 1.50 percent from 0.6 percent in the proposed budget. This goes completely against the industry’s development. On the other hand, the proposal to bring the

corporate tax rate for the garment sector to 20 percent from 35 percent in the forthcoming fiscal year is a good decision to boost up garment industry.

There has been significant changes in indirect taxes. Withdrawal of VAT exemption and increasing rate of indirect taxes accelerate the cost of living of all classes of people. CPD analysis found that changes in the proposed duty structure did not commensurate with fiscal framework’s tax growth. The estimated growth based on the changes in the duty structure diverges significantly from the budgetary plans.

Once again the Finance Minister remained silent about black money in his speech. It means continuation of earlier facilities to whiten black money. It is morally unethical for honest tax payers and might encourage people to evade tax. If there is the option to convert illegal money to legal by giving tax only @ 10%, why dishonest people would disclose it as legal and give maximum tax @ 30%. Therefore, it is morally unethical that might encourage people to evade tax wherever honest taxpayers are discriminated and burdened with more tax.

This year’s budget is a welcome change for the better global scenario of economic recovery. This helps reduce budgetary subsidies allowing additional developmental allocation, preferably in education and health sector. Expected GDP growth target for FY 2016-17 has been set at 7.2% with very low inflationary pressure. A stable monetary and external outlook is expected over the next few years. However, the vision is not supported by courage and innovation in this regard. Structural and institutionalweakness continue to stand between the nation and its potential achievements.

IF THERE IS THE OPTION TO CONVERT ILLEGAL MONEY TO LEGAL BY GIVING TAX ONLY @ 10%, WHY DISHONEST PEOPLE WOULD DISCLOSE IT AS LEGAL AND GIVE MAXIMUM TAX @ 30%. THEREFORE, IT IS MORALLY UNETHICAL THAT MIGHT ENCOURAGE PEOPLE TO EVADE TAX WHEREVER HONEST TAXPAYERS ARE DISCRIMINATED AND BURDENED WITH MORE TAX.


In order to get real benefit of proposed budget, Government should come with prudent and perceptive fiscal management. It is observed that proposed actions are inadequate to bring fiscal discipline in the management of deficit, debt and subsidy. Rather than imposing more and more tax to the existing tax payers, the tax net shall be widened, tax and VAT laws should be simplified, uniformed and not be a tool for harassment, ensure incentive on tax pay system to motivate eligible new tax payers, stop subsidizing state enterprises through formulation of comprehensive subsidy policy.

Key Words

National Board of Revenue (NBR), Finance Act, Financial Year, Calendar Year, Development Budget, Non-development Budget, ADP, Budget Deficit, GDP growth, Inflation, Direct tax, Indirect tax, VAT, Customs duty, Supplementary duty, Taxpayer Identification Number (TIN), e-TIN and Centre for Policy Dialogue (CPD), Sustainable Development Goals (SDG) and Least Developed Country (LDC).

Key Features of Budget

Finance Minister Mr. Abul Maal Abdul Muhith on 2 June 2016 unveiled the 45th national budget for 2016-17 financial year at the Jatiya Sangsad (JS) with the key features below:

The national budget for FY 2016-17 has been prepared in the backdrop of the following advantages in national economy:

Robust GDP growth

Low inflationary pressure

Declining interest rates

Low level of global commodity prices

Resilient growth of export earnings

Stable exchange rates

Manageable fiscal deficit

Upward trend in remittance flows

Favorable balance of payments and augmented foreign exchange reserves

However, the Economy has to Confront the Following Challenges

Poor fiscal planning creating credibility gap

Domestic borrowing biased financing mix of the budget deficit

Sluggish private investments and low job creation including

reduction in employment in manufacturing sector

Unachieved tax revenue target and overall poor revenue generation

Poor utilization of ADP including project aid

Inability to take advantage of current macroeconomic stability in favor of investment employment friendly GDP growth

Nominal exchange rate remained stable but made gains against currencies of Bangladesh’s major competitors which led to some erosion of export competitiveness

Rising non-food inflation has led to some discomfort

Persistent weakness in establishing good governance in the financial sector

Proposed Budget and Tax Implication on Individual Tax Payers

In comparison to the present provisions of Finance Act 2015, some core changes has been proposed in Finance Bill 2016 which are pointed out below:

Total outlay Taka 3 lakh 40 thousand 605 crore

Development Budget Taka 1 lakh 10 thousand 700 crore

Non-development Budget Taka 2 lakh 29 thousand 905 crore

Revenue Target Taka 2 lakh 42 thousand 752 crore

Revenue from NBR Taka 2 lakh 3 thousand 152 crore. Revenue for non-NBR source: Taka 39 thousand 600 crore.

Budget Deficit Taka 97 thousand 853 crore (5% of GDP)

GDP growth 7.2 percent

Inflation 5.8 percent, lowest ever

Now taxpayers are proposed to get 15% tax rebate on 20 percent of total income in comparison with 30 percent in the last year.

Surcharge has been increased significantly comparing to last year. Maximum rate of surcharge has raised to 30% from 25%. Moreover slab amount has been reduced significantly. As a result, more tax shall be charged for the wealthy individual taxpayers.

Interest payments on approved savings instruments, superannuation fund, pension fund, gratuity fund, recognised provident fund or workers’ profit participation fund will be taxed at 5% [Section 52, Sub-clause D, Income Tax Ordinance 1984]

5% will be deducted from interest income from pensioners’ savings certificates exceeding Tk. 5 lakh of investment.

All of the above proposals consequence the following

• Tax liability will be higher for the individual tax payers. Additional tax burden as a share of income will be higher for lower income groups.Moreover, this additional tax amount will be deducted from the remaining one month salary as there is only one month left for fiscal year 2015-16.

• It is noted that house allowances, conveyance allowances, car allowances are not sufficient considering the current market. It is not possible for an individual to meet up all of the expenses within the allowance limit. Besides there is a possibility that three festival bonuses will be added with the salary for this year. For all of these reasons, substantial amount of tax will be deducted from the salary payable in June. It will be burdensome to the honest individual salary holder to cope up with this changes and They will face significant difficulties to maintain their standard cost of livings.

However, honest taxpayers may feel happy to see various measures taken to ensure compliance and curb tax avoidance and evasion by this proposed budget. Any person working in public entities, including semi-Government, 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 TIN.

Proposed Budget and Tax Implication on Companies

Most of the companies’ tax rates exist same compared to last financial year. Section 16CCC related with the minimum tax has been deleted and 82C has been renamed as minimum tax. Minimum tax would be higher of:

Withholding tax on certain sources of income; and

Minimum tax calculated on the basis of overall gross receipts regardless of sources of income.

However, minimum tax rate for the companies has been increased whereas it was uniform at the rate of 0.30% on gross receipt and at present the rates are proposed as below:


Serial Number

Class of Assessee Rate of Minimum Tax

01 Manufacturer of cigarette, bidi, chewing tobacco, smokeless tobacco or any other tobacco products

1% of the gross receipts

02 Mobile phone operator 0.75% of the gross receipts03 Any other cases 0.60% of the gross receipts

A significant steps have been proposed in the budget to boost the industry some of which go against the industry’s interest:

• Tax at source on all kinds of exports has been raised to 1.50 percent from the current 0.6 percent in the proposed budget.It means that the direct tax will be hiked by 150 percent. This goes completely against the industry’s development. Prices of apparel products in the international market are on the decline. On the other hand, production cost is increasing up to 10 percent every year.Also, the appreciation of taka against the dollar has become another reason for losses. While taka became stronger by 7.66 percent in the past four years, small and medium factories were spending between Tk 50 million and Tk 100 million to implement the reform plans given by the Accord, Alliance and National Action Plan. Under the circumstances, hiking the tax at source will push the apparel sector into a deeper crisis. A total of 618 factories have been closed down due to various reasons while 319 more are following suit.If taxes increase, no factory will be able to survive.

• The proposal to bring down the corporate tax rate for the garment sector to 20 percent from 35 percent in the forthcoming fiscal year is a good decision to save this industry.There are 26% increase of interest to bank and other sources in this proposed budget for taking loan compared to last year. Payments from royalties and certain services (such as professional services, consultancy,

event-management, supply of manpower etc.) will be taxed at 10% if base amount is below Tk. 25 lakh, and at 12% for exceeding amount (50% higher if not e-TIN registered).

Indirect Tax Vs Cost of Living

The Government has backtracked from its decision to roll out the new VAT law from July 2016 due to resistance from businesses and a section of revenue officials and inadequate preparation of the NBR. The VAT and Supplementary Duty Act, 2012 which envisages a universal 15 percent VAT rate, will now take effect from 1 July 2017.

Instead of going for the new laws, finance minister proposed to increase VAT on several product and services. 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 etc. The move which is likely to disappoint related industrial sectors. Price of these items may increase significantly. 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 & rubber sandals etc. Such withdrawal will increase the price

of necessary commodities. Moreover, Package VAT which has been revised significantly in the budget, will create a burden on small traders.

However, ambulance services has been exempted from VAT along with waiver on cooking oil, local textile, rubber, locally assembled refrigerator and air conditioner for the next fiscal year. Further, services provided by a private university, private medical college and private engineering college have also been exempted from VAT to boost education.

Despite the relief here, people may have to pay more for many other products and services. Government will gradually move out of the truncated value system. Truncated value rates for a number of services have been increased (5 out of 14 services).For example, operators of garage and workshops, which enjoyed truncated value-based VAT, will have to pay 10 percent VAT. Immigration advisory services will get costlier as 15 percent VAT has been imposed on the service providers. VAT on rents of office space and installation services will also go up to 15 percent from 9 percent now.

There are significant changes in the rate of duty in import stage in FY2016-17,summary of which is as following:



Types of Duty Increased Decreased Newly Imposed Waived Total number of changed items

Customs Duty 208 52 21 8 289Supplementary Duty 12 0 30 2 44Regulatory Duty 0 10 78 4 92VAT on Import 0 0 15 0 15

Custom duty has increased for 208 items (including rice, starch etc.) while decreased for 52 items (chemical items, Iron steels etc.). Among the fifteen items on which VAT is imposed at import stage includes maize (flour), other flours, semi-product of iron steel, and modulator etc.

Major Changes in Customs Duty are the followings:

Items FY2015-16 FY2016-17 CommentIncreased

Rice (all), Maize (flour) 10 25 Higher protection for farmers

Wheat, Maize and Potato starch 10 15 More protection for farmers

Textbooks for primary and secondary level 10 25 Goes against students' interest

Tubes, pipes and hallow profiles 10 15 Local industry protection

Refined copper wire and plates of coils 10 25 Helpful for domestic firms

Finger/Biometric scanner 2 5 Contradicts safety/security concerns

Items FY2015-16 FY2016-17 Comment

Machinery for preparing tobacco1 10 Helpful from healthy revenue

perspectives

Evaporative air coolers 10 25 Revenue generation

Transformer, USP/IPS (capacity up to 2,000 MV) 5 10 Consumers will be hurt

Optical fibers 10 15 Access to internet will be costlier

Patient monitor, medical instruments 1-5 5-10 Will make health service costlier

Dietary foods (Soya cakes, Inulin etc.) 5 10 Helpful for local industry

Decreased

Lubricating oil, petroleum jelly, dextrin, glues, stripping chemical gum rosin, poly salt, organotin compounds

25 15Will reduce industrial cost

Plastic products (Urea resins, thiourea resins, polyester paper, PVC sheet etc.)

25 10-15 Likely to be harmful for local industry

LP gas cylinder capacity below 5000 liters 25 10 Helpful for consumers

Pharmaceutical (Stability / Humidity camber, Laboratory refrigerator)

25 1Will help the industry

For VAT registered importers, several equipment under HS code 73, 83, 84, 85, 94

25 0-15Should encourage VAT registration

Source: CPD (2016) An analysis of the National Budget for FY2016-17


Moreover, imposing supplementary duty at the rate of 10% on boulder stone; 45% on most of the bars and rods, hot rolled, in irregularly wound coils, of iron or non-alloy steel; 20% on angles, shapes and sections of iron or non-alloy steel; 10% on Electrical goods (lamp holder, connector) items which may lead to a loss of competitiveness of the local industry as the production cost of goods in Bangladesh is always higher than that in India and China.

Therefore, withdrawal of VAT exemption and increasing rate of indirect taxesaccelerates the cost of living of the middle class people. From the spirit of VAT concept, it is known to all that indirect taxes are ultimately borne by the consumer at all level whether rich or poor. Continuous inflation along with rise of VAT and supplementary duty will increase the cost of living of all classes of people. Increase in the salary of Government employees has already increased the cost of living. Above all, life of the middle and lower class people will be beyond their limit of earnings as well.

Undisclosed and Black Money to White or Legal Money

Once again the Finance Minister remained silent about black money in his speech. It means continuation of earlier facilities to whiten black money. It is morally unethical for honest tax payers and might encourage people to evade tax. There are several scopes for whitening of undisclosed money for which Government will not ask even the source of money. These are the following:

a) Special tax treatment [19c]:Opportunity continues for

invest in Government Treasury bond by paying only 10% tax;

b) Voluntary disclosure of income [19e]through payment of 10% penalty alongside the regular tax; and

c) Investing undisclosed money in real estate sectors under Special tax treatment [19BBBBB].

Considering the increasing flow of illicit financing, which once again disclosed through Panama Paper scandal, CPD once again emphasizedon the need for a predictable legal framework including a new law on undisclosed money and benami property.

Moreover, if there is the option to convert illegal money to legal by giving tax only @ 10%, why dishonest people would disclose it as legal and give maximum tax @ 30%? Therefore, it is morally unethical that might encourage people to evade tax wherever honest taxpayers are discriminated and burdened with more tax. It is the duty of Government to ensure equity to all tax payers and stop the options to convert illegal money to legal by giving less tax rather it should be more than the maximum amount of tax.

GDP Growth, Private Investment and Employment Creation Related with FY 2016-17

The estimates provided in the budget for FY2016-17 are bold, ambitious but perhaps commensurate with the vision of attaining the middle income goal. The budget is based on few ambitious pre-requisites:

a) attaining GDP growth of more than 7 percent

b) reversing the falling trend in private sector investment and

c) achieving revenue growth over 30 percent.

The GDP growth target for the next fiscal year has been set at 7.2 percent which, according to the CPD, is moderate compared to the provisional figure of 7.05 percent for the outgoing fiscal. However, to achieve this, private investment has to be 23.3 percent of the GDP or Tk 80,000 crore, which is 1.5 percentage points higher than the current level. However, there is nothing in the budget about the source of this additional money. In his budget speech, Mr. Muhith said that during 2010-2015, 47 lakh people entered the labour market, 98 percent of them in the local market. But he did not mention that the pace of additional job creation. Jobs are there in the informal sector, but not in corporate and industrial sectors. However, it is not possible either without a rise in private investment.

Although, overall investment remains stable at around 28-29 percent of the GDP, private investment has been stagnant during the last five years. Private investment as a percentage of the GDP has remained stagnant at around 22 percent between FY11 and FY15. Impressive growth of agriculture, manufacturing and services against this backdrop suggest some missing elements into the growth puzzle. Considering the gap between national savings and investment (i.e. ranging between 0.65 and 2.1 percentage-points over FY11 to FY15 period), some economists argue a hypothesis of underestimation of private investment in Bangladesh.

The budget proposed an increase of 2.1 percentage points, both for revenue and total expenditure, and this additional spending will be met from domestic sources, led by bank borrowing. Of the 5 percent deficit, 72 percent will come from domestic sources, mainly from banks. Accordingly, interest payment for domestic debt will rise significantly from current low interest rate.The Government should use low-cost borrowings, but that is not the case in recent years. Debt servicing for borrowing for large infrastructure projects, such as Rooppur Nuclear Power plant and Rampal power plant, may put further pressure in future.

According to Centre for Policy Dialogue (CPD), challenge of attracting private investment remains as daunting as ever, as the proposed budget does not give any clear outline to mobilise additional private funds required to kick-start new industrial activities and to create the badly needed jobs.Banks’ lending rates already came down, yet private investments were not picking up. On the other hand, banks and capital markets, the two major sources of borrowing, have weakened in recent years. On the one hand, the Government wants to boost private investment but it has cut down the investment limit of total personal income to 20 percent from previous 30 percent. This will put an extra pressure on lower income groups to go for investments.

Monumental rise in non-development expenditure and absence of strategic direction for accelerating investment, coupled with institutional fragility and structural rigidities, hang the targets in balance. The budget speech seems to lack providing prudent and perceptive solutions to the current challenges except it allocates resources for sectors considering their apparent importance, thereby causing the targets of 7 plus percent growth in gross domestic product (GDP) to prove unachievable in FY2016-17.

The research organisation warns through its projection that the budget deficit may reach Tk. 99,013 crore at the end of FY 2016-17.It is estimated that the investment-GDP ratio is to be raised to almost 35 percent in order to achieve the proposed rate of growth of 7.0 percent if the incremental capital output ratio (ICOR) is assumed to remain at 4.5 to 5.0, which seems unfeasible due

mainly to supply side constraints such as inadequacies in infrastructure and lack of investment confidence owing to political uncertainties. However, Government should come up with more and more investment incentives to attain the proposed GDP growth rate.

People’s expectations from budget to improve budget utilization performance

This year’s budget comes at a time when the economy witnesses sluggish private investment, low job creation in manufacturing sector, increase of borrowing from domestic

sources to finance deficit, unachieved tax revenue and a lack of good governance in the financial sector.

The proposed budget of FY2016-17 is a bold and ambitious budget to meet the challenges of long-term difficulties. However, it could be a very effective one if Government can come upwith a budget which is equitable and meet the expectations of general public. The following issues should be addressed for making the budget effective:

• The big expectation is for a possible change in income tax slabs, which has not undergone a change in significant terms for the past several years.

• The tax net shall be widened.Tax proposal aim at widening of tax base and moving toward a more compliance based robust tax administration with stricter



parameters shall be planned and ensured.

• The sufferings of honest taxpayers should be considered and shall not take the decision of reducing investment rebates as well as imposition of tax on interest payments on approved savings instruments, superannuation fund, pension fund, gratuity fund, recognised provident fund or workers’ profit participation fund as all classes of the taxpayers will be affected for these type of decisions.

• Tax deduction at source for all exporters at 1.5 percent from previous 0.6 percent is too high and it should be reconsidered. Moreover, the increase of tax-exempted turnover limit for small and medium enterprises shall be continued to support business growth and encourage entrepreneurship.

• Government should stop subsidizing state enterprises. Money is stolen from the public banks and taxpayers’ money is used to save these enterprises. This is a disastrous policy. Government injected 15,000crore into the state-run banks to keep them functioning in the last five years but most of these money has been robbed by the powerful politician person. For these reason, public enterprises should be given hard budget constraints or should not get any subsidy from the budget. There is no logic for providing these subsidies, rather these should be privatized. A comprehensive subsidy policy for Bangladesh has to be formulated.

• Planned VAT and Supplementary Duty Act should be simplified, uniform and not be a tool for harassment.

• Greater involvement of parliamentary standing committees should be ensured in formulating and overseeing implementation of the budget. Detailed work plan shall be developed to implement the budget. Quarterly reports shall be provided on budget implementation in Parliament. Moreover, an effective result-based-monitoring system shall be established to ensure high quality delivery. Moore transparency in budget formulation, implementation and assessment procedures shall be ensured through establishing a Public Expenditure Review Commission, formulating appropriate follow up mechanisms for monitoring Government tax incentives, and disclosing financial accounts of state-owned enterprises.

• It is high time to make the stock market stable. To do so, a new institution named Stock Market Rehabilitation should be officially structured for pressurizing the present & upcoming foreign entrepreneurs & companies to put at least 10% share of their respective companies within a year at Bangladesh share market.

• 'Carbon Tax' should be imposed primarily at lower rate on the all companies which leave carbon gas in nature. This will help us step by step

recovery of polluted nature by creating planned forestation in every city & industrial area.

• Tax administration shall be more effective. For collecting the income tax properly, finding out the eligible people by endowing job seekers for a short period, National Board of Revenue (NBR) can earn more than its estimated earnings.NBR should ensure regular updates to the taxpayer registry, use electronic channels for simple transactions and simplify the tax system to encourage formalization.

Conclusion

In order to ensure the current year budget tagline “Marching towards Growth, Development and Equitable Society” effective, Government should finalise the budget that is citizen-friendly and equitable,ensuring economic and social development.Become of Lack of good governance, citizens are reluctant to pay tax. Therefore, budget shall be implemented properly so that taxpayers will get confidence to pay tax and feel that their money is being utilised properly for economic and social development of beloved Bangladesh.

References1. An Analysis of the National Budget

for FY2016-17 by CPD

2. Finance Bill 2016-17

3. The Daily Star (Daily Newspaper)

4. The Financial Express (Daily Newspaper)

5. www.businessnews24bd.com (Online News portal)

6. www.cpd.org.bd



Abstract

This paper provides with a general overview of the new corporate reporting trend called integrated reports. The paper first introduces the concept of integrated report. Then it describes the main issues related to integrated reports as proposed by International Integrated Reporting Council (IIRC). After that the findings of some selected literature on integrated reports were summarized. The article concludes that integrated reporting as a new and emerging trend of corporate reporting is still in its early development phase.

Introduction

Because of the changing global business environment, the forms of corporate reporting to stakeholders changed over time. At one point of time companies used to discharge their accountability through annual reports. In early days, these annual reports mostly focused on the financial reporting. Later the issue of social and environmental reporting started getting importance because of the growing visibility of several social and environmental problems all around the world. Many companies in the world started to prepare sustainability reports. Recently, because of the worldwide

Integrated ReportAn Emerging Trend in Corporate Reporting

1Dewan Mahboob Hossain | 2Amirus Salat | 3Al-Amin

financial crisis, there grew a demand for short, medium and long term financial and non-financial information (Knoll and Feigenbutz, 2014). As a result, the issue of integrated reporting started getting highlighted. In response to this, an international framework of Integrated Reporting was proposed by The International Integrated Reporting Council (IIRC) – ‘a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs’ (IIRC, 2013: 1). While proposing the framework, IIRC (2013) discussed on the definition of integrated reporting, the fundamental concepts related to it, its guiding principles and contents.

Integrated reporting is a kind of interconnected organized reporting that includes interrelated information about several internal and external aspects of an organization. The main purpose of integrated reporting is to provide the financial capital providers with enough information about the value creation (short, medium and long term) process of the organization (IIRC, 2013). The report contains consistent and unified information on organizational overview, external environment, governance process, business model, risks, opportunities, strategies, performance and reporting guidelines. Though apparently the providers of financial capital seem to


be considered as the main stakeholder, IIRC (2013: 4) mentions that other stakeholders like ‘employees, customers, suppliers, business partners, local communities, legislators, regulators and policy makers’ can also get benefited from this report.

Over the years, Integrated Reporting started getting importance from the corporate sector of different parts of the world. United Technologies Corporation was the first US company that prepared Integrated Report in 2008 (Van Zyl, 2013). Other than the US companies, many European companies also started producing this kind of report (Van Zyl, 2013). One of the countries that went for massive adoption of integrated reporting is South Africa.

Basic Issues Related to IIRC’s Integrated Reporting Framework

IIRC (2013) mentions that integrated reporting should follow a principles based approach. That is why, rather than suggesting specific rules, KPIs and guidelines, the framework calls for exercising judgment. That means, the preparers of the reports can take the decisions by keeping in mind the specific circumstances.

Main Guiding Principles of Integrated Reporting

IIRC highlights seven main guiding principles for integrated reports. First, the report should focus on organizational strategies that will help to create value by efficient use of capitals in the short, medium and long term. Second, the report should be holistic and interconnected. It means, it should show the interconnectedness of the factors that helps in value creation. Third, the report should highlight the organization’s association with the key stakeholders and how the

legitimate needs of these stakeholders are met. Fourth, the report should focus on the material information that is related to organizational value creation. Fifth, the report has to be concise. Sixth, the report should contain complete information about all material facts (both positive and negative) and this information should be free from material errors. Seventh, the report should be consistent and comparable over time.

Capitals

According to IIRC (2013) Framework, an integrated report should highlight on how value was created by utilization of capitals. IIRC (2013) considers the different kinds of capitals as key elements for value creation and organizational success. The framework classifies capitals into six categories:

(1) Financial capital (pool of funds),

(2) Manufactured capital (all manufactured physical objects including buildings, equipment and other infrastructures),

(3) Intellectual capital (intellectual property, tacit knowledge, policies and procedures),

(4) Human capital (the competency, experience and innovativeness of people),

(5) Social and relationship capital (norms, values, behavior and relationship) and

(6) Natural capital (air, water and other natural resources).

It is important to mention here that all of these capitals are not relevant for every kind of organization. That is why; this classification may differ from organization to organization. Moreover, all these capitals may not have equal relevance in all kinds of

INTEGRATED REPORTING IS A KIND OF INTERCONNECTED ORGANIZED REPORTING THAT INCLUDES INTERRELATED INFORMATION ABOUT SEVERAL INTERNAL AND EXTERNAL ASPECTS OF AN ORGANIZATION. THE MAIN PURPOSE OF INTEGRATED REPORTING IS TO PROVIDE THE FINANCIAL CAPITAL PROVIDERS WITH ENOUGH INFORMATION ABOUT THE VALUE CREATION (SHORT, MEDIUM AND LONG TERM) PROCESS OF THE ORGANIZATION (IIRC, 2013).

businesses. However, the organization should not overlook ‘a capital that it uses or affects’ (IIRC, 2013, p. 12).

IIRC (2013) believes that these capitals are not independent of each other and thus are interconnected. A change in one kind of capital may lead to change in one or more than one capitals. According to IIRC (2013, p. 11), capitals are the ‘stocks of value’. The value increases, decreases or gets transformed while the organization utilizes capitals. These increase, decrease and transformation result in a change in the ‘overall stock of capital’. That is why, the ‘overall stock of capitals is not fixed over time’ (IIRC, 2013, p. 11). The causes of these changes in capital are the ‘activities’ that the organization performs. It is important to mention here that performing activities for creating value can result in both increase and ‘diminution’ in the overall stock of capital (IIRC, 2013, p. 11).

IIRC (2013) emphasizes on the value creation process of the organization. That is why IIRC (2013) framework depicts a value

creation model that focuses on input, process and output. The organization uses different kinds of capitals as the inputs to run business activities. When the utilization of these capitals through different business activities (process) is done, outputs are created. Business activities consist of ‘planning, design and manufacture of products or the deployment of specialized skills and knowledge in the provision of services’ (IIRC, 2013, p. 13). This results in changes (increase, decrease, trade-off or transformation) in capital.

Components

The report should contain the following eight interconnected components. The main aspects of these components are described here.

(1) Organizational overview and external environment:

The mission and vision of the organization should be declared in the integrated report. This should contain information such as the organizational culture, value,

ethics, ownership and operating structure, main activities of the organization, the market in which the organization operates, value chain, employees, earnings and the external factors affecting the organization. In addition, the legal, socio-political and commercial environment in which the organization operates should also be described.

(2) Governance:

This should contain the leadership structure, strategic decision making process, remuneration, organizational culture, ethics and legal matters. The report should highlight how all these issues help in the value creation process.

(3) Business Model:

The description of business model includes how the inputs are put into business activities and are transformed into outputs. The report should also highlight the internal outcomes (such as reputation, revenue, cash flow and others) and external outcomes (such as customer satisfaction, brand loyalty and others).

(4) Risk and Opportunities:

The integrated report should identify both external and internal risks and opportunities, their magnitudes and their possible effects on the organization.

(5) Strategy and Resource Allocation:

The short, medium and long terms strategies should be described in the integrated report. The report should also contain information about the allocation of resources to implement these strategies. The competitive advantage of the organization should also be identified.


(6) Performance:

The report should contain both quantitative and qualitative performance indicators. The positive and negative effects on the capitals should be identified.

(7) Outlook:

The report should highlight the possible external and internal challenges and uncertainties the organization may face and how these might affect in persuasion of strategies. An assessment should be done whether the different kinds of capitals available to the organization will be able to deal with these challenges.

(8) Basis of Preparation and Presentation:

The basis of preparing and presenting the report should be mentioned. The materiality determination process, the reporting boundary and the main frameworks and methods used to determine material matters should be mentioned. According to IIRC (2013), this integrated report can be prepared by following the existing local laws and reporting requirements. IIRC (2013: 8) mentions: “An integrated report may be either a stand-alone report or be included as a distinguishable, prominent and accessible part of another report or communication”.

Why Integrated Reports?

Experts expected that if integrated reports can be prepared effectively, organizations will be able to look at their business model in a more efficient way and will be able to identify the opportunities in relation to their products and services, markets and operations and thus go for innovative ideas (Steyn, 2014). It is expected that if integrated reports can be prepared,

the following benefits will be achieved:

(a) There will be availability of more accurate non-financial information,

(b) Information will be better associated with the needs of the investors,

(c) The trust of the stakeholders will increase,

(d) Better collaboration of different functions in the organization will be achieved,

(e) Risk management will be improved,

(f) There will be reduction in cost and cost of capital and

(g) Reputational risk will be lowered (Steyn, 2014).

Integrated Reporting: South African Context

South Africa is one of the countries that have gone for massive adoption of integrated reporting in their corporate sector. This is one of the countries that became aware of the social inequalities and questioned the corporate objective of profit making from 1990s (De Villers and Van Staden, 2006; De Villers et al., 2014). As a result of this awareness, in 1994, The Institute of Directors in South Africa issued the King report on corporate governance known as King I. Later, in 2002 they published King II and in 2009, King III. The main focus of these reports was social and environmental governance (De Villers et al., 2014). In King III, the idea of integrated reporting was explained. It encouraged organizations to go for an integrated thinking and create links among strategy, risk and

opportunity, governance and sustainability (De Villers et al., 2014).

After the issuance of King III, South Africa’s Integrated Reporting Committee started promoting the concept of integrated reporting. According to De Villers et al. (2004: 1047), this was done with a belief that:

…the existing incremental disclosure changes were not sufficient, and for this reason a fundamental shift in the way companies and directors acted and organized themselves was needed … These changes had important repercussions both on the performance of business and on the types of information that stakeholders needed to assess this performance.

The integrated reporting principles introduced by King III (in 2009) soon became a part of the listing requirements of Johannesburg Securities Exchange (JSE). From March 2010, the companies in JSE are required to produce integrated reporting. In case they do not prepare integrated reports, they have to explain the reason for that.

This mandatory reporting called for a link between financial and non-financial reporting and thus to go for integrating the natural, socio-political and global economic issues in order to enable the stakeholders in ‘informed assessment’ (De Villers et al., 2014, p. 1047). South Africa’s integrated Reporting Committee developed the guidelines of integrated reporting for the South African companies. Later, South Africa’s Integrated Reporting Committee joined hand with IIRC and at this moment, the South African companies are producing integrated reports according to IIRC Framework (Van Zyl, 2013).



A Summary of the Findings of the Research on Integrated Reporting

According to Stent and Dowler (2015), integrated reporting has its origin in the earlier progresses in corporate reporting. For many years, issues like triple bottom line, corporate social and environmental accounting & reporting and sustainability reporting have emerged as attempts to ensure greater accountability. In addition, these reports introduced the issue of non-financial reporting (Van Staden and Wild, 2013). Integrated reporting also focuses on both financial and non-financial information. Integrated reporting emphasizes on connectivity.

Integrated reporting is a relatively new concept in the corporate world. That is why, the number of academic research on this issue is also less. But most of the authors highlighted the fact that the issue of integrated reporting is gradually becoming important to both professionals and academicians. The awareness about this issue is increasing (Atkins et al., 2015 :Steyn, 2014).

Framework of Integrated Reporting

Abeysekera (2012), in a conceptual paper, explained the basic ideas related to integrated reporting and proposed a template for it. This template is based on the integrated reporting designed by the King Report on Governance of South Africa and IIRC. The author mentions that this proposed framework can be considered as a coherent template as it shows how organizational vision can be achieved through the well-monitored and efficient use of financial, intellectual, social and environmental capitals. The paper

of de Villiers, Rinaldi and Unerman (2014) also examined the some existing policy guidelines and some academic literature on integrated reporting. The authors mentioned that both policy guidelines and academic research on integrated reporting are in the early development phase. They suggested that in order to understand the effects of integrated reporting practices and develop better policy guidelines, more robust academic research is needed.

Adoption of Integrated Reporting

Several authors tried to highlight the current practices of integrated reporting in different parts of the world. According to van Bommel (2014), this is still an unexplored research area. Knoll and Feigenbutz (2014) comment that IR is not any completely new concept but it is just an extension of social and environmental accounting. In this paper the reporting practices of several companies under the pilot project of IIRC were analyzed. The authors concluded that though integrated reporting can help to get a more integrated and efficient picture of organizational activities, because of its more in-depth nature, the development of an integrated reporting framework will be time consuming. Moreover, a general framework integrated reporting is not necessarily applicable to all industries. Sector-specific guidelines might be needed. Like de Villiers, Rinaldi and Unerman (2014), van Zyl (2013) also commented that the issue of integrated reporting is still in a developing phase. The author, by analyzing the reporting practices of the large South African private sector companies found that though these companies are claiming that they are producing integrated reports, the extent of integration is very slow. Similar

results can be seen in Stubbs and Higgins (2014). By conducting interviews of Australian sustainability managers, finance managers and communication managers it was found that though organizations are becoming aware of integrated reporting, ‘their adoption of integrated reporting has not necessarily stimulated new innovations in disclosure mechanisms’ (Stubbs and Higgins, 2014: 1068). According to these authors the change occurring in disclosure practices is just incremental rather than radical. Stent and Dowler (2015) analyzed the difference between the current best corporate reporting practices and integrated reporting. The authors examined the annual reports and online reporting practices of four best reporting practice companies of New Zealand. The authors concluded that the current reporting systems lack integration. The current reporting practices also lack attention on future uncertainties. Integrated reporting proposes to reduce these lacking of the current reporting system.

Awareness about Integrated Reporting

Researchers also focused on the perceptions of corporate managers about integrated reporting. Atkins et al. (2015) highlighted the growing awareness about integrated private reporting. By interviewing nineteen FTSE100 companies and twenty UK institutional investors it was found that socially responsible investment managers and mainstream fund managers are becoming aware of this issue and thus integrated reporting is emerging. Steyn (2014) conducted another perception survey on the senior executives of several listed companies of South Africa. This was a self-administered web based

survey where the respondents were asked about the perceived benefits and challenges of implementing integrated reporting. The respondents put value on integrated reporting as they believe that it is important for ‘corporate reputation, investor needs and stakeholder engagement and relations’ (Steyn, 2014: 476).

Criticisms of Integrated Reporting

Some authors conducted critical appraisal of the integrated reporting system. Van Bommel (2014) conducted semi-structured in-depth interviews of relevant people related to integrated reporting. The author also conducted documentary analysis. The author commented that integrated reporting covers a wide range of areas like industrial, market, civic and environment. That is why it needs reconciliation and compromise so that common interests can be met. According to the author this may result in lack of clarification and maintenance of ambiguity. There is a chance that in future this kind of reporting will be captured by investors and accountants. Another criticism of integrated reporting can be found in Brown and Dillard (2014). Brown and Dillard (2014: 1120) conducted a critical appraisal of the IIRC framework and commented that in terms of assessing and reporting on sustainability issues it follows a ‘limited and one-sided approach.

Discussion and Conclusion

The main purpose of this paper was to give a general overview of the new corporate reporting trend called the integrated reports. Though this form of reporting is

still in its introductory form, some advancements regarding this already took place. Firstly, a framework was proposed by IIRC. Though the framework does not describe all the requirements in details, it has come up with some guidelines that can help the companies to introduce this form of reporting. Secondly, the implementation of integrated reporting has already started. Specially, the companies in South Africa are making an attempt to come up with their integrated reports because the JSE included the preparation of integrated reports in their listing requirements. Thirdly, the issue of integrated reporting started getting attention from the academics also. Several academic studies on integrated reporting highlighted the fact that though the standard of reporting is still not up to the mark, companies in different parts of the world are gradually becoming aware of this issue. As the idea of integrated reporting is new and there is still no guideline that provides with the detailed reporting requirements, in many ways, companies are preparing it in their own innovative ways.

ReferenceAbeysekera, I. (2012). A template for integrated reporting. Accounting, Auditing & Accountability Journal, 14(2), 227-245.

Atkins, J. F., Solomon, A., Norton, S. and Joseph, N.L. (2015). The emergence of integrated private reporting. Meditari Accounting Research, 23(1), 28-61.

Baker, P. and Ellece, S. (2011). Key Terms in Discourse Analysis. NY: Continuum.

Brown, J. and Dillard, J. (2014). Integrated reporting: on the need for broadening out and opening up. Accounting, Auditing & Accountability Journal, 27(7), 1120-1156.

Brown, G. and Yule, G. (1983). Discourse Analysis. Cambridge: Cambridge University Press.

De Villiers, C., Rinaldi, L. and Unerman, J. (2014). Integrated Reporting: Insights, gaps and an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7), 1042-1067.

IIRC (2013). The International <IR> Framework. Found in www.theiirc.org on June 13, 2015.

Knoll, J. and Feigenbutz, A. (2014). Integrated reporting – a “one-size-fits-all” solution!? Managerial Economics, 15(2), 165-175.

Stent, W. and Dowler, T. (2015). Early assessments of the gap between integrated reorting and current corporate reporting. Meditari Accountancy Research, 23(1), 92-117.

Steyn, M. (2014). Organizational benefits and implementation challenges of mandatory integrated reporting Perspectives of senior executives at South African listed companies, Sustainability Accounting, Management and Policy Journal, 5(4), 476-503.

Stubbs, W. and Higgins, C. (2014). Integrated reporting and internal mechanisms of change. Accounting, Auditing & Accountability Journal, 27(7), 1068-1089.

Van Bommel, K. (2014). Towards a legitimate compromise? An exploration of integrated reporting in the Netherlands. Accounting, Auditing & Accountability Journal, 27(7), 1157-1189.

Van Staden, C. and Wild, S. (2013). Integrated Reporting: an initial analysis of early reporters. Paper presented in Massey University Accounting Research Seminar, Auckland.

Van Zyl, A. S. (2013). Sustainability and integrated reporting in the South African Corporate Sector. International Business and Economics Research Journal, 12(8), 903-926.

1-3The Authors are:Associate Professors, Department ofAccounting & Information SystemsUniversity of Dhaka



Abstract

As the disclosures of ratio related information appreciably enable the shareholders and other users of accounting information to make justified decisions for business affairs, it is noteworthy to evaluate the rates of such disclosure practices by the companies. So, this study aims to comprehend multidimensional analysis on the importance and practical trends of ratio related disclosures along with some empirical observation as conducted on some representative companies' information. The analysis has found that on an average the selected companies disclosed 3.74 items out of 19 disclosure items representing 19.68% compliance with overall disclosure items. Also standard deviation of 2.47 indicates that companies are inconsistent in disclosing disclosures requirements voluntarily. Such analysis, being verified further by the association with some other strong indicators of company’s financial position, will contribute to the accounting literature with meaningful practical orientation which will pave the ways for similar research & instigate companies to make such disclosures voluntarily.

Key Words: Net Asset Value per Share (NAVPS), Earning per Share (EPS), Return

Importance and Practice of Ratio RelatedDisclosures in the Corporate Annual Report

Evidence from Selected Companies Listed in DSE1Md. Ahasan Uddin | 2Rana Mazumder

on Assets (ROA), Return on Equity (ROE), Net Profit after Tax (NPAT), Debt/ Equity Ratio (DER), Book Value of equity per share (BVPS), Average True Range (ATR), Price Earnings Ratio (PER), Dividend Pay Out Ratio (DPOR), Net operating Cash Flows per Share (NOCFPS), Book Value Per Share (BVPS), International Accounting Standards (IAS) -33 and Dhaka Stock Exchange (DSE).

Introduction

Being considered as the language of business, accounting is both eligible and responsible for providing useful information to users with concentration on interest and disclosure grounds of information. This study will evaluate the voluntary disclosures of financial ratios by the companies, as selected, of Bangladesh.

Actually voluntary disclosures symbolize preferences for providing by the management which is excess of obligatory requirements. Again, it is important to understand the reasons behind the presentation of such voluntary information from the viewpoint of both companies and all external users of information including accounting policy makers (Meek et al, 1995).

Being detached from the management of


organization, shareholders need to depend solely on the disclosed information in the financial statements for making informed decisions. Therefore, managers can exploit the interest of the shareholders of the companies even after complying with all the regulations to pass specific information to shareholders. For this very reason the practices of making voluntary disclosures have assumed a great appeal to make more private information public so as to achieve reliable perception for the informed users (Evan & Sridhar, 1996).

Apart from other voluntary disclosures, ratio related disclosures can improve the perceptions of stakeholders by comparative analysis of firms’ financial and other progress through ratio based graphs or tables that portray alterations over time (Courtis, 1996).

Now, voluntary disclosures of ratio related information have more than enough appeals and implications to bring a better true and fair view of financial reporting which will enlighten the entire process of businesses in result. So, this research is conducted to draw some constructive ideas on concerned issue as being supported by practical findings and empirical analysis.

Rationale of the Study

There are some regulatory bodies like Bangladesh Securities Exchange Commission (BSEC), Bangladesh Bank and others along with some regulatory frameworks like Bangladesh Financial Reporting Standards (BFRS) and Companies Act, 1994 etc. which require companies to make ranges of disclosures mandatorily. But these rules and regulations are inadequate to illustrate wholesome picture of companies’ financial affairs. So, there is very requirement of having some voluntary disclosures by the

companies of both of financial and non-financial types so as to facilitate decision making process better (Ho & Wong, 2001).

There are not so many ratio related disclosures made mandatory by the regulatory frameworks. IAS 33 “Earnings Per Share” compels firms to provide Earnings per Share (EPS) and diluted EPS ratios as part of their reporting requirements. However, the interested users require information on different other ratios for better understanding of different aspects. So, it is noteworthy to analyze the impact of disclosing ratio related information voluntarily.

Objectives of the Study

The ultimate objective of the research is to find out the present scenario of voluntary representations of the ratio related disclosures along with impact and importance of those disclosures. Some other specific objectives are:

1. To find out the quality and contribution of the financial information disclosures;

2. To find out the significant determinants of the extent and quality of financial ratio disclosures;

3. To find out the best and worst performers in case of voluntary financial ratio disclosures.

Methodology of the Study

Sample Selection

To prevent result from being contaminated by inter-industry factors, the study has been conducted on two sectors: textiles industry and pharmaceutical & chemical industry. The study has taken 61 companies. 23 companies have been selected from

ON AVERAGE TEXTILES COMPANIES DISCLOSE 4.10 DISCLOSURES ITEMS OUT OF 19 ITEMS SHOWING A POOR LEVEL OF COMPLIANCE WITH A HIGH STANDARD DEVIATION OF 2.46 MEANING THAT ALL THE COMPANIES ARE NOT CONSISTENT IN TERMS OF FOLLOWING DISCLOSURES COMPLIANCE. BUT THE WORST SCENARIO IS IN THE CASE OF PHARMACEUTICALS AND CHEMICALS INDUSTRY WITH THE MEAN VALUE OF DISCLOSURES 3.13 AND STANDARD DEVIATION OF 2.51 DICTATING A SIGNIFICANT DEVIATION IN TERMS OF COMPLIANCE.


pharmaceutical & chemical industry out of total such 27 companies as listed in DSE and 38 from textile industry with a total of 41 listed companies. Actually this study was conducted in 2015. So to make study a contemporary, data for this study was gathered from the audited annual financial reports of 2014.

Data Analysis Process

Here a checklist has been developed for relevant ratio related disclosures which have decision relevance from the part of stakeholders. Then the study has been conducted to assess the compliance status of those companies on the basis of ratio disclosure checklist.

This study is supported by weighted disclosure index as well as un-weighted disclosure index. Researchers such as Karim (1995), Ullah (2013) , Hossain (2000 and 2001), Hossain et al (1994) and Ahmed and Nicholls (1994) adopted a dichotomous procedure in which an item scores ‘1’, if disclosed and ‘0’ if not disclosed. The un-weighted disclosure method measures the total disclosure (TD) score of a selected company (suggested by Cooke, 1992) as follows

Where,

d = 1 if item di is disclosed

0 = if the item is not disclosed

n = number of items

The rationale of the un-weighted disclosure index is that all items of the disclosed information are considered to be equally critical in

the decision making of concerned users. Finally the study has tried to conclude whether disclosures index are influenced by some of the independent variable like size of the firm as measured by total assets, profitability as measured by EPS, ROA and NPAT and firms’ age as measured by the variable age.

Literature Review

This review section tends to analyze the diverged studies as made on the voluntary disclosures and sharing of financial information by the companies. Several experimental studies observed that the rate of providing disclosures on different financial and non financial issues is significantly low. Even sample companies failed to meet the minimum and mandatory disclosure requirements as set by regulatory bodies and applicable acts in Bangladesh (Alam, 1989). Providing of as many as financial disclosures is important not only from the point of investors or the shareholders but also from the point of company as a whole. This truth is applicable for the economic development of developing and developed countries as well apart from personal interest (Cooke, 1989).

As per characteristic analysis of accounting information, financial reporting works as an important tool to restrain management from acting against the interest of other stakeholders (Watts & Zimmerman, 1978). More information will restrict further bad accounting outcomes and reduce the risk of financial reporting problems by ensuring good governance (Hermanson, 2003). Mckinsey & Company (2002) refers that majority of the investors, basically institutional investors, are interested to pay higher premium

for the companies with good governance and practices of proving more voluntarily disclosures.

The factors of agency costs and information asymmetry can be connected with the necessities of getting voluntary disclosures as well (Palmer, 2006). Beattie (2005) also proclaimed in Plamer theory where the factors of political costs are added with priority though such information is not mandatory at all. So, positive accounting theories have also given basis to the theoretical explanations for such analysis on disclosures.

Liquidity situations, types and nature of industry and size variables etc. are positively associated with the disclosure issues whereas there is a negative association between disclosures and profitability along with capitalization ratio (Belkaouni & Kahl, 1978).

For the voluntary or additional disclosure of the ratio information signaling theory can be exercised through highlighting different aspects of investment, efficiency ratios and profitability (Watson et al, 2002).

Verrecchia (2001) suggested that three significant research problems be identified by disclosure:

(i) Impact of information disclosures on accumulated behavior of economic agents

(ii) Evaluation of the economic efficiency of the information disclosure

(iii) All the eligible situations as surrounding the decisions to make private information public include voluntary.

TD = ∑=

n

idi

1


Findings and Analysis

The results and findings of the study are based on the empirical results that begins by looking at -

Descriptive statistics

Pearson’s Correlation

Descriptive Statistics Analysis

Based on the analysis we have found that most of the chosen

companies have not complied with the requirements satisfactorily. On average textiles companies disclose 4.10 disclosures items out of 19 items showing a poor level of compliance with a high standard deviation of 2.46 meaning that all the companies are not consistent in terms of following disclosures compliance (Table-1). But the worst scenario is in the case of pharmaceuticals and chemicals industry with the mean value of disclosures 3.13 and standard

deviation of 2.51 dictating a significant deviation in terms of compliance (Table-1). Overall companies complied on an average 3.74 items out of 19 disclosures item representing 19.68% compliance. Also standard deviation of 2.47 indicates overall deviation in such compliance (Table-1). So the overall scenario of ratio related disclosures of selected companies show an unsatisfactory result.

Only disclosures of few ratios like Earnings per Share (EPS), Net Asset Value per Share (NAVPS) and Net Operating Cash Flows per Share (NOCFPS) provide to the some extent satisfactory results. But most of the companies do not comply with the disclosures of key ratios

which have decision relevance most. According to analysis, most of the disclosures are centered on EPS, NAVPS and NOCFPS. 61(sixty one), 35(thirty Five) and 17(seventeen) companies have disclosed these ratios out of 61(sixty one) companies

respectively with the corresponding percentages of 100%, 57% and 33%. Disclosures compliance in terms of other ratios is very minimal ranging from 16(sixteen) to 2(two) out of 61(sixty one). (Table-2 and Graph-1).

Table-1: Descriptive statistics of sample companies-

Industries Variable Observation Mean S.D Minimum Maximum

Both Ratio Disclosures 61 3.7377 2.47003

9 1 12

Textile Ratio Disclosures 38 4.1053 2.45543

5 1 12

pharmaceuticals and chemicals

Ratio Disclosures 23 3.1304 2.50834

7 1 8

Source: Developed by author using the information provided in the annual report

Graph-1: Frequency percentage of ratio disclosures in both Textiles and Pharmaceuticals & Chemical Industry

120100

80604020

0

Freque....

EPS

NAVPSNOCFP

S

Cash D

ivide

nd PER

DER

Curren

t Rati

oBVPS

DPOR

Stock

Divi

dend

Quick R

atio

ATR

Gross

Marg

in Rati

o

NIR (N

et Inc

ome R

atio)

ROEROA

ITR (In

vento

ry Tu

rnov

er...

TIER (T

ime I

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ARTR (A

ccou

nt...

Textile Industry

Based on this analysis, it is found that most of the disclosures have concentrated on EPS may be because it is required by IAS-33. The rate of disclosure of such ratio

is 100%. In case NAVPS most of the companies also tend to disclose the information and the rate of such disclosure is 66% that means out of 38 companies 26 companies have disclosed this information. Disclosures

compliance in terms of other ratios is very minimal ranging from 10 to 2 out of 38 with the corresponding ratios ranging 26% - 5% of sampled textile companies. (Table-3 and Graph-2).


Table-2: Overall Disclosures of Ratios

Source: Developed by author usingthe disclosures information from annual report.

Table-3: Overallratio disclosures by textile industry

Disclosure of Ratios

Number of companies disclosed

Sample Frequency % Disclosure of Ratios


Sample Frequency %

EPS 38 38 100 Gross Margin Ratio 6 38 15.79

NAVPS 25 38 65.78 NIR (Net Income Ratio) 6 38 15.79

Cash Dividend 10 38 26.32 ROE 6 38 15.79

DER(Dividend Earning Ratio)

10 38 26.32 DPOR(Dividend Payout Ratio) 4 38 10.52

NOCFPS 9 38 18.42 ROA 3 38 7.89BVPS 7 38 18.42 PER(Price Earnings Ratio) 2 38 5.26Stock Dividend 6 38 15.79 TIER (Time Interest Earned

Ratio) 2 38 5.26

Current Ratio 6 38 15.79 ARTR (Account Receivable Turnover Ratio) 2 38 5.26

Quick Ratio 6 38 15.79 ITR (Inventory Turnover Ratio) 2 38 5.26

ATR(Asset Turnover Ratio)

6 38 15.79

Source: Developed by author using theinformation

Disclosure of Ratios


Sample Frequency % Disclosure of Ratios


Sample Frequency %

EPS 61 61 100 Quick Ratio 7 61 12NAVPS 35 61 57 ATR 7 61 12NOCFPS 17 61 33 Gross Margin Ratio 7 61 12Cash Dividend 16 61 28 NIR (Net Income Ratio) 7 61 12

DER 12 61 20 ROE 6 61 10Current Ratio 12 61 20 ROA 4 61 7

BVPS 11 61 18 ITR (Inventory Turnover Ratio) 3 61 5PER 8 61 13 TIER (Time Interest Earned Ratio) 2 61 3

DPOR 8 61 13 ARTR(Account Receivable Turnover Ratio) 2 61 3

Stock Dividend 7 61 11


Graph-2: Frequency

050

100150

EPS

NA

VPS

Cas

h …D

ERN

OC

FPS

BV

PSSt

ock …

Cur

rent

…Q

uick

Rat

ioA

TRG

ross

…N

IR (N

et …

RO

ED

POR

RO

APE

RTI

ER …

AR

TR …

ITR

…

Frequency %

Frequency %

Pharmaceuticals & Chemicals industry

Beside textile industry, pharmaceuticals & chemicals industry represents significant portion of stock market. So, we can assume importance of disclosing ratio related disclosures to serve better decision making objectives of different stakeholders. But the analysis shows unsatisfactory result. It is found that most of the

disclosures of the companies are centered on EPS, NAVPS and NOCFPS i.e. 23, 10 and 8 companies have disclosed these ratios out of 23 companies respectively and the corresponding percentage are 100%, 43.47% and 34.78% respectively. Disclosures compliance in terms of other ratios is very minimal as like textile industry ranging from 6 to 0 out of 23. (Table-4 and Graph-3). Finally after comparing the overall

compliance of pharmaceuticals and chemicals industry with textile industry, we have found situation of pharmaceutical and chemical industry is worse.

Actually not all the companies are performing in the same way in terms of disclosing ratio related disclosures in the corporate annual reports. Some are performing better whereas others are worse performer.

Table-4: Ratio disclosures by pharmaceutical and chemical industry

Source: Developed by author using the information in the annual report.

Disclosures of ratio


Sample Frequency %

Disclosures of ratio Number of companies disclosed

Sample Frequency %

EPS 23 23 100 Quick Ratio 1 23 4.34NAVPS 10 23 43.47 ATR(Asset Turnover Ratio) 1 23 4.34NOCFPS 8 23 34.78 ITR (Inventory Turnover Ratio) 1 23 4.34Cash Dividend 6 23 26.08 Gross Margin Ratio 1 23 4.34PER 6 23 26.08 NIR (Net Income Ratio) 1 23 4.34Current Ratio 6 23 26.09 ROA 1 23 4.34DPOR 3 23 13.04 TIER (Time Interest Earned Ratio) 0 23 0

DER 2 23 9.09 ARTR (Account Receivable Turnover Ratio) 0 23 0

Stock Dividend 1 23 4.34 ROE 0 23 0

BVPS 1 23 4.34


Ranking of the Companies

Table-05, shows the ranking of the companies on the basis of un-weighted total ratio disclosures. It is found that the Saiham Cotton Mills disclosed

maximum 12 ratio disclosures items (63%) out of 19 items and Metro Spinning Limited disclosed 9 disclosure items which represents 47.37% of total relevant disclosures. Noticeably, first three companies are

from textile industry and next two companies are from Pharmaceuticals & Chemicals industry. So, textile companies are better performing in concerned compliances (Table-5)

Again, Mita Textile, Active Fine Chemicals, R.N. Spinning Mills, Ambee Pharma and Salvo Chemical Industry are the worst performers n

terms of disclosing ratio related disclosures. Importantly, out of 5 worst companies three companies are from pharmaceuticals and chemicals

industry and two from textile industry. So comparatively pharmaceuticals and chemicals industry is lagging behind.

Graph-3: Frequency percentage of ratio disclosure in pharmaceuticals and chemical industry

Table-5: Top fivecompaniesin terms of complying with ratio disclosures

Table-6: Bottom Five(05)companies for the disclosure of Ratios

Source: Developed by author using the information

Source: Developed by author using the information

Company Name Industry ConsideredDisclosures

Ratios Disclosed Percentage

Saiham Cotton Mills Textile 19 12 63%Metro Spinning Textile 19 9 47.37%The Dacca Dyeing and Man. Co. Textile 19 8 42.11%

Glaxo SmithKline Pharmaceuticals & Chemicals 19 8 42.11%

Marico Bangladesh Ltd. Pharmaceuticals & Chemicals 19 7 36.84%

Company Name Industry Considered Disclosures Ratios Disclosed Percentage

Mita Textile Textile 19 1 5.26%Active Fine Chemicals

Pharmaceuticals & Chemicals 19 1 5.26%

R.N. Spinning Mills Textile 19 1 5.26%

Ambee Pharma Pharmaceuticals & Chemicals 19 1 5.26%

Salvo Chemical Industry

Pharmaceuticals & Chemicals 19 1 5.26%

020406080

100120

Frequency %

Frequency %


Pearson Correlation Analysis

To test whether there is any relationship between the selected variables and the compliance score, it is important to state the hypotheses in the first place. The hypotheses which are targeted to test are:

H0 = There is no significant relationship between the compliance score and the selected variables (Age, EPS, ROA, NPAT and Total Assets).

H1 = There is a significant relationship between the compliance score and the selected variables (Age, EPS, ROA, NPAT and Total Assets).

To test the relationship among these variables, the correlation analysis has been conducted at a 5% significance level. The correlation analysis has demonstrated whether there are any statistically significant relationships between disclosures index in one hand and the selected independent variables (Age, EPS, ROA, NPAT and Total Assets) on the other hand(table-7)

Only the variables- ROA and Total Assets show statistically significant association with Ratio Disclosures Index. So the study concludes that Total asset and ROA of any company can predict Ratio related disclosures. The Age is negatively associated with disclosures score with a correlation value -0.2976 which indicates a very low level of association that variable. The justification may be such that older firms have huge market coverage having long-term relationship with their clients following traditional approach of reporting. Finally the study concludes that there is a significant positive relationship between the compliance score and the selected variables (ROA and Total Assets) therefore null hypothesis rejected and statistically insignificant relationship with the

variables (Age, NPAT and EPS) therefore null accepted.

Conclusion & Recommendations

Ensuring accountability and providing transparency are some of the contemporary and frequent buzzwords in business sectors. Now, communication of information is the most vital way of bringing accountability and transparency to businesses. Apart from the mandatory representation of the information by the companies, there should be adequate voluntary disclosures of financial or non-financial information since all stakeholders significantly rely on these. Ratio related disclosures are of further expectation and importance for the

users of the information as these shapes the true and fair view of the entire business process.

This study is targeted to analyze the compliance level of relevant ratio related disclosures in the pharmaceuticals & chemicals and textile industries. Again, the relation of the compliance level with other variables has been evaluated to find out whether the level is affected by other factors or not. There are several theoretical frameworks that underpin the disclosures requirement in the corporate annual reports. Accounting theorists have sought to move on from explaining accounting policy choices to explaining voluntary disclosure in the corporate annual report that is also supported by positive

Table-7: Correlation Matrix

Variables Ratio Disclosures Age EPS ROA NPAT Total

AssetCorrelation of Ratio Disclosures 1.0000

p-value -Correlation of Age -0.2976 1.0000

p-value (0.7475) -Correlation of EPS 0.1093 0.2461 1.0000

p-value (0.9997) (0.6208) -Correlation of ROA 0.5837* 0.2260 0.4026 1.0000

p-value (0.0462) (0.7132) (0.0852) -Correlation of NPAT 0.3744 0.1373 0.4658* 0.4965* 1.0000

p-value (.7240) (0.9957) (0.0051) (0.0011) -Correlation of Total Asset 0.6057* -0.0098 0.5383* 0.1632* 0.7517* 1.0000

p-value (0.000) (1.0000) (0.0000) (0.0000) (0.7707) -

Source: Developed by Author using STATA Software (*indicates significant at 5% level)

The Authors are:1Lecturer, Dept. of Accounting & Information Systems, University of Dhaka2Lecturer School of Business & Economics, United International University (UIU)


accounting theory. The disclosure of ratios in company accounts may provide users of financial statements with new information not calculated elsewhere, or may simply provide information available elsewhere in the same or different form. Lundholm and Winkle (2006) discuss the motivation for disclosure and state that voluntary disclosure can be utilized to reduce the information asymmetry problems. Thus investment, profitability and efficiency ratios may be disclosed by those companies wishing to highlight relevant aspects of their performance.

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The journal is printed in resplendent four colour, on glossy art paper. A limited number of pages are set aside for advertisements from selective advertisers. You too could be one of them!

Contact us today for further information and book your insertion in the next issue of ‘The Bangladesh Accountant’.

A K M Rahmat Ullah FCASecretaryThe Institute of Chartered Accountants of Bangladesh CA Bhaban, 100 Kazi Nazrul Islam AvenueKawran Bazar, Dhaka-1215, BangladeshTel: 9115340, 9117521, 9137847Fax : +880-2-9125266E-mail: [email protected]

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Apr

il - J

une

2016

Budg

et 2

016-

2017

: Rea

litie

s of

Ban

glad

esh

Econ

omy

April - June 2016



April - June 2016

Budget 2016-2017: Realities of Bangladesh Economy

April - June 2016


Documents

BUDGET 2016-2017 REALITIES OF BANGLADESH ECONOMY National Budget 2016-17: will Economy Really March 55 Towards Growth, Development and Equitable Society? - Mohammad Zahid Hossain FCA