Macroeconomics_5_Fiscal_Policy_of_Bangladesh-30.01.2013.ppt

Fiscal Policy of BangladeshJamshed uz Zaman

When budget is declaredOpposition Parties claim: Budget against the poor;Government Parties claim: Welfare oriented budget.Some declares hartal.

How to understand a budget favors whom?A budget may favor poor or rich class;Importers or exporters;Primary producers or manufacturers; etc.Government claims that the budget is surplus, but most often it is true. Govt.s claim it because Political popularity,People are afraid of inflation.

Is deficit budget always unacceptable? No. Deficit budget are preparedIn deflationary situation,When resources fall short of needs,To help implementation of monetary policy.Deficit does not necessarily mean imposition of new taxes.

Components of BudgetRevenue BudgetRevenue Receipts +Revenue Expenditure - Surplus/DeficitFood BudgetFood AidCounterpart FundFood ImportVGD, FFWSubsidySurplus/DeficitCapital BudgetReceiptsPaymentsSurplus/Deficit

Development ProgramExpenditureReceiptsRevenue SurplusNew Tax MeasuresNet Domestic CapitalExtra Budgetary Resource

Counterpart fundNet food aid

Foreign AssistanceForeign Direct InvestmentBorrowing from the publicBorrowing from Banking System- Central Bank- Commercial banks

Total Budget has to be deficit to achieve the long term goalsWe have to check whether the budget is inflationary,ADP if helps productivity no inflation. ADP if does not helps productivity inflation. We have to check dependence on foreign assistanceIs increasing or not Whether there is long term goalsAnti terrorismAnti drug abuseLaw and order situation improvementSocio-economic development.

Tax/Revenue Ratio has to be increased to finance the deficitNon tax revenue are vulnerable and not dependable. Tax revenue ratio should be increased. But how? Our tax base is very low.

Chart2

84.862028760215.1379712398

84.094812779115.9051872209

85.290646208314.7093537917

81.603170544618.3968294554

81.338657139918.6613428601

81.645569620318.3544303797

80.456026058619.5439739414

78.184377199221.8156228008

78.861526560121.1384734399

82.088072324317.9119276757

79.890291313820.1097086862

80.482233502519.5177664975

80.093698758519.9063012415

80.627145989319.3728540107

79.255511384220.7444886158

80.173521850919.8264781491

79.943502824920.0564971751

81.505102040818.4948979592

80.62539003319.374609967

81.677515130818.3224848692

Tax/Revenue

Non-Tax/Revenue

Sheet1

NBR Tax RevenueTax/GDPNBR +Non

TaxGDPAs Percentage of GDPTotalNBR TaxTotalTax/RevenueNon-tax/

1995105.226RevenueTaxGDPDirect TaxNBR TaxTaxNon-taxrevenueRevenueDirect to total taxTax/RevenueNon-Tax/Revenue

1996113.70019979.627.891752851988664436777951460.850.151519888515

1997125.03319989.57.691844481989750489692658220.840.161519898416

1998138.018199997.361934291990875578199767780.850.151519908515

1999148.69020008.476.78204928199110716383143978220.820.181719918218

2000151.23220019.67.8215735199213007741177695170.810.191719928119

2001187.748200210.217.812252611993172090302030110600.820.181919938218

2002202.896200310.358.32371011994173598802400122800.800.201819948020

2003237.552200410.638.525196819951560111103100142100.780.221419957822

2004270.552200510.578.6226697419961510122333279155120.790.211219967921

2005305.000200610.798.728467319971735140743071171450.820.181219978218

2006356.500200711.249.183032071998210014100150013776187770.800.201419988020

20071999233514850158553845197000.800.201519998020

2000298016000170964249213450.800.201720008020

Source:Review 20072001360018300194904683241730.810.191820018119

2002410020730219305740276700.790.211920027921

2003478823750249506170311200.800.201920038020

2004527027050283007100354000.800.201920048020

2005585030500319507250392000.820.181820058218

2006696034456361758693448680.810.191920068119

2007850041055429159627525420.820.182020078218

Original AllocationRevised AllocationActual Expenditure

19735012811973

19745254001974

19755254941975

19769508101976

197710069991977

1978120312571978

1979160314831979

1980233020821980

1981236923641981

1982271523911982

1983312626881983

1984358530061984

1985349831671985

1986409636281986

1987451344391987

1988465141501988

1989459646221989

1990510357171990

1991612652691991


19927500715060241992

19938650812165501993

19949750960089831994

19951100011150103031995

19961210010447100161996

19971250011700110411997

19981280012200110371998

19991360014000125091999

20001550016500164712000

20011750018200161512001

20021900016000140902002

20031920017100154342003

20042030019000168172004

20052200020500187712005

20062450021500194732006

2007260002160065382007

Sheet1

Tax

Tax/GDP Ratio in Bangladesh

Sheet2

Direct to total tax

Direct tax toTotal tax

Sheet3

75006024

86506550

97508983

1100010303

1210010016

1250011041

1280011037

1360012509

1550016471

1750016151

1900014090

1920015434

2030016817

2200018771

2450019473

260006538

Original Allocation

Actual Expenditure

&A

Page &P

Tax/Revenue

Non-Tax/Revenue

Whether newly imposed taxes are always bad?Not always badSocialEconomicReligiousAre they against poorCheck IncidenceRatio of direct and indirect tax.

It is difficult to increase Tax/GDP Share in a poor country

Share of Revenue in GDP 1987Bangladesh9.5India14.5Pakistan16.7Indonesia23.1

Chart1

7.89

7.69

7.36

6.78

7.8

7.81

8.3

8.5

8.62

8.7

9.18

Tax


Sheet1

NBR Tax RevenueNBR +Non

TaxGDPTax/GDPAs Percentage of GDPTotalNBR TaxNon-taxTotalTax/RevenueNon-tax/

1995105.226RevenueTaxGDPDirect TaxNBR TaxTotal TaxrevenueRevenueDirect to total tax

1996113.70019979.627.891752851988664436777951460.850.150.15

1997125.03319989.57.691844481989750489692658220.840.160.15

1998138.018199997.361934291990875578199767780.850.150.15

1999148.69020008.476.78204928199110716383143978220.820.180.17

2000151.23220019.67.8215735199213007741177695170.810.190.17

2001187.748200210.217.812252611993172090302030110600.820.180.19

2002202.896200310.358.32371011994173598802400122800.800.200.18

2003237.552200410.638.525196819951560111103100142100.780.220.14

2004270.552200510.578.6226697419961510122333279155120.790.210.12

2005305.000200610.798.728467319971735140743071171450.820.180.12

2006356.500200711.249.183032071998210014100150013776187770.800.200.14

20071999233514850158553845197000.800.200.15

2000298016000170964249213450.800.200.17

Source:Review 20072001360018300194904683241730.810.190.18

2002410020730219305740276700.790.210.19

2003478823750249506170311200.800.200.19

2004527027050283007100354000.800.200.19

2005585030500319507250392000.820.180.18

2006696034456361758693448680.810.190.19

2007850041055429159627525420.820.180.20

Sheet1

Tax


Sheet2

Direct to total tax

Sheet3

To increase Tax/GDP ratioFiscal Sector reform is necessary,Tax administration should be modern,Tax evasion and corruption have to be stopped.

Sometimes new taxes are imposed.DIRECT TAX should be increased to help poverty alleviation.

Asian Developing countries have much higher direct taxes over revenue

Direct Tax in Total RevenueBangladesh9Pakistan10India17Singapore27Malaysia34Indonesia58

Direct Tax to Total Tax. Increase in this ratio does not prove budgets are pro-poor

Chart2

15.2049461873

15.318627451

15.1357896558

16.7789440702

16.7936959049

19.0476190476

17.5607287449

14.0414041404

12.3436605902

12.3276964616

13.9990667289

14.7272153895

17.4309780066

18.4710107748

18.6958504332

19.1903807615

18.6219081272

18.3098591549

19.2398064962

19.8065944309

Direct to total tax


Sheet1

NBR Tax RevenueNBR +Non

TaxGDPTax/GDPAs Percentage of GDPTotalNBR TaxNon-taxTotalTax/RevenueNon-tax/


1996113.70019979.627.891752851988664436777951460.850.1515

1997125.03319989.57.691844481989750489692658220.840.1615

1998138.018199997.361934291990875578199767780.850.1515

1999148.69020008.476.78204928199110716383143978220.820.1817

2000151.23220019.67.8215735199213007741177695170.810.1917

2001187.748200210.217.812252611993172090302030110600.820.1819

2002202.896200310.358.32371011994173598802400122800.800.2018

2003237.552200410.638.525196819951560111103100142100.780.2214

2004270.552200510.578.6226697419961510122333279155120.790.2112

2005305.000200610.798.728467319971735140743071171450.820.1812

2006356.500200711.249.183032071998210014100150013776187770.800.2014

20071999233514850158553845197000.800.2015

2000298016000170964249213450.800.2017

Source:Review 20072001360018300194904683241730.810.1918

2002410020730219305740276700.790.2119

2003478823750249506170311200.800.2019

2004527027050283007100354000.800.2019

2005585030500319507250392000.820.1818

2006696034456361758693448680.810.1919

2007850041055429159627525420.820.1820

Sheet1

Tax


Sheet2

Direct to total tax


Sheet3

Revenue receipts are dependent on external factorAbout 45-50 percent taxes come from external sourcesEconomy is heavily dependent on external factor,Receipts are vulnerable to external factor,Proportion of income tax should immediately be increased.Fear of political hazard. Those who should pay higher income tax are very powerful. They may even topple a government.

Sources of Revenue: Percentage of TotalFY200420052006Import Duty272623VAT (import)171817SD (import)665Subtotal505145Excise100VAT (local)161719SD (local)141214Subtotal313033Income181921Other111Grand Total100100100

Original Allocation vs. Actual Expenditure

Chart1

75006024

86506550

97508983

1100010303

1210010016

1250011041

1280011037

1360012509

1550016471

1750016151

1900014090

1920015434

2030016817

2200018771

2450019473

260006538

Original Allocation

Actual Expenditure

Sheet1


TaxGDPAs Percentage of GDPTotalNBR TaxNon-taxTotalTax/RevenueNon-tax/


1996113.70019979.627.891752851988664436777951460.850.1515

1997125.03319989.57.691844481989750489692658220.840.1615

1998138.018199997.361934291990875578199767780.850.1515

1999148.69020008.476.78204928199110716383143978220.820.1817

2000151.23220019.67.8215735199213007741177695170.810.1917

2001187.748200210.217.812252611993172090302030110600.820.1819

2002202.896200310.358.32371011994173598802400122800.800.2018

2003237.552200410.638.525196819951560111103100142100.780.2214

2004270.552200510.578.6226697419961510122333279155120.790.2112

2005305.000200610.798.728467319971735140743071171450.820.1812

2006356.500200711.249.183032071998210014100150013776187770.800.2014

20071999233514850158553845197000.800.2015

2000298016000170964249213450.800.2017

Source:Review 20072001360018300194904683241730.810.1918

2002410020730219305740276700.790.2119

2003478823750249506170311200.800.2019

2004527027050283007100354000.800.2019

2005585030500319507250392000.820.1818

2006696034456361758693448680.810.1919

2007850041055429159627525420.820.1820


19735012811973

19745254001974

19755254941975

19769508101976

197710069991977

1978120312571978

1979160314831979

1980233020821980

1981236923641981

1982271523911982

1983312626881983

1984358530061984

1985349831671985

1986409636281986

1987451344391987

1988465141501988

1989459646221989

1990510357171990

1991612652691991


19927500715060241992

19938650812165501993

19949750960089831994

19951100011150103031995

19961210010447100161996

19971250011700110411997

19981280012200110371998

19991360014000125091999

20001550016500164712000

20011750018200161512001

20021900016000140902002

20031920017100154342003

20042030019000168172004

20052200020500187712005

20062450021500194732006

2007260002160065382007

Sheet1

Tax


Sheet2

Direct to total tax


Sheet3

Original Allocation

Actual Expenditure

Dependence on Foreign Assistance

Chart3

77.938650306722.0613496933

64.690113660735.3098863393

69.27627000730.723729993

67.882914930432.1170850696

63.296227581936.7037724181

55.057226510544.9427734895

54.936003041445.0639969586

53.020524073846.9794759262

68.373019165431.6269808346

56.219381049143.7806189509

61.040557148738.9594428513

53.917863441746.0821365583

Foreign Financing

Domestic Financing

Sheet1




1996113.70019979.627.891752851988664436777951460.850.151519888515

1997125.03319989.57.691844481989750489692658220.840.161519898416

1998138.018199997.361934291990875578199767780.850.151519908515

1999148.69020008.476.78204928199110716383143978220.820.181719918218

2000151.23220019.67.8215735199213007741177695170.810.191719928119

2001187.748200210.217.812252611993172090302030110600.820.181919938218

2002202.896200310.358.32371011994173598802400122800.800.201819948020

2003237.552200410.638.525196819951560111103100142100.780.221419957822

2004270.552200510.578.6226697419961510122333279155120.790.211219967921

2005305.000200610.798.728467319971735140743071171450.820.181219978218

2006356.500200711.249.183032071998210014100150013776187770.800.201419988020

20071999233514850158553845197000.800.201519998020

2000298016000170964249213450.800.201720008020

Source:Review 20072001360018300194904683241730.810.191820018119

2002410020730219305740276700.790.211920027921

2003478823750249506170311200.800.201920038020

2004527027050283007100354000.800.201920048020

Share of Revenue 19872005585030500319507250392000.820.181820058218

Bangladesh9.52006696034456361758693448680.810.191920068119

India14.52007850041055429159627525420.820.182020078218

Pakistan16.7

Indonesia23.1

Direct Tax in Total Revenue

Bangladesh9

Pakistan10

India17

Singapore27

Malaysia34

Indonesia58

Sources of RevenueSources of Revenue: Percentage of Total

FY2004200520062007FY2004200520062007

Original AllocationRevised AllocationActual ExpenditureImport Duty7087.57912.97825.3Import Duty2726230

19735012811973VAT (import)4397.953475885.7VAT (import)1718170

19745254001974SD (import)1685.71853.51563.4SD (import)6650

19755254941975Subtotal13171.115113.415274.40Subtotal5051450

197695081019760

197710069991977Excise158.7144.4161.2Excise1000

1978120312571978VAT (local)4316.25111.436472.4VAT (local)1617190

1979160314831979SD (local)3545.73702.84665.8SD (local)1412140


19812369236419810

1982271523911982Income4707.45577.17141.6Income1819210

1983312626881983Other293.8256.1271.5Other1110

1984358530061984Grand Total26192.929905.2333986.90Grand Total1001001000

1985349831671985

1986409636281986

1987451344391987

1988465141501988

1989459646221989

1990510357171990

1991612652691991Government Borrowing

Original AllocationRevised AllocationActual Expenditure199519961997199819992000200120022003200420052006

19927500715060241992Foreign Financing63526033597366798188827486708215824194101043010700

19938650812165501993Domestic Financing179832932649316047486754711272793812732866579145

19949750960089831994From Public10981597942190527723230420847114795465929733103

19951100011150103031995From Banking System

19961210010447100161996Bangladesh Bank244178314528071064173820092727-2590165338279352

19971250011700110411997Commercial Banks456-872554489121786895-15916071016-143-3310

19981280012200110371998

19991360014000125091999

20001550016500164712000

20011750018200161512001

20021900016000140902002

20031920017100154342003Foreign FinancingDomestic FinancingFrom PublicFrom Banking SystemBangladesh BankCommercial Banks

200420300190001681720041995635217981098700244456

20052200020500187712005199660333293159716961783-87

2006245002150019473200619975973264994217071452255

200726000216006538200719986679316019051255807448

199981884748277219761064912

2000827467543230352417381786

200186707112420829042009895

200282157279471125682727-159

2003824138124795-983-25901607

2004941073284659266916531016

2005104306657297336843827-143

2006107009145310360429352-3310

Percentage Share of Total FinancingPercentage Share of Domestic Financing

Foreign FinancingDomestic FinancingPublicBangladesh BankCommercial Banks

19957822611425

199665354854-3

19976931365510

19986832602614

19996337582219

20005545482626

20015545592813

200253476537-2

20036832126-6842

20045644642314

200561394557-2

2006544634102-36

Sheet1

7.89

7.69

7.36

6.78

7.8

7.81

8.3

8.5

8.62

8.7

9.18

Tax


Sheet2

15.2049461873

15.318627451

15.1357896558

16.7789440702

16.7936959049

19.0476190476

17.5607287449

14.0414041404

12.3436605902

12.3276964616

13.9990667289

14.7272153895

17.4309780066

18.4710107748

18.6958504332

19.1903807615

18.6219081272

18.3098591549

19.2398064962

19.8065944309

Direct to total tax


Sheet3

75006024

86506550

97508983

1100010303

1210010016

1250011041

1280011037

1360012509

1550016471

1750016151

1900014090

1920015434

2030016817

2200018771

2450019473

260006538

Original Allocation

Actual Expenditure

84.862028760215.1379712398

84.094812779115.9051872209

85.290646208314.7093537917

81.603170544618.3968294554

81.338657139918.6613428601

81.645569620318.3544303797

80.456026058619.5439739414

78.184377199221.8156228008

78.861526560121.1384734399

82.088072324317.9119276757

79.890291313820.1097086862

80.482233502519.5177664975

80.093698758519.9063012415

80.627145989319.3728540107

79.255511384220.7444886158

80.173521850919.8264781491

79.943502824920.0564971751

81.505102040818.4948979592

80.62539003319.374609967

81.677515130818.3224848692

&A

Page &P

Tax/Revenue

Non-Tax/Revenue

Foreign Financing

Domestic Financing

Public

Bangladesh Bank

Commercial Banks

Borrowing from the central bank is inflationary which is against the poor

Chart5

61.067853170213.570634037825.361512792

48.496811418254.1451563923-2.6419678105

35.560588901554.81313703289.6262740657

60.284810126625.537974683514.1772151899

58.382476832422.409435551819.2080876158

47.823511992925.732899022826.4435889843

59.167604049528.248031496112.5843644544

64.720428630337.463937354-2.1843659843

125.7869884575-67.943336831142.1563483736

63.578056768622.557314410513.864628821

44.659756647157.4883581193-2.1481147664

33.9311098961102.2635319847-36.1946418808

Public

Bangladesh Bank

Commercial Banks

Sheet1




1996113.70019979.627.891752851988664436777951460.850.151519888515

1997125.03319989.57.691844481989750489692658220.840.161519898416

1998138.018199997.361934291990875578199767780.850.151519908515

1999148.69020008.476.78204928199110716383143978220.820.181719918218

2000151.23220019.67.8215735199213007741177695170.810.191719928119

2001187.748200210.217.812252611993172090302030110600.820.181919938218

2002202.896200310.358.32371011994173598802400122800.800.201819948020

2003237.552200410.638.525196819951560111103100142100.780.221419957822

2004270.552200510.578.6226697419961510122333279155120.790.211219967921

2005305.000200610.798.728467319971735140743071171450.820.181219978218

2006356.500200711.249.183032071998210014100150013776187770.800.201419988020

20071999233514850158553845197000.800.201519998020

2000298016000170964249213450.800.201720008020

Source:Review 20072001360018300194904683241730.810.191820018119

2002410020730219305740276700.790.211920027921

2003478823750249506170311200.800.201920038020

2004527027050283007100354000.800.201920048020

Share of Revenue 19872005585030500319507250392000.820.181820058218

Bangladesh9.52006696034456361758693448680.810.191920068119

India14.52007850041055429159627525420.820.182020078218

Pakistan16.7

Indonesia23.1

Direct Tax in Total Revenue

Bangladesh9

Pakistan10

India17

Singapore27

Malaysia34

Indonesia58

Sources of RevenueSources of Revenue: Percentage of Total

FY2004200520062007FY2004200520062007

Original AllocationRevised AllocationActual ExpenditureImport Duty7087.57912.97825.3Import Duty2726230

19735012811973VAT (import)4397.953475885.7VAT (import)1718170

19745254001974SD (import)1685.71853.51563.4SD (import)6650


197695081019760

197710069991977Excise158.7144.4161.2Excise1000

1978120312571978VAT (local)4316.25111.436472.4VAT (local)1617190

1979160314831979SD (local)3545.73702.84665.8SD (local)1412140


19812369236419810

1982271523911982Income4707.45577.17141.6Income1819210

1983312626881983Other293.8256.1271.5Other1110

1984358530061984Grand Total26192.929905.2333986.90Grand Total1001001000

1985349831671985

1986409636281986

1987451344391987

1988465141501988

1989459646221989

1990510357171990

1991612652691991Government Borrowing

Original AllocationRevised AllocationActual Expenditure199519961997199819992000200120022003200420052006

19927500715060241992Foreign Financing63526033597366798188827486708215824194101043010700

19938650812165501993Domestic Financing179832932649316047486754711272793812732866579145

19949750960089831994From Public10981597942190527723230420847114795465929733103

19951100011150103031995From Banking System

19961210010447100161996Bangladesh Bank244178314528071064173820092727-2590165338279352

19971250011700110411997Commercial Banks456-872554489121786895-15916071016-143-3310

19981280012200110371998

19991360014000125091999

20001550016500164712000

20011750018200161512001

20021900016000140902002

20031920017100154342003Foreign FinancingDomestic FinancingFrom PublicFrom Banking SystemBangladesh BankCommercial Banks

200420300190001681720041995635217981098700244456

20052200020500187712005199660333293159716961783-87

2006245002150019473200619975973264994217071452255

200726000216006538200719986679316019051255807448

199981884748277219761064912

2000827467543230352417381786

200186707112420829042009895

200282157279471125682727-159

2003824138124795-983-25901607

2004941073284659266916531016

2005104306657297336843827-143

2006107009145310360429352-3310

Percentage Share of Total FinancingPercentage Share of Domestic Financing

Foreign FinancingDomestic FinancingPublicBangladesh BankCommercial Banks

19957822611425

199665354854-3

19976931365510

19986832602614

19996337582219

20005545482626

20015545592813

200253476537-2

20036832126-6842

20045644642314

200561394557-2

2006544634102-36

Sheet1

7.89

7.69

7.36

6.78

7.8

7.81

8.3

8.5

8.62

8.7

9.18

Tax


Sheet2

15.2049461873

15.318627451

15.1357896558

16.7789440702

16.7936959049

19.0476190476

17.5607287449

14.0414041404

12.3436605902

12.3276964616

13.9990667289

14.7272153895

17.4309780066

18.4710107748

18.6958504332

19.1903807615

18.6219081272

18.3098591549

19.2398064962

19.8065944309

Direct to total tax


Sheet3

75006024

86506550

97508983

1100010303

1210010016

1250011041

1280011037

1360012509

1550016471

1750016151

1900014090

1920015434

2030016817

2200018771

2450019473

260006538

Original Allocation

Actual Expenditure

84.862028760215.1379712398

84.094812779115.9051872209

85.290646208314.7093537917

81.603170544618.3968294554

81.338657139918.6613428601

81.645569620318.3544303797

80.456026058619.5439739414

78.184377199221.8156228008

78.861526560121.1384734399

82.088072324317.9119276757

79.890291313820.1097086862

80.482233502519.5177664975

80.093698758519.9063012415

80.627145989319.3728540107

79.255511384220.7444886158

80.173521850919.8264781491

79.943502824920.0564971751

81.505102040818.4948979592

80.62539003319.374609967

81.677515130818.3224848692

&A

Page &P

Tax/Revenue

Non-Tax/Revenue

Foreign Financing

Domestic Financing

Public

Bangladesh Bank

Commercial Banks

BB controls inflation through controlling money supply. Most often BB targetM2 = NDA + NFA NDA = Credit to Govt. + Credit to Public Sector + Credit to private sector + others.When Credit to Govt. credit to privateWhen Credit to Govt. M2 When M2 inflation .THERFORE better COORDINATON between fiscal and monetary policy is necessary.

To Summarized issues relating to Deficit Budget

Financed by foreign assistance is dependence and uncertain,Financing by public, not inflationary,Borrowing from commercial banks not inflationary.Borrowing from Bangladesh Bank is inflationary.

Characteristics of Fiscal System in BangladeshFalling/Tax/GDP ratio,Tax base is narrow,Dominance of indirect tax,Customs + VAT (import) 50% of total taxVulnerable to external fluctuationsGrowth in Non-development expenditureHeavy dependence on Foreign AidDependence on Deficit FinancingNo Far-sightedness.

These calls for aFISCAL

SECTOR

REFORM

Documents

Macroeconomics_5_Fiscal_Policy_of_Bangladesh-30.01.2013.ppt