Pre-Budget parleys: Taxes versus austerity

Every year from early February on, pre-budget discussions and parleys are held between the ministry of finance and trade bodies -- ostensibly to receive and review proposals for inclusion in the ensuing budget. This reminds me of some comments from Nobel laureate Joseph Stiglitz who was Chairman, Council of Economic Advisers of former US President Bill Clinton.
He said, "As Chairman of the Council of Economic Advisers, I observed three almost unfailing principles among those who came to us for help. First, business people generally oppose subsidies, for everyone but themselves. For their own sector, there were always a host of arguments for why some government help was needed. From unfair competition abroad to an unexpected downturn at home, the stories were endless. Second, everyone was in favour of competition, in every sector but their own. Again, there were a host of arguments for why competition in their sector would be destructive, or why it needed to be managed carefully. And third, everyone was in favour of openness and transparency, in every sector but their own. In their sector, transparency might lead to unnecessary disturbances, erode its competitive edge, and so forth.
This is more or less a universal phenomenon, and Bangladesh is no exception. Usually, the trade bodies approach and suggest for either reduction of tax rate with the assurance of bounty to offset the balance. Earlier it was assured twice that the capital market would be overflowed with the investment fund if the black money is allowed to be made white. The authorities were convinced and expected their proposals. It is needless to speak about the consequences. However, these parties are held in a very cordial environment over quality snacks and tea.
This time there has been exception. On April 30, 2017, a meeting was held between the ministry of Finance and the consultative committee of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI). The bone of contention was mainly about the proposal for imposition of 15 per cent VAT over all items. Earlier 18 meetings were held between the government and the trade bodies without any fruitful result. This time, probably in a state of desperation, some leaders of the trade bodies threatened to go for movement on the street to protest the proposed VAT rate. This infuriated the finance minister who warned to take action, if that happened. All these led into a fiasco. However, good sense prevailed and the meeting continued, though not in the right mood.
In response to the threat of the business leaders, Chairman NBR spoke something which was surprising. It appeared that he had a list of rogue businessmen against whom he could go for action any time. As a very highly responsible officer, he was supposed to go for action against the delinquents. In a free market economy, the private sector has the greatest role in the economic development of the country. This sector is the largest employer. So, the business community and the government should work closely in the atmosphere of companionship.
Anyway, we believe that the business environment in our country is fine and there is close co-operation between the government and the business community. Our economic growth bears testimony to this. That day's incident may be an accident. But one point is very clear -- 15 per cent VAT is very high and it should be reduced to 10 per cent, otherwise it will be tantamount to economic oppression.
Taxing the people should not be the only way of collecting revenue by the government. At least on two occasions the Finance Minister urged in parliament for austerity and belt tightening. The emphasis should again be laid on this. There have been sharp rise in expenditure for the general services sector. In 2011-12, actual expenditure in the general services sector was Tk. 271.16 billion which rose to Tk. 835.08 billion in 2016-17. In the revenue budget (2016-17), 22.2 per cent of the income was earmarked for salary and wages. Salary of the government employees has been doubled with the expectation that it would reduce corruption and improve efficiency as enhanced salary would help them lead a decent life. Annually, a huge amount of money is drained out from the government exchequer for paying honorarium to the government officials for attending the inter-ministerial and even the review meetings of the various projects of the same ministry. This is ridiculous. A government servant is a twenty four hour government servant and is supposed to perform his/her assigned job without any claim for additional pecuniary benefit. This practice should be controlled. In Bangladesh, no government project is completed within the scheduled time. This raises the cost of the projects. As a matter of fact, the unusual delay in completing the projects causes huge wastage of money. Emphasis has to be on improving efficiency of the government officials. If the projects could be completed on time, this would help the government in stopping huge wastage of money. These are the ways by which the government can save money that can offset the supposed loss to be incurred for reducing the rate of VAT. That will be a noble job as this will give great relief to the common people. After all, people's government is supposed to be more concerned for the common people.