Bangladesh
3 years ago

Axe falls on Bangladesh budget following revenue slump

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The government has downsized the national budget by 5.28 per cent to Tk 5.38 trillion for the current fiscal year, compelled by a significant shortfall in tax collection as the fallout of COVID-19.

The original budget size was Tk 5.68 trillion.

Of the revised budget, Tk 3.40 trillion has been fixed as operational expenditure while Tk 1.97 trillion for development spending, according to the revision finalised at a recent meeting of the Economic Co-ordination Council of the ministry of finance.

The target for overall revenue collection has been trimmed to Tk 3.49 trillion from Tk 3.78 trillion set originally.

Tax collection target for the National Board of Revenue (NBR) has been set at Tk 3.01 trillion, down from original Tk 3.30 trillion, an 8.78 per cent reduction.

The finance division has already sent the revised revenue collection budget to the NBR for circulating it to the income tax, customs and VAT wings.

Of the revised revenue budget, the target for Value Added Tax (VAT) department has been set at Tk 1.10 trillion, followed by income tax at Tk 970 billion and customs at Tk 940 billion.

The original targets for the wings were Tk 1.28 trillion for VAT, Tk 1.05 trillion for income tax and Tk 956.52 billion for customs.

The revenue collection growth contracted in the previous year due to the impact of the pandemic, he said.

Still, director general of the Research and Statistics wing of the NBR Md Anwar Hossain said the revised revenue target is achievable as the collection has been picking up momentum with the economic recovery.

Analysts are not that bullish.

Executive director of the Policy Research Institute of Bangladesh (PRI) Dr Ahsan H Mansur said the government may collect a maximum of Tk 2.40 trillion tax this year recording a 10 per cent growth.

"It's the natural tax revenue collection growth for the country. The pandemic may hit it by 1.0 to 2.0 per cent," he said.

Dr Mansur proposed to frame a realistic target for tax revenue collection on the basis of ground reality, which would be achievable.

There might be a Tk 610 billion shortfall in tax revenue collection this year against the revised target, he added.

The economist, however, suggested the government abstain from cutting the development expenditures to stimulate the domestic demand.

"This is not the year of austerity, despite poor revenue mobilisation," he added.

He estimated a budget deficit of 8.0 to 9.0 per cent this year, up from the 5.8 per cent imbalance the government forecasted.

In FY 2019-20, the budget deficit target was 4.8 per cent, which went beyond the traditional hallmark of 5.0 per cent in the revised budget.

Until January of the current fiscal, the NBR collected tax revenue worth Tk 1.32 trillion with a 4.55 per cent growth over the corresponding period of the last year.

The NBR will have to mobilise Tk 1.69 trillion tax revenue more in February-June period to achieve the revised target for the entire fiscal.

The original target for NBR was set expecting around 50 per cent growth over the actual collection last year. In the first seven months, the NBR faced a Tk 368.41 billion shortfall against the original target.

Officials said the NBR is still lagging behind in its average revenue collection growth of 10.20 per cent in the last five years.

An FE analysis found the revenue collection growth rose gradually to end up in the positive trajectory in the last fiscal.

Until December, the tax collection growth was 2.10 per cent, which more than doubled in July-January period.

In July-January period, the VAT collection at the local stages showed a dismal 2.26 per cent growth, followed by income tax and travel tax 5.06 per cent and the customs wing 7.10 per cent. Until January, import tax collection faced a Tk 150.88 billion shortfall against its target. However, the customs wing achieved a moderate 7.10 per cent growth in this period.

The income tax collection also grew by 5.06 per cent in July-January period, although the shortfall against its target hovered at Tk 80.95 billion.

During the same period last year, the NBR achieved a 7.74 per cent growth, of which VAT grew 10.24 per cent, income tax 11.55 per cent and customs 1.02 per cent.

In January, the NBR's revenue collection posted a 6.41 per cent growth year-on-year.

Officials said the budget was cut substantially this fiscal compared with the previous years, following the COVID-19 impact on the economy.

Last year, the government downsized expenditure budget by Tk 216.13 billion. The original budget size was Tk 5.23 trillion last year, which was trimmed to Tk 5.01 trillion in the revised budget. The revenue collection target was also slashed to Tk 3.48 trillion from original target worth Tk 3.77 trillion.

Of the revised revenue target, the NBR's target was Tk 3.0 trillion from the original Tk 3.25 trillion.

However, the tax revenue collection faced a negative 2.26 per cent growth last year for the first time since independence.

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