Budget for fiscal year 2023-24: Tax waivers counted in subsidy account

A sum of Tk 1.78 trillion has been projected as direct tax expenditure in the 2023-24 national budget in the form of various tax exemptions now counted in subsidy account in fiscal measures.

The amount of tax expenditure would be considered subsidy as incorporated into the total subsidy outlay of the government for the upcoming fiscal year along with other subsidies, officials said.

Of the direct tax expenditure, microfinance sector bags 12 per cent or Tk 153.15 billion, remittance 9.0 per cent or Tk 112.87 billion, power and energy 7.0 per cent or Tk 83.80 billion, EZ and Hi-tech industries 4.0 per cent or Tk 46.12 billion, garments and textiles 3.0 per cent or Tk 34.38 billion, poultry and fisheries 2.0 per cent or Tk 31.20 billion, IT and software 1.0 per cent Tk 14.77 billion, and share- capital gains 1.0 per cent or Tk 9.66 billion.

Finance Minister AHM Mustafa Kamal is set to propose a total subsidy worth Tk 2.89 trillion in his budget speech before parliament tomorrow (June 1, 2023).

In the current FY, the government has revised its allocation for subsidy upward to Tk 980 billion from earlier Tk 814.90 billion.

The government might propose a subsidy allocation worth Tk 1.10 trillion for FY 24, excluding the tax expenditure, in the Tk 7.61-trillion budget.

Official sources said the amount of direct tax exemptions is a form of subsidy to both individual and corporate taxpayers.

The National Board of Revenue (NBR) has estimated the total amount of direct-tax expenditure for the first time based on data collected from the field-level tax offices across the country.

The budget speech for FY 24 may have a specific analysis of subsidy in the form of tax expenditure.

The highest amount of direct tax expenditure is lying with microfinance followed by remittance, power and energy, economic zones and hi-tech industry, garments and textiles, poultry and fisheries, IT/software and share capital.

The government offers direct tax expenditure as concessionary tax rates, rebates, discounts, exemptions, exclusion of income from computing total taxable income.

Tax officials say that “it’s a subsidy in the form of tax benefit which could help the government increase its tax-revenue collection”.

Direct tax expenditure was Tk 1.25 trillion in the financial year 2020-21. Of the amount, corporate taxpayers enjoyed Tk 853.14 billion while individuals Tk 404.99 billion.

In FY21, the total direct tax expenditure ate up 3.56 per cent of country’s total GDP.

The NBR conducted the direct tax-expenditure analysis following recommendation of the International Monetary Fund (IMF) that sought to know the volume of tax exemptions.

An analysis of value-added tax (VAT) shows half of the country’s GDP remained exempted from the VAT due to various forms of tax benefits.

Some 15 major sectors, including agriculture, livestock, fisheries, education, health, public administration, defence, and social-safety net, are enjoying tax exemptions worth Tk 19 trillion.

However, tax-expenditure analysis of customs and VAT wing has yet to be prepared due to complexities in compiling data scattered across the country.

Dr Ahsan H Mansur, Executive Director of Policy Research Institute (PRI), thinks tax expenditure should not be considered subsidy due to fundamental differences between the facilities.

“People not having taxable income are enjoying subsidies, too. Tax expenditures would not facilitate the people who have no taxable income,” he says.

He finds the amount of projected ‘Direct Tax Expenditure’ quite high.

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