15 days ago

Budget-FY 25: the same old saga

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Yet another budget was approved by the lawmakers in the national parliament on Sunday. As a matter of tradition, the budget for the current financial year (FY) 2024-25 is bigger, in terms of total outlay, than that of the immediate past FY, though the mobilization of enough resources to bankroll it remains in doubt. 

Our past finance ministers, consciously or otherwise, incorporated one or two contentious provisions into their budgets. The incumbent one is no exception. He has also included an issue-black money whitening by paying tax at a nominal rate-which has kicked off bitter debates in the public domain almost every year in recent times. The 'no question to be asked about the source/s of tainted money' tag has been the most disliked section of the budget speech. 

It remains a mystery what prompted the government to offer tax rebates again to black money holders and invite scathing criticisms. The move was not worth taking, for similar provisions in the recent past had failed to attract even a tiny fraction of the massive volume of black money. None knows for sure its actual size. Some years back, the finance ministry had estimated that it was between 40 and 80 per cent of the formal economy. 

What has enraged the honest taxpayers is that some people will legalise their ill-gotten money at a rate far lower than they are compelled to pay. Criticisms had been aplenty from all directions. Some lawmakers from the ruling party and the docile opposition opposed the tax amnesty. Yet the government poo-poohed those and stuck to the offer staunchly. Did somebody secretly promise to transfer home a significant volume of funds from outside to take advantage of the facility and thus enrich the country's dwindling reserves? 

Two other tax proposals that drew widespread attention include imposing a gain tax of 15 per cent on the profit earned from the disposal of equities and levying duty on vehicles imported by lawmakers. Many people did appreciate the second move. 

The tax on capital gains is unlikely to sour the investors' mood. Not many people are able to earn any hefty profit under the prevailing market conditions. The NBR will unlikely bag something tangible out of this move during the fiscal year. 

The government has again backed out while trying to squeeze some extra bucks from the more affluent section of taxpayers. The finance minister wanted to raise the last individual tax slab to 30 per cent but could not hold ground finally and kept it unchanged at 25 per cent. 

The minister earned plaudits for proposing a 25 per cent duty on vehicles imported by lawmakers. Such imports have been duty-free since the mid-1980s. The proposal, however, failed to sail through, and the zero-duty rate remains effective in the face of opposition from lawmakers of both the treasury and opposition benches. 

In contrast, the head of the country's exchequer could not protect the interest of the ordinary people. The tax-exempt income level has remained unchanged though it deserved to be raised because of the soaring inflation. Then again the people using cell phones will have to pay more money because of the enhanced tax on talk time. 

The issues mentioned above are random ones. Attaining the budget's primary objectives will be more critical for the government. The task has always been difficult, and it has become even more challenging under the prevailing circumstances. Hurdles that the finance minister has recently encountered include falling reserves, stagnating private investment, soaring non-performing loans, fluctuating export and remittance earnings, and spiralling inflation. 

The finance minister has set the budgetary goal of maintaining growth momentum while keeping inflation in check. Thus, he set the GDP growth target at 6.75 per cent for the current FY and inflation at 6.5 per cent. Attaining these objectives might prove daunting. 

The Tk. 7.97 trillion budget for the current FY is bigger than that of the previous FY, but the difference in total outlays is not that big. Yet many tend to think the government should have gone for a smaller budget this time, as the current budget has the potential to fuel inflation further. Inflation has been hovering around 10 per cent for the past few months.

Implementing the budget in its present size would necessitate mobilizing domestic resources along the targeted amount. The NBR, which has been tasked with mopping up Tk. 4.8 trillion, might find the job difficult. The entity has always successfully mobilised funds during any FY more than in the immediate past FY, but it has always remained miles away from the targets. 

In such a situation, meeting the budget deficit estimated at Tk 2.56 trillion for the FY 2025, equivalent to 4.6 per cent of the GDP, could also prove daunting. The government has set a target to borrow Tk.1.37 trillion from the banking system. Such a vast borrowing programme will crowd out the private sector. Besides, the failure to secure funds from the banking system might prompt the government to seek high-powered money from the central bank. Such a development inevitably would fuel inflation further. 

Beyond budgetary measures, the economy is likely to face onslaughts from some other external and domestic fronts throughout the fiscal year that began yesterday (Monday). Implementing conditions attached to the latest International Monetary Fund (IMF) loan may also add to the miseries of the already hard-pressed everyday consumers. The state of forex reserves is yet another area that would deserve constant watch by the policymakers. 

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