We can see the next budget from three perspectives – economic aspect concerning people's lives and livelihoods, ethical aspect regarding legalising black money at a substantially reduced rate of tax, without any question and penalty, and the need for thinking out of the box of a conventional annual budget.
First of all, we urgently need a budget for life and livelihood as the Covid-19 pandemic continues to rage on. It is the need of the time. Not in Bangladesh alone, countries throughout the globe are compelled to formulate extraordinary budgets. As external trade activities are facing serious disruptions, countries are busy looking for ways to protect their own homes.
One good news for us is that we are getting inward remittances. Our expatriates are sending money home, but the money is not being spent. Remitted money is being stockpiled in bank vaults and contributing to the surplus liquidity in banks. Construction of houses has stalled, festival sales during Eid and Pahela Baishakh slumped for two consecutive years.
Online sales have seen a surge in recent times, but that cannot alone drive the economic recovery.
Frantic drives are on to recover, but our entire economy has in fact been left in coronavirus quagmire. All our policy thoughts are Dhaka-centric. All our measures seem to have aimed at protecting elite people living in the capital city. Since Dhaka is in danger, so put the whole country into lockdown.
Coronavirus infection is mainly concentrated in metropolis, hardly any case is being reported from villages. Then why are all schools, businesses closed in rural areas too? Students in urban areas are somehow managing to attend some online classes. Rural students are not that much lucky. This will further widen the urban-rural divide in education – a gap that can never be bridged.
In such a situation a national budget cannot be separately viewed from a budget of life and livelihood. The budget must show the pathways for life and livelihood of people.
Usually, a national budget deals with all the aspects of human life, but all the issues are not adequately focused. The current budget should have started this practice. It should have been framed like an emergency-time budget. Rather it is more like a business-as-usual budget. Some priority sectors were given additional allocations, but those could not be utilised appropriately and those were not enough to revive an economy that nosedived due to the pandemic.
The stimulus packages announced by the government were well thought-out and praiseworthy. But the purpose of the intervention was not fully realised as big businesses could not utilise the money they received. Most of their loans are turning bad now.
On the other hand, small businesses, which were in urgent need for money to survive and restart, did not get access to the stimulus money as banks could not disburse the funds in full due to procedural limitations. Banks were not the right choice for the job as they do not have direct links with small-scale businesses scattered across the country which are more connected with microfinance institutions. These are the businesses which need the money most.
A financial insurance scheme could be developed to reach money to small entrepreneurs as quickly as possible. They are the driving force of the economy. They are not jobseekers.
They are producers, they are consumers, and they are employers. The economy will not survive if these informal sector businesses cannot operate.
Some crowds in shopping malls and markets or full booking in hotels in tourist areas do not represent the whole country. Certain sections of people would point to those crowds and say, "See, businesses are bouncing back. People are spending. Our foreign currency reserve is soaring, per capita GDP has been sharply increased, etc". But this is not the case.
There has been inequality in the economy, and the pandemic has widened it further. Selectively opening of activities and businesses – like keeping airlines and personal vehicles open while public buses and trains are closed – have further deteriorated the situation. People, who had no money or means to stay in Dhaka, had to rush for homes by rented microbuses or ferryboats during Eid holidays, spending thrice the usual fares and keeping thousands of employees in the transport sector jobless.
The next budget needs to look into the livelihood issue and must drop extravagant projects to spend more in social welfare, health and education. Many manpower intensive economic sectors are on the verge of ruination. The budget should identify those and support.
It is an unusual time now. Sectors that will save life and employments should be prioritised over projects that will take years to complete and deliver fruits.
Whatever budget we have for education, it all went to pay the salaries of teachers, buy chair-tables and construct school buildings. There was no effective initiative to ensure study of students, particularly those in villages, during the pandemic. Students lost a full academic year and a half of another without learning anything. The price of this learning loss will be huge.
So, allocating more for education in the budget will not do any good if students cannot learn and if quality education is not ensured, if millions do not find work and food. Recruiting several thousand doctors and paying them would not improve healthcare service if they are not properly trained and utilised.
The black money debate
Money is being generated illegally through corruption and a good portion is smuggled out of the country. This money needs to be incorporated into the formal economy. It is correct as an argument. But at what and whose cost? You are not fining those who amassed money through illegal means, you are not questioning their source of income and you are welcoming them to legalise their unjust incomes through a subsidised tax rate of 10%, while genuine taxpayers are made to pay 25-30%.
This is an ethical deviation which will demoralise and/or punish honest taxpayers and reward the wrongdoers, who siphoned money out of the country and, more alarmingly, spend their money to enhance their influence in the power circle and destroy our institutions one by one. Moreover, they are allowed to invest into sectors like housing and the stock market, which will cause price inflation and put others' money at risk.
The scheme also contradicts with state policy stipulated in Article 20(2) of the Constitution. Let us look at the observation of the Comptroller and Auditor General of India on such a scheme (Voluntary Disclosure of Income Scheme 1997). The C&AG "condemned the scheme in his report as abusive and a fraud on the genuine taxpayers of the country.
Comptroller and Auditor General of India's report on just how the VDIS scheme was serially abused, and the reason why the scheme was a runaway success was not because it was brilliantly designed, it was a success because it gave tax evaders and thieves (what else would you call 'cobbler scam' and 'hawala' accused who participated in it?) the best deal they'd ever got". [Rediff.com » Business » Cut your tax bill to just 2-3%, by Sunil Jain 31 May 2004]
If the government still wants to include black money into the formal economy, it can allow it on the condition of paying applicable tax and conditionally invest in labour-intensive, production oriented industries, in quality schools and mass media to get drawback incentives. Emerging economies need to launch a drive against black money every 15 to 20 years, and allow legalising undisclosed income through strict rules – paying higher-than-usual tax with fines. Remember the ones India did in 1997 and 2015, Bangladesh also did in 2008.
Now let us come to the point of revenue income. Where will you get the money from when the economy is stalled? If people lose income, you will not get income tax; if sales drop, VAT revenue will be less; and when imports fall, customs duty revenue will decline. In such a situation, revenue income will definitely fall and there is no point in raising hue and cry over it. The government needs to be practical in setting revenue targets for the National Board of Revenue. When the entire economy is in crisis, setting a high-flying revenue target will be unwise.
The NBR has problems like lack of manpower for long. Since the 1990s, it has spent about Tk500 crore in digitisation projects, but automation is still far away. Quick switching over to the online system remains the only answer to NBR's problem. It will help overcome manpower shortage and plug tax evasions, which will help it make up the revenue deficit to some extent. It remains the only option for the NBR since there is little scope to impose a new tax this pandemic year.
Dr Muhammad Abdul Mazid
Former chairman, National Board of Revenue