CPD puts four sectors first for upcoming budget

Bangladesh's economy, like other economies around the world, is reeling from the fallout of the Covid-19 outbreak. So the Centre for Policy Dialogue (CPD) has proposed prioritising health, agriculture, social security and employment in the upcoming budget to overcome the socio-economic effects of the deadly virus. 

As the novel coronavirus has cut people's income and created inflationary pressure in the economy, CPD has proposed raising the tax-free income threshold levels from Tk250,000 to Tk350,000 in the fiscal year (FY), 2020-21.

The cost will have to be lowered in the unproductive sectors. The allocation should be raised in the areas which will soon bring the economy back on track, recommended CPD.

The think tank made the proposals in the online media briefing "Covid-19: Present Context and Budget for FY2020-21" in Dhaka on Saturday.

Revenue collection falls short of target every year. CPD said the government needs to expand the tax net, and strongly tackle all types of tax evasion to make up for the incentives given to different affected sectors at this critical time.

Considering the adverse financial condition facing the cottage, micro, small and medium enterprises (SMEs) in particular, CPD proposed raising tax-exempted yearly turnover limit for the SMEs from Tk50 lakh to Tk1 crore for FY2021. 

"The existing black money whitening facility through voluntary disclosure of undisclosed income discourages honest taxpayers while tax evaders are encouraged. This provision should not be continued from the next fiscal year," said the think-tank.

Talking about the health sector, CPD Executive Director Dr Fahmida Khatun said, "The share of the health budget as a percentage of gross domestic product (GDP) should be raised to 2 percent in future and at least 1.12 percent in the next budget to meet the target set in the 7th five-year plan."  

"The budget allocation for the health sector is 0.9 percent of GDP here, which is 2 percent in India.

"The health sector should get priority in the national budget for FY2021 for obvious reasons. The pandemic has proven that there is no way to contain the spread of Covid-19 without the necessary investment in the health sector," said Fahmida Khatun.

Doctors, nurses, and other support staff working in private hospitals or clinics with Covid-19 patients may be incentivised through the offer of a special financial package through reduced taxes on their income (in private entities) for the first half of FY2021, said CPD Senior Research Fellow Towfiqul Islam Khan.

"Hospitals, clinics, diagnostics, and laboratories involved in the novel coronavirus related treatment and research should get a waiver on advance income taxes for the period of the first quarter of FY2021."

The agriculture sector should get special priority in the national budget for FY2021, said CPD. A vibrant agriculture sector will also support the cause of creating employment opportunities for people who are likely to lose jobs and livelihood opportunities in urban and peri-urban informal sectors and for migrant workers who have been forced to return home. 

Also, CPD Distinguished Fellow Professor Mustafizur Rahman said the government should not encourage agricultural mechanisation now as 42 percent workforce is employed in the agriculture sector though its share in the GDP is 13 percent.

The agriculture sector needs to ensure proper use of the subsidy during FY2021. Despite the allocation of Tk9000 crore over the last three years, a significant part of the allocated amount remained unused, said the think-tank.

It also maintained that the reduction of import-related tariffs on essential food items such as onions, lentil, garlic, ginger and soybean oil should be considered on a dynamic of basis based on the evolving market scenario in terms of price, projections about production and the demand scenario.

The national budget for FY2021 should give special focus on social safety net programmes and related activities, said CPD.

Presenting the keynote paper on CPD's recommendations for the national budget FY2020-21, Towfiqul Islam Khan said that 1 crore 70 lakh (under lower case scenario) and 1 crore 90 lakh (under upper case scenario) low-income households should be provided with Tk8,000 per month for two months. 

The budget allocations, including the incentive package announced by the government, need to be spent efficiently so that it reaches the people in real need. "You just have to plan for the next year without thinking about the different sides of the budget. It may take a three-five year for different countries to recover from the shock of Covid-19. In the coming years, we will have to work on striking a balance between income and expenditure," said the think-tank.

Professor Mustafizur Rahman said the tax-GDP ratio is the lowest, some 10 percent, in Bangladesh among the South Asian countries.

"The tax-GDP ratio is 18 percent in Nepal and India. If we could raise the ratio to 18 percent, now we would have enough strength to face such risks.

CPD also urged the National Board of Revenue to initiate wealth and property taxes in Bangladesh. It also suggested inducing, an inheritance tax, informed by global best practices. All types of tax evasions and illicit financial flows will need to be curbed with a strong hand, said the think-tank.  

CPD Research Director Dr Khondaker Golam Moazzem said to ease public expenditure pressure, the government needs to identify non-development expenditure which may be deferred. "Some of these are expenditures on foreign travel, acquisition of assets, investment in shares and equities, recapitalisation of state-owned enterprises. These should be deprioritised."

"In FY2019-20, the government set aside Tk2,825 crore and Tk3,060 crore as subsidies to provide 1 percent cash incentive for apparel export and 2 percent cash incentive for remittance senders, respectively. 

"However, this will not be exhausted fully following the decline in apparel export earnings and remittance inflows in view of the Covid-19 pandemic. Accordingly, the government should be able to save about Tk1,300crore, after April 2020, from its earmarked subsidy amount for the aforementioned sectors. 

"Expected fiscal cushion emanating from non-utilisation of cash incentives for RMGs and remittances following the declining trend in the RMG export growth and the expected significant decline in remittance flows over the coming months due to COVID-19 may be channelled as 'minimum income support' for the returnee migrants and apparel workers."

Dr Khondaker Golam Moazzem also said the government can save money by re-prioritising the development projects and channelling the Bangladesh Petroleum Corporation's unexpected gains towards resources mobilisation against the backdrop of lower oil prices in the international market. 

Fahmida Khatun said, "The Indian government has directed to cut administrative expenses by 60 percent within three months. The salaries of ministers, lawmakers and government employees have been reduced in the country. So there is a scope for downsizing the administrative and other non-productive expenditures to 50 percent here.

Emphasising allocation in the education sector and increasing the quality of education, Fahmida Khatun said that despite the government's focus on big infrastructure, social infrastructure has remained neglected. In a country with a population of 16 crore, a 2 percent allocation of GDP to education is not enough to provide education to all.

About the migrant workers, Fahmida Khatun said Bangladesh should also be ready to arrange jobs for huge migrants who have returned from various countries as a large chunk of migrant workers, even legal workers, may return home as many companies would become bankrupt due to the fallout of Covid-19.

Many private sector employees are facing pay cuts now. Calling to stop lay-off, Fahmida Khatun said, "Firing employees at this time will put more pressure on them. The middle class is not getting paid, they are not on the government's relief list either."