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For the Attention of the Finance Minister

Some Thoughts on the Coming Budget

by Jamal Uddin Ahmad
IN Bangladesh the months of April. May and June are never comfortable for the Finance Minister or hie Ministry These are the months when final assessments arc made in respect of financial and fiscal policies embodied tn the national budget to determine whether these have fared well or badly. These are also the months when, at least In theory, midnight lamps are burnt to balance the books prepare convincing papers and memoranda for donors, Identify areas to Impose new taxes to make up budget shortfalls, provide cosmetic touches to make the budget appear pro people and finally prepare the budget speech which Is usually long on rhetorics and short on substance This la the set tra dtrion which has been going on without break since tndepen de nee.
M Salfur Rahman, our pre sent Finance Minister. 1s an old and experienced hand In the art of preparing and managing national budgets Since he is more a professional • than a politician, his approach to the concept of public finance and management smacks of professionalism There can be no doubt that his knowledge, perception, devo tion to duty and dogged determination are second to none. He is In full command of the knowledge he needs lo perform his job. One may not agree with him or for that mat ter. thoroughly dislike him but the fact remains that he Is to tally honest In what he says and believes. A lot of people do not like the way he airs hts views publicly on highly sensitive and politically explosive subjects without caring to use sugarcoattng or political finesse but he drives his message loud and clear regardless of backlash or discomfort it creates.
At this time of the year. It is also customary for the National Board of Revenue, In Its capacity as the department respon slble for Internal resource mobilisation to seek the views of Industry, trade and professional bodies as to what should be included In the forthcoming national budget to further promote and develop the tn-
Scures of meetings arc held within the various chambers of commerce and professional bodies lo Identify and recom mend areas where extra relief from taxation could be given A grand meeting consisting of all these bodies, senior officials of NBR and other relevant min Istrtes is held which la normally presided over by the Finance Minister Although the objective of this day long gala meeting Is to discuss the pro Cils submitted by the trade les. hardly anything Is achieved excepting a tot of sound and fury culminating tn nothing, at the end of the day For all practical purposes this la an eye wash to give the Impression that the govern ment had involved the business community In the budget making process Be that as it may. this Is the only occasion when the Ministry of Finance meets the "People' prior to preparing the budget
Now that the entire gov ernment machinery responsl ble for financial management both at macro and micro level, is geared only to find wavs and means how to meet the never ending conditionalities of donor agencies, there Is hardly any elbow room for the Finance Minister to use bud getary allocations to meet political commitments, to cor rect social Injustice, to create right environment for invest ment and economic uplift etc In any significant manner He has far too many demands and compulsions heaped on him but he Is totally helpless The lines arc drawn for him and he has very little room to deviate The fault is not his. Il is the price we have to pay, as a na tion. for the monumental mismanagement of our national and financial resources tn the past.
Despite his little flexibility to manoeuvre, 1 still think I should draw attention to a few areas which need Immediate resolution
TAXATION DEPART MENTS: No one is more aware than Mr Salfur Rahman himself that his Ministry, partlcu larly the revenue collecting departments, need a thorough cleaning. If the system loss in the PDB Is 42 per cent revenue loss In the Finance
Ministry must be 60 per cent, so goes the saving. The Finance Minister has expressed his exasperation many times, both in public and private discussions, about the rampant corruption, graft, carelessness and Indiscipline of the officials and employees of hie Ministry. Il is also known that he had Initiated some departmental measures to correct the situation but these are known to be only a "Up of the iceberg."
There is a popular belief In the country that for every Tk 100 of tax revenue. Government gets Tk 40 and the balance Tk 60 Is devoured by system toss of departments. If. Ssome miracle, this missing
60 could be brought within the Government coffers as tax revenue, then our TaxCDP ratio would be something for which the Finance Minister and the nation could be proud of We would also be relieved of some of the unpalatable conditionalities of the donors Shou Id n t charity begin from home. Mr Finance Minister.
SAVINGS ft is a common economic knowledge that unless one has savings. he cannot Invest; and if he cannot Invest.
does not earn profit; and tf he does not earn profit, he can pay no tax Therefore, the first thing of public finance man agement Is to ensure that there Is enough savings tn the country All good governments believe In this elementary philosophy and they create healthy environments In thetr countries for people to save. Saving, to say the least, is ihe life blood of national economy. Simply put. it Is the hen that lays the golden eggs But In Bangladesh, we have killed the hen because we were too greedy. Unlike other countries. In Bangladesh. only lower middle and middle Income group of people have the propensity to save This they do for old age and to meet social and religious obligations Rich and neo-rlch people do not believe In saving and they thrive on non-returnable bank loans which they borrow against non-existent or bogus collaterals The essential point that emerges Is that these
small savers who arc the main, providers of whatever savings we have in the country need to be protected and thetr number expanded manifold for national interest. But no less that twenty per cent of their saving is now taken sway by one form of taxation of another This must stop. If this section of people Is squeezed too hard, thetr savings will go underground. The signals already evident are none too happy The Finance Minister should take note of ft.
CAPITAL GAINS: This is an area which needs a clear and courageous handling. The waiver of TPC requirement for registration of land documents. In the current years budget was a timely and cor rect step It has already ehmi nated a nasty chain of corrup tion In the tax offices Similar bold step Is now needed to streamline the whole gamut of capital gains Since capital gain arises mainly due to reduction In the value of money over a period of years, there Is In fact, hardly and gain tn the real sense of the term. If It Is ad justed for inflation This complex matter needs to be ap proached with a sense of equity and fairness Because this Is a special type of gain, this should qualify to be treated separately and not lumped with other sources of Income. To provide some re I lets to take care of Inflation would be perfectly tn order be fore computing the gain Furthermore. Instead of too many tax slab, only two slabs should be enough, namely 7 54C for assets under 10 years and 1O% for assets over 10
Investment of capital gains tn approved Investments such as Industrial undertakings or house property to avoid pay ment of tax, should be re s trie ted to lax part of the gain and not the whole gain If one were to Invest the whole gain, then there would be no incen live for people to sell the property. This is more relevant In the case cf safe of land and ancestral property People sell these kinds of property, which have very little acquisition
cost only to have access to liquidity If by selling they find that they would hare io Invest pretty well the whole of the sales proceeds, as they are required to do now. then they would, invariably be pushed to become tax dodgers Additionally, there must be some alternative choices given to Invest capital gains apart from house property or Indus trial undertakings In this connection, special 7-year Saving Certificates to be issued by the Ministry of Finance solely for this purpose with the stipulation that these could not be sold during the maturity period, could be considered as one of the alternatives The Idea should be to encourage people lo pay tax voluntarily or to provide attractive sources of tong term Investments
WEALTH TAX: It Is Ironic that Income tax and wealth tax should coexist side by side This, to say the least. Is a contradiction of terms By making people to pay taxes both on the income as well as on the capital, we have created a complex anomaly The Government must make Its mind which Is to be taxed — Income or capital Taxing both amounts to double taxation
We now hare a tax on con sumption as swell known as Value Added Tax On top of all these taxes we pay taxes on Imported commodities we consume, utility services we use. house ompertles we build - all out of the some taxed Income Would the Finance Minister please decide how many times be would like to have the same source of Income taxed
GOVERNMENT FUNCT1O NA RIES Government funetto naries from the President of the Republic down wards Including Members of Par Ila ment and Ministers pay no Income tax on their salaries and perquisites MPs even get duty free motor vehicles Finance Ministry has never disclosed the amount of subsidy the tax payers pay to keep these people In style This must run into several hundred millions of Tax Takas Why a person holding the position of the President of the Republic or a senior Government functionary shouldn t pay lax? Isn t he a
person like any other citizen in the country? Does he not enjoy the some infrastructure facilities provided by the Governmen' which are fl nanced out of the tax revenue to which he contributes noth Ing? Doesn t our Constitution soy that all citizens are equal? What stops you. Mr Finance Minister, to bring these so called "extra ordinary people within the tax net?
TAX LAWS AND TAX RATES: Bangladesh is really a country full of glaring contradictions Whilst on the one hand, even the poorest of the poor pays some kind of tax. we have on the otherhand. people belonging to top 1% of income bracket who pay no Income tax at all. Our direct taxes which contributes only a small frac tton of total taxes hare an ad mlnistrattve outfit which pretty well devours all the rev enue It collects Not even 1% of our population pay any d1 rect tax Well over half of our GDP Is outside the tax net Whereas the objective of taxa tion should be less from more In Bangladesh we be Heve tn more from few That Is the reason why we are fast becoming a nation of tax dodgers Would the Finance Minister please take note of this situation?
I was In India whin the last Indian budget was announced Night before, everybody I had met — professionals, news men. businessmen, ordinary people — were worried expecting a harsh budget But Ihe situation changed radically as soon an the budget wax an nounced the next day Everybody regardless of his or her social status, had some thing go*>d to say about the budget because they could find something for themselves In the budget either by way of tax relief of opportunities to Improve their earning capacity. I am sure, our Finance Minister too has something up In his sleeve to surprise us all and. I am sure, pleasantly
A former Deputy Prime Minister In the government of the late President Ziaur Rahman, the writer a noted expert on economic matters, is currently the President of the Institute of Chartered Accountants of Hangladesh.