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Wider VAT net : 2.5pc infrastructure development surcharge

Tk 8162cr deficit budget

Star Report
Finance Minister SAMS Kibria yesterday proposed a Tk 27,786 crore expenditure budget for fiscal 1997-98, leaving an overall deficit of Tk 8162 crore with wide ranging tax effects.
Prices of 'certain locally produced' goods and all imports — barring defence stores, imports for diplomatic and privileged persons, imports for handicapped persons, relief goods for disaster management and imports for export purpose — will go up due to imposition of a 2.5 per cent infrastructure development surcharge.
This surcharge practically amounts to raising the VAT rate to 17.5 per cent and is likely to have a cascading effect.
The proposed budget, which has for the first time reflected the AL government's political philosophy and fiscal ideas, has also envisaged thorough overhauling of the taxation system casting a wider tax and VAT net.The budget also proposes a number of programmes aimed at reducing poverty and helping for the first time the poor and elderly citizens with pensions on an experimental basis. It also seeks to boost agricultural production with more allocations than in the previous year.
The proposed budget has projected a revenue earning of Tk 19624 crore — Tk 16153 crore from tax and Tk 3471 crore from non-tax heads — 14 per cent up from this year's Tk 17120 crore.
A lot of fiscal balance will now depend on realisation of these taxes, mainly customs duty and VAT. The budget aims at realising Tk 1950 crore from income tax. Tk 5010 crore from customs duty. Tk 230 crore from excise duties. Tk 5050 crore from VAT. Tk 2510 crore from supplementary duty and Tk 250 crore from other taxes and duties.
Of the total expenditure. Tk 12800 crore will be on development programmes and Tk 14545 cr on revenue heads. After discounting net outlay In food stock (Tk 49 cr) and loans and advances ( Tk 563 cr). the rest expenditures will be on non-ADP projects (Tk 38 cr). food for works (Tk 265 cr) and capital expenditure (Tk 750 cr).
The estimated expenditure also shows Tk 700 crore for pay rise of government employees.
The budget deficit will be met through Tk 5342 crore foreign financing and Tk 2820 crore domestic financing.
The proposed budget's deficit is Tk 24 crore higher than this year's original estimated deficit and Tk 296 crore higher than the revised estimate.
Hoping to make a GDP growth of 5.7 per cent this fiscal. the finance minister outlined a five-point strategy for growth. These are reducing wastage, maintaining macroeconomic stability, promotion of private sector by eliminating unnecessary restrictions, supporting export-oriented industries and human resource development.
Speaking on reforms. Kibria said. "We must consolidate ongoing reforms before moving on to new areas. Payoffs of successful reforms are enormous, the gnalties of failures could also
staggering. It Is not sufficient to start reforms, one cannot reap the dividends of reforms unless they are completed." Lambasting the state-owned enterprises for burdening the financial Institutions, he said the government had to pay Tk 688 crore In the form of loans and grants in the current fiscal year to keep these institutions alive.
Stressing the need for maintaining macroeconomic stability, the finance minister said, "the spectre of Inflation engenders instability and uncertainty in the economic system. We must always be on guard to contain inflation and the fiscal and monetary policies must be finetuned with this end in view."
Dwelling on bank loan defaulting, he asserted that efforts were on to realise bad loans from public and private banks.
Discussing external balance. Kibria said exchange rate management must be flexible. He pointed out that the export target for the current year is 12.8 per cent higher than last year's actual export, the target is expected to be met.
On the Annual Development Programme (ADP) for 1997-98. Kibria said the Tk 12.800 crore ADP includes He 553 crore on account of Food for Work and rural infrastructure development. The proposed ADP is 9.4 per cent higher than the revised ADP for 1996-97. He further said 47 per cent of the ADP funds will come from internal resources and 53 per cent from foreign sources.
The minister said the conducive environment created by the government has already attracted investment offers from 24 countries and that administrative and legal reforms have already been undertaken to attract both domestic and foreign Investments.
He also reiterated the government's top priority on poverty alleviation and social justice. He unveiled features of a social programme to help the poor and elderly and vulnerable Koups of people. The proposed nds for helping the poor and creation of jobs for youths through an employment bank and shelters for the homeless totals Tk 150 crore, he said.
Highlighting the importance of agriculture in the national economy. Kibria said the sector contributes 32 per cent in the Gross National Product. Because of a courageous decision by the government to subsidise agriculture sector with an initial outlay of Tk 100 crore in ADP which increased to Tk 212 crore due to fertiliser imports to offset local production shortage. the sector had a growth of six per cent, he added.
The government, he pointed out. has formed an Agriculture Commission, and set up a new agriculture extension and research system to help boost production. On farm credits, he said, the government has decided to contribute Tk 100 crore to rural credit fund of Bangladesh Bank. A credit programme of at least Tk 1.000 crore will be ensured for the cereal sub-sector by Bangladesh Bank with the support from the government as well as from its own resources. Fishery and Livestock sectors, a crucial segment In poverty alleviation programmes, have been allocated Tk 130 crores In the ADP, he said.
In the revised budget for 1995-96, Tk 502.34 crore was allocated for the crop sub-sector. But in the revised budget for 1996-97, the allocation rose to Tk 735.66 crore, marking a rise of 46.4 per cent. Total allocation for crop sub-sector in 1997-98 is proposed to be raised to Tk 843.3 crore-an increase of 14.6 per cent over that in the current years revised budget, he said.
Meanwhile, in the revised budget for 1996-97. revenue receipts exceeded the estimate by Tk 25 crore and reached Tk 17145 crore while the revised total expenditure was lower by Tk 247 crore, totalling Tk 25011 crore.
The revised overall deficit for 1996-97 was Tk 272 crore lower than the estimated deficit Of Tk 8138 crore. This cut in deficit and expenditure was due to a slash in ADP by Tk 800 crore to Tk 11700 crore.
The finance minister's speech was punctuated with snouts from the Opposition Bench when he referred to the share market scam and outlined new VAT and tax widening process. But a table thumping Treasury Bench lent their support to the minister when he announced certain measures to help the poor and vulnerable and the unemployed and other highlights.
Earlier, carrying a new briefcase Kibria, presenting budget for the second time in Parliament, arrived at the House at 3-15 pm with Prime Minister Sheikh Hasina. But he preferred to take his seat at the other end of the front bench.