Government shifted position on budget focusing election

MNA Editorial Desk: The government has shifted its position on budget specially VAT, excise duty hike as they are focusing on the upcoming general election in 2019. Finance Minister AMA Muhith backtracked from his decisions to impose 15 percent uniform VAT and raise excise duty on bank accounts of smaller balance to meet the huge expenditure of the next fiscal year after severe criticism.

The businessmen kept protesting the new VAT law for a period of over one year. The opposition leaders as well as leaders from the government have raised voices following public concern after Muhith presented the proposed budget in parliament on June 1. Ruling party ministers and MPs, who passed the budget before placement in parliament, have also joined the critics.

Not concerned of the criticism, the finance minister was determined to implement the new VAT law from July 1, 2017 as he had planned to collect BDT912.54 billion, or around a fourth of the BDT4.266 trillion worth of budget from this newly structured VAT.

Muhith, who has present a record nine consecutive budgets, however, relented when Prime Minister Sheikh Hasina advised him to retain the existing multiple-rate VAT system for next two fiscal years and that remains to be seen is how the government will offset the loss of potential income from VAT. The finance minister also revised excise duty on bank accounts.

For the new fiscal year starting Jul 01, he announced BDT150 duty on bank accounts with balance between BDT100,000 and BDT500,000, shifting from his original proposal for BDT800 in the budget. It means BDT500 existing rate of excise duty for the same slab will come to an end in the outgoing fiscal year.

The double actions endorsed in parliament on Wednesday are expected to placate the critics of the government ahead of the next election less than two years away.

In addition to these, in his most generous giveaway, Muhith has reduced corporate tax for export-focused garment makers to 12 percent from 20 percent now. That is the biggest reduction in corporate tax for any sector in the new budget. In his original proposal in parliament on Jun 1, Muhith proposed to cut the corporate tax rate to 15 percent, but that did not make influential business leaders happy.

For green factories, corporate tax is even less, only 10 percent, down from 14 percent he had originally proposed in the new budget. The only disappointment to the garment industry is tax at source that was increased to 1 percent from 0.7 percent.

Earlier it was clear in ruling Awami League leaders’ speeches that they wanted Muhith to make a budget that can bring in votes.

Awami League Joint General Secretary Mahbub-Ul Alam Hanif said about the proposed budget, “It can be said that the finance minister has made an anti-election budget”. Lawmaker Kazi Firoz Rashid, who sits on the Jatiya Party’s policy-making presidium, described the budget as a ‘joke’. He asked if it was logical for the government to impose 15 percent VAT on people and expect votes from them as he said, “Do you think people are stupid?”

Prime Minister Sheikh Hasina obviously took note of the points raised by the critics. During Wednesday’s budget discussion in parliament, she said the VAT rates will remain unchanged because there were debates on the issue. She also said business-people are not agreeing with the proposal. “So please make it that way, for the next two years. Please keep the VAT collection system as it is now,” Hasina said advising Muhith to reverse his proposal.

The finance minister proposed to delay the full implementation of the new VAT law while placing the finance bill for 2017-18 fiscal year later. He said, “Our government will take various steps like it did in implementing the 2012 VAT law gradually in past four years”. The MPs passed the finance bill with the changes he proposed.

The tenure of the current parliament finishes by the end of next year, which means the new VAT law is not coming into effect in the current term of the Awami League government. Discussions concerning the new VAT law have been under way since 2009. The government wanted to implement the Value Added Tax and Supplementary Duty Act of 2012 from July 1 last year but scrapped the plan following intense protests by the trade bodies. The rates of package VAT, which is retained now again, were raised instead.

Since the plan was shelved last year, the finance minister had been saying the law would be implemented from July 1 this year.

In parliament on Wednesday, Hasina spoke about the history of the law to remind the critics in her party that the Awami League passed it in its previous term as she said, “It was made in 1991. A draft was made in 2008 for a revision.”

“We passed the law in 2012 after discussing it with all. Now everyone has forgotten that we passed the law,” she added.

The prime minister also emphasized paying taxes properly. She urged, “VAT or tax, whatever we are paying, will be used to develop the country. If we do not pay the taxes, we will have to beg.” She also added that, “We don’t want to pay our expenses with grants. We want to stand on our own feet. And we are making the budgets keeping that issue in mind”.

“…I will ask you again to pay taxes. You will be stuck in your own trap if you don’t do this,” she warned against tax evasion.

Through Wednesday’s changes, Muhith visibly responded to the criticism of his fellow parliamentarians and tried to appease the lower middle-income group also.

The changes include BDT150 excise duty for bank accounts with deposit exceeding BDT100,000 but less than BDT500,000, which is even less than the last fiscal provision.

In the original budget proposal, the finance minister raised the duty from existing BDT500 to BDT800 for the above deposit bracket as he termed the people with BDT100,000 deposit ‘wealthy.’ Muhith, however, kept the proposals for bank accounts with a balance of BDT1 million and above unchanged.

Those with BDT1 million to BDT10 million will be charged BDT2,500 instead of current BDT1,500. Accounts that have deposits between BDT10 million and BDT50 million will be charged BDT12,000 instead of BDT7,500. The excise duty on accounts holding over BDT50 million will be raised to BDT25,000 from BDT15,000 now.

The change in VAT law plan will help small businesses to pay their VAT under the existing system as they complained the proposed system was complicated.

They had claimed the government was levying the new VAT system without providing small businesses sufficient training about how to deal with the new tax.

Muhith, however, wants to bring more small businesses under tax and VAT bracket as, according to him, only 25,000 to 26,000 businesses out of 800,000 registered for VAT payment now.

In the light of all these last minute changes which will drastically affect the overall budget, it can be easily concluded that the ruling party is focusing more on the election this time but what will happen after the election if the ruling party keep continuing their reign, that will become the question of this election. Shifting so much from the plan might not be a good indicator for the future of Bangladesh and its development goals as now it will become very difficult to attain the goals set in this budget.