Critical Analysis of Government Budget and Major Economic Challenges for FY2016-17

Bibekananda Biswas19-058

Budget FY2016-17 at a glance

GDP growth targets 7.2% Govt. sets 6% inflation target Budget deficit is Tk.97,853 crore Revenue target proposed at Tk.242,752 crore Tax-free income ceiling unchanged at Tk.2.5 lakh New VAT law to come into full effect from July

2017 Duty-free import of safety equipment for

exporters

Budget FY2016-17 at a glance (cont’)

Package VAT stays with rates doubled Agriculture Ministry gets Tk.13,675 crore Education Ministry gets massive boost (Tk26,847

croreAllocation for primary education went up by over

50% Tk.3,738 crore increased for defense Power allocation drops (Tk15,036 crore) Tk.21,322 crore allocated for local government

Budget FY2016-17 at a glance (cont’)

Health sector allocation up by a third (Tk17,487 crore)

Ministry of Water Resources gets Tk.3,759 crore 28.11% increment for Women and Children Affairs 20% corporate tax for RMG Budget for Railway gets significant increase Bridges Division gets Tk.9,289 crore Tk.100 crore allotted for Tourism

Naiz Mohammad19-061

BUDGET ANALYSIS

• The slogan of the national Budget 2016-17 was: “MARCHING TOWARDS GROWTH, DEVELOPMENT AND EQUITABLE SOCIETY”• Finance Minister AMA Muhith on June 2 rolled out a Taka

340,605 crore national budget for 2016-2017 • Failure in tax reform and weak performance of the

annual development program (ADP) gave rise to a major concern current fiscal year .

Public debt• Public debt as % of GDP is at a reasonable state for

Bangladesh – may increase insignificantly in FY17 largely due to rise in domestic debt. • Currently about 57% of the public debt is attributable to

domestic source and 43% to foreign finance.

• Government needs to use low-cost borrowings • Interest payment for domestic debt has already risen

substantially. • Debt servicing for borrowing for large infrastructure projects

may put further pressure in future

Subsidy• Total subsidy allocation is expected to be about 1.2% of GDP in

FY17 (1.1% in RBFY16)• About 6.8% of total public expenditure• These are reflected in loans and advances ((-) 19.5%

reduction)• Agriculture subsidy will be Tk. 9,000 crore for FY16-17– same

as the previous year with unchanged subsidy structure agriculture may not need the full amount

• In RBFY15-16 subsidy budget for agriculture was reduced to Tk. 7,000 crore – it may be similar in FY16-17

• For export sector, allocation is Tk. 3,000 crore

Md.Naim Hosen 19-066

Financing Sources & Budget Revenue FY16-17• revenue generation target to Tk.2,427.52 billion in FY17• 60 percent revenue will be collected from NBR tax• 18 percent from domestic sources; • 11 percent from external sources • 9 percent and 2 percent will be from non-tax and non NBR tax

Financing Sources & Budget Revenue FY16-17

Financing Sources & Budget Revenue FY16-17• The targeted revenue is 12.4 percent of the GDP which is 2.1

percent greater than the previous fiscal year (10.3 percent of GDP).

• The Tax-GDP ratio (around 9.6 percent in the FY15 actual budget) is much lower than our peer countries (ranging from 20 percent to 32 percent).

Saboz Ahmmed19-111

ADP Allocation FY'17• Annual Development Programme (ADP) an organized list of

projects in various sectors• The ADP is prepared on the basis of the year's development

budget approved by the parliament• The total ADP size in the Budget is Tk.1107 billion which is

21.6% higher than that of FY16

Budget Deficit Financing FY17• Deficit Financing is a practice in which a government spends

more money than it receives as revenue• The total revised budget deficit in FY16 is TK871.43 billion • the next fiscal year it is estimated to be TK978.53 billion, • It is 12.29 percent higher than FY16.

Budget Deficit Financing FY17

• the budget deficit financing will occur 37 percent (Tk.363.05 billion) from the external source and • 63 percent (Tk.615.48 billion) from the domestic source • where 23 percent (Tk.226.10 billion) from non-banking

source and 40 percent (Tk.389.38 billion) from banking source in FY17

Md.Monjurul Ahsan19-099

Major Economic Challenges• GDP Growth• Revenue Collection• Government Expenditure• Budget deficit and financing • Foreign Grants / Aid• Remittance• Export and Import• Inflation• Industrial term loans

Chandan Kumar Roy19-164

FINDINGS OF FY 2016-17 BUDGET

• EXCESSIVE TAX BURDEN FOR LOWER INCOME GROUP• Taxable limit has not been increased as per finance bill 2016• The rate of tax rebate has been refixed from 15 to 10 per cent

depending on the level of income instead of flat 15 per cent• Salaried employees are paying taxes fully as their company

pays salary after deducting tax at source, as required• In Value Added Tax (VAT), tax collection at equal rate

irrespective of the economic standings of the people is a regressive method.

• A new section 82c has been incorporated stating that minimum tax will not be less than the tax deducted at source.

A critique of FY 2016-17 Budget

Excessive tax burden for lower income group Higher income group relaxed Whitening black money Irrational revenue target for 2016-17

Planning of incremental spending not reformed on priority basis

Md.Injamul Haque19-179

RECOMMENDATIONSconsidering past performance of failure in reaching the target of revenue generation, the proposed budget is indeed ambitious. But the target is not unattainable if Reforms are implemented, VAT law is passed, NBR (National Board of Revenue) activities are automated and

modernized, A dedicated team of trained manpower overlooks the

generation process, and Tax base is expanded. It appears that the Tk.450.00 billion of

additional taxes is to come by raising the rate of taxes rather than expanding the base.

Thank You