Thursday, January 5, 2012

Bangladesh Government Faces Challenge in Controlling Prices of Commodities

The Bangladeshis are bearing the brunt of rise in the prices of essential commodities in the international market. The poor people of the country are passing their days in hardship in spite of various social safety net programs of the government. A consumer at this moment has to spent taka 110 (Tk) for commodities which he could purchase with Tk 100 in 2010 because of rise in inflation. Under this ground reality, Finance Minister Abul Maal Abdul Muhith is going to announce the budget of the coming fiscal year (2012-13).
Economists and market analysts are saying that controlling prices of the commodities will be the main challenge in the coming budget. The prices of essential commodities made a further high jump because of a recent rise in the prices of fuel oils and CNG, and an enhancement of transport fares as a sequel to this.

Tackling Inflation
The finance minister will announce budget in parliament on June. This will be the third budget of the present government. Debates have already begun on what good news a hopeful Abul Maal Abdul Muhith will give in the new budget or whether there will be any surprise there. All are in unison that inflation is a big enemy of the economy at this moment. The finance minister himself has admitted that inflation is the main problem. Economists have suggested the government to ensure social security, including enhancement of food supply, to gear up rural economy, increase investment, and reduce the impact of inflation.
It was reported that the finance minister will undertake efforts in gearing up social safety net programs in the new budget for controlling the inflation. All existing allowances, including elderly and widow grants, will be continued in the new budget. But proposals will be made to expand the areas of allowances instead of enhancing the amounts.
Honorarium of the freedom fighters will also be increased. A special emphasis will be given to keep the food supply normal. For this reason, plans have been undertaken to build an adequate stock of foods. A proposal will be made to construct new warehouses to increase the capacity of food stocking.
An announcement of recruiting 100,000 new employees in the public sector will also be made in the new budget. A proposal for making the highest allocation in the education will also be made in the budget. The new budget will continue all existing stipend programs for the students. Like in the past, the energy and power sector will be given the highest priority in the fiscal plan.
In fact, tackling the inflation will be the main challenge of the government in the coming budget. He thinks that the government has no adequate mechanism in its hands to contain the price hiking. The government can keep the food supply normal and gear up the social safety net programs.
Maintaining the growth and controlling the inflation will be the main challenge of the government in the next budget. Adopting a monetary policy with more contractions for controlling the inflation. But the principle objective of the next budget would be to increase investment and employment by keeping the inflation under control.
The areas of Value-Added Tax (VAT) and tax would be expanded in the coming budget to increase revenue from internal sources. But no big change will be made in the tax structure. Additional 500,000 taxpayers will be identified for the expansion of area of income tax. The people will be given some sorts of relief from tax burden. In this regard, a proposal will be made to fix the tax-free income at Tk 180,000 for individual by rebating Tk 15,000. But minimum income tax rate at Tk 2,000 will remain intact in the budget.
For discouraging smoking, prices of cigarettes will be increased. A proposal will be made in the budget to restructure duties in car import to stop tax evasion. Facilities of tax rebate will be reduced to increase collection. There will be a proposal for expanding the tax net up to the upazila (subdistrict)-level. An announcement will be made in the new budget for paying VAT rate equally by all small and big traders for abolishing rebate facilities against value addition tax of VAT goods and service sector.
The highest 25 percent tax will be maintained for protecting the interest of the local industries, whereas a proposal will be made for continuing one more year the regulatory duties on all imported finished goods. An announcement will be made in the budget to increase the tenure of bond license from the existing one year to two years for the convenience of the entrepreneurs. A provision will be made for duty-free import of necessary equipment for building solar power plants for generating alternative energy to face electricity crisis. An announcement will be made for enhancing more two years the preshipment inspection system. The interest on savings certificate will be increased.
The new budget will make a set of reform proposals in the income tax sector. A proposal has been made in the next budget to realize an additional tax of Tk 55billion through increasing the tax net and taking various reforms and administrative measures. An announcement will be made to set up 100 taxpayer centers across the country to reach the income tax service at the doorsteps of the common man. Provisions will be made so that the taxpayers can submit their return online.
At present, Tk 0.40 (0.4 percent) is realized as source tax on the export earning of the garment sector. In the coming budget the source tax might be imposed on all the export oriented sectors other than garments. At present the eligible persons have been brought under the income tax net only in the urban areas. A proposal will be made to expand the tax net up to the upazila-level. The new budget will made an announcement on introducing Alternative Dispute Resolution (ADR) to settle litigations quickly for increasing revenue earning. Massive reform programs will be undertaken to make the National Board of Revenue (NBR) a powerful organization. The laws will be announced to make the VAT rules more simplified.
Prices of Essential Commodities

The inflation in March was at 10.49 percent on a point-to-point basis. This rate of the inflation is the highest after 2008. The people of fixed income group suffer the maximum because of any rise in the inflation. The negative impact of the inflation is that it does not increase the income at a rate the commodity prices make the jump. And as a result, the poor people lose their purchasing capacity.
The cause of concern at the high trend of inflation is that most of the people in our country live below the poverty level. This creates some sorts of unrest in the economy. At present the rate of inflation surpassed the double-digit mark. It has become a very difficult task for the common people to meet the cost of living amid the continuous rise in the inflation.
ADP: A proposal for a huge Annual Development Program (ADP) will be made in the coming budget for increasing investment in the public sector. The possible size of the ADP might between Tk 465 billion and Tk 470 billion. The resources committee has recommended for an ADP of Tk 460 billion. Prior to her foreign visits, the prime minister issued instructions to allocate more fund for the ADP. The Planning Commission has finalized the draft of the new ADP. The National Economic Council (NEC) will approve the ADP at the end of May following return of the prime minister from abroad.
A proposal has been made for allocating Tk 273.170 billion for the new ADP from internal resources increasing the domestic share in the program. The rest of the ADP fund will come from foreign assistance. There will be 1,013 projects in the proposed ADP. Of those, the number of new projects will be over 200. Most of these projects are under the ministries of local government and communications. Many people believe that these projects are worthless and those being taken in political consideration.
The Planning Commission said that a demand for Tk 620 billion has come from different ministries in the new ADP. It has been learnt that the proposal for maximum allocation in the newly proposed ADP is made for the electricity sector. The proposed allocation for the power sector in the new ADP is about taka 72 billion, which is 44 percent higher than that of the current fiscal year (2011-12). The allocation for the power sector in the current fiscal is Tk 50.170 billion. A proposal has been made for allocating Tk 11.140 billion for the energy sector which was Tk 10 billion in the current fiscal.
The Local Government Division has made a proposal for allocating Tk 95.550 billion in the new ADP for the development of rural infrastructures. In addition, proposals for allocating Tk 35.120 billion for primary mass education and Tk 21.430 billion for education ministry have been made in the new ADP. The implementation rate of the ADP still April was 60 percent.
Subsidy: Subsidies will be continued in the coming budget. A proposal has been made to allocate Tk 250 billion for the purpose. The maximum of the subsidy is given to the power and energy sectors. A sum of Tk 120 billion will be allocated for the power and energy sector. The rest of the subsidy money will go to agriculture, food, and social safety net programs and export sector. A big chunk of the budget money is spent for subsidy. At present the allocation in the subsidy sector is about 9 percent of the total budget. In the current fiscal year, Tk 170 billion was allocated as subsidies for different sectors. The amount in the revised budget increased to Tk 200 billion. Most of the subsidy money was spent in the energy sector as the prices of fuel oil increased in the international market. In this regard, economist and researcher Dr Hasan Mansur said that budget deficit would increase if the amount of subsidies rises. And this would leave a negative impact on the inflation, he added.
Size of Budget: The government is going to announce a big-volume budget in the coming fiscal year to boost investment. The outlay of the new budget could be at Tk 1,630 billion. Of this, revenue budget is Tk 117 0billion and development budget Tk 470 billion. The Gross Domestic Product (GDP) target in the new budget might be fixed at 6.9 percent or 7 percent. The budget deficit has been fixed at 5 percent.

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