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.

New Bangladesh Tax Policy

Allegation has been surfaced that Ministry of Finance and National Board of Revenue (NBR) are taking the economy of the country to drastic disaster. In the conventional system, the more revenue NBR is collecting, the more the country is going into debacle. In spite of being the supplier of 80 percent financing of the national budget, NBR is, in fact, not being able to contribute in any development of the country. Rather the revenue generated by NBR is gradually making the economy stagnant. However, the impact was supposed to be entirely opposite. Economists believe that with their foresight-less tax policy, NBR is playing the adverse role; whereas they could have played a positive role in economy, investment, industrialization, and overall commerce and business, increasing income of majority people, reducing poverty, reducing income discriminations between rich and poor, and increasing income tax paying capability of the mass people. At first the target for NBR's revenue collection in financial year 2010-11 was set to 720 billion takas (Tk) ($10.28 billion). As the collection performance was ‘good’ in terms of NBR, in June 2011, the target was revised to Tk 750 billion ($10.71 billion). The Ministry of Finance is expecting that this will also be collected within this June. Due to this the NBR officials will be specially rewarded in addition to regular salaries and allowances. Under this condition, Ministry of Finance, riding on the cloud number nine, has provided NBR a target of Tk 940 billion ($ 13.42 billion) for the next financial year. The patriot businessmen and industrialists are alleging that NBR will claim their success also in the next financial year by pouring the same old rum in the new bottle.
Revenue Generation
Analyzing the sector wise revenue generation of NBR, we find that the sector that singly generates the maximum amount of revenue is Bidi (local cigar), cigarette, and different types of narcotic products. NBR generated Tk 100 billion ($ 1.42 billion) of revenue from this sector that is growing by 10 percent per year. It is to be noted that these so called 'legitimate' tobacco and tobacco based products are actually guiding the economy to the doom. The physicians have commented that the economic value of the loss owing to loss of longevity, loss of workability, loss of health, and spreading of different disease is around Tk 500 billion ($7.13 billion).
Although the government is earning Tk 100 billion revenue from the development of tobacco and tobacco based products, the government and nongovernment expenditure only on treatment due to usage of tobacco is around Tk 150 billion ($ 2.14 billion). Narcotics are increasing disorder, indulgence, corruption, and adultery in the society. What more disaster can economy face!
The second largest sector for revenue generation of NBR is importing of motor vehicles. Ninety percent of these vehicles mean private cars. NBR earns revenue of Tk 50 billion ($0.71 billion) from car importing duty and transport tax. It is to observe that 95 percent of the cars that are imported in Bangladesh are sold and driven in Dhaka city. The related transportation specialists and even the ministry of communication opines that traffic congestion in Dhaka has increased to extreme due to excessive amount of private cars. As per a recent research report of Bangladesh University of Engineering and Technology (BUET), the value of the wasted work hours and fuel owing to the regular traffic jams in Dhaka is Tk 200 billion ($ 2.86 billion). The calculation for environmental pollution has not been considered here. Private cars are increasing in this mega city of hundred million people due to lack of minimum public transport system, and as NBR has not made the import of big single Decker and double Decker busses convenient or duty free. Along with this, huge amount of motor driven or manual three wheelers like baby taxis and rickshaws are imported. The import of private car is not getting restrained even after imposing high taxes. The reason i s that necessity knows no hindrance. Let alone any other poor countries of the world, the capital of the rich countries in the world even do not have so many private cars. No nation also has to pay such enormous amount for transportation. This is happening due to crisis of public transport and NBR is not allowing this public transport to be easily available. The secretary general of Bangladesh Reconditioned Vehicles Importers and Dealers Associatoin (BARVIDA), Hamid Sharif himself made the same allegation.
The third highest source of revenue generation for NBR is the current mobile phone operators. It is needless to say that almost all of these mobile phone companies are foreign and their total number of subscribers is more than 60 million. NBR earns around Tk 450 billion ($ 6.43 billion) as VAT, income tax, and other duties from these mobile phone companies. Renowned Economist and Executive Director of Economic Research Group (ERG) Dr. Sajjad Zahir informed that the more there will be communication through mobile phones, the more revenue will be earned by NBR and the related companies. As a consequence, more and more Taka or valuable dollars will go out from Bangladesh and the country will become broke day by day. Investing Billions of Taka, the mobile companies are milking out trillions of Taka from Bangladesh in legitimate or illegitimate ways and making Bangladeshis a loquacious nation. From the calculation of Teletalk- the local mobile phone company with one million subscribers, on an average every mobile user spends $ 5.00 or Tk 350 per month. Based on this calculation, 60 million subscribers in Bangladesh spends Tk 20 billion ($ 285.71 million) per month or Tk 240 billion (around $3.5 billion) per year for speaking, internet browsing, SMS, and using other telecom services. From that, at least $2 billion is flying away from the country in legal or illegal ways. This creates massive deficit in the balance of payment of the nation.
The fourth largest source of revenue generation of NBR is tax and Value Added Tax (VAT) collected from local oil and gas companies. NBR earns around Tk 450 billion ($ 6.43 billion) from this source. The interesting fact is that the half dead local companies that sell per thousand cubic feet of gas to government or Petro Bangla for less than half a dollar are paying all the VAT and taxes to government. As a result they do not have any amount remaining for re-investment. However, the foreign companies that market more than 65 percent of gas and charge around $4 for the same amount of gas, does not pay a single penny as VAT or tax. These looters foreign companies are rebated with all the tax and VAT and allowed to carry all the money outside in dollar form the country as if they are sons in law of the government. This is called the justice in the realm of Nero. It is the fancy of killing someone's own son and tying knot with other people! Even the NBR officials have acclaimed that if Ministry of Finance, the father of NBR would not have done this historic malfeasance, gas sector would have generated the maximum amount of revenue. The current energy secretary Dr Mesbah Uddin Ahmed could not but appeal to the finance minister for several times for at least redemption of VAT. However, due to suspicious reason, the appeal is not getting granted. Oh NBR! Oh Ministry of Finance!
The fifth largest amount of revenue of NBR comes from the Bank-Insurance sector. NBR earns around Tk 350 million ($ 5.00 billion) from this sector considering 15% VAT, and 42.5% corporate tax. Such high rate of corporate tax rate is imposed no where in the world. Because of this abnormal super tax rate, the lending rate of banks is also very high in this country (18 percent to 24 percent). No where in the world except Bangladesh and Pakistan, lending rate is more than single digit. Industrialization and the overall economy are now getting distressed due to this high interest rate. I nflation is creeping up. The number of loan defaulters is also rising. However, banking sector is the heart of the economic system. According to the economists and the industrialists, no industry or business in the world can be legitimately profitable after paying interest more than 5 percent. However NBR very craftily, is demolishing the base of economy. The entire economy of Bangladesh has been paying high price for increasing the revenue of NBR. One of the directors of FBCCI--Federation of Bangladesh Chambers of Commerce and Industry, the elite organization of the businessmen and industrialists--and director of EXIM Bank Limited Mr. Nurul Fazl Bulbul said, ‘No directors of any bank will go to heaven. Along with that no official from Ministry of Finance, Bangladesh Bank, and NBR will go to heaven. The reason is that a group of bank directors are taking so much interest that the economy is going to doom. Except theft, it is impossible to operate business and trade honestly in any part of the world with 18-20 percent interest. The banks are intended to recklessly impose such high rate of interest only due to imposition of super tax (42.5 percent) in the budget by NBR. Bangladesh Bank, in this regard, remains indifferent. There is no such super tax or interest in the world. Even if anyone relieves from this liability of interest in the living world, he will not get mercy from Allah in the later world. The destroyers of industry and employment, all these usurers and the promoters of usurers will go to hell.’ He commented that as per the commitment of Allah they will be generation-less. The directors of the renowned banks and other industrialists recently uttered the same tune in a pre-budget meeting organized by NBR and FBCCI. Almost all the important businessmen and the industrialists of the country claimed to drop down the bank interest rate to single digit (below 10 percent) in the 32nd pre-budget annual discussion meeting of National Board of Revenue (NBR) held in Hotel Sonargaon, Dhaka. They said that no where in the world except Bangladesh and Pakistan, lending rate is more than single digit. For reducing this, NBR will have to lessen this super tax.
The sixth largest sector for revenue generation of NBR is the Annual Development Program or ADP of government. In this financial year, Tk 350 million ($ 5.00 billion) has been spent in this sector and Tk 460 million ($ 6.57 billion) will be spent in the next financial year. From that fund, 95 percent is spent for purchasing different products and services from the contractors and the 4.5 percent of the spent amount deducted at source by the related department as advance income tax and VAT. That is government is paying tax too government itself and setting aside the fund from the capital earlier on. By this way, they are playing with the fund. However, it was expected that the contractors, after performance of the work will pay tax from the profit generated and kept in their own pocket and the tax amount will be determined on the basis of profit. However, in reality the reverse is happening. The contractor, not spending from their pocket, sending the government money (whatever the amount is) in the government treasury and leaves after completion of the work by any means. That is frying fish in the fish oil. The government is paying the tax; credit goes to the contractor. It is like ‘Jindle eats food; and Kindle gets fat.’ The government claims credit by transferring money from book pocket to hip pocket. Moreover, some clever political contractors are showing losses after satisfying tax department. What a wonderful system!
Tax Collection
Another great source of revenue for tax collection of government is court fee of cases filed by people and land document taxes. Though, this is not directly under NBR. But, this is the highest non-NBR source of tax collection for the government. More than Tk 200 billion ($ 2.86 billion) of revenue comes every year from this sector. On the other hand, the expenditure of government and people for the lawyers, clerks, judges, and barristers incurs 50 times greater than this. The more the poor countrymen sell off their lands, the more marginal and landless poppers turn into day laborer or non-resident worker, the more people are getting involved into lawsuits-cases, killing-assassinations, chaos-confrontations, the more government earns. What a wonderful way to convert the national shame into pride of the ruler.
According to the study of Ministry of Legal Affairs, among all the law suits filed in the country, 85 percent are filed related to land property. In spite of simplifying the process for land, government is complicating systems for government is earning huge amount of money. Budget is growing with that sinful money. This, in other sense, is making the lower, middle class and the economy popper and penniless. The more there are cases, the more people become losers. This is also implied in cases of sell of lands.
Economic Development
In a survey of the Ministry of labor and Foreign Employment it has been observed that the poor people tormented by inflation, unemployment, and injustice mainly sell out their residential property, move from one region to another region of the country or become non resident laborer. However, in five years, the remittance they bring is less than the selling value of their residential property. The related personnel believe that the government is paying more attention on increasing and expanding taxes in spite of converting the country into a stable and civil one by permanently reducing cases and lawsuits.
The critics opine that the NBR and government, in stead of contributing to real economic development, may suddenly declare impose tax on thieves, robbers, deceivers, and immoral personnel and will validate their misfeasance and increase the revenue earning of the government. They will not care the national ignominy.