CPD forewarns Tk 550b revenue shortfall in FY ‘18

Dhaka,  Thu,  24 August 2017
Published : 11 Jul 2017, 00:44:58
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CPD forewarns Tk 550b revenue shortfall in FY ‘18

It suggests govt discourage institutional investment in savings tools
FE Report


The Centre for Policy Dialogue (CPD) predicted government's revenue shortfall between Tk 430 billion and Tk 550 billion in the current fiscal following the postponement of the new VAT law, and suggested some remedies.

It said this inability to execute the law will have serious consequences for revenue mobilisation. However, the private think-tank noted that any significant impact, in terms of budget deficit, unlikely as budget is never executed fully.

The CPD estimated the revenue shortfall by presuming budget- execution rates down at 85 to 90 per cent.

It said the government should borrow to offset this shortfall by enhancing foreign aid and credit from banking sources by avoiding costly borrowing using the tools like the national saving instruments.

It said the government needs to restrain borrowing from sales of saving certificates. It suggested digitizing sales of the national saving certificates to identify its nature, saying that individual purchase ought to be scrutinised.

The policy think-tank also said institutional purchase of the saving certificates should be discouraged.

Likening the government decision not to implement the VAT Act 2012 to 'crash landing of plane', the CPD, however, said the VAT online project should not be stopped in order to implement the same later.

Reforms of other laws, like those on customs, direct tax and transfer pricing, as part of widening and making those more progressives are also seen imperative.

The CPD came up with the observations and recommendations at a press briefing on 'the national budget 2017-18: post-approval observations' at city centre. Its distinguished fellow Dr Debapriya Bhattacharya presented keynote paper while executive director Dr Fahmida Khatun moderated discussions.

Dr Bhattacharya said the VAT Act 2012 could not be implemented mainly for three reasons: (1) there was no adequate technical preparation (2) failure to realise its social implications and (3) lack of political consensus.

He said the CPD always stood for introducing the new act as it is "most progressive" but they had objection to the uniform VAT rate of 15 per cent.

The economist thought if the government had taken cognizance of the CPD-proposed rate of 12 per cent, then such a situation might not have happened.

The CPD, however, said the government should now consider six elements of the work plans: they are to maintain momentum of revenue-mobilisation efforts, reasonably restrain non-development expenditure, prioritise certain development expenditure, discourage costly borrowing, be vigilant regarding disquieting macroeconomic developments and move on with reform agenda.

Bhattacharya noted some allocations for non-development expenditure in the budget which they the think-tank views may be restrained.

"The block allocation worth Tk 33.27 billion needs to be streamlined," he said.

He was critical of the investment in recapitalisation for the state-owned banks. "There is no justification for giving Taka for the state-owned banks."

There is budgetary allocation of Tk 20 billion earmarked for replenishing the banks' capital shortfall.

The think-tank reiterated its suggestion for the formation of a short-term banking commission for streamlining and bringing transparency in the banking sector.

Bhattacharya noted that not only the state-owned banks, bad loan and other mismanagement are also surfacing in private banks also, including one first- generation bank.    

He said some regulatory organisations including the central bank are not monitoring activities of the organisations belonging to them, but, most importantly, there is need for political 'signal' for the institutions to strengthen their monitoring.

Bhattacharya feels that other allocations like Tk 10.66 billion for planning division and Tk 20 billion for investment in shares may be restrained.

"We may hold back at least Tk 250 billion from the non-development expenditure," the economist noted.

The CPD fellow said more stringent measures should be implemented to reduce illicit financial outflows and actions be taken in revealed cases. "Otherwise it will be injustice to the honest taxpayers."

Another CPD distinguished fellow, Dr Mustafizur Rahman, director (Research) Khandkar Golam Moazzem and senior research fellow Towfiqul Islam Khan were present and replied to the media queries at the briefing.

    jasimharoon@yahoo.com
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