Budget FY25 highlights moderate GDP growth, inflation, jobs and smart Bangladesh

Published at : 07 June 2024, 11:35 am
Budget FY25 highlights moderate GDP growth, inflation, jobs and smart Bangladesh
Photo: Collected

Finance Minister Abul Hassan Mahmood Ali on Thursday unveiled the national budget for FY2024-25 in the Parliament proposing an expenditure of Tk 7,97,000 crore with a revenue income of Tk 5,41,000 crore.

This left a deficit of Tk 2,56,000 crore, said Ali in his maiden budget speech as the finance minister.

He proposed to meet the gap with the collection of Tk 1,60,900 billion from domestic sources and another Tk 95,100 billion from the foreign sources.

This is the first national budget for the current Awami League government of Prime Minister Sheikh Hasina since it assumed office early this year after sweeping the January 7 general election.

While preparing the budget the government faced the challenges of inflation, declining foreign exchange reserves, and dwindling exports and imports.

In the fiscal year beginning July 1, the finance minister expects that the economy will grow by 6.75 percent, a percentage point higher than the outgoing year. This year’s GDP has been estimated at 5.82 percent, down from the original projection of 7.5 percent.

Ali has been hopeful of taming the inflation at 6.5 percent during FY2024-25, which may prove a tall order in the context of the current level of inflation at about 10 percent.

For the upcoming fiscal year the government has already approved an Annual Development Program (ADP) of Tk 2,65,000 crore.

Ali said, “While allocating resources emphasis has been given resource allocation for the Annual Development Program for investment and development of physical infrastructure.”

In addition, he said, “special importance has been given on compulsory education, health, science and technology for the development of human resource and knowledge-based society.”

The proposed spending has been split into three divisions: Social infrastructure, physical infrastructure and common service sector. A total allocation of Tk 2,06,569 has been proposed for the social infrastructure, which is 25.92 percent of the total allocation. Physical infrastructure has received an allocation of 2,16,111 crore has been proposed, which is 21.12 percent of the total outlay. For the common service sector, an allocation of Tk 1,68,701 crore has been proposed.

Mentioning that there has been a significant depreciation of taka currency against US dollars following the rise in interest rates, the finance minister said the expenditure on interest payments may increase significantly in this context.

For debt payments, the proposed budget has allocated a total of Tk 1,13,500 crore, which accounts for 14.24 percent of the total allocation.

Finance Minister Ali told the Parliament that in formulation the budget he has laid emphasis on taming inflation, adequate allocation for education and health services for all, food security, building smart Bangladesh, graduation from LDC status, facilitation of business process, climate change, expansion of investment and industry by encouraging private enterprises.

“…special priority has been given to important issues like ensuring youth employment by promoting vocational education and protecting the population lacking social security,” Ali said.

The finance minister has aptly captioned his budget speech as a “March towards smart Bangladesh following the path of sustainable development.

There have been enough allocations for the development of skilled human resources as “smart citizens will be instrumental to building a prosperous and smart Bangladesh by 2041”, a goal set by Prime Minister Sheikh Hasina.

 

MSH

Provident funds to pay 27.5% tax

Published at : 20 September 2023, 04:57 pm
Provident funds to pay 27.5% tax

Companies and organisations will be required to file tax returns on the income generated by employee welfare funds from the current fiscal year and pay a 27.5 percent tax on the earnings. 

The Income Tax Act 2023 incorporates the provision, lifting the tax exemption and amnesty on the compulsion to file returns for funds such as provident funds, gratuity funds and workers' profit participation funds maintained by the private sector.

The law, however, has exempted government-managed provident funds from taxation, raising questions.

TIM Nurul Kabir, executive director of the Foreign Investors' Chamber of Commerce & Industry, said there were many other avenues to collect tax.

"Employees benefit from provident funds after their retirement. So, the authority should not slap taxes on retirement benefit."

He said while levying the tax, the government has not treated provident funds of the private and public sectors equally.

"It is discriminatory," he said, adding that they would appeal to the tax authority for the withdrawal of the tax on income from provident funds.

Debabrata Roy Chowdhury, director for legal, regulatory and corporate affairs at Nestlé Bangladesh PLC, said the introduction of income tax on trust funds would lower the overall income from such schemes.

"This will have an adverse long-term impact on retired employees of private organisations."

Chowdhury urged the authority to address the issue in line with the spirit of the government's initiatives aimed at ensuring social security for private sector employees.

"The recent introduction of the universal pension scheme for private sector employees is a good example of that."

A senior official of the NBR, on condition of anonymity, said the income of government-managed provident funds was exempted in line with the Provident Fund Act 1925.

He said provident funds under the private sector had been historically exempted and there was no requirement to submit tax returns. As a result, it was unclear whether the funds were properly utilised.

"From now onwards, we will see proper disclosure."

The tax official said the contribution of payroll tax is about 3 percent of the total income tax although it should increase as the economy is growing.

Md Shahadat Hossain, a former president of the Institute of Chartered Accountants of Bangladesh, said income from investment in savings certificates, where people invest as a source of future earnings, is already taxed.

"From that perspective, the imposition of tax on provident and other employee welfare funds seems okay."

However, Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue, said social protection for private sector employees was low.

"Provident and other workers' welfare-related funds provide little social protection. The imposition of tax will increase inequality. But there can't be any discrimination in taxation between private and government provident funds."

Khan, citing the latest income tax law that replaced the Income Tax Ordinance 1984, said the NBR tried to find new avenues to increase tax collection and improve the nation's revenue-gross domestic product ratio, which is one of the lowest in the world.

"We can see the desperation of the tax authority to boost collection. This ultimately reveals the inability of the NBR to catch the tax evaders and illicit money makers."