Ahsan Mansur Interview

Some expectations regarding the budget have been met while some remained unfulfilled- so it can be
called a mixed bag. The introduction of VAT was a major undertaking in the budget. This can be termed
as one of the first systematic reforms in the rein of the present government. However, I can understand
some compromises have been made here due to political necessity. The two thresholds for VAT have
been increased simultaneously. No other country apart from Bangladesh has two thresholds for VAT.
The upward revision of the upper threshold from BDT 80 lac to BDT 1.5 crore will allow many people to
evade taxes. In India the VAT threshold is RS 10 lac where as in Bangladesh the amount is BDT 1.5 crore.
There is a huge difference between the amounts. Another backward change in the VAT law has been the
imposition of supplementary duty of a wide range of products. We had expected the supplementary
duty to be reduced. As per the VAT law of 2012, the supplementary duty was applicable on 150-200
items. The new law demands imposition of supplementary duty on 1400-1500 items. Despite all these,
the government should be applauded for showing such boldness through such reforms before elections.

Some of the revenue focused reforms which had been announced by the Honorable Finance Minister
could not be materialized. We had expected the corporate tax to be reduced this year but that did not
happen. Our corporate tax rate is quite high comparative to other parts of the world. To encourage FDI
in our country, we must align our corporate tax rate with other countries. Our corporate tax rate must
be in between 25 percent to 30 percent for us to be an attractive FDI destination. With our corporate
tax rate being as high as 42 percent to 45 percent, we have not been able to attract much FDI in our
country and if the rates remain such I do not think that FDI participation is likely to increase in the future
too.

The 2017 budget has been a mixed bag for the cigarette and biri sector as well. The government has
announced some positive initiatives regarding the sector while some drawbacks are involved as well. In
case of both cigarette and biri, prices need to be increased to discourage consumption and that has been
done in the budget. Prices have been increased in the lower threshold as there were less scope of price
hike in the upper threshold due to chances of smuggling. The slight increase in prices in the upper
threshold is due to inflation adjustment. This initiative will serve two purpose: on one hand it will enhance
governments revenue and on the other hand it will discourage the consumption of these toxic products.
One of the unfavorable initiatives by the government has been the differentiation between local and
foreign cigarette producers. Such differentiation has never occurred in Bangladesh before. Any
production, irrespective of local or foreign producer, has always been considered local production. It is
unfair to provide differential tax treatment to the foreign producers, who are using the same raw material
and labor for production like the local ones. This is absolutely apartheid type. Such initiative should have
been discouraged. Two price thresholds have been established for the lower category cigarettes. The
foreign branded cigarettes are placed in the upper one while the locally produced ones are placed in the
lower price threshold. Thus, tax advantage has been given to the local producers over the foreign ones,
although both are operating within the same industry cost structure. This is discourage and create hurdles
in attracting new FDI in the country while the situation can be termed as unfavorable for the already
existing MNCs in the country. However, the positive side to the initiative is the price hike of cigarettes.
Moreover, it is time to gradually shift people from biri to cigarette. We must also target to diminish
cigarette consumption eventually and that must be done through price increases. This initiative can be
termed as just the start of achieving our goal. Because cigarette is harmful for health, I do not find any
reason behind keeping the price lower for the people in lower income segment. Equity principle does not
apply here.

I do not have much to say about the size of the budget. However, I am doubtful about the implementation.
We do not have good administrative structure. Also, we lack in quick decision making capacity. Therefore,
keeping the existing system, we cannot expect any sort of major qualitative improvement with regard to
budget implementation.

Also, the tax growth has been anticipated to be around 34 percent from the revised budget- a level which
our NBR has never achieved before. I do not think even this year they will be able to achieve this. Our
NBRs tax collection is improving I must say. But anticipating that they will be able to achieve growth as
much as 34 percent is too high an expectation. Therefore, the deficit will have an impact on the size of
the budget. It is now 17.37 percent of the GDP and it will still remain between 17.5 to 18 percent in future.

The foreign financing target is also ambitious. 56 thousand crore taka is anticipated to come from abroad
which I do not think is going to happen.

ADP Implementation has two major challenges. One, not being able to effectively spend the allocated
money. Two, not being able to ensure the quality of project implementation; in other words, the amount
that we are spending and the value we are generating are seldom proportional as we are always paying
much more than what we should be paying. To mitigate these, we need to ensure transparency at all
levels of the system. Public Disclosures regarding updates about different projects and programs will
enhance trust of the citizens as well. For example, India has built a massive 9 km long bridge over the river
Brahmaputra with less than 2 thousand crore rupees only. Whereas we are building our 6 km long bridge
over the Padma river with more than 29 thousand crore taka. Clearly these figures do not commensurate
with each other. So, public disclosures with regard to expenditures is needed to quench the curiosity of
our citizens. All processes including tendering, evaluation, allotment, etc. should be made transparent in
order to increase the chances of effective and efficient implementation of the national budget. Research
institutions like ours can help the government in this regard.

However, I see some positive changes in the social development sector. Allowances have been increased
for some demographic categories. Government already has a social protection strategy which consists of
as many as 140 programs which is unnecessary for a country like ours because this creates confusions
among programs and often payments are made multiple times under different program names.
Government has to incorporate all sorts of social development programs like these under one
comprehensive umbrella to avoid unnecessary expenditures in future.