The Proposed National Budget 2011-12*

Akhter M Chaudhury FCA ICAB 25 June 2011

*(Based on Finance Bill 2011, Budget Speech of the Finance Minister and NBR Website)

Budget is a plan for.

Economic Development Social Development National Development Governance Housekeeping

Budget is a tool to .

Advance economic agenda

Balanced and sustainable economic growth Equitable distribution of wealth Poverty alleviation
Implement development plans Finance Government expenditure

Mobilise resources necessary to

The 2011-2012 Budget is Highly Ambitious

Largest in the Countrys history

BDT 1.63 Trillion

7%

High GDP growth target

Significant increase in internal resource mobilisation

Dwindling foreign aid

This Budget

Is more of an economic plan than a fiscal budget (apparently)

Offers continuity and stability

Better for tax planning

Sting in the tail? (The Act, Rules and SROs to come) Misses opportunity to redress inequities in the system Is it a good thing in the long run? Poverty Alleviation Capacity to monitor and implement?
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Protects local industry

Widens Social Safety measures

The Budget prioritises

Education

highest ADP allocation

thrust sector Special attention

Power and Energy

Agriculture and Communications

The budget will be financed by ..

Budget Deficit BDT 45,204 Crore
5% of GDP (4.4% in 10/11 and 3.7% in 09/10)

Domestic Resources 16% Foreign Loans & Grants 11% Non Tax 14% Tax 59%

Deficit financing will be detrimental

Significant government borrowing from banking system

Reduced fund availability for private sector

No quantitative easing policy Retard private sector growth

Could crowd out private investment

Reduced employment growth, incomes, taxes Vicious cycle

Higher cost of funds

Will fuel inflation

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Tax threshold raised

For Men

From BDT 165,000 to BDT 180,000

From BDT 180,000 to BDT 200,000 From BDT 200,000 to BDT 250,000

For Women and Senior Citizens

For Physically Handicapped persons

Some changes in subsequent slabs

The illusion of increased Investment Allowance

Investment Allowance increased from Tk 10 lacs to Tk 1 Crore

Restricted to 20% of total income excluding Employers contribution to PF and any income under Section 82 (C) Excludes investment in shares of listed companies Minimum tax in any case will be Tk 2,000

The increased facility is theoretical and cannot be availed by anyone in reality

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Highest tax rates in the region

No change in Corporate Income Tax Rates

Stunts corporate growth Discourages FDI
17% 20% 20% 25% 25% 25% 30% 30% 30% 30% 34% 35% 35% 37.5%
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Maldives 0% Singapore Turkey Canbodia Vietnam Malaysia China Philipines Myanmar Thailand Nepal India Pakistan Sri Lanka Bangladesh

Generally acclaimed proposals..

Extension of Tax Holiday up to 2013

Zero duty on import of

Except Tourism Industry

Reduced duty on industrial raw materials Tax deduction at source on Sanchaypatras reduced from 10% to 5%

essential foods essential agricultural inputs life saving medicines

Tax rebate on CSR costs of up to Tk 8 Crore or 20% of income (whichever is lower) Some government employees to pay income tax

To encourage savings?

But only on basic salary!!

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Generally acclaimed proposals..

Free of charge TIN registration No audit of for tax payers whose income is at least 20% higher than the previous year, also subject to some other conditions Turnover Tax reduced from 4% to 3%

Turnover ceiling unchanged at BDT 60 lacs

Investment in DPS of any scheduled bank eligible for Investment Allowance Generally Pro SME

45% of manufacturing value addition 80% of industrial employment 90% of industrial units
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More taxes

Corporate Income Tax for Cigarette manufacturers raised to 42.5% Surcharge of 10% on Income Tax payable if Net Wealth exceeds Tk 2 Crore

Unfair to tax honesty, prudence and savings Mixed signals!! Food price inflation May stunt growth of this prospective employment generating sector Retards empowerment of small investors
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Poultry Farms and Fisheries to be taxed at 5%

More taxes

Withdrawal of tax rebate at 10% of tax payable for those in 25% slab and declaring 10% more income Minimum tax for Companies 0.5% of Gross Receipts (previously Tk 5,000)

Against the basic principles of income tax and natural justice

All exemptions on interest earned from savings withdrawn 50% of the amount by which the cost of a car or jeep bought by a Company exceeds 10% of its paid up capital will be treated as income

High import duties responsible for high vehicle prices!!

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Expanded Tax Deduction at Source

Rates mostly unchanged but some definitions extended or modified, e.g.

Reduced for Savings Certificates 5% for income from hall rentals 10% from income for service provided to foreign persons TDS up from 0.4% or 0.5% to 1.5% on all export proceeds

Excessive and likely to make RMG exports unviable

0.1% on Brokerage Commission, up from 0.05% 10% on Distributors commission, up from 7.5%

Modalities when discount instead of commission?

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More.

Tax net must be widened

Improvement in Tax GDP Ratio will not be possible without bring more people into tax net Tax GDP Ratio in Bangladesh
lowest in the Region

2011/12 10.2% (Budget) 2010/11 9.3% (Estimated) 2016 13% (Target)

Gains of individual investors in the Stock Market not to be taxed (except non residents and sponsor shareholders)

Investors will not need TIN

Whitening of undisclosed income at a concessionary rate by investing in Government Bonds NBR now has power to impose TIN
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Tax Administration

Retired District Judge eligible to be member of Taxes Appellate Tribunal Alternative Dispute Resolution (ADR) procedure to be introduced

10% of disputed tax (previously 5%) to be paid for appealing to Tax Appellate Tribunal

Rules to follow

25% to 50% of disputed tax (previously 10%) to be paid for filing reference to High Court

Yet no provision to curb indiscriminate use of discretionary powers by DCT

Impossible to seek justice from the High Court

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Tax Administration New Returns

Mandatory Income Tax returns for NGOs Mandatory Quarterly Withholding Tax Return Annual Information Return

As and when asked by NBR

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Tax Administration - Penalties

Imprisonment and or fine for refusing to give information to Tax Authorities or obstructing tax authorities in discharging their duties

Excessive power Safeguards against misuse?

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Some opportunities missed to rationalise

Tax penalty for foreign travel costs in excess of 1% of turnover

Hurts business, particularly exporters 10% too high as net profits are low (in addition to VAT) Hurts much needed growth of the profession

TDS on CA firms fees

Credit for AIT on imports not given until assessee can prove tax paid into Treasury

Original Bill of Entry should suffice

Only publicly traded companies receive a Tax rebate at 10% for paying dividends of 20% or more

All other companies are deprived of this benefit

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Thank you for your attention

Tax GDP Ratio in Bangladesh lowest in the Region

17.70% 17.00% 15.50% 15.30% 14.40%

Tax net must be widened

10.70%

10.70%

10.20%

10.20%

Nepal

India

Bhutan

Philipines

Pakistan

Bangladesh
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Malaysia

Thailand

Sri Lanka