Budget should aim health, poor instead of growth: CPD

Instead of being fixated on GDP growth, the government should design the next budget focusing on measures to deal with economic impacts of the coronavirus and to save lives, the Centre for Policy Dialogue said.

The think tank suggested increasing allocation for the health sector, expansion of the social safety net, employment generation, tax hike for the rich and tax waiver for the poor.  

At a virtual media briefing on Thursday, it also said the government allocation for cash support to 35 lakh poor people should be enhanced to help more people.

While presenting the keynote paper on how the CPD thinks the upcoming budget should be, Towfiqul Islam Khan, senior research fellow of the CPD, said healthcare services must be ensured in fighting Covid-19, more investment be made in infrastructure for creating employment, and special measures are needed for those involved in small and medium enterprises and those in the export-oriented industries.

"We see a tendency to show inflated GDP growth here. The growth means nothing if it does not create employment and a rise in revenue collection," said Fahmida Khatun, executive director at the CPD.

Many economies in the world have seen negative growth amid the pandemic, but they have not had much social fallout, she said.

Distinguished fellow of CPD Mustafizur Rahman said the government had declared cash support for the poor for the second time but it must ensure the money reaches the targeted people. The disbursement of cash will boost the economy, which is why more money should be poured into the scheme.  

Mustafizur also suggested providing the underprivileged with cash twice or thrice annually.

Against the backdrop of the lingering pandemic, the research organisation said the revenue collection target should be realistic in the budget for the next fiscal year. 

It recommended withdrawal of taxes on imports of medical equipment and insisted on quick disbursement of incentives to frontline workers to motivate them.

Also, reform activities must not slow down during the pandemic, the CPD said.

Four sectors highest priority

The rising poverty, crippled health sector and the miseries that small entrepreneurs are in point to the need for emphasis on four sectors, the CPD said.

The performance of the health sector is the worst at present, said Towfiqul, adding that corruption in the usage of funds and purchases of equipment were worrisome.

"We have to make enough fund allocation so that the vaccination campaign does not face any impediment."

The government should not be conservative while allocating funds to the health sector, he said.  More money should be spent on setting up new units and intensive care units and to ensure oxygen supply to Covid hospitals.

Citing that the poverty rate went up to 35% from 20%, Mustafizur said free food should be delivered to the new poor.

Social safety net should be broadened to help people live through the pandemic, he added.

Moreover, small entrepreneurs and rural economy should get special allocations, and projects that will boost employment should be given importance.

The rich should pay more tax 

The CPD proposed raising tax rates for the rich to relieve tax burden on the poor during the pandemic. 

Towfiqul in the budget proposal said the income tax of the rich had been reduced to 25% from 30% last year. It should be taken back to 30% in the context of the macro-economy and the virus situation.

He said several countries, including the US, had already done so.

CPD Distinguished Fellow Mustafizur Rahman stressed the need for giving some relief to the poor by stopping tax evasion by the rich.

He said a lion's share of revenue comes from income taxes in developed countries. "In contrast, two-thirds of the revenue is derived from VAT [value-added tax] or indirect taxes in our country, which is kind of injustice [to the poor].

It is necessary to reduce VAT on everyday products while increasing the coverage of income tax collection, Prof Mustafizur said.

Stop allowing black money

The CPD thinks the government should eliminate the scope of investing black money this time.

The opportunity to whiten untaxed money is in conflict with the policy framework for tax collection, said Towfiqul, adding that though handsome investments had been made in several sectors in the current year due to the privilege, "we think we should come out of this."

It is important to compel people who are not filing returns against the tax identification number (TIN) and business identification number (BIN) to pay tax. At the same time, Bangladesh must get rid of the practice of accumulating undisclosed income and money laundering culture and focus on handling the problems institutionally.

Withdrawal of tax on Internet

Demanding the removal of supplementary duty (SD) and source tax on Internet connection, Prof Mustafizur said the use of the Internet has now become very important.

Ordinary people have to use it for education and other purposes. "We think the existing tax structure for Internet use is not supportive."

The think tank recommended withdrawing the 15% SD and 1% source tax on the Internet. The existing 5% VAT on the Internet may continue.

Focus on credit to meet budget deficit

Towfiqul demanded that the government emphasise bank borrowing to meet the budget deficit.

There is still scope of an increase in bank borrowing as the sector has excess liquidity.

"We are talking about more public spending. If the budget deficit becomes high, it would be reasonable not to hesitate to take loans from banks because the private sector now shows a low appetite for credit," Towfiqul said.

The government should increase its spending without raising taxes.

No tax hikes

The CPD suggested that new taxes should not be imposed on traders who have already been devastated by the pandemic fallout.

The research institute thinks the next budget should continue extending support and benefits to the traders to cope with the situation.  

To determine the revenue structure, the CPD pointed out four areas to be addressed.

The first one is not to make an unrealistic budget target. Then specify those who will enjoy tax benefits, tax evasion should be prevented and the national revenue board structure should be reformed.

As for structural reforms, the CPD meant deployment of skilled manpower and automation of tax collection.