New calculation pushes subsidy budget to Tk2.89cr

The government has announced Tk2,89,228 crore for the upcoming fiscal year's subsidy budget – a 194% jump from the previous year.

However, do not be surprised by the ballooning figure because the total subsidy calculation in the proposed FY24 budget includes tax exemptions provided to various individuals and institutions as subsidies.

Calling it Direct Tax Expenditure, the calculation includes spending on rebates, discounts, exemptions, and reduced rates from computing the taxable income. 

Finance Minister AHM Mustafa Kamal on Thursday placed in the Jatiya Sangsad a Tk7.61 lakh crore national budget for the fiscal year 2023-24.

The government's subsidy was Tk98,190 crore in the outgoing year's revised budget. In previous budgets, the government's subsidy calculation mostly included subsidies mostly on fertilisers, food, and gas. 

Finance Minister AHM Mustafa Kamal in this budget speech explained, "It is a type of tax subsidy. That means, if this subsidy was collected as tax, it would be added to the total tax collected and the amount of tax would increase."

Direct Tax Expenditure creates overall employment along with economic stimulation, social balance and industrial support, the minister said.

This is the first time that Bangladesh will be estimating Direct Tax Expenditure based on the analysis of field-level factual data, he said, adding that this is in line with international best practices.

The total estimated amount of Direct Tax Expenditure applicable for the FY21 is Tk1,25,813 crore, of which Tk85,314 crore is at the corporate level and Tk 40,499 crore at the individual level. 

Overall, this Direct Tax Expenditure is 3.56% of the total GDP for the fiscal year 2020-2021, the minister mentioned. 

He further mentioned that taking into account the projected total GDP size of FY24, the total amount of projected Direct Tax Expenditure for the current financial year will be Tk1,78,241 crore.

Besides, adding the estimated subsidy amount to this brings the total subsidy amount to Tk 2,89,228 crore.

However, an expanding subsidy size is contrary to IMF's conditions for providing a $4.7 billion loan to Bangladesh.

CPD Senior Research Fellow Towfiqul Islam Khan said the initiative is very good because it will reveal where the government is giving tax breaks and what kind of profit and revenue loss is happening.

"With this, the public will know what kind of concessions the government is giving to whom. The developed world does this. But there is no reason to link it with subsidy. Any direct concession by the government is a subsidy," he added.

Currently, a large part of the government's direct tax expenditure is tax exemption given on office employees' salaries and allowances.

The government provides a 50% tax exemption on employees' salaries. Besides, there is a tax exemption of up to Tk30,000 on transportation allowances for office employees. 

Salaries and allowances for workers in various development projects are also tax-free. 

In addition to that, the salaries of people working in various offices of the United Nations in Bangladesh are also tax-free. 

Moreover, pension, gratuity and other allowances of office employees are tax-free.

What Direct Tax Expenditure includes

Out of the total amount of Direct Tax Expenditure, the maximum of Tk77,218 crore or 61% will be calculated from subsidies on salaries and others, according to the government's projection. 

Others will on microfinance (12%); remittance (9%); power and energy (7%); garments and textiles (3%); fisheries (2%); IT/software (1%); and capital gain.