Fiscal Policy of Bangladesh
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Fiscal Policy of Bangladesh Jamshed uz Zaman
description
Fiscal Policy of Bangladesh. Jamshed uz Zaman. When budget is declared. Opposition Parties claim: Budget against the poor; Government Parties claim: Welfare oriented budget. Some declares hartal. How to understand a budget favors whom?. A budget may favor poor or rich class; - PowerPoint PPT Presentation
Transcript of Fiscal Policy of Bangladesh
Fiscal Policy of Bangladesh
Jamshed uz Zaman
When budget is declared
Opposition Parties claim: Budget against the poor;
Government Parties claim: Welfare oriented budget.
Some declares hartalSome declares hartal..
How to understand a budget favors whom?
A budget may favor • poor or rich class;
• Importers or exporters;
• Primary producers or manufacturers; etc.
Government claims that the budget is surplus, but most often it is true. Govt.’s claim it because
• Political popularity,
• People are afraid of inflation.
Is deficit budget always unacceptable?
No. Deficit budget are prepared• In deflationary situation,
•When resources fall short of needs,
•To help implementation of monetary policy.
Deficit does not necessarily mean imposition of new taxes.
Components of Budget Revenue Budget
• Revenue Receipts +• Revenue Expenditure -
Surplus/Deficit Food Budget
• Food Aid• Counterpart Fund• Food Import• VGD, FFW• Subsidy
Surplus/Deficit Capital Budget
• Receipts• Payments
Surplus/Deficit
Development Program• Expenditure• Receipts
• Revenue Surplus• New Tax Measures• Net Domestic Capital• Extra Budgetary Resource
• Counterpart fund• Net food aid
• Foreign Assistance• Foreign Direct Investment• Borrowing from the public• Borrowing from Banking
System- Central Bank- Commercial banks
Total Budget has to be deficit to achieve the long term goals We have to check whether the budget is
inflationary,• ADP ► if helps productivity ► no inflation. • ADP ► if does not helps productivity ► inflation.
We have to check dependence on foreign assistance
• Is increasing or not Whether there is long term goals
• Anti terrorism• Anti drug abuse• Law and order situation improvement• Socio-economic development.
Tax/Revenue Ratio has to be increased to finance the deficit
Non tax revenue are vulnerable and not dependable.
Tax revenue ratio should be increased.
But how? Our tax base is very low.
74
76
78
80
82
84
86
0
5
10
15
20
25
Tax/Revenue
Non-Tax/Revenue
Whether newly imposed taxes are always bad?
Not always bad• Social
• Economic
• Religious
Are they against poor• Check Incidence
Ratio of direct and indirect tax.
It is difficult to increase Tax/GDP Share in a poor country
Tax/GDP Ratio in Bangladesh
6
6.5
7
7.5
8
8.5
9
9.5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Share of Revenue in GDP 1987
Bangladesh 9.5
India 14.5
Pakistan 16.7
Indonesia 23.1
To increase Tax/GDP ratio
Fiscal Sector reform is necessary, Tax administration should be modern, Tax evasion and corruption have to be
stopped.
Sometimes new taxes are imposed. DIRECT TAX should be increased to
help poverty alleviation.
Asian Developing countries have much higher direct taxes over revenue
Direct Tax in Total Revenue
Bangladesh 9
Pakistan 10
India 17
Singapore 27
Malaysia 34
Indonesia 58
Direct Tax to Total Tax. Increase in this ratio does not prove budgets are pro-poor
Direct tax toTotal tax
10
12
14
16
18
20
22
Revenue receipts are dependent on external factorSources of Revenue: Percentage of Total
FY 2004 2005 2006
Import Duty 27 26 23
VAT (import) 17 18 17
SD (import) 6 6 5
Subtotal 50 51 45
Excise 1 0 0
VAT (local) 16 17 19
SD (local) 14 12 14
Subtotal 31 30 33
Income 18 19 21
Other 1 1 1
Grand Total 100 100 100
About 45-50 percent taxes come from external sources
Economy is heavily dependent on external factor,
Receipts are vulnerable to external factor,
Proportion of income tax should immediately be increased.
Fear of political hazard. Those who should pay higher income tax are very powerful. They may even topple a government.
Original Allocation vs. Actual Expenditure
0
5000
10000
15000
20000
25000
30000
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Original Allocation
Actual Expenditure
Dependence on Foreign Assistance
0
10
20
30
40
50
60
70
80
90
Foreign Financing Domestic Financing
Borrowing from the central bank is inflationary which is against the poor
-100
-50
0
50
100
150
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Public Bangladesh Bank Commercial Banks
BB controls inflation through controlling money supply. Most often BB target ΔM2 = ΔNDA + ΔNFA
ΔNDA = ΔCredit to Govt. + Δ Credit to Public Sector + ΔCredit to private sector + Δothers.
When ΔCredit to Govt.↑ credit to private↓ When ΔCredit to Govt.↑ ΔM2 ↑ When ΔM2 ↑ inflation ↑. THERFORE better COORDINATON between
fiscal and monetary policy is necessary.
To Summarized issues relating to Deficit Budget
Financed by foreign assistance is dependence and uncertain,
Financing by public, not inflationary, Borrowing from commercial banks not
inflationary. Borrowing from Bangladesh Bank is
inflationary.
Characteristics of Fiscal System in Bangladesh Falling/Tax/GDP ratio, Tax base is narrow, Dominance of indirect tax, Customs + VAT (import) 50% of total tax Vulnerable to external fluctuations Growth in Non-development expenditure Heavy dependence on Foreign Aid Dependence on Deficit Financing No Far-sightedness.
These calls for a
FISCAL
SECTOR
REFORM
