cpd paper_the national budget 2011-12

7/27/2019 CPD Paper_The National Budget 2011-12

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The Proposed National

Budget 2011-12*

Akhter M Chaudhury FCAICAB

25 June 2011

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


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Budget is a plan for.

Economic Development

Social Development

National Development Governance

Housekeeping


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Budget is a tool to .

Advance economic agenda

Balanced and sustainable economic growth

Equitable distribution of wealth

Poverty alleviation

Mobilise resources necessary to

Implement development plans

Finance Government expenditure


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The 2011-2012 Budget is Highly

Ambitious

Largest in the Countrys history

BDT 1.63 Trillion

High GDP growth target 7%

Significant increase in internal resourcemobilisation

Dwindling foreign aid


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This Budget

Is more of an economic plan than a fiscalbudget (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

Protects local industry

Is it a good thing in the long run? Widens Social Safety measures

Poverty Alleviation

Capacity to monitor and implement?


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The Budget prioritises

Education

highest ADP allocation

Power and Energy thrust sector

Agriculture and Communications

Special attention


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The budget will be financed by ..

Tax

59%

Foreign

Loans &Grants

11%

DomesticResources

16%

Non Tax14%

Budget Deficit

BDT 45,204Crore5% of GDP

(4.4% in 10/11 and3.7% in 09/10)


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Deficit financing will be detrimental

Significant government borrowing frombanking system Reduced fund availability for private sector

No quantitative easing policy Could crowd out private investment

Retard private sector growth 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

For Women and Senior Citizens From BDT 180,000 to BDT 200,000

For Physically Handicapped persons

From BDT 200,000 to BDT 250,000 Some changes in subsequent slabs


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The illusion of increased

Investment Allowance

Investment Allowance increased from Tk10 lacs to Tk 1 Crore Restricted to 20% of total income excluding

Employers contribution to PF and any incomeunder Section 82 (C)

Excludes investment in shares of listedcompanies

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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No change in Corporate Income

Tax Rates Highest tax rates in the region

Stunts corporate growth

Discourages FDI

37.5%

35%35%

34%30%30%30%30%

25%25%25%

20%20%

17%

0%

Bangladesh

Sri Lanka

Pakistan

India

Nepal

Thailand

Myanmar

Philipines

China

Malaysia

Vietnam

Canbodia

TurkeySingapore

Maldives


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Generally acclaimed proposals..

Extension of Tax Holiday up to 2013 Except Tourism Industry

Zero duty on import of essential foods essential agricultural inputs life saving medicines

Reduced duty on industrial raw materials Tax deduction at source on Sanchaypatras reduced from

10% to 5%

To encourage savings? 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

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 someother conditions

Turnover Tax reduced from 4% to 3% Turnover ceiling unchanged at BDT 60 lacs

Investment in DPS of any scheduled bank eligible forInvestment 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 Cigarettemanufacturers 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!!

Poultry Farms and Fisheries to be taxed at 5%

Food price inflation May stunt growth of this prospective employment

generating sector

Retards empowerment of small investors


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More taxes

Withdrawal of tax rebate at 10% of tax payable forthose 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 savingswithdrawn

50% of the amount by which the cost of a car or jeepbought by a Company exceeds 10% of its paid up capitalwill 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 definitionsextended or modified, e.g. Reduced for Savings Certificates

5% for income from hall rentals

10% from income for service provided to foreignpersons

TDS up from 0.4% or 0.5% to 1.5% on all exportproceeds 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?

More.


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Tax net must be widened

Improvement in Tax GDP Ratio will not be possiblewithout bring more people into tax net Tax GDP Ratio in Bangladeshlowest 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 tobe taxed (except non residents and sponsorshareholders)

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 ofTaxes Appellate Tribunal

Alternative Dispute Resolution (ADR) procedureto be introduced Rules to follow

10% of disputed tax (previously 5%) to be paidfor appealing to Tax Appellate Tribunal Yet no provision to curb indiscriminate use of

discretionary powers by DCT 25% to 50% of disputed tax (previously 10%) to

be paid for filing reference to High Court 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 TaxReturn

Annual Information Return

As and when asked by NBR


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Tax Administration - Penalties

Imprisonment and or fine for refusing togive 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

TDS on CA firms fees

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

Credit for AIT on imports not given until assessee canprove tax paid into Treasury Original Bill of Entry should suffice

Only publicly traded companies receive a Tax rebate at10% for paying dividends of 20% or more All other companies are deprived of this benefit


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Thank you for your

attention


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Tax GDP Ratio in Bangladesh

lowest in the Region Tax net must be widened17.70%

17.00%

15.50% 15.30%14.40%

10.70% 10.70%10.20% 10.20%

India

Thailand

Malaysia

SriLanka

Philipines

Nepal

Bhutan

Pakistan

Bangladesh

cpd paper_the national budget 2011-12

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