Revenue shortfall forces govt to minimize budget

FT ONLINE

The government has wound down this fiscal year's budget by 7.25 per cent to Tk 3.71 trillion after a large shortfall in internal revenue collection and lower execution of development work.

In June last, Finance Minister AMA Muhith placed a Tk 4.002-trillion budget for fiscal year 2017-18, which he himself termed 'ambitious'.

The Ministry of Finance recently finalised the revised budget obtaining approval from the government's high-up, officials said.

A senior finance official said the poor implementation of Annual Development Programme (ADP) and a large amount of revenue shortfall against its target were the main reasons why the authorities slashed the budget size.

"The government wants to keep the budget deficit within 5.0 per cent of Gross Domestic Product (GDP). So there is no alternative to cutting the budget size in this situation," he said.

The implementation of ADP was 45 per cent until March of the fiscal 18.

So depressing was tax collection that it faced a Tk 230 billion shortfall against the target of July-March period.

Earlier, the government had cut ADP size to Tk 1.48 trillion for this financial year.

In the revised budget, the target for the National Board of Revenue (NBR) has been reduced to Tk 2.25 trillion from the original target of Tk 2.48 trillion, finance officials said.

The revised target for the total revenue collection, including NBR, non-NBR and non-tax, has been set at Tk 2.59 trillion from its original Tk 2.87 trillion.

The target for non-NBR revenue collection has been cut to Tk 75 billion from Tk 86.21 billion.

Narcotics, transport, land revenue and the sales of non-judicial stamps are the main sources of non-NBR revenue.

The government's non-tax revenue target was also reduced to Tk 269 billion from Tk 311 billion.

The target for income tax has been cut to Tk 787 billion, customs duty Tk 283 billion, VAT and supplementary duty Tk 1.14 trillion and other NBR-taxes to Tk 29 billion.

The revised budget reduced the target of the contribution of total revenue to the GDP to 11.7 per cent from the original 13 per cent.

Of the revised target, tax revenue will contribute from its targeted 11.5 per cent to 10.5 per cent of GDP, NBR taxes from 11.2 per cent to 10.1 per cent, non-NBR taxes from 0.4 per cent to 0.3 per cent and non-tax revenue from 1.4 per cent to 1.2 per cent.

The major focus on fixing the budget target was the implementation of new VAT law with a flat rate of 15 per cent and the substantial increase in excise duty on bank accounts. However, both measures were shelved after pressure from politicians and the business community.

The government estimated Tk 200 billion losses in tax revenue collection this year due to deferment of the new VAT, revenue board officials said.

To meet the budget deficit, the government borrows from banking and non-banking sources including National Savings Certificate. The total target for domestic borrowing from banks, non-banking sources has been increased to Tk 661 billion from Tk 603 billion.

In the revised budget, the domestic borrowing target from banking sources has been cut by Tk 82 billion.

Although savings certificates are considered to be one of the costlier borrowing options, the government's target from it has ballooned to Tk 440 billion from the original target Tk 301 billion. The net investment in savings tools was recorded at Tk 331.19 billion in the July-February period of the fiscal 2017-18, surpassing the annual target, according to official statistics.

The current expenditure target has been revised downward to Tk 1.92 trillion from its original Tk 2.07 trillion.

The target for interest payment from domestic borrowing has been cut to Tk 354 billion from Tk 395 billion.

However, the budget for interest payment of foreign loan has been increased to Tk 25 billion from Tk 19 billion.

The revised budget made a substantial cut in subsidies to Tk 730 billion from Tk 837 billion.

The expenditure in food accounts has showed a sharp increase to Tk 38 billion in the revised budget from the original target Tk 3.6 billion.

Non-ADP capital and net lending budget has been cut to Tk 268 billion from Tk 394 billion.

The financing target from external sources, in the form of grant, loan disbursement and amortisation, has been revised downward to Tk 458 billion from Tk 519 billion.

Former finance adviser AB Mirza Azizul Islam said the government should set realistic budget target to avoid large cut in the budget size.

"The government could not even meet the revised target as was the case in the past," he said.

In 2012, the rate of implementation of the revised budget was 93 per cent, which dropped to 72 per cent in 2016, he said. The government estimated 7.65 per cent GDP growth this fiscal year, but the trend in the revenue collection does not reflect that, he added.