Finance minister Abul Hassan Mahmood Ali on Thursday announced a series of measures, including reintroducing scope for legalising undisclosed money by paying tax at a flat 15 per cent rate in the new worth Tk 7.97 lakh crore.
Besides, the finance minister declared an expansion of Value Added Tax and cut income tax rebates to augment higher revenues and keep the budget deficit within a tolerable level as per the dictation of the International Monetary Fund under the $4.7 billion loan programme.
It was the first budget of the 82-year-old diplomat-turned-finance minister, who was under pressure to bring back macroeconomic stability amid a shortage of dollars and high inflation.
However, his measure to withdraw tax waivers from industries like air coolers and refrigerators and the imposition of a higher tax on juices and ice cream, electric bulbs, etc will force manufacturers to pass on the extra cost to consumers already reeling from decade-high inflation.
His expansionary tax measures will increase the living costs of the majority of people, while the affluent section will remain almost unharmed with an unchanged wealth surcharge.
The finance minister identified inflation as the main challenge for FY25.
His announcement of the expansion of the social safety net programme by increasing the number of beneficiaries and the continuation of subsidised food distribution has been welcomed by the economists, as they will continue assisting vulnerable groups amid prolonged economic distress.
His move to waive import duty on some two dozen essentials, however, may not cool down the already volatile commodity market as the finance minister did not give any specific guidelines to strengthen market monitoring, said economists.聽
Economists criticised the finance minister for giving amnesty to errant taxpayers on the pretext of legal complications in the data verification system for the calculation of income and assets by companies and individuals.
They observed that the scope for legalising immovable properties and assets without facing any questions about the sources of their income after paying a 15 per cent tax was unethical and counterproductive for the real economy.
Former Bangladesh Bank governor Salehuddin Ahmed lamented that honest taxpayers would feel cheated since the new maximum income tax rate has been fixed at 30 per cent.
Last time in FY21, the NBR offered a similar scope for errant taxpayers to invest in stock markets and real estate by paying a 10 per cent tax.
Some 11,859 taxpayers paying Tk 2,064 crore in tax availed of the amnesty to legalise over Tk 20,000 crore, despite widespread criticism that such scopes are helpful for generating undisclosed assets and money.
While narrating the overall economic scenario, the finance minister said that the government would maintain a tight belting measure and concentrate on revenue mobilisation in the first half of FY 25.
鈥極ur goal will be to increase government spending gradually in the second half of the upcoming fiscal year,鈥� he said.
Despite projections of higher revenue, the government will have to rely on borrowing to meet the budget deficit of 4.6 per cent of the projected gross domestic product of 6.75 per cent in FY25.
The inflation target has been fixed at 6.5 per cent in FY25.
The finance minister projected borrowing at Tk 2.51 lakh crore, with Tk 90,700 crore from foreign sources and the rest Tk 1.60 lakh crore from local sources.
A target of Tk 1.3 lakh crore borrowing has been set from the local banking sector, which has faced a new height of defaulted loans at Tk 1,82,295 crore at the end of March this year from Tk 1,45,633 crore in December 2023.
Policy Research Institute executive director Ahsan H Masur doubted the strength of the local bank to supply so much money amid the high growth of bad loans.
He said that the private sector would face a scarcity of loans and might not generate jobs against the backdrop of already high unemployment.
The finance minister will also remain hard-pressed throughout the new financial year to meet the demand for interest, subsidies, and administrative payments.
Interest payments for local and foreign borrowing would eat up to 22 per cent of the operating budget worth Tk 5.15 lakh crore.
The government will not be able to allocate the expected allocation for the annual development programme because of subsidies and incentives (20 per cent), salaries and allowances (15.8 cent), grants and allocations (14.9 cent), and pensions (7.2 cent).
The ADP has been set at Tk 2.65 lakh crore, just Tk 2,000 crore higher than the original ADP in the outgoing FY24.
Of the interest payment, the government will have to pay back Tk 20,500 crore in foreign currency, which will put extra pressure on the forex reserve, which has already come down to $18 billion from $48 billion in August 2021.