Eminent economists rated the proposed new budget as 'overambitious' and 'expansionary' the execution of which they see as a challenging task on two counts: efficient manpower and money.  
Finance Minister AMA Muhith placed in parliament Thursday an over Tk 4.0 trillion national budget–the biggest ever in Bangladesh's history–with a deficit of Tk 1.12 trillion in its financing.
The new budget relies largely on collections under the new VAT law to cover a 35 percent growth in revenue earnings.
"This budget is certainly overambitious and unrealistic-both from financing side and from implementation side," former Finance Adviser Dr. Mirza Azizul Islam told the FE in his immediate reaction after the placing of the budget.
Pointing at the ever-increasing revenue target and an enlarged size of ADP in the budget, he said, "There is a considerable shortage of administrative and institutional capacity within the government to achieve this target."
His views were supported by other eminent economists, including Dr Hossain Zillur Rahman, former commerce adviser of the government, who termed it 'copy of the Seventh Five-Year Plan'.  
"This budget, in its size and nature, aims to showcase the political capacity of the government in view of the next election," he said.
"This budget in many ways has copied the Seventh Five-Year Plan document," the economist opined.
He thinks implementation of this budget would depend largely on bringing discipline in the banking sector, reducing the bureaucratic red tape and strong institutional reforms.
"Otherwise, the plans outlined in the budget would remain on paper," he said.  
"There are obviously some elements of macroeconomic populism given the prospect of upcoming general election, but there seems to be also some genuine concerns regarding the need for higher social spending on health, education and social safety nets," said Prof Wahiduddin Mahmud, an eminent economist of the country.  
"It is for meeting the larger allocations for such spending, along with the self-imposed discipline of keeping the budget deficit within 5 percent of GDP, that the budget arithmetic had to be based on an ambitious target for revenue mobilization", he added.
Economists also opined that the budgetary target of 7.4 per cent GDP growth in the next fiscal is not plausible given the current investment-GDP ratio in the country.
""To achieve the targeted GDP growth, the investment-GDP ratio should be 33 percent; whereas, our investment-GDP ratio in the last fiscal was 30.3 percent," he said, adding: "It is very unlikely that this ratio would dramatically jump three percent within a single year."
Professor M A Taslim noted that GDP growth should be accompanied by increase in employment, labour demand and real wages-"which is not happening".
The Economics teacher of Dhaka University also termed it 'election budget', saying: "This is a part of the political business cycle, whereas we see such increase in allocation before the election."
He also lamented the relative decrease in allocations for human capital development, opining that "without developing our human resources, we will not be able to utilise our ongoing demographic dividend and move towards double-digit growth".
Economists also cautioned that the implementation of the uniform 15 percent VAT would create some inflationary pressure on the consumers.
"The usual tendency in our country is that once the prices of some certain commodities go up, the prices of other essential commodities go up as well," said Dr Mirza Aziz. "So, there is every chance that once the prices of the commodities coming under this new VAT provision increase, the prices of commodities that do not come under this provision would go up as well," he forecast.  
"Increase in VAT rate should have been balanced by other business-friendly policies like decrease in corporate tax rates. But we have not seen any such initiatives in the budget", said Zaid Bakht, Chairman of Agrani Bank Limited, one of the leading state-owned commercial banks in the country.
He also noted that corporate tax should have been cut down for the mobile-phone companies given their important role in increasing phone penetration in the country.
"Increased VAT would only help to enlarge the chunk of indirect tax in total government revenue, whereas the portion of direct tax would remain low," said Prof Taslim in his further observations.    
He also cautioned that the implementation rate of the national budget had followed a downward trajectory since 2010-11.  
"One of the biggest challenges of this budget would come from the revenue side", said Dr. Ahsan H Mansur, Executive Director of Policy Research Institute.
And achieving the revenue target would largely depend on the implementation of the new VAT act, he added.
"The main problem with VAT is that the vast numbers of VAT-eligible businesses currently lie outside the tax net.  It is not clear how far the new VAT law itself can address this problem of compliance," Prof Wahiduddin Mahmud said.
"Instead, most of the anxiety and apprehension are about how the market will respond to the new system and how businesses of different types are affected by it. "
A number of analysts, however, welcomed the budgetary move to reduce tax rate for the readymade garment sector from 20 per cent to 15 per cent as well as the move to modernise and automate the tax system.   
"The proposal for reduction in tax rate for RMG sector and providing incentives to the infrastructure sector would boost FDI in Bangladesh," said Sushmita Basu, Partner of Leader of Bangladesh Tax and Regulatory Services for PricewaterhouseCoopers.
"The proposal to modernise and automate the tax system and reforming the tax administration would introduce global best practices to bring untapped sectors onto tax net, reduce tax evasion and foster a tax-compliant economy," she added.  
Reflecting on the new VAT act-over which businesses had a note of dissent–the PwC officials said the move "would bring reform in line with global GST aiming towards 'Transformation, Transparency & Globalization".
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Source: The Financial Express