Download The National Budget 2011-12

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF BANGLADESH
The Proposed National
Budget 2011-12*
AKHTER M CHAUDHURY FCA
Member Council ICAB
ICAB Auditorium (9th floor)
25 June 2011
*(Based on Finance Bill 2011, Budget Speech of the Finance Minister and NBR Website)
Budget is a plan for….





Economic Development
Social Development
National Development
Governance
Housekeeping
2
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
3
The 2011-2012 Budget is Highly
Ambitious

Largest in the Country’s history


High GDP growth target


BDT 1.63 Trillion
7%
Significant increase in internal resource
mobilisation

Dwindling foreign aid
4
This Budget …

Is more of an economic plan than a fiscal
budget (apparently)

Offers continuity and stability




Sting in the tail? (The Act, Rules and SROs to come)
Misses opportunity to redress inequities in the system
Protects local industry


Better for tax planning
Is it a good thing in the long run?
Widens Social Safety measures


Poverty Alleviation
Capacity to monitor and implement?
5
The Budget prioritises…

Education


Power and Energy


highest ADP allocation
thrust sector
Agriculture and Communications

Special attention
6
The budget will be financed by ..
Budget Deficit
BDT 45,204
Crore
5% of GDP
(4.4% in 10/11 and
3.7% in 09/10)
Domestic
Resources
16%
Foreign
Loans &
Grants
11%
Non Tax
14%
Tax
59%
7
Deficit financing will be detrimental

Significant government borrowing from
banking 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
8
Tax threshold raised

For Men


For Women and Senior Citizens


From BDT 180,000 to BDT 200,000
For Physically Handicapped persons


From BDT 165,000 to BDT 180,000
From BDT 200,000 to BDT 250,000
Some changes in subsequent slabs
9
The illusion of increased
Investment Allowance

Investment Allowance increased from Tk
10 lacs to Tk 1 Crore




Restricted to 20% of total income excluding
Employer’s contribution to PF and any income
under Section 82 (C)
Excludes investment in shares of listed
companies
Minimum tax in any case will be Tk 2,000
The increased facility is theoretical and
cannot be availed by anyone in reality
10
No change in Corporate Income
Tax Rates

Highest tax rates in the region


Stunts corporate growth
Discourages FDI
Maldives 0%
Singapore
Turkey
Canbodia
Vietnam
Malaysia
China
Philipines
Myanmar
Thailand
Nepal
India
Pakistan
Sri Lanka
Bangladesh
17%
20%
20%
25%
25%
25%
30%
30%
30%
30%
34%
35%
35%
37.5%
11
Generally acclaimed proposals..

Extension of Tax Holiday up to 2013


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%


Except Tourism Industry
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!!
12
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 some
other conditions
Turnover Tax reduced from 4% to 3%



Turnover ceiling unchanged at BDT 60 lacs
Investment in DPS of any scheduled bank eligible for
Investment Allowance
Generally Pro SME



45% of manufacturing value addition
80% of industrial employment
90% of industrial units
13
More taxes


Corporate Income Tax for Cigarette
manufacturers 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
14
More taxes


Withdrawal of tax rebate at 10% of tax payable for
those 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 savings
withdrawn
50% of the amount by which the cost of a car or jeep
bought by a Company exceeds 10% of its paid up capital
will be treated as income

High import duties responsible for high vehicle prices!!
15
Expanded Tax Deduction at Source

Rates mostly unchanged but some definitions
extended or modified, e.g.




Reduced for Savings Certificates
5% for income from hall rentals
10% from income for service provided to foreign
persons
TDS up from 0.4% or 0.5% to 1.5% on all export
proceeds



0.1% on Brokerage Commission, up from 0.05%
10% on Distributor’s commission, up from 7.5%


Excessive and likely to make RMG exports unviable
Modalities when discount instead of commission?
More….
16
Tax net must be widened

Improvement in Tax GDP Ratio will not be possible
without bring more people into tax net Tax GDP Ratio in Bangladesh
lowest in the Region




Gains of individual investors in the Stock Market not to
be taxed (except non residents and sponsor
shareholders)



2011/12 – 10.2% (Budget)
2010/11 – 9.3% (Estimated)
2016 – 13% (Target)
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
17
Tax Administration


Retired District Judge eligible to be member of
Taxes Appellate Tribunal
Alternative Dispute Resolution (ADR) procedure
to be introduced


10% of disputed tax (previously 5%) to be paid
for appealing to Tax Appellate Tribunal


Rules to follow
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
18
Tax Administration – New Returns



Mandatory Income Tax returns for NGOs
Mandatory Quarterly Withholding Tax
Return
Annual Information Return

As and when asked by NBR
19
Tax Administration - Penalties

Imprisonment and or fine for refusing to
give information to Tax Authorities or
‘obstructing’ tax authorities in discharging
their duties


Excessive power
Safeguards against misuse?
20
Some opportunities missed to
rationalise………

Tax penalty for foreign travel costs in excess of 1% of
turnover


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 can
prove tax paid into Treasury


Hurts business, particularly exporters
Original Bill of Entry should suffice
Only publicly traded companies receive a Tax rebate at
10% for paying dividends of 20% or more

All other companies are deprived of this benefit
21
Thank you for your
attention
Tax GDP Ratio in Bangladesh
lowest in the Region
Tax net must be widened
17.00%
10.70%
10.70%
10.20%
10.20%
Bhutan
Pakistan
Bangladesh
14.40%
Nepal
15.30%
Philipines
Malaysia
Thailand
India
15.50%
Sri Lanka
17.70%
23