Budget 2001 speech - English Part II

ANNUAL BUDGET

2001-2002

 

 

 

 

 

BUDGET SPEECH

SHAH A. M. S. KIBRIA

FINANCE MINISTER

 

 

 

(PART II)

 

 

DHAKA

 

24th Jayistha, 1408

7th June, 2001

 

 

 

 


SECOND PART

FISCAL MEASURES

 

Honourable Speaker,

 

       The present government started its tenure after its electoral victory in 1996 under the dynamic leadership of 'Jananettri' Shaikh Hasina with the principal objectives of alleviation of poverty, improvement of the living standard of the common masses and establishment of a society based on the principles of justice and equity side by side with achieving higher economic growth. In continuation of this noble effort, it is a great pleasure for me to place revenue proposals for fiscal year 2001-2002 to this august Parliament for the sixth consecutive fiscal year. In our endeavour to achieve rapid economic growth we have focused our priorities on alleviation of poverty, development of agriculture, expansion of exports and export-oriented industries, protection to the domestic industries, increasing industrial productivity and creation of new employment opportunities. During the last five years we have formulated our tax policy within the framework of these  macro objectives and priorities. In the context of free market policy and globalization of international trade we have formulated our tax policy in such a way that the benefits of globalization could be maximized while at the same time our domestic industries receive due protection from uneven competition from abroad. In addition, we have aimed at increasing investment and export earnings, reducing inequality of income and ensuring social justice through our tax policy.

 

 

 

 

Honourable Speaker,         

 

02. Our government fully realized that large-scale trade liberalization is not always an unmixed blessing for a developing country like ours. For this reason, we have pursued the policy of careful and gradual reduction of our import tariffs and non-tariff interventions in line with the basic principles of globalization. In support of our policy, comments of IMF is also relevant : "The policy challenge for these countries is to safeguard their gains by maintaining a market-oriented policy stance, maintaining macroeconomic stability and improving infrastructure and the supply of skilled labor so as to ease supply constraints in the economy..... Countries should also aim to let domestic investors diversify their portfolios internationally, ...... a gradual and cautious removal of capital controls within the framework of policies to promote a sound domestic banking system, along with an exchange rate policy that permits an appropriate degree of flexibility, will lessen the burden on fiscal adjustment and provide a better balance among policy instruments through a more developed financial sector''.[1]  

 

Honourable Speaker,

 

03. In order to maintain the pace of development by utilizing our economic potential we have pursued policies aimed at achieving balanced macroeconomic management, realistic exchange rate, regulated foreign debt, appropriate export development and continuous upgrading of skills of the work force. Our policies and achievements have received wide support from different quarters at home and abroad. In fact, our tax policy has always been consistent with our macro-economic policies. It is a historical fact that the shares of direct and consumption taxes in the total tax structure progressively increase along with economic growth in any country. Hence, in an attempt to attain self-sufficiency in terms of domestic resource we have also tried to reduce our dependence on import taxes and duties by giving more emphasis on consumption and direct taxes. In short, we have adopted all possible measures to make our tax system simple, efficient, effective and free of harassment and corruption.

 

Honourable Speaker,

 

04. Our democratic government fully believes in a participatory approach to taxation as advocated by Lord Camden who said, "Taxation and representation are inseparable."[2]Therefore, we have always ensured extensive participation of tax payers' representatives and carefully considered their views in the process of tax policy formulation in a scale never practiced during the tenures of any previous government. While formulating this year?s tax policy I have exchanged views quite extensively with different chambers and trade bodies. Their views and suggestions have been given due consideration in the formulation of this year's budget proposal. Suggestions and recommendations on budget received form the Tariff Commission and different ministries of the government have also been carefully examined. In addition to this, like last year, three separate task forces consisting of the representatives of FBCCI and the National Board of Revenue have thoroughly discussed and examined the budget proposals on Customs, VAT and Income Tax given to the government by FBCCI and numerous other trade and professional associations. In addition, close co-ordination mechanism between the NBR and the trade bodies has been established in the implementation stage of tax policy as planned by our government. The role of trade bodies in this respect has been praiseworthy. I express my sincere gratitude and thanks to all the participants in the pre-budget discussion process which helped us in formulation of a meaningful and effective budget for the next fiscal year.

  

Honourable Speaker,

 

05. This government has always demonstrated its utmost sincerity in fulfilling its promises and commitments to the nation. In order to increase our revenue earnings and also to bring the tax administration closer to the tax payers, I announced in my FY 98-99 budget speech the intention of our government to establish three new Customs Houses/ Commissionerates and also to upgrade the Customs Valuation department. I am glad to inform this august Parliament that a full-fledged Customs House has been established at Benapole and a new VAT Commissionerate in Sylhet covering the jurisdiction of Sylhet Civil Division has started functioning. A new Customs Bond Commissionerate has been established in Dhaka in order to ensure effective control and monitoring of duty-free bonded warehouses. The Customs Valuation Department has been upgraded in order to augment revenue earnings through appropriate valuation of imported goods by developing a modern valuation database. The above mentioned measures clearly demonstrate government?s intention to fulfill its commitment in the fiscal sector like all other sectors.

 

06. The government has also taken adequate measures to expand and modernize the Income Tax Department in order to increase revenue earning from direct taxes through administrative improvements and bringing the tax administration closer to the tax payers. The administrative formalities for establishing three new Income tax Zones in Rangpur, Barisal and Sylhet, as promised, are almost complete. We hope that these Zones will start functioning very soon.

 

Honourable Speaker,

 

07. In addition to the budgetary measures adopted in the last budget we have taken a number of corrective measures in the course of the fiscal year in public interest in response to the pressing and genuine needs of business and economic development. In view of the bumper production of rice the Government has been quite conscious about ensuring fair price of rice and wheat. An additional Regulatory Duty of 10 percent has been imposed on the import of rice to protect our farmers from undue competition from imported rice. Customs duty on dates, khorma and onion for the period of the holy month of Ramadan was reduced. Moreover, to help industrialization duties on bitumen, printing ink, stabilizer and anti-oxidizing agents of plastic etc., have been reduced. Please see Annex-?Ka? for details.

 

08. In case of VAT, in response to the request from the domestic industries  VAT and  Supplementary Duty (SD)  both at the  import and production levels on newsprint, DOP, raw materials for insecticides, plastic film for  pharmaceutical industries and cement clinker have been exempted or reduced. SD imposed on the businesses operating within the City Corporations and Municipality areas and both SD and VAT on those operating outside the above noted areas have been withdrawn. In order to augment revenue earning from cigarettes, in the last budget, the government announced the decision to introduce the system of affixing stamps (Banderol) on cigarette packets. As the completion of infrastructural facilities for this purpose needed some time the implementation of this decision has been delayed. But we are committed to introduce this system from 1 September,2001.

 

09. Similarly, some measures related to income tax have also been taken after the last budget session. These are: exemption from income tax on income of District Sports Association, Divisional Sports Association, National Sports Federation and National Sports Council; exemption from deduction of income tax at source on import of Ammonium Sulphate, Potassium Sulphate, Magensium Sulphate and Solubor (Boron); and withdrawal of exemption from income tax deducted at source on import of computer and computer accessories.

 

Honourable Speaker,

 

10. Mandatory Pre Shipment Inspection (PSI) system was introduced during the last fiscal year for valuation and inspection of imported goods for a period of three years on a temporary basis. The main objective of PSI was to assist the customs authority to ensure quick clearance of imported goods by bringing down the percentage of physical examination to a minimum level and increase government revenue earning by reducing misdeclaration about description, value, classification and quantity of the imported goods. As expected for any new system, PSI initially encountered some teething problems. Based on the complaints and recommendations received from FBCCI, different chambers and the importers and in consultation with these trade bodies we have brought about necessary amendments in the PSI related operational rules and procedures. As a result, PSI related operational problems have been reduced to a great extent. The government will continue to monitor closely the operation of the PSI system in collaboration with the business community to make this system more effective. Necessary changes have been brought about in customs administration to ensure quick clearance of goods, prevent harassment of the importers and protect government revenue. These efforts will also continue in the future. A PSI Audit Agency will be appointed very soon to protect the revenue interest of the government through audit of the activities of PSI agencies.

 

11. In the past the Non-Cadre class- I and class-II  gazetted  officers  of Customs  were not transferable  amongst custom houses and VAT Commissionerates, while the equitable rotation of skilled and efficient customs officials among customs houses and VAT  Commissionerates was necessary in the interest of efficiency of revenue administration. Moreover, non-transfrerability of such officials very often led to the  creation of vested- interest groups. In the past, attempts by the authority to implement a common nation-wide transfer policy faced stiff resistance from the vested-interest groups. Therefore, the present government has formulated and implemented a new law, namely, "Non- Cadre class -I and class-II  gazetted officers?  (Customs, Excise and VAT) Appointment and Working Conditions  Act, 2000?, which enabled NBR to transfer the above categories of officers amongst different Custom houses and VAT Commissionerates. This bold step by the government has been acclaimed by all relevant quarters and its very positive impact is already visible in this year?s revenue earning of the government.

 

 

Income tax

 

Honourable Speaker,

 

12. Income tax is an important fiscal measure of the government. Apart from being a source of revenue, role of income tax is significant in bringing socio-economic stability and justice. On behalf of the present democratic government, we promised to rationalise rates of income-tax and increase collection through widening of the tax base. I am happy to announce that in the last five years, rates of income tax were not increased. In fact rates were reduced in certain areas. Before the present government came to power, income up to Tk. 55,000 (taka fifty five thousand) in the hand of individuals were exempted from taxation. To give relief to the lower income group, tax exemption limit was gradually raised to Tk. 1,00,000 (taka one lakh). In spite of this, we have been able to widen tax base and increase revenue substantially. Collection from income tax was Tk. 1,533 (taka one thousand five hundred and thirty three) crore in 1995-96. It is expected that collection from income tax will reach Tk. 3,600 (taka three thousand and six hundred) crore at the end of this fiscal year recording an increase of 135 percent.

 

13. As a result of continuous reform of tax laws and tax administration by our government, number of tax payers has steadily increased over the years keeping pace with economic progress. The number of tax payers in 1995-96 was 6,26,000 (six lakh twenty six thousand). This number is expected to reach 12,00,000 (twelve lakh) at the end of this fiscal year i.e a growth of  more than 90 percent over the last five years.

 

 

Honourable Speaker,

 

14. Now I would like to present my proposals in res