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The Proposed National
Budget 2011-12*
Akhter M Chaudhury FCAICAB
25 June 2011
*(Based on Finance Bill 2011, Budget Speech of the Finance Minister and NBR Website)
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Budget is a plan for.
Economic Development
Social Development
National Development Governance
Housekeeping
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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
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The 2011-2012 Budget is Highly
Ambitious
Largest in the Countrys history
BDT 1.63 Trillion
High GDP growth target 7%
Significant increase in internal resourcemobilisation
Dwindling foreign aid
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This Budget
Is more of an economic plan than a fiscalbudget (apparently) Offers continuity and stability
Better for tax planning
Sting in the tail? (The Act, Rules and SROs to come)
Misses opportunity to redress inequities in the system
Protects local industry
Is it a good thing in the long run? Widens Social Safety measures
Poverty Alleviation
Capacity to monitor and implement?
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The Budget prioritises
Education
highest ADP allocation
Power and Energy thrust sector
Agriculture and Communications
Special attention
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The budget will be financed by ..
Tax
59%
Foreign
Loans &Grants
11%
DomesticResources
16%
Non Tax14%
Budget Deficit
BDT 45,204Crore5% of GDP
(4.4% in 10/11 and3.7% in 09/10)
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Deficit financing will be detrimental
Significant government borrowing frombanking 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
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Tax threshold raised
For Men
From BDT 165,000 to BDT 180,000
For Women and Senior Citizens From BDT 180,000 to BDT 200,000
For Physically Handicapped persons
From BDT 200,000 to BDT 250,000 Some changes in subsequent slabs
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The illusion of increased
Investment Allowance
Investment Allowance increased from Tk10 lacs to Tk 1 Crore Restricted to 20% of total income excluding
Employers contribution to PF and any incomeunder Section 82 (C)
Excludes investment in shares of listedcompanies
Minimum tax in any case will be Tk 2,000 The increased facility is theoretical and
cannot be availed by anyone in reality
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No change in Corporate Income
Tax Rates Highest tax rates in the region
Stunts corporate growth
Discourages FDI
37.5%
35%35%
34%30%30%30%30%
25%25%25%
20%20%
17%
0%
Bangladesh
Sri Lanka
Pakistan
India
Nepal
Thailand
Myanmar
Philipines
China
Malaysia
Vietnam
Canbodia
TurkeySingapore
Maldives
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Generally acclaimed proposals..
Extension of Tax Holiday up to 2013 Except Tourism Industry
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%
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!!
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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 someother conditions
Turnover Tax reduced from 4% to 3% Turnover ceiling unchanged at BDT 60 lacs
Investment in DPS of any scheduled bank eligible forInvestment Allowance
Generally Pro SME 45% of manufacturing value addition
80% of industrial employment
90% of industrial units
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More taxes
Corporate Income Tax for Cigarettemanufacturers 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
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More taxes
Withdrawal of tax rebate at 10% of tax payable forthose 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 savingswithdrawn
50% of the amount by which the cost of a car or jeepbought by a Company exceeds 10% of its paid up capitalwill be treated as income High import duties responsible for high vehicle prices!!
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Expanded Tax Deduction at Source
Rates mostly unchanged but some definitionsextended or modified, e.g. Reduced for Savings Certificates
5% for income from hall rentals
10% from income for service provided to foreignpersons
TDS up from 0.4% or 0.5% to 1.5% on all exportproceeds Excessive and likely to make RMG exports unviable
0.1% on Brokerage Commission, up from 0.05%
10% on Distributors commission, up from 7.5% Modalities when discount instead of commission?
More.
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Tax net must be widened
Improvement in Tax GDP Ratio will not be possiblewithout bring more people into tax net Tax GDP Ratio in Bangladeshlowest in the Region
2011/12 10.2% (Budget)
2010/11 9.3% (Estimated)
2016 13% (Target)
Gains of individual investors in the Stock Market not tobe taxed (except non residents and sponsorshareholders)
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
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Tax Administration
Retired District Judge eligible to be member ofTaxes Appellate Tribunal
Alternative Dispute Resolution (ADR) procedureto be introduced Rules to follow
10% of disputed tax (previously 5%) to be paidfor appealing to Tax Appellate Tribunal 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
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Tax Administration New Returns
Mandatory Income Tax returns for NGOs
Mandatory Quarterly Withholding TaxReturn
Annual Information Return
As and when asked by NBR
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Tax Administration - Penalties
Imprisonment and or fine for refusing togive information to Tax Authorities or
obstructing tax authorities in discharging
their duties Excessive power
Safeguards against misuse?
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Some opportunities missed to
rationalise Tax penalty for foreign travel costs in excess of 1% of
turnover Hurts business, particularly exporters
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 canprove tax paid into Treasury Original Bill of Entry should suffice
Only publicly traded companies receive a Tax rebate at10% for paying dividends of 20% or more All other companies are deprived of this benefit
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Thank you for your
attention
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Tax GDP Ratio in Bangladesh
lowest in the Region Tax net must be widened17.70%
17.00%
15.50% 15.30%14.40%
10.70% 10.70%10.20% 10.20%
India
Thailand
Malaysia
SriLanka
Philipines
Nepal
Bhutan
Pakistan
Bangladesh