Budget offers little to build national capital

The interim government has presented its first national budget, possibly the last under this setup. Despite widespread calls for urgent reforms and the need to move beyond outdated public financial management architecture, the new budget offers little in terms of a clear roadmap for the future or in building the strong equity base needed to support growth.

We all know that the July revolution, driven by youth and other political forces, significantly raised expectations for structural change and a fresh vision. Yet this budget has largely failed to align with those aspirations. What we see instead is a continuation of old practices, merely repainted to appear new.

Some explanations lie in structural limitations: low government earnings, heavy public borrowing, weak foreign aid disbursement, and dwindling foreign direct investment (FDI). Bangladesh's persistently low tax-to-GDP and revenue-to-GDP ratios continue to hamper economic growth.

The National Board of Revenue (NBR) has been unable to broaden its tax base effectively. The number of active taxpayers remains critically low, and the rate of company listings on the stock market is stagnant. Many firms prefer to stay outside the formal tax net, often manipulating figures to avoid the high tax burden. The pressure is unfairly skewed towards the middle and emerging middle class, mainly private sector executives and salaried professionals, who are already struggling under rising tax obligations. Because of the shortfall in direct tax earnings, the revenue authority remains overly dependent on indirect taxes, creating additional burdens.

Dividend tax from the stock market is also unreasonably high, discouraging investment and making companies reluctant to go public and share their successes. Meanwhile, the thresholds for lower income tax brackets remain outdated, offering little relief to salaried professionals. This system, in effect, demotivates young professionals from opening a tax identification number (TIN) or becoming tax-compliant unless compelled.

The introduction of a 1 percent turnover tax raises serious concerns about viability in a country like Bangladesh. In practice, it penalises those who are already compliant, registered businesses with BINs, while many others operate outside the system without consequence. This does not encourage the mainstreaming of the economy. A major portion of our economy thus remains in the shadows, masking its real potential.

Our textbooks tell us that a fair and progressive tax system is a prerequisite for building national capital and expanding the investment base. Unless reforms are made to simplify compliance, widen the tax base, lower tax rates and protect honest taxpayers from disproportionate burdens, national capital formation will remain a distant dream. Financing growth will continue to elude us.

Not all these blemishes can be attributed to the interim government. Poor governance frameworks, ineffective monitoring, low technology use, weak accountability, a failure by politicians to enforce laws, and a trust gap between the public and private sectors have constrained our budget and planning process for a long time. Capacity building is also an issue.

Successive governments have shied away from thinking beyond the box and have failed to lower tax rates or innovatively broaden the tax base. Integrating national identity cards with bank accounts, as India's "Aadhaar" scheme has done, could have paved the way for more transparency and stronger revenue collection, but we made little progress.

Saying goodbye to a culture of tax waivers, rewarding higher tax payments at the individual level, and maintaining better expenditure discipline could have set us on a stronger path.

That did not happen, due to divisions within the revenue administration and a lack of synergy among economic management agencies. Last-minute number-crunching rather than deep, forward-looking planning also contributes to this ineffective budgetary process.

The writer is an economic analyst and chairman of Financial Excellence Ltd.