Assignment on: A Brief Analysis of National Budget Fiscal Year 2023-24

in Bangladesh
Course Title: Management Accounting
Course Code: ACT-303
Submitted To:
Professor Dr. Md. Abul Hossain
Professor
Department of Business Administration
Faculty of Business & Entrepreneurship

Submitted By:
MD. Shakil Hossain Opu
ID: 211-11-1251

Submission Date: 08/06/2023

 Overview of Bangladesh’s Budget
A Government Budget is the sum of all plans of the distribution, mobilization & allocation of the
public funds by the means of fiscal & monetary policy with consideration of social,
political, economic & bureaucratic decision-making process. A govt. budget is very much
important for a country since it’s progress, the outline of its development, relationships with
other countries all depend on a national budget. Bangladesh's national budget is often called an
‘Annual Financial Statement’ & it’s fiscal year sustain from July,1 of one year – June,30 of the
next year. However, these things vary from one country to another country. Likewise, in India,
they called their budget the Union Budget & in the U.S.A a fiscal year sustains from October,1 -
September,30. There is a certain process in framing a budget & for the economic improvement
of a particular country, a successful budget cycle plays a crucial role. Our government budget
also follows a certain cycle. In a broad sense, there are particularly 4 stages in Bangladesh’s
Govt. budget cycle. The whole process of the budget is monitored & supervised by the finance
division of the Ministry of Finance. The first stage is the preparation or formulation phase, where
the division of Finance take the estimated expenditures from all the ministries & division & by
following & examining different criteria [Actual spending, Allocated Budget, Current year’s
Budget with original's proposal’s] of these spending agencies through discussion, money bills,
supplementary bills & appropriation bills by placing before the parliament budget cycle moves
into the second stage. The second stage of this budgetary cycle is the budget approval phase or
the Enactment phase starts with the discussion on the proposed expenditure according to
the vote on account procedure. Vote on account of one-fourth of the proposed budget is needed
for the approval of the budget. If the expenditure of the budget exceeds the revenues there
is a rule to get supplementary grant & excess grant [according to the Article-91] & also there
is another rule [according to the finance act, Article-81] to restructure our taxation system. So by
following these rules we can easily raise funds to finance our excess expenditure. The third &
fourth stage of the budgetary cycle is respectively the budget execution; the budget monitoring &
inspection phase. However, the respective cycles are monitored by the Controller General of
Accounting (CGA) & Comptroller and Auditor General (C&AG). For the transparency of the
whole budgetary process, the Neutrality & Accountability of these two authorities is very
important. However, from the perspective of our country, the role & influence of those
regulatory bodies in various irregularities & corruption have been questioned at various times.

Need for Budget

The annual budget of a country is of paramount importance for carrying out its

economic and administrative activities, developing international trade,

strengthening external relations, bringing financial discipline, preparing

accurate statement of income and expenditure etc.

The necessity of preparation of budget by the government of Bangladesh is

discussed below:

1) Budget is the annual statement of income and expenditure of the

2) government.
3) Budget is a document of guideline of economic activities of the country.
4) It determines the area of all activities of the government.
5) It helps adopt financial planning for a particular period.
6) It is the reflection of actual development program.
7) Helps determine priority of development activities.
8) It is the determinates of development target.
9) Helps determines cost estimates for the unforeseen items.
10) Indicates the statement of accounts of service sector.
11) 10.Indicates the source of revenue collection by the government.

Types of Budget
There are two types of budgets:

1. Development budget

2. Revenue budget
  Development Budget:

Development budget is the ADP (Annual Development Program) of the

government. Development Budget is that type of budget which is taken up for

current and future capital formation. Broadly speaking development budget is

launched for mobilizing country, creating sources of direct income, developing

services sector for creating sources of indirect income, developing energy,

industry and agriculture sectors.

Necessary fund for financing development budget comes from revenue surplus,

internal resources, loan, external debt and grant, remittances and foreign trade

etc.

 Revenue Budget:

Revenue budget includes financing of administrative machinery of the

government, defence services, law and order, public health, education and

other services. Revenue budget is also called operation and maintenance budget

of the government. The government also imposes different types of taxes for

meeting expenses of this budget, some of which are direct taxes, some indirect

taxes including excise duties.

Budget at a glance (2023-2024)

The total size of national budget 2023-24 is likely to be Tk 7.60 trillion (760,000 crore). Finance
minister AHM Mustafa Kamal will begin presenting the budget in parliament at 3:00 pm on
Thursday. He named the budget speech for the fiscal 2023-24 as "Unnayner Agrayatra Periye
Smart Bangladesher Abhimukhe" (Towards a Smart Bangladesh after the march of
development). He will highlight developing smart citizens, smart economy, smart government
and smart society.
The target of income in the budget would be Tk 5 trillion (500,000 crore). Of the amount, the
target of income of National Board of Revenue (NBR) will be Tk 4.3 trillion. The deficit in the
budget will be more than Tk 2.5 trillion. The GDP growth target in the upcoming budget would
be 7.5 per cent while the inflation rate would be 6.5 per cent.

The most talked about issue in the budget is meeting the conditions of International Monetary
Fund (IMF). The IMF granted a loan of US $4.7 billion at the beginning of this year. But the
IMF has put forwarded 38 conditions that have to be met in the next three and a half years.
Nearly half of the conditions have to be implemented by the next fiscal year (2023-24).

Some of the conditions including introducing corridor system for interest rate, adopting proper
method to calculate foreign reserve, adopting single exchange rate, and some other are involved
with the Bangladesh Bank. Announcement of fulfilling some of the conditions will be made
during announcing the monetary policy later in this June while some other would be announced
in July. The significant conditions of IMF include increasing the tax revenue and balance of
foreign reserve.

Let’s take a glance about what could be included in the upcoming budget:

Increasing the tax free income ceiling:

The ceiling of individual’s tax free income is likely to be increased. Currently the ceiling for
males is Tk 300,000. This is likely to be increased to between Tk 320,000 and Tk 350,000.

People’s real income has eroded due to high inflation rate, which was 8.9 in average in the first
10 months (July-April) of ongoing financial year. This has eaten up people’s real income. This is
why the tax free income threshold could be raised in the upcoming budget.
Expense in plot, flat, personal vehicles to increase:

A buyer has to pay different types of taxes during registering flat and plot, for example gain tax,
VAT, stamp fee, registration fee, local government tax. The rate remains between 10 and 12.5
per cent. These rates could be increased. Overall the tax rate could be 15 per cent. For instance, if
a person buys a flat of Tk 10 million he will have to spend additional Tk 250,000-500,000.

The upcoming budget could bring some bad news for the owners of personal vehicles. If anyone
buys second vehicle, he might have to pay added tax like carbon tax. The amount of added tax
could be between Tk 20,000-300,000 based on difference in CC. this tax will have to be paid
during taking fitness certificate for the vehicles.

The supplement duty for 2001-3000CC cars is likely to be increased from existing 200 per cent
to 250 per cent while 3001-4000CC cars will be increased from 350 per cent to 500 per cent.

Increase in travel tax:

The government is set to propose in the 2023-24FY budget increasing tax for travelling by air,
water and land. In most of the cases the tax would be increased by 50 per cent. People’s
travelling will be costlier if the proposal is accepted.

Announcement on universal pension:

In the speech of incumbent government’s last budget, finance minister AHM Mustafa Kamal will
make an announcement regarding introducing the universal pension scheme.

Sources said the finance division has taken a primary decision to introduce six different schemes
for expatriates, private sector employees, labourers, workers from informal sectors, beneficiaries
of the social safety net and students. A finance division official said the task is very complex. It
is not possible to introduce the universal pension scheme on a compulsory basis before 2028.
Until then the scheme will be optional. That is why there will be no allocation in the sector in the
upcoming budget.

Social safe net allowance to increase:

The forthcoming 2023-24 budget will increase the allocation in social safety net programmes.
With this the amount of allowance will also increase (from Tk 50-100 per head) in some
programmes after seven years. The number of beneficiaries will increase along with the slight
raise in allowance.

The allocation in the social safety net in the budget of 2022-23 financial year was over Tk 1.13
trillion (113,576 crore). The financial division sources said the amount could be increased to
over Tk 1.26 trillion (Tk 126,200 crore).

There will be eight schemes for the cash assistance in the upcoming budget. The amount in the
schemes will be increased by Tk 30 billion.

The eight schemes are: allowances for the widow, deserted and destitute women, allowances for
the financially insolvent disabled, programme for improving the livelihood of transgender (hijra),
bede and disadvantage common unity, oppressed women and children, honorarium for freedom
fighters, honorarium and medical allowances for injured freedom fighters, and pension for retired
government employees and their families.

Allocation to increase for food security:

Tk 154.08 billion have been allocated in 11 categories of food security and employment creation
programmes such as TR, GR, VWB, OMS, food friendly programme, VGF and so on in the
current fiscal. The allocation for these programmes may increase by Tk 20 billion. Through these
programmes, the government sells rice and atta (flour) at low prices to the people. Again, various
projects are undertaken in the rural areas to create employment opportunities.

The allocation for stipend of students in the budget may increase by Tk 1 billion. At present, the
allocation for this sector is Tk 44.17 billion. However, the amount of scholarship at the
individual level will not increase.

Prices to increase or decrease:

A Proposal can be made to impose VAT at the manufacturing level of mobile phones in the local
companies. Companies that would manufacture machinery, equipment and also manufacture
mobile phones may have to pay 3 per cent VAT. Companies engaged in the production of at least
two mobile phone parts will be required to pay a 5 per cent VAT, whereas the previous rate
stood at 3 per cent. Meanwhile, entities involved in importing all the parts and conducting
assembly within the country will be subjected to an increased VAT rate of 7.5 per cent, up from
the previous 5 per cent. Consequently, the local market may witness a possible escalation in
smartphone prices as a result of these revised VAT rates.

On the other hand, VAT may be levied and increased at the manufacturing stage of some
products. For example, 5 per cent VAT on pens may be proposed. Additionally, VAT rates at the
production level for household items such as tissues, napkins, plastic tableware, and kitchenware
may be raised from existing 5 per cent to 7.5 per cent. Moreover, supplementary duty rates on
imported fans might see an increase.

Impact of budget on market price of goods and service

The national budget for the 2023-24 fiscal year arrives at a time when Bangladesh's comfort zone
of having macroeconomic stability from strong growth and the advantage of low international
prices have disappeared. Crafting a budget under the current circumstances is unquestionably
difficult. Anybody sitting on the hot seat at the finance ministry would have to be juggling a lot
of things around to get the equation of expenditure and income right so that it benefits people
from all strata. During the ongoing difficulties, which have partly emanated from the pandemic
fallout and the Russia-Ukraine war, achieving economic growth, promoting investment, creating
job prospects, maintaining a stable external sector, and reducing poverty and inequality are
tough. But the Herculean task is bringing down the prices of essentials and containing inflation,
as the lives of poor, low- and lower-middle-income households continue to be afflicted due to
high prices. In the context of an unprecedented economic crisis, how the finance minister would
design the FY2024 budget was a matter of both curiosity and worry for the citizens of the
country. But now that it has been unveiled, there is not much in it to make us feel better in terms
of its focus and measures.

Budget deficit and resource mobilization:

The imbalance between expenditure and revenue is a regular phenomenon in Bangladesh, which
leads the government to borrow both from domestic and foreign sources. For a long time, the
economy maintained its budget deficit at below five percent. In the revised budget of FY2022-
23, the deficit was 5.1 percent of GDP, and the FY2023-24 budget proposes it to be 5.2 percent
of GDP. What is worrying is that a big part of this deficit will be financed with resources from
the banking system. The government borrowed from the banking system much more in the
outgoing fiscal year than what was projected in the budget originally. It was more disturbing that
the government borrowed high-powered money from Bangladesh Bank this fiscal year.

With limited resources for development spending, low tax-GDP ratio, and the commitment to the
International Monetary Fund (IMF) to increase revenue mobilisation by Tk 65,000 crore, the
finance minister has resorted to desperate measures to generate higher revenues in the proposed
budget. Hence, even though the revenue shortfall in the current fiscal year was high till February
2023, and indeed the growth during July-February of FY2023 has been (-) one percent lower
than the same period in FY2022, the target for FY2024 has been set at 10 percent of GDP.
Achieving this growth will be challenging, given the trend of not being able to meet revenue
targets over the last several decades.
In order to achieve this target, it is crucial for the authorities to address the larger issues of
expanding the tax net, exploring new sources of tax, reducing tax evasion, modernising the
National Board of Revenue (NBR), and implementing e-governance. Higher revenue collection
is not possible if the focus is primarily on targeting individuals and sectors that are already
within the tax system. The NBR earlier identified new areas and sectors outside the existing tax
net. This exercise has to be implemented through unpopular measures. As more individuals and
institutions come under the purview of the tax department, tax revenue will naturally increase.
Also, the current tax structure, which relies on indirect tax – which is regressive and
discriminatory in nature – must be changed.

Development expenditure and ADP:

The growth target of public development expenditure is slightly higher than the revised target of
FY2023 as a percentage of GDP. The shortfall in implementation of development expenditure
reflects the government's limited utilisation capacity. Indeed, the target for the Annual
Development Programme (ADP) of the outgoing fiscal year has also been adjusted downwards.
Till February 2023, the implementation of development expenditure was only 37.6 percent. Over
the years, the size of ADP has consistently been around five percent of GDP, which is inadequate
for propelling the country forward. This low level of public investment also hampers private
investment and discourages foreign investment.

Relief from price hike?

Unfortunately, the national budget in Bangladesh has become a tool to extend benefits to wealthy
and powerful groups, while ignoring the suffering of low- and fixed-income families. No wonder
inequality is on the rise despite the increase in per capita income. The Household Income and
Expenditure Survey (HIES) 2022 of the Bangladesh Bureau of Statistics (BBS) revealed how
inequality has been on the rise since 2010. Indeed, the Gini coefficient, which is an indicator of
inequality, has been rising over the years, reaching 0.499 in 2022 from 0.458 in 2010.