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MINISTRY OF FINANCE BUDGET Print E-mail
Monday, 21 January 2008

2007-08
BUDGET SPEECH
DR. A.B. MIRZA MD. AZIZUL ISLAM
ADVISER
MINISTRY OF FINANCE
DHAKA
24 Jaisthya 1414
07 June 2007
Bismillahir Rahmanir Rahim
Fellow Citizens
Assalam-O- Alaikum
1. At this critical juncture in the history of
Bangladesh, I appear before
you as Advisor for Finance of the Non-party Caretaker
Government in
order to present the supplementary budget for FY
2006-07 and the budget
proposals for FY 2007-08.
2. You are well aware of the circumstances under which
the present
Caretaker Government assumed the responsibility of
running the
administration of the country on 11 January 2007.
Since then our patriotic
armed forces and other law enforcing agencies,
supported by all sections
of population have achieved remarkable progress in
improving law and
order situation and in anti-corruption drive. However,
we have to confront
manifold challenges. I would like to focus on the
economic front where
the challenges include maintaining macroeconomic
stability, accelerating
economic growth, keeping inflation within tolerable
limits, removing
constraints to private sector-led growth, reduction of
poverty, ensuring
regional and income equity and ensuring food security.
Economic Scenario
Global Perspective
Fellow Citizens

3. Never was Bangladesh's economy as closely
integrated with the
global economy as it is now. This integration is
becoming deeper with the
passage of time. Therefore, our overall development
strategy should be
formulated bearing in mind any possible direct or
indirect external shocks.
4. Despite oil price hike, the world economy posted
5.4 percent growth
in 2006. The forecast is that there will be slight
deceleration to 4.9 percent
in 2007 and 2008. Accelerated economic growth in China
and India and
increased domestic demand in several low income
countries have
propelled this growth.
5. At the same time, South Asian countries are facing
inflationary
pressures due to oil price hike, increase in price of
essential commodities
including agricultural produce and higher domestic
demand. In the second
quarter of the current fiscal year, the inflation
rates in India, Pakistan and
Sri Lanka were 6.9 percent, 8.1 percent and 19.3
percent respectively. In
this context, 6.9 percent inflation in Bangladesh is
not abnormal.
Country Perspective:
Fellow Citizens
6. We already lost three valuable months from our
economic calendar
due to chaotic political conditions in the country.
The price of essential
imported commodities, including oil, has gone up in
the international
market. Despite all these negative factors, the
resilience of the economy
remained intact.
7. Propelled by higher growth in industrial and
service sectors, albeit
with sluggish growth in agriculture, the overall
economic growth in FY
2006-07 has been estimated at 6.5 percent. This trend
in growth is
expected to be maintained in medium term due to
ongoing implementation
of economic reform programmes. The growth rate for FY
2007-08 has
been projected at 7 percent.
Fellow Citizens
8. Over the past few years there has been persistent
price hike of a
number of essential commodities which caused higher
inflation. In March
2007, the average inflation stood at 6.9 percent and,
on a point to point
basis, at 7.4 percent. We are well aware of the impact
of inflation that you
are persistently experiencing. Since supply of most of
these commodities
is import-dependent and the price of such commodities
soared up
international market, the Government could not put a
rein on the price rise
despite its best efforts. However, we are continuing
our sincere endeavour
to contain the trend.
9. Concerns have been expressed from some quarters
about the possible
aggravation in price situation arising from the recent
increase of diesel
price by 21 percent. However, the weight of sectors
affected by diesel
including transportation, in our commodity basket is
low. It is, therefore,
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expected that average inflation will hover around 7
percent up to June
2007 and it will settle down to 6.5 percent in next
fiscal year.
Fellow Citizens
10. We have to increase pro-poor development
expenditure. In order to
do so, there is no option other than to strengthen
domestic resource
mobilisation efforts. Our revenue to GDP ratio is low
compared to most
countries of the world; even lower than that of the
other countries of South
Asia. The ratio not only remained stagnant over the
past few years, but it
slid downwards, albeit by a few basis points. In
recent times, budget
deficit has been low, the implementation of the Annual
Development
Programme (ADP) fell short by about 20 percent due to
inadequacy of
resources and implementation capacity. Besides, the
budgets suffered from
lack of transparency due to large block allocations,
regional allocation of
resources was inequitable.
11. We have pursued a cautious and restrained monetary
policy to
contain excessive aggregate demand without
compromising growth
acceleration. The credit expansion to the private
sector remains at a
satisfactory level.
12. In order to maintain overall macroeconomic
stability, avoid adverse
impact on private sector and to keep accumulated debt
burden at a
sustainable level, borrowing from domestic sources
including banking
system over the last few years was kept in the region
of 2 percent of GDP.
Although mobilisation of internal and foreign
resources could not reach
desired levels, we are continuing our efforts to keep
borrowing from
domestic sources within the limit of 2 percent of GDP.
Fellow Citizens
13. In the current fiscal year, the performance of our
external sector has
been impressive. Driven by high export and remittance
growth, the foreign
exchange reserve has crossed US$ 4 billion mark.
Export and remittance
grew by 20 percent and 26 percent respectively. It is
expected that the
export earnings during the current fiscal year will
increase to US$12.5
billion while the remittance flow is expected to reach
US$ 6 billion.
Although import was slightly depressed in February, it
has been increasing
3
since March and it is expected that import will
increase by 20 percent
during the current fiscal year.
14. Let me mention here that 65 percent of our imports
are investmentrelated
commodities which play a positive role in accelerating
economic
growth. Exports of Bangladesh are still dependent on
Readymade (RMG)
sector. We have to reduce such overwhelming dependence
on RMG by
adopting measures to diversify our exports.
Building a Favourable Macro-economic Environment
Fellow Citizens
15. Experience shows that competitive business
environment and macroeconomic
stability accelerate pro-poor growth. Macro-economic
stability
requires a balance in external trade, a sustainable
budget deficit and stable
price-level. To ensure all these fundamentals, we need
to adopt a prudent
and a well-coordinated fiscal and monetary policy
along with strong
support from the external sector and the capital
market.
16. In recent years, despite stable macro-economic
environment, the
private investment and FDI could not reach the
expected level for a variety
of reasons. Among these are:
• underdeveloped financial sector
• liquidity problems of the lending banks in the face
of differential
between international fuel price and administered
price
• inadequate and irregular supply of electricity and
gas
• the colossal loss of Power Development Board (PDB)
due to sale
of electricity at a rate lower than the production
cost and the
resultant problem in paying bills to private sector
producers
• widespread irregularities and deterioration in law
and order
situation
• inordinately long turnaround time of ships in
Chittagong and
Mongla ports coupled with and administrative weakness
lack of
capacity in handling large volumes of merchandise.
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We are taking appropriate steps to remove these
constraints through
specific work-plans.
Governance and Reforms
Fellow Citizens
Inflation
17. Unbridled inflation not only hurts the people, it
also undermines the
economic stability and discourages investment. It
deters growth and the
poor are worst hit. Also it widens income inequality.
We are endeavouring
our best to rein inflation. Import duty of a number of
essential
commodities including rice and wheat, has been already
withdrawn.
Bangladesh Bank has given directives to the commercial
banks to provide
credit facilities on softer terms to new importers. We
are continuing our
efforts to make the markets of agricultural products
more competitive. The
small number of wholesale markets in Dhaka is not
conducive to smooth
functioning of markets. The Government has, therefore,
taken initiative to
establish four whole-sale markets in the four corners
of the city.
18. Currently, the National Task Force and the Task
Forces at district
and upazilla level comprising of government and
non-government
representatives are regularly reviewing prices of
essential commodities.
An inter-ministerial monitoring committee consisting
of representatives
from different ministries and agencies is engaged in
analysing the price
situation of essential commodities and making
recommendations. These
efforts will continue in the next fiscal year as well.
We will strengthen
Dal-Bhat programme under implementation by BDR to
mitigate the
sufferings of general consumers, particularly the
poor. A legal framework
will soon be in place to protect the consumers'
rights. A number of
commodities will be imported by the Government to
increase their supply
in the market. Import of rice and wheat will be
doubled. There will be
additions to Social Safety Net Programmes,
incorporating widening of the
coverage and the amount of individual grants I have
proposed a significant
increase in allocation for research and other
activities in agricultural sector
to increase agricultural productivity.
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Financial sector
Fellow Citizens
19. In order to strengthen financial sector, three
NCBs have been
converted into public limited companies. This will
enable the NCBs to
operate like private commercial banks. The Banking
Companies Act, 1991
is being amended to infuse dynamism in the activities
of the banking
companies, improve loan administration and strengthen
Bangladesh
Bank's supervisory role. To prevent illegal money
transfer and hundi
business, the Money Laundering Prevention Act is being
made more
comprehensive and foolproof.
20. The capital market in Bangladesh is gradually
being widened and
deepened. The remarkable increase of market
capitalisation as well as
daily turnover is attracting foreign and local
investors. Following the
listing of SoEs in the stock exchange, supply of
securities in the capital
market has increased and opportunity for investment in
the capital market
has become wider. In the next fiscal year, the shares
of a number of SoEs
will be off-loaded in the capital market. The capital
market will become
deeper following the listing of SoEs under power,
telecommunication and
energy sectors.
Trade Sector
Fellow Citizens
21. In order to make the private sector more dynamic
and competitive,
steps have been taken to continue the tariff advantage
for the import of
most capital machinery. Overall tariff rates have been
scaled down. Stock
related laws are being amended. Besides, reforms in
insurance laws
relating to the supervision of insurance business,
protection of interest of
the policy holders and expansion of insurance industry
are underway.
22. I propose to retain the existing export subsidy
structure. We have
already released a total of Taka 800 crore allocated
for this purpose. There
are still arrears payable to the tune of Taka 432
crore. These huge arrears
are the result of accumulated shortfalls in allocation
in the previous years.
I propose to allocate a total of Taka 1 thousand and
100 crore for payment
of subsidies in FY 2007-08.
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23. However, we should bear in mind that subsidies for
an indefinite
period encourage inefficiency, compel the efficient
sector to shoulder the
burden of additional tax and dissipate the resources
which could be
otherwise channelled to important sectors of the
economy. Subsidy cannot
continue for ever in any sector. Therefore, there is
no alternative to
enhancing efficiency to stay in competition in the
international arena.
SoEs Sector
Fellow Citizens
24. In the past, the pricing of commodities and
services produced in the
SoEs sector, in particular, oil, electricity and gas,
has been unrealistic. The
sale price of oil and electricity remained far below
the production cost or
purchase price. In consequence, BPC and PDB had to
incur huge loss.
Eventually, the Government had to take over the burden
of accumulated
liabilities. These financial liabilities were not
reflected in budget in the
past. As a result, the public at large used to remain
unaware of the
negative effect of these quasi-fiscal costs (hidden
costs) on the economy.
25. In order to make the quasi-fiscal costs
transparent, a total of Taka
1 thousand 500 crore has been allocated in the revised
budget of current
fiscal year. In the next fiscal year, the government
is going to assume the
liabilities of BPC to the tune of Taka 7 thousand 523
crore. A provision of
Taka 300 crore has been made in the budget of next
fiscal year to meet the
likely deficit of PDB.
26. It is essential to reduce transaction costs to
stay competitive in the
international trade. Taking this consideration into
account, a range of
reform measures have been taken to transform
Chittagong Port into an
efficient and modern sea port. These have led to
reduction of average
turnaround of ships from 9 days to 4 days. The
shipping costs of
consignments have been reduced by 20 percent. Overall,
the efficiency
level of the port has increased by 40 percent and the
costs have been
reduced by 30 percent. The construction of New Mooring
Container
Terminal is on way to completion. A decision has been
taken to operate
this terminal entirely through private management. The
technical and
financial feasibility studies of the proposals for
building a deep sea port
have been completed.
7
Fellow Citizens
27. The Mongla Port is critical to economic dynamism
in the
southwestern part of the country. Unfortunately due to
prolonged
mismanagement and lack of initiative, its
effectiveness has declined.You
will be happy to note that following our recent
initiatives, fertiliser import
through the Mongla port has resumed after a lapse of
eight years. The
handling cost has fallen by 15 percent. Over 10 acres
of landed property
have been freed from illegal occupants. The dredging
operation to increase
navigability has begun. Required reforms and
development programmes
will be undertaken to enhance the capacity of the
port.
28. Alongside the development of sea ports, we have
also taken steps to
make our land ports more effective. The Government has
already
concluded agreements to transfer six land ports to the
private sector. Two
of such land ports have been made fully operational on
a Build, Own and
Transfer (BOT) basis.
29. Due to management inefficiency, Bangladesh Biman,
the national
flag carrier of the country, continues to be laden
with loss. Financial and
management restructuring is underway to improve its
efficiency.
Meanwhile, a decision has been taken to convert
Bangladesh Biman into a
public limited company. It is expected that Bangladesh
Biman will soon
emerge as an efficient organisation.
30. Land in our country is very limited and a precious
resource. But
there is endless delay and harassment surrounding land
registration
process. There are innumerable land-related suits as
well. A new law
collating various laws is being framed. Land records
are being
computerised, directives have issued to reform land
registration system.
Industrial Sector
Fellow Citizens
31. In a populous country like ours, it is extremely
essential to stimulate
labour-intensive small and medium enterprises (SMEs)
requiring less
capital. However, the growth of this sector is
sluggish due to constraints in
access to finance. A decision has been taken to
establish an SME
Foundation under the Ministry of Industry as a new
initiative. An
endowment allocation of Taka 100 crore has been
proposed in the budget
8
for FY 2007-08 for this Foundation. Bangladesh Small
and Cottage
Industries Corporation (BSCIC) has also taken
initiatives to create a Trust
Fund for providing industrial loans to which the
Government will allocate
Taka 23 crore.
32. The existing Equity Entrepreneurship Fund (EEF)
has been split into
two funds, namely, Agriculture Equity Entrepreneurship
Fund and IT
Equity Entrepreneurship Fund and an allocation of Taka
100 crore for
each fund has been proposed. Apart from the proposed
Agriculture Equity
Entrepreneurship Fund, credit support to the tune of
Taka 150 crore has
been proposed for development of agro-based
industries. The proposed
credit will be channeled through Bangladesh Krishi
Bank, Rajshahi Krishi
Unnayan Bank, BASIC Bank and Karma Sangsthan Bank.
Law and Order and Legal Framework
Fellow Citizens
33. An effective legal system is of paramount
importance in infusing
dynamism in a sound and competitive market economy.
You have noticed
that the effectiveness of the legal system, like other
branches of the
executive organ, suffered serious degradation. The
joint forces led by the
armed forces have been able to rapidly restore law and
order in the
country.
34. The Caretaker Government has taken toughest stance
against
corruption. The Anti-corruption Commission has been
reconstituted. And
the reconstituted Commission has started a fresh
journey. This is for the
first time in the history of Bangladesh that we have
taken initiatives to
bring back the money illegally transferred to foreign
countries. Already a
total of about Taka 350 crore has been brought back
and deposited into
Government exchequer. The Government has accomplished
a long
awaited task of signing the UN Convention against
Corruption. I sincerely
believe that the shameful image of Bangladesh arising
from corruption
will be wiped out soon.
Fellow Citizens
35. We have taken steps to constitute an independent
prosecution service
within the legal system. In order to enhance the
capacity of the legal and
judicial system, special programmes have been taken
up. A number of
9
infrastructural development activities are in
progress. We have started
developing Computerised Case Management Information
System (CMIS)
in courts.
36. We have also taken steps to carry out extensive
reforms in the police
forces. Counter Intelligence Teams are being
constituted to combat
corruption within the police force. Action is underway
to upgrade existing
12 thanas into model Police stations to prevent crimes
in Dhaka. Service
delivery centres have been set up in model and
metropolitan police
stations to enhance the quality of police service.
Women and Victim
Support Centres have been established in Dhaka
Metropolis. Steps have
been taken to enhance the efficiency of Bangladesh
Rifles by introducing
special allowances and rewards for border forces and
also by increasing
the number of check posts.
Budget Management Reforms
Fellow Citizens
37. The proposed budget has been prepared within the
framework of our
national poverty reduction strategy, 'Unlocking the
Potential: National
Strategy for Accelerated Poverty Reduction' (NSAPR).
Meanwhile, the
duration of the strategy (2004-2007) has been extended
to June 2008. The
preparation of the next strategy paper has already
begun. The NSAPR is
being operationalised through budget process.
38. Fourteen ministries including the ministries of
health, education and
agriculture have been brought under the coverage of
Medium Term
Budget Framework (MTBF). All ministries will be
brought under MTBF
coverage in phases. The ministries will enjoy
increased autonomy in
respect of allocation and uses of resources. This will
reduce inordinate
delays, indecisions and inefficiency. However,
successful implementation
of these reforms warrants enhanced capacity of the
line ministries and
change in outlook and attitude. We are moving towards
these ends.
Transparency in Public Expenditure
Fellow Citizens
39. The desired outcome from budget allocation can
only be expected if
the budget is implemented properly. To ensure speedy
implementation of
10
projects, specific directives have been given
regarding appointment of
project directors. The Secretaries' Committee has been
asked to identify
procedural bottlenecks in project implementation and
come up with
recommendations to address them within two months. All
ministries have
been instructed to take preparation in advance with
respect to tendering
and procurement.
40. Continuous monitoring and evaluation is required
to enhance
economy, efficiency and effectiveness in public
spending. A guideline has
been prepared for the line ministries to enable them
to introduce internal
audit/survey to enhance expenditure effectiveness and
sufficient
allocations have been provided to implement the
guideline.
41. In order to make our resource utilisation
target-oriented, we have
started the process of reducing the number of projects
and selecting only
the pro-poor and growth enhancing projects for
allocation of resources. In
the Development budget of FY 2006-07, the block
allocations accounted
for 16 percent of total allocation. In the proposed
Development Budget,
this has been reduced to 5 percent. Directives have
been given to post the
list of priority projects in the IMED website along
with information
relating to resource allocation and utilisation by
sectors and geographical
divisions. The budget implementation reports of MTBF
ministries will
also be posted in the Finance Division website to make
them transparent.
At the same time, provision will be made in the
Finance Division website
www.mof.gov.bd to receive opinions from all quarters.
Public Debt Management
42. Since independence, all our budgets had deficits
and the successive
governments had to borrow to finance the deficits. It
is extremely essential
to keep the accumulated debt liability at a
sustainable level in order to
maintain fiscal discipline and macro-economic
stability. More emphasis
would be laid on financing through medium and
long-term marketable
securities like medium-term and long-term treasury
bonds. As part of our
endeavour to make the participation of the
institutional buyers in treasury
bond markets easier, amendment to the guidelines for
provident funds,
insurance funds and the like is on the card.
11
Fellow Citizens
43. I would like to share with you a very encouraging
piece of
information. Recently, the World Bank in its report
titled" Ease of Doing
Business" ranked Bangladesh above India and Vietnam in
the list of
countries where conducive environment exists for doing
business. I would
like to mention unequivocally that Bangladesh's
position will go further up
once the reforms just outlined are successfully
implemented. Investment
by both foreign and local investors would become much
easier.
Implementation of Budget for FY 2006-07
Fellow Citizens
44. Now I would like to reflect on the implementation
of current year’s
budget. In FY 2006-07, while the revenue growth was
estimated at 21
percent, up to April 2007, the actual growth stood at
only 9 percent. The
resources from external sources also did not flow in
as expected. We have,
therefore, made a downward revision of our ADP from
Taka 26 thousand
crore to Taka 21 thousand 6 hundred crore. The
estimate of total revenue
receipts has been reduced from Taka 52 thousand 542
crore to Taka 49
thousand 472 crore. To the contrary, the estimated
non-development
expenditure has gone up by Taka 2 thousand 218 crore
to Taka 44
thousand 504 crore from Taka 42 thousand 286 crore.
45. The excess over estimated expenditure is
attributable to additional
allocation of Taka 1 thousand 517 crore on account of
interest payments,
Taka 480 crore for settlement of arrear electricity
bills and Taka 350 crore
to the Power Development Board (PDB) as credit to meet
its liquidity
crisis. The total estimated expenditure under revised
budget now stands at
14.3 percent of GDP. Thus the budget deficit would
remain at 3.7 percent
of GDP as per the original estimate. 1.6 percent of
the budget deficit will
be financed from foreign sources and the remaining 2.1
percent from
domestic sources.
12
Coming Budget: A Roadmap for Growthand Poverty
Alleviation.
Overall Framework
Fellow Citizens
46. May I now give some highlights of the overall
framework of the
budget for FY 2007-08. The next year’s budget has been
prepared within a
medium term macroeconomic framework (MTMF). The
underlying
assumptions of this framework are: in the coming
fiscal year GDP will
grow by 7 percent and this trend will continue in the
medium term; the
annual inflation will come down from 7 percent to 6.5
percent and in the
medium term this will fall further gradually due to
adoption of consistent
and cautious fiscal and monetary policy. There will no
destabilizing
external and internal shocks. There will be much wider
expansion of both
tax and non-tax revenue base. By implementing more
efficient revenue
administration, revenue receipts will be augmented.
47. Considering all these, the total revenue receipt
for the coming fiscal
year has been estimated at Taka 57 thousand 301 crore
which is 10.8
percent of GDP. Of this, revenue receipts from NBR
source will amount to
Taka 43 thousand 850 crore (8.3 percent of GDP) while
those from non-
NBR and non-tax sources will amount to Taka 13
thousand 451 crore
(2.5 percent of GDP). On the expenditure side, the
size of ADP has been
determined at Taka 26 thousand 500 crore (5 percent of
GDP) while the
total expenditure has been estimated at Taka 79
thousand 614 crore
(15 percent of GDP).
48. The budget deficit is likely to be 4.2 percent of
GDP, 2 percent will
be financed from external sources, while the rest will
be financed from
domestic sources. I propose an assumption of liability
of Taka 7 thousand
523 crore arising from accumulated loss of BPC in the
budget. This will
increase the total expenditure to Taka 87 thousand 137
crore implying a
budget deficit of 5.6 percent of GDP and financing
from domestic sources
will increase to 3.6 percent of GDP. However, let me
assure you that this
will not create any immediate additional fiscal
liabilities and will not exert
any negative impact on private sector credit or on the
overall economy.
However, the Government will incur additional
liabilities in future years
for principal and interest payments.
13
49. Consistent with our development goals, 34.4
percent of total budget
has been allocated for physical infrastructure
development, 34.3 percent
for social infrastructure, 19.3 percent for public
administration and the rest
for interest payments of public debt and net lending.
50. 57 percent of total budget, non-development and
development
combined, will be spent on programmes directly or
indirectly relating to
poverty reduction. 10.6 percent of the total budget
will be spent for social
empowerment and safety net programmes.
Annual Development Programme: Priorities and
Expenditure
Framework
Fellow Citizens
51. We have moved away from traditional concept of ADP
formulation
and determined allocations taking into account
national priorities, regional
parity and availability of resources. Overall,
agriculture (agriculture, rural
development and water resources) sector will be
receiving 23 percent of
total allocation; while for power and energy the
allocation is 16 percent
and for education sector 14 percent. In the case of
health and transport
sectors, each will be receiving 12 percent and 10
percent of allocation
respectively. To bring a balanced development among
the regions,
allocation has been enhanced by 35 percent for the
projects being
implemented in Rajshahi, Khulna and Barisal Divisions.
52. Development assistance for local government
institutions including
Chittagong Hill Tracts has been increased by Taka 150
crore to Taka 987
crore. Allocation of resources has been ensured for
the projects nearing
completion. Emphasis has been laid on speedier and
qualitative
implementation of projects by reducing their number.
At this stage, I
would like to mention that in addition to ADP, 23.3
percent of nondevelopment
budget is spent for purposes which are developmental
in
nature.
53. Faster economic growth is required for achieving
UN-declared
MDGs. This warrants further creation of employment
opportunities,
removal of infrastructural constraints, improvement of
law and order
situation, establishment of fiscal discipline,
unfettered development of
private sector, human resources development, social
sector investment,
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further widening of social safety net and
strengthening of financial
management. I would now like to reflect on the
resource allocation among
the priority sectors in the proposed budget.
Human Resource Development
Fellow Citizens
54. Human resource is the foundation stone for
building social
infrastructure. Education and health are the main
vehicles for human
resource development. It is not possible to bring
about accelerated and
sustained development without competent human
resources. I propose an
allocation of Taka 19 thousand 7 hundred and 1 crore
for human resources
development which is 25 percent of the total budget.
Of this 15.2 percent
is allocated for education and 6.9 percent for health
sectors.
Education Sector
Fellow Citizens
55. In the present day world, the development of a
country is dependent
on its well-groomed workforce trained in modern
technology. To this end,
the Government has taken up a new initiative for
research and investment
in higher education. The Government will provide
financial assistance to
the faculties of physical science, life science and
mathematical science of
any public or private university in the country if
they can publish at least
three research papers in recognised and well-reputed
journals and also can
organise an international seminar in a year. The
proposed assistance will
be provided following a purely competitive process
based on specific
research proposals. An allocation of Taka 10 crore has
been made in the
next year's budget as education research grant.
56. We have already removed gender disparity at the
primary and
secondary levels of education. None of the countries
in South Asia except
Sri Lanka has achieved this milestone. The present
Government has
prepared a National Work Plan for universal primary
education. Special
initiatives have been taken to ensure distribution of
books and stationeries
free of cost to the extremely poor and in remote
regions of the country. In
FY 2007-08, about 15 thousand primary teachers will be
recruited of
which 60 percent will be females. This will bring the
current student-
15
teacher ratio of 55:1 down to 46:1. 55 lakh primary
students will be given
monthly stipend at the rate of Taka 100. Actions are
underway to bring
back dropouts in 11 thousand teaching centres. In the
next fiscal year, 10
thousand teachers will be trained. As many as 18
thousand 186 classrooms
will be built. 6.5 lakh persons from among those who
have attained
literacy through mass education programme will be
provided with income
generating training through continuous education
within the next fiscal
year. Mosque and temple-based child and mass education
will be
strengthened.
57. Alongside the secondary female stipend programme,
the
Government is also introducing stipend programme for
the poor male
students. 63 percent of the non-government budget
allocation of the
Ministry of Education is spent for salary subventions
of the teachers and
staff of non-government educational institutions. In
the revised budget of
the current fiscal year there is an allocation of Taka
3 thousand 13 crore
for this purpose. In order to make this huge spending
cost effective, the
allocation against each institution will be linked
with performance. An
Independent Inspection Body will undertake performance
evaluation.
Steps are being taken to provide special training for
the teachers.
Emphasis has been laid on English language and
vocational education.
Information and statistics on education are being
enriched.
Health Sector
Fellow Citizens
58. Efforts aimed at for human resource development
cannot succeed
without concurrent development in health sector. The
Government is
taking steps to put in place improved hospital
management system for
enhancement of quality of health services. However,
one of the strategies
in this case would be to ensure increased involvement
of the private sector
at different levels of health services. The areas
where private sector is
more efficient will be contracted out on management
contract basis.
Alongside the steps to increase the number of nurses
rapidly by setting up
more nursing institutions in public sector, measures
have also been taken
to mobilise the support of hospitals, universities and
other institutions
operating in the private sector. The largest programme
in the health sector
is Health, Nutrition and Population Sector Programme
(HPNSP).
16
A number of pragmatic steps have been taken to
implement this sectorwide
programme efficiently.
59. A decision has been taken to ensure increased
involvement of NGOs
in activities like population control and prevention
of malnutrition and
contagious diseases. Implementation of a programme on
health
infrastructure development is underway across the
country. Institutionbased
project implementation has been strengthened to extend
the facility
of specialised health services. Monitoring has been
intensified at the same
time.
Agriculture and Rural Development
Agriculture
Fellow Citizens
60. Agriculture is central to the Bangladesh economy.
In the face of
increasing growth of population and shrinkage of
agricultural land by 1
percent each year, we have no other choice but to
increase agricultural
productivity to meet the huge food demand and to
contain inflation within
tolerable limit. The present Government has,
therefore, given priority to
agricultural research. I propose an endowment
allocation of Taka 350
crore for agricultural research and development.
61. Currently in Bangladesh, we produce more paddy
during boro
season which is dependent on irrigation. Although the
farmers using
electricity-powered pump receive 20 percent subsidy
against their
electricity bills, no subsidy is given for
diesel-driven irrigation. Of the
total 48 lakh hectares of land under irrigation, about
33 lakh hectares are
irrigated through diesel-powered pumps during boro
season. Due to recent
diesel price-hike the production cost of paddy per
kilogram has increased
by 50 paisa. The Government is, therefore, committed
to subsidise the
extra cost that the farmers will have to bear on
account of diesel price
hike. Payment against this subsidy will only be made
to cardholder
farmers. In the budget for FY 2007-08, I propose an
allocation of Taka
750 crore.
62. In the current fiscal year, there was an
allocation of Taka 1 thousand
100 crore for agriculture subsidy which increased to
Taka 1 thousand 541
17
crore in the revised budget. I propose to allocate
Taka 1 thousand 500
crore as subsidy to fertilizer sub-sector in the
budget for FY 2007-08.
Local Government and Rural development
Fellow Citizens
63. Agricultural credit as an input to the rural
socio-economic
development as well the productivity increase of
agro-sector has a special
significance. Investment in agriculture plays a direct
role in poverty
reduction. As administered interest rate of
agricultural credit is low, this
itself works as a financial safety net. In FY 2007-08,
we have set a target
to distribute Taka 6 thousand 351 crore as
agricultural credit through
Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank
(RAKUB), four
NCBs, Bangladesh Rural Development Board and
Bangladesh
Co-operative Bank.
Fisheries and Livestock
Fellow Citizens
64. The importance of fisheries and livestock
sub-sector in rural
economy in meeting the demand for animal protein and
generating
employment opportunities can hardly be overemphasised.
The
Government remains focused on prevention of jhatka
fishing and on
quality control of fish and fishery-products.
Immediate and emergency
measures have been taken to tackle the situation
arising from the attack of
avian influenza virus. A special project costing Taka
20 crore has been
approved in addition to the allocation made from
revenue budget to ensure
constant monitoring, payment of compensation and
hygienic production
and marketing of poultry products. I propose to
allocate Taka one hundred
crore to the Fund for Disaster Affected Small Farmers.
65. In order to strengthen local governance, specific
steps have been
taken to evolve a system to train local level public
representatives,
augment revenue collection by local bodies and
evaluate their
performance. Priority is being given to rural road
communication to
establish connectivity of the growth centres with
national highways
network. Birth registration of the whole population
will be ensured by next
year. A target has been set to raise supply coverage
of safe drinking water
to 90 percent and sanitation coverage to 100 percent
in the next 3 years.
18
A programme has been undertaken to improve the living
standards of the
slum dwellers including the improvement of environment
and health
services. The implementation of the poverty reduction
programmes in
char, haor and in coastal belts is being strengthened.
At the same time,
special food and development assistance intended for
the people of
Chittagong Hill Tracts districts will continue.
Communication Sector
Fellow Citizens
66. Currently in Bangladesh each square kilometer has
0 .70 kilometer
of road. The Government has taken a number of steps to
reform this
sector. 3240 acres of RHD land and 300 acres of
Railway land have been
freed from illegal occupation. In order to separate
road maintenance work
from road construction, steps have been taken to
promulgate a Road
Maintenance Ordinance. In FY 2007-08, allocations for
road maintenance
and railway maintenance have been increased by 76.5
percent and 40
percent respectively. At the international level, the
Government has given
its consent to sign an agreement on Trans Asian
Railway. Agreement has
been signed with Myanmar to establish road
communication between the
two countries. The technical project proposal for
construction of the
Padma Bridge has been approved. To improve the quality
of services in
railway, management reforms are being strengthened
aside from
procurement of rolling stock, and other modern
equipment.
Power and Energy Sector
Fellow citizens
67. Although the demand for electricity increased
manifold during the
past few years, generation did not increase
correspondingly. In order to
meet the increasing demand for electricity, we have
taken up short,
medium and long-term plans. To mitigate the power
crisis during the
summer season, we are trying to minimise frequent load
shedding through
load management. Policies have been formulated to buy
electricity from
the private sector-owned captive power plants. We have
put in place
separate policies for power supply in outlying regions
of the country. We
have set a target to generate sufficient electricity
by 2010 to reach a level
where there will no load-shedding. We have planned to
increase power
19
generation over the next three years by 345 MW in the
first year, 900 MW
in the second year and 1 thousand and 50 MW in the
third year.
68. In the past, the issue of maintenance of power
plants was neglected.
The Caretaker Government has taken initiatives to
complete the
maintenance of those power generation plants which
will add 600 MW
electricity to the national grid by the end of the
year. Directives have been
given to carry out speedy implementation of those
projects which are
scheduled to add electricity to the national grid by
2008/2009. The
Government departments have also been instructed to
observe austerity in
using electricity as well. This is being regularly
monitored. Following
these steps, the average use of electricity in the
Bangladesh Secretariat
alone during February- May 2007 has declined by 21
percent compared to
the same period last year.
Fellow Citizens,
69. The prevailing power situation of the country
stems from the
problems accumulated over the years. To address these
problems, a range
of reform programmes have been taken. Within these
programmes, a
number of separate entities for transmission and
distribution have been
created under the Companies Act, 1994. The sole
authority of the Power
Development Board has thus been curbed. A programme
has been taken
up to implement financial restructuring and recovery
plan to make the
entities in the power sector profitable.
70. In the current fiscal year, the Government has
provided a loan
amounting to Taka 350 crore to the Power Development
Board to settle
the outstanding bills of independent power producers
(IPP). In addition, an
arrear amounting to Taka 525 crore accumulated against
different
government and autonomous bodies as well as SOEs up to
December
2006. This has been paid off during the current fiscal
year. Besides, the
employees of newly established companies during their
service tenure in
PDB earned pension and gratuities. A provision for
equity to the tune of
Taka 220 crore has been made for payment of those
arrear pension and
gratuities in the next fiscal year.
71. Due to mismatch between the domestic price and the
import price of
petroleum products, the loss of BPC swelled up in the
past years. The
accumulated outstanding loan of BPC taken from 4 NCBs
stood at around
20
Taka 8 thousand crore. Consequently, the whole banking
system was
exposed to serious vulnerability. A total subsidy
amounting to Taka 600
crore has been provided to BPC to maintain the flow of
import of
petroleum products intact. The Government has taken
steps to re-fix the
price of petroleum products to make it consistent as
far as possible with
the international price from April 2007. The
Government has decided to
assume the accumulated default loan of BPC as its own
liability by issuing
treasury bonds of equivalent amount. The issuance of
treasury bonds will
resolve the long-standing problems relating to BPC's
loan.
72. Included among the major debtors of BPC are
Bangladesh Biman,
Bangladesh Power Development Board and Bangladesh
Chemical
Industries Corporation. Relevant guidelines have been
framed to adjust the
domestic price of petroleum products with the price
changes in
international market. A committee envisaged in the
guidelines will review
the price of the petroleum products from time to time
and advise the
government for making appropriate adjustments.
Information and Information Technology Sector
73. The telecommunication system has immense
importance in
disseminating information as well as in disseminating
technology. The
tele-density per 100 persons in our country has
increased from 9 in last
fiscal year to 18 now. The illegal business of Voice
over Internet Protocol
(VOIP) has been stopped. Legal actions have been taken
against those
who are engaged in illegal VOIP business. The policies
for bringing VOIP
business under legal framework are going to be
finalised soon.
74. To augment export earnings, IT products have been
identified as one
of the priority export products. Internship allowance
is, therefore, being
given to create an efficient workforce in IT sector.
The ICT Incubation
Centre was established to enhance the capacity of the
local private sector
ICT Companies. Steps have been taken to make the
centre more effective.
Infrastructure development work has begun to build a
hi-tech park. I have
already mentioned about the creation of an IT Equity
Entrepreneurship
Fund with Taka 100 crore. There is a plan to establish
immediately
a computer lab in one school of each district. A
one-year post graduate
course on IT has also been introduced in the
universities. An allocation of
Taka one thousand 899 crore, which is 2.4 percent of
total budget and 12
21
percent higher than the revised budget, has been
proposed for Information,
Telecommunication and Information Technology sectors
in the next fiscal
year.
Social Empowerment and Social Safety Net
Fellow Citizens
75. Bringing in the disadvantaged community including
women,
children, and the disabled into the mainstream of our
development is a
major challenge. At this stage, I would like to
present before you the
recent initiatives of the Government to meet this
challenge.
Women Development
76. Gender sensitive budget as a concept is of a very
recent origin. This
helps ensure transparency and accountability
concerning the share for
women in development expenditure. Bangladesh is one
the few countries
which are working on the modalities of gender
sensitive budgeting.
Meanwhile, as part of ongoing budget reforms, we have
triggered an
activity for preparation of pro-poor and gender
budgeting along with
MTBF approach. This allows an opportunity to test
poverty and gender
sensitivity inherent in each of the objectives of
medium-term strategic
plan. Thus there would be increased visibility of the
activities relating to
gender parity and poverty sensitivity as a guide to
budgetary allocation.
Currently, direct and indirect gender equality
expenditure taken together
accounts for 22 percent of the total budget. In the
next fiscal year, we have
proposed to increase this share to 24 percent.
77. In order to reduce maternal and infant mortality,
we have introduced
a pilot programme titled ' Maternity Allowance for the
Poor Lactating
Mothers'. This will ensure safe motherhood, and better
health and nutrition
of hardcore poor mothers as well as safe birth and
sound upbringing of
infants. The expecting poor mothers will get an
allowance of Taka 300 per
month. Initially, 45 thousand mothers of 3 thousand
unions will be
brought under this programme. I propose an allocation
of Taka 17 crore
for this programme in the budget for next fiscal year.
78. The rate of Allowance for Widowed and Destitute
Women will be
enhanced from Taka 200 to Taka 220 per month while its
beneficiary
22
coverage will be extended to 7.5 lakh from 6.5 lakh.
Programmes like
Vulnerable Group Development (VGD), Stipend for female
students,
maternity voucher scheme, community-based nutrition
and vocational
training for women will be extended further. In
addition, we propose to
allocate Taka 20 crore as micro-credit to generate
employment
opportunities for women, Taka 10 crore for the Fund
for Acid-Burnt
Women and the Disabled and Taka 25 crore for welfare
of RMG workers
and Taka 20 crore for their training for enhancement
of efficiency.
Employment opportunities for 24 thousand destitute
women in 387 unions
will be created under the programme titled 'Rural
Employment
Opportunities for Protection of Public Property'.
Child Development
79. The subsistence allowance of the children of
orphanages, Shishu
Sadan, Shishu Paribar, Chotomoni Nibash, Safe Home has
been enhanced
fromTaka1 thousand to Taka 1 thousand 200 hundred. The
per capita
capitation grant for children in private orphanages
has been increased by
Taka 200. Day care centres are being established for
the children of lowincome
families. A programme has been taken up to ensure
children's
right as enshrined in international convention and
child laws dealing with
the prosecution of juvenile delinquency and
internment.
Freedom Fighters' Welfare
80. Freedom fighters are the finest children of the
soil. We have to be
more caring about them. I propose to enhance the rates
of allowance of the
disabled freedom fighters at all levels by 50 percent
and the rate of
monthly allowance for insolvent freedom fighters from
Taka 500 to Taka
600. There was an allocation of Taka 78 crore 20 lakh
for this purpose in
the budget of last fiscal year. With the new
proposals, this allocation will
increase to Taka 99 crore 50 lakh. The construction of
the residential flats
for freedom fighters and the Freedom Fighter Park will
start soon.
Support to the Disabled
81. The Government has taken up a comprehensive
programme to
ensure the rights of the disabled and the
disadvantaged communities.
Meanwhile, Bangladesh has signed the UN Charter on the
Rights of the
Disabled adopted in 61st regular session of the
General assembly.
23
Implementation of a comprehensive work plan for the
welfare of the
disabled is underway through various ministries. I
propose to allocate
Taka 52 crore 80 lakh for enhancement of the rate of
allowance of the
disabled from Taka 200 to Taka 220 and for the
expansion of beneficiary
coverage from 1 lakh 66 thousand to 2 lakh. I also
propose to allocate
Taka 5 crore for the education of retarded children.
Rehabilitation of the Senior Citizens and the Uprooted
People
82. We cannot deny our social responsibility towards
the poor senior
citizens of the country. Bearing this in mind, I
propose to enhance the
existing rate of allowances for the senior citizens
from Taka 200 to Taka
220 and extend the beneficiary coverage from 16 lakh
to 17 lakh. The
programme for construction of 15 thousand flats on
khas land in Dhaka,
intended to rehabilitate the uprooted people, slum
dwellers and the lowincome
families will soon be implemented.
Employment Generation
Fellow Citizens
83. Creation of increased employment opportunities is
essential for social
empowerment. In order to help the marginalised poor
suffering from
geographical and natural constraints like monga and
river erosion,
extension of existing micro-credit programmes has been
proposed. I
propose to allocate Taka 550 crore for employment
generation in rural
areas outside the ministry-based employment generation
programmes in
the next fiscal year. A significant portion of this
allocation will be
implemented by Palli Karma Shahayak Foundation (PKSF)
through their
associate NGOs. The total allocation against these
credit programmes and
funds including other rural employment generating
programmes will stand
at around 9 percent of the total budget. I expect that
this will create
employment opportunities in rural economy equivalent
to 3 man-months
for 95 lakh families in the next fiscal year.
Food Management
Fellow Citizens,
84. Now I would like to dwell upon the food management
system of the
Government. The objectives of food management of the
government are to
maintain adequate buffer stock, to reach food grains
to the distressed
24
populace, to keep the price of food grains at a
tolerable level and to ensure
fair price of food grains for farmers. You are aware
of the fact that the
food grains production in the country and also across
the world has not
reached the expected level in current year whereas the
demand has
increased. As a result, the price of food grains has
increased relatively
both at home and abroad.
85. To meet the overall food deficit, the Government
has planned to
import 8 lakh tons of food grains alongside the
imports by private sector.
In order to build an adequate buffer stock, there will
be internal
procurement of food grains along with imports. In the
next fiscal year, the
VGF programme will be implemented in an extended
fashion to enhance
the capacity of the marginalized section of the
society whose purchasing
power has been eroded due to price increase. I propose
to allocate 4 lakh
metric tons of rice for 50 lakh card holders across
the country to provide a
subsistence coverage of 8 months. Alongside this
allocation, about 6 lakh
metric tons of food grains will also be distributed
through TR, GR, FWP
and VGD programmes. In order to keep the price of food
grains within the
tolerable limits, the Government will go for open
market operation, if
necessary. I believe, successful implementation of
these programmes will
usher in a positive change.
Environment Development
Fellow Citizens
86. Bio-diversity and environmental protection are
closely interlinked
with sustainable economic development. Growing
population,
deforestation, water and industrial pollution are the
main causes of
environmental degradation. Following the steps taken
by the Government,
it has been possible to free a total of 5 thousand
hectare of lands of the
Forest Department from illegal occupation. These lands
will be brought
under afforestation programme. In order to prevent
industrial pollution,
establishment of Effluent Treatment Plant has been
made mandatory in the
case of highly polluting industrial undertakings.
Steps have been taken to
reduce the use of ozone layer depleting gases in
phases. Efforts have been
made to prepare and implement plans for waste
reduction and recycling.
There is an ongoing initiative to create a website and
database on climate
changes in the Department of Environment. Bangladesh
has signed the
United Nations Convention on Law of the Seas.
25
Revenue Management Reforms
Fellow Citizens
87. I have so far made my reflections on the reforms
initiated by the
present government and mentioned how these reforms
would be
implemented through the proposed budget of FY2007-08.
I have also
talked about macroeconomic situation, poverty
reduction and growth
momentum. Now I would like to highlight how the
expected revenues in
the proposed budget will be mobilised and how these
are going to affect
the overall economy and equity.
88. Bulk of our revenues is collected from imports.
For a sustainable
economy, this is not desirable. We have to reduce our
dependence on
import based revenue collection, and augment revenues
from domestic
sources. We also have to gradually reduce import
duties on industrial raw
materials and capital machinery and even on the
intermediate goods to
keep the price of commodities within tolerable limits.
Therefore, we have
to increase revenues from income tax and VAT sources.
In fact, a balance
between trade liberalisation and domestic industrial
development is
essential. We have been cognizant of the need for such
balance in
proposing the tax measures for FY 2007-08.
89. We are curtailing the discretionary power of the
tax officials and
have instructed the tax authorities to avoid
discriminatory tax collection
policies. Emphasis has been laid on simplification of
tax assessment and
payment procedures. We have also given due importance
to ensuring
transparency and accountability of tax department. We
would like to
create an atmosphere in which tax payments is viewed
as a symbol of
social status. One of the objectives of tax measures
is to induce the tax
payers to pay taxes voluntarily. Bearing in mind these
objectives, I am
now presenting tax related proposals for FY 2007-08.
Tax Proposals
Income Tax
Fellow Citizens,
90. The general aversion of the taxpayers as well as
procedural
complexities in paying taxes adversely affects our tax
revenue collection.
26
We have to put an end to this situation. Let me now
present proposals
relating to income tax.
1) I propose to enhance tax-exempted income limit for
individual
tax payers from existing Taka 1 lakh 20 thousand to
Taka 1 Lakh
50 thousand. Simultaneously, I propose that if an
individual tax
payer paying taxes at the highest rate of 25 percent,
discloses at
least 10 percent higher income in the assessment year
than that
of the previous assessment year, he will be allowed 10
percent
tax rebate on the tax payable on that higher income.
2) To motivate and encourage tax payers to pay tax
voluntarily,
I propose legislative provision for introducing
'Universal Self-
Assessment Procedures'.
3) In order to make income-tax law simpler and
appropriate for the
present times, I propose the following changes in the
Income Tax
Ordinance, 1984:
• irrespective of profit or loss, minimum tax on the
basis of
turnover will be reduced from 0.50 percent to 0.25
percent
• 50 percent of foreign travel expenses of company
directors in
excess of four travels (in place of prevailing two
travels) will
be deemed as income of the company directors
• provision for deduction of tax at source on credit
card bill to
be abolished
• interest on loans up to Taka 20 lakh used for
self-occupied
accommodation to be admitted as allowable expense
• allowing 15 percent tax rebates for private
universities and
research institutions registered under Trust Law
• abolition of provision of paying tax at a specified
rate for
construction of building or buying house property or
flats or
land or purchasing car, with undisclosed and untaxed
money
• considering 5 percent of transfer to Statutory
Reserve of
financial institutions as allowable expense instead of
10
percent
4) Mobile Phone Operator Companies' corporate tax rate
would be
45 percent but the tax rate would be 35 percent if the
companies
27
are converted as publicly traded companies and
enlisted with the
stock exchanges. In other cases, corporate tax rates
will remain
unchanged as prevailed in 2006-07.
5) I propose to impose tax deductible at source at the
rate of Taka
1 thousand, at the time of issuance and renewal of
trade licenses
by City Corporations, adjustable at the time of final
tax
assessment.
6) I propose to impose tax deductible at source at the
rate of 0.25
percent on all export earnings which will be
considered as tax
finally paid.
7) I propose to re-fix advance tax deduction at source
by hospitals
and diagnostic centres at the rate of 10 percent,
instead of
existing 5 percent, from the payments made to the
doctors like
other professionals. I propose to impose income tax
deduction at
the rate of 10 percent from trustee fee, and 7.5
percent from
freight forwarding agency commission and 10 percent on
interest
from savings instruments if such interest exceeds Taka
25,000
per annum.
8) Pursuant to the ongoing reform initiatives, the
cost of doing
business has fallen significantly. Therefore, I
propose to enhance
tax deductible at source at the rate of 7.5 percent,
instead of
5 percent, on commission income of stevedoring, C&F,
non-resident courier service, marketing, insurance and
general
insurance surveyor.
9) I propose to offer tax holiday facility to solar
energy plants to
encourage use of alternative source of energy to
mitigate the
power crisis.
10) I propose to extend the time limit to 3 weeks from
existing
1 week for depositing tax deducted at source to
government
exchequer and to raise the limit of income to Taka 3
lakh from
existing Taka 2 lakh for payment of advance income
tax.
11) I propose to extend tax rebate facility to the
non-resident
Bangladeshi investors.
28
12) As an alternative source of financing investment,
I propose to
exempt income generated from Zero-coupon Bond from
income
tax.
13) I propose to abolish the provision of all up front
and advance tax
on government bonds to create a competitive market for
such
bonds.
Import Duty
Simplification of Tariff Structure
Fellow Citizens,
91. As part of the initiative of simplifying tariff
structure, and of
increasing the difference of rate of duties between
the finished products
and intermediate products, I propose to restructure
the customs duty slabs:
 Complete withdrawal of 4 percent infrastructure
development
surchage
 Introduction of duty slabs at 10 percent, 15 percent
and
25 percent instead of existing 5 percent, 12 percent
and
25 percent
 Merger of two slabs of supplementary duty at 15
percent and
25 percent into a single slab of 20 percent
 Imposition of specific duty at the rate of Taka 20
thousand and
Taka 39 thousand per ton on Base Lubricating Oil and
Finished
Lubricants respectively to avoid the complexities in
determining
the value of lubricant and to reduce litigations
 Inclusion of cement clinkers under the mandatory
pre-shipment
inspection system to prevent tax evasion.
Reducing Tariff Distortion
Fellow Citizens
92. There are inconsistencies in the existing tariff
structure. Removal of
these inconsistencies is a continuous process. I
propose to bring in
following reforms in the existing tariff structure:
29
 Withdrawal of zero duty on textile machinery,
computer and
computer accessories
 Withdrawal of existing duty exemption on
telecommunication
equipment and Liquid Dielectric Transformer and to
increase
duties on these items to bring them at par with VOIP
equipment and other transformers
 Imposition of customs duties at an equal rate of 10
percent on
all pumps including those used for agricultural work,
to avoid
mis-declaration and misuse of duty-facilities.
Protection of Consumers' Interest
Fellow Citizens
93. Despite revenue loss, I propose the following
measures to keep the
market price stable in respect of a range of
commodities including the
essential ones:
 Complete withdrawal of customs duty on crude edible
oil and
lentils to keep the market price tolerable
 Continuation of duty free benefit on essential
commodities
including rice, wheat, onion, matar dal and, chola dal
 Continuance of duty-free facility to different
lifesaving drugs
including insulin required for health services of the
general
public and to import of fertilizers for farmers
 Enhancement of customs duty from 12 percent to 25
percent on
formalin and stearic acid to prevent public health
hazards
 To facilitate the availability of vehicles to the
general middle
class, increase of the dealers' commission discount
rate of used
reconditioned cars from 25 percent to 30 percent.
Protection of Local Industries
Fellow Citizens
94. In order to protect the local industries, I
propose to rationalise the
duty structure on manufactured products and raw
materials. I also propose
to readjust the rate of duty of some industrial raw
materials:
30
 Reduction of customs duty on CNG driven trucks from
25 percent to 10 percent and enhancement of customs
duty from
5 percent to 15 percent on CNG driven CBU bus to
develop the
assembling industry for CNG-driven bus
 Imposition of supplementary duty at the rate of 20
percent on
metal framed furniture to develop furniture industry
and
withdrawal of supplementary duty on boards of all
types
 Enhancement of customs duty from 5 percent to 15
percent on
auto disposable syringe to encourage local production
 Imposition of supplementary duty at the rate of 60
percent on
SIM card and different kinds of plastic products and
at the same
time reduction of customs duty on raw materials used
for
manufacturing plastic products
 Reduction of customs duty rate from 25 percent to 15
percent on
the import of newsprint considering the problems of
newspaper
industry and at the same time keeping the raw
materials for
newsprint duty-free to develop the local newsprint
industry
 Re-fixation of specific rate of duty at Taka 4000
instead of
existing specific rate of duty Taka 2250 on raw sugar
to avoid
mis-declaration and also to address the problems being
faced by
5 lakh sugarcane growers and local sugar industries
 Extension of bonding period up to 2 years to
encourage exports
of the export-oriented industries.
Reduction of Discretionary Power
Fellow Citizens
95. In order to enhance transparency and
accountability of the revenue
administration, and to reduce the discretionary powers
of the customs
officials, I propose the following measures:
 Preparation of specific guidelines for the issuance
of bond
license
 Bringing in more transparency in the procedure of
extending
bond period
31
 Simplifications in the customs procedures in line
with the Kyoto
Convention
 More clarity on tariff description of a number of
commodities
 Making it mandatory to write "Import under Bond Not
for
Resale" on the packing of imported commodities to stop
their
sale in local markets.
Trade Liberalisation
Fellow Citizens
96. To make our local commodities internationally
competitive and also
to fulfill our commitments with the World Trade
Organisation (WTO), I
make the following proposals:
 Keeping existing 25 percent customs duty on finished
products
unchanged though 4 percent infrastructure development
surcharge has been withdrawn
 Reducing existing supplementary duty of 25 percent
and
65 percent to 20 percent and 60 percent respectively
 Complete withdrawal of customs duty on Electronic
Cash
Registers.
Value Added Tax (VAT)
Fellow Citizens
97. One of the principal objectives of a modern tax
administration is to
encourage the tax-payers through promotion of
self-assessment procedure
to voluntarily comply with tax laws. It is essential
to make tax collection
procedures transparent by simplifying the provisions
of law and tax related
forms and reducing the number of documents to be
preserved to a
minimum. With this end view, I propose the following
several
amendments to the Value Added Tax Act, 1991 and the
Value Added Tax
Rules, 1991:
 Reduction of minimum penalty for tax evasion from 50
percent
to 25 percent and maximum penalty from 200 percent to
75 percent
32
 Reduction of maximum penalty for minor offences from
Taka
50 thousand to Taka 25 thousand
 Reduction of the maximum penalty for major offences
from
Taka 3 lakh to Taka 1 lakh
 Reduction of deposit ranging from 10 percent - 25
percent of the
amount assessed or fine imposed required for filing an
appeal to
10 percent
 Relaxation of the mandatory provision of submitting
Mushak
Challan 11 allowing the issuing units to issue challan
in their
own formats incorporating extra information needed but
keeping
intact the required legal information currently
contained in Form
Mushak-11
 Withdrawal of the provision of attaching challan
along with each
tax return submission
 Delegation of the power of National Board of Revenue
in regard
to use of computer generated challan and maintenance
of
accounts of registered organisations to the
Commissioners of
VAT
 Withdrawal of the provision of annual renewal of VAT
registration by commercial importers
 Re-fixation of the ceiling of invested capital in
plant,
machineries and equipment from Taka 5 lakh to Taka 7
lakh as a
part of facilities extended to the cottage industries
 Enhancement of the value of VAT exemption from Taka
6 thousand to Taka 10 thousand in the case of sending
samples of
pharmaceutical products to foreign countries
Fellow Citizens
98. The existing VAT law and rules do not contain
sufficient provision
to deal with declaration of value, transfer of input
and credit adjustment
for a registered manufacturer who produces branded
goods of another
registered manufacturer through contract. In view of
the gradual
promotion of trade and industry, I propose to add
required provisions in
33
the Value Added Tax (VAT) Act, 1991 and the Value
Added Tax (VAT)
Rules 1991 to address the existing complexities.
99. In order to ensure access of the general public to
the medical service
and to help people suffering from hearing impairment,
I propose VAT
exemption for Insulin, First Aid Box, Hearing Aid,
Shadow-less Operation
Lamps at import and production levels. I also propose
VAT exemption for
fire extinguishing equipment to encourage installation
of such facility in
industrial and commercial organisations at both import
and production
level
100. In order to widen the VAT net, I propose to bring
Immigration
Advisers within this net and at the same time I
propose to withdraw
existing VAT exemption facility from ornamental fish,
specialized
doctors, lawyers and dental clinics. I also propose to
impose VAT on the
basis of truncated base value of the coaching centers,
English medium
schools, private medical and engineering colleges and
private universities
at the rate of 4.5 percent. Besides this, I propose to
extend the same
truncated base value facility to photo lab, courier
service and
air-conditioned bus service.
101. In order to establish more equity among the
taxpayers, I propose to
bring the following categories of goods and services
under VAT net
regardless of the amount of their annual turnover by
withdrawing the
existing turnover tax facility: soft drink, mineral
water, toilet soap,
restaurant, warehouse, port, land developers, building
construction
companies, telephone, tele-printers, telex, fax or
internet service providers,
SIM card distributors, cinema halls, WASA, insurance
companies,
organisers of cultural programmes by foreign artists,
health clubs, fitness
centres, sports organisers, engineering firms and
chartered planes or
helicopter rental companies.
102. I propose to make tariff values consistent with
the current market
price in respect of items like chocolate milk, mango
milk, banana milk,
tomato paste, LP gas, paper, MS products, nail wares,
chillers, electric
transformers, human hauler, mechanized boats and ship
scraps.
103. After reviewing the revenue collection trends and
the administrative
capacity and also considering the tax proposals, the
revenue target for FY
2007-08 has been determined at Taka 43 thousand and
850 crore, implying
34
17 percent growth over the revised revenue target of
FY 2006-07. This
includes Taka 10 thousand 838 crore on Income Tax,
Taka 17 thousand
812 crore on Import Duty at import stage, Taka 14
thousand 800 crore on
VAT and Taka 400 crore on other taxes and duties.
Given measures
indicated in the budget are implemented; I am
optimistic that the proposed
target could be achieved.
104. Non- tax revenue is also an important source of
augmenting total
resources of the government. In the past years, the
share of non-tax
revenue in the total revenue collected by the
government had been 18
percent. In this context, the government has laid
special emphasis on
augmentation of non-tax revenue and has taken a range
of measures.
Included among them are: expansion of non-tax revenue
base, rational refixation
of existing rates through regular review, exploring
new areas,
improvement of collection management and plugging the
leakage. It is,
therefore, expected that the non-tax revenue income
will increase
significantly in the next fiscal year
Fellow Citizens
105. Assured resource mobilisation from domestic
sources is one of the
preconditions for attaining economic sovereignty by a
developing country
like Bangladesh. However, the revenue collection is
not increasing
compared to the growth of GDP. In FY 2005-06, while
the revenue-GDP
ratio was 10.6 percent, by the end of current fiscal
year this may slide
down to 10.4 percent. In this context, raising the
revenue-GDP ratio to
10.8 percent will turn out to be a great challenge.
This would require
undertaking a formidable task of expansion of tax
base, improved quality
of tax assessment, strengthened collection procedures,
office automation,
transparency and accountability of tax administration
and applied
research.
106. What is, therefore, required is to build a total
quality management in
our tax regime through long-term reforms. Also we have
to earn the
confidence of the taxpayers through motivational
campaign. Formulation
of a new law and separation of tax policy from tax
administration to build
a transparent and simplified tax regime in the country
are under
consideration.
35
Fellow Citizens
107. Despite political instability and administrative
snags, the Bangladesh
economy has experienced over time remarkable positive
changes. The
contribution of industry sector to GDP has increased
from 15 percent in to
30 percent. Financial deepening has increased to 44
percent from 17
percent. Private sector credit flow has increased to
75 percent from 24
percent. The openness index of the economy increased
from 18 percent to
41 percent. In banking sector, the share of private
sector banking has
increased from 0 percent to 60 percent. During this
period, we made
remarkable achievements in reduction of maternal and
infant mortality,
enhancing primary enrollment and gender parity in
primary and secondary
education. During the same period, income poverty has
reduced
remarkably. Our micro-credit system has been
replicated in as many as
150 countries across the world. We have also earned
Nobel Prize. The
reputation of the performance of our armed forces in
the peace-keeping
missions has spread far and wide. All these have
become possible due to
hard work, undaunted spirit to overcome odds and
entrepreneurial spirit of
our people. I am confident that given favourable
environment, Bangladesh
will be able to march forward by competing with the
counties in South and
South-east Asia.
Fellow Citizens
108. While preparing this budget, I have exchanged
views with the
economists, researchers, members of the civil society,
media personalities
and business leaders. During my visit to Khulna and
Rajshahi as part of
this process, I have heard the views of the local
elites and intelligentsia.
I have also sought guidance from Hon'ble Chief
Advisor. I have had
detailed discussion with the Secretaries of ministries
and divisions on a
number of issues including the economic situation,
reforms and budget
priorities, strategies and allocation. We have used
all these inputs while
formulating budget. I express my heartfelt thanks to
those who
participated in the process of exchanging views
relating to budget
preparation.
109. From this moment, any one can send his
suggestions or proposals
through e-mail or by surface mail from any corner of
the country. All
proposals or suggestions received by 14 June will
receive our due
considerations. We will incorporate all relevant
issues and by the last
36
week of this month we will finalise the budget with
the approval of the
Hon'ble President of the Republic.
Fellow Citizens
110. Ours is a nation glorified by immeasurable
sacrifice. Its history is
richly endowed by the glorious episodes of Great
Liberation War and
countless struggles to preserve our national identity.
At times our history
had been plagued by crises, calamities and
malgovernance. We have
countered them with undaunted resolve. The enviable
achievements on our
economic and social fronts in recent times stand as a
testimony to our
potential. Our march towards prosperity is sanguine,
if we can forge unity
based on the spirit of patriotism and tolerance. We
would like to leave a
glorious legacy such that our posterity will look back
and see that in
taking this country forward, we were relentless and
courageous; we were
unflinching in protecting our values; we were prudent
in maintaining intergenerational
equity; and that we were agile to make full use of our
potentials.
Fellow Citizens
111. By combining all our strength, courage and
wisdom, let us build a
country where there will be no hunger and poverty; no
spectre of
malgovernance and no disparity. Let us join our hands
in building
Bangladesh as an abode of welfare, happiness and
prosperity. May Allah
bless us.
Allah Hafiz.
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