Five Features of the National Budget FY2015-16

1. Increased pay scale for public service employees

The allocation for public services is set to be 74.5 percent higher than the previous budget,
mainly due to the increased pay scale for public service employees. 26.2 percent of nondevelopment expenditure will go to pay and allowances.
The increase in the pay scale will improve standard of living for those working in the public
sector. However, at the same time, it is likely to cause demand pull inflation.
2. Taxing the poor; helping the rich
Tax on net wealth above 30 crore has been decreased from 30 percent to 25 percent. Tax on
publicly traded companies has been reduced from 27.5 percent to 25 percent, whilst tax on
publicly traded banks, insurance companies and financial institutions has been reduced from
42.5 percent to 40 percent. Tax on annual turnover of small retailers, wholesalers,
shopkeepers has been increased by 20 percent.
The proposed tax structure will benefit the super rich who have accumulated a large amount
of wealth. It will also please large corporations. On the other hand, wage income earners and
small entrepreneurs will be hurt.
3. Distorting the housing market
Tax per square meter has been reduced for investing undisclosed money in real estate
sectors, such as residential buildings and apartments, outside of Dhaka and Chittagong cities.
Customs duty on the import of iron and steel has been increased from TK 5000 per metric ton
to TK 7000 per metric ton.
The provision for investing black money in the house market will cause demand pull inflation
and increase house prices. At the same time, the duties on iron and steel will increase the
cost of construction leading to cost push inflation. The combined effect may inflate a housing
bubble.
4. Not digital enough
Customs duty on the import of optical fiber cable has been increased from 5 percent to 10
percent, whilst customs duty on the import of computer accessories has increased from 2
percent to 5 percent. A 4 percent VAT has been imposed on the online transaction of goods
and services.
The duties on optical fiber cable will make internet access more expensive and slow down
country wide high speed internet penetration. The VAT on online transactions will undermine
the growing e-commerce industry.
5. Neglecting human development
Total allocation for the education sector is 5.6 percent higher and total allocation for
healthcare sector is 10 percent higher than previous budget.
However, education expenditure is 13.7 percent of total expenditure and 2 percent of GDP,
which is lower than the standard 20 percent of expenditure and 6 percent of GDP prescribed
by UNESCO. A 10 percent VAT has been imposed on private universities.
Share of healthcare as a percentage of total expenditure has decreased from 6.13 percent in
FY2010 to 4.13 percent in FY2016. Share of healthcare as a percentage of GDP has also
decreased from 0.90 percent of GDP in FY2010 to 0.74 percent of GDP in FY2016. Per capita
expenditure of health budget in real terms is less than TK 400.