We need to estimate tax-service ratio

The finance minister has placed the budget of 2015-16 in the parliament that has been prepared under many favourable factors - lower petroleum price in the global market, huge foreign exchange reserve, stable export market, low inflation, and the lowest level of political opposition. 

Despite many favourable factors, the FM had to revise many accounts downwards compared to last years' budget. The downward revisions were made in areas including: last years' (2014-15) total budget size (from Tk 2,50,506 crore to Tk 2,39,668 crore), development expenditure (from Tk 86, 345 crore to Tk 80,476 crore), revenue earning (from Tk 1,82,954 crore to Tk 1,63,371 crore). There are some upward revisions too. That includes over all deficit (from Tk 67,552 crore to Tk 76,297 crore), bank loans (from Tk 31,221 crore to Tk31,714 crore), loan from savings certificate (from Tk9,056 crore to Tk21,000 crore).

These upward and downward revisions, however, could not change the enthusiastic attitude of the government to show big numbers without adequate preparation to implement it. The problem of implementation of the ADP continues just like before. Nearly 50 percent of the ADP is being spent in the last two months, giving birth to corruption, wastage and mismanagement. The size and distribution of the proposed budget is clearly taking the same path.

In the last six years, the government earnings from tax revenue increased more than three folds. Most of it came through indirect taxes, including VAT. The government has always been blind to the high potential of revenue earnings that includes underground and criminal economy and has always been shy to capture this untouched treasure.

Therefore, the lower income groups end up paying more and the higher income groups end up paying less while legal income earners pay more and illegal income earners pay less.

The proposed budget reflects the government's preference for mega projects. The problem, however, remains with transparency and rationality of the expenditure hike, up to 200 to 300 percent without proper explanation. Quality and cost-benefit ratio of the fast track projects are also highly questionable. On the other hand, it is very common to see a budget crisis in financing urgent but low cost projects, for example, BMRE of power plants that supply low cost electricity, increase the capability of Bapex, school buildings, hospital equipment, railway engines and expansion etc. Obviously, it is not sufficient to look at numbers only, it is essential to pay attention to qualitative dimension of the allocations. Big allocation does not always mean efficiency and progress. 

Many policy makers and economists are fond of calculating the tax-GDP ratio, and keep complaining that this is low compared to many other countries in the world. That is a true but incomplete analysis. A budget is in fact a document of a 'give and take' contract between the government and the citizens of a country. In exchange of paying taxes and duties, people deserve necessary services from the government including security, clean water; preservation of common resources; provision of public education, public healthcare and other necessary institutions. Despite the government's success in mobilising increasing tax revenues from people, it has failed to return it through desired minimum services for citizens. Violence, insecurity, corruption, grabbing of public resources, commercialisation of public education and health care have become growing concerns of the country. What we need today is to estimate the tax-service ratio to bring the reality of people's deprivation, along with their increasing contribution, to the surface.


Budget becomes an instrument to transfer resources from the majority to the minority, from the poor to the rich when the majority which pays more gets fewer returns in terms of services. This is not a policy deviation, rather this is a development framework that has been continuing over the years. The budget declared yesterday is an addition to that journey.

(Published in The Daily Star on 05 June 2015)

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Anu Muhammad
Professor of Economics
Jahangirnagar University

আনু মুহাম্মদ, Anu Muhammad

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