Subsidy likely to be reduced significantly in budget

Farhad Chowdhury: A large amount of subsidy is allocated in the national budget every year. Agriculture sector, power-fuel and social security sectors are mostly subsidized. The donor agency International Monetary Fund (IMF) has been raising objections over the past few years about the huge amount of subsidies. Therefore, in the upcoming 2024-25 fiscal year national budget, the government is said to emphasize on reducing the subsidy burden. According to sources in the Ministry of Finance, the allocation of the subsidy sector in the new budget may be below Tk 1 lakh crore.
According to sources, the government plans to increase the price of electricity and energy products in the budget of the fiscal year 2024-25 and reduce the subsidy in this sector.
In this way, the amount of subsidy can be brought down below Tk 1 lakh crore. Efforts are being made to keep the amount of subsidy given in various sectors within Tk 90 thousand crore in the next financial year. In the budget of the current financial year 2023-24, the subsidy amount was Tk 1 lakh 10 thousand crores. Later, in the revised budget, it is proposed to reduce the amount to Tk98 thousand crores.
Sources from the Finance Department have informed that the most subsidy will be given in the electricity sector in the next financial year. The amount of which is Tk35 thousand crores. Next is the agriculture sector. Tk25 thousand crores of subsidy is proposed in this sector. Tk7,825 crores will be given as export incentives. Tk7,000 crores to be subsidized in the imported liquefied natural gas (LNG) sector. Subsidy in food sector will be Tk7 thousand crore. Remittance incentives will require a subsidy of Tk 6,200 crore.
In this regard, an official of the finance department said that the budget monitoring and asset management committee meeting held in the last week of last month discussed the issue of subsidy. A lot of concern has been expressed in the meeting about the issue of excessive subsidy pressure. It has also recommended a rapid increase in electricity, fertilizer and water prices to reduce subsidies.
It has been said that the economy cannot bear such pressure of subsidy in the existing economic conditions. Although positive attitude has been shown from the higher level of the government regarding the increase in the price of electricity and water, it has been informed that it is not possible to increase the price of fertilizer at the moment. But increasing the price of electricity and reducing the allocation of expenditure in the incentive sector will drag down the subsidy rush. For this, the price of petroleum along with electricity and LNG will be increased. The electricity price is already being increased step by step.
Regarding the allocation of Tk 35,000 crore in subsidy in the next fiscal year, he said, contrary to the demand of the Ministry of Energy and Power, we are not able to pay the subsidy regularly. Already 6 months behind in subsidy payment. Therefore, so much money is being allocated for electricity subsidy to pay the ‘carry over’ or arrears.

Note that the amount of subsidy is increasing every year. For example, in the fiscal year 2020-21, the subsidy sector was allocated Tk47,500 crores. Earlier in the financial year 2019-20 it was Tk42,100 crores.
Tk37,800 crores in the financial year 2018-19. In the budget of the previous fiscal year (2017-2018), the allocation for subsidies, cash assistance, incentives wasTk28,045 crores; Which is 1.3 percent of the total GDP. In the budget of the previous financial year, the allocation for this sector was Tk26,729 crores, which is 1.2 percent of the total GDP. However, in the revised budget, the amount of this subsidy was reduced to Tk23,830 crores. Earlier in the budget of 2015-2016 financial year, Tk14 thousand 418 crores was allocated for subsidy.
Plan to increase taxes on high income earners
Meanwhile, the National Board of Revenue (NBR) is planning to increase the tax on high income people in the next budget. Currently NBR collects personal income tax under five categories. After the tax-free age limit of Tk 3.5 lakh, various tax rates start. The National Board of Revenue (NBR) is mulling a return to the pre-Covid maximum tax rate of 30 per cent to boost tax revenue collected from high-income earners. As a result, an additional Tk10,000 crore is expected to be added to the state exchequer. The top rate of personal income tax was reduced from 30 percent to 25 percent in the fiscal year 2020-21 to provide some relief to the people and the economy from the shock of the pandemic.
NBR’s income tax department is working on a proposal to increase the top marginal income tax rate by 5 percentage points for the next fiscal year 2024-25 budget, revenue officials said on condition of anonymity. Currently NBR collects personal income tax under five categories.
After the tax-free age limit of Tk3.5 lakh, various tax rates start. 5 percent tax on income up to Tk 4.5 lakh, 10 percent on income up to Tk 7.5 lakh, 15 percent on income up to Tk 11.5 lakh, 20 percent on income up to Tk 1.5 lakh and 25 percent on income above Tk 1.5 lakh is collected.