Speech 1999 - 2000
Part II

In the first part of my speech I have discussed the principles and strategies adopted by the government for our socio-economic development, and for alleviation of poverty. In this part I want to inform the august parliament of the revenue collection efforts of the government. In my previous budget speeches I had highlighted the basic principles for formulating a just, equitable and simplified tax policy free of harassment and hassle. The revenue proposals for this year have also been based on the same principles. I now place before the parliament the basic features of our tax programme for fiscal year 1999-2000 with the objective of setting up a modern and simplified tax system in the country :

(a) To encourage and support local industries ;

(b) To simplify the tax system and reduce the tax burden of the citizens;

(c) To contain smuggling ; and

(d) To Increase revenue through rationalization of the tax system.

02. Famous economist Richard Bird has said "Indeed, the central problem of tax policy in developing countries is how to obtain the necessary revenue while at the same time providing some correction for a typically high degree of inequality in the distribution of income, but without interfering unduly with private saving and investment" (Richard M. Bird, "Income Redistribution, Economic Growth, and Tax Policy", Proceedings, Columbus: National Tax Association, 1969.) Globalization of international trade in recent times has made the formulation of tax policy in a country like ours more difficult and challenging. Our tax policy needs to be formulated in such a way that the benefits of globalization are captured in the tax policy and at the same time our domestic industries are protected from uneven competition from abroad. Consequently, we should gradually move from an import trade- based tax-system to a consumption-based one and make our tax system more efficient and effective. In fact, it is not possible for us to remain isolated from the present trend of globalization. In the present context we have to gradually reduce our tariff barriers.

Honorable Speaker,

03. The present democratic government always stands for an accountable and participatory tax policy. In accordance with this principle I have exchanged views with honourable members of the parliament, different chambers, trade bodies, NGOs, economists and journalists in revenue pre-budget meetings. Their suggestions with positive developmental implications have been considered . In addition to this, for the first time in the budget preparatory process, separate task forces on Customs, VAT and Income tax consisting of the representatives of FBCCI and National Board of Revenue have thoroughly discussed and examined the budget proposals given to the Government through the FBCCI- the apex body of Chambers and numerous Trade Associations. I sincerely express my gratitude and thanks to all the participants in this

regard. I am very sorry to say that the main opposition party refrained from taking part in the pre-budget discussion inspite of my invitation for a dialogue.

04. Present government is determined to establish a modern, simple and taxpayer-friendly system as a prerequisite for economic growth of our country. Let me quote from the words of Justice Oliver Lendel Holmes : "Taxes are what we pay for a civilized society" . I want to emphasize again that no new taxes have been proposed in this budget. Tax rates have been drastically reduced to help the local industries even at the risk of a reduction in government revenues. In some cases tax rates have been unified and tax base expanded. Now I place the tax proposals for 1999- 2000 before this parliament.

Honourable Speaker,

05. Of all the direct taxes Income tax is the principal source of our revenue. This year a good number of changes are proposed in respect of income tax to widen the tax base, check tax evasion and reduce the complexities of tax law. It is pertinent to mention that the number of tax payers in Bangladesh is negligible as compared to other Asian countries. Despite various measures taken in the past increase in the number of tax payers and their contributions to the total tax revenue is not commensurate with economic growth, as in other countries. Expansion of the tax base

is an utmost necessity to ensure social justice. Against the backdrop of these realities I seek your permission to place before this august Parliament my proposals related to income tax.

06. Considering the increase in the cost of living and also with a view to reducing the tax burden of the low income group, it is proposed to raise the exemption limit in respect of individual class of assesses from Tk. 60,000/- to Tk. 75,000/-. In keeping with this measure, I propose to restructure personal income tax rates as follows:

On first Tk. 75,000/- of total income Nill

On next Tk. 50,000/- of total income 10%

On next Tk. l,25,000/- of total income 18%

On the balance of total income 25%

07. For salaried persons, it is proposed to delete the provision of treating the tax paid by employers as income of the employers.

08. In order to develop modern treatment facilities in the country, by encouraging investment in the health sector it is proposed to exempt income of a hospital established during the period 1st July, 1999 to 30th June, 2005 subject to certain conditions. The main condition is that such hospitals will be required to keep ten percent of this total beds for the treatment of poor patients free of charges. I also declare that the necessary equipments for hospitals will be treated as industrial machineries and those will be included in the notification of exemption for machineries. License fee, infrastructural development surcharge, Value Added Tax and advance Income tax at the import stage will thus be fully exempted. Only customs duty at the rate of 5 per cent will be payable. Exemption from customs duty will continue in respect of those items which enjoy such exemption now.

09. It is proposed to encourage registration of ocean going ships in Bangladesh considering its importance to the national economy and also to save valuable foreign exchange, ships registered in the country will enjoy exemption of 50% of their income.

10. Reduction of tax rates is not enough to induce tax payers to pay more taxes voluntarily. It is also essential to simplify tax payment procedures. With this end in view, it is. proposed to accept the evidence of submission of return under the self assessment scheme as the final disposal of such cases. But the condition of equivalent amount of income shall apply to the previous source of income only.

11. It is proposed to bring twenty per cent of the self assessment cases under the purview of post audit on the basis of computer generated random sampling. But if an assessee submits return under this scheme and shows fifteen per cent higher income than the last assessed income, such return will not be audited. I also propose to select twenty per cent of self assessment cases of private limited companies in the same manner. In this case, if a company discloses twenty per cent higher income over the last assessed income that assessment will not be audited.

12. I have already stated that to mobilize additional resources it is necessary to widen the tax base and increase the number of taxpayers. In order to do that I would like to propose:

Sa) Introduction of "spot assessment" system. Under this system Deputy Commissioner Of Taxes will identic new assesses from various commercial areas within their jurisdiction. If the persons having income only from business or profession agree to pay the amount of tax as determined by the tax officials then the Deputy Commissioner of Taxes will collect tax instantly and the assessment of such persons will be deemed to have been completed. Subsequently new file will be opened in the name of the concerned persons allotting tax payer's identification number (TIN).

b) All members of a club having VAT registration will be required to submit income tax return. A person engaged in the business of real estates will be required to furnish TIN number when applying for the approval of plans of proposed buildings.

c) Car owners are better off people in the society and as such it is necessary to introduce an effective and meaningful system to bring them within the tax net. To this end in view it is proposed to introduce a system of payment of a fixed tax by the owner of car/jeep/microbus/minivan at the time of renewal of fitness of the vehicle. Under this system the amount of tax will be Taka 2000/- for a car upto 1000 CC, Taka 3000/- for each car above 1000 CC but not exceeding 1600 CC, Taka 4000/- for a car exceeding 1600 CC, Taka 4000/- for a jeep upto 2500 CC, Taka 6000/- for a jeep above 2500 CC and Taka 4000/- for any type of microbus or minivan. Besides this, it is proposed that owners of luxury cars above 2000 CC and jeep above 3000 CC will be required to pay tax at the rate of five per cent of the cost of purchase of such a car or jeep or 50,000 Taka, whichever is higher, at the time of registration of such vehicles. The investment in such cases will be accepted by the tax department without

question.

d) In order to remove harassment of tax payers, it is proposed that if an owner of a house/apartment pays taxes on his investment at a fixed rate on the basis of measurement, then no question will beasked about source. The rate of tax will be Tk. 100 per square metre where the plinth area does not exceed 140 square metres, Tk. 150 per square metre where the plinth area does not exceed 230 square metres and Tk. 200 per square metre where the plinth area exceeds 230 square metres. This provision will be optional and will not be applicable to persons who are willing to explain the source of their investment.

13. In our country a large part of the untaxed income is invested in the transport sector. To bring such untaxed income into the tax net I propose the following :

a) Existing presumptive tax system on road transport vehicles will be applied to inland water transports. Inland water transports having carrying capacity upto 150

passenger the rate of tax per year will be Tk. 7500, those having carrying capacity of more than 150 persons but not exceeding 400 persons the rate of tax will be Tk. 30,000 and those having passenger capacity of more than 400 persons the rate of tax will be Tk. 80. Inland water transports like coasters, cargoes and barges engaged in carrying of goods will be required to pay tax at the rate of Tk. 10,000 where loading capacity upto 100 tons, Tk. 25,000 where loading capacity above 100 tons but not exceeding 350 tons, Tk. 60,000 where loading capacity above 350 tons but not exceeding 1000 tons and Tk. 1,00,000 where loading capacity is above 1000 tons. Apart from this an additional amount of twenty five per cent of the tax mentioned above for each category will have to paid as tax at the time of first registration of all transpors as tax on investment.

b) The provision of collection of presumptive tax at a fixed rate in the case of buses, minibuses, trucks and tank lorries was introduced in 1986. The tax rates have not been changed in the last thirteen years. (It is also proposed that a fixed tax on investment of such vehicles will be required to be paid by the owner of such vehicles at the time of registration and no question will be asked about the source of such investment.) It is therefore, proposed to raise the rates. The new rates will be Tk. 7,000 for an air conditioned luxury bus or a double decker, Tk. 6,000 for other buses, Tk. 5,000 for an air conditioned minibus/coaster, Tk. 4,000 for other minibus/coasters, Tk. 7,000 for a prime mover used in pulling container, trailers, Tk. 6,000 for atruck/tank lorry having capacity above 5 tons, Tk. 4,000 for a truck/tank

lorry having capacity above 1.5 tons but not exceeding 5 tons and Tk. 1,000 for a truck having capacity below 1.5 tons and on motorized three wheeler goods carriers. Apart from this an additional amount of twenty five per cent of the tax mentioned above for each category of road transport will have to be paid as tax on the investment at the time of first registration of such road transports. Under this system the investment will accepted by the department without questions about source.

14. To widen the overall tax base and to improve collection I would now like to mention the proposals in brief:

a) Advance income tax at the rate of ten percent will be deducted at source from interest on savings certificates and will be treated as the final settlement of tax liability. For the benefit of small investors such interest income up to Tk. 25000 will be exempted from payment of tax and from deduction at source. This new measure will be applicable in respect of savings instruments purchased after June 10, 1999.

b) Advance income tax will be deducted at source on bonus shares just like dividend.

c) Producers of feature films will be required to deposit an amount equal to five per cent of the estimated cost of the film or Tk. 2,00,000, whichever is higher, as advance income tax to the government treasury before submission of the film to the Censor Board.

d) The owners of brick fields will be required to deposit an amount of five thousand taka as advance income tax before applying for permission from the Deputy

Commissioners.

e) Fees for services rendered by doctors for treatment or operation or for diagnostic work in a private clinic or hospital shall have to be deposited in the hospital account and the hospital authority shall make the payment to the doctor through account payee cheques after deducting advance tax at the rate of ten per cent on such payments.

f) Companies engaged in real estate business will have to pay advance income tax as final discharge of tax liability before submission of building plans for approval of the concerned authorities. For Dhaka and Chittagong City Corporation area, the tax rate will be Tk. 200 per square metre for both residential and commercial buildings. For municipal areas of other districts, the rate is Tk. 50 per square metre.

g) Advance income tax will be deducted at the rate of five per cent on the commission income of all scheduled banks for opening of letters of credit (LCs).

h) Advance tax will be deducted at the rate of three per cent by the lessors at the time of repayment of lease money to a leasing company.

15. Along with the expansion of the scope of advance income tax it is also necessary to restructure the existing rate of deduction and to delete the provision of advance income tax deduction in certain areas. With this end in view I propose:

a) to reduce the rate of deduction of tax from ten to five per cent in the case of professionals. At the same time I propose to withdraw the existing exemption limit of Tk. 60,000/-.

b) to abolish advance income tax at source at the rate of 0.25 per cent on exports to encourage the export business.

c) at present there is a provision of deducting tax at the rate of ten per cent from dividends as discharge of final tax liability. But this provision does not apply to individual tax payers having dividend income upto Tk. 10,000. On the other hand dividend income upto Tk. 30,000 paid by a company listed with the stock exchange is tax exempt. To remove this anomaly I propose to raise the exemption limit for deduction of tax at source in case of dividend to Tk. 30,000 and also propose to abolish the system of treating such tax payment as final discharge of tax liability.

16. Now, I am proposing some changes and amendments in respect of certain provisions and procedures regarding income tax law:-

a) Tax payers are required to pay 15 per cent of the tax demand as a precondition for filing appeal against assessment orders. Tax payers face difficulties on this account. As such it is proposed to reduce the payment requirement from 15105 per cent and to withdraw the discretionary power of the Commissioner to waive such payment.

b) Similarly, a tax payer is required to pay 30 per cent of the tax at the time of appeal to the Appellate Tribunal. For the benefit of the tax payers, I propose to reduce this payment requirement to 20 per cent.

c) In view of the existence of various penal provisions for concealment of information, it is proposed to abolish the separate provision for penal measures for chartered accountants.

d) It is proposed to extend the time limit for repayment of interest and loan under the purview of the income tax law from two to three years.

e) By abolishing the discretionary power of the Deputy Commissioner of Taxes to impose penalty for non submission of return in time, it is proposed to impose a mandatory penalty of Tk. 500. For every subsequent month or a fraction thereof during which the default continues, the penalty will beat the rate of Tk. 250.

f) It is proposed to extend the facility of suspense account under section 28(3) of the Income Tax Ordinance to the Investment Corporation of Bangladesh.

g) In order to remove harassment in getting credit for tax deducted at source, it is proposed that the deducting authority will issue an account payee cheque in favour of the concerned tax authority for the amount of income tax and prepare another cheque for the balance of the bill. The tax payer will deposit the income tax cheque to the treasury by challan. On production of the treasury challan, the other cheque will be given to him so that he can retain his challan for reconciling his tax liabilities at the time of filing of tax return.

h) It is proposed to introduce a system for submission of tax returns by non-resident Bangladeshis to Bangladesh Mission abroad and to pay the amount of tax through account payee bank drafts infavour of the concerned Deputy Commissioner of Taxes. The concerned Mission will accept the returns by giving receipt to the taxpayers and will send the returns along with bank drafts directly to the National Board of Revenue.

i) It is proposed to introduce the system of compulsory display of TIN certificate by taxpayers ~aving income from business or profession at a conspicuous place of his office or shop.

j) For various reasons the Taxes department has been bearing the burden of apparently uncollectable arrear demands. It is proposed to write off all arrear demands

created before 1988 except such tax demands which are , subjudice in appeal process and/or in higher courts.

k) The existing exemption for income from properties and business held under trusts is sometimes being misused. To prevent this, it is proposed to bring the business income of trusts within the purview of income tax.

1) To streamline tax administration, raise the efficiency and to augment collection of taxes, I propose to establish a separate Taxes zone for the large taxpayers (LTU) and three new Taxes zones at Sylhet, Barisal and Rangpur.

17. The objectives of my proposals placed before this august Parliament are to establish mutual trust between the tax administration and the tax payers, create a conducive environment for investment, widen the tax base and accelerate mobilization of domestic resources. I hope that in the new environment tax payers will spontaneously come forward to pay their taxes.

WEALTH TAX

18. The Wealth Tax Act, 1963 provides for payment of wealth tax by an assessee on his ne,t wealth. But in the existing system, Tax officers spend more time and energy on income tax cases for which they can not give adequate time or importance to the assessment of wealth tax. As a result, disposal of wealth tax cases is slow and collection of such tax is also not satisfactory. It is also not justified to impose wealth tax every year on the market value of the wealth of an assessee. Moreover the assessees are facing harassment due to the discretionary power exercised by the Deputy Commissioner of Taxes in determining the market price of the assessce's wealth. In view of the facts mentioned above, it is proposed to bring the activities of collection of tax on the basis of wealth under the income tax law by repealing the Wealth Tax Act, 1963. It is also proposed to impose, as an alternative to wealth tax, surcharge at the rate of ten per cent on the amount of income tax payable by an assessee whose net wealth at acquisition cost exceeds ten lac taka. For this purpose, assessees having income exceeding three lac taka shall have to submit statement of assets and liabilities with this tax return every year. Cost of any house where the assessee actually resides will be included in the wealth statement, but deductible from the net wealth for the purposes of the surcharge. This system will also apply to self assessment cases. Collection of additional tax from the wealthy people on the basis of wealth will thus be ensured.

FOREIGN TRAVEL TAX

19. People travelling abroad face lot of problems in the matter of payment of travel tax through the banks. Reportedly substantial leakage of tax revenue on this account takes place. To improve the situation on both account it is proposed that henceforth all on-line and off-line airlines will collect foreign travel tax through air tickets in respect of foreign travel by air. ,This tax will be collected from the air travelers holding Bangladeshi passports only.

INDIRECT TAXES

Import Duties

20. Now I want to declare the salient features of my proposal in respect of rate of import duty for the financial year 1999-2000. In the past three years' budget I have pursued a tariff policy consistent with the trends in international and regional trade and commerce. Our aim was to increase export, help flourish local industries, ease assessment 'of duties, rationalize duty structure, encourage agro-based industries, discourage and prevent smuggling and make consumer goods available to the consumers at reasonable prices. In this process we have consulted the Tariff Commission, concerned Ministries and leaders and representatives of trade and industry sector and considered their valued suggestions. In continuation of our avowed policy, I propose four slabs of duty rates, 5, 15, 25 and 37.5 percent instead of the existing five duty slabs of 7.5, 15, 25, 30 and 40 percent. The government may suffer revenue loss for this but people will benefit from the reduced import cost of commodities under 2320 different H.S.Codes.

21. In the interest of the local industries, I propose to reduce the duty rate of all commodities presently attracting 30 percent duty to 25 percent. Consequentially, duty rate of intermediate raw materials under as many as 1257 H.S. Codes will come down. This may lead to governmental revenue loss but the local industries will benefit and become more competitive.

22. Reduction of duty rates on finished and 'intermediate goods, automatically calls for reduction of duty rates on raw materials. So, I propose to reduce custorns duty of all primary raw materials from 7.5 percent to 5 percent. As a result import cost of commodities under a total of 544 H.S. Codes will fall.

23. In the last budget, I announced our objective of bringing transparency in assessment, reducing the scope of mis-declaration or wrong classification and reducing discretion of the customs officials through reduction of dispersion of duty rates. Our ultimate target is to fix a single duty rate for all commodities under one classification heading. But it is not possible in many cases due to internal conflict of interest of various sectors of trade and industries. So, I propose to eliminate the dispersion of duty rates of commodities under the same H.S.Code as far as possible. I propose to reduce the duty rate of pencil lacquer and other lacquers, boulder salt and other salt, PVC reed frame, tube and pipe, various types of polyester foil, unfinished rubber tube, bush for cathode ray tube, different types of narrow fabrics, nylon cord and hand saw blade from 30 and 40 percent to the unified rate of 37.5 percent. Similarly, I propose to unify 15, 25, 30 and 40 percent duty rate chargeable on stone boulder, broken or crushed stone, other stone; sulphonate and other surface active agent; wood tar-pine tar and other tar and creosote oil derived from wood; duplex outer shell for match box and other folding carton, paper cup imprinted with the name of the beverage and similar other packing container, tray, dish and plate of paper; coated flat rolled product of iron; steel cargo container and other iron container of bigger volume; refined copper strip and paper insulated copper strip; spicer shaft and gear box; scraps of zin'c, lead and container of primary batteries etc; marble lump and slab other than crude marble, and television and video camera to 25 percent. Most of the machineries under the heading 85.15 including microwave oven is chargeable to duty at the rate of ~ percent, rest of the machineries under the same heading are chargeable to 40, 30 and 15 percent rate of duty. I propose to unify- the rates at 25 percent to facilitate assessment. Commodity 'like ordinary phone, teleprinter etc falling under the heading 85.17 excluding video phone and fax is chargeable to duty at the rate of 15 percent. To equate the duty structure under this heading it is proposed to reduce the duty on fax and videophone from 30 and 40 percent to 15 percent which will reduce present dispersion. Duty rate of different type of electrical power cord is proposed to be unified at 37.5 percent from 40 and 30 percent. I propose 25 percent duty on other optical articles and other lenses from 15 percent. It is proposed to reduce duty rate on different equipments of photographic laboratory from 40 percent to 25 percent. Duty rate on different sizing materials like manioc, arrowroot etc. is proposed to be unified at 25 percent from 40 and 30 percent. Depending on weather it is fresh or frozen, existing duty rate of locust bean, sugarbeat etc are 15 and 40 percent. I propose to reduce 40 percent duty rate to 15. I propose to rationalise the duty rate of vanila extract under heading 13.02 with similar other commodity under the same heading from 15 percent to 25 percent. Duty rates of squid oil and other oils are proposed to be unified at 25 percent from 7.5 and 40 percent. I propose to reduce the duty rates of ultrasonogram pap'er and similar other recording paper from 7.5 and 40 percent to 5 percent. I propose to reduce the duty rate of special type fabric falling under heading 59.11 used as accessories of various machineries from 40 and 30 percent to 15 percent. I propose to reduce the duty rate on glass mould and other glass

from 15 and 30 percent to 15 percent, parts of burner from 7.5 and 40 percent to 15 percent, tin foil and powder and flakes of tin form 15 and 25 percent to 15 percent. I propose to unify the duty rates of waste of precious metal from nil, 15 and 25 percent .to 5 percent, different types of thermostat from 7.5 and 30 percent to 15 percent. It is proposed to fix 15 percent duty rates on different types of alloy steel wire instead of existing 25 and 15 percent. Different types of gaseous hydrocarbon including LP Gas and natural gas are presently charged at 7.5 and 40 percent duty. I propose to reduce the duty rate of all types of gas to 5 percent. Different types of antibiotics are now charged nil and 7.5 percent duty rate. This creates conflict and confusion in assessment. So, I propose to unify these two rates at 5 percent for all antibiotics. As a consequence of all thege~proposed steps, the government will lose some revenue, but assessment will be easier and clearance of import cargo will be speedier.

24. It is proposed to reduce the duty chargeable on raw materials of chemical and plastic industries from 30 and 25 percent to 15 percent. Chemicals of same heading presently attracting different duty rate of 40 and 30 percent will be charged at a single rate of 25 percent. Considering the question of protection of local industries, I propose to unify the 40 and 25 percent duty rate chargeable on all sorts of plasticisers to 37.5 percent. For the same reason, 15 percent duty chargeable to maleic anhydride is proposed to be reduced to 5 percent. Due to reduction of customs duty on polymer, the raw materials of plastic industry, the existing small industries producing plastic and polymer from monomer will face difficulties. Considering this, 15 percent duty rate chargeable on vinyl acetate, ethyl hexyl acrylate, butyl acrylate, methacrylic acid and methyl methacrylate monomer will be reduced to 5 percent. 30 percent duty is chargeable on acetic acid. This rate has been proposed to be abolished from the customs tariff. For the protection of local industries manufacturing acetic acid using 100 % local raw material, it is proposed to fix the duty rate of acetic acid at 37.5 percent.

25. In the last budget a number of steps were taken for the development of agriculture and agro-based industries of the country. Due to exemption of duty on power tiller and some of its spares given, in the month of September, 1998, import of power tiller has dramatically increased. During the six month period from 18^th September, 1997 to March, 98, only 6299 units of power tillers had been imported, but the number of imports was short up to 17500 units in six months from 15^th September 98 to March, 99. On 24th February, 99 the government has withdrawn infrastructure development surcharge from TSP fertilizer and made it completely duty-free. This timely decision of the government has made increased agricultural production possible. With a view to further encouraging agricultural production, infrastructure

development surcharge is proposed to be withdrawn from MOP, NPKand DAP fertilizer. The industrial possibilities and prospects of Bangladesh lies in the development of agro-processing industries. A good number of light metallurgical industries is included in the agro-processing sector. To help the growth of industries of these sectors, I propose to reduce the duty of pig iron from 15 to 5 percent, MS billet from 30 percent to 15 percent, stainless steel ingot and alloy ingot from 40 and 25 percent to 15 percent, stainless steel bar and rod from 40 percent to 25 percent and alloy and carbon steel sheet, bar and rod from 40, 30 and 25 percent to 15 percent, bottle and jar from 15 to 5 percent, synthetic and rubber gloves from 30 and 40 percent to 15 percent, rope, twine and nylon chord from 30 and 40 percent to 15 percent, vitamin and vegetable products used for manufacturing animal feed from 7.5 percent to nil, non-refined animal fat and vegetable oil from 30 percent to 15 percent and tray etc. for carriage -of eggs and chicks from 15 percent to 5 percent. I propose to reduce the duty rate on mango pulp used for manufacturing juice, tetra pack for its packing and flexo print (gravure) ink for printing tetra pack from 40 percent to 25 percent. For the protection of local industries, I propose to impose 15 percent duty on rice huller. Existing duty on the parts of rice huller is 25 percent. To rationalize the duty rate of rice huller spares with other spares I propose to reduce this duty to 15 percent. Machineries under the heading 84.32 and 84.33 useable in agriculture is proposed to be included in the industrial machinery list and to them exempt from all duties and taxes in excess of 5 percent customs duty.

26. To encourage leather industries, a number of steps were taken during last two years. Considering the enormous possibilities of leather sector in Bangladesh I have already declared in the first part of my speech a 10 percent cash incentive on the export of manufactured leather goods. In continuation, I propose to reduce the duty on all sorts of pigments from 15 percent to 5 percent. I also propose to reduce the duty on tanning material from 7.5 percent to 5 percent. I further propose to withdraw 2.5 percent infrastructure development surcharge from all types of skins, hides and leather, the principal raw material of the leather industry. It is expected that production and export of leather goods will increase due to these important enabling measures.

27. Ready made garment industry (RMG) is playing a vital role in earning foreign exchange. To sustain the RMG sector in the future, development of backward linkage industry like textile industry is unavoidable. The role of textile industry in fulfilling the basic needs of the people is also of important. In that consideration and considering the suggestions of Parliamentary Standing Committee relating to the Textile Ministry, the Ministry of Textile and the Tariff Commission, the duty chargeable on machineries and raw materials of textile industry is proposed to be reduced or in some cases exempted. I propose total exemption of duty and taxes chargeable on all sorts of machineries and spare parts essential for textile industry excluding a few spares manufactured locally. Existing 2.5 percent infra-structure development surcharge and 3 percent advance income-tax on cotton is proposed to be

withdrawn completely. Existing 15 percent value added tax and 2.5 percent infra-structure development surcharge on synthetic staple fiber, a raw material for synthetic yearn and fabrics is also proposed for withdrawal. I propose to reduce the duty rate of polyester yarn from 30 percent to 15 percent, POY [Partially oriented yarn] from 30 percent to 5 percent. Zari [lumi lurex yarn] from 7.5 percent to nil, all sorts of dyes used in the textile industries from 7.5 and 15 percent to nil and pigment titanium dioxide from 15 percent to 5 percent, Sizing material sago, maize starch, fixing material and gum used in textile industry from 40 and 30 percent to 5 percent, soda ash and hydrogen peroxide from 25 and 30 percent to 15 percent. I propose to reduce the duty rate of rags of woolen blanket and fabrics used as raw material for woolen blanket industry from 40 percent to 15 percent. For the protection of local silk industry, duty on raw silk and silk yarn will be increased from 7.5 percent to 15 percent. Overall the government will suffer revenue losses because of the proposed measures but we have to make this sacrifice with a view to giving the required impetus and support to the textile industries and thus to the RMG sector.

28. Huge illegal importation or smuggling is one of the major problems of our economy. The government is deprived of large amount of revenue and foreign exchange due to this. High tariff rates and high prices of local commodities can be identified as the pricipal causes of smuggling. To resolve this, it is necessary to reduce duty rates of raw materials of local industries and of goods not produced locally. As a preventive measure I propose to reduce 40, 30 and 25 percent customs duty on watch, stop watch, camera, photographic film, paper and chemicals and bicycle parts to 15 percent. For the same reason, customs duty on tyre cord fabrics, rubber accelerator and carbon black which are raw materials for rubber and tyre industry will be reduced to 5 percent from 15 percent. Duty on carbon steel strips-raw material for cycle chain is proposed to be reduced from 25 to 15 percent. In harmony with this I propose to reduce 25 percent duty of reed frame steel to 15 percent. Specific size steel strips used in blade manufacturing now attracts 7.5 percent duty which will be completely withdrawn. Present 25 percent duty on half inch width stainless steel blade

will be reduced to 15 percent since this is used in disposable razors.

29. To consolidate the competitiveness of local industries I propose significant extention of the coverage of the machinery notification and propose uniform 5 percent duty rate instead of area specific 2.5, 5 and 7.5 different duty rates. In consequence of

this, larger number of machineries will enjoy this benefit and assessment will be easier and quicker. I propose to reduce 40, 30, 25 and 15 percent customs duty on different spare parts to 15 percent in most of the cases. To increase the efficiency of local construction industry, I propose to include dumper truck, crane lorry, mixture lorry, fire fighting vehicle, fishing trawler and factory-ship used in fish processing and other purposes, transformer having a capacity 10,000 KVA and above and medical laboratory sterilizer etc. in the machinery notification. I also propose to include most of the quality testing equipment used by industries in the machinery notification. Refrigerator and generator parts, locally manufactured textile parts, safety valves and other parts including parts of crane lorry will enjoy the benefit of 15 percent customs duty.

30. To encourage the local metal based industries, I propose to reduce duty on waste, flake and powders, primary raw materials of copper, nickel, and aluminium etc. from 15 and 7.5 percent to 5 percent and reduce duty on zinc, molibdenum, tantalum and bismuth from 25 to 15 percent. For the development of metal based light industries I propose to include lathe and similar machinery into machinery notification and other tools form 30 and 25 percent to 15 percent. I propose to reduce duty on silica manganese flat-bar which is a raw material of leaf spring used in buses and truck from 30 percent to 15 percent.

31. I propose to reduce the duty rate on transformer oil and mica sheet used in electric goods manufacturing industries from 30 percent to 15 percent. Duty rate on electric capacitor, fuse, relay, circuit breaker, sealed beam lamp unit, thermo-ionic valves and tubes, transistor, circuits, lead in wire and optical fibre cable will be reduced from 40 and 30 to 15 percent. Duty of coaxial cable will be reduced from 40 to 25 percent. I propose to reduce duty rate of electro magnet and primary cell and electro mechanical

tools except accumulator and drycell battery from 30 and 25 percent to 15 percent. I hope, this measure will encourage production of electric bulb and equipment.

32. Ceramic industry is playing a very important role for the country. Ceramic goods are being exported besides fulfilling local demands. But this industry has in recent times come under the threat of illegal imports. I propose to reduce duty on quartz, kaolin clay, other clay, talc and liquid lustres which are raw materials for the ceramic industry from 15 and 7.5 percent to 5 percent to enable the industry to overcome the present problems and to be more competitive. Currently we are exporting melamine products. To support this prospective industries duty rate on its raw material melamine powder will be reduced from 15 to 5 percent. I Propose to reduce duty rate of prepared driers which is one of the raw materials of paint industry and of aluminum wire rod and copper wire rod which are raw material of cables industry from 30 to 15 percent. RBD palm stearin and tallow are both basic raw material for soap industry as such their duty rates will be unified at 25 percent.

33. Pollution free environment is the precondition of a healthy nation. Smokes from factories and vehicles, indiscriminate use of plastic goods and deforestation are making our environment intolerable. I propose total withdrawal of existing 7.5 percent customs duty on imported wood to protect our forest resources. To protect environment and to save foreign currency in importing fuel and to encourage use of CNG in vehicles I propose to fix zero customs duty on CNG machinery, pump etc. Huge amount of money and substantial time will be necessary for installation of pipe lines for the supply of natural gas upto household level in north-western and southern areas of the country. Against this backdrop it is necessary to create facilities on an urgent basis for importation, preservation, transportation and marketing of LP gas for the people of these areas. I, therefore; propose to fix duty at the rate of 5 percent on LP gas to facilitate its supply to the people of these areas so that they can use gas in their day to day life. The use of plastic shopping bag and Ethyl Vinyle Acetate (EVA) foam has increased manifold in the country even though plastic waste pollutes our environment. I propose to enhance duty of EVA and Low Density Polyethylene (LDPE) to highest tariff slab of 37.5 percent to discourage use of plastic shopping bag and EVA and to encourage use of jute bag and rubber foam. Two stroke engine and two stroke engine driven auto rickshaws which also pollute our environment dangerously. As such I propose to enhance supplementary duty on them from 50 to 100 percent. I also propose to withdraw supplementary duty from environment friendly four stroke engine and four stroke engine driven autorickshaws.

34. In the last budget customs duty was withdrawn from double-decker buses for the development of public transport system. In this budget I propose to reduce duty on bus having seating capacity of forty and above from 25 to 5 percent. Short-wheel-based overloaded trucks are a menace to our roads. To remedy this situation I propose to reduce customs duty on long trucks having more than two axles to 5 percent to encourage the use of such trucks. Customs duty of trucks having 2 axles will remain unchanged at 25 percent. For the same purpose I propose to reduce duty on container trailer, all kinds of trailers, semi-trailer, prime mover, trailer tractor with engine cab as machinery to 5 percent. Now a days 12/14 seater light vehicles have started their operation in Dhaka city as substitute of auto- rickshaw. I propose to reduce duty on this type of economic and environment-friendly vehicles from 25 to 15 percent.

35. Local paper-pulp industry can not survive against duty free imported pulp. Considering this, I propose to impose 5 percent customs duty on paper pulp. At present 30 percent customs duty is applicable on paper and printing ink. On the other hand duty on books in most cases is nil and 7.5 percent on novels etc. Dependency on importation of books is increasing and the local printing industry is being adversely affected. To resolve this problem keeping medical, agricultural, engineering, university level text and reference books, encyclopedia and business directory, higher level text book written in foreign language, religious books and necessary foreign language text book followed in foreign language schools under duty free list. I propose to enhance duty rate on all other books to 15 percent.

36. 40 percent duty is applicable on Horlicks type bottled dry health drinks. Illegal import of this product in retail packing has been reported. On the other hand, bulk import and facility for re-packing in bottles exist in the country. As such I propose to

impose 37.5 percent duty on retail pack and 25 percent on bulk import of this product. Additionally, 5 percent supplementary duty on bulk import will also be applicable

37. Duty on scrap vessel at the rate of 7.5 percent will remain valid upto 31^st December, 1999 and after that 15 percent duty will be applicable. But 7.5 percent duty slab has been proposed for abolition. To obviate this problem I propose to impose 5 percent customs duty and 5 percent supplementary duty on scrap vessel for the whole financial year. Importers will enjoy 1.15 percent tax benefit as compared to existing rate because of this measure.

38. Considering the importance of signaling system in riverine and rail communication, I propose to reduce duty on electric signaling equipment from 30 to 15 percent.

39. At present duty on chickpeas is 30 percent and on other peas 7.5 percent. Pulse is a very important source of protein for the poorer sections of people. I propose to reduce duty on all sorts of peas to 5 percent even at the cost of revenue loss to ensure "dal' bhat" of the general people.

40. Duty on treated seasoned wood or sized wood used as raw material for manufacturing bobbin is 30 percent. Duty on bobbin is 25 percent. Reduction of duty of bobbin to 15 percent has been proposed. So, I propose to reduce duty on treated seasoned wood or sized wood to 15 percent.

41. Metal, RCC and wooden pole used for electric supply are being manufactured in the country. To encourage these industries, I propose to enhance duty on "treated wooden pole" to 15 percent.

42. There is immense potential of tourism in our country. To materialize that potential and to encourage establishment of more hotels and motels of good standard, I propose to include large washing machine and washing plant used in hotels in the capital machinery list. Other machinery which are usually used in hotel/motel will also be included in the capital machinery list. Duty benefit will be given in phases for other items needed by the hotel industry after protecting the interest of local industries

producing such items.

43. At present voluntary pre-shipment inspection ( PSI ) system is in operation in the country. As a consequence of this, an importer employs a PSI company for his personal interest. But if the PSI company is employed and paid for by the government, then they will be answerable to the government. For various reasons introduction of mandatory pre-shipment inspection system is justifiable excluding imports of government and autonomous organizations, relief goods and some other cases including defence imports. Different reports show that revenue loss occours on account of misdeclaration of price. Allegations are there that price is often declared less. than the actual to evade duty and the balance aniount is usually unauthorisedly transmitted out of the country. It will be possible to enforce correct declaration of price, quantity and quality of imported goods under mandatory PSI system. Thus it will be possible to prevent fraud in import trade and also introduce the promised "green channel" system for quick clearance of goods. After considering the view of different chambers and local and foreign experts' and on the basis of the experiences of more than forty countries using PSI system, I propose to introduce mandatory pre-shipment inspection system as a temporary measure. It will be possible to prevent system loss in revenue collection once mandatory PSI system is introduced. I hope additional Tk. 550 crore revenue will be collected through this measure. In this system importers can get rid of harassment presently faced by them at the point of clearance of goods. I also propose to introduce transaction valuation system simultaneously with the PSI system. To cover the costs of mandatory PSI and other relevant activities, a maximum of one percent service charge will be levied on the value of imported goods which will come under PSI.

44. In the last few years the volume of import and export through L.C stations has tremendously increased. For proper revenue collection from increased trade, to intensify anti-smuggling activities and to increase revenue by collecting Value Added Tax properly, it is necessary to improve the efficiency and accountability of the revenue administration. To achieve that goal, I propose to recognize the customs and VAT administration by creating a Commissionerate covering the whole of Khluna and Barisal divisions and separate Customs Houses at Mongla and Benapole. This will involve creation of a new commissionerate. There is a great possibility to increase balanced trade with eastern states of India. To implement this, it is necessary to increase facilities for assessment and clearance of goods in that region. Arrival of international passengers has increased at Sylhet Osmani Airport since direct operation of international flight has been started by Biman using airbus. It has now become imperative to establish proper customs facilities in that area. Considering all these aspects, I propose to establish a separate Commissionerate in Sylhet. There is a huge number of bonded ware-houses in the country. This numbers are progressively increasing due to development of export trade. Bond license facilities have been misused in the past by some unscrupulous persons/agencies taking advantage of inadequate supervision. To ensure proper control and management in this area I propose to establish a separate Bond Commissionerate for the whole of the country. For proper implementation of transaction value and for ascertaining actual transacted price to create and maintain a data base, a powerful valuation department is a must now. To achieve the goal of organizing an efficient and effective valuation department I propose to restructure the Customs Valuation Department under a Director General of the rank of a Commissioner. I hope efficiency of customs administration will increase and around Tk.l00 crore additional revenue will be collected through this restructuring and reorganization measure.

45. Import through L.C stations has increased manifold but with the exception limited facilities at Benapole, there is no arrangement for storage and preservation of imported cargo in other L.C stations. It is time consuming, expensive and inadvisable

to embark on building by the government infrastructure. As such to remedy the existing situation permission to establish public bonded warehouses in the private sector will be given in different L.C stations.

Value Added Tax and Supplementary Duty

46. Now I would like to highlight some of the steps taken during the current (1998-99 FY) fiscal year for the promotion of local industries:

(a) I am pleased to note that we have successfully met the challenge thrown up by last year's devastating flood, the worst in this century. In order to rehabilitate the flood-affected handloom industries, the Government have exempted all excise duty on handloom industries for the period- of July-September, 1998. In addition, deferred-payment facility for excise duty for September-December, 1998 period was extended to the weavers.These beneficial measures have reduced the tax burden of the poor weavers and helped them recover from the losses suffered due to flood.

(b) Entrepreneurs of export-oriented industries in our country are working hard to boost up exports. The present government is determined to help such entrepreneurs. In order to encourage the export of finished leather products customs duty and VAT on imported pickled, wet blue and crushed leather have been withdrawn. Moreover, all services related to export have been exempted from VAT. This step will free the exporters from the hassle of obtaining drawback under the existing Duty Draw Back system.

(c) To promote the growth of computer industry in Bangladesh, we have withdrawn customs duty on import of computer hardware last year. Subsequently, VAT on import as well as local production of computer software was also withdrawn. Such incentives are expected to create a large pool of young skilled manpower in our countly and expand the scope of computer related activities in Bangladesh.

47. Based on the four basic principles of this years budget which I have mentioned at the beginning of my speech, I now place before this august my proposals for Value Added Tax and

(a) At present Turnover tax applies to the producers/suppliers of taxable goods or services with yearly turnover of less than Taka 15 lac. This ceiling has not been changed since 1994-95. In view of the growth in national production and price index during the past few years I propose to raise this upper limit from Tk 15 lac to Tk. 20 lac. This enhancement will lessen the tax burden for a large number of small indigenous producers. This will further rationalise tax structure and stabilize prices of goods and services. On similar grounds I propose to raise the ceiling for plants, and machinery from 3 lacs to taka 5 lacs and yearly turnover from 15 lacs to Tk. 20 lac for cottage industries. We hope that these measures will encourage establishment of new cottage industries and generate employment in the country.

(b) Since VAT is included in the government approved price of natural gas, petroleum products and furnace oil used in various industries, the same is eligible for tax credit as per VAT law. But at present industries are not being able to take tax credit for those inputs because VAT is not shown at the retail stage. To remove this difficulty, the sale/purchase receipts of natural gas, petroleum products and furnace oil at government approved price, shall be treated as VAT challan after 1^st July 1999.

(c) In recent time Poultry , dairy and fish firms have been growing all over the country. These sectors are providing self employment opportunities for the educated young people in our country. In order to help the growth of these industries, I propose to withdraw VAT on inputs and equipment such as various chemicals, poultry keeping machines etc. used in these industries.

48. Large number of imported goods and raw materials are now exempt from VAT. But local manufacture of similar goods pay VAT and are therefore, facing an uneven competition. In order to protect the local manufacturer from this uneven competition as well as to enhance government revenue earning, I propose to withdraw VAT at the import stage for the following products :

(a) A section of our population is engaged in the production of raw silk yarn. As there is no import duty on raw silk yarn, quantities much in excess of. our demand is being imported. On the one hand, it hampers rural employment and economy by discouraging backward linkage of silk industries and on the other, there is a drainage of our hard earned foreign exchange due to smuggling of silk yarn. To rectify this situation, I propose to impose VAT on the import of silk yarn.

(b) Household plastic products such as plastic bowls, mug, jugs, glasses, net, buckets/tubs and covers are produced by small industries in our country. In order to encourage such industries, I propose to withdraw VAT exemption at import level on such products.

(c) Production of ball point pens in our country is quite satisfactory. With a view to saving foreign exchange and encouraging local industries, it is proposed to withdraw the exemption of VAT enjoyed by ball point at import stage.

49. Globalization of international trade is causing increased integration of our national economy with the global economy. As a signatory to many international trade agreements, we are committed to systematic reduction of import tariffs. Inspite of substantial loss of revenue, import duties on a large number of raw material and intermediate products have been reduced. At the same time; to discourage spending on luxury goods and to reduce revenue deficit, I propose to impose supplementary duty at the import stage at different rates on the following items :

(a) A 2.5 percent supplementary duty is proposed on those importable finished goods which have no import substitute and on which the present rate of Customs duty of 40% will be reduced to 37.5%. The existing supplementary duty rates on importable goods shall also be proportionately revised upward. Tariff value on 2200 items shall cease to exist from the date on which compulsory Pre-shipment Inspection System comes into force in the fiscal year 1999-2000. There was a gap between the international price and the tariff value but in most cases tariff value fetched higher revenue for the government. To forestall the sudden loss of revenue, it is proposed to impose 10 percent supplementary duty on 272 items from the date of introduction of the mandatory PSI System. It is to be noted that all goods attracting 5% or less import duty rate shall be excluded from this list of 272 items.

50. The retail sale of about 80 items have been brought under VAT net since fiscal year 1996-97. Fbr establishing an ideal VAT system it is necessary to gradually bring the retail sale of all goods under VAT. With this objective in view, I propose to bring new retail items including the following under VAT: spectacle lens, frame and mounting, goggles and sunglasses, view cards, invitation cards, greeting cards, tier and tubes of vehicles (excluding bicycle), storage battery (except dry –cell battery), aluminum rod, profile, street, plate and aluminum fitting, glass sheet, electric motor, ballast, capacitor, register, circuit breaker, fuse, relay, switch, plug and socket, lamp holder and electrical wire and all types of granite and marble stone.

51. One major objective of our tax policy is to collect increased revenue by expanding the tax base rather than imposing new taxes. Due to increased investment and employment in the service sector the extent of value addition has also increased there side by side with the expansion of VAT in retail sector it is necessary to gradually bring maximum types of services under VAT. On this consideration, 14 services including the following are proposed to be brought under VAT during this fiscal year Specialist doctors, lawyers, health club and fitness centers, sale of tickets for international sports events, engineering firms, architect/interior designer/decorator, rent a car service (excluding taxi cab) air-conditioned railway service, sound and light equipment renting establishments, participation in Company Board Meetings, seller of land, satellite channel distributors, advertisement in the satellite channel programmes and electricity distribution. Definition of services like warehousing, air-conditioned ready made garments sales outlets, air-conditioned buses and launches, insurance, hotel and restaurants and procurement providers has also been rationalized.

52. At present all hotels, restaurants, decorators and caterers outside the metropolitan areas and district towns and "tin-shed" hotels and restaurants located in the metropolitan cities and district towns are exempted from VAT. A large number of restaurants are taking undue advantage of the term "tin-shed". Just as many hotels and restaurants outside the metropolitan cities and district towns a have annual turnover in excess of Tk 20 lacs so also many tin-shed hotels and restaurants within the metropolitan cities and district towns have annual turnover exceeding Tk 20 lacs. With the increase in our population and the development of transport facilities, the food service sector has expanded phenomenally. In order to raise revenue from the hotel and restaurants, all types of hotels and restaurants excluding those without walls/fencing, electric fans and not using more than two electric lights are proposed to be brought under VAT.

53. On public health ground I propose to withdraw cottage industry facilities from chewing tobacco(Jarda) producing units. At present the rate of excise duty on Biri is Tk 25.00 per 1,000 sticks which has not been changed during the last two years. But administrative cost of printing and supplying band rolls has increased during the same period. Hence I propose to increase rate of excise duty on Biri from Tk 25 per 1,000 sticks to Tk 30. To maintain the uniformity and balance between low-priced cigarettes and Bin, supplementary duty on low-priced cigarettes is proposed to be enhanced from 32 percent to 35 percent.

54. At present the rate of VAT on buildings and flats constructed by real estate developers is 1.98 percent of the total value. The same rate for construction firms is 4.5 percent. In view of the identical nature of service in these two sectors, it is proposed that VAT at an uniform rate of 4.5 percent be imposed for both the sectors.

55. Now I place before the parliament some proposals relating to the reforms of our tax system. Taxpayers incur financial losses when seized vehicles and goods are held up for the purpose of adjudication of cases relating to evasion of VAT. Inspite of the present system of releasing goods and vehicles against of undertakings, it is reported that the business community is still facing various difficulties in this regard. In order to further simple the system measures will be taken to release seized goods and vehicles instantly by issuing case slips.

56. A taxpayer paying at least 20 percent more revenue in a fiscal year as compared to the revenue paid by him during the preceding fiscal year, would be exempt from all preventive activities and inspection by the VAT officials. This will enhance government revenue and reduce harassment of the taxpayers. In case of installation of new machinery or BMRE, the tax payer may avail of the same opportunity by agreeing to pay increased VAT on the basis of the revised/additional capacity.

57. At present an aggrieved person is required to deposit 20 and 50 percent of the involved revenue in advance to file an appeal against the decision of a VAT official before the Commissioner (Appeal) and Customs and VAT Tribunal respectively . This imposes financial burden on many taxpayers wanting to avail of the appeal facility. To simplify appeal procedure it is proposed to reduce the above mentioned rate of advance deposit to 10 and 25 percent respectively, in consideration of the taxpayers demand, the present requirement of keeping VAT records for a period of 6 years is proposed to be reduced to 4 years.

58. A taxpayer under Turnover Tax pays 4 percent tax on his total turnover. Truncated base for assessment of VAT has been introduced in a few cases. But if this method is applied to a Turnover taxpayer, the rate of tax falls much below the noted 4

percent. Hence it is proposed that truncated base method of VAT calculation shall not be available to the Turnover taxpayers. This will because the tax burden of VAT and Turnover taxpayers.

59. VAT officials can now impose fine not exceeding Tk. 1,00,000 or double the amount of VAT, whichever is higher in tax evasion cases. In order to remove discretionary power of the adjudicating officer in this regard, I propose to introduce a fine of two and a half times of the chargeable revenue. Under current VAT system a producer is entitled to take credit for the VAT paid earlier at the import stage for imported inputs. But there is no time limit for availing of such facilities. This sometime creates confusion in accounts keeping. To rectify this situation I propose to make provision for claiming input credit within the same tax period under VAT.

60. In case of a number of goods and services falling within the ambit of VAT, law empowers government, semi-government, autonomous bodies, private organizations, banks, insurance companies, NGOs and limited companies to deduct VAT at source. But it has been observed that many such organizations keep the deducted VAT in their own accounts instead of depositing the same to the government treasury in time. This affects collection of government revenue. To address this problem I propose to make provision for depositing such VAT revenues within 2 (two) months from the date of deduction at source. In case of failure to comply with the above provision, I propose to introduce system of personal liability by introducing penalty for the persons responsible for deducting and/or depositing the government revenue in to the treasury.

61. A lease holder is entitled to turnover tax facility if the value of his lease is less than Taka 15 Lac. But this facility is being widely abused by the lessees in connivance with leasing authorities. In some cases, it has been reported that the bid value was kept at Tk. 14,99,999/99 i.e. just one paisa less than taka 15 Lac. All lease holders irrespective of their turnover will now be under VAT.

62. Circle office headed by a Superinendent is now the lowest revenue collection unit under VAT system. In this system it is not possible to fix up responsibility of an Inspector for a particular tax area. This impedes accountability in tax administration. To ensure accountability it is proposed that one VAT circle shall be divided into a number of tax areas and an inspector be given overall responsibility of tax collection of an area. The Divisional officer shall decide the number such areas and arrange work distribution amongst the Inspectors working out of the Circle Office.

63. Present VAT system requires submission of a price declaration to the Divisional officer before the commencement of production of goods/services by the taxpayer-producer. The Directorate of Drug Administration is responsible for fixing prices of medicines . The existence of two authorities in determining prices in the medicine sector create problems. Hence, I propose that prices approved by Drug Administration shall be accepted by the VAT authority for the purpose of input assessment . This will

remedy a long standing anomaly in the pharmaceutical sector.

64. Grant of exemption of indirect taxes for international organizations and under avoidance of double taxation treaties are often required. At present no provision exists in VAT law to cover such cases as such I propose introduction of a provision in the

VAT law in this reward.

65. Our forest resources are quite meager in relation to our national needs. To protect the environment and encourage afforestation I propose to withdraw VAT from all imported timber and wood.

66. The government of Prime Minister Sheikh Hasina has taken many steps to support agriculture. Improved quality seed is a very important input for increased agricultural yield. At present seeds imported in packets are subject to payment of VAT. I propose

to waive VAT on all imported seeds subject to the submission of certificates of quality and quantity from a recognized agency of the exporting country in this regard.

67. Many cases of evasion involving huge amount of duty and taxes are detected by VAT administration . Information supplied by informers sometimes lead to successful detection of tax evasion. VAT officials and staff through their application of mind and honest effort also detect cases of VAT evasion. To encourage such activities, I propose to make provision in VAT law to allow a portion of the recovered revenue to be distributed as reward among the informer and the VAT officials/staffs.

68. Value Added Tax is collected on Water and Gas. But Electricity till now remains outside the VAT net. Presently, Electricity duty at the rate of fifteen paisa per unit of power is being collected. To streamline tax collection system it is proposed to withdraw Electricity duty and replace it by Value Added Tax. Hitherto there was no provision for tax refund or input credit on account of electricity consumed by any industry including export oriented industries. Under the new system of VAT input credit facility will be available to them. Besides, they will also be entitled to exemption on electricity duty on power privately generated by themselves. Inputs such as gas, other fuel etc, used in generating power are now subjected to VAT. But it will be practical problems to extend credit facility on these input to a state owned enterprise like PDB. Therefore, in keeping with the principles of Value Added Tax it is proposed to allow the credit facility to the ultimate consumers by adopting a truncated-base for assessment of VAT. Thus individual/household level consumers of electricity will not be subjected to any undue increase of expenditure on this account.

69. I would now like to say a few words about the revenue collection efforts of FY 1998-99.A total receipt of Taka 15,700 crore was estimated from taxes administered by National Board of Revenue which was 14 percent higher than the actual collection for FY1997-98.The devastating flood, severely affected our industry and trade and thus the total economic activities which affected the revenue collection. Besides, undreds of writ petitions filed by the importers and industrialists before the Honorable Supreme Court are yet to be decided. This has stalled collection of approximately Taka 550 crore of revenue. In view of these realities the revenue target for taxes under National Board of Revenue was refixed at Taka 14,850 crore which is 7.6 percent igher than the actual collection of the previous year.

70. I have placed the major tax proposals for FY1999-2000 before the parliament. Now I would like to state the overall revenue implication of these proposals. The revenue estimate for NBR has been fixed at Taka 17,500 crore in FY 1999-2000. Because of the adjustment of the personal income tax rates and slabs, and various measures to support health service, industry, export and capital market , there will be a revenue loss of Taka 48 crore. On the other hand, due to expansion of tax base there will be a revenue gain of Taka 253 crore. Consequently, there will be a net increase of Taka 205 crore under this head. Implementation of proposals for reduction of customs duty is expected to result in a revenue loss of Taka 166 crore and there would be a gain of Taka 650 crore for the introduction of Compulsory Pre-shipment Inspection and other measures under customs account. Consequently, there would be a net gain of Taka 484 crore. Expansion of VAT and several proposed procedural reforms would raise an additional revenue of Taka. 361 crore. Net increase in revenue due to expansion of tax base, rationalization of tax rates and procedural improvement will be Taka 1050 crore. The remaining Tk 1600 crore will come from autonomous growth of revenue.

71. The last decade has witnessed significant changes in the world economic arena. While we were amazed at the spectacular development of the Newly Industrialized Countries of Asia (NICs), the recent Asian crisis has also taught us the lesson that uncontrolled industrial and trade credit, unrealistic export policy and exchange rate, not in conformity with the in demand and supply and shortage of skilled manpower may halt the economic growth of a country. Hence, we need to exercise utmost care in the formulation and implementation of policies for economic development. In the words of famous economist Joseph Stigliz "we have learned during the past half-century that development is possible, but development is not inevitable. Indeed, it seems remarkably hard to achieve. Slowly we progress, ......... and is rather based on pragmatic economic principles. Hence we have no room for complacency with the progress achieved so far .We have to unitedly work hard with honesty and steadfastness to fulfil the dream of the father of the nation, Bangabandhu for a prosperous Sonar Bangia by achieving economic prosperity.

72. Before I conclude, I want to reiterate that despite huge revenue needs for development works, we have refrained from imposing new taxes in the immediate interest of the citizens. Instead drastic duty reduction has been proposed to give incentive to our export and industrial growth. Emphasis has been on the expansion of the tax base through reformation and rationalization of tax system as well as through administrative improvement. Self assessment procedure of Income Tax has been further simplified and the tax exempt limit has been raised.' To eliminate corruption from the tax system, proposals have been made to reduce the discretionary powers of tax officials. Moreover, we have proposed to adopt measures to reduce the interface between tax officials and taxpayers as much as possible. I hope all these measure will

contribute in making our tax system suited to the needs of the coming 21^st century and for the on going globalization. (Stiglitz, Joseph E, "Have recent crises affected the state-market debate", Public lecture, organized by Bangladesh Economic Association, Dhaka, March 14,1999, p.20.)

73. On the threshold of the 21st century this budget for 1999-2000 carries a great significance. The road ahead is not smooth at all. We have to pursue a modern and .appropriate tax policy to meet the challenge of the new millenium. International and regional economic conditions are still volatile. Our desired economic reforms are yet to be completed. State owned enterprises which incur losses have remained a heavy burden on our national economy. In order to successfully compete in the international free market of 21^st century we have to ensure proper development atmosphere for our industry and trade. This calls for a national consensus amongst all including the opposition parties in the parliament. Our problems are enormous. But our commitment and sincerity are equally strong and deep. I earnestly believe that by our collective efforts we shall overcome our difficulties and be successful in establishing a just, equitable and prosperous social order in Bangladesh.

We are celebrating the birth centenary of the rebel poet Kazi Nazrul Islam, so very popular to the Bengalees. Let me. There fore, conclude my speech by quoting his immortal words:

"I hear from afar the trumpet call

announcing the rise of a new dawn!

Hurry- run forward to the forefront!

Sing, 0 pioneers,

sing your way to the vanguard."

Joy Bangla

Joy Bangabandhu

Long Live Bangladesh.