Speech 2000 - 2001
Part II

In the first part of my budget speech I have placed different budget proposals and also described the overall picture of the economy. Now I am placing the revenue proposals for the fiscal year 2000-2001. You are aware of the fact that in the context of globalization of international trade, formulation of tax policy in a developing country like Bangladesh is not an easy task at all. Our tax policy needs to be formulated in such a way that the benefits of globalization can be maximized while our domestic industries are protected from uneven competition from abroad. Moreover, such a policy has to aim at increasing investment and reducing poverty as well as income inequality. We have to remember that unbridled liberalization is not an unmixed blessing for any developing country including Bangladesh. As a part of the globalization process, import tariffs and other trade barriers have to be reduced gradually and carefully otherwise, this will spell economic disaster for the country. In this connection I quote from the draft resolution of the 10^th UNCTAD conference held recently in Bangkok: "The developmental impact of globalization has been mixed: while some developing countries have benefited, others have not. Economic disparities among countries have not been reduced, with the result that a number of developing countries, particularly the LDCs, run the risk of further marginalization." We have been mindful of these concerns for which we are careful in the formulation and implementation of our development strategy and the tax policy.

02. It is very unfortunate that the present government is shouldering the difficult task of solving the problems created by the sudden and drastic reduction of tariff during the first half of the 1990s. As a result of those unplanned and hasty policy measures a large number of industrial units have become sick consequentially increasing the burden of bank loan defaults. I have mentioned in the first part of my speech (about the activilics of the committee on sick industrial units. We cannot ignore these legacies of the past. Hence, we are proceeding after proper analysis, evaluation and assessment of our own situation instead of going with the general tide of' globalization. In the light of last decades experiences it can be said that to cash on the development potentials of the country and for maintaining the pace of development st is necessary to undertake balanced macro-economic management, well regulated foreign debt realistic exchange rate, appropriate export development policy and an effective policy for continuous upgrading of skills and efficiency of the work force. Fiscal policies must complement and further these macro objectives and strategies. We have kept these factors in view in formulating the tax policies for the ensuing financial year. It is a historical fact that share of direct and consumption taxes progressively increase as a country gradually develops itself. In this view of things we are taking various measures to simplify our tax system and at the same time make it efficient, strong and effective so that we may also succeed in reducing our dependence on import taxes and duties by increasing the share of direct and consumption taxes.

03. The present democratic government always stands for an accountable and participatory tax policy, in accordance with this principle I have exchanged views on fiscal policies and measures with honourable members of parliament. Different chambers, trade bodies. NGOs. leading economists and journalists through a series of pre-budget meetings. Their views and suggestions have been given necessary weightage and consideration in the formulation of this year's proposal:-.suggestion and recommendation on budget received from Tariff Commission and different ministries of me government have also received due attention. In addition to this like last year three separate task forces consisting of the representative FBCCI and the National Board of Revenue have thoroughly discussed and examined the budget proposals on Customs, VAT and Income Tax given to the government by FBCCI and numerous other Trade and professional associations. I express my sincere gratitude and thanks to all the participants in this process tor their time and hard work. I must, however, mention my disappointment at the refusal of only the main opposition parry to take pan in the pro-budget discussions despite my invitation for a dialogue. I am truly sorry for their lack of interest in a matter of such vital national importance.

04. In the last year’s budget a number of tax measures were taken relating to Income tax. VAT. Customs duty and Supplementary Duty However, industrial production and trade is a dynamic rather than a static subject. To cater to their urgent needs we have taken a number of quick and immediate corrective measures since the last budget. A summary of such measures is given at Annexure-"KA". It may be mentioned here that due to the bumper production of rice this year, the government have imposed 5% Customs duty on the import of rice to protect local farmer's from losses on account of lower grain prices.

05. Based on 1999-2000 budget proposal we have introduction mandatory PSI system in the country for imports from 15^th February, 2000. This has been done in response to the long standing demand of the trade and industry to make customs clearance procedure quick and hastle free. Extensive consultations were undertaken by the NBR with the various client groups before the introduction of this new system. I hope this will play a vital role in enhancing revenue collection by reducing misdeclaration about value, description, classification and quantity of the imported goods. Under the new system 95 percent of total imported consignments are being released by customs on the basis of Clean Report of Findings (CRF) without any physical examination. Of the remaining consignments 4 percent are being selected by computer through random sampling and the remaining 1 percent purposively by the concerned Commissioner of Customs for physical examination of the goods. This has reduced the average customs clearance time for imported consignments and the demurrage costs sustained on account of delay in clearance. I would like to inform this house that PSI system is encountering teething problems as would be expected for any new system. However, I have instructed the NBR to take immediate corrective measures in all cases. They are doing so in consultation with the business community, banks and the PSI companies. Initially imported consignments of below US$ 5000 were outside mandatory PSI system. It was observed that some importers were splitting a consignment into smaller consignments to keep the value of each individual consignment below US$ 5000 with a view to circumvent the system. In the interest of the government revenue, recently mandatory PSI system has been made applicable to all consignments except those specifically exempted for reasons other than their value. Based on feedback received from various quarters I am proposing further amendments to the PSI order through this budget. I firmly believe that the PSI system is going to bring its desired result in the coming days.

06. You are certainly aware that Bangladesh is a signatory to the Agreement on Valuation Principle of GATT. In compliance with the agreement, we have introduced Transaction Value Method for the valuation of imported goods this years in place of the former Brussels Value Method. With the exception of a few items, tariff values have been abolished for about 2200 items. The new method requires the Customs Authority to assess the imported goods on the basis of actual price paid by the importer, thereby bringing our Customs valuation system at par with the current international trade practices.

07. Now I would like to present my proposals regarding Income Tax which is the most important source of our direct taxes. Income tax is not merely a source of revenue, it is also a tool for bringing social equity and justice. A good number of changes has been proposed in respect of income tax this year. The objective of these changes is to reduce tax burden of the lower income group, widen the tax base, check tax evasion, continue incentives for industrial investments, encourage declaration of proper income and reduce the complexities of tax law. I hope that these measures will make .the tax law and system more realistic and acceptable.

08. (a) At present income up to Taka 75,000/- for individuals is exempt from taxation. Considering the rising cost of living and with a view to reducing tax burden of the lower income group, it is proposed to raise this exemption limit from Tk. 75,000/- to Tk.l,00,000/-. I also propose to readjust personal income tax rates as described in Annexure "Kha" to match this new exemption limit

(b) Currently assessees whose net wealth at acquisition cost exceeds taka ten lakh are required to pay surcharge at the rate of ten percent of the amount of payable income tax. I propose to increase the rate of surcharge to fifteen percent for individual assessees whose net wealth at cost exceeds taka thirty lakh. This two tier surcharge rate will rationalize rate of surcharge on the basis of amount of wealth owned.

(c) Income tax rates announced in the last month of the budget year becomes applicable on the income for the same year. Assesses thus have no opportunity or scope to properly plan payment of taxes for the income year. I propose that the income tax rates and investment allowance announced this year be made applicable in the assessment years 2000-2001 and 2001-2002. This will correct the present anomalous situations and help assesses plan their investment and tax payment since they will know rates for both in advance of the income years.

(d) Under the existing law, individual assesses are required to file tax return within 15^th September every year. Often this becomes difficult because various documents and information required for such filing are not available within that time. As a result, every year we receive requests for extension of time. To obviate this problems I am proposing to extend the time up to 30^th September. Since time for filling of returns is being extended to 30th September on a permanent basis we will follow a policy of not extending the time any further.

09. (a) The provision for granting tax holiday to new industrial undertakings will end on 30^th June, 2000. To encourage investments in new industries, physical infrastructure facilities and tourist industries, it is proposed that the existing facility be extended up to 30^th June, 2002. Similarly it is also proposed to continue existing facility regarding accelerated depreciation allowance for new industries up to 30^th June, 2002. To encourage tourist industries, I propose to extend tax holiday benefit to hotels having thirty rooms in Dhaka, Chittagong and Khulna City Corporation areas and ten rooms in all other areas in place of existing requirement of sixty and thirty rooms respectively.

(b) Development of capital market is essential for growth of the economy and creation of employment opportunities. With this end in view, I propose to grant tax rebate to listed companies for deciding higher dividends, increase exemption limit of dividend income, allow purchase of secondary shares under investment allowance and increase the limit of investment allowance for investment in primary shares. Details of these proposals are in Annexure "Kha".

10. (a) It is generally believed that there is a very large amount of untaxed money in the economy. Opportunities were given to invest such money in specified areas. However, response to such a measure was not encouraging due to imposition of conditionalities After careful consideration of the situation, I propose to allow any person to declare untaxed money by 30th June, 2001 subject to payment of tax at the rate of ten percent. Such declarations will be accepted by the Tax department without any question.

(b) It is proposed to give cash reward for information relating to tax evasion. This will help prevent concealment of income.

(c) Assesses may feel encouraged to pay more taxiftop tax-payers are recognized by the state. I, therefore, propose that top tax payers be recognized as VIPs and given some special facilities including invitation to various state functions. Such persons will be selected by the government on the basis of recommendations of the NBR.

11. (a) Mere reduction of tax rates is not enough to motivate people to pay tax. It is essential to simplify tax laws and procedure for this. At present several conditions need to be fulfilled by an individual to qualify for filing return to under self-assessment procedure. A company director owning more than ten percent of the paid up capital is not eligible under the self-assessment scheme. Tax returns are not accepted under this procedure if disclosed income is less than last assessed income. Similarly returns showing lessor claiming refund are also not acceptable. It is proposed to withdraw all these conditions and make filing of returns under self assessment very easy and smooth. In case of income from business or profession, tax return under self-assessment procedure can not be submitted in the first year if initial capital exceeds taka ten lakh. It is proposed to raise the limit of initial capital to taka twenty lakh.

(b) At present assesses are required to pay at least five percent tax before filing first appeal against the assessment order. I am proposing the withdrawal of this requirement for filing first appeal. I am further proposing that ten percent tax will have to be paid before filing an appeal before the Appellate Tribunal against the order on first appeal instead of twenty percent as per the existing provision.

12. (a) We need to expand our tax base for improved collection of revenue. With this end in view, it is proposed that production of TIN certificates be made compulsory in the following cases:

(1) For enlistment or renewal of enlistment as general insurance surveyor;

(2) For purchase of land, building or apartment in any City Corporations areas;

(3) For registration or renewal of fitness certificate in respect of vehicles not plying for hire.

(b) Substantial investment is involved in the purchase of vehicles and property in the city corporation areas. These investments are important factors for determination of income of any tax payer. As such I propose that mentioning TIN be made mandatory in the blue book of the vehicles and in all registered or notarized documents relating to such transaction.

(c) At present, persons engaged in business or profession are required to obtain TIN certificate every year and display the same at the business premises. Since TIN is a permanent number, it is proposed that tax-payers be required to obtain the certificate once within six months of commencement of business or commercial activity and display the same at his business premises.

13. (a) To widen areas of tax collection at source and to simplify the assessment procedure, it is proposed that tax collected at source be considered as final settlement of liability in some more sectors. I am also proposing withdrawal or rationalization of tax collection at source in some cases. Details of these measures may be seen at Annexure "Kha".

(b) In view of proposed higher exemption limit of income for tax purpose, I am proposing readjustment of the rates of tax for collection at source in cases of income from contract work and house rent. This has been shown in Annexure C'Kha"

(c) In view of the growing importance of the private sector, it is proposed that private limited companies be also entrusted with the responsibility of deduction of tax from their respective contractors and suppliers.

14. (a) There is a provision for payment of presumptive tax in respect of income from bus, minibus, truck, tank lorry, coaster etc. Considering the growth of the transport sector, it is proposed to rationalize and adjust the rate structure of such presumptive tax. However, rate of presumptive tax will remain unchanged for vehicles which are more than ten years old. The proposed rates may be seen at Annexure "Kha".

(b) No question is asked regarding source of investment in house property if tax is paid at prescribed rates on the basis of the plinth area of such property. Adjustment of these rates is proposed to encourage investments in smaller apartments and to rationalize such rates in respect of larger houses and apartments. Details of the rates may be seen in Annexure "Kka".

(c) There is a limit in the tax law on the value of free medicine samples. Requests have been received from pharmaceutical industries to raise this limit. In the interest of promotion of marketing of the pharmaceutical products, I propose to raise this free sample limit only for the pharmaceutical industry. The revised rates have been shown in Annexure "Kha". I am hoping that these additional incentive will encourage our pharmaceutical industries to go for export of medicines from Bangladesh.

(d) Business income of trusts and charitable institutions have been made taxable with effect from 1S' July, 1999. However, micro-credit operations are extremely important for the alleviation of poverty in the country. Considering this, it is proposed to grant tax exemption to entire income of such institutions from operation of micro-credit.

(e) I propose to allow tax rebate on donation to institutions for the welfare of the mentally retarded and to 100% charitable hospitals located outside the city corporation areas. This is intended to help welfare services for poor and mentally retarded persons.

Honourable Speaker,

15. The main objective of the proposed amendments in the income tax law this year is to create a conducive environment of mutual trust between tax administration and tax payers, to promote investment and accelerate growth of revenue. I hope that the tax payers will come forward to take advantage of the new policies of the government and pay their due taxes as per law so that our efforts for mobilization of internal resources are further consolidated and strengthened.

16. Now I want to announce the salient features of my proposal in respect of import duty for the financial year 2000-2001. In the past four years' budget we have pursued a tariff policy consistent with the trends in international and regional trade and commerce. Our policy to increase export, help flourish local industries, ease customs procedure, rationalize duty structure, encourage agro-based industries, discourage and prevent smuggling and make consumer goods available to the people at reasonable prices will continue in this budget As a result of this policy there are only four slabs of duty at 5, 15, 25 and 37.5 percent rates. In the interest of industrialization of the country and for providing reasonable protection to the local industries, I propose to continue the general principle of keeping duty rate at 5 percent for basic raw materials, 15 and 25 percent for intermediate raw materials and semi-finished goods and 37.5 percent for finished goods. Like the previous year's budget we have proposed general reduction of duty rates on basic raw materials and intermediate goods. To support the local industries, I have proposed duty enhancement of only a few finished goods. Details of these proposals related to customs duty are given in Annexure- "Ga".

17. Industries are progressively playing an important role in Bangladesh in earning-foreign exchange and generating employment Development and growth of backward linkage industries including that for the textile industries are critical for consolidating the future of our industrial sector. In consideration of the importance of backward linkage industries, I propose to reduce duty rates on various raw materials used in the textiles, leather, footwear and similar other industries. New industries for the manufacture of thread by reprocessing thread waste, yarn waste and cotton fabric waste are being established in this country as such. I am proposing reduction of duty on these items.

18. Ceramic and melamine industries are playing increasingly important role in our exports. In continuation of the government policy to encourage them further, I propose to reduce duty rates on their raw materials namely, zinc oxide, aluminium hydroxide, barium carbonate and transfer decal-co-mania paper.

19. Local production of milk and other dairy products is not sufficient to meet the total demand of milk in the country. Due to acute shortage of grazing land in Bangladesh, it is unlikely that local dairy industries would be able to meet the total demand in the near future. To ensure sufficient supply of milk for the people, I propose to reduce the customs duty on bulk import of milk powder from 37.5 percent to 25 percent, which will also generate some value addition in the country.

20. The government have been patronizing the agro-processing sector to increase the income of the farmers and also to achieve diversification of exportable goods through duty reduction on machinery, spare parts, raw materials and packaging materials of agro-processing industries. As an automatic follow up I propose to refix the duty on chlorine, fluorine, bromine, iodine, mulch, nursery tray, tetrapack, filter paper, ultra-violet net, storage equipment made of PVC with zipper system, unwrought zinc, zinc waste and scrap, tin and zinc dust, powders and flakes, unwrought tin, tin waste and scrap and cream separator at five percent. I also propose to reduce duty on industrial fan and blower exclusively used in the tea industry from 37.5 percent to 5 percent to help this vital export oriented agro-based industry.

21. I am pleased to say that a few industrial units producing water-based resins have been set up in this country. To encourage this industry I propose to reduce duty rate on some of their raw materials as shown in the Annexure- "Ga".

22. Production of electrical goods holds a lot of promise for this country. To promote its growth, I propose to reduce duty rates on a number of its raw materials which have been shown in Annex-"Ga". The duty rate on phosphate and polyphosphate, used in a number of industries, is also proposed for reduction from 15 to 5 percent.

23. A well developed mass transit system is a basic requirement for urbanization. To meet that need in Bangladesh, customs duty on double decker bus was withdrawn and that on bus having seating capacity of forty or above was drastically reduced previously. Our objective is to encourage such transports which can carry a large number of passengers, are environment friendly and help in reducing traffic congestion in the cities. With this end in view I propose to withdraw all taxes and duties including VAT on double decker buses using only CNG and withdraw all other taxes except 5 percent customs duty on buses with forty or more seats using only CNG. This decision is expected to help develop our mass transit and transportation system. This will also increase the domestic consumption of our natural gas and help us save valuable foreign exchange on account of import of liquid fuel.

24. Govemment is very keen on protecting the environment. Last year highest customs duty of 37.5 percent was imposed on EVA which is used in products that increase environmental pollution. For the same reason I propose to increase the duty rate on film grade HDPE from 15 to 37.5 percent. Based on the recommendations of the Ministry of Commerce and Ministry of Environment and a strong demand articulated by the civil society for protecting the people from serious environmental pollution, I propose to ban the import of three wheelers such as auto-rickshaw and Tempo owners with two stroke engine and also chassis of such vehicles fitted with engines. Such a ban will not adversely affect existing auto-rickshaw or tempo owners because bank loans on easy terms will be provided for their conversion to CNG system.

25. While it is necessary to reduce duties on import of industrial raw materials to help the industrialization in the country, it is equally necessary to protect our nascent industries from unfair competition from external sources and to assist the growth and development of import substitution industries. With this end in view, I propose to increase duty on talcum powder, aluminium base cap and adhesive dressing. Moreover, to unify different customs duty rates on different items under a single heading I propose to enhance duty rate on bulk import of esbiothrine and note counting machine and reduce duty on copper wire and rod and aluminium wire and rod. Details of these proposals have been given in Aimexure- "Ga".

26. To encourage local production of chromium sulphate, I propose to reduce the duty on its raw material sodium di-chromate. To unify the duty rate on various polythene compounds and to stop leakage of such items imported through bond, I propose to unify the duty rate on LDPE, LLDPE and non-film grade HDPE. To ensure duty difference, between semi-finished and finished products, I propose to reduce customs duty on multi-layer extruded plastic, which is the raw material of laminated tube. I am proposing withdrawal of existing five percent Customs duties on incubators, which are used for saving the lives of critically ill new born babies.

27. A large number of private telephone booths have come up in different parts of the country. But their clients now face inconveniences in payment of the due charges in the absence of computerized billing system. To remove these difficulties by encouraging the booth operators to use spot billing machines I propose to reduce customs duty on such machines from 25 to five percent.

28. Value addition in the manufacture of polished marble and marble blocks is taking place in Bangladesh these days. In order to free this industry from duty discrepancy in the import of large marble blocks created by classification description which is not commensurate with the technological changes in marble mining, I propose to unify customs duty rate on crude marble and large marble blocks weighing 4000 Kg. or more at 25% from existing 15% and 37,5% respectively.

29. You are aware that duties and taxes in full have been withdrawn from computer and its parts and accessories. In continuation of the government policy for promotion of computer and computer-based industries, I propose to withdraw customs duty on Ink-jet Refill Kit used in computer printers.

30. The government is very keen to develop sports and games in the country as such I am proposing reduction of customs duty on some sports goods and equipment including sports wear to 15 percent.

31. There has been notable growth in the printing and publication industry of Bangladesh. Because of this we have decided to discourage import of commercial advertising materials, catalogues and calendars, by increasing the customs duty from "Nil" to 5 percent. I propose to bring a change in the tariff description of books and to reduce customs duty on photographic plates and offset reproduction films from 37.5 to 15 percent. It is also proposed to reduce customs duty on slides required for educational and training purposes.

32. As per description in Annexure "Ga", I propose to reduce the duty rate on various raw materials to encourage the carbon-rod industry Anti-knock and anti-oxidant chemicals help increase the durability of rubber tires as such. I propose to reduce duty on such chemicals from 25 to 15 percent. Metalized Zari produced in the country is sufficient to meet the local demand. So, to ensure legitimate protection of local weavers, I propose to increase the duty on this product from "nil" to 15 percent. We are now locally producing packaging materials like medicine strip and blister foil for the pharmaceutical industry. To encourage the useoflocal products, and to ensure growth of such industries, I propose to withdraw the exemption granted for these products by the pharmaceutical S.R.O and to impose 25 percent duty on them. The legal import of Arc-carbon used in the cinema industry is very small. To encourage its legal import, I propose to reduce its duty rate to 15 percent.

33. Under the existing Non-tourist Baggage Rules, a Bangladeshi passenger may import 5 Kg. of gold in his baggage on payment of duty of Tk. 300.00 (Taka three hundred) per tola (11.664 grams). There is a bright prospect for export of gold ornaments made in Bangladesh. To tap this prospect and to encourage legal import of gold, I propose to enhance the import quota of gold to 10 Kg and reduce the duty rate to Tk. 200.00 (Taka two hundred) per tola. I also propose to enhance the import quota of silver from 15 to 20 Kg.

34. Previously we did not have any industry producing pre-fabricated buildings in the country. To facilitate quick construction of industrial buildings, duty on pre-fabricated building was drastically reduced in the last budget. Since then industry for manufacture of pre-fabricated building has been set up in the country. In order to support such local industry, I propose to; increase duty on steel and aluminium pre-fabticated buildings from 5 to 37.5 percent. However, to save the local entrepreneurs from sudden cost increases, existing facility will continue to apply to all consignments for which L/Cs were opened before 8^th June 2000.

35. The First Schedule to the customs Act 1969, containing rates of import and, export duties was amended in 1995 for the last time. By now a number of amendments have come into force in the international classification of goods. At the national level also differences have crept up in the duty rates between Bangladesh Customs Tariff and Customs General Exemption Notification due to rationalization of tariff structure. Hence, there is an urgent need for compilation of a unified tariff in the interest of industrial investments in the country. This is also necessary for the modernization of customs administration and its processes. Under these circumstances, I propose to replace the existing First Schedule to the Customs Act, 1969 by a new ane with unified tariff rates.

36. In order to unify different rates of customs duties on same items and to eliminate user specific duty exemptions as far as possible, I propose to amend the capital machinery S.R.O. and the pharmaceutical S.R.O. and to repeal the S.R.O. related to exemption for electrical spares and raw-materials and the S.R.O. for Pisciculture. The duty benefits of the S.R.O's. proposed for repeal or amendment have been included in the proposed Bangladesh Customs Tariff.

37. The notification in respect of capital machinery was issued during the 1970s. In the context of that time, general items like rubber pipe, steel wire and some electrical goods with alternative commercial use were included in that SRO with provision for strict supervision by customs official. Due to variance of duty rates between General and Exemption Notifications in respect of such items the scope for misuse and duty evasion has always been there. To rectify this situation, I propose to withdraw exemption on such items. In case of other capital machineries existing facility of exemption of all taxes and customs duty only at the rate of 5 percent shall remain in force. In case of spare parts imported along with the capital machinery same 5 percent customs duty and tax exemptions will apply to an amount of 10% of the total import value. Any import of spare parts in excess of this limit will attract five percent customs duty, 15 percent VAT and other leviable taxes. Current system of clearance of capital machinery by 100% export oriented industry by submission of indemnity bond in lieu of payment of duties will continue. They too will be entitled to clear spare parts up to 10% value of the total import value through indemnity bond when imported with the capital machineries. Additional imports will, however attract 5 percent customs duty, 15 percent VAT and other chargeable taxes.

38. In case of pharmaceutical raw materials it has been proposed to apply exemptionary rates as general rates for all importers with the exception of a few items like Caustic Soda, Caustic Potash, Ethanol, Acetic Acid, DOP and various packing materials which bring substantial revenue for the government. Exemptionary duty rates applicable to electrical equipments are now equal to the rates of general exemption notification. As such I propose to repeal the exemption notification by incorporating the tariff rates into the Bangladesh customs tariff. The S.R.O. relating to pisciculture contains only six items, all of which are used exclusively in pisciculture. It is proposed to rescind the pisciculture S.R.O and apply zero duty rate for import of all.

39. Bangladeshi wage-earners living abroad play avital role in our total foreign exchange earning. In recognition of their commendable contribution to the economy I propose to amend the existing Non-Tourist Baggage Rules and Transfer of Residence Rules to give more facilities to them through simplification and liberalization of both the rules.

40. We have already initiated Customs Administration Modernization Programme and introduced Transaction Value Method as per -GATT and a mandatory PSI System. In many countries of the world filing of entries for imports and processing of documents for customs clearance are being done electronically these days. As a part of globalization initiatives under the auspices of WTO, Bangladesh has already introduced various measures for trade facilitation. Bangladesh is also actively examining the prospects of signing the Kyoto Convention and the revised Kyoto Convention at the earliest possible time. Against the back drop, we need to widen the use of electronic media in customs processing from its initial stages. We need adequate legal provisions for such technological change. It is also necessary to amend some sectioas or incorporate new ones in the Act to make the customs administration dynamic and to simplify the procedures further. To create the right conditions, I propose to update and modernize the Customs Act, 1969, by amending some of its existing sections and incorporating some new sections in it. This will create the appropriate legal basis for the eventual introduction of modern customs procedure which will gradually make the clearance of import and export consignments quick, easy and hastle free in Bangladesh.

41. The Value Added Tax system has brought about a significant change in the collection of national revenue. Last year this tax was extended to whole sale trading of all imported and locally manufactured goods under the definition of "Trade Service". More than a hundred items were also included at the retail stage. The system has generated some practical problems and confusions in identifying retail and wholesale trading of different goods in the country. These need to be solved to smoothen the system and to make the tax collection transparent. Moreover, non-extension of VAT to all commodities at the retail level has also carted anomalies in the system. With a view to solvmg these problems, I propose to abolish the concept of "trade service" and to levy VAT at a uniform rate on all sales of goods which are now covered by VAT. To remove complexities and to simplify the system, I propose to unify the existing 10% value addition base for wholesale and f5% for retail trading into a single 13.35% value addition base to collect VAT @ 2% on the total value of the goods.

42. VAT is an indirect tax which is paid by the buyer on goods or services. Generally this is realized from the buyer of goods and services by the seller and deposited to, the Government account. However, absence of a clear cut legal provisior specifying the VAT liability of the buyer has been creating a lo of confusion and misunderstanding between the buyers and the sellers in the market. To remove this difficulty, I propose incorporate a specific legal provision for realizing VAT by the seller from the buyers.

43. The VAT Act contains two schedules. The First schedule contains a list of items which do not come under-VAT and the Second Schedule includes a list of 'items where VAT is applicable. This duality in the nature of the schedules leads to confusion. To remedy the situation, I propose to substitute the second schedule with a new exclusion list. However, the existing definitions, explanations, truncated rates, exemptions and levy pertaining to the service sector will remain unchanged. I propose to include chartered flights by plane and helicopters and renting of video and audio compact disks in the list of services under VAT. I am proposing the removal of 'newsprint" from the First Schedule of The Excises and Salt Act, 1944 and bringing it under 'the purview of VAT. I am also proposing to withdraw the facilities extended last year to the manufacturers who; all factors of production remaining the same; pledged to pay a minimum of 20% additional VAT revenue on previous year's payment because of the misuse of the facility by a section of tax payers.

44. In order to consolidate and properly implement the VAT system, I propose to include a clear list of expenses which are not admisiable for input tax credit under VAT law. This is needed to simplify the collection process. I also propose to specify the maximum and minimum penalty instead of a fixed penalty for offences under the VAT law. At present an appellant has to deposit 10% and 25% of the penalty amount before filing an appeal with the Commissioner (Appeal) and the Appellate Tribunal respectively. I propose to reduced the mandatory payment amount to 5% and 10% respectively. We have been found from experience that in many instances, appeal cases can not be finalized within the present time limit of six months for various reasons. This causes revenue losses to the state. To rationalize the matter I am proposing a 12 month time limit for disposal of appeal cases.

45. Under the VAT system a tax payer bears the responsibility of self-assessment and payment. In such a situation, audit plays an important role in detecting faulty payments by the tax payer. There is a legal pDOvision for appointme~t-rjf professional audit firms to do this work, but the matter of their remuneration has not been spelt out. I propose to introduce an incentive system where by 10% of the evaded tax detected by the 'auditors will be paid to them subject to actual realization of the amount. I also propose a reward of 5% of the evaded amount to members of special teams, formed by the NBR, comprising of officers of Customs, Excise and VAT also similarly subject to actual realization.

46. Many honest and conscientious tax payers follow tax rules and pay them properly. But there are others who neither maintain proper accounts, nor issue proper challans for their business transactions nor submit required returns to the VAT authority. These businessmen, on the one hand, deprive the Govt. of due revenue and on the other push honest businessmen into unfair competition. Such conduct should not be accepted. I therefore, propose to introduce inspection and surveillance of such business concerns to ensure fair business practices and also to protect governmental revenues. To strengthen VAT activities and to make them more effective I propose to incorporate legal provisions to obtain the co-operation of various licensing or permit giving authorities such as Union Porishods, Municipalities, City corporations and Upazilla authorities. I am also proposing a provision to empower the VAT authorities to seize vehicles of tax defaulters to facilitate realization of taxes. Some amendments with regard to ownership and transfer of business, maintenance of business documents and provisional release of seized transports are also proposed to streamline the system further.

47. Cigarette industry is a major source of revenue for the country, but possibilities of large scale tax evasion also exist in this sector. To prevent leakages supervised clearance by posting VAT officials in the factories as well as capacity system has been tried without success. It is the considered opinion of all concerned that introduction of banderol system for cigarette similar to that in existence for the Biri industry will produce meaningful results. I am, therefore, proposing realization of proper taxes through the introduction of banderol system for the cigarette sector. Because this will be a new system for the industry as well as for the VAT officials, efforts will be made to design an effective procedure to protect revenue interests of the government Necessary instructions in this regard will be issued after obtaining practical knowledge from a few countries who already have adopted the banderol system. Hopefully, realization of VAT revenue through banderol on cigarette packets will be effective from 1^st January 2001 after completing all preparations in this regard. Keeping this in view I am proposing the relevant legal provision in Section 6 (4) of the VAT Act, 1991.

48 It is risky to allow exemption of VAT since it may disrupt the credit chain of this very modem and scientific taxation system. Even then, considering the interest of local industries employment, environmental pollution etc. some exemptions a the import stage, some in the production stage and some exemptions at both the stages have been given as per Annexure "Gha". At the same time, I am proposing the withdrawal o exemption on pre-fabricated buildings made of steel and aluminium at the import stage for consignments where L/Cs will be opened on the 8^th June, 2000 and thereafter.

49. In the best interest of domestic industries I am proposing the withdrawal of supplementary duty on IV saline's raw material Dextrose, disposable syringe's raw material DOP, PVC Resin, Polypropylene and Film for Blister packing even though principles of supplementary duty calls for trade neutrality. In the interest of local industries, I am also proposing new imposition of supplementary duty in some cases, abolition of it for a few, and increase of rate at the import stage for some others. For meeting domestic demand of milk and reducing its cost, I am proposing lowering the supplementary duty on powdered milk. I am also proposing re-structuring of supplementary duty on cigarettes. After a careful examination of the suggestions from different sectors for reviewing the existing supplementary duty structure on motor cars at import stage, I am proposing a re-structuring of SD on motor cars. Detailed proposals in this regard are shown in the Annexure-"Uma".

50. I am proposing the imposition of VAT on retail sales on products covered by the schedule under VAT Act within the areas of city corporations and municipalities. Normally tax payers are required to maintain detailed accounts-of their business transactions for VAT purposes. Retailers in Bangladesh can not maintain such accounts because of the macro-economic realities obtaining in the country. Considering the practical difficulties they will be allowed,to maintain accounts in a limited scale and also avail of the participatory system of tax payment introduced in 1998-99 FY, where, a committee consisting of a VAT official, representative of the local chamber/trade body and representative of the shopkeepers association will determine the annual sales and tax liability of every retailer within their jurisdiction. Taxes will be collected on that basis. I expect this system to create confidence amongst the retailers about the tax system and encourage them to pay their taxes. But tax payers wishing to avail of credit facilities will have to be given proper invoices by the sellers when the former buy industrial raw materials locally.

51. The government is giving lot of emphasis on the reorganization of the field level structure, training for both tax officials and tax payers, proper identification of tax payers and collection of required data about their businesses, introduction of a unified TIN-VAT registration system and various other measures to streamline and strengthen the VAT system. To bring about accountability and transparency, a 3 year long technical assistance project has been started with funding from DFID of the U.K. A long term modernization project named "Revenue Administration Modernization Project is being prepared for implementation in future. These measures will result in improvement of VAT system along with other branches of the revenue administration. I am hopeful that the nation will start to reap the benefits of these measures from the next financial year.

52. After presenting the major tax proposals I would now like to present the non-NBR tax proposals. In the last budget, provision was made to deduct advance income tax on income from savings instruments subject to certain conditions. In consideration of the interest of the small investors I have earlier in my speech proposed for the cancellation of the advance income tax deduction system in respect of saving instruments. In this connection, I want to say that due to the high rate of profit of the government saving instruments, banking and financial sectors are facing difficulties in mobilizing savings which would be used for investments in and growth of the industrial sector, This calls for restructuring interest rates of different savings instruments. As such, I am proposing revised rates of government saving instruments as per Annexure-''Cha".

53. Development of insurance sector is essential for expansion of trade and industry of a country. To achieve that goal it is necessary to reduce stamp duty on various types of insurance, which prompts me to propose amendments in the relevant Schedule of the Stamp Act, 1899.

54. Non-judicial stamp papers are basically used in the sale and purchase of land in the country to pay the stamp duties on such transaction. Government incurs a huge expenditure for printing stamp papers and distribution of the same to different regions of the country. But people also face various difficulties and harassment in obtaining stamp papers. Government have been receiving many complaints about stamp paper forgery, irregularities and corruption in transactions relating to stamp paper. Similar complaints exist in case of non-judicial stamps used in the insurance policy documents. In order to safeguard revenue interests of the government, to protect the people and to streamline and simplify stamp duty administration by eradicating irregularities and corruption in the system, I propose to amend the Stamp Act, 1899. Necessary procedure to reduce the use of non-judicial stamp papers and stamps by directly paying stamp duty is being brought in to existence under this new legal provision.

55. The government incurs a huge expenditure on construction, expansion and maintenance of roads and highways. In order to meet this rising cost, I propose to enhance motor vehicle tax by amending the First Schedule of the Motor Vehicle Tax Act, 1932. These measures are estimated to yield additional revenue ofTaka 30 Crore.

56. Extensive use of information technology has been transforming international trade at a very fast pace. Use of e-mail, internet and similar other tools in trade and commerce is increasing rapidly. Our government is aware of the urgent need for collection and analysis of information in respect of transactions through these media. Under these circumstances, I feel the urgent necessity for specialized research to facilitate appropriate and timely policy formulation for Income tax, VAT and Customs administration under the NBR. Therefore, I propose to set up a new "Fiscal Research and Analysis Unit" in NBR for this purpose.

57. I have placed the major tax proposals for FY2000-2001 before the parliament. In the FY99-2000 the revenue target for NBR was Taka 17,500 crore. The revised target has been fixed at Taka 16,000 crore. .The revenue estimate for NBR has been fixed at Taka 18,000 crore for FY2000-2001. 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 21 crore. On the other hand, due to expansion of tax base there will be a revenue gain of Taka 112 crore. Consequently, there will be a net increase of Taka 91 crore under this head. Implementation of proposals for reduction of customs duty is expected to result in a revenue loss of Taka 80 crore and there would be a gain of Taka 15 crore for increase of duty rates. Consequently, there would be a net loss of Taka 65 crore. Expansion of VAT and supplementary duty would raise an additional revenue of Taka.245 crore. Proposed tax exemptions would result in a loss of taka 5 crore. Hence, net increase in revenue under this head due to exansion of tax base would be Taka 240 crore. Reforms of tax structure and improvement of collection process would hopefully bring an amount of Taka 800 crore. The remaining amount is expected to come from autonomous growth of revenue.

58. Before I conclude, I want to reiterate that in this budget we have given emphasis on the expansion of the tax base through reforms and rationalization of the tax system as well as through administrative improvements. Our goal is to establish a simple, easy and modem tax system in the country. To that end I have proposed various measures including a simplified self-assessment system and higher tax exemption limit for individual tax payer for income tax purposes. I hope all these measures will contribute in changing our tax system to suit our needs in the 21^st century with its on going globalization process.

59. We have to implement hard fiscal reforms and create the appropriate development environment so that we can successfully service in an intensely competitive world of globalized international trading regime in the context of a free market economy. This calls for a national consensus amongst all classes of citizens including the opposition parties. We must remember that we are responsible not only for the needs and aspirations of the current generation but also for ensuring a development- friendly socio-economic environment which will provide the future generations with all the opportunities to create a better and richer life for themselves. Our problems are enormous, but our commitment and sincerity are equally strong and deep. I earnestly believe that, by the grace of Allah the Almighty, we shall overcome our difficulties through collective efforts and shall be successful in establishing a just, equitable and prosperous democratic social order in Bangladesh. In the face of tremendous possibilities and challenge of the new millenium let me conclude my speech by expressing a firm commitment of this government to solve the multifarious problems facing us by quoting the immortal words of our beloved poet Rabindranath Tagore:

"Give voice to these dumb, pale and speechless faces;

Invigorate these run-down, shriveled, broken hearts with hope;

Call upon them and say : Raise your head and

stand up united for a moment ;

The injustice that scares you is not as bold as you are

It will take flight once you wake up and take a stand."

 

Joy Bangla

Joy Bangabandhu

Long Live Bangladesh

(i) On first Tk. 1,00,000/- of total income Nil

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

(iii) On next Tk. 1,50,000/- of total income 18%

(iv) On the balance of total income 25%

Minimum tax payable Tk. l,000/-

(a) Tax rebate at the rate of 10% of tax payable will be allowed to the listed company which declares dividend of 25% or more;

(b) Raising of exemption limit of dividend income from Tk. 30,000/- to 40,000/-;

(c) Investment in secondary market share made eligible for tax credit and

(d) Investment allowance upto 2,25,000/- in place of Tk. 2,00,000/- allowed if investment is made in IPOs.

(a). Travel agency commission granted by Airlines will be deemed to be @ 4% and deduction of tax at source will be made @ 5% of the commission. This will be deemed to be final settlement of liability:

(b) Tax to be deducted at source from any payment to the insurance surveyor of the General Insurance Company and this will be deemed to be the final discharge of tax liabilities;

(c) The existing provision of 10% deduction at source on interest of savings deposit and term deposit will be treated as final discharge of tax liabilities for individual assesses excepting Company;

4. The existing provision of 10% tax deduction at source on manpower export will be treated as final discharge of tax liabilities:
5. Exemption limit for deduction at source from payments to life insurance agents raised to 40,000/= from 25,000/= and treated as final settlement.

3. Proposals for withdrawal and readjustment of rates in respect of collection of tax at source:
1. The system of Collection of 10% Tax at source is abolished with the objective of making interest earning Savings Instruments Tax free;
2. Provision for collection of tax at source from real estate business is abolished;
3. Provision of tax deduction at source on bonus shares is abolished;
4. Tax to be deducted @ 2.5% by banks from payments made to agent of foreign buyers;
5. Rate of collection of tax at source from biri manufacturers reduced from 5% to 3%.
   
   
4. Proposal for rationalisation of the rates of tax deduction at source from contractor and suppliers:

Current Rates:

Amount of Payment	Rate of deduction of tax
Where the payment does not exceed Tk. 200,000/=	Nil
Where the payment exceed Tk. 200,000/= but does not exceed Tk. 10,00,000/=	1.5%
Where the payment exceed Tk. 10,00,000/= but does not exceed Tk. 25,00,000/=	2.5%
Where the payment exceed Tk. 25,00,000/=	3%

 

Proposed Rates:

Amount of Payment	Rate of deduction of tax
Where the payment does not exceed Tk. 3,00,000/=	Nil
Where the payment exceed Tk. 3,00,000/= but does not exceed Tk. 25,00,000/=	2%
Where the payment exceed Tk. 25,00,000/=	3%

5. Proposal for rationalisation of the rates of tax deduction of at source on income from house property:

Current Rates:

Amount of Payment	Rate of deduction of tax
Where the monthly payment does not exceed Tk. 10,000/=	Nil
Where the monthly payment exceeds Tk. 10,000/= but does not exceed Tk. 20,000/=	3%
Where the monthly payment exceeds Tk. 20,000/= but does not exceed Tk. 30,000/=	4%
Where the monthly payment exceeds Tk. 30,000/=	5%

Proposed Rates:

Amount of Payment	Rate of deduction of tax
Where the monthly payment does not exceed Tk. 15,000/=	Nil
Where the monthly payment exceed Tk. 15,000/= but does not exceed Tk. 35,000/=	3%
Where the monthly payment exceed Tk. 35,000/=	5%

6. Proposal for readjustment of rates of tax on the of vehicles plying for the purpose of hire:
1. The readjustment of tax rate for vehicles which have crossed ten years or les from the date of registration is as under:

 

Description of the Vehicles	Current Rate	Proposed Rate
Bus having seats more than 52	3500.00	5000.00
Bus having seats 52 or less	2800.00	4000.00
Air conditioned bus or double decker bus	3000.00	4500.00
Non air conditioned mini bus or coaster	1800.00	2700.00
Prime mover for carrying container	3500.00	5000.00
Truck or tank lory having a capacity more than 5 tons.	2800.00	4000.00
Truck or tank lory having a capacity more than 1.5 tons but less than 5 tons.	1500.00	2500.00
Truck, pick-up van, and all type of human hauler, maxi or auto-rickshaw for carrying goods having a capacity of 1.5 tons or less.	500.00	750.00

No change of rate is proposed for vehicles older than ten years.

2. In the existing law if an amount equal to 125% of annual tax payable, is paid the source of investment of the vehicles is not questioned. For the purpose of rationalisation the rate is proposed to be raised 200%.
   
   
7. Proposal for rationalisation of the Rates of Tax for unexplained investment in the house property:

Plinth area of the building/apartment	Current Rate Per Square metre. (Tk)	Proposed Rate Per Square metre. (Tk)
Up to 70 square metre	100.00	75.00
More than 70 square metre but does not exceed 140 square metre	100.00	120.00
More than 140 metre but does not exceed 230 square metre