Bangladesh - Government Budget Process

Government budget process

The annual budget is prepared by the Ministry of Finance and presented to Parliament for approval each year, except during periods of martial law, when the budget has been announced by the martial law administration. It is divided into a revenue budget and a development budget, on both the receipts and the expenditures sides.

The revenue budget pays for the normal functioning of the government and is intended to be fully financed from domestically generated sources. The fiscal year 1988 revenue budget was based on anticipated receipts of about US$1.6 billion, or approximately Tk48.9 billion. Expenditures were to be US$1.5 billion, leaving a surplus of US$130 million for development. The previous year a revenue surplus of US$246 million was applied to the development budget.

Tax revenues, almost half of them from customs duties, accounted for about 80 percent of revenue receipts. Excise duties and sales taxes also were important, each producing more revenue than taxes on income, which yielded only about US$150 million according to the revised budget in FY 1985. That amount represented less than US$2 per capita income tax. The largest part of the nontax revenue--making up 20 percent of the revenue budget in the late 1980s--came from the nationalized sector of the economy, including industrial enterprises, banks, and insurance companies.

Even by the standards of developing countries, Bangladesh's ratio of taxes to GDP, and of direct tax revenue to total tax revenue, was very low. In 1984 taxes amounted to only 8.1 percent of GDP, just half the percentage for India, less than half the average for 82 other developing countries, and far below the average of 29.7 percent for the developed countries. Similarly, the 20.1 percent of tax revenue coming from direct taxation was one of the lowest in the world (the average for developing countries was 29.3 percent, for industrialized countries 34.2 percent). Most of the population was exempted from direct taxation because its income fell below the poverty line; the cost of collection probably would have exceeded the revenue potential. For higher incomes, the system provided incentives for savings and investment, rather than seeking to maximize tax revenue. The central government operated on revenue of less than US$20 per person.

The expenditures side of the revenue budget put the largest single block of funds into education, totaling 17.3 percent of the FY 1988 budget. Defense spending took 17.2 percent of the budget; if expenditures for paramilitary forces and the police are added to the portion for defense, the figure rises to nearly 23.8 percent of the budget. Debt service, general administration, and health, population, and social planning each accounted for about 20 percent of expenditures.

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