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FISCAL POLICY OF THE GOVERNMENT

Fiscal policy is the deliberate manipulation of government income and expenditure so as


to achieve desired economic and social objectives. The instruments of fiscal are taxation
and government expending. Fiscal policy of the government can have tremendous impact
on peoples lives. To attain desired economic and social objectives, government can alter
the level, timing and composition of taxation as well as her spending. Sound fiscal policy
plays an important role in attaining macroeconomic stability in the country, which is
basically a key condition for development. The fundamental goal of the fiscal policy in
Bangladesh is to enhance the effectiveness of public expenditure along with maintaining
sustainable budget deficit, attaining faster growth and poverty reduction by mobilizing
larger amount of revenue. The government revenue and expenditure programs have both
positive and negative impact on the economy of the country. Formulation of a sound
fiscal policy and its proper implementation is therefore critical to the government
A) Government Revenue : In Bangladesh, government income comprises mainly tax
revenue and non-tax revenue. Tax revenue alone accounts almost 80 percent of the
government total revenue. Although government revenue contributes almost 10 percent
of the GDP of Bangladesh. The following table shows the contribution of tax and non-tax
revenue in the total government revenue over a period of time
Table : Revenue Receipts (TK. In crore)
Particulars
Total Revenue
Tax Revenue
Non-tax
Revenue

1990-91
7822
6383
1439

1995-96
15512
12233
3279

2000-01
24173
19490
4683

2004-05
41300
33640
7660

Table : Revenue as percentage of GDP of Bangladesh (in %)


Particulars
GDP (TK.
In
crore)
Total Revenue
Tax Revenue
Non-tax Revenue

1990-91
83439

1995-96
166324

2000-01
253546

2004-05
368476

9.4
7.7
1.7

9.22
7.29
1.93

9.60
7.80
1.80

11.21
9.13
2.08

It is seen from the above tables that the contribution of tax revenue to the GDP of
Bangladesh is increasing year to year and at the same time, ratio of Tax/GDP is also in
the increasing trends.
The following table shows the different sectors or sources of government revenue for
fiscal year 2004-05 :
Table : Revenue Budget for FY 2004-05 (TK. In crore)
Particulars
a) Tax Revenue :
1.
2.
3.
4.
5.
6.

Tax on income and profit


VAT
Customs duty
Supplementary duty
Stamp (non-judicial)
Other taxes and duty (excise duty, land
tax, motor vehicles tax)

Amount
33640
6277
10786
8903
5639
812
1223

b) Non-tax Revenue :

7660

1.
2.
3.
4.
5.
6.

1889
1092
1061
799
527
2292

T & T Board
Dividend & Profit
Administrative fees
Interest
Receipts from services
Other non-taxes (tolls and levies, noncommercial sales, rent and leasing,
penalties and forfeiture, post office)

Total Revenue

41300

The above table shows that the size of the revenue for FY 2004-05 stands TK. 41300
crore consisting of TK. 33640 as tax revenue and TK. 7660 crore as non-tax revenue
respectively.
Among the tax revenue, VAT claims the top position followed by customs duty, income
tax and supplementary duty.
In the non-tax revenue side, T & T Board ranks the top position followed by dividend and
profits, administrative fees, interest and receipts from services.
b)Government Expenditures : Government expenditure comprises mainly revenue
expenditure and development expenditure. Government incurs expenditure on
administration, public welfare and other service oriented activities. Government also

incurs substantial expenditure for socio-economic development, building infrastructure,


human development and poverty reduction. The following table shows the different
sectors or sources of government expenditures for fiscal year 2004-05 :

Table : Revenue and Development Expenditure for FY 2004-05 (TK. In crore)


Particulars
a) Revenue expenditure :
1. Pay and allowances
2. Subsidies and current account
transfers
3. Payment of interest
4. Goods and services
5. Procurement of assets and public
works
6. Others (unexpected and others,
extraordinary expenditure)
b) Development expenditure (ADP) :
1.
2.
3.
4.
5.
6.

Electricity
Transport
Education and religion
Rural development and institution
Health, population and family welfare
Others (agriculture, water resources,
physical infrastructure, water supply
and housing, oil, gas and natural
resources,
block,
public
administration, sports and culture)

Total

Amount
32193
8218
9477
6533
5171
1665
1129
22000
3239
3136
3040
2423
2031

8131
54193

The above table shows that the size of the government expenditure in FY 2004-04 was
TK. 54193 crore broken down into revenue and development of TK. 32193 crore and TK.
22000 crore respectively for the same.
Of the total expenditure on revenue, pay and allowance, interest on foreign loans,
subsidies rank high on the list.
On the development side, electricity sector, transport, education and religion claim the
maximum followed by rural development, health, population and family welfare.

C) ADP Composition and Source of Financing : The following tables show the ADP
expenditures on the major economic sectors of Bangladesh as well as share of domestic
resource in the total ADP in different financial years.
Table :ADP Expenditure and its Composition by Major Sectors (% of Total)
Sector
Agriculture
Rural
Development
Industries
Power
Transport
Education and
Religion
Water resources
Health and
Population

1990-91
5.8
4.2

1995-96
4.5
6.8

2000-01
4.5
12.2

2004-05
3.62
14.27

1.8
6.9
12
3.3

1.5
13.7
20.1
13

3.3
12.2
20.4
13.3

2.42
20.74
12.27
13.7

12.8
8.7

5.6
6.9

6.1
7.3

2.44
8.17

Table: Composition of ADP Financing (TK in Crore)

Total Financing
Foreign Financing
Domestic Financing
Domestic as % of Total ADP

1990-91
5270
1310
3960
24.85

1995-96
10447
6033
4414
42.25

2000-01
18200
8670
9530
52.36

2004-05
20500
10430
10070
49.12

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