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Fiscal Policy:

Fiscal Policy In economics and political science, fiscal policy is the use of government expenditure and revenue collection (taxation) to influence the economy. Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation's economy. ‘Fiscal policy' is that under which the government uses its revenue and expenditure programs to produce desirable effects on national income, production and economy. It is thus used as a balancing device in the economy. Two major elements of fiscal policy are taxation and public expenditure.

Objectives Of Fiscal Policy:

Objectives Of Fiscal Policy Mobilization of resources: Developing economies are characterized by low levels of income and investment, which are linked in a vicious circle. This can be successfully broken by mobilizing resources for investment energetically. Acceleration of economic growth: The government has not only to mobilize more resources for investment, but also to direct the resources to those channels where the yield is higher and the goods produced are socially acceptable. The role of fiscal policy in developed economies is to maintain full employment and stabilize growth. In contrast, in developing countries, fiscal policy is used to create an environment for rapid economic growth. The various aspects are as follows:

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Minimization of the inequalities of income and wealth: Fiscal tools can be used to bring about the redistribution of income in favor of the poor by spending revenue so raised on social welfare activities. Increasing employment opportunities: Fiscal incentives, in the form of tax-rebates and concessions, can be used to promote the growth of those industries that have high employment-generation potential. Price stability: Fiscal tools can be employed to contain inflationary and deflationary tendencies in the economy. Objectives Of Fiscal Policy Contd ………

Limitations Of Fiscal Policy:

Limitations Of Fiscal Policy Fiscal policy has been a great success in developed countries but only partially so in developing countries. The tax structure in the developing countries is rigid and narrow. Thus, conditions conducive to the growth of well-knit and integrated tax policies are absent and sorely missed. Following are some of the reasons that are hindrances for its implementation in developing countries: A sizable portion of most developing economies is non-monetized, rendering fiscal measures of the government ineffective and self-defeating. Lack of statistical information as regards the income, expenditure, savings, investment, employment etc. makes it difficult for the public authorities to formulate a rational and effective fiscal policy.

Limitations Of Fiscal Policy Contd….:

Fiscal policy cannot succeed unless people understand its implications and cooperate with the government in its implication. This is due to the fact that, in developing countries, a majority of the people are illiterate. Large-scale tax evasion, by people who are not conscious of their roles in development, has an impact on fiscal policy. Fiscal policy requires efficient administrative machinery to be successful. Most developing economies have corrupt and inefficient administrations that fail to implement the requisite measures vis-à-vis the implementation of fiscal policy. Limitations Of Fiscal Policy Contd ….

Various Tools Of Fiscal Policy:

Various Tools Of Fiscal Policy Among the various tools the following are the most important: Reflationary Fiscal Policy It may be used to boost the level of economic activity during periods of recession or deceleration in economic activity. This is done by lowering taxes or increasing government expenditure. Deflationary Fiscal Policy During a boom, i.e., when the economy is growing beyond its capacity, inflation and balance of payment problems might result. This can be achieved by increasing taxes or by reducing government expenditure. It would perhaps be too simplistic to conclude that fiscal policy is the most important tool of financial correction and consolidation, especially that undertaken by the government. However, there is no reason to neglect this very powerful tool that is in the hands of governments and central banks the world over. Used properly, fiscal policy can determine the broad direction the economy of a given country is going to take.

Main Objectives of Fiscal Policy In India (Developing Country) :

Main Objectives of Fiscal Policy In India (Developing Country) Development by effective Mobilization of Resources Taxation Through effective fiscal policies, the government aims to mobilize resources by way of direct taxes as well as indirect taxes because most important source of resource mobilization in India is taxation. Public Savings The resources can be mobilized through public savings by reducing government expenditure and increasing surpluses of public sector enterprises. Private Savings Through effective fiscal measures such as tax benefits, the government can raise resources from private sector and households. Resources can be mobilized through government borrowings by ways of treasury bills, issue of government bonds, etc., loans from domestic and foreign parties and by deficit financing.

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Efficient allocation of Financial Resources Reduction in inequalities of Income and Wealth Price Stability and Control of Inflation Employment Generation Balanced Regional Development Reducing the Deficit in the Balance of Payment Increasing National Income Development of Infrastructure Foreign Exchange Earnings

Conclusion On Fiscal Policy of India:

Conclusion On Fiscal Policy of India The objectives of fiscal policy such as economic development, price stability, social justice, etc. can be achieved only if the tools of policy like Public Expenditure, Taxation, Borrowing and deficit financing are effectively used. Though there are gaps in India's fiscal policy, there is also an urgent need for making India's fiscal policy a rationalised and growth oriented one. The success of fiscal policy depends upon taking timely measures and their effective administration during implementation.

Fiscal Policy In US (Developed Country):

Fiscal Policy In US (Developed Country) The Great Depression World War II and effects Modern fiscal policy The Fiscal Deficit: Back to Square One Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003 Costs and Consequences of Tax Cuts and Deficits Global Issues Long-Run Insolvency of Social Security and Medicare The Policy Challenge Restoring Budget Balance State and Federal Fiscal Relations

Fiscal Policy of US:

Fiscal Policy of US Meaningful reforms of entitlement programs such as Social Security and Medicare tend to require long lead times, given their impact on intergenerational income distribution and politically controversial nature. To reach broad-based agreement on such reforms, fiscal resources are often required to smooth the transition and ensure that reform measures can be implemented over a politically acceptable time horizon.

Conclusion On Fiscal Policy of US:

Only a few years ago, the conditions for movement on these fronts seemed to be in place in the United States, with the demographic shock still half a generation away and government debt set to be all but eliminated within a decade. Since then, however, a combination of cyclical, geopolitical, and policy factors have erased a decade's worth of fiscal consolidation, just a short time before the retirement of the baby boom generation begins. The discussion in this and subsequent sections suggests that the U.S. fiscal problem is still manageable, and there remains a window of opportunity for reform. However, the experience of recent decades has shown that fiscal consolidation is difficult to achieve and perhaps even more difficult to hold on to. Therefore, the room for maneuver is narrowing quickly. Conclusion On Fiscal Policy of US

Fiscal Policy In Bangladesh (Under Developed Country):

Fiscal Policy In Bangladesh (Under Developed Country) Bangladesh, a relatively young country in the South Asian subcontinent, emerged with high expectations of establishing an effective system of government by resolving the problems that had been hindering its development as a province of Pakistan for twenty-four years. Among other things, good governance is expected to streamline the role of the government and public organizations. The most significant feature of the Bangladesh tax scenario is it’s heavy dependence on indirect taxes.

Fiscal Policy In Bangladesh (Under Developed Country) Contd…..:

Fiscal Policy In Bangladesh (Under Developed Country) Contd ….. Nearly 80% of all revenue of the government comes from the indirect taxes while the balance is from direct taxes. The tax-GDP ratio in Bangladesh is less than 10% and is the lowest among the South Asian countries. However, in order to mobilize internal resources, a strong and efficient tax system is necessary. There are a number of laws relating to both direct and indirect taxes. The major direct tax is income tax while indirect taxes are VAT, and customs and excise duties. There are other minor taxes such as travel tax, gift tax, etc.

Overview Of Development Projects in Taxation & Fiscal Affairs in Bangladesh:

Overview Of Development Projects in Taxation & Fiscal Affairs in Bangladesh ETAC (Excise, Tax and Customs): This was a data computerization project started in 1990 funded by the World Bank and continued till June 1999. As per the Technical Assistance Project Proposal (TAPP) the total project expenditure was BDT 245.11 million, which was finally reduced to BDT 195.21 million. The project budget allocation was 15.92% for consultants (international), machinery 27.75%, manpower 17.83%, foreign training 12.49%, local training 8.17%, local consultants 2.02% and other costs 15.82%. In 1998 the project was revised and additional activities for data base management of VAT with the name of ASYCUDA (Automated System for Customs Data), was included.

Overview Of Development Projects in Taxation And Fiscal Affairs in Bangladesh Contd…..:

The main outcome of the project was the: establishment of VIS (VAT Information System) cell, CIS (Customs Information System) cell and R&S (Research and Statistics) cell for the National Board of Revenue(NBR); establishment of TIN (Tax Identification Number) cell to allocate TIN for each taxpayer; establishment of ITIS (Income Tax Information System) for income tax purpose and to efficiently manage information, return processing and monitoring; and computerization of the R&S cell, etc. Overview Of Development Projects in Taxation And Fiscal Affairs in Bangladesh Contd …..

Overview Of Development Projects in Taxation And Fiscal Affairs in Bangladesh Contd…..:

Overview Of Development Projects in Taxation And Fiscal Affairs in Bangladesh Contd ….. The project had several shortcomings which were identified as an unsuccessful VAT revenue mapping which was required by the TAPP; the failure to establish a valuation cell and a computer network among the tax offices. The above shortcomings were caused by a number of reasons which include: delays in obtaining concurrences from the World Bank which resulted in obstacles in respect of the purchase of computers and accessories; insufficient manpower to manage the project; lack of coordination among the different levels and resulting weakness of the project activities; and administrative failures in respect of the coordination of the activities of related Ministries and divisions.

Current Situation of Bangladesh:

Current Situation of Bangladesh Agriculture, which is the largest industry in Bangladesh, is very susceptible to weather fluctuations and the country is still not self-sufficient in food. Bangladesh depends on foreign aid for more than half of its annual development plan budget (ADP). The present administration is moving ahead with economic reforms while it is working to restore the country's production capacity, which was slowed by a general strike, to attract foreign investment and control inflation. Bangladesh was also devastated, in July and August 1998, by what was said to be the worst flood damage of the century (amounting to 10% of the country's GDP). Following this, the tasks of the Bangladesh government will be to restore infrastructure and increase food production.

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Direct Taxes Currently, the main problem areas of the income tax system in Bangladesh can be categorized as: Narrow tax base; Tax evasion; Inadequacies of law Inadequacies of administration. Narrow Base Tax The tax base in Bangladesh is one of the lowest in the world. Out of a population of 130 million, only about 1.2 million or about 0.92% of the population are registered taxpayers. Of these registered taxpayers, only a few actually file a tax return and pay tax. Urgent steps are needed to expand the tax base. These steps would include: The broadening of the concept of income; The reduction of rebates and exemptions; Extensive survey work to ensure the tax regime is capable of meeting its aims; An expansion of taxpayer education and assistance.

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Tax Evasion Tax evasion in Bangladesh has reached alarming proportions and the immediate victim is government revenue. It also leads to a parallel black economy, which in Bangladesh is said to be to the tune of USD 1.2 - 1.5 billion. The causes of tax evasion are numerous and include complex tax laws, lack of social security, coordination deficits among different government agencies and financial institution, inefficiency and corruption. In order to curb tax evasion, it is necessary to: Simplify tax laws and procedures; Ensure a proper collection and referencing of data and information; Increase taxpayer education and motivation; Review banking and accounting practices; and Increase penal provisions for tax evaders.

Conclusion of Bangladesh Fiscal Policy:

Conclusion of Bangladesh Fiscal Policy Tax regimes all around the world are constantly looking for ways and means to improve their tax revenue collections. Since tax revenue forms the major portion of the total revenue in countries like Bangladesh, the efficiency and productivity of the tax administrative system is very important in meeting revenue targets. The different organs of fiscal affairs policy and administration are so intricately related that there needs to be an improvement of the entire systems in order to obtain a sustainable revenue trend that can meet increasing demands. In the case of Bangladesh, what is now needed is an emphasis on selected issues that are inherent and impede structural reform and the development of fiscal affairs. TAs for fiscal affairs in developing countries is crucial for the implementation of a better revenue system, and international organizations and donor agencies are giving such matters a high priority.



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