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The government missed an opportunity to contain inflationary pressure by leaving the tax and other duties levied on most essential products unchanged in the proposed national budget for fiscal year 2022-23, according to various economists and business leaders.
They suggested increasing direct taxes instead of indirect taxes to reduce the growing inequality while the tax system should be made more business-friendly to encourage investment and create jobs.
“The current inflation problem may be imported but poor people are getting hurt so this monster must be tamed,” said Zaidi Sattar, chairman of the Policy Research Institute (PRI).
With the local currency having depreciated by nearly 8 per cent over the past month, there is ample opportunity to cut tariffs without under-cutting production or revenue, which are usually the two main stumbling blocks.
However, monetary management alone will not be enough to sort out the issue of inflation.
“It is time to tame inflation with tariff cuts but the government missed this opportunity in its proposed national plan,” Sattar said while hoping that something can be done to this end before parliament passes the final budget.
Sattar yesterday made these comments at a post-budget discussion, styled “Bangladesh – From Vulnerability to Resilience and Rapid Inclusive Development”, organised by the PRI and Metropolitan Chamber of Commerce and Industry (MCCI).
“The government proposed lowering the corporate tax rate but most companies will struggle to enjoy this benefit due to the stringent conditions involved,” said Md Saiful Islam, president of the MCCI.
On the other hand, those present at the meeting unanimously lauded the government’s plan to impose uniform corporate tax rates equal to that of the garment sector on all export-oriented industries.
Islam, also managing director of Picard Bangladesh, suggested increasing allocations for social safety net programmes to address the inflationary pressure resulting from the Russia-Ukraine war as well as natural calamities such as the current flooding in Sylhet.
The tax-free threshold on personal income should also be raised, he said.
Regarding the black money whitening opportunity, the MCCI president said the continuation of such measures would discourage honest taxpayers.
Planning Minister MA Mannan said the government has taken many steps to reduce poverty and got results but the recent Covid-19 crisis has created “new poor” and so, plans need to be reassessed to see how they can be helped.
Bangladesh’s public spending compared to its gross domestic product (GDP) is low in comparison with neighbouring countries due to the lower tax-GDP ratio, said MA Razzaque, research director of the PRI.
“Lower tax income shrinks the government’s fiscal limit and then it is bound to borrow from the private sector,” he said, adding that the government spends on development projects in exchange of private sector investment.
Targeted revenue collection is a major challenge as failure to meet the target will have some spillover effect on the private sector, said Ahsan H Mansur, executive director of the PRI.
“To overcome the challenge, the National Board of Revenue should be reformed.”
Mansur then questioned how long the government can continue providing such huge amounts of subsidies on agriculture.
Delays in the price adjustment of fuel and other products may also raise the subsidy bill so it may create pressure on the banking sector while an overall liquidity remains in the economy, he added.
Shamsul Alam, state minister of planning, said the governments’ pockets will continue to be very tight in the coming year due to the pandemic fallout and war between Russia and Ukraine.
“Due to the double blow, we had to reduce allocations for many sectors, however, the outcome of our spending is high so the socio-economic indicators of Bangladesh look brighter than that of neighbouring countries,” he added.
(TDS)
