That the government lacks initiative to streamline the country's troubled banking sector has been reflected in the proposed budget for the fiscal year (FY) 2018-19.
Finance Minister AMA Muhith chose to bypass the problem that many tend to believe is the byproduct of political indulgence extended to a section of unscrupulous borrowers and poor management.
But avoidance does not necessarily solve the problem. Rather such inaction does complicate it further.
It is obvious Mr. Muhith did not want to be harsh on errant top borrowers, bank management and regulators concerned in the final year of the government's current tenure.
However, the sop he has proposed in the budget for banks and financial institutions (FIs) has evoked both surprise and criticism.
In fact, the proposal to cut corporate tax rate is no news. On a number of occasions in the recent past, the finance minister said in clear terms that there would be some cut in corporate tax rates. He also pointed out that the corporate tax rates in Bangladesh are high compared to those in many other countries.
Accordingly, he has proposed tax cut. But this incentive would not extend to businesses of all sectors. He has proposed 2.0 per cent cut in the tax rate only for banks, insurance companies and financial institutions (FIs). And what is astounding is that both listed and non-listed entities of these categories of businesses will get the benefit.
Mr. Muhith, however, defended the move in his post-budget press conference, saying that the tax-cut meant for banks and FIs is aimed at reducing the lending rates to single digit.
If the corporate tax rate-cut could really bring down the lending rates, it would be a notable achievement. It is not known whether the bank owners had assured the government earlier that the benefits of the corporate rate-cut would be transferred on to the borrowers in the form of reduced lending rates.
If the banks reduce lending rates, borrowers would be happy. But, if this does not happen, the ultimate loser will be none but the government.
The government, according to an estimate of the think-tank Centre for Policy Dialogue (CPD), will in that case lose around Tk. 10 billion in tax revenues. The amount is equivalent to one-fourth of the money the BASIC Bank lost in a loan scam. The amount lost in the scam was dubbed as 'peanut' by someone in the corridors of power. One wonders whether the government would feel concerned about the possible loss of Tk.10 billion.
Moreover, what is the rationale of the proposal to extend the tax-relief to the non-listed banks, insurance companies and FIs at a rate equivalent to that offered to the listed ones? The sop given to these non-listed entities goes against the principle of giving incentives to companies that are listed on the bourses.
Businesses outside the financial sector also expected some cut in their corporate tax rates. But they were disappointed. The budgetary proposals on corporate tax rate-cut do not apply to their case.
Such disappointment or anguish, whatever one may like to call it, was voiced Saturday last by none other than the head of the country's apex chamber, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).
Speaking at a press conference, he demanded of the government to ensure lending rate-cuts in commensurate with the fiscal benefits proposed for the banks and FIs.
The FBCCI president was visibly disturbed by the loan scams and other irregularities in the banking sector. He urged the government to punish the plunderers of banks' funds worth billions of taka.
The image of the country's banking sector is not bright anyway. Under the circumstances, the fiscal benefits proposed for them have not gone well with many.
What the banking sector needs now more than anything else is streamlining of its state of affairs. Under the current mechanism, that is not possible, it seems.
That is why the issue of constituting a banking commission surfaced. The finance minister, even a couple of days before the announcement of the budget, told newsmen that a commission would be constituted within this month. But he said not a word about such a commission in the budget. And when he was asked by the newsmen at the post-budget press-meet about the issue, he backtracked on his earlier stance and said no commission would be formed during the current tenure of the incumbent government. Why is this flip-flap?
Whatever may be the mood of the finance minister, it is important to streamline the banking sector. Otherwise, the country's economy may have to pay a heavy price in the near future. Dealing with banks is not a child's play. None should forget this truism.
© 2017 - All Rights with The Financial Express