Bangladesh
10 months ago

Budget reactions: Reduce demand thru interest raise, reform taxation

Economists suggest at MCCI-PRI meet

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Blaming price spiral on global inflation, instead of demand management through interest-rate raise and reducing budget deficit, reflects ‘political convenience’, economists and business leaders said Saturday.  

At a budget-review meet they suggested reform of the taxation system and bifurcation of the revenue authority into policy and tax-collection bodies to break an alleged nexus between a section of tax-collectors and taxpayers as part of measures to enhance revenue and thus reduce budget deficit.  

The proposed budget for fiscal year (FY) 2023-24 has focused on boosting growth, not on macroeconomic stability, with little effort to reduce demand through lowering fiscal deficit, said Dr Sadiq Ahmed, vice chairman of the Policy Research Institute (PRI).

The budget has set an ambitious GDP-growth target again, like the budget for FY 23, without addressing the persisting slowdown in the growth of domestic credits by reducing bank financing of the budget deficit.

The post-budget discussion was jointly organised by Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka, and the PRI on “Bangladesh from Vulnerability to Resilience and Rapid Inclusive Development”. Planning Minister MA Mannan attended the programme as chief guest.

Dr. Zaidi Sattar, Chairman, PRI, focused on shifting the dependence on trade taxes as a way of reducing the pinching inflation.

Habibullah N. Karim, Vice-President, MCCI, moderated the panel discussion.  MCCI Senior Vice-President Mr. Kamran T. Rahman made the welcome remarks.

Dr Sadiq said blaming the sustained inflationary spike on global inflation and Ukraine war is politically convenient but not entirely based on fact as domestic inflation sustained for a longer period owing to the absence of adequate demand- management policies.

He suggested ‘demand-reduction’ policies through hike in interest rates through which many countries, including India, Thailand, Vietnam, the USA, and the EU, succeeded in reducing inflation.

On tax-GDP ratio, he said inability to introduce meaningful tax reforms over the past several years has constrained tax-revenue mobilization.

He suggested a set of reform initiatives, including separation of tax planning from tax collection, conducting audits by trained and professional tax auditors, and introduction of property tax.

“The government should convert the National Board of Revenue (NBR) to a tax-service agency from tax- policing department,” he said.

He also suggested turning around the performance of the state-owned enterprises (SOEs) through corporate governance and pricing reforms that could yield an additional 1.6 per cent of GDP as revenues for the government.

Dr Zaidi Sattar also feels that the government will have to shift reliance on import taxes, which seems inadequate in the proposed budget.

“It’s a welcome move that supplementary and regulatory duties on some products have been withdrawn in the budget but larger number of products should be included in the list of waiver,” he said.

He thinks the persisting inflation could be cut by 1.0 to 2.0 per cent if the government relaxes import taxes.

While making a brief presentation on the proposed budget, Adeeb H Khan, Member of the Board of Directors, MCCI, said the provision of new income- tax law, to be placed in parliament soon, have to be made available for stakeholder review by giving sufficient time and opportunity before making it effective.

Responding to a question, he said the proposed measure on imposition of minimum Tk 2000 on people requiring to submit tax return despite having below-taxable income is ‘against the principle of tax law’.

He said hike in taxes on transfer of land, building property, imposition of tax on foreign loan might cause escalation of costs of taxpayers.

He said trucks and buses are more polluters of environment compared to that cars while environment surcharge has been proposed to be imposed on cars.

Planning Minister MA Mannan suggested reviewing the upward adjustment of wealth surcharge, questioning its justification, while supported the minimum tax Tk 2000 on individual on a trial basis.

Mr Mannan would like implementation of Tax Return Preparer (TRP) concept in phases and on a pilot basis at first.

He agreed on MCCI proposal about the need for communication and consultation with the business community before the passing of the new Income Tax Act 2023.

MCCI Secretary-General and CEO Mr. Farooq Ahmed moderated the event.

Speaking at the programme, Kamran T. Rahman suggested an interim evaluation of the budget after three months.

Dr Sadiq pointed out four major challenges of this budget:  restoring macroeconomic stability, the challenge of revenue mobilization, prudent financing of the budget deficit and protecting social sector spending.

Former president of the Institute of Chartered Accountant of Bangladesh (ICAB) Md Shahadat Hossain finds a lack of confidence between taxpayers and taxmen which should be resolved to encourage people to pay taxes.

Other topics that came up during the panel discussion were the need for a reduction in Advance Income Tax (AIT), the multi-layered tax on company dividends, revenue mobilization, the low tax-GDP ratio, the lack of confidence between taxpayers and tax-collectors, the doubling of property-transfer tax, and the requirement for all TIN-holders to pay Tk 2,000 tax to avail 44 types of government services despite not having taxable incomes.

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