Reviewing bureaucrats' tax privileges

Before delivering a new and obviously higher pay scale for employees in government service, the National Pay Commission (NPC) has brought civil servants' tax privileges under the scanner. It has asked for a report from the National Board of Revenue (NBR) on the tax privileges granted to the bureaucrats. As many as 2.4 million officials in government service are enjoying tax waiver. They are required to pay taxes on their basic salaries and festival bonus only while private sector employees have to do this on their entire incomes. This is logically indefensible and also unconstitutional. Article 27 of the Bangladesh Constitution guarantees equality of all citizens and their right to equal protection of the law. There are numerous privileges and perks for officials and employees in the public service to enjoy. But this one is quite exceptional. Civil servants in India and the United Kingdom (UK) have to pay taxes on their salaries similar to private sector employees. In the UK, they also pay like other employees the National Insurance Contributions (NICs) at the same rate. 

This should not be any different in case of Bangladesh. With transparency and accountability often missing from governance, this kind of political pampering only makes the public service murkier. Taxable earnings by individuals irrespective of the sectors cannot enjoy undue waivers. Discriminatory provisions are divisive and widen inequality in society. The economic repercussion of a higher pay scale for government employees is not confined to money only. What compulsion the interim government felt to offer a higher pay scale for government employees is best known to it. At a time when the private sector is facing unprecedented challenges and factories and industries are terminating employees following the turmoil in international trade caused first by Russia-Ukraine war and then by Donald Trump's reciprocal tariff, the new pay scale is likely to destabilise the market further. Purchasing power parity for private sector employees will erode. 

So, a review of the tax privilege enjoyed by government officials is logical. The money for the pay hike will come from taxpayers. So the earnings by public sector employees must be treated like those of private sector employees. In the post-pandemic period, many in the private sector lost their jobs or were forced to accept a lower pay package. The population living below poverty line has gone up from 18.7 per cent in 2022 to 28 per cent currently. With this favour of higher pay package, market will get jittery and more people will slide below the poverty line. 

Against such stark reality, the tax waiver for the privileged government employees is mindless. They must contribute to the exchequer in return for the pay hike. Raising salaries for public sector officials is a needless exercise. The ratio between lower grade and higher grade could, however, be narrowed down. This called for raising salaries for some of the lower grades without affecting the higher slabs of the pay scales. Such employees do not earn enough to qualify for tax return. But the government is adamant to go ahead with its programme for raising salaries of all government employees. The NBR fails to fulfil the target of revenue earning. In this respect, the International Monetary Fund's opposition to tax waiver for civil servants should be taken into account.