Troublesome fiscal measures may be scrapped

It hardly comes as a surprise that some of the most controversial fiscal measures adopted recently could well be on their way out. In what can only be dubbed desperate measures to increase revenue, the taxing of private provident fund and foreign debt payments were probably not fully thought out before enactment. The decision by the National Board of Revenue (NBR) to review these two measures have to do with strong objections coming from from both the individual and corporate taxpayers' levels. 

So, what was so objectionable about these two measures to warrant such adverse reactions from taxpayers? For starters, banking insiders state that slapping a source tax on foreign loans increased cost of repayment by as much as 25 per cent. Foreign loans are taken by individuals, corporates and the State itself. The total volume of foreign loans taken by both State agencies and the private sector is worth billions of dollar and annual repayments against those loans are also substantial. At a time when the economy is in trouble with yearly repayments, imposition of source tax is hardly conducive. It is expected that a decision will be made in this regard soon.

The fact that the NBR had imposed a 20 per cent tax on the interest component for foreign loan-payments has had, in effect, raised repayment cost by as much as 25 per cent. This drew huge criticism for bankers in the country and with good reason. According to a report in this newspaper, "the Association of Bankers, Bangladesh (ABB) have raised concerns over the high source tax on Usance Payable at Sight (UPAS) loans as there is no tax-credit facility for these loans." In common parlance, UPAS is a financing scheme that provides financing to importers for goods, services and other trade-related transactions.

The other point of contention of course is the slapping of a massive 27.5 per cent tax burden on provident fund of private citizens. This is a near threefold increase of tax from the previous 10 per cent. Perhaps there would have been less of a backlash had this new fiscal measure been applicable to all citizens. But it wasn't applicable for government officials. Why this discrimination? For all practical purposes, employees in this country usually get access to their matured provident funds when they leave service. Although there is provision for gratuity, that is something that most employees are deprived of in the private sector when their employment comes to an end. So, to hit one fund that amounts to the only savings for millions of employees and then take away nearly a third of it in taxes is ludicrous.

Matters had reached a stage where the Bangladesh Bank had to write to NBR officials stating that interest rates on foreign loans were already at an all-time high and any further incidence of taxation would have the boomerang effect whereby people and institutions would be discouraged to avail such loans. That in turn would put more pressure on the liquidity situation in the local currency, and also the exchange rates. The matter now rests with the ministry of finance and one can only hope that Statutory Regulatory Orders (SROs) will be issued to amend these fiscal measures that had been incorporated in the new Income Tax Act 2023.The introduction of these fiscal measures was not thought out fully before incorporating them into law. Let them be a lesson for policymakers that simply imposing taxes to balance the books often does more harm than good, unless their long-term impact is thoroughly examined before such decision is made.