Why corporate tax relief for Bangladesh's banks and FIs: CPD

Why corporate tax relief for Bangladesh’s banks and FIs: CPD

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Dhaka, June 8 – The Centre for Policy Dialogue (CPD) yesterday said the proposed budget has increased taxation on the middle and lower income groups compared to rich people, which will ultimately affect the livelihoods of the general people.“The proposed budget is more dependent on VAT 35 percent compared to income tax 29 percent. It means the poor and middle-income people will be affected by over taxation compared to the persons who have the ability to pay,’ said Debapriya Bhattacharya, Distinguished Fellow of the CPD, at a post-budget press conference at a city hotel in the capital.
He also said generally it is seen that the large tax unit (LTU) is expanded every year but interestingly it has been estimated that the collection would be Tk 2,370 less this time, which creates a doubt among us.
The CPD also said that the implementation level in the mega projects like Padma Bridge is very weak which is increasing the cost and reducing the efficacy of public investment.
It said the timeline of Padma Multipurpose Bridge increased by 42.9 percent due to successive revisions which led to an increase in cost by 183.3 percent and further extension of time and allocation of additional resources is inevitable.
“Annual development plan is going on as usual and it will continue in the same way. Time and cost are increasing in various projects. Many projects are not ending without funding,” Debapriya Bhattacharya said.
He said there is no change in the tax slabs and tax rates of personal income tax. “The tax-free income threshold for personal income stays same at Tk 2.5 lakhs. It does not consider the added pressure of the rising food inflation and decreasing average monthly real wage,” he added.
CPD has proposed raising the threshold to Tk 3 lakh and adding a new (first) slab with 7.5per cent tax.
“The perquisites ceiling has been increased to Tk5.5 from Tk4.75 lakh. It means it will ultimately benefit the higher income people and not the low-income ones. We are giving facilities to the rich people but average people are being deprived. It cannot be an equal policy,” he added.
He also expressed satisfaction for the expansion of wealth surcharge – owners of at least two cars or at least 8000 sq ft of housing property as it will increase revenue. CPD has vehemently opposed the government’s proposal to reduce the corporate tax rate for banks, insurance, and financial institutions by 2.5 percent.
“We oppose the decrease of corporate tax for banks, insurance, and financial institutions. The anarchy which is prevailing in the banking sector has not been solved. It is nothing but giving opposite signals to banks. We doubt the liquidity will not increase for such tax reduction. The entrepreneurs will not increase. Even there is no guarantee that the interest rate for the depositors will increase. It’s a wrong step of the government,” he added.
Regarding VAT on app-based services like Uber, Pathao by 5 percent, he said the burden will be passed on the consumer.
About undisclosed money, he said, “We oppose the existing provisions about undisclosed money. We principally oppose the whitening black money. Various finance ministers in different times said it has not been possible to bring the black money into the mainstream investment. It needs different measures.”
Regarding flat sale/resale, he said CPD sees such imposition of tax as discriminatory between middle-income groups and rich class. “It is creating pressure on emerging middle-income people,” he added.
About the emerging sector like e-commerce, he said, “5 percent VAT instead of 4.5 has been imposed on technology-enabled services. It is an emerging sector and many young people work here. It should be been whether it would discourage employment.”
About tobacco, he said, “You are raising the duty to decrease the production of tobacco products but at the same time the government has erased the export duty for export of tobacco-related products. It is contradictory.”
Regarding allocation for education, CPD has bound a bleak picture. It said the allocation for the mainstream education declined to 11.4 percent in the fiscal year (FY) 2018-19 while it was 12.6 percent in previous FY. Only 2.09 percent of GDP is allocated for education which is worrying and stagnant.
“It’s an insanity to hope that Bangladesh will become a developed country by spending 2.0 percent of GDP in education. This small allocation in education will ensure quality education is nothing but madness,” he added.
The allocation for the health sector is very pitiable which is only 1 percent.
Debapriya said, “The main problem is that the allocation is increasing in all sectors but nobody is giving accounts how much is being spent in the respective sector. There is an absence of transparency and accountability in real expenditure.”
He said according to 15.4 of the Public Money and Budget Management Act 2009, the finance minister is supposed to report about the status of implementation of budget to the national parliament at the end of each quarter but till May 2018 a total of 28 reports were to be prepared; of those only 16 reports have been prepared.
CPD said a number of laudable fiscal measures have been taken to strengthen domestic-oriented industries and enhance revenue earnings but it lacks sensitivity towards existing and emerging macro stresses e.g. pressure on the balance of payment and exchange rate, inflationary expectations.
It said the budget lacks a well-crafted action plan to implement it as no concrete initiatives towards strengthening of implementing institutions and oversight mechanisms; inconsistent budget programming e.g. import growth target totally out of line with foreign finance drive import demand.
In reply to a query, Debapriya said the government has to take various plans to implement the mega-budget but there is no directive how to implement it. Even the budget does not have any change in structure and policy, he said.
“An action plan is needed how the revenue will be collected. Secondly, we need a result based management and monitoring approach. The expenditure does not mean that the desired result has been achieved. We have to see whether the beneficiaries have got the benefits,” he added.
Among others, Distinguished Fellow of the CPD, Mustafizur Rahman, Executive Director of CPD Fahmida Khatun and Research Director Khondaker Golam Moazzem and Research Fellow Towfiqul Islam Khan, also spoke on the occasion.

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