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9 June, 2018 00:00 00 AM

Greater tax burden placed on lower-income group: CPD

Greater tax burden placed on lower-income group: CPD

The Centre for Policy Dialogue (CPD) yesterday said the proposed budget has increased the tax burden on middle- and lower-income groups rather than on rich people, thus ultimately affecting the livelihoods of the common people. “The proposed budget is more dependent on VAT (35 per cent) compared to income tax (29 per cent). It means those poor and middle income people will be affected by overtaxation rather than  those who actually 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 the large tax unit (LTU) generally expands every year, but the estimated the collection will be Tk. 2,370 less this time. This raises doubts about the sustainability of the system, he added.

The CPD said that the implementation level of mega projects, such as the Padma Bridge project, has remained very slow, thus increasing the cost and reducing the efficacy of public investment.

It also said the timeline of the Padma Multipurpose Bridge project haa been extended by 42.9 per cent due to successive revisions—this has led to a cost escalation by 183.3 per cent. Moreover, further extension of completion time and allocation of additional resources looks inevitable at present, it added.

“The Annual Development Plan (ADP) is going on as usual, and it will continue in the same way. But the time and cost of various projects are increasing. Many projects are not ending without additional funding,” Bhattacharya said.

He observed that there has been no change in the tax slabs and tax rates of personal income tax. “The tax-free income threshold for personal income remains the same at Tk. 2.5 lakh. It does not consider the added pressure of rising food inflation and decreasing average monthly real wage,” he said.

The CPD proposed raising the threshold to Tk. 3 lakh and adding a new (first) slab with 7.5 per cent tax.

“The perquisites ceiling has been increased to Tk 5.5 from Tk. 4.75 lakh. It will ultimately benefit the higher income people and not the low-income ones. We're providing facilities to rich people, but commoners are being deprived," said Bhattacharya.

He, however, welcomed the expansion of wealth surcharge for owners of at least two cars or at least 8,000 sq ft of housing property as it would increase revenue.

The CPD vehemently opposed the government’s proposal to reduce the corporate tax rate for banks, insurance and financial institutions by 2.5 per cent.

“We oppose the decrease in the corporate tax for banks, insurance and financial institutions. The anarchy prevailing in the banking sector has not been resolved yet. It is nothing, but giving opposite signals to banks. We doubt whether liquidity will increase as a result of such tax reduction. The number of entrepreneurs will not increase. Even there is no guarantee that the interest rate for the depositors will increase. It’s a wrong step taken by the government,” said Bhattacharya.

Regarding the 5 per cent VAT on app-based services like Uber and Pathao, the CPD fellow said the burden will

eventually be passed on to consumers. About undisclosed money, Bhattacharya said: “We oppose the existing provisions about undisclosed money. We principally oppose the whitening of black money. Various finance ministers in different times have maintained that it is possible to bring black money into mainstream investment. It needs different measures.”

Regarding flat sale/resale, Bhattacharya said the CPD sees the imposition of tax as discriminatory between middle income groups and the rich.

“It’ll create pressure on the emerging middle-income people,” he added.

About the emerging e-commerce sector, the CPD fellow said: “Five per cent 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 seen whether the tax would discourage employment in this arena.”

About tobacco, Bhattacharya said: “You are raising the duty to decrease the production of tobacco products—that’s a good step. But at the same time, the removal of export duty on tobacco-related products is contradictory.”

Regarding the allocation for education, the CPD saw a bleak scanario. It said the allocation for mainstream education declined to 11.4 per cent in FY2018-19, while it was 12.6 per cent in the previous financial year. Only 2.09 per cent of GDP has been allocated for education, which is quite worrying, it has observed.

“It’s unreal to hope that Bangladesh will become a developed country by spending 2 per cent of its GDP on education. To imagine that this small allocation for education would ensure quality education is nothing but madness,” Bhattacharya noted.

The allocation for the healthcare sector at 1 per cent was pitiable, he felt.

“The main problem is that allocations are increasing in all sectors, but nobody is giving accounts of how much is being spent in respective sectors. There is an absence of transparency and accountability in real expenditure,” he said.

Bhattacharya also said that the finance minister was supposed to report on the status of implementation of the budget to Parliament at the end of each quarter. Till May 2018, a total of 28 reports were to be prepared, but only 16 reports were readied by that time, he added.

The CPD said a number of laudable fiscal measures have been taken to strengthen domestic industries and enhance revenue earning, but the budged lacks sensitivity towards existing and emerging macro stresses including the pressure on balance of payment and exchange rate, inflationary expectations etc.

It also said the budget also lacks a well-crafted action plan in terms of implementation as there have been no concrete initiatives towards strengthening the implementing institutions. It also cited oversight of mechanisms and inconsistency of budget programming in this regard.

In reply to a query, Bhattacharya said the government must adopt various plans to implement the mega budget, but there has been no directive on how to implement it. The budget did not even show any change in structure and policy, he noted.

“An action plan is needed on how the revenue will be collected. We also 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 get the benefits,” he added.

Among others, CPD distinguished fellow Mustafizur Rahman, executive director Fahmida Khatun, research director Khondaker Golam Moazzem and research fellow Towfiqul Islam Khan also spoke on the occasion.


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Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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