The Finance Minister has presented a robust budget in Parliament. The budget has many bright aspects, but there are certain gaps which need to be looked into. The budget can fill in some of the gaps before approval. The media is highlighting the shortcomings in the budget. The government is certainly taking note of these discussions for appropriate action.
The Finance Minister defended his proposal to cut corporate tax rates for banks and financial institutions, saying that the move is intended to help bring down the lending rates to single digit. While presenting the budget, the Finance Minister proposed a 2.5 per cent cut in corporate tax of banks, insurance companies and financial institutions. The Centre for Policy Dialogue (CPD) criticised this tax cut, saying this would benefit neither the borrowers nor the depositors. It will not help the banks increase their liquidity either. The CPD also estimated that the proposed tax cut was likely to result in an annual revenue loss of Tk10 million for the government. It is alleged that the government succumbed to the pressure from the banking lobby.
The leading chambers and trade bodies are disappointed that despite repeated requests and assurances over the years, the corporate tax rate of 35 per cent and above paid by a vast majority of companies has not been reduced to promote investment and growth. They urged the government to slash the corporate tax rate evenly for all sectors. The rate of corporate tax in Bangladesh is higher than the Asian average of 21 per cent and global average of 24 per cent.
The Finance Minister also back-tracked from his position regarding the formation of a banking commission. He wanted to pass the responsibility of forming the commission to the next government. He said he had prepared all necessary documents for constituting the commission. The previous banking commission was set up in 2004. Earlier, the minister said a banking commission would be set up within June.
The Metropolitan Chamber of Commerce and Industry (MCCI) expressed its disappointment over the continuation of the existing tax-free threshold for individual income. The chamber said this threshold Tk 250 thousand (2.50 lakh) has not been changed for the last three years. Real income of the people, which has dwindled due to inflation, has not been protected.
The outflow of foreign direct investment from Bangladesh to other countries surged more than three times within one year. The country's outbound foreign direct investment (FDI) reached $170 million in 2017, according to the World Investment Report. The amount was $41 million a year ago. But the inflow of FDI to Bangladesh dropped by 7.8 per cent last year. Mynmar received the highest amount of FDI from the multinational companies.
The International Monetary Fund (IMF) has predicted a flare-up of political tension in the run-up to the general election likely to be held in December 2018. The potential threat of terrorism continues to be a source of concern. Resumption of political turmoil and a deterioration of security situation could adversely affect confidence, investment and growth. Balance of payment pressure could emerge from lost exports and production. The IMF has emphasised the necessity of stronger regulations and supervision to address the banking sector weaknesses. On the Rohingya influx to Bangladesh, the IMF cautioned that as the repatriation of the refugees takes time, there would be fiscal pressures, social and environmental costs as well as security concerns.
The proposed budget has been framed without taking the sustainable development goals (SDGs) into consideration. If Bangladesh wants to achieve the SDGs, it must integrate its budget with the goals. The agenda includes 17 goals and 169 associated targets. The SDGs will have to be attained by the countries on their own, which would be a big challenge. According to an estimate of the Planning Commission, Bangladesh needs $62 billion a year to achieve the SDGs. There are only 12 years to reach the goals.
Investors were frustrated as the budget offered hardly any specific direction on the capital market. The budget did not focus on the capital market as per expectations. The country's capital market is currently witnessing a bearish trend. There is no strategy in the budget to utilise the capital market. The capital market is influenced by the unrest in banks and financial institutions, as their market capitalisation is more than 50 per cent of the total market.
Some ruling party members and opposition lawmakers blasted the Finance Minister in parliament for his complete silence on the widespread irregularities in the banking sector during his budget speech, and poor handling of the scam-hit sector. Loan scams and mismanagement have plagued the banking sector in the past few years, but the Finance Minister keeps mum about it. Defaulted loans are rising and have reached nearly 11 per cent of the total outstanding loans. If the rescheduling is taken into account, it would be about 20 per cent. Banks are struggling to survive from rising defaulted loans, capital shortfall, corruption in loan disbursement and growing influence of directors in private banks. People are now afraid of keeping money in banks.
The budget did not focus on employment generation properly. The proposed budget is mega project-friendly but it is not employment focused. The scarcity of jobs won't be solved only by developing infrastructure, unless people are imparted proper education.
It is hoped that the government will seriously look into the areas of concern for appropriate action at the time of approval of the budget, especially because it is an election-year budget.
Syed Jamaluddin is an economist and columnist. [email protected]
