It would appear from the proposed FY 18 Budget that it was made to make the livelihood of the middle class more difficult although the budget-makers will never agree to such an assessment. The harsh reality is that the middle class will receive less from the government expenditures but will have to pay more. The super rich will go untouched, or at least, will not be touched more than what they are paying now. For them, the door of making black money white will remain open under the normal income tax rule. The 15 per cent proposed value added tax (VAT) will be just nothing compared to their income, but this tax will bite the middle class hard. This class has little income to hide. Most of the incomes they draw are from open sources, or from the sources which are already taxed. The only thing they are to do is to pay taxes at higher slabs while submitting their tax returns.
A person belonging to the middle class is one who does not become extravagant on consumption. He leads an otherwise modest life in every respect. At the end, he saves some money from his income. A middle class person may have his own house or may live in a rented one with or without own transportation, but he needs to think a lot about how to make two ends meet. A person belonging to the middle class can increase his income by doing some extra work but that scope is not unlimited for him. He is to make his expenditure carefully by keeping in mind his income flow. Any encroachment on his budget from outside does make his lifestyle difficult. His easy-going life does not remain so anymore; he is to bend his budget to suit the new situation.
Asking for paying more by the government will make a middle class man anxious about how to meet his other expenditures, at least, at the previous levels. This time the government has proposed to impose a 15 per cent VAT on the items the middle class people use or consume. Already this class pays electricity bill at higher slabs because of higher units they use, but now they are to pay extra against this bill because of 15 per cent VAT on this service. Also, the middle class households are already paying more for gas use whether at home or for transport, but there, too, they are paying extra. More annoying for them is the proposed increased excise duty on their bank transactions. Here, they are to count a few thousand taka extra per year. On the other hand, the money they want to keep with the banks in term accounts or government savings schemes will bring them less money. In this situation, if they use all the money on present consumption, they may land in uncertainty in the future. They do not know which way they should go.
The way the government framed the next year's budget proposals will leave the middle class no room to escape or evade; they are surrounded from all the sides. The middle class thinks the whole philosophy of this year's budget-making exercise is how to maximise its size, i.e. how to raise as much money as the government wants. The easy targets of the budget-makers are the middle class people who have less power to manoeuvre. Now, they are to come to terms to consuming less than what they used to do in the past and spend less than what they used to do in the past. Their income flow is in no way capable of coping with the new charges the government is imposing on them.
When the government proposed taxes, it did not apparently consider the implications of those; it only arithmetically calculated this amount of money it will receive from this source and that amount from that source. Normally, a tax policy is set in such a way that it helps boost investment and discourage people from consuming or doing something deemed to be harmful. But this year's tax policy aims at nothing but to maximise the revenue for the government.
The government should have reduced the corporate income tax to give a boost to investment, but in the budget proposal, it remains a forgotten issue.
The middle class is the backbone of consumption-driven economic growth, but through the proposed tax policy, their disposable income is being squeezed. The middle class should have been the main beneficiary of economic growth, but in Bangladesh, it seems they are not so. They are kept standby only to pay more. We do not know how long this policy of putting the burden of economic growth on the middle class only and letting the super rich take all the benefits of the same will remain.
The writer is Professor of Economics, University of Dhaka.
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