OP-ED: A budget of the rich, by the rich, for the rich

GDP, inflation and unemployment

Sayeed Ibrahim Ahmed, Lecturer & investment analyst
coxsbazarvision.com

There is very little here to please the poor or the middle class

Abraham Lincoln’s quote From the Gettysburg Address in 1863, “that these dead shall not have died in vain — that this nation, under God, shall have a new birth of freedom — and that government of the people, by the people, for the people, shall not perish from the earth” is indeed questionable given the recent killing of George Floyd and the unconstitutional approaches the current Trump administration has been following for the last couple of years.

When Donald Trump got elected in November 2016, he immediately took a step to reduce corporate tax rates to promote American corporations to further invest and grow the economy. However, with the recent pandemic, it gave many Americans the time to reflect and think about such policies and who they benefited.

A similar stance can be taken regarding the recent budget announced by the Bangladesh government for the fiscal year 2020-21. While remarks were made that it is a budget for the poor and middle class, things couldn’t be further from the truth.

Think about the average Bangladeshi. From dawn to dusk, most of their time is spent running from one corner to another. They would prefer to travel in an air-conditioned bus to avoid the scorching heat of Dhaka city to get to their workplace, toil hard all day, spend some time in between work on their cellphones to reconnect with friends and family abroad to see how they are faring in the midst of this pandemic.

The average Bangladeshi can still avail these services, but the purchasing power of the individual shall not enable them to enjoy the same quantity of these services as before.

Besides these simple luxuries, the same individual would be required to file his tax returns at the end of the year to have documented evidence of being a good citizen. While some people might be jumping for joy thinking that the tax-free threshold has been increased to 300,000 from the current 250,000 this would not ultimately benefit the average individual.

The day-labourer would have additional disposable income, but he is having to pay more for basic services such as transportation and cell phone usage. The mid-level executive is paying more or less the same amount in taxes, and the CEO of a corporation will virtually pay the same amount in taxes.

Hypothetically if anyone earned Tk4,750,000, then he would pay Tk985,000 in taxes according to the previous income tax slab. If we consider the proposed income tax slabs for 2021, the same individual would now pay Tk982,000.

A meagre saving of Tk2,500. But here’s where things get interesting, previously any amount in excess of Tk 4,750,000 was taxed at 30%, whereas now any amount in excess of Tk1,600,000 is taxed at 25%. If we consider the case of someone with a Tk1cr income, that person would have ended up paying Tk1,575,000 in taxes for the amount in excess of Tk4,750,000 previously. In contrast, the same individual is now paying Tk1,312,500 for the same excess amount in income.

As one can see, the culture of favouritism is still in the hands of the rich. The capitalists and oligarchs get to keep more of their incomes earned through the blood, sweat, and tears of the lower, middle-income group. In addition to that, the proposal to disclose any amount of black money for a lump sum down payment of 10% tax will only encourage the perpetrators to keep pursuing their devious acts, knowing fully well that they will continue to receive such schemes in the future.

Some might argue that the penalty of 50% for money laundering through over and under invoicing will curb the illicit capital flows, but then again, how will one know the exact amounts of orders being over/under invoiced?

The initiative taken to introduce legal reforms towards introducing a “one-person entity” as a company with faster business registration and dispute settlement with amendments to the Companies Act 1994 point in the opposite direction of transparent declaration of receipts.

Increasing the excise duty on bank account balances for individuals is a double whammy to the government’s initiatives of trying to bring more people under the tax net. The middle-income group will be discouraged to keep their deposits in the banks, further punishing our banks for the unnecessary misery they are in already.

Tax cuts were not provided to the banking sector neither were any incentives offered to the NBFIs. With little investment demand and mismatched credit, it will be very interesting to see the approach banks take to help rescue the economy.

Setting an 8.2% growth target for GDP and an unrealistic revenue collection agenda while the World Bank forecasted a 1.6% GDP growth doesn’t require the “average Joe” to dive deep into the mathematical nuances of such matters. This year’s private investment figure was estimated to be 12.7% of GDP and that miraculously doubled to 25.3% for the next year!

Contrary to everyone’s belief the finance ministry believes that the private credit will grow by 16.7%, almost double of what we have now, in the midst of this pandemic. Even a novice in terms of economic matters can say it is absurd and unattainable, given a sluggish economy because of the pandemic, and with low credit availability to the private sector, recovery will slow down further.

While many had expectations of a higher allocation towards agriculture and disaster management, these areas barely received anything. In retrospect, the allocation for disaster management was reduced to Tk9,836 crore. The irony is that a separate fund of Tk10,000cr has been allocated for fighting the corona pandemic which itself is higher in aggregate terms than the amount proposed to wave of all the disasters combined.

The allocation for social safety net programs has been set at Tk95,574cr — up from Tk81,865cr last year. It amounts to 3.01%of GDP, but if we exclude the civil pension from the social safety net it would amount to only 1.5% of total GDP — which is extremely low.

The MRT Line-5 project (metro rail from Savar’s Hemayetpur to Bhatara) and the MRT-1 (from Dhaka airport to Kamalapur, and from Natun Bazar to Purbachal), are receiving a grand total of Tk2,091 crore.

The construction work for these two mega projects has not even started. If there has been a delay in starting the construction work for these projects so far, what was the harm if it could have been delayed further? People will use the roads and bridges only if they are alive! Redirecting such allocations towards the social safety programs would have enhanced the recovery process further since people wouldn’t have the need to leave their houses in search of work.

Instead of allocating Tk15,691cr in the Rooppur Nuclear Power Project, an equal amount as relief in the face of possible revenue shortage due to a reduction in bilateral aid could have prompted a faster recovery.

On top of all these, the allocations for education and health has remained subpar. Education is the backbone of a nation and if there was one way out to limit the spread of the virus, it was through education, informing the masses of the risks of the disease. Despite Unesco’s suggestion of allocating at least 6% of GDP towards education, our allocation has remained unchanged at 2.09% of GDP.

However, the health allocation increase from Tk 25,732 crore in the last fiscal year to Tk 29,247 crores in the new budget can be viewed positively, if one considers the reduced tax slab on PPEs!

One can say that the priorities in terms of increasing/decreasing taxes have gone haywire. Reducing the import VAT on gold doesn’t empower the common man. Rather it is a way to boost our central bank’s gold reserves since no common individual or small business owner can legally purchase “gold bars” from the international market and other central banks. Low-cost items such as garlic, sugar, detergent, and sanitary napkins were given a reduced slab, but essentials for a growing middle class such as a small automobile, A/C and fridge were slapped with a higher supplementary duty tag.

Commodities of human habits, such as cigarettes and cellphones shall bear a bulk of the additional charges. While imposing a higher supplementary duty on cigarettes as a “sin tax” can be justified, the same treatment for mobile phone operators who are part of our “Digital Bangladesh” agenda shouldn’t be viewed in a positive light.

The budget allocations this year had to be more precise and full of generous incentives for the poor. Instead, the max they received is a Tk 2,000 incentive to register as first-time tax-payers. It might take years before the common people of our country realize that the very notion of taxation used by the majority of the welfare states in the Western world is to give back to its citizens.

A redistribution scheme if one wills to call it that, which enables all classes of a society to live in harmony. But alas, wishful thinking is all we get! RMG exporters will happily continue to reap the rewards of a highly non-diversified economy. A budget of the rich, by the rich, for the rich will continue to follow suit as long as businessmen continue to fill in the shoes of bureaucrats.

Sayeed Ibrahim Ahmed is an experienced investment analyst, currently working as a Senior Lecturer in Finance at American International University Bangladesh (AIUB) pursuing research along the lines of capital markets and economic policy.

Source : Dhaka Tribune, Link : OP-ED: A budget of the rich, by the rich, for the rich

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