Tax-Raising Bangladeshi Budget Under Fire

by Mary Swire, Tax-News.com, Hong Kong

12 June 2002

Heavy criticism of Bangladesh's proposed budget, announced last week by Finance Minister M. Saifur Rahman, has led the government to consider making changes to some of the new revenue-raising measures unveiled in the budget. Mr Rahman proposed sweeping tax rises for a range of imported food items including sugar, fruits and fish but cut company tax, new-car import tariffs and those on televisions and refrigerators. He imposed a 7.5 per cent import tax on computer hardware and software. Overall the budget would result in a 4% deficit of GDP which would be financed by external and domestic borrowings.

Top target for complaints has been the import duty on computer and computer accessories, and the proposed ban on import of reconditioned vehicles is also under attack. Planners are now thinking of withdrawing the ban, says local newspaper The Daily Star, but the government will not allow any depreciation in the assessment of old and used motor cars. So, the price of reconditioned vehicles will shoot up to the level of new vehicles, sources concerned said.

"If the government lifts the ban but does not allow depreciation, it will mean that we have to sell reconditioned vehicles at the price of new cars," a dealer of reconditioned vehicles told the newspaper.

Economists and politicians have said that the budget is tax-heavy, aimed at benefitting the rich and likely to pressure the poor, and called the budget unrealistic considering the economic slowdown of the country, which expects economic growth of 4.8% in 2001-02, down from 6% in the previous year.

In a recently-completed Article 4 Consultation report, the International Monetary Fund (IMF) has termed the present fiscal trends "worrisome," and said the deficit target of 5.5% for the present fiscal year will be difficult to achieve.

"The macroeconomic situation in Bangladesh has become increasingly fragile in recent years owing to persistently expansionary fiscal and monetary policies," the IMF said, adding there has been a progressive loss in the momentum of efforts to reform the structure of the economy. The Fund said regaining and maintaining strict control over public finances will be key to reducing domestic imbalances. Urging the government to take a prudent fiscal stance, the IMF said that this would serve to diminish the inflationary and exchange rate pressures.

It's not clear the the budget follows this advice. Former finance minister and a leader of opposition Awami League, S. A. M. S. Kibria, said: "It's an impractical and irresponsible budget. The burden of tax would further aggravate the sufferings of the people."

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