The World Bank in its latest update has projected Bangladesh’s economic growth to be 5.6 percent in the current fiscal year due to persistent inflationary pressures and external sector challenges. 

Earlier in April this year, it had projected a 6.2% GDP growth for Bangladesh in the current fiscal year.

The report’s companion piece, the latest “South Asia Development Update — Toward Faster, Cleaner Growth,” also released today, says South Asia is expected to grow by 5.8 percent this year, higher than any other emerging and developing region in the world, but slower than its pre-pandemic pace and not fast enough to meet its development goals.

The World Bank in its update stated that Bangladesh made a strong recovery from the COVID-19 pandemic, but the post-pandemic recovery was disrupted in FY23 with rising inflation, vulnerabilities in the financial sector, external pressure, and global economic uncertainty.

“New Frontiers in Poverty Reduction says that reforms to address inflation, through monetary and fiscal policies, as well as financial sector vulnerabilities will be critical for the country to sustain growth and poverty reduction,” the report said.

A single market-based exchange rate would help attract foreign currency inflows through formal channels and support the balance of payment and reserve accumulation, it added.

Supported by economic growth, Bangladesh improved living conditions and reduced extreme poverty to 5 percent in 2022 from 9 percent in 2016, which is comparable to Latin America and the Caribbean countries and fares better than the South Asian average.

The World Bank said, the new poverty numbers are based on the international poverty line of $2.15 a day (using 2017 Purchasing Power Parity) and the Bangladesh Bureau of Statistics’ (BBS) Household Income Expenditure Survey 2022 and re-estimation for 2016.

Companies and organisations will be required to file tax returns on the income generated by employee welfare funds from the current fiscal year and pay a 27.5 percent tax on the earnings. 

The Income Tax Act 2023 incorporates the provision, lifting the tax exemption and amnesty on the compulsion to file returns for funds such as provident funds, gratuity funds and workers' profit participation funds maintained by the private sector.

The law, however, has exempted government-managed provident funds from taxation, raising questions.

TIM Nurul Kabir, executive director of the Foreign Investors' Chamber of Commerce & Industry, said there were many other avenues to collect tax.

"Employees benefit from provident funds after their retirement. So, the authority should not slap taxes on retirement benefit."

He said while levying the tax, the government has not treated provident funds of the private and public sectors equally.

"It is discriminatory," he said, adding that they would appeal to the tax authority for the withdrawal of the tax on income from provident funds.

Debabrata Roy Chowdhury, director for legal, regulatory and corporate affairs at Nestlé Bangladesh PLC, said the introduction of income tax on trust funds would lower the overall income from such schemes.

"This will have an adverse long-term impact on retired employees of private organisations."

Chowdhury urged the authority to address the issue in line with the spirit of the government's initiatives aimed at ensuring social security for private sector employees.

"The recent introduction of the universal pension scheme for private sector employees is a good example of that."

A senior official of the NBR, on condition of anonymity, said the income of government-managed provident funds was exempted in line with the Provident Fund Act 1925.

He said provident funds under the private sector had been historically exempted and there was no requirement to submit tax returns. As a result, it was unclear whether the funds were properly utilised.

"From now onwards, we will see proper disclosure."

The tax official said the contribution of payroll tax is about 3 percent of the total income tax although it should increase as the economy is growing.

Md Shahadat Hossain, a former president of the Institute of Chartered Accountants of Bangladesh, said income from investment in savings certificates, where people invest as a source of future earnings, is already taxed.

"From that perspective, the imposition of tax on provident and other employee welfare funds seems okay."

However, Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue, said social protection for private sector employees was low.

"Provident and other workers' welfare-related funds provide little social protection. The imposition of tax will increase inequality. But there can't be any discrimination in taxation between private and government provident funds."

Khan, citing the latest income tax law that replaced the Income Tax Ordinance 1984, said the NBR tried to find new avenues to increase tax collection and improve the nation's revenue-gross domestic product ratio, which is one of the lowest in the world.

"We can see the desperation of the tax authority to boost collection. This ultimately reveals the inability of the NBR to catch the tax evaders and illicit money makers."