Founder, Chairman of Centre for Policy Dialogue (CPD) and prominent economist Professor Rehman Sobhan on Monday expressed concern that Bangladesh may face severe difficulties if foreign exchange reserves keep falling and go below $10 billion.

He said this at an open conversation with the members of the Economic Reporters Forum (ERF) held in the city on Monday.

Prof Sobhan said Bangladesh's foreign exchange reserves continue to slide and stood at $21.15 billion on 26 September in line with the IMF’s reserve calculation formula.

Recently the reserves decreased to $18 billion as per the global standard of reserves calculation, which may fall to $10 billion or below within a few months if this trend continues, he said. Then global lenders like the IMF and the World Bank would not be able to help Bangladesh, he added.

Prof Sobhan said the inward remittances dropped to $1.34 billion in September, the lowest in 41 months, though August saw the highest number of workers going abroad in a single month and a record 11.3 lakh in FY23.

He, however, does not believe that the overall economic situation of Bangladesh can ever be like that of Sri Lanka as Bangladesh has well export earnings and remittances.

He said that instead of sending remittance through banking channel reserves are being handled through hundi. “So, that has become quite convenient for those who smuggle money abroad,” he added.

 Prof Sobhan said that there has been a big change in the culture of the country's financial sector. “Non-repayment after borrowing has become the norm. The lower income groups deposit money in the banks while the rich take money as long-term loans and become defaulters. This tendency is growing,” he said.

He also said that in the next national election loan defaulters should not be allowed at all, but the record said they are allowed to contest by paying 4 to 5 percent of defaulted loans.

In replying to a query, he said the earnings of Bangladeshi people have increased and BMW cars are available as some people have the money to buy them.

“But which one is more necessary? Eggs or BMW, policymakers will determine it,” he said. “There remains income discrepancy in the society,” he said.

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."