The exchange rate of US dollars on the unofficial kerb market reached record Tk 125 on Thursday, a day after Bangladesh Bank raised the exchange rate by Tk 7 in a single step.

The central bank introduced a crawling peg system on Wednesday to determine the exchange rate of the US dollar with the taka. By applying the system the regulator  increased the exchange rate of a dollar by Tk7 in a single day.

As a result, the greenback was hard to be found in the kerb market amid reports of hoarding of the currency by traders for profits in the future. Desperate buyers reportedly even paid up to Tk 125 for one dollar in the kerb market to meet their travel and treatment expenses abroad.

The rate of the US dollar was around Tk117 in the informal market until May 8, but it shot up suddenly after the announcement of an exchange rate hike from the central bank, said a money changer in Paltan seeking to remain unnamed.

"It happened not only in the case of the US dollar. The exchange rate of other currencies also rose by Tk 4-5 overnight as the demand is higher for Saudil Rial as the Hajj season began,” he said.

The kerb market, a main source of cash dollar and other major currencies, registered a jump in the exchange rate a day after media reported that the central increased the exchange rate by Tk7 in a day.

Prominent economist and former IMF official Dr Ahsan H. Mansur told that the central bank has to increase the dollar supply in banks to meet the temporary shortage of greenback in the kerb market.

He said that the dollar traders got a signal to increase the rate of the foreign exchange more, that is why they are saying shortage of dollars after keeping in stock. When supply will increase, the rate will decrease.

Mansur also said that the exchange rate in the open market was always higher than banks, sometimes it increased to an unusual level due to lack of market monitoring.

MSH

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."