Prominent economist Dr. Qazi Kholiquzzaman Ahmad highlighted on Monday that Bangladesh's economy is trapped in a “vicious circle,” rendering inflation control policies ineffective, unlike the successes seen in Sri Lanka, India, and Pakistan.

Speaking as the chief guest at the "Post-Budget Reaction on Water, Sanitation, and Climate Change" event organized by the Development Organisation of the Rural Poor (DORP) at the Economic Reporters' Forum, Dr. Kholiquzzaman pointed out that the rapid growth rate of wealthy individuals in Bangladesh amid economic crisis and the pandemic is due to assets being looted by this influential circle.

Dr. Kholiquzzaman emphasized, "The government’s policies are not working properly to combat inflation due to the influence of a vicious circle. This circle influences the government's policymakers and policy implementation, preventing the economy from improving until their hold is cut off."

He elaborated that this vicious circle operates at the policymaking, monitoring, and implementation levels, resulting in ineffective government policies. Globally, economic policies are created and controlled by regulators from a neutral standpoint, but in Bangladesh, policies are often influenced by those who are affected by them, leading to policy failures.

Referring to inflation control, Dr. Kholiquzzaman noted that inflation has decreased to around 5% in India, 1.5% in Sri Lanka (down from 49.72% in 2022), and 11.8% in Pakistan (down from 28.34% in January 2024). However, Bangladesh’s inflation rate has remained in double digits for the past 22 months. Despite using similar tools as India, Pakistan, and Sri Lanka, Bangladesh's policies have failed due to poor implementation.

"In the proposed budget, expected inflation is set at 6.5%, but considering it was targeted at 6% for FY 2023-24 and wasn’t achieved, how can we expect it to fall to 6.5% in FY 2024-25?" he questioned.

Regarding the proposed budget, Dr. Kholiquzzaman criticized the lack of measures addressing major economic challenges, noting that it was prepared by bureaucrats without accountability, which means the economic situation is unlikely to improve soon. He acknowledged Bangladesh’s progress in social development but pointed out that income disparity has widened over the last decade, and the employment situation remains frustrating.

Dr. Kholiquzzaman highlighted severe asset disparity in Bangladesh, with 76% of assets owned by only 10% of ultra-rich people, whose resources increased even during the Covid-19 pandemic. In contrast, about 50% of the population owns only 2% of assets, lacking access to quality education and training needed to contribute to the economy.

"The rich are not paying taxes, and the government is unable to impose actual taxes on them, leading to a stagnant tax-to-GDP ratio," he said. He compared Bangladesh’s tax-to-GDP ratio of around 8% with Nepal’s 19%, Pakistan’s 10%, and the USA’s 27%.

The event also featured speeches by Alok Kumar Majumder, country coordinator (Bangladesh) WASH Alliance; Fayazuddin Ahmad, Advocacy and Campaign Lead, Water Aid Bangladesh; Joseph Halder, convener of FANSA-BD; Md. Alamgir Hossain, project director, Sample Vital Registration System (SVRS), BBS; Md. Masud Rana, senior manager (Corporate Sales), RFL Plastic; Mahmodul Hasan, domain coordinator for water, food, and climate at HELVETAS Bangladesh; Digbijoy Dey, country consultant, IRC; and Rokeya Islam, vice chairman (DORP), among others.

Mahfuz Kabir Phd, research director of BIISS, gave a keynote presentation on ‘Water and Sanitation in Climate Change: Budget 2024-25 in perspective.’

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."