Country's renowned economist and executive director of the Policy Research Institute (PRI) Dr Ahsan H Mansur on Saturday put strong emphasis on banking sector reform Programme in order to address the growing trend of non-performing loans (NPLs), liquidity and deposit crises, current foreign currency reserve situation and exchange rate.

"There is no alternate to banking sector reform to improve the situation and there is also a need for strong political will from the government in this regard," he said.

Dr Mansur was addressing a discussion titled "Reasons for bad state in the banking sector of Bangladesh" organized by the Economic Reporters' Forum (ERF) held at its auditorium in the capital's Paltan area. Presided over by ERF president Refayet Ullah Mirdha, its general secretary Abul Kashem moderated the Programme.

Special Correspondent of the Daily Samakal Obaidullah Rony and Senior Reporter of the Daily Prothom Alo Sanaullah Sakib made a presentation on the current state of the country's banking sector.

Dr Mansur said although NPLs were there in the eighties, but the results came good later due to the implementation of the banking sector reform programmes in the early nineties.

He opined that it would not be possible to contain inflation through 'out of the box' initiative, but should have to pursue the usual policy.

"The interest rate has been made market based while the exchange rate has also been made market based to some extent," he added.

The eminent economist said there is no need to make the slight non functional banks functional through printing money while the incentives on inward remittances should have to stopped, otherwise inflation would not decline.

Dr Mansur said the foreign currency reserves should have to be increased through proper policy, otherwise it would not be possible to deal with the over $450 billion GDP size of the country with the current level of foreign currency reserve.

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."