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Fixing a 15% tax rate to whiten black money violates tax equity: BIDS

Fixing a 15% tax rate to whiten black money violates tax equity: BIDS

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He advised seeking assistance from other organisations or countries, in addition to the IMF, to address the current dollar crisis

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Publisted at 9:34 PM, Sat Jun 8th, 2024

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Fixing a 15% tax rate to whiten black money and giving four opportunities for loan defaulters to reschedule their loans are not the right measures, according to Binayak Sen, director general of the Bangladesh Institute of Development Studies (BIDS).

"Supporting a fixed tax rate to legalise undisclosed income is not justifiable. It violates the tax equity. This rate should be based on the amount of money," he said today (8 June) during an event organised to review the proposed budget for the next fiscal year.

Binayak Sen said, "Legitimate income may remain undisclosed for various reasons, and in such cases, there should be an opportunity to declare that income. We do not support complete tax exemption or the imposition of a fixed rate for disclosing undisclosed income. Our stance lies somewhere in between."

He also noted, "After LDC graduation, we will no longer have tariff benefits. Therefore, we need to quickly establish Free Trade Agreements (FTAs) with various countries. Even if the process starts now, it will take 8-10 years. Failing to do so now will lead to problems in the future."

He advised seeking assistance from other organisations or countries, in addition to the IMF, to address the current dollar crisis.

A long-term policy framework is needed to overcome the crisis, according to Binayak Sen.

Meanwhile, BIDS Research Director Monzur Hossain said, "The government has proposed a balanced budget this time, in coordination with monetary policy. It emphasises austerity while also setting growth targets."

Monzur Hossain said, "When increasing the prices of electricity and fuel, the issue of inflation should be considered. Otherwise, rising fuel prices could exacerbate inflation."

He called for exploring whether cheaper fuel can be sourced from Russia and China to reduce inflation. 

If the market does not stabilise, the dollar rate will increase further, which will further drive inflation, he believes.

Commenting on the budget's allocation for education and health, BIDS Research Director SM Zulfiqar Ali said, "Although there is a slight increase in allocation for these sectors, the budget lacks directives to improve the quality of services in these areas."

He added, "There is a need to focus on service delivery rather than just infrastructure development. Services should be provided with the existing equipment. It is necessary to enhance the skills of the officials and employees of these institutions. In many cases, computers and laptops are provided to educational institutions but remain unused."

Speakers at the BIDS event said the proposed budget for the 2024-25 fiscal year focuses on medium-term economic perspectives, including exchange rate adjustments, lifting interest rate caps, controlled budget size increases, and expanding social protection.

The budget aligns with monetary policy, according to them. However, the government will need time to see the benefits of these medium-term policies, they added.

Regarding this, Binayak Sen said, "The medium-term proposals mentioned in the budget will take time to implement. It won't happen overnight. However, if the global economic situation remains favourable and the government introduces some important reforms in the financial sector, the implementation process can be expedited."

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