The Financial Express

Budget reactions

CPD opposes corporate tax cut for banks, FIs

Budget lacks focus on macro-stresses

| Updated: June 11, 2018 10:26:31

Centre for Policy Dialogue (CPD) Distinguished Fellow Dr Debapriya Bhattacharya speaking at a press briefing in the city on Friday — FE photo Centre for Policy Dialogue (CPD) Distinguished Fellow Dr Debapriya Bhattacharya speaking at a press briefing in the city on Friday — FE photo

A think-tank has opposed the new budgetary proposal for slashing the corporate tax rate of banks and financial institutions (FIs).

Such a move, the Centre for Policy Dialogue (CPD) said can no way help increase the liquidity of the banks.

It would rather give a 'wrong signal' to the business community, the Dhaka think-tank said.

The Finance Minister, AMA Muhith, placed his 10th consecutive budget in parliament on Thursday.

While presenting the budget, the Finance Minister proposed a 2.5 pc cut in corporate tax of banks, insurance and financial institutions.

According to the new proposal, tax rate for the publicly-traded banks and financials has been slashed from 40 per cent to 37.5 per cent.

For the non-publicly-traded institutions, the rate has been reduced to 40 per cent from 42.5 per cent.

"We clearly oppose this tax cut for the banks and financial institutions," distinguished fellow of the CPD Debapriya Bhattacharya said.

He made the remarks at a post-budget media briefing in the capital on Friday.

"This will benefit neither the borrowers nor the depositors. And this will not help the banks increase the liquidity either," he added.

The CPD also estimated that the proposed tax cut is likely to result in an annual revenue loss of Tk. 10 billion to the government.

It likened the tax cut to an earlier provision for allowing four members of a family to be directors of a bank.

Researchers at the centre said that the move was geared not to stimulate investments but to succumb to the pressure from the banking lobby.

"Tax cut does not foster investment," Mr Bhattachariya said.

"Rather things like corruption, bureaucratic red-tape, and infrastructure need to be addressed for fostering investments in the country".

The CPD experts also dubbed the latest budget as the one that proposes to "maintain the status quo."

"This is an old-fashioned budget for a young nation," Mr Bhattachariya said.

"It builds more on a review of the past rather than a focus on the future," he added.

"It lacks focus on existing and emerging macro-stresses like pressure on balance of payments and exchange rate, inflationary expectations as well as other areas requiring reforms," the CPD distinguished fellow noted.

CPD researchers also noted that the proposed fiscal measures would increase the tax burden on the middle and lower-middle income people of the society.

But the upper income group would hardly be affected, they said.

They noted that 2.0 per cent flat VAT has been proposed on the sale of flats measuring 1,600 square feet or less.

Previously, it was 1.5 per cent for flats of up to 1,100 square feet and 2.5 per cent for flats measuring between 1,101 and 1,600 square feet.

The new measure will benefit the middle class buyers.

However, the rate has been increased for lower income groups, according to the CPD researchers.

About 5.0 per cent VAT on Information Technology Enabled Services, researchers warned that such measure might discourage entrepreneurship and employment in this potential arena.

Regarding 5.0 per cent VAT imposed on ride-sharing services; they noted the additional cost may get passed on to the customers.

The researchers were also critical of the business as usual scenario regarding ADP implementation in the country.

Planning Commission has identified 446 projects which may get completed in fiscal year 2019, but many of these are unlikely to be completed by that deadline, they said.

"About 69 per cent of all 'to be completed' road and infrastructure projects will achieve less than 90 per cent progress," the CPD said.

"In power and energy sector, only 21.7 per cent of the 46 ''to be completed projects' will achieve more than 90 per cent progress."

Some Tk. 288.49 (28,849 crore) has been allocated for FY'19 for fast-track projects.

This is 17 per cent of the total ADP of the upcoming fiscal, the researchers said.

However, most of the projects did not make any considerable progress except Padma Bridge.

Also, given the progress of Padma Bridge construction, it would not be possible to complete the remaining work by December 2018, they said.

Meanwhile, 90 investment projects under ADP received only Tk. 10 million or less for FY'19, up from 48 in FY'18.

"Such practice of providing symbolic allocation is still pervasive and increasing," Mr Bhattachariya said.

The CPD also referred to the persistence of aging projects.

Out of 1,225 investment projects, 586 projects are at least two years old.

The average age of these 586 projects are 4.6 years while 11 of them are more than 10 years old, according to the CPD.

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