Tax cut sends ‘wrong signal’ to stakeholders in banking sector: CPD

The Centre for Policy Dialogue has expressed its dismay at the failure of finance minister AMA Muhith’s budget speech on Thursday failing to reflect any sensitivity to or acknowledgement of the grave crisis in the country’s banking sector.

Rather, the proposed ‘status quo budget’, CPD honorary fellow Debapriya Bhattacharya told UNB, contains measures that send ‘the wrong signal’ to stakeholders in the banking sector.

Bhattacharya was specifically referring to the announcement by the finance minister of a 2.5 per cent reduction in corporate tax for listed as well as non-listed banks, insurance companies and non-bank financial institutions.

In the days leading up to the budget, speculation was rife that the finance minister would announce a cut in corporate tax, but this was expected to be across the board, instead of specific to any particular sector or industry.

So it came as an even bigger surprise when the proposed tax cut was announced in favour of a group that many believe should be censured rather than rewarded for a record of incompetent or immoral leadership in their institutions over a number of years now.

“As far as the stakeholders are concerned, this will only benefit the owners and their profit motive,” Bhattacharya said. “Such a move does nothing for the depositors, it does nothing for the borrowers. It will have no impact on the liquidity in the sector. We fail to see any logic behind this move, especially in the absence of any measures to address the state of anarchy that has prevailed in the sector for a number of years now.”

Muhith in recent weeks had been floating the probability of forming a Banking Commission to pave the way for the country’s banks to climb out of their predicament, brought about by chronically non-performing loans and lack of liquidity.

An announcement containing at least some details as to who may lead it, the possible scope of its work, or the timeframe it would work within, was expected in the finance minister’s budget’s speech. In the event, he skirted it completely.

The omission clearly frustrated CPD and Bhattacharya, who were among the earliest voices in the country to call for such a commission, as the plethora of loans gone bad and scam after scam hit the country’s banking sector.

Asked if there was a possibility that even though the Banking Commission got left out of the finance minister’s speech on Thursday in parliament, we may still see it formed in the near future, all he said was: ‘Aar kobe?’